As filed with the Securities and Exchange Commission on December 13, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INFINITE GROUP, INC.
---------------------------------------------
(Exact name of Registrant as specified in its
charter)
Delaware 3690 52-1490422
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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2364 Post Road
Warwick, RI 02886
(401) 738-5777
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(Address, including zip code, and telephone number,
including area code, of Registrant's executive offices)
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Clifford G. Brockmyre, II, CEO
2364 Post Road
Warwick, RI 02886
(401) 738-5777
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Kenneth S. Rose, Esq.
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
(212) 838-5030
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), check the following box. |X|
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
(11)(a)(1) of this Form, check the following box. |X|
If the registrant elects to deliver its latest quarterly report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
(11)(a)(2)(ii) of this Form, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
Title of Each Class of Amount to Proposed Proposed Maximum Amount of
Securities to be be Maximum Aggregate Offering Registration
Registered Registered Offering Price(1) Price(1) Fee
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<S> <C> <C> <C> <C>
Common stock, $0.001 par
value per share ........... 3,000,000 $2.6875 $8,062,500 $2,137
--------------------------------------------------------------------------------------------------------------
Common stock, $0.001 par
value per share
underlying warrants ....... 300,000(2) $ 3.135 $ 940,500 $ 249
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Total 3,300,000 -- $9,003,000 $2,161
==============================================================================================================
</TABLE>
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(1) The proposed maximum offering price is estimated solely for the purposes
of calculating the registration fee pursuant to Rule 457(c) and 457(g)(3)
of the Securities Act of 1933. It is based upon a price of $2.6875 per
share, which was the average of the high and low reported prices of the
registrant's common stock as reported on the Nasdaq SmallCap Market System
on December 11, 2000 and the price at which the warrants may be exercised
- $3.135 per share.
(2) Represents (a) 200,000 shares issuable to Cockfield Holdings Limited upon
the exercise of warrants granted under the equity line of credit and (b)
100,000 shares issuable upon the exercise of warrants granted to Jesup &
Lamont Securities Corporation as a placement agent fee in connection with
the equity line of credit.
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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement of which this
prospectus is a part filed with the Securities and Exchange Commission is
declared effective. This prospectus is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION
DATED DECEMBER 13, 2000
PROSPECTUS
3,300,000 Shares
Common Stock
INFINITE GROUP, INC.
[LOGO]
This prospectus may be used only in connection with resales of our common
stock by Cockfield Holdings Limited, a British Virgin Islands corporation and
Jesup & Lamont Securities Corporation. Cockfield will receive shares of our
common stock under the equity line of credit agreement described in this
prospectus and upon the exercise of warrants. Jesup & Lamont will receive shares
of our common stock upon the exercise of warrants granted to it as a placement
agent fee. The shares of common stock covered by this prospectus constitute 101%
of our issued and outstanding common stock as of November 30, 2000.
We will not receive any proceeds from the sale of shares by the selling
stockholders. However, we will receive the proceeds from the sale of shares of
our common stock to Cockfield under the equity line of credit agreement and the
exercise price payable upon the exercise for cash of the warrants held by
Cockfield and Jesup & Lamont.
The selling stockholders may sell shares of our common stock from time to
time on the Nasdaq SmallCap Market at the prevailing market price or in private,
negotiated transactions. The shares will be sold at prices determined by the
selling stockholders. The selling stockholders may sell the shares through
broker-dealers who may receive compensation from the selling stockholders in the
form of discounts or commissions. Cockfield is an "underwriter" within the
meaning of the Securities Act of 1933 in connection with its sales of our
shares. We will pay the costs of registering the shares covered by this
prospectus, including our legal fees.
Our common stock is quoted on the Nasdaq SmallCap Market under the symbol
"IMCI." The last reported sale price of our common stock on the Nasdaq SmallCap
Market on December 11, 2000 was $2.6875 per share.
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 10.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Prospectus dated _________________
<PAGE>
TABLE OF CONTENTS
Page
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Prospectus Summary ...................................................... 3
Risk Factors ............................................................ 10
Special Note Regarding Forward-Looking Statements ....................... 17
Use of Proceeds ......................................................... 18
Price Range of Our Common Stock ......................................... 19
Dividend Policy ......................................................... 20
Capitalization .......................................................... 20
Dilution ................................................................ 21
Equity Line Of Credit Agreement ......................................... 22
Selling Stockholders .................................................... 27
Plan of Distribution .................................................... 28
Description of Capital Stock ............................................ 32
Where You Can Find More Information ..................................... 35
Incorporation of Information by Reference ............................... 35
Material Changes ........................................................ 36
Legal Matters ........................................................... 36
Experts ................................................................. 36
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You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
any other information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front cover.
References in this prospectus, and the documents incorporated by reference
in this prospectus, to "Infinite," "we," "our," and "us" refer to Infinite
Group, Inc., a Delaware corporation. We maintain web sites at
www.infinite-group.com, www.laserfare.com, www.infinitephotonics.com,
www.expresspattern.com and www.expresstool.com. None of the information
contained in any of our web sites constitute part of this prospectus.
We own various intellectual property rights to our name and the names of
our subsidiaries, as well as the Infinite Group logo. This prospectus also
contains trademarks and tradenames belonging to other persons.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained or incorporated by reference
elsewhere in this prospectus. For a more complete understanding of this
offering, you should read the entire prospectus carefully, especially the "Risk
Factors" section, and our financial statements and notes to those statements
incorporated by reference in this prospectus, before making your investment
decision.
INFINITE GROUP, INC.
Our business has two segments, the Laser and Photonics Group and the
Plastics Group. We sell products and services in the fields of material
processing, advanced manufacturing methods, high productivity production mold
building and laser-application technology. Our Laser and Photonics Group
provides comprehensive laser-based materials and processing services. Our
Plastics Group provides rapid prototyping services and proprietary mold building
services.
The Laser and Photonics Group
We are a leading provider of applied photonics. Specifically, we provide
high value, laser-based manufacturing services to industrial customers. We use
laser driven technologies that enable cost effective component fabrication for
customers in the aerospace, defense, medical, telecommunications and sensing
industries. Through industry and government funded research, we have developed
proprietary manufacturing techniques that, we believe, have established us as a
valued supplier of engineered components. These skill sets range from classical
laser materials processing to state of the art injection molding tooling
technology.
Photonics is the science of generating and harnessing light to do useful
work. Lasers and fiber optics are the best known expressions of photonics
technology. According to Lucent Technologies' Vision Statement: "Optical
technology will be as important to the 21st Century as electricity was to the
20th Century."
Photonic technologies use light to:
o deposit materials;
o detect, transmit, store and process information;
o generate energy; and
o capture and display images.
The basic unit of light is the photon, while in electronics it is the
electron. Because photons are massless and travel faster than electrons,
photonic devices can be smaller and significantly faster than electronic
devices. For example, replacing electronics (copper wire) with photonics (fiber
optic cable) boosts the capacity of telecommunications transmission lines by a
factor of 10,000.
Photonic components are the "enabling technology" in many familiar
consumer products including CD-ROM players, digital cameras, displays on laptop
computers and calculators, fiber optic cable for telephones, cable television,
and networked computer systems. In industry, photonics "eyes" enable robots to
"see." Photonics is also found in semiconductor manufacturing as well as
analytical and process-monitoring applications. In medicine, photonics is at the
core of diagnostic instrumentation, laser microsurgery, and filmless real-time
imaging.
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<PAGE>
Our Evolution in Applied Photonics
Since their invention in the early 1960's, lasers have played an
increasingly important role in manufacturing through processes including
welding, cutting, drilling, and engraving. Laser Fare, one of our subsidiaries,
was formed in 1978 to provide these services and has established itself as a
leading provider in that area. One of our founders was the immediate past
president of the Laser Institute of America, a not-for-profit trade group
representing the photonics industry.
In the last several years improvements in laser performance and new
adaptations of their use have enabled the development of a number of new
manufacturing processes. These processes not only provide significant
improvements over older generation laser processes, but permit the manufacture
of products that previously could not be produced on a cost-effective basis.
Through our Laser Fare Advanced Technology Group ("ATG"), the research and
development unit within Laser Fare, we have played a key role in developing
several laser processes and, as a result, have developed a portfolio of
intellectual property rights. We are focusing our future business development
efforts and our future growth in these new areas.
Our Strategic Alliance Partners and Consortia
As a result of our expertise in the field of applied photonics, we have
established strategic alliances with a number of private sector companies,
academic institutions and public/private consortia. For example, our expertise
in the area of direct write and grating coupled surface emitting lasers
("GCSEL") has made possible our alliances with Cutting Edge Optronics, Inc.,
Triton Systems Inc. and the University of Connecticut. We are also a member of
the LENS(R) CRADA (Laser Engineered Net Shaping -- Cooperative Research and
Development Agreement) at Sandia National Laboratories. Other members of LENS(R)
CRADA include Ford Motor, Motorola, Lockheed Martin, and others. In addition, we
serve on three DARPA MICE (Defense Advanced Research Projects Agency -Mesoscopic
Integrated Conformal Electronics) teams along with Optomec, CMS Technetronics
and the State University of New York at Stonybrook. Substantially all of our
research and development is funded by third parties. We believe this strategy
provides us with a built-in customer base and market. Generally, we retain the
rights to intellectual property developed in our fields of use.
Our Services
We use lasers to either subtract metals from a block of metal (known as,
precision laser materials processing) or to add or deposit metals (known as
laser material deposition processing). The subtractive process uses lasers to
cut away, drill or weld metals to form a part. The additive process uses lasers
to add or build metals on to a surface. Both processes can be used for a wide
variety of commercial applications, including:
o Large parts ("macroscale"), such as jet engine components;
o Handheld parts ("mesoscale"), such as GPS (global positioning
system) antennas and sensors;
o Barely visible or not visible to the human eye size parts
("microscale"), such as medical stents used in angioplasty, gratings
for tunable lasers in telecommunications, and circuitry for next
generation electronics, sensors and medical devices.
4
<PAGE>
Our services can be grouped into three major categories:
1. Precision Laser Materials Processing. Improved performance of lasers has
allowed classic laser materials processing, such as cutting and welding,
to be done at the micro-level. For example, through our Laser Fare and
Mound Laser and Photonics Center, another of our subsidiaries, we believe
we have superior technological capabilities in this area. Current
applications include:
Micro Machining -- Both Laser Fare and Mound provide laser machining
on a micro scale. For example, we currently manufacture medical
devices, such as stents. Stents are sections of small stainless
steel tubing, most of which have been machined away to leave a mesh
which can be expanded once the surgeon has inserted it into an
artery. The stent is used to hold open an artery once an angiogram
has been performed.
Macro Machining -- Laser Fare is a leading provider of laser material
processing services to the aerospace, gas turbine, automotive, and
medical industries.
2. Laser Material Deposition Processing. LENS(R) CRADA has developed a number
of methods, many with our involvement, to deposit controlled amounts of a
metal material on a selected surface. Our Laser Fare, Mound Laser and
Photonics Center and Express Pattern subsidiaries have developed and
continue to develop high value manufacturing services in this area.
Examples of laser material deposition processes, or additive processes,
include:
LENS Process -- The LENS(R) CRADA process was developed at Sandia
National Laboratories by a consortium of companies of which we are a
part. As a result, we have an irrevocable, fully-paid nonexclusive,
world-wide license for the technology developed under this program.
Laser Fare has entered into contracts for macro applications
relating to this process. These applications include depositing
metals for the overhaul and repair of military and high value
commercial parts, such as aerospace parts. We have also begun
building mesoscale parts for such diverse applications as titanium
golf club heads and titanium spinal medical devices. Micro
applications include small fractal antenna fabricated using silver
alloys for handheld GPS (global positioning systems), and other
wireless applications.
Furthermore, the design, manufacture and marketing of wireless
devices is standardized under industry conventions, known as the
Bluetooth conventions, in a manner similar to those set for
traditional telecommunications applications under the Bellcore
standards. We expect to be able to deploy laser direct write
technologies to address wireless components.
Pulsed Laser Deposition -- This is a proprietary process developed by
Mound Laser and Photonics Center to bond one metal to a different
metal using lasers. For example, we can bond very thin layers of
titanium to other metals for high temperature superconductors (HTS)
used in satellite electronics and other applications.
Rapid Prototyping -- Express Pattern and ATG use a variety of additive
techniques to provide rapid prototyping services to industrial
customers. These services enable
5
<PAGE>
customers to reduce risk in product development by providing fast,
low cost prototypes that allow designs to be tested before large
investments in tooling are made.
3. Laser-related Contract Research and Development. We continue research and
development in both additive and subtractive laser material processes, as
well as GCSEL and diode lasers. We are both a prime contractor and
subcontractor to several projects sponsored by DARPA. We are
subcontractors on three of DARPA's MICE programs. Other projects include
acoustic bandgap research for the U.S. Naval Underwater Warfare Center
("NUWC") and Electric Boat, as well as photonic bandgap and high
temperature superconductor ("HTS") research for the U.S. Air Force
Research Laboratory ("AFRL"). We also have an agreement with the National
Center for Manufacturing Sciences to provide higher quality metal part
repairs at a lower cost than traditional methods under NCMS's Commercial
Technologies for Maintenance Activities Program. This program enables the
cost-effective repair of parts that previously would have been discarded
at significant cost to military and commercial users. NCMS is a
not-for-profit cooperative research consortium and is funded by the
Department of Defense as well as over 175 corporations in the United
States and Canada.
We are also working with researchers at the Photonics Research Center at
the University of Connecticut and at the Ioffe Institute in St.
Petersburg, Russia on grating coupled surface emitting lasers. The AFRL
funds this work.
We intend to continue to use a combination of direct sales to customers,
contract research and development for new and existing customer applications and
early stage prototype assistance to foster our growth and satisfy specific
customer requirements. We will continue to provide these customers with
traditional and advanced manufacturing services to fabricate their components in
the most cost-effective manner.
The Plastics Group
Our Plastics Group provides rapid prototyping services through our Express
Pattern subsidiary, and builds both conventional precision molds and our
proprietary Express Tool molds at our Osley & Whitney subsidiary. We believe the
Express Tool process provides superior thermal management properties over
conventional tooling. Better thermal management allows parts to be ejected from
the molds more quickly than by conventional means, which reduces part distortion
and the cost per part. The process resulted from a research contract in advanced
manufacturing methods at our Laser Fare ATG research facility conducted for
Hasbro. Hasbro retains the rights to the process for the toy and game industry.
We have the intellectual property rights in other fields of use. Once in
production, the process was moved to Osley & Whitney in order to service our
customers. Osley & Whitney is a 50 year-old precision mold builder that services
a blue ribbon list of manufacturers. In addition to their customers, they also
provide manufacturing support to some Laser and Photonic Group customers.
The Equity Line of Credit Agreement
On November 20, 2000 we entered into an equity line of credit agreement
with Cockfield Holdings Limited. The purpose of the equity line of credit is to
provide us with a source of funding for our current activities and for the
development of our current and planned products. The equity line of credit
agreement establishes what is sometimes referred to as an equity drawdown
facility. Under the equity line of credit agreement we have the right to sell to
Cockfield up to 3,000,000 shares of our common stock. This prospectus covers
those shares as well as an additional 300,000 shares underlying
6
<PAGE>
warrants granted to Cockfield and Jesup & Lamont in connection with the equity
line of credit agreement. The total number of shares covered by this prospectus,
3,300,000, represents 101% of our issued and outstanding common stock as of
November 30, 2000.
Under the equity line of credit agreement, Cockfield has agreed to
purchase up to 3,000,000 shares of our common stock during the 36-month period
following the effective date of the registration statement to which this
prospectus relates. During this 36-month period, we may request a drawdown under
the equity line of credit by selling shares of our common stock to Cockfield,
and Cockfield will be obligated to purchase the shares we put to them. The
minimum amount we can draw down at any one time is $200,000. The maximum amount
we can draw down at any one time will be determined at the time of the drawdown
request under a formula contained in the equity line of credit agreement, but
cannot be more than $5,000,000. We may request a drawdown once every 20 trading
days, although we are under no obligation to request any drawdowns.
In order to exercise our drawdown rights under the equity line of credit
agreement, we must have an effective registration statement on file with the
Securities and Exchange Commission registering the resale of the shares of our
common stock that may be sold to Cockfield. We must also give at least 20
business days advance notice to Cockfield of the date on which we intend to
exercise a particular put right and we must indicate the maximum number of
shares of our common stock that we intend to sell to Cockfield. At our option,
we may also designate a maximum dollar amount of our common stock that we will
sell under the put and/or a minimum purchase price per share at which Cockfield
may purchase shares under the put. The maximum amount may not to exceed the
lesser of a) $5,000,000 or b) fifteen percent (15%) of the weighted average
price of our common stock during the 20 trading days immediately prior to the
put date, multiplied by the total trading volume of our common stock during the
20 trading days immediately prior to that date.
During the 20 trading days following a drawdown request, we will calculate
the number of shares we will sell to Cockfield and the price per share. The
purchase price per share of common stock will be at a discount to the daily
volume weighted average price of our common stock during the 20 trading days
immediately following the drawdown date. On each of the 20 trading days during
the calculation period, the number of shares to be purchased by Cockfield will
be determined by dividing 1/20th of the drawdown amount by the purchase price on
each trading day. If we designate a minimum purchase price in our drawdown
request and the daily volume weighted average price for our common stock on any
trading day during the 20 trading day calculation period is below the minimum
threshold price, and Cockfield elects not to purchase shares at the minimum
threshold price, then the drawdown amount will be reduced by 1/20th.
For each share of our common stock, Cockfield will pay us 87.5% of the
volume weighted market price for a share of our common stock during the 20-day
trading period following the exercise of a put. The percentage will increase to
90% if we move our principal market to the Nasdaq National Market or to 91% if
we move our principal market to the New York Stock Exchange. It will decrease to
84% if our common stock is delisted from the Nasdaq SmallCap Market. Market
price is defined as the volume weighted average price for our common stock (as
reported by Bloomberg Financial LP using its VAP function) on its principal
market during the pricing period. The pricing period is defined as the 20 day
trading period immediately prior to the day we exercise our put right.
Cockfield will pay for the shares on the 22nd trading day following the
drawdown request. We will receive the purchase price less a brokerage fee
payable to Jesup & Lamont ranging between 4.25% and 4.75% of the aggregate
purchase price, depending on the dollar volume of the transaction. Jesup &
Lamont is the placement agent that introduced Cockfield to us and is a
registered broker-dealer.
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<PAGE>
At the closing of each drawdown, we will also grant Cockfield warrants to
purchase a number of shares of our common stock equal to 33% of the number of
shares purchased by Cockfield at the closing of the drawdown. These unit
warrants will expire one day after they are granted and will have an exercise
price equal to the weighted average of the purchase price of a share of our
common stock purchased at the closing of each drawdown. The 3,000,000 shares
available under the equity line of credit will be reduced by the number of
shares issued as a result of the exercise of these unit warrants.
The equity line of credit agreement prevents us from drawing down funds
and issuing the corresponding shares of common stock to Cockfield if the
issuance would result in Cockfield beneficially owning more than 9.9% of our
then outstanding shares of common stock. In addition, the listing requirements
of the Nasdaq SmallCap Market prohibit us from issuing 20% or more of our issued
and outstanding shares of common stock in a single transaction at a price less
than the greater of market value or book value unless we get stockholder
approval. Accordingly, we intend to seek stockholder approval to issue the
shares of our common stock contemplated by the equity line of credit agreement.
As consideration for establishing the equity line of credit, we granted
Cockfield warrants to purchase up to 200,000 shares of our common stock. As
consideration for the services rendered by Jesup & Lamont as placement agent in
connection with the equity line of credit, we granted Jesup & Lamont warrants to
purchase up to 100,000 shares of our common stock. These warrants, covering
300,000 shares of our common stock, are exercisable at any time prior to
November 20, 2003, for $3.135 per share.
We will not receive any of the proceeds from the sale of our common stock
by the selling shareholders. If the 300,000 warrants are exercised in full, we
would receive gross proceeds of $940,500. Neither Cockfield nor Jesup & Lamont
are obligated to exercise these warrants.
We are registering the 3,000,000 shares of our common stock issuable to
Cockfield under the equity line of credit agreement and the 300,000 shares of
our common stock underlying the warrants that have been granted to Cockfield and
Jesup & Lamont. All 3,300,000 shares covered by this prospectus may be offered
for sale from time to time during the period the registration statement of which
this prospectus is a part remains effective, by or for the accounts of the
selling stockholders. The number of shares covered by this prospectus represents
101% of our issued and outstanding common stock as of November 30, 2000. We will
prepare and file amendments and supplements to the registration statement as are
necessary to maintain the registration statement effective until Cockfield has
sold all of the shares of our common stock covered by this prospectus or until
those shares can be sold under an appropriate exemption from registration,
whichever is earlier. We have agreed to bear the expenses of registering the
shares, including our legal fees, but not the expenses associated with selling
the shares, such as broker discounts and commissions.
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We were incorporated under the laws of the state of Delaware on October
14, 1986. On January 7, 1998, we changed our name from Infinite Machines Corp.
to Infinite Group, Inc. Our principal executive offices are located at 2364 Post
Road, Warwick, RI 02886 and our facsimile number is (401) 738-6180. Our
subsidiaries are located in Rhode Island, Massachusetts, Ohio and Illinois. We
maintain sites on the world wide web at www.infinite-group.com,
www.laserfare.com, www.infinitephotonics.com, www.expresstool.com and
www.expresspattern.com. Information contained on any of our websites do not
constitute a part of this prospectus.
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8
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THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Shares of our common stock offered by the selling
stockholders .................................. 3,300,000
Offering price................................... To be determined at the time of sale by the selling
stockholders
Common stock outstanding:
Before the offering....................... 3,259,927 (1)
After the offering........................ 6,559,927 (1)(2)
Use of proceeds.................................. We will not receive any proceeds from sales by the
selling stockholders. However, we will receive the
proceeds from any sale of common stock to Cockfield
under the equity line of credit agreement and upon the
exercise of warrants held by the selling stockholders
when, and if, they pay the exercise price in cash. We
expect to use substantially all the net proceeds for
general corporate purposes, including working capital,
research and development and expansion of sales and
marketing activities.
Risk factors..................................... Investing in our common stock involves a high degree of
risk and immediate dilution. You should not purchase
the common stock unless you can afford the complete
loss of your investment. Before purchasing our common
stock, you should review carefully and consider all
information contained in this prospectus, particularly
the items under the section entitled "Risk Factors."
Nasdaq SmallCap Market symbol.................... IMCI
</TABLE>
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(1) As of November 30, 2000. Excludes:
o 928,504 shares of common stock covered by stock options previously
granted under our stock option plan.
o 1,244,422 shares of common stock available for future grants under
our stock option plan.
o 709,975 shares underlying outstanding warrants (other than the
300,000 warrants granted to the selling stockholders).
o 344,094 shares held in treasury stock and 93,750 shares that have
been subscribed for but for which we have not yet received payment
under a subscription agreement.
(2) Assumes of all of the shares of our common stock covered by this
prospectus, including those underlying the 300,000 warrants issued to the
selling stockholders, are sold.
9
<PAGE>
RISK FACTORS
A purchase of our common stock is speculative and involves a high degree
of risk. You should carefully consider the risks described below together with
all of the other information included or incorporated by reference in this
prospectus before making an investment decision. The risks and uncertainties
described below are not the only ones we face. If any of the following risks
actually occur, our business, financial condition or operating results could be
harmed. In such case, the trading price of our common stock could decline and
you could lose all or part of your investment.
We have experienced losses in the current and prior years and we anticipate that
we will continue to generate losses for the foreseeable future.
Our operations to date have not been profitable. As of September 30, 2000
we had an accumulated deficit of $19.5 million. We expect to continue operating
at a loss during the current fiscal year and for the foreseeable future. These
losses are primarily attributable to low margins in our injection molding and
laser processing businesses and the significant costs and expenses associated
with manufacturing and marketing many of our other laser technology services as
well as our general and administrative expenses. Other factors that could
adversely affect our operating results include:
o the cost of manufacturing scale-up and production;
o introduction of new products and product enhancements by us or our
competitors;
o changes in applied photonics technologies; and
o changes in general economic conditions.
We cannot assure you that our revenues will increase sufficiently to offset our
operating costs or that, even if they do, that our operations will ever be
profitable.
We are highly leveraged, which increases our operating deficit and makes it
difficult for us to grow.
As of September 30, 2000 we had current liabilities, including trade
payables, of $4.0 million, and long-term liabilities of $5.2 million and a
working capital deficit of $1.3 million. We continue to experience working
capital shortages that materially impair our business operations and growth
strategy. If we continue to incur debt and experience working capital
limitations, our business, operations and financial condition will be materially
adversely affected.
We depend on Cockfield to provide us with capital under the equity line of
credit agreement.
Our immediate financing needs depend on our ability to sell shares of our
common stock to Cockfield under the equity line of credit agreement. There are a
number of factors that could adversely affect our ability to sell shares of our
common stock to Cockfield under the equity line of credit agreement, including:
o Cockfield's ability or willingness to perform its obligations under
the agreement;
o The trading price and volume of our stock. If the market price is
low or the volume is thin, we may not be able to sell a sufficient
number of shares to meet our capital requirements; and
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<PAGE>
o Our ability to sell more than 19.99% of our currently outstanding
shares to Cockfield requires stockholder approval under the Nasdaq
SmallCap Market corporate governance rules. There is no assurance
that we will receive this approval.
We may require additional financing in the future, which may not be available on
acceptable terms.
Depending on the amount of money we raise under the equity line of credit
agreement with Cockfield and our ability to generate additional revenues, we may
require additional funds to expand our production capability, continue to
develop new applications for our direct write technology and for working capital
and general corporate purposes. At this time, we do not believe that product
sales will reach the level required to sustain our operations and growth plans
in the near term. Therefore, we are actively pursuing additional financing
alternatives. However, other than the equity line of credit with Cockfield, we
do not have any commitments for additional financing and we cannot assure you
that any additional financing will be available or, if available, will be
offered on acceptable terms. The equity line of credit agreement limits our
ability to sell our securities to third parties at a discount to the market
price during its term. Accordingly, if we need additional capital but are unable
to draw down under the equity line of credit agreement for any reason, our
access to capital may be limited. In addition, any additional equity financing
may be dilutive to stockholders, and debt financings, if available, may involve
restrictive covenants that further limit our ability to make decisions that we
believe will be in our best interests. In the event we cannot obtain additional
financing on terms acceptable to us when required, our operations will be
materially adversely affected and we will have to cease or substantially reduce
operations.
Some of our products and services are at an early stage of development and may
not achieve market acceptance.
Currently, our primary focus is to develop new commercial applications for
GCSEL, diode laser and laser driven direct write technologies. Many of the
benefits of GCSEL, diode laser and laser driven direct write technologies are
not widely known. Therefore, we anticipate that we will need to educate our
target markets to generate demand for our services and, as a result of market
feedback, we may be required to further refine these services. In order to
persuade potential customers to purchase our services, we will need to overcome
industry resistance to, and suspicion of, new technologies. In addition,
developing new applications for these technologies and other new technologies
will require significant further research, development, testing and marketing
prior to commercialization. We cannot assure you that commercial applications of
these technologies can be successfully developed, marketed or produced.
Some of our current products and services have not been commercially successful.
Our laser materials processing and mold building products and services do
not generate a significant amount of revenue, even though they have been
available for some time. In addition, most of our revenue from these businesses
is generated from a limited number of customers. We cannot assure you that these
customers will continue to purchase these products and services or that we will
be able to expand the market for these products and services. Our resources
available for sales and marketing activities are limited. Therefore, any
material delay, retooling, cancellation or reduction in orders from the
customers who purchase these products and services could have a material adverse
affect on our business, operations and financial condition.
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<PAGE>
We have limited marketing and sales capabilities and must make sales in
fragmented markets.
Our future success depends, to a great extent, on our ability to
successfully market our products and services. We currently have limited sales
and marketing capabilities and experience and we will need to hire qualified
sales and marketing personnel, develop additional sales and marketing programs
and establish sales distribution channels in order to achieve and sustain
commercial sales of our products. Qualified sales and marketing personnel in
this area are in short supply and we cannot assure you that we will be able to
hire them. In addition, our ability to successfully market our products and
services is further complicated by the fact that our principal markets, laser
photonics, telecommunications, aerospace and medical components, are highly
fragmented. Consequently, we will need to identify and successfully target
particular market segments in which we believe we will have the most success.
These efforts will require a substantial, but unknown, amount of effort and
resources. We cannot assure you that any marketing and sales efforts undertaken
by us will be successful or will result in any significant product sales.
We depend on the aerospace, laser photonic and medical device industries, which
continually produce technologically advanced products.
A majority of our sales are to companies in the aerospace, laser photonic,
telecommunications and medical device industries, which are subject to rapid
technological change and product obsolescence. If our customers are unable to
create products that keep pace with the changing technological environment and
market demand, their products could become obsolete and the demand for our
services could decline significantly. If we are unable to offer cost-effective,
quick-response manufacturing services to customers, demand for our services will
also decline. This would have a material adverse affect on our business,
operations and financial condition.
Our industry is intensely competitive, which may adversely affect our operations
and financial results.
All our markets are intensely competitive and numerous companies offer
conventional and laser driven products and services that compete with our
products and services. We anticipate that competition for our products and
services will continue to increase. Most of our competitors have substantially
greater capital resources, research and development staffs, manufacturing
capabilities, sales and marketing resources, facilities and experience. These
companies, or others, could undertake extensive research and development in
laser technology and related fields that could result in technological changes.
Many of these companies also are primary customers for various components, and
therefore have significant control over certain markets that we have targeted.
In addition, we may not be able to offer prices as low as some of our
competitors because those competitors may have lower cost structures as a result
of their geographic location or the services they provide. Our inability to
provide comparable or better products and services at a lower cost than our
competitors could cause our net sales to decline. We cannot assure you that our
competitors will not succeed in developing technologies in these fields which
will enable them to offer laser services more advanced and less costly than
those we offer or which could render our technologies obsolete.
Our products and services are subject to industry standards, which increases
their cost and could delay or bar their commercial acceptance.
Since some of our products and services are used in the telecommunications
industry, they must comply with the Bellcore Testing standards for traditional
equipment and/or Bluetooth standards for wireless devices. These standards
govern the design, manufacture and marketing of these items. If we
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<PAGE>
fail to comply with these standards, we will not be able to sell our products.
We may encounter significant delays or incur additional costs in our efforts to
comply with these industry standards.
We depend on our relationship with third parties to develop and commercialize
new products.
Our strategy for research and development and for the commercialization of
our products contemplates a continuing relationship with various publicly and
privately funded consortia and our existing relationships will continue with
strategic partners, OEMs, licensees and others. We depend on these associations
and relationships not only to underwrite our research and development efforts,
but also for product testing and to create markets for our products and
services. We cannot assure you that our existing relationships will continue or
the extent to which the parties to such arrangements will continue to allocate
time of resources to these strategic alliances. Similarly, we cannot assure you
that we will be able to enter into new arrangements in the future. In addition,
we cannot assure you that such agreements will progress to a production phase
or, if production commences, that we will receive significant revenues as a
result of these relationships. We cannot assure you that these parties, or any
future partners, will perform their obligations as expected or that any revenue
will be derived from such arrangements.
We have only limited manufacturing capabilities and our inability to continually
manufacture products on a cost-effective basis would harm our business.
We have limited production facilities and limited experience in
manufacturing our product offerings. To the extent any of our existing or future
products must be produced in commercially reasonable quantities, we will have to
either develop that expertise quickly or outsource that function. Developing
manufacturing capability is an expensive and time-consuming endeavor and we do
not have the resources that are required for a full-scale manufacturing
capability. Therefore, in all likelihood we will have to engage a third party to
manufacture our products for us. In that event, we will depend on the
manufacturer to produce high-quality products based on our specifications, on
time and within budget. If we are unable to manufacture products in sufficient
quantities and in a timely manner to meet customer demand ourselves or by
others, our business, financial condition and results of operations will be
materially adversely affected.
We depend on our intellectual property rights to provide us with a competitive
advantage.
Our ability to compete successfully depends, in part, on our ability to
protect our products and technologies under United States and foreign patent
laws, to preserve trade secrets and other proprietary information and
technologies, and to operate without infringing the proprietary rights of
others. We cannot assure you that patent applications relating to our products
or potential products will result in patents being issued, that any issued
patents will afford adequate protection or not be challenged, invalidated,
infringed or circumvented, or that any rights granted will give us a competitive
advantage. Furthermore, we cannot assure you that others have not independently
developed, or will not independently develop, similar products and/or
technologies, duplicate any of our product or technologies, or, if patents are
issued to, or licensed by, us, design around such patents. We cannot assure you
that patents owned or licensed and issued in one jurisdiction will also be
issued in any other jurisdiction. In addition, we cannot assure you that we can
adequately protect our proprietary technology and processes that we maintain as
trade secrets. If we are unable to develop and adequately protect our
proprietary technology and other assets, our business, financial condition and
results of operations will be materially adversely affected.
13
<PAGE>
We depend on the continued services of our key personnel.
Our future success depends, in part, on the continuing efforts of our
senior executive officers, Clifford G. Brockmyre II, Thomas Mueller, J. Terence
Feeley and Bruce J. Garreau, who conceived our strategic plan and who are
responsible for executing that plan. The loss of any of these key employees may
adversely affect our business. At this time we do not have any term "key man"
insurance on any of these executives other than a $1.7 million policy on
Clifford G. Brockmyre II. If we lose the services of any of these senior
executives, our business, operations and financial condition could be materially
adversely affected.
We may have difficulties in managing our growth.
Our future growth depends, in part, on of our ability to implement and
expand our financial control systems and to expand, train and manage our
employee base and provide support to an expanded customer base. If we cannot
manage growth effectively, it could have material adverse effect on our results
of operations, business and financial condition. In 1999 we made two
acquisitions and opened a new facility in Illinois. Acquisitions and expansion
involve substantial infrastructure and working capital costs. We cannot assure
you that we will be able to integrate our acquisitions and expansions
efficiently. Similarly, we cannot assure you that we will continue to expand or
that any expansion will enhance our profitability. If we do not achieve
sufficient revenue growth to offset increased expenses associated with our
expansion, our results will be adversely affected.
We must attract, hire and retain qualified personnel.
As we continue to develop new products and as our business grows,
significant demands will be placed on our managerial, technical, financial and
other resources. One of the keys to our future success will be our ability to
attract, hire and retain highly qualified engineering, marketing, sales and
administrative personnel. Competition for qualified personnel in these areas is
intense and we will be competing for their services with companies that have
substantially greater resources than we do. We cannot assure you that we will be
able to identify, attract and retain employees with skills and experience
necessary and relevant to the future operations of our business. Our inability
to retain or attract qualified personnel in these areas could have a material
adverse effect on our business and results of operations.
We face potential product liability claims.
The sale of our telecommunications, aerospace and medical products and
services will involve the inherent risk of product liability claims by others.
We maintain product liability insurance coverage. However, we cannot assure that
the amount and scope of our existing coverage is adequate to protect us in the
event that a product liability claim is successfully asserted. Moreover, we
cannot assure you that we will continue to maintain the coverage we currently
have. Product liability insurance is expensive, subject to various coverage
exclusions and may not always be obtainable on terms acceptable to us.
Our stock price is volatile and could be further affected by events not within
our control.
The trading price of our common stock has been volatile and will continue
to be subject to:
o Volatility in the trading markets generally;
o Significant fluctuations in our quarterly operating results;
o Announcements regarding our business or the business of our
competitors;
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<PAGE>
o Changes in prices of our or our competitors' products and services;
o Changes in product mix; and
o Changes in revenue and revenue growth rates for us as a whole or for
geographic areas, and other events or factors.
Statements or changes in opinions, ratings or earnings estimates made by
brokerage firms or industry analysts relating to the markets in which we operate
or expect to operate could also have an adverse effect on the market price of
our common stock. In addition, the stock market as a whole has from time to time
experienced extreme price and volume fluctuations which have particularly
affected the market price for the securities of many small cap companies and
which often have been unrelated to the operating performance of these companies.
The price of our common stock may be adversely affected by the possible issuance
of shares of our common stock under the equity line of credit agreement and as a
result of the exercise of outstanding warrants and options.
In addition to the 3,300,000 shares of our common stock covered by this
prospectus, we have previously registered all of the shares of our common stock
reserved for issuance under our stock option plan. To date, we have granted
options covering 928,504 of these shares. In addition, we have issued warrants
covering 709,975 shares of common stock. We have agreed with certain of these
holders to register the shares underlying their warrants. As a result of the
actual or potential sale of these shares into the market, our common stock price
may decrease. In that event not only would you lose a portion of your
investment, but we would probably find it more difficult to obtain additional
financing.
Our stockholders may experience significant dilution as a result of stock
issuances under the equity line of credit agreement.
Under the equity line of credit agreement we will sell shares of our
common stock to Cockfield at a price that may be below the market price of our
stock at that time. As a result, these sales will dilute the interests of our
existing stockholders. In addition, as the price of our common stock decreases,
we will be required to issue more shares of our common stock for any given
dollar amount invested by Cockfield. The more shares that are issued under the
equity line of credit, the more our shares will be diluted and the more our
stock price may decrease. This may encourage short sales, which could place
further downward pressure on the price of our common stock. Furthermore, for the
life of any outstanding options and warrants, the holders will have the
opportunity to profit from a rise in the price of the underlying common stock.
When the holders of these options and warrants exercise their rights to acquire
shares of our common stock, the interests of the other stockholders will be
diluted. In addition, the holders of the options and warrants can be expected to
exercise their options and warrants at a time when we would, in all likelihood,
be able to obtain additional capital by an offering of our unissued common stock
on terms more favorable to us than those provided by such options or warrants.
Concentration of ownership
As of November 30, 2000, our chief executive officer, Clifford G.
Brockmyre II, is our largest stockholder, owning approximately 25% of our issued
and outstanding shares of our common stock. Assuming all of the shares of our
common stock covered by this prospectus are issued, Mr. Brockmyre will own 14%.
In either event, Mr. Brockmyre, as a result, effectively controls all our
affairs, including the election of directors and any proposals regarding a sale
of the Company or its assets or a merger.
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<PAGE>
Some provisions in our charter documents and bylaws may have anti-takeover
effects.
Our certificate of incorporation and bylaws contain provisions that may
make it more difficult for a third party to acquire us, with the result that it
may deter potential suitors. For example, our board of directors is authorized,
without action of the stockholders, to issue authorized but unissued common
stock and preferred stock. The existence of undesignated preferred stock and
authorized but unissued common stock enables us to discourage or to make it more
difficult to obtain control of us by means of a merger, tender offer, proxy
contest or otherwise.
Absence of dividends to shareholders.
We have never declared a dividend on our common stock. We do not
anticipate paying dividends on the common stock in the foreseeable future. We
anticipate that earnings, if any, will be reinvested in the expansion of our
business.
We have agreed to limitations on the potential liability of our directors.
Our certificate of incorporation provides that, in general, directors will
not be personally liable for monetary damages to the company or our stockholders
for a breach of fiduciary duty. Although this limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission, the presence of these provisions in the certificate of incorporation
could prevent us from recovering monetary damages.
We must maintain compliance with certain criteria in order to maintain listing
of our shares on the Nasdaq market.
Our common stock is currently traded on the Nasdaq SmallCap Market. In
order to maintain this listing, we are required to meet certain requirements
relating to our stock price and our net tangible assets. If we fail to meet
these requirements, our stock could be delisted. On April 18, 2000, we received
a letter from Nasdaq that we failed to satisfy the minimum net tangible asset
listing requirements for the SmallCap Market. As a result of private placements
transactions consummated after September 30, 2000, we believe we are currently
in compliance with the net tangible asset requirement. However, we cannot assure
you that Nasdaq will agree or that we will continue to satisfy the Nasdaq
SmallCap Market listing requirements. If our stock is delisted, it will trade on
the OTC Bulletin Board or in the "pink sheets" maintained by the National
Quotation Bureau Incorporated. As a consequence of such delisting, an investor
could find it more difficult to dispose of or to obtain accurate quotations as
to the market value of our securities. Among other consequences, delisting from
Nasdaq may cause a decline in the stock price and difficulty in obtaining future
financing.
The liquidity of our stock could be severely reduced if it becomes classified as
"penny stock".
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any non-Nasdaq equity security that has a
market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share. If our securities were subject to
the existing rules on penny stocks, the market liquidity for our securities
could be severely adversely affected. For any transaction involving a penny
stock, unless exempt, the rules require substantial additional disclosure
obligations and sales practice obligations on broker-dealers where the sale is
to persons other than established customers and accredited investors (generally,
those persons with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
16
<PAGE>
the purchase of the common stock and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the Commission relating to the penny stock market. The broker-dealer also must
disclose the commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently, the
"penny stock" rules may restrict the ability of broker-dealers to sell the
common stock and accordingly the market for our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus and in the
documents that are incorporated by reference in this prospectus, all of which
are subject to risks and uncertainties. Forward-looking statements include
information concerning our possible or assumed future results of operations.
Also, when we use words such as "believe," "expect," "anticipate" or similar
expressions, we are making forward-looking statements. Forward-looking
statements are made based upon our belief as of the date that such statements
are made. These forward-looking statements are based largely on our current
expectations and are subject to a number of risks and uncertainties, many of
which are beyond our control. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described above and elsewhere in this prospectus.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors described
in the preceding pages, as well as any cautionary language in this prospectus,
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could materially and adversely affect our business,
operating results and financial condition.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of our common
stock by the selling stockholders. However, we will receive the proceeds from
the sale of shares of our common stock to Cockfield under the equity line of
credit agreement and as a result of the exercise of the warrants issued to
Cockfield and Jesup & Lamont. If the entire equity line of credit is used and if
all of the warrants are exercised, based on the market price of our common stock
on November 30, 2000 ($2.65), we would realize gross proceeds of approximately
$7,896,750. Gross proceeds take into account the discount to market price that
will be paid by Cockfield. It does not take into account any of the following:
o $15,000 we paid to Cockfield `s legal counsel, Epstein Becker &
Green P.C., to cover its legal and administrative expenses;
o the brokerage fee payable to Jesup & Lamont, which, based on the
prior example, would equal $323,031; and
o the expenses of this offering -- estimated at approximately
$100,000.
We expect to use substantially all the net proceeds that we realize for
general corporate purposes, including research and development, expansion of
sales and marketing activities and working capital. A portion of the net
proceeds may also be used to acquire or invest in complementary businesses,
technologies, product lines or products, although we have no current plans,
agreements or commitments with respect to any acquisitive transaction, and we
are not currently engaged in any negotiations with respect to any acquisitive
transaction. The amounts we actually expend for these purposes may vary
significantly and will depend on a number of factors, including the actual net
proceeds received, the amount of our future revenues and other factors described
under "Risk Factors." Our management will retain broad discretion in the
allocation of the net proceeds.
Pending their actual use, the net proceeds will be invested in short-term,
interest-bearing, investment grade securities or guaranteed obligations of the
U.S. government.
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PRICE RANGE OF OUR COMMON STOCK
Our common stock is quoted on the Nasdaq SmallCap Market System under the
symbol "IMCI". The following table sets forth the high and low bid prices, by
quarter, of our common stock for 1998, 1999 and 2000 as reported by Nasdaq.
Quotations represent interdealer prices without an adjustment for retail
markups, markdowns or commissions and may not represent actual transactions. On
February 16, 1999, we effected a one-for-five reverse stock split of our common
stock. All information presented for periods prior to February 16, 1999 gives
effect to the reverse stock split.
HIGH LOW
-------- --------
YEAR ENDED DECEMBER 31, 1998:
First Quarter $ 7.188 $ 5.468
Second Quarter 7.188 4.843
Third Quarter 5.000 2.344
Fourth Quarter 2.969 1.094
YEAR ENDED DECEMBER 31, 1999:
First Quarter $ 2.125 $0.3750
Second Quarter 2.500 1.3750
Third Quarter 2.000 1.0625
Fourth Quarter 1.750 0.7500
YEAR ENDED DECEMBER 31, 2000:
First Quarter $18.3750 $1.0625
Second Quarter 4.9375 1.5625
Third Quarter 6.1250 2.0000
Fourth Quarter (through November 30) 3.8130 2.1250
The last sale price for the common stock on the Nasdaq SmallCap Market on
December 11, 2000, was $2.6875. As of December 11, 2000, there were
approximately 1,635 holders of record of common stock.
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DIVIDEND POLICY
We have never paid or declared any cash dividends on our shares of common
stock and we have no current plans to pay any dividends on our common stock. We
intend to retain earnings, if any, for working capital purposes. Any future
decision to pay dividends on our common stock will depend on our results of
operations, capital requirements, the financial condition and other factors that
our board of directors deems relevant.
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2000
on an actual basis. The following table does not give effect to the sale of any
shares of our common stock under the equity line of credit agreement or as a
result of the exercise of any warrants held by Cockfield or Jesup & Lamont. This
table should be read together with financial statements and the accompanying
notes incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
As of September 30,
2000
(Unaudited)
-------------------
<S> <C>
Stockholders equity:
Common stock, $.001 par value per share; 20,000,000 shares authorized,
3,521,613 shares issued; 3,177,519 shares outstanding; 93,650 shares
subscribed ........................................................... $ 3,615
Additional paid-in capital:
Common stock ......................................................... 21,711,079
Warrants ............................................................. 785,199
Accumulated deficit .................................................. (19,473,106)
------------
3,026,787
Less:
Treasury stock, 344,094 shares, at close ............................. 860,235
Common stock subscription receivable ................................. 187,500
------------
Total stockholders' equity ........................................... $ 1,979,052
============
</TABLE>
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DILUTION
The issuance of additional shares of our common stock and the eligibility
of issued shares for resale will dilute our common stock and may lower the
trading price of our common stock. If you invest in our common stock, your
interest will be diluted to the extent of the difference between the price per
share you pay and the as adjusted net tangible book value per share of our
common stock at the time of sale. We calculate net tangible book value per share
by calculating the total assets less intangible assets and total liabilities,
and dividing it by the number of outstanding shares of common stock.
The net tangible book value of our common stock as of September 30, 2000,
was $1,854,916, or approximately $0.58 per share. Assuming that:
o on September 30, 2000, we issued a total of 3,000,000 shares to
Cockfield under the equity line of credit agreement at $3.72 per
share, which is 87.5% of the volume weighted average price for our
common stock on September 30, 2000; and
o on September 30, 2000, you purchased shares of our common stock for
$3.91 per share, which was the closing price for our common stock on
September 30, 2000,
our pro forma net tangible book value as of September 30, 2000 would have been
$13,014,976, or $2.11 per share. This represents an immediate increase in the
net tangible book value of $1.53 per share to existing stockholders and an
immediate dilution in net tangible book value of approximately $1.80 per share
to you. The actual dilution to you may be greater or less than in this example,
depending on the actual price you pay for your shares, the actual prices at
which we issue shares to Cockfield under the equity line of credit agreement and
how many of the vested options and warrants outstanding have been exercised at
the time of your investment.
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EQUITY LINE OF CREDIT AGREEMENT
Overview
On November 20, 2000, we entered into an equity line of credit agreement
with Cockfield Holdings Limited, a British Virgin Islands corporation, in order
to establish a possible source of funding for the development of our current and
planned products. The equity line of credit agreement establishes what is
sometimes also referred to as an equity drawdown facility.
Under to the equity line of credit agreement, Cockfield has agreed to
purchase up to 3,000,000 shares of our common stock during the 36 month period
following the effective date of the registration statement of which this
prospectus is a part. During this 36 month period, we may request a drawdown
under the equity line of credit by selling shares of our common stock to
Cockfield, and Cockfield will be obligated to purchase those shares. We will
calculate the amount of shares we will sell to Cockfield and the price per share
based on the volume weighted average price for the 20 trading days immediately
preceding the drawdown.
At the closing following our request for a drawdown, we will receive the
amount of the drawdown less a brokerage fee payable to Jesup & Lamont. The
brokerage fee is equal to 4.75% of the aggregate purchase price as to the first
$4,000,000, 4.50% of the aggregate purchase price in excess of $4,000,000 but
not more than $8,000,000, and 4.25% of the aggregate purchase price in excess of
$8,000,000. Jesup & Lamont is the placement agent which introduced Cockfield to
us and is a registered broker-dealer.
The drawdown procedure and the stock purchases
We may request a drawdown once every 20 trading days, although we are
under no obligation to do so, by delivering a drawdown notice to Cockfield,
stating the amount of the drawdown we wish to exercise. We may also designate a
minimum purchase price for the shares of our common stock covered by the
drawdown request. We will set the threshold price in our sole and absolute
discretion.
Amount of the drawdown
The minimum amount we can draw down at any one time is $200,000. The
maximum amount we can draw down at any one time is an amount equal to 15% of the
volume weighted average price of our common stock for the 20 day period prior to
the date of the put request, or $5,000,000, whichever is greater.
Calculation of purchase price
On the day following our delivery of the drawdown notice, a valuation
period of 20 trading days will start. The price per share of the common stock to
be sold to Cockfield will be determined on each of the 20 trading days following
the delivery of the drawdown notice as follows:
o On each trading day during the valuation period where the daily
volume weighted average price ("VWAP") of our common stock on the
Nasdaq SmallCap Market exceeds the threshold price, if any, set
forth in the drawdown notice, the purchase price will equal to 87.5%
of the VWAP on that day.
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o If the VWAP on a given trading day is less than the threshold price,
then Cockfield will have the option to purchase the common stock for
such day at a price equal to 87.5% of the threshold price.
o If Cockfield elects not to purchase shares on a day when the VWAP is
below the threshold price, then the amount of the drawdown will be
reduced by 1/20.
Number of shares issued
On each of the 20 trading days during the valuation period, the number of
shares to be issued to Cockfield will be determined by dividing 1/20th of the
drawdown amount by the purchase price on each trading day. If we designate a
minimum purchase price in our notice, the amount we can drawdown and the number
of shares we sell to Cockfield will be reduced by 1/20 of the amount requested
for each day that the VWAP of our common stock is below that minimum price. On
the other hand, if we set a threshold price too low and our stock price falls
significantly but stays above the threshold price, we will have to issue a
greater number of shares to Cockfield at the reduced price.
Payment for shares
The shares will be issued and paid for on the 22nd trading day following
the drawdown request. We will receive the purchase price less a brokerage fee
payable to Jesup & Lamont equal to 4.75% of the first $4,000,000; 4.5% of the
next $4,000,000, and 4.25% of the aggregate purchase price in excess of
$8,000,000.
Unit warrants
On the 22nd trading day following the drawdown request, we will grant
Cockfield unit warrants to purchase a number of shares of our common stock equal
to 33% of the number of shares purchased by Cockfield on that day. These unit
warrants will expire one day after they are granted and will have an exercise
price equal to the weighted average of the purchase prices of the common stock
purchased at the closing of the drawdown. If Cockfield exercises these unit
warrants, the 3,000,000 shares available under the equity line of credit will be
reduced by the number of shares issued as a result of the exercise of the unit
warrants.
Sample drawdown calculation
The following is an example of the number of shares we would issue to
Cockfield if we had given a drawdown notice on November 20, 2000, indicating a
drawdown amount of $250,000 and a minimum threshold price of $2.85 per share:
23
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<TABLE>
<CAPTION>
Optional
Greater of Purchase Purchase
VWAP or Price (assumed for
Trading Threshold Threshold (after purpose of # of Shares
Date VWAP Price Price discount) example) Principal Purchased
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. 10/24/00 $ 3.264 $ 2.85 $ 3.264 $ 2.856 $ 12,500 4,376
2. 10/25/00 $ 3.202 $ 2.85 $ 3.202 $ 2.802 $ 12,500 4,461
3. 10/26/00 $ 3.133 $ 2.85 $ 3.133 $ 2.741 $ 12,500 4,560
4. 10/27/00 $ 3.081 $ 2.85 $ 3.081 $ 2.696 $ 12,500 4,636
5. 10/30/00 $ 3.022 $ 2.85 $ 3.022 $ 2.644 $ 12,500 4,727
6. 10/31/00 $ 3.019 $ 2.85 $ 3.019 $ 2.642 $ 12,500 4,731
7. 11/1/00 $ 2.997 $ 2.85 $ 2.997 $ 2.622 $ 12,500 4,767
8. 11/2/00 $ 3.005 $ 2.85 $ 3.005 $ 2.629 $ 12,500 4,754
9. 11/3/00 $ 3.013 $ 2.85 $ 3.013 $ 2.636 $ 12,500 4,740
10. 11/6/000 $ 3.028 $ 2.85 $ 3.028 $ 2.650 $ 12,500 4,716
11. 11/7/00 $ 3.031 $ 2.85 $ 3.031 $ 2.652 $ 12,500 4,713
12. 11/8/00 $ 2.988 $ 2.85 $ 2.988 $ 2.615 $ 12,500 4,780
13. 11/9/00 $ 2.956 $ 2.85 $ 2.956 $ 2.587 $ 12,500 4,831
14. 11/10/00 $ 2.931 $ 2.85 $ 2.931 $ 2.565 $ 12,500 4,873
15. 11/13/00 $ 2.909 $ 2.85 $ 2.909 $ 2.545 $ 12,500 4,911
16. 11/14/00 $ 2.906 $ 2.85 $ 2.906 $ 2.543 $ 12,500 4,915
17. 11/7/00 $ 2.897 $ 2.85 $ 2.897 $ 2.535 $ 12,500 4,931
18. 11/16/00 $ 2.891 $ 2.85 $ 2.891 $ 2.532 $ 12,500 4,936
19. 11/17/00 $ 2.856 $ 2.85 $ 2.856 $ 2.500 $ 12,500 5,000
20. 11/20/00 $ 2.831 $ 2.85 $ 2.850 $ 2.494 Not exercised N/A N/A
Totals - Settlement on Day 22 $ 3.007 $ 2.63 $237,500 90,358
Less broker's (Jesup & Lamont)
commission of 4.75% $ (11281)
Net proceeds to us $ 2.50 $226,219 90,358
</TABLE>
On trading day 22, we grant Cockfield a unit warrant to purchase an
additional 29,817 of shares (33% of the settlement amount) with an exercise
price $3.007 per share. This unit warrant will expire on the 23rd trading day.
If Cockfield exercises this unit warrant, the number of shares issued will
reduce the 3,000,000 shares available under the equity line of credit.
Fees and expenses
At the closing of the equity line of credit on November 20, 2000, we paid
$15,000 to Cockfield `s legal counsel, Epstein Becker & Green P.C., to cover its
legal and administrative expenses.
As consideration for the opening of the equity line of credit, we granted
Cockfield warrants to purchase 200,000 shares of our common stock. As
consideration for the services rendered as placement agent in connection with
the equity line of credit agreement, we granted Jesup & Lamont warrants to
purchase 100,000 shares of our common stock. The warrants granted to Cockfield
and Jesup & Lamont are exercisable at any time until November 20, 2003, for
$3.135 per share of common stock. However, if Cockfield ever fails to honor a
drawdown notice, Cockfield will forfeit and will return to us for cancellation a
pro-rata portion of the 200,000 warrants granted to them (not including any
warrants already exercised), based on the unused portion of the 3,000,000 share
commitment reflected in the equity
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line of credit agreement. We will maintain the registration statement in effect
for a reasonable period after the forfeiture, but not more than 20 trading days,
so that Cockfield may dispose of any remaining shares of common stock held by
them. Neither Cockfield nor Jesup & Lamont will be obligated to exercise the
warrants.
Lastly, when we receive a drawdown amount from Cockfield, we will pay a
brokerage fee to Jesup & Lamont equal to either 4.75%, 4.5% or 4.25 of the
aggregate purchase price for each drawdown, as described above.
Necessary conditions before Cockfield is obligated to purchase our shares
The following conditions must be satisfied before Cockfield is obligated
to purchase any shares of our common stock pursuant to a drawdown notice:
o A registration statement for the shares must be effective and
available on each drawdown settlement date so that Cockfield may
freely sell the shares of shares of common stock it purchases;
o All our representations and warranties to Cockfield in the equity
line of credit agreement must be true and correct in all material
respects;
o We have made reasonable efforts to obtain all permits and
qualifications required by Rhode Island blue sky laws;
o We have delivered into escrow or to the Depository Trust Company
("DTC") the shares of common stock being purchased;
o We have delivered to our transfer agent instructions reasonably
satisfactory to Cockfield;
o We have satisfied all laws and regulations pertaining to the sale
and issuance of the shares of our common stock to Cockfield;
o We have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the equity
line of credit agreement, registration rights agreement and escrow
agreement, to be performed, satisfied or complied with by us;
o No statute, rule, regulation, executive order, decree, ruling or
injunction may be in effect which prohibits consummating the
transactions contemplated by the equity line of credit agreement;
o No litigation or proceeding nor any investigation by any
governmental authority is pending that prohibits or adversely
affects consummating the transactions contemplated by the equity
line of credit agreement;
o There have not been any material adverse changes in our business,
operations, properties, or financial condition, except as disclosed
in our filings with the Securities and Exchange Commission;
o Trading in our common stock has not been suspended by the SEC or our
principal trading market and our common stock continues to be listed
on our principal trading market;
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<PAGE>
o We have delivered an opinion of our counsel described in the equity
line of credit agreement regarding the validity of shares and the
matters listed above;
o Twenty trading days have elapsed since the last drawdown request;
and
o Cockfield has received and is reasonably satisfied with any other
documents as they may reasonably request.
In addition, we may not issue any shares of our common stock under the
equity line of credit if, as a result, Cockfield would beneficially own more
than 9.9% of our then outstanding common stock. Any resales of shares by
Cockfield would reduce the number of shares beneficially owned by Cockfield, and
would enable us to issue additional shares to Cockfield without violating this
condition.
The listing requirements of the Nasdaq SmallCap Market also prohibit us
from issuing 20% or more of our issued and outstanding shares of common stock at
a price less than the greater of market value or book value, unless we obtain
stockholder approval. Therefore, we intend to obtain stockholder approval to
issue the shares contemplated by the equity line of credit agreement.
Restrictions on future financings
The equity line of credit agreement limits our ability to raise money by
selling our securities to third parties at a discount to the market price during
its term. There are exceptions to this limitation for securities sold in the
following situations:
o Pursuant to any presently existing or future employee benefit plan,
which plan has been or may be approved by our stockholders;
o Pursuant to any compensatory plan for a full-time employee or key
consultant;
o In an underwritten registered public offering;
o In connection with a strategic partnership or other business
transaction, the principal purpose of which is not to raise money;
o In connection with a private placements where the purchasers have
registration rights; or
o A transaction to which Cockfield gives its written approval.
Termination of the equity line of credit agreement
Cockfield may terminate the equity line of credit if any of the following
events occur:
o Any stop order or suspension of the effectiveness of this
registration statement issues for an aggregate of thirty (30)
trading days during the 36 month term of the equity line of credit
agreement, with some exceptions;
o Our common stock is delisted from a principal market, including the
OTC Bulletin Board;
o Our common stock is no longer registered under Section 12(g) or
12(b) of the Exchange Act of 1934; or
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<PAGE>
o We cease to continue our corporate existence.
We may terminate the equity line of credit if Cockfield ever fails to
honor a drawdown notice.
Indemnification of Cockfield
Cockfield is entitled to customary indemnification from us for any losses
or liabilities suffered by it based upon material misstatements or omissions
from the registration statement and this prospectus, except as they relate to
information supplied by Cockfield to us to be included in the registration
statement of which this prospectus is a part.
SELLING STOCKHOLDERS
Overview
The 3,300,000 shares of our common stock covered by this prospectus
constitute 101% of our issued and outstanding shares of common stock as of
November 30, 2000. Because we do not know for certain how or when the selling
stockholders will choose to sell their shares of common stock, we cannot
estimate the amount of securities that will actually be offered for sale by the
selling stockholders. In addition, we cannot assure you that they will sell any
or all of the securities covered by this prospectus.
Cockfield Holdings Limited
Cockfield Holdings Limited is a British Virgin Island corporation engaged
in the business of investing in publicly traded equity securities for its own
account. Cockfield's address is c/o Mishon deReya Solicitors, 21 Southampton
Row, London WC1B 5HS England Attention: Kevin Gold. Investment decisions for
Cockfield are made by its board of directors. Other than the 200,000 warrants we
granted to Cockfield in connection with closing the equity line of credit
agreement, Cockfield does not currently own any of our securities. Other than
its obligation to purchase shares of common stock under the equity line of
credit agreement, it has no other commitments or arrangements to purchase or
sell any of our securities. There are no business relationships between
Cockfield and us other than the equity line of credit agreement.
Jesup & Lamont Securities Corporation
Jesup & Lamont Securities Corporation has acted as placement agent in
connection with the equity line of credit agreement. Jesup & Lamont introduced
us to Cockfield and assisted us with structuring the equity line of credit with
Cockfield. Jesup & Lamont's duties as placement agent were undertaken on a
reasonable best efforts basis only. It made no commitment to purchase shares
from us and did not assure us of the successful placement of any securities.
Other than the warrants granted to Jesup & Lamont as a placement fee,
Jesup & Lamont does not currently own any of our securities. The decision to
exercise any warrants granted to Jesup & Lamont, and the decision to sell the
common stock issued as a result of the exercise of the warrants, will be made by
Jesup & Lamont's officers and board of directors.
Neither Cockfield nor Jesup & Lamont have held any positions or offices or
had material relationships with us or any of our affiliates within the past
three years. If, in the future, the selling stockholders' relationship with us
changes, we will amend or supplement this prospectus to update this disclosure.
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<PAGE>
PLAN OF DISTRIBUTION
General
Cockfield and Jesup & Lamont may offer for sale up to 3,300,000 shares of
our common stock, which they will originally acquire under the terms of the
equity line of credit agreement and the warrants we issued to them. Cockfield
and Jesup & Lamont will be offering these shares for their own account. We do
not know for certain if, how or when they will choose to sell their shares of
common stock. We will not receive any proceeds from the sale of shares of common
stock by them.
To permit Cockfield and Jesup & Lamont to resell the shares of common
stock issued to them, we agreed to file a registration statement and all
necessary amendments and supplements with the Securities and Exchange Commission
for the purpose of registering and maintaining the registration of those shares.
We will bear all costs relating to the registration of the shares of our common
stock covered by this prospectus. We will keep the registration statement
effective until the earliest of any of the following dates:
o the date after which none of the shares of common stock held by
Cockfield that are covered by the registration statement are or may
become issued and outstanding;
o the date after which all of the shares of common stock held by
Cockfield have been transferred to persons who may trade those
shares without restriction under the Securities Act of 1933 and we
have delivered new certificates or other evidences of ownership of
those shares without any restrictive legend;
o the date after which all of the shares of common stock held by
Cockfield that are covered by the registration statement have been
sold by Cockfield pursuant to the registration statement;
o the date that Cockfield or its transferees receive an opinion of our
counsel that their shares of common stock may be sold under the
provisions of Rule 144 promulgated under the Securities Act without
any applicable volume limitations;
o the date after which all of the shares of common stock held by
Cockfield may be sold, in the opinion of our counsel, without any
time, volume or manner limitations under Rule 144(k) under the
Securities Act of 1933; or
o if Cockfield ever fails to honor a drawdown under the equity line of
credit, we will maintain the registration statement in effect only
for so long as Cockfield may request in order to dispose of any
remaining shares of common stock held by them, not to exceed 20
trading days.
The selling stockholders will offer our common stock into the public
market using this prospectus or under Rule 144 instead of under this prospectus,
if they qualify. Shares of our common stock offered through this prospectus or
under Rule 144 may be sold from time to time by Cockfield and Jesup & Lamont,
although we cannot assure you that they will in fact sell any or all of the
securities covered by this prospectus. Sales may be made on the Nasdaq SmallCap
Market, on the over-the-counter market or otherwise at prices related to the
then current market price, or in negotiated private transactions, or in a
combination of these methods. The selling stockholders will act independently of
us in making decisions with respect to the form, timing, manner and size of each
sale. We have been informed by the selling stockholders that there are no
existing arrangements between them and any other stockholder, broker,
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<PAGE>
dealer, underwriter or agent relating to the sale or distribution of shares of
common stock which may be sold by them through this prospectus.
The shares of common stock may be sold in one or more of the following
manners:
o block trades in which the broker or dealer so engaged will attempt
to sell the shares as agent, but may position and resell a portion
of the block as principal to facilitate the transaction;
o purchases by a broker or dealer for its account under this
prospectus; or
o ordinary brokerage transactions and transactions in which the broker
solicits purchases.
The selling stockholders will pay all commissions and their own expenses,
if any, associated with the sale of the shares of common stock. Sales by the
selling stockholders will be without the payment of any underwriting discounts
or commissions, except for usual and customary selling commissions paid to
brokers or dealers. However, in effecting sales, brokers or dealers engaged by
the selling stockholders may arrange for other brokers or dealers to
participate. Except as disclosed in a supplement to this prospectus, no
broker-dealer will be paid more than a customary brokerage commission in
connection with any sale of the shares of common stock by the selling
stockholders. Brokers or dealers may receive commissions, discounts or other
concessions from the selling stockholders in amounts to be negotiated
immediately prior to the sale. The compensation to a particular broker-dealer
may be in excess of customary commissions. Profits on any resale of the shares
of common stock as a principal by broker-dealers and any commissions received by
broker-dealers may be deemed to be underwriting discounts and commissions under
the Securities Act of 1933. Any broker-dealer participating in these
transactions as agent may receive commissions from the selling stockholders
(and, if they act as agent for the purchaser of the shares of our common stock,
from that purchaser).
Broker-dealers may agree with the selling stockholders to sell a specified
number of shares of common stock at a stipulated price per share and, to the
extent a broker-dealer is unable to do so acting as agent for the selling
stockholders, to purchase as principal any unsold shares of common stock at a
price required to fulfill the broker-dealer commitment to the selling
stockholders. Broker-dealers who acquire shares of common stock as principal may
then resell those shares from time to time in transactions (which may involve
crosses and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with those resales may pay to or receive from the purchasers of these shares
commissions computed as described above. Brokers or dealers who acquire shares
of our common stock as principal and any other participating brokers or dealers
may be deemed to be underwriters in connection with resales of the shares of
common stock.
Cockfield is deemed a statutory underwriter within the meaning of Section
2(11) of the Securities Act of 1933 with respect to any shares it sells.
Cockfield has agreed to be named as a statutory underwriter and will be acting
as an underwriter in its resales of the shares of common stock under this
prospectus. Because Cockfield is deemed a statutory underwriter, the discounts
and concessions it receives upon purchases of our common stock, and any profits
it receives on the resale of the shares, will be deemed to be underwriting
discounts and commissions under the Securities Act. Each time Cockfield
purchases shares of our common stock under the equity line of credit agreement,
it will receive a substantial discount to then current market price of our
common stock. The price at which we will issue shares of common stock to
Cockfield will be 12.5% below the daily volume weighted average prices of the
common stock on the Nasdaq SmallCap Market during the 20 trading days following
a drawdown notice. Assuming an average volume weighted average price of
$3.007(based on 20 trading days volume
29
<PAGE>
weighted average prices of the common stock on the Nasdaq SmallCap Market
through November 20, 2000), and assuming we use the entire line of credit and
issue all 3,000,000 shares registered for issuance under the equity line of
credit agreement, Cockfield will receive "underwriting compensation" in the form
of its discounted purchase price equal to $1,127,625, or $0.38 per share.
In connection with the equity line of credit, we granted 200,000 warrants
to Cockfield, which are exercisable for $3.135 per share of common stock at any
time prior to November 20, 2003. The warrants will also be deemed underwriting
commissions under the Securities Act. Lastly, at the closing of the equity line
of credit on November 20, 2000, we paid $15,000 to Cockfield's legal counsel,
Epstein Becker & Green P.C., to cover Cockfield's legal and administrative
expenses in connection with negotiating the equity line of credit.
Cockfield and Jesup & Lamont must also comply with applicable state and
federal securities laws, rules and regulations, including Rule 10b-5 and
Regulation M under the Exchange Act of 1934, and the rules and regulations of
the Nasdaq SmallCap Market. Under these rules, the selling stockholders may not:
(1) engage in market making activities at the same time as they are
engaged in a distribution of the shares of common stock for a period
beginning when such person becomes a distribution participant and
ending upon such person's completion of participation in a
distribution;
(2) engage in any stabilization activity in connection with our
securities;
(3) impose penalty bids or effect passive market making bids; and
(4) bid for or purchase any of our common stock or attempt to induce any
person to purchase any of our common stock other than as permitted
under the Exchange Act.
In addition, any selling stockholders who may be "affiliated purchasers"
of us as defined in Regulation M, must coordinate their sales under this
prospectus with each other and with us for purposes of Regulation M as required
by Securities Exchange Act Release 34-38067 (December 20, 1996). None of the
selling stockholders has been an officer, director or otherwise an affiliate of
our company during the last three years. In addition to the rules and
regulations applicable to it, Cockfield has also agreed not to engage in any
short sales of our common stock as long as the equity line of credit is active.
These restrictions, and the other rules and regulations applicable to the
selling stockholders, may affect the marketability of the shares of common
stock.
Limited grant of registration rights
We granted registration rights to Cockfield to enable it to sell the
common stock it purchases under the equity line of credit agreement. In
connection with that registration, we will have no obligation:
o to assist or cooperate with the selling stockholders in offering or
disposing of these shares;
o to indemnify or hold harmless the holders of any of these shares
(other than Cockfield) or any underwriter designated by these
holders;
o to obtain a commitment from an underwriter relative to the sale of
any of these shares; or
o to include these shares within any underwritten offering we do.
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<PAGE>
We will assume no obligation or responsibility whatsoever to determine a
method of disposition for the shares or to otherwise include the shares within
the confines of any registered offering other than the registration statement of
which this prospectus is a part.
We will file one or more post-effective amendments to the registration
statement of which this prospectus is a part to describe any material change to
the information in this prospectus (including with respect to the plan of
distribution) for as long as Cockfield holds shares of our stock or until those
shares can be sold pursuant to an appropriate exemption from registration. This
obligation may include, to the extent required under the Securities Act of 1933,
that a supplemental prospectus be filed, disclosing:
o the name of any broker-dealers;
o the number of shares of common stock involved;
o the price at which the shares of common stock are to be sold;
o the commissions paid or discounts or concessions allowed to
broker-dealers, where applicable;
o that broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus,
as supplemented; and
o any other facts material to the transaction.
Our registration rights agreement with Cockfield permits us to restrict
the resale of the shares Cockfield has purchased from us under the equity line
of credit agreement for a period of time sufficient to permit us to amend or
supplement this prospectus to include material information. If we restrict
Cockfield at any time within five trading days of the closing of any drawdown
and our stock price declines during the restriction period, then, in order to
compensate Cockfield for its inability to sell shares during the restriction
period, we will be required to issue to Cockfield a number of additional shares
of our common stock equal to the difference between:
o the product of
o the number of shares purchased by Cockfield in the most recent
drawdown and still held by Cockfield during the restriction period
that are not otherwise freely tradable, and
o the difference between closing bid price on the day immediately
preceding the restriction period and the closing bid price on the
day immediately after the restriction period, minus
o the number of shares purchased by Cockfield in the most recent
drawdown and still held by Cockfield during the restriction period
that are not otherwise freely tradable.
If, under the formula described above, we would be obligated to issue a
number of shares which exceeds the number permitted under the equity line of
credit agreement, then, in lieu of issuing those excess shares, we will pay
Cockfield an amount in cash equal to the closing ask price of the shares that
would have been issuable in accordance with the formula contained in the
previous sentence.
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DESCRIPTION OF CAPITAL STOCK
The following summary describes the material provisions of our capital
stock and is subject to, and qualified in its entirety by, our Certificate of
Incorporation, and amendments thereto, and our bylaws, all of which are
incorporated by reference as exhibits to the registration statement of which
this prospectus is a part and by provisions of applicable law.
We are authorized to issue up to 20,000,000 shares of common stock, par
value $0.001, and 1,000,000 shares of preferred stock, par value $0.01. As of
November 30, 2000, 3,697,771 shares of common stock were issued and 3,260,027
shares of common stock outstanding (net of treasury and subscription receivable
shares), and no shares of preferred stock were outstanding. According to our
transfer agent, as of November 30, 2000, there were approximately 1,635 record
holders of our common stock, including several brokerage firms holding shares in
street name for beneficial owners. In addition, 93,650 shares of our common
stock have been subscribed for but have not yet been issued.
Common stock
Each holder of record of common stock is entitled to one vote for each
share held on all matters properly submitted to the shareholder for their vote.
Our articles of incorporation do not authorize cumulative voting in the election
of directors.
Holders of outstanding shares of common stock are entitled to those
dividends declared by the board of directors out of legally available funds and,
in the event of liquidation, dissolution or winding up of our affairs, holders
are entitled to receive, pro rata, our net assets available to the shareholders.
Holders of outstanding common stock have no preemptive, conversion or redemption
rights. All of the issued and outstanding shares of common stock are, and all
unissued shares of common stock, when offered and sold will be duly authorized,
validly issued, fully paid and nonassessable. To the extent that additional
shares of common stock may be issued in the future, the relative interests of
the then existing stockholders may be diluted.
Preferred stock
Our certificate of incorporation authorizes the Board of Directors to
issue up to 1,000,000 shares of Series Preferred Stock. The Preferred Stock may
be issued in one or more designated series, and any or all of the authorized but
unissued shares of preferred stock may be issued with such dividend, redemption,
conversion, and exchange provisions as may be provided by the board of
directors. Any series of preferred stock may possess voting, dividend,
liquidation, and redemption rights superior to those of the common stock. The
rights of the holders of common stock will be subject to and may be adversely
affected by the rights of the holders of any preferred stock that may be issued
in the future. Issuance of a new series of preferred stock could make it more
difficult for a third party to acquire, or discourage a third party from
acquiring, the outstanding shares of common stock and make removal of the board
of directors more difficult. No shares of preferred stock are currently issued
and outstanding, and we have no present plans to issue any shares of preferred
stock.
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Warrants
As of November 30, 2000 we have issued warrants covering 1,009,975 shares
of our common stock. These warrants have exercise prices ranging from $1.63 to
$10.30 per share and a weighted average exercise price of $4.38.
Stock Option Plan
We have reserved 2,172,926 shares of our common stock for issuance upon
exercise of option granted under our stock option plan. As of November 30, 2000
options covering 928,504 shares of our common stock have been granted to our
employees and directors. The options have exercise prices ranging from $1.00 per
share to $12.00 per share, with an average exercise price of $2.34 per share.
The options expire on various dates through November 30, 2005. All of the shares
reserved for issuance under the stock option plan have been registered. We grant
stock options to any persons who have been employed by us, or a company that we
acquire, for more than six months to give them a sense of ownership and to
increase their level of commitment to our business.
The stock option plan provides for the granting of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code and non-qualified
stock options. The stock option plan is administered by the compensation
committee of the board of directors, which determines the terms and conditions
of the options granted under the stock option plan, including the exercise
price, the number of shares subject to a particular option and the period over
which options vest.
The exercise price of all incentive stock options granted under the stock
option plan must be at least equal to the fair market value of our common stock
on the date of grant and must be 110% of fair market value when granted to a 10%
or more stockholder. Under the stock option plan, the exercise price of all
non-qualified stock options granted under the stock option plan may be less than
the fair market value of the common stock on the date of grant. The term of all
options granted under the stock option plan may not exceed ten years, except the
term of incentive stock options granted to a 10% or more stockholder may not
exceed five years. The stock option plan may be amended or terminated by the
board of directors, but no such action may impair the rights of a participant
under a previously granted option.
The stock option plan provides the board of directors or the compensation
committee with the discretion to determine when options granted under the stock
option plan shall become exercisable and the vesting period of such options.
Holders of options and warrants do not have any of the rights or
privileges of our stockholders, including voting rights, prior to exercise of
the options and warrants. We have reserved sufficient shares of authorized
common stock to cover the issuance of common stock subject to the options and
warrants.
Section 203 of the Delaware General Corporation Law
We are subject to Section 203 of the General Corporation Law of the State
of Delaware (the "DGCL"), which prevents an "interested stockholder" from
engaging in a "business combination" with a publicly-held Delaware corporation
for three years following the date such person became an interested stockholder,
unless:
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(1) before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved
the business combination;
(2) upon consummation of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced; or
(3) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of
the outstanding voting stock of the corporation not owned by the
interested stockholder.
The DGCL defines an "interested stockholder" as a person owning 15% or
more of a corporation's outstanding voting stock. A "business combination"
includes mergers, stock or asset sales and other transactions resulting in a
financial benefit to the interested stockholder.
The provisions of Section 203 of the DGCL could have the effect of
delaying, deferring or preventing a change in control.
Indemnification and Limitation of Liability
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law as currently or hereafter in effect.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duty as a director,
except for liability:
(1) for breach of their duty of loyalty to the corporation or its
stockholders;
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(3) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL; or
(4) for any transaction from which the director derives an improper
personal benefit.
Our certificate of incorporation provides for the mandatory
indemnification of, and advancement of expenses to, our directors, officers,
employees and agents to the maximum extent permitted by Section 145 of the DGCL,
as amended from time to time.
Transfer Agent
The transfer agent and registrar for our common stock is the American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
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WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-2 that we
have filed with the Securities and Exchange Commission. Parts of the
registration statement have been omitted from this prospectus as permitted by
the rules and regulations of the SEC and this prospectus does not contain all of
the information contained or incorporated by reference in the registration
statement. In particular, statements in this prospectus concerning the terms of
various agreements and other documents are by necessity summaries of those
agreements and documents, and in each case we refer you to the copy of the
applicable document to the extent we have filed it as an exhibit to the
registration statement. For further information about us and the information in
this prospectus, we refer you to the registration statement and its exhibits.
You may obtain copies of the registration statement and its exhibits by paying a
prescribed fee, or you may examine them without charge at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Regional Offices of the SEC, Seven
World Trade Center, New York, New York 10048 and Citicorp Center, 300 West
Madison Street, Chicago, Illinois 60661. You can obtain information on the
operation of the public reference facilities by calling the SEC at
1-800-SEC-0330. In addition, you may obtain copies of the registration statement
and its exhibits at the SEC's website located at http://www.sec.gov.
We are a reporting company and file our annual, quarterly and current
reports, proxy material and other information with the SEC. You may read and
copy any materials that we file with the SEC at the SEC's public reference
facilities listed above, as well as on the SEC's website.
INCORPORATION OF INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to documents previously filed with the SEC. The information
incorporated by reference is an important part of this prospectus. We
incorporate by reference the following documents which we have previously filed
with the SEC:
1. Our Annual Report on Form 10-K for the fiscal year ended December
31, 1999;
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2000;
3. Our Quarterly Report on Form 10-Q for the quarter ended June 30,
2000; and
4. Our Quarterly Report on Form 10-Q for the quarter ended September
30, 2000.
Copies of these documents are included with this prospectus. If you need
another copy of these documents, we will provide it to you free of charge, upon
oral or written request. However, we will not include exhibits to those
documents unless they are specifically incorporated by reference into this
prospectus. Requests should be directed to:
Infinite Group, Inc.
Attn: Clifford G. Brockmyre II
President & Chief Executive Officer
2364 Post Road
Warwick, Rhode Island 02886
(401) 738-5777
In making a decision to buy our common stock, you should rely only on the
information incorporated by reference or contained in this prospectus. We have
not authorized anyone to provide you
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with any other information. If anyone provides you with different or
inconsistent information, you should not rely on it.
You should assume that the information in this prospectus is accurate only
as of the date on the front cover of this prospectus. Our business, financial
condition, results of operations and prospectus may have changed since that
date.
MATERIAL CHANGES
The following are the material changes in our affairs that have occurred
since the end of our last fiscal year and which were not described in our most
recent quarterly report delivered to our stockholders:
o In October 2000, Thomas Mueller was appointed our chief operating
officer. Prior to this appointment, Mr. Mueller was the president of
our Express Pattern subsidiary.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon by
Morse, Zelnick, Rose & Lander, LLP.
EXPERTS
The financial statements of Infinite Group Inc. as of December 31, 1999,
and for each of the years in the three-year period ended December 31, 1999, are
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of Freed MaxickSachs & Murphy, P.C. independent
certified public accountants, incorporated by reference herein, upon the
authority of said firm as experts in accounting and auditing.
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<PAGE>
PROSPECTUS
INFINITE GROUP, INC.
3,300,000 Shares
Common Stock
Dated: ______________________
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The fees and expenses we incurred in connection with the offering are
payable by us and, other than registration, filing and listing fees, are
estimated as follows:
SEC registration fee................................................. $ 2,161
Nasdaq SmallCap Market listing fee................................... *
Accounting fees and expenses......................................... *
Legal fees and expenses.............................................. *
Transfer agent and registrar fees.................................... *
Miscellaneous expenses............................................... *
-------
Total.......................................................... $ *
=======
----------
* To be provided by amendment.
Item 15. Indemnification of Officers and Directors
Our Certificate of Incorporation provides that the indemnification
provisions of Sections 102(b)(7) and 145 of the Delaware General Corporation Law
shall be utilized to the fullest extent possible. Further, the Certificate of
Incorporation contains provisions to eliminate the liability of our directors to
Infinite or its stockholders to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law, as amended from time to time.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent of the corporation. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which the director derived
an improper personal benefit. Our Certificate of Incorporation provides for such
limitation of liability.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, is permitted for our directors, officers or controlling
persons, pursuant to the above mentioned statutes or otherwise, we understand
that the Securities and Exchange Commission is of the opinion that such
indemnification may contravene federal public policy, as expressed in said Act,
and therefore, may be
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unenforceable. Accordingly, in the event that a claim for such indemnification
is asserted by any of our directors, officers or controlling persons, and the
Commission is still of the same opinion, we (except insofar as such claim seeks
reimbursement from us of expenses paid or incurred by a director, officer of
controlling person in successful defense of any action, suit or proceeding)
will, unless the matter has theretofore been adjudicated by precedent deemed by
our counsel to be controlling, submit to a court of appropriate jurisdiction the
question whether or not indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees as to which indemnification is sought, nor
are we aware of any threatened litigation or proceeding that may result in
claims for indemnification.
Item 16. Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit
No. Description
------------ ------------------------------------------------------------
2.1 Equity Line of Credit Agreement dated November 20, 2000,
between Registrant and Cockfield Holdings Limited*
2.2 Registration Rights Agreement dated November 20, 2000,
between Registrant and Cockfield Holdings Limited*
2.3 Escrow Agreement dated as of November 20, 2000, among
Registrant, Cockfield Holdings Limited and Epstein Becker &
Green, P.C.*
2.4 Form of Stock Purchase Warrant dated November 20, 2000,
issued to each of Cockfield Holdings Limited and Jesup &
Lamont Securities Corporation*
5 Opinion and consent of Morse, Zelnick, Rose & Lander, LLP**
10.1 Lease for facilities at 2364 Post Road, Warwick, RI 02886.
(Filed as Exhibit 10B to the Registrant's Annual Report on
Form 10-KSB for the year ended June 30, 1995 (Commission
File No. 0-13789), and incorporated herein by reference.)
10.2 Form of Stock Option Agreement. (Filed as Exhibit 10M to the
Registrant's Annual Report on Form 10-KSB for the year ended
June 30, 1995 (Commission File No. 0-13789), and
incorporated herein by reference.)
10.3 Employment Agreement with Bruce J. Garreau. (Filed as
Exhibit 10.20 to the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1999 (Commission File
No. 000-13789), and incorporated herein by reference.)
10.4 Employment Agreement with J. Terence Feeley. (Filed as
Exhibit 10.19 to the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1999 (Commission File
No. 000-13789), and incorporated herein by reference.)
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<PAGE>
Exhibit
No. Description
------------ ------------------------------------------------------------
10.5 Employment Agreement with Thomas J. O'Connor. (Filed as
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999 (Commission File No.
000-13789), and incorporated herein by reference.)
10.6 Employment Agreement with Clifford G. Brockmyre II**
13.1 Annual report to security holders on Form 10-KSB dated
December 31, 1999. (Filed on March 30, 2000 (Commission File
No. 0-21816), and incorporated herein by reference.)
13.2 Quarterly report to security holders on Form 10-Q dated
March 31, 2000. (Filed on May 11, 2000 (Commission File No.
0-21816), and incorporated herein by reference.)
13.3 Quarterly report to security holders on Form 10-Q dated June
30, 2000. (Filed on August 8, 2000 (Commission File No.
0-21816), and incorporated herein by reference.)
13.3 Quarterly report to security holders on Form 10-Q dated
September 30, 2000. (Filed on November 7, 2000 (Commission
File No. 0-21816), and incorporated herein by reference.)
23.1 Consent of Freed Maxick Sachs & Murphy PC
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in
Exhibit 5)
24 Power of Attorney (reference is made to the signature pages
to the Registration Statement)*
----------
* Filed herewith.
** To be filed by amendment.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus frilled with the Commission pursuant
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<PAGE>
to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of this offering.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14-a or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulations S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Warwick, State of Rhode Island and Providence
Plantations on this 12th day of December, 2000.
INFINITE GROUP INC.
By: /s/ Clifford G. Brockmyre, II
------------------------------------
Clifford G. Brockmyre II,
President, Chief Executive Officer
And Chairman of the Board
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