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As filed with the Securities and Exchange Commission on November 2, 1998
Registration No. 333-61755
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 ON FORM S-1
TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
___________________
IAS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
___________________
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<CAPTION>
Oregon 3581 91-1063549
<S> <C> <C>
(State or other jurisdiction of (Primary Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code)
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185-10751 Shellbridge Way
Richmond, B.C., Canada V6X 2W8
(604) 278-5996
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
___________________
John G. Robertson
President
IAS Communications, Inc.
185-10751 Shellbridge Way
Richmond, B. C., Canada, V6X 2W8
(604) 278-5996
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
It is respectfully requested that the Commission send copies of all notices,
orders and communications to:
James L. Vandeberg
Vandeberg Johnson & Gandara
600 University Street, Suite 2424
Seattle, Washington 98101
(206) 464-0404
___________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly 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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration 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, check the following box and list the Securities Act
registration 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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CALCULATION OF REGISTRATION FEE
===================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
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Class A Common Stock (2) 444,444 $1.50(1) $666,666 $185.33
- -------------------------------------------------------------------------------------------------------------------
Class A Common Stock, issuable upon
exercise of a Warrant 25,000 $2.85(3) $ 71,250 $ 19.81
- -------------------------------------------------------------------------------------------------------------------
TOTAL 469,444 $737,916 $205.14(4)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
(2) Consists of Class A Common Stock issuable on conversion of the Debentures
described herein.
(3) The exercise price of the Warrant is used for the purpose of calculating
the amount of the registration fee in accordance with Rule 457(g) under
the Securities Act.
(4) Previously paid.
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH A DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
IAS COMMUNICATIONS, INC.
469,444 SHARES OF CLASS A COMMON STOCK
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares of Class A Common Stock (the "Common Stock") of IAS Communications,
Inc., an Oregon corporation, (the "Company") offered hereby (the "Shares") are
issuable on conversion of the Series A 8% Redeemable Convertible Debentures (the
"Debentures") and exercise of the Warrant (the "Warrant") of the Company issued
in a private transaction pursuant to the Subscription Agreement between the
Company and Augustine Fund, LP dated as of July 15, 1998 (the "Subscription
Agreement") and may be offered and sold from time to time by the holder thereof
(the "Selling Shareholder"). The Company will receive $2.85 per share upon
exercise of the Warrant but will not receive any of the proceeds from any such
offers or sales of Shares by the Selling Shareholder.
The Company has agreed to bear all expenses (other than selling commissions and
fees and stock transfer taxes) in connection with the registration and sale of
the Shares being offered by the Selling Shareholder. The Company has agreed to
indemnify the Selling Shareholder against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
In connection with any sales, the Selling Shareholder may be deemed to be an
"underwriter" within the meaning of the Securities Act. See "Selling
Shareholder."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
The Common Stock of the Company is traded on the NASDAQ over the counter
bulletin board under the symbol IASCA. On October 28, 1998, the last price for
the Common Stock was $1.687 per share. The Shares may be offered or sold from
time to time by the Selling Shareholder at market prices then prevailing, in
negotiated transactions or otherwise. Brokers or dealers may receive
commissions or discounts from the Selling Shareholder in amounts to be
negotiated immediately prior to the sale. See "PLAN OF DISTRIBUTION."
_____________________
The date of this Prospectus is November , 1998.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS AT THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
pursuant to this Prospectus. For further information, reference is made to the
Registration Statement. In addition, the Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files periodic reports, proxy statements and
other information with the Commission. The Registration Statement, such reports,
proxy statements and other information may be inspected and copies may be
obtained, at prescribed rates, at the Commission's Public Reference Section,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, as well as the
following regional offices: 7 World Trade Center, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission
maintains a Website that contains reports, proxy and information statements and
other information regarding reporting companies under the Exchange Act,
including the Company, at http:// www.sec.gov.
This Prospectus constitutes a part of the Registration Statement. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Common Stock. Any statements contained herein concerning the provisions
of any documents are not necessarily complete, and reference is made to the copy
of such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
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PROSPECTUS SUMMARY
The following is a summary and is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. An investment in the Shares involves a high degree
of risk. See "Risk Factors."
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA
provides a "safe harbor" for such statements to encourage companies to provide
prospective information about themselves so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. All statements other
than statements of historical fact made in this Prospectus or incorporated by
reference are forward-looking. In particular, the statements herein regarding
the availability of adequate funding and progress in the Company's CTHA project
are forward-looking statements. Forward-looking statements represent
management's current expectations and are inherently uncertain. Investors are
warned that the Company's actual results may differ significantly from
management's expectations and, therefore, from the results discussed in such
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the "Risk Factors" described herein.
THE COMPANY
IAS Communications, Inc. (the "Company") is a development stage company
incorporated in the state of Oregon in 1994. Its principal business operations
are conducted in West Virginia and Indiana. The Company is engaged in the
commercialization of advanced antenna technology known as the Contrawound
Torroidal Helical Antenna, (the "CTHA"), for wireless communications markets
including cellular, meter reading and global positioning services. The CTHA,
developed in conjunction with researchers at West Virginia University, is a
technologically advanced antenna design which can be incorporated into a wide
variety of telecommunications applications. The Company has been granted world-
wide sublicensing rights for commercial applications, excluding military and
governmental applications, for the antenna. The Company's principal executive
offices are located at 185-10751 Shellbridge Way, Richmond, B. C., Canada V6X
2W8, and its telephone number is (604) 278-5996.
THE OFFERING
On July 15, 1998, the Company entered into the Subscription Agreement with the
Selling Shareholder pursuant to which the Company may issue and sell, from time
to time, up to ten (10) units, each unit comprised of $500,000 in aggregate
principal amount of 8% Redeemable Convertible Debentures and a warrant to
purchase 25,000 shares of Common Stock (the "Units"). Pursuant to the
Subscription Agreement, the Company sold to the Selling Shareholder one Unit as
of July 15, 1998 consisting of $500,000 in principal amount of the Debentures
and the Warrant. The Company may, at its option, require the Selling Shareholder
to purchase up to an additional nine (9) Units in the future, each such
subsequent unit consisting of $500,000 aggregate principal amount of debentures
(Series B) (the "Subsequent Debentures") and one warrant (the "Subsequent
Warrants"). The Shares are obtainable on conversion of the Debentures at a
conversion price equal to the lesser of seventy-five percent (75%) of the
average closing bid price of the Common Stock for the five (5) trading days
immediately preceding the conversion date or $2.85 per share. The Warrant may be
exercised at any time up to July 15, 2001 at an exercise price of $2.85 per
share. The conversion prices of the Subsequent Debentures, if any are issued,
will be equal to the lesser of eighty-five percent (85%) of the average closing
bid price of the Common Stock for the five (5) trading days immediately
preceding the conversion date or $2.85 per share. The Subsequent Warrants, if
any are issued, may be exercised at any time up to July 15, 2001 at an exercise
price of $2.85 per share. The Selling Shareholder acquired the Debentures and
Warrant and may acquire the Subsequent Debentures and Subsequent Warrants
pursuant to the Subscription Agreement from the Company for cash.
Securities Offered by the Selling Shareholder......... Up to 469,444 shares of
Common Stock
Common Stock Outstanding as of September 24, 1998..... 9,549,350 shares(1)
Risk Factors.......................................... Any investment in the
Shares offered hereby
involves a high degree of
risk. See "Risk Factors."
3
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(1) Does not include: (a) 670,000 shares of Common Stock issuable upon exercise
of warrants outstanding as of September 24, 1998 (not including the 25,000
shares issuable upon exercise of the Warrant); (b) 1,122,000 shares of Common
Stock issuable upon exercise of stock options outstanding as of September 24,
1998; (c) 11,667 shares of Common Stock issuable upon conversion of outstanding
convertible debentures or shares that may be issued under the Company's
Performance Stock Plan; and (d) additional shares of Common Stock that may be
issued to the Selling Shareholder pursuant to purchases of Units under the
Subscription Agreement and conversion of Subsequent Debentures and exercise of
Subsequent Warrants.
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, INCLUDING, WITHOUT
LIMITATION, STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, ESTIMATES,
INTENTIONS AND STRATEGIES ABOUT THE FUTURE. WORDS SUCH AS "ANTICIPATES,"
"EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," VARIATIONS OF
SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS, BUT THEIR ABSENCE DOES NOT MEAN THE STATEMENT IS NOT FORWARD-
LOOKING. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE
SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO
PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE
IN THIS PROSPECTUS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE. POTENTIAL INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING RISK FACTORS BEFORE MAKING A DECISION TO INVEST IN THE SHARES OFFERED
HEREBY.
BUSINESS RISKS
1. LIMITED OPERATING HISTORY
The Company was incorporated in the state of Oregon on December 13, 1994. The
Company has conducted only limited business and has a very short operating
history. The Company is still in the startup stage. If the Company's plans
prove to be unsuccessful, the investors in this offering may lose all or a
substantial part of their investment.
2. CUMULATIVE VOTING, PREEMPTIVE RIGHTS AND CONTROL
There are no preemptive rights in connection with the shares of Common Stock.
Cumulative voting in the election of directors is not permitted. Accordingly,
the holders of a majority of the shares of Common Stock present in person or by
proxy, will be able to elect all of the Company's Board of Directors.
3. NEED FOR ADDITIONAL CAPITAL
Even if the all of the Units contemplated by the Subscription Agreement are
sold, the proceeds available to the Company may not be adequate for it to
achieve its business objectives. The Company intends to use the proceeds from
the sale of such Units for working capital, payment of accounts payable, further
research and development work, patent protection and prototype development.
Accordingly, the ultimate success of the Company will depend upon its ability to
raise additional capital or to have other parties bear a portion of the required
costs to further develop or exploit the potential market for its products.
There is no assurance that funds will be available from any source, and if not
available, it will be necessary for the Company to limit its operations to those
which can be financed from the proceeds of this offering.
4. DEPENDENCE ON CONSULTANTS AND OUTSIDE MANUFACTURING FACILITIES
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Since the Company's present plans provide for a shared research and development
staff and outside manufacturing facilities, the Company will be dependent upon
others to perform these functions and to provide the requisite expertise when
needed at affordable prices.
5. PRODUCT ACCEPTANCE
The profitability and survival of the Company will depend upon its ability to
develop a technically and commercially feasible product which will be accepted
by end users. The Toroidal Helical Antenna which the Company is developing (the
"CTHA") must be technologically superior to other antennas and must have a
competitive price/performance ratio to adequately penetrate its potential
markets. If it is not able to achieve this condition or if it does not remain
technologically competitive, the Company may be unprofitable and investors could
lose their entire investment. There can be no assurance that the Company will
be able to achieve and maintain end-user acceptance of its antenna.
6. COMPETITION
While not a highly competitive business in terms of numbers of competitors, the
business of developing antennas of a new design and attempting to either license
or produce them is nonetheless difficult because most existing antenna producers
are large, well financed companies which are very concerned about maintaining
their market position. There is no assurance that the Company will be
successful in meeting or overcoming competition which currently exists or may
develop in the future.
7. MANAGEMENT AND CONFLICTS OF INTEREST
The present officers and directors of the Company have other full-time positions
or part time employment which is unrelated to the Company. Some officers and
directors will be available to participate in management decisions on a part-
time or as needed basis only.
8. NEED FOR ADDITIONAL KEY PERSONNEL
At the present, the Company employs no full time employees. The success of the
Company's business will depend, in part, upon the ability to attract and retain
qualified employees. The Company believes that it will be able to attract
competent employees, but no assurance can be given that the Company will be
successful in this regard. If the Company is unable to engage and retain the
necessary personnel, its business would be materially and adversely affected.
9. NON-ARM'S LENGTH TRANSACTION
The number of shares of Common Stock issued to certain present shareholders of
the Company for cash and property and the price thereof was arbitrarily
determined and may not be considered the product of arm's length transactions.
Dr. James E. Smith, the Chairman of the Board of Directors of the Company ("Dr.
Smith"), is a tenured professor at West Virginia University ("WVU") and has
directed the research and development of CTHA utilizing WVU's facilities and
funding. Under Dr. Smith's employment agreement with WVU, the patentable ideas
for the CTHA were assigned to West Virginia University Research Corporation
("WVURC") and became its property on April 12, 1994. Accordingly ownership
rights to the CTHA belong to WVU and WVURC. An exclusive worldwide license was
granted by WVURC to Integral Concepts, Inc. ("ICI"), a corporation owned and
controlled by Dr. Smith, to: (1) manufacture the CTHA and, (2) sublicense others
to manufacture, market, sell copies of, license and distribute the CTHA (the
"ICI License"). The consideration for the license was: (1) $1.00 and (2) a
royalty of $3,000.00 per year or 10% of the net revenues received by ICI which
ever is greater.
ICI entered into an option agreement with SMR Investments Ltd. ("SMR"), a
corporation owned by Sue Robertson, the wife of John G. Robertson, President
and Chief Executive Officer of the Company ("Robertson"), dated November 18,
1994, and amended December 16, 1994 (the "Option Agreement"). The Option
Agreement provided that ICI would issue a sublicense to SMR for the CTHA subject
to the payment of $250,000; a 3% royalty from gross sales; and a subsequent
public entity to be established. The Company was organized by SMR and Robertson
as a result. ICI retained all military applications and resulting procurement
interests. The contract period relating to the three percent royalty to be paid
to ICI commences when sales are made by SMR/the Company and continue during the
life of the Option Agreement. The term of the Option Agreement is perpetual as
is the ICI License.
5
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On December 13, 1994, SMR assigned the rights to the Option Agreement to the
Company in consideration of $50,000 advanced by Access Information Services,
Inc. (the "Option Assignment"). Access Information Services, Inc. is a
corporation owned and controlled by Robertson.
On December 14, 1994, the Company issued 3,000,000 shares of Common Stock to Dr.
Smith and 3,000,000 shares of Common Stock to Access Information Services, Inc.,
pursuant to the Option Assignment. The value assigned to the 3,000,000 shares
of Common Stock issued to Dr. Smith was a total of $0.50 and the value assigned
to the 3,000,000 shares of Common Stock issued to Access Information Services
Inc. was $0.50. The valuation of the 3,000,000 shares issued to Dr. Smith and
Access Information Services, Inc. was arbitrarily determined by the Company's
Board of Directors.
10. INDEMNIFICATION OF OFFICERS AND DIRECTORS FOR SECURITIES LIABILITIES
The Bylaws of the Company provide that the Company may indemnify any Director,
Officer, agent and/or employee as to those liabilities and on those terms and
conditions as are specified in the Oregon Business Corporation Act. Further,
the Company may purchase and maintain insurance on behalf of any such persons
whether or not the Company would have the power to indemnify such person against
the liability insured against. The foregoing could result in substantial
expenditures by the Company and prevent any recovery from such Officers,
Directors, agents and employees for losses incurred by the Company as a result
of their actions. Further, the Company has been advised that in the opinion of
the Commission, indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
11. LITIGATION
The Company was sued in April 1998 in a civil action filed in U.S. District
Court for the District of Oregon (the "Oregon Litigation"). The Plaintiff, Kirk
Vanvoorheis, ("Plaintiff") seeks money damages and equitable relief against the
Company alleging patent infringement by the Company for the CTHA. The Company
has notified West Virginia University ("WVU") of this claim and has contacted
WVU to assist in the defense. WVU owns the patent rights to the CTHA technology
which were licensed to the Company. Two patents were granted for the CTHA to
WVU; one in August 1995, and another in August 1997. The Plaintiff's patent was
approved on March 31, 1998. Based upon the information available to the Company
at this time, the Company believes that the Plaintiff's alleged claim of
infringement is without legal or factual basis.
The Plaintiff in the Oregon Litigation is also a defendant in a pending civil
action in the U.S. District Court for the Northern District of West Virginia
brought by WVU (the "West Virginia Litigation") claiming that the CTHA invention
is owned by WVU. As alleged in the West Virginia Litigation, the Company
believes that the patent rights for the CTHA technology belongs to WVU and
therefore based on the license, the Company owns the world wide rights to the
CTHA commercial applications. The Company intends to vigorously defend the
Oregon Litigation. Dr. James Smith, the Chairman of the Board of the Company,
has been sued by Plaintiff in a third party complaint in the West Virginia
Litigation together with WVU and Integral Concepts, Inc.
However if the Plaintiff in the Oregon Litigation is successful, it could
seriously affect the Company financially.
12. GENERAL FACTORS
The Company's areas of business may be affected from time to time by such
matters as changes in general economic conditions, changes in laws and
regulations, taxes, tax laws, prices and costs; and other factors of a general
nature which may have an adverse effect on the Company's business.
OFFERING RISKS
1. LIMITED PUBLIC MARKET FOR THE COMMON STOCK
At present, only a limited public market exists for the Common Stock on the
over-the-counter bulletin board and there is no assurance that a more active
trading market will develop, or, if developed, that it will be sustained. A
purchaser of the Shares may, therefore, find it difficult to resell the Shares
should he or she desire to do so. Furthermore, it is unlikely that a lending
institution will accept the Shares as pledged collateral for loans.
2. NO FORESEEABLE DIVIDENDS
The Company has not paid dividends on its Common Stock and does not anticipate
paying dividends on its Common Stock in the foreseeable future.
6
<PAGE>
3. POSSIBLE VOLATILITY OF SECURITIES PRICES
The market price for the Company's Common Stock traded on the over-the-counter
bulletin board has been highly volatile since it began trading and will likely
to continue to behave in this manner in the future. Factors such as the
Company's operating results and other announcements by the Company regarding its
development work and business operations may have a significant impact on the
market price of the Common Stock. Additionally, market prices for securities of
many smaller companies have experienced wide fluctuations not necessarily
related to the operating performance of the companies themselves.
4. ABILITY TO ISSUE SHARES WITHOUT SHAREHOLDER APPROVAL
The Company has the ability to issue shares of preferred and Common Stock
without shareholder approval. The issuance of such shares could have a
deterrent effect upon third parties attempting to take control of the Company.
5. REQUIREMENTS OF SEC WITH REGARD TO LOW-PRICED SECURITIES
The Common Stock is subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worths in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses).
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
adversely affect the ability of broker-dealers to sell the Common Stock and may
adversely affect the ability of purchasers in this offering to sell any of the
Shares in the secondary market.
6. SHARES ELIGIBLE FOR FUTURE SALE
Sale of substantial amounts of the Company's Common Stock in the public market
or the prospect of such sales could materially and adversely affect the market
price of the Common Stock. As of September 24, 1998, the Company had
outstanding 9,549,350 shares of Common Stock, warrants to purchase 670,600
shares of Common Stock (not including the 25,000 Shares issuable upon exercise
of the Warrant) and debentures convertible into 11,667 shares of Common Stock.
In addition, as of such date, the Company had granted options to purchase
1,122,000 shares of Common Stock under its Stock Option Plan. (the "Stock Option
Plan"). All of the shares purchased under the Stock Option Plan are available
for sale in the public market, subject in some cases to volume and other
limitations.
A substantial number of the Company's presently outstanding shares of Common
Stock, are "restricted" securities and may be sold in compliance with Rule 144
or Regulation S adopted under the Securities Act if certain requirements are
met. Rule 144 provides, in essence, that after one year from the date of
acquisition, a person, including affiliates, of the Company (or persons whose
shares are aggregated) may sell an amount up of to one percent (1%) of the
issued and outstanding shares of Common Stock within any three month period,
provided that certain current public information about the Company is available.
A person who has not been an affiliate of the Company (or persons whose shares
are aggregated) who has owned restricted shares of Common Stock for at least two
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above. Therefore, in each three month period over
100,000 shares of Common Stock could be sold under Rule 144 by each person
having held the securities for at least one year. Also any shares of Common
Stock currently held by non-residents of the United States may be sold after a
one-year holding period subject to the same volume restrictions as Rule 144
under Regulation S. Investors should be aware of the possibility that sales
under Rule 144 or shares issued pursuant to Regulation S may, in the future,
have a depressing effect on the price of the Common Stock.
7. EFFECT OF MARKET PRICE ON NUMBER OF SHARES TO BE ISSUED UPON CONVERSION
In conjunction with the Subscription Agreement, on July 17, 1998 the Company
issued to the Selling Shareholder one Unit, comprised of the Debentures and the
Warrant. The Selling Shareholder may convert the Debentures into Shares of
Common Stock at a conversion price equal to the lesser of seventy-five percent
(75%) of the average closing bid price of the Common Stock for the five trading
days immediately preceding the date the Debentures are presented for conversion
or $2.85 per share The Selling Shareholder may convert the Subsequent
Debentures, if any are issued, into shares of Common Stock at a conversion price
equal to the lesser of eighty-five percent (85%) of the average closing bid
price of the Common Stock for the five trading days immediately preceding the
date the Debentures are presented for conversion or $2.85 per share The Warrant,
and the Subsequent Warrants if any are issued, each entitle the Selling
Shareholder to purchase 25,000 shares of Common Stock of the Company at a price
of $2.85 per share. The Warrant and the Subsequent Warrants are exercisable at
any time beginning on July 15, 1998 and ending on July 15, 2001.
Under the applicable conversion formulae for the Debentures and the Subsequent
Debentures, the number of shares of Common Stock issuable upon conversion will
increase if the market price of the Common Stock decreases. The Company cannot
determine accurately the number of Shares which may be issued to the holders of
the Debentures or the Subsequent Debentures, as such number is based upon the
market price of the Common Stock prior to the conversion date.
7
<PAGE>
To the extent the Selling Shareholder converts the Debentures and any Subsequent
Debentures and then sells the shares of Common Stock received upon conversion,
the market price of the Common Stock may decrease even further due to the
additional shares in the market which would allow the Selling Shareholder to
convert any other Subsequent Debentures into greater amounts of Common Stock and
further depress the price of the Common Stock.
Sales in the public market of substantial amounts of Common Stock, including
sales of Shares issued upon conversion of the Debentures and exercise of the
Warrants and conversion of any Subsequent Debentures and exercise of any
Subsequent Warrants, or the perception that such sales could occur, could
depress prevailing market prices for the Common Stock. The existence of the
Debentures and the Warrant and any other options, debentures or warrants may
prove to be a hindrance to future equity financing by the Company. Further, the
holders of such debentures, warrants and options may exercise them at a time
when the Company would otherwise be able to obtain additional equity capital on
terms more favorable to the Company.
8. YEAR 2000 ISSUES
The Company's products do not require any significant modifications for the Year
2000. However, the Company may face Year 2000 issues as it seeks to coordinate
with other entities with which it interacts electronically, including suppliers,
customers and distribution partners. Although the Company is not currently aware
of any material problems, an assessment has not been made of the anticipated
costs, problems and uncertainties associated with the Year 2000 consequences.
9. DILUTIVE AND OTHER EFFECTS OF SUBSCRIPTION AGREEMENT
While the Subscription Agreement will help provide the Company with additional
future financing, the sale of Units and the issuance of shares pursuant to the
conversion of the Debentures and the Subsequent Debentures, if any are issued,
and exercise of Warrant and any Subsequent Warrants will have a dilutive impact
on other stockholders of the Company. As a result, the Company's net income
(loss) per share could be materially decreased (increased) in future periods,
and the market price of the Common Stock could be materially and adversely
affected. In addition, the Common Stock that may be issued in such events will
be issued at a discount to the then-prevailing market price of the Common Stock.
These discounted sales could have an immediate adverse effect on the market
price of the Common Stock.
The Debentures and the Warrant and the Subsequent Debentures and Subsequent
Warrants contain and will contain provisions that protect against dilution by
adjustment of the exercise price and the number of shares issuable thereunder
upon the occurrence of certain events, such as a merger, stock split or reverse
stock split, stock dividend or recapitalization.
The issuance of additional equity securities or securities convertible into
equity securities, in addition to the possible conversion of existing
convertible debentures, the exercise of warrants and options will also result in
the dilution of the Company's stockholders.
However sale of additional Units and the issuance of any Subsequent Debentures
and Subsequent Warrants is at the sole option of the Company. The Company plans
to complete such sales only if it is necessary to finance the growth of the
business and better financing alternatives are not available.
THE SUBSCRIPTION AGREEMENT
On July 15, 1998, the Company entered into the Subscription Agreement with the
Selling Shareholder pursuant to which the Company may issue and sell, from time
to time, up to ten (10) units, each unit comprised of $500,000 in aggregate
principal amount of 8% Redeemable Convertible Debentures and a warrant to
purchase 25,000 shares of Common Stock (the "Units"). Pursuant to the
requirements of the Subscription Agreement, the Company has filed a registration
statement, of which this Prospectus forms a part, (the "Initial Registration
Statement") in order to permit the Selling Shareholder to resell to the public
the Shares which it will acquire pursuant to conversion of the Debentures and
exercise of the Warrant. Commencing sixty days after the date the Initial
Registration Statement is declared effective by the Securities and Exchange
Commission and continuing until July 17, 2000, the Company may from time to time
at its sole discretion, and subject to certain restrictions set forth in the
Subscription Agreement, require the Selling Shareholder to purchase additional
Units up to a total of 10 Units. The Company is required to file an additional
registration statement for each additional Unit sold to the Selling Shareholder
in order to permit the Selling Shareholder to resell to the public the shares
which it will acquire pursuant to conversion of the Subsequent Debentures and
exercise of the Subsequent Warrants.
The Company's ability to require the Selling Shareholder to purchase Units and
the Selling Shareholder's obligation to purchase the Units is conditioned upon
the satisfaction of certain conditions. These conditions include: (i) the
representations
8
<PAGE>
and warranties of the Company set forth in the Subscription Agreement must be
accurate as of the date of each sale, (ii) the Company shall have performed and
complied with all obligations under the Subscription Agreement, (iii) no
statute, rule, regulation, executive order, decree, ruling or injunction shall
be in effect which prohibits or directly and adversely affects any of the
transactions contemplated by the Subscription Agreement, and (iv) at the time of
a sale, there shall have been no material adverse change in the Company's
business, operations, properties, prospects or financial condition since July
15, 1998.
In conjunction with the Subscription Agreement, on July 20, 1998 the Company
issued to the Selling Shareholder one Unit, comprised of the Debentures and the
Warrant. The Selling Shareholder may convert the Debentures into shares of
Common Stock at a conversion price equal to the lesser of seventy-five percent
(75%) of the average closing bid price of the Common Stock for the five trading
days immediately preceding the date the Debentures are presented for conversion
or $2.85 per share. The Selling Shareholder may convert the Subsequent
Debentures into shares of Common Stock at a conversion price equal to the lesser
of eighty-five percent (85%) of the average closing bid price of the Common
Stock for the five trading days immediately preceding the date the Subsequent
Debentures are presented for conversion or $2.85 per share. The Warrant and the
Subsequent Warrants, if any, each entitles and will entitle the Selling
Shareholder to purchase 25,000 shares of Common Stock of the Company at a price
of $2.85 per share. The Warrant and the Subsequent Warrants are exercisable at
any time up to July 15,, 2001. The Debentures and the Warrant, and the
Subsequent Debentures and Subsequent Warrants, contain and will contain
provisions that protect against dilution by adjustment of the exercise price and
the number of shares issuable thereunder upon the occurrence of certain events,
such as a merger, stock split or reverse stock split, stock dividend or
recapitalization. The exercise prices of the Warrant and the Subsequent Warrants
are payable either (i) in cash or (ii) by a "cashless exercise", in which that
number of shares of Common Stock underlying the Warrant having a fair market
value at the time of exercise equal to the aggregate exercise price are
cancelled as payment of the exercise price.
USE OF PROCEEDS
The proceeds from the sale of the Shares will be received directly by the
Selling Shareholder. No proceeds will be received by the Company from the sale
of the Shares offered hereby. However, the Company will receive up to an
additional $4,500,000 pursuant to the Subscription Agreement if and to the
extent additional Units are sold by the Company pursuant thereto. The Company
will also receive the proceeds, if any, relating to the exercise of the Warrant
and any Subsequent Warrants issued pursuant to the Subscription Agreement. The
proceeds from the sale of additional Units and the exercise of Subsequent
Warrants will be used for research and development of the CTHA and general
working capital purposes.
DETERMINATION OF OFFERING PRICE
The Common Stock offered by this Prospectus may be offered for sale from time to
time in transactions on the over-the -counter market, in negotiated
transactions, or otherwise, or by a combination of these methods, at fixed
prices which may be changed, at market prices at the time of sale, at prices
related to market prices or at negotiated prices. As such, the offering price is
indeterminate as of the date of this Prospectus. See "Plan of Distribution."
9
<PAGE>
SELECTED FINANCIAL DATA
The selected financial information set forth below is derived from and should be
read in conjunction with the consolidated financial statements (including the
notes thereto) appearing elsewhere in this Prospectus. The information for the
periods ended July 31, 1998 and July 31, 1997 is unaudited
<TABLE>
<CAPTION>
Consolidated Balance Sheets
April 30, 1998 and 1997
1998 1997
$ $
<S> <C> <C>
Assets
Current Assets
Cash 15,882 135,039
Prepaid expenses 14,925 11,950
----------- ----------
30,807 146,989
Capital Assets (Note 3) 40,437 45,381
Licence and Patent Protection Costs (Note 4) 368,836 285,895
----------- ----------
440,080 478,265
=========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 370,512 113,860
Accrued liabilities 80,160 127,000
----------- ----------
450,672 240,860
Convertible Debentures (Note 6) 40,000 -
----------- ----------
490,672 240,860
----------- ----------
Redeemable Class "A" Shares (Note 7) - 197,750
----------- ----------
Commitments and Contingencies (Notes 9 and 10)
Stockholders' Equity (Deficit)
Common Stock (Note 7)
Class "A" voting - 100,000,000 shares authorized
without par value; 9,320,350
and 8,481,000 shares issued
and outstanding respectively 3,155,884 1,648,084
- paid for but unissued - 20,000 shares 35,000 -
Class "B" non-voting - 100,000,000 shares authorized without
par value; none issued - -
----------- ----------
3,190,884 1,648,084
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C>
Preferred Stock 50,000,000 shares authorized; none issued - -
Deficit Accumulated During The Development Stage (3,241,476) (1,608,429)
----------- ----------
(50,592) 39,655
----------- ----------
440,080 478,265
=========== ==========
</TABLE>
- --------------------------------------------------------------------------------
Consolidated Statements of Operations
Accumulated from December 13, 1994 (Inception)
to April 30, 1998 and the years ended
April 30, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated 1998 1997
$ $ $
<S> <C> <C> <C>
Revenue - - -
----------- ---------- ----------
Administration Expenses
Bank charges 2,124 929 819
Business plan 45,219 26,619 18,600
Depreciation 1,154 1,030 124
Interest on convertible debentures 2,720 2,720 -
Investor relations - advertising 224,138 152,188 71,950
Investor relations - consulting 206,829 119,773 70,560
Management fees 207,500 60,000 65,000
Office, postage and courier 80,445 53,093 15,288
Professional fees 332,217 63,267 100,604
Rent and secretarial 82,223 38,223 18,500
Telephone 75,802 29,082 35,587
Transfer agent and regulatory 28,132 16,787 6,647
Travel and promotion 58,379 19,609 27,147
Less interest income (13,447) (1,622) (5,245)
----------- ---------- ----------
1,333,435 581,698 425,581
----------- ---------- ----------
Research and Development Expenses
Royalty 9,000 3,000 3,000
Consulting 202,419 32,000 152,752
Depreciation and amortization 36,220 26,634 9,586
Market awareness and development 60,000 60,000 -
Subcontract - West Virginia University
Research Corporation 826,243 421,691 247,462
Subcontract - Emergent Technologies Corporation 1,162,877 896,742 206,135
Less contributions by a non-controlling shareholder (363,718) (363,718) -
Less engineering contribution by a third party (25,000) (25,000) -
----------- ---------- ----------
1,908,041 1,051,349 618,935
----------- ---------- ----------
Net Loss 3,241,476 1,633,047 1,044,516
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C>
=========== ========== ==========
Net Loss Per Share (.18) (.13)
========== ==========
Weighted Average Shares Outstanding 8,900,000 8,100,000
</TABLE>
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
July 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Assets
Current Assets
Cash and equivalents 420,748 155,397
Prepaid expenses 54,508 10,336
----------- -----------
475,256 165,733
Capital Assets 37,638 44,357
Licence and Patent Protection Costs 363,952 282,262
----------- -----------
876,846 492,352
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 441,248 232,642
Accrued liabilities 132,003 5,250
Due to related companies 8,440 21,725
----------- -----------
581,691 259,617
Convertible Debentures 535,000 25,000
----------- -----------
Total Liabilities 1,116,691 284,617
----------- -----------
Redeemable Class "A" Shares - 197,750
Stockholders' Equity (Deficit)
Common Stock
Class "A" voting - 100,000,000 shares authorized without par value;
9,491,350 shares and 8,602,500 shares issued
and outstanding respectively 3,474,824 1,784,459
- paid for but unissued - 37,500
Class "B" non-voting - 100,000,000 shares authorized without par value;
none issued - -
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
----------- -----------
3,474,824 1,821,959
Preferred Stock 50,000,000 shares authorized; none issued - -
Deficit Accumulated During The Development Stage (3,714,669) (1,811,974)
----------- -----------
(239,845) 9,985
----------- -----------
876,846 492,352
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
Consolidated Statements of Operations
For the three months ended July 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Revenue - -
----------- -----------
Administration Expenses
Bank charges 353 537
Business plan 11,910 -
Depreciation 400 166
Financing commission and legal fees 47,500 -
Interest on convertible debentures 2,287 -
Investor relations - advertising 14,800 31,042
Investor relations - consulting 145,167 18,495
Management fees 15,000 15,000
Office, postage and courier 6,755 5,196
Professional fees 50,043 2,006
Rent and secretarial 8,009 13,500
Telephone 9,985 6,000
Transfer agent and regulatory 3,240 2,762
Travel and promotion 19,146 3,312
Less interest (762) (635)
----------- -----------
333,833 97,381
----------- -----------
Research and Development Expenses
Royalty 750 750
Depreciation and amortization 7,283 6,033
Consulting 6,000 12,000
Subcontracts
Others 6,147 -
West Virginia University Research Corporation 73,740 87,381
Emergent Technologies Corporation 112,440 -
Less engineering contribution by a third party (67,000) -
----------- -----------
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C>
139,360 106,164
----------- -----------
Net Loss 473,193 203,545
=========== ===========
Net Loss Per Share (.05) (.02)
=========== ===========
Weighted Average Shares Outstanding 9,389,000 8,595,000
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
- FISCAL 1998
MANAGEMENT'S DISCUSSION
The Company is a development stage company engaged in the commercialization of
advanced antenna technology known as the Contrawound Torroidal Helical Antenna,
("CTHA"), for wireless communications markets including cellular, meter reading
and global positioning services. The CTHA, developed in conjunction with
researchers at West Virginia University, is a technologically advanced antenna
design which can be incorporated into a wide variety of telecommunications
applications. The Company has been granted world-wide sublicensing rights for
commercial applications, excluding military and governmental applications, for
the antenna.
By News Release dated July 15, 1998, the Company announced that an agreement was
completed to build and test the CTHA for receiver sites in the narrowband
personal communications system network of MobileComm (MobileMedia
Communications, Inc.). MobileComm has agreed to assist the Company in the
completion of the design and the building of ten prototypes of the CTHA by
September 11, 1998. Based on successful test results, the Company will make the
CTHA available for purchase by MobileComm by October 30th, 1998. MobileComm is
one of the largest providers of paging and personal communications services in
the United States. MobileComm offers local, regional and nationwide coverage in
all 50 states, reaching markets of over 95% of the U.S. population, and in the
Caribbean.
On June 11, 1998, the Company announced the successful completion of a license
agreement for the CTHA Antenna with ARINC, Incorporated, an ORBCOMM value added
reseller. ARINC was founded in 1929 and is headquartered in Annapolis, Maryland.
It provides communications and systems integration engineering to business and
industry. ARINC's dominion product line uses the ORBCOMM low earth orbit
satellite communication system, which provides global communications coverage
especially useful in remote areas that are not serviced by conventional or
cellular telephone or other terrestrial communications networks.
On May 19, 1998, the Company announced the successful testing of the CTHA by
Larry Hawks for the ham version of the CTHA at the Dayton Hamvention, which
demonstration served to introduce the CTHA to users in the ham frequency range.
On April 3, 1998, the Company announced that it had received a summons and
complaint in a civil action filed in the U.S. District Court for the District of
Oregon regarding alleged patent infringement by the Company for the CTHA. The
Plaintiff seeks money damages and equitable relief against the Company alleging
patent infringement by the Company for the CTHA. The Plaintiff is also a
Defendant in a pending civil action in the U.S. District Court for the Northern
District of West Virginia brought by West Virginia University ("WVU") claiming
that the CTHA invention is owned by WVU. As a result of the pending civil
action, the Company believes that the CTHA invention belongs to WVU and
therefore, based on the license agreement between WVU and Integral Concepts and
the Sublicense Agreement between Integral Concepts and the Company, the Company
owns the worldwide rights to the CTHA commercial applications. The Company
intends to vigorously defend the Oregon litigation.
On January 22, 1998, the Company announced that Circuit Systems, Inc. confirmed
that it would commence production on the CTHA pursuant to the Company. Circuit
Systems, Inc. is located in Elk Grove, Illinois and is an underwriters
laboratory recognized manufacturer of single-sided, double-sided and multi-layer
printed circuit boards.
14
<PAGE>
RESULTS OF OPERATIONS FOR FISCAL 1998 COMPARED TO FISCAL 1997
There were no revenues from licensing the CTHA during the two years.
The net loss in 1998 increased by $489,000 to $1,633,000 compared to $1,044,000
in 1997. Administrative expenses increased by $156,000 to $582,000 compared to
$426,000 in 1997. The major reason for the increase was $60,000 worth of shares
issued to a financial consulting firm during 1998 and $75,000 paid to public
relations firm for advertising the Company's stock. Research and development
activity increased by $432,000 to $1,051,000 compared to $619,000 in 1997. TEAM
entered into an eight month subcontract with Emergent Technologies Corporation
to conduct combined research and development activities expiring December 31,
1997. The contract was extended on a month to month basis after December 31,
1997 and a total amount of $897,000 was paid to Emergent. Emergent contributed
$364,000 towards the funding of these activities and the Company funded
$533,000. The subcontract with the WVURC was increased from $247,000 during
fiscal 1997 to $422,000 during fiscal 1998 to fund the ongoing research and
development program with CIRA. The Company also received $25,000 as a non-
recurring engineering fee from a third party to assist the Company in building
prototypes for testing.
LIQUIDITY - FISCAL 1998
During the year ended April 30, 1998, the Company financed its operations, in
part, from proceeds from two private placements. The Company raised $15,750 and
issued 7,000 shares at $2.25 per share pursuant to a private placement. The
Company raised $1,042,300 and issued 595,600 units at $1.75 per unit pursuant to
a private placement units offering. The Company received $26,875 pursuant to
options exercised and issued 87,500 shares. The Company received $40,000
pursuant to a convertible debenture.
The Company's financial resources, including an opening cash balance as at April
30, 1997 of $135,000, totalled $1,260,000. Cash used, as a result of the net
loss for the year, totalled $1,138,421, after adjustments to reconcile net loss
to cash. The Company spent $6,000 on computer equipment and $100,000 on patent
protection costs. The Company has a cash position of $16,000 as at April 30,
1998.
The Company is committed to spending $110,000 by October 20, 1998 to complete
the funding of the research and development program in conjunction with CIRA.
Subsequent to April 30, 1998 the Company has added additional funds through
completion of the units offering which raised an additional $131,000 and through
a non-recurring engineering fee of $67,000 received from a potential licensee.
The Company also entered into an agreement with an investment banker to place up
to $5,000,000 of units, each unit consisting of one $500,000, three year, 8%
interest, convertible debenture and one warrant to purchase 25,000 shares. One
unit was sold on July 22, 1998. The Company also has the potential to raise up
to $1,173,550 upon the exercise of warrants.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - QUARTER ENDED JULY 31, 1998
The Company successfully tested the CTHA for the ham version of the CTHA at the
Dayton Hamvention, which demonstration served to introduce the CTHA to users in
the ham frequency range.
The Company completed a license agreement for the CTHA Antenna with ARINC,
Incorporated, an ORBCOMM value added reseller. ARINC was founded in 1929 and is
headquartered in Annapolis, Maryland. It provides communications and systems
integration engineering to business and industry. ARINC's dominion product line
uses the ORBCOMM low earth orbit satellite communication system, which provides
global communications coverage especially useful in remote areas that are not
serviced by conventional or cellular telephone or other terrestrial
communications networks.
An agreement was completed to build and test the CTHA Antenna for receiver sites
in the narrowband personal communications system network of MobileComm
(MobileMedia Communications, Inc.). MobileComm has agreed to assist the Company
in the completion of the design and the building of ten prototypes of the CTHA
by September 11, 1998. Based on successful test results, the Company will make
the CTHA available for purchase by MobileComm by October 30, 1998. MobileComm is
one of the largest providers of paging and personal communications services in
the United States. MobileComm offers local, regional and nationwide coverage in
all 50 states, reaching markets of over 95% of the U.S. population, and in the
Caribbean.
A Financing Agreement was completed with an investment banker to purchase a
total of US$5 Million of the Company's units. Each unit consists of a three year
8% convertible redeemable debenture in the principle amount of $500,000 together
with a warrant to purchase 25,000 Class A common shares at a price not exceeding
$2.85 per share. As of July 22, 1998 the Company
15
<PAGE>
received $500,000 from the exercise of one unit and expects to receive
additional funds in increments of $500,000 as required by the Company.
Results of operations for the three months ended July 31, 1998 ("current
- ------------------------------------------------------------------------
quarter") compared to the three months ended July 31, 1997 ("comparative
- ------------------------------------------------------------------------
quarter")
- ---------
There were no revenues from the sale or licensing of the CTHA during the current
and comparative quarters.
The net loss for the current quarter was $473,000 compared to $204,000 for the
comparative quarter. The increase of $269,000 was due to a $30,000 financing
commission paid and $65,000 of professional fees paid in connection with the
$5,000,000 convertible redeemable debenture unit offering. The Company also
issued shares to two financial consulting firms for investor relation activities
during the current quarter. The total non-cash expense was $77,000 and an amount
of $60,000 was accrued which will be settled by issuing 30,000 shares in the
next quarter. None of the above activities took place during the comparative
quarter. The Company continued contracting out to West Virginia University which
totalled $74,000 in the current quarter compared to $87,000 in the comparative
quarter. The Company contracted Emergent Technologies Corporation through TEAM
to develop the 20 prototypes to be delivered to ARINC Incorporated. A total of
$112,000 has been paid to Emergent and a total of $67,000 has been received by
ARINC Incorporated to offset the costs incurred to build the proof-of-concept
antennas.
Liquidity -fiscal 1999
- ----------------------
During the three months ended July 31, 1998 the Company financed its operations
by completing a units offering which raised an additional $140,000 during the
quarter. This units offering is now complete and a total of 675,600 units were
issued and a total of $1,182,300 was raised. Each unit contained one share and
one warrant to acquire one additional share at $1.75 expiring one year from
receipt of funds and at $2.25 expiring two years after. The Company completed a
financing agreement during the quarter with an Investment Banker to issue a
total of $5,000,000 in aggregate principal amount of units. Each unit consists
of a three year, 8% Convertible Redeemable Debentures in the amount of $500,000
and a warrant to purchase 25,000 shares at a price not exceeding $2.85 per
share. The Company has received $500,000 from the exercise of one unit and will
receive additional funds in increments of $500,000 as required. A 6% commission
and a warrant for 5,000 shares at $2.85 was paid to Dutchess Capital Partners,
Inc. of New York, New York. The 6% commission and warrant for 5,000 shares will
be paid for each unit sold.
The Company also received $67,000 from ARINC Incorporated which represents two-
thirds of a Fixed Price Agreement for CTHA Development and Prototypes. The
Company is to deliver 20 proof-of-concept antennas for further evaluation. Once
delivered, the final payment of $33,000 will be made.
The Company has allotted 705,600 shares for the potential exercise of warrants
outstanding, which, if exercised, would total $1,267,800. The Company has
granted certain directors and employees options to acquire 821,500 shares
exercisable at prices between $0.25 and $3.00 per share. If all options are
exercised the Company would received approximately $1,600,000. The Company's
current working capital deficit is $106,435. A total of $60,000 represents
accrued liabilities which are to be settled with the issuance of performance
shares pursuant to a performance share agreement for financial services. The
Company plans to sell Convertible Redeemable Debentures units when needed to pay
liabilities as they become due and to finance ongoing development of antenna
applications.
16
<PAGE>
THE COMPANY
BUSINESS DEVELOPMENT
The Company is a development stage company incorporated in the state of Oregon
in 1994. Its principal business operations are conducted in West Virginia and
Indiana. The Company is engaged in the commercialization of advanced antenna
technology known as the Contrawound Torroidal Helical Antenna, (the "CTHA"), for
wireless communications markets including cellular, meter reading and global
positioning services. The CTHA, developed in conjunction with researchers at
West Virginia University, is a technologically advanced antenna design which can
be incorporated into a wide variety of telecommunications applications. The
Company has been granted world-wide sublicensing rights for commercial
applications, excluding military and governmental applications, for the antenna.
Emergent Technologies Corporation ("ETC") has the sublicense for military and
governmental applications for the CTHA technology.
Dr. James E. Smith, the Chairman of the Board of Directors of the Company ("Dr.
Smith"), is a tenured professor at West Virginia University ("WVU") and has
directed the research and development of CTHA utilizing WVU's facilities and
funding. Under Dr. Smith's employment agreement with WVU, the patentable ideas
for the CTHA were assigned to West Virginia University Research Corporation
("WVURC") and became its property on April 12, 1994. An exclusive worldwide
license was granted by WVURC to Integral Concepts, Inc. ("ICI"), a corporation
owned and controlled by Dr. Smith, to: (1) manufacture the CTHA and, (2)
sublicense others to manufacture, market, sell copies of, license and distribute
the CTHA (the "ICI License").
ICI entered into an option agreement with SMR Investment Ltd., ("SMR") a
corporation owned by Sue Robertson, the wife of John Robertson, the Company's
President, Chief Executive Officer and a member of the Board of Directors
("Robertson"), dated November 18, 1994, and amended December 16, 1994 (the
"Option Agreement"). The Option Agreement provided that ICI would issue a
sublicense to SMR for the CTHA subject to the payment of $250,000; a 3% royalty
from gross sales; and shares in a subsequent public entity. The Company was
organized by SMR and Robertson as a result. ICI retained all military and
governmental applications and resulting procurement interests. The contract
period relating to the three percent royalty to be paid to ICI commences when
sales are made by the Company and continues during the life of the Option
Agreement. The term of the Option Agreement is perpetual as is the ICI
License.
On December 13, 1994, SMR assigned the rights to the Option Agreement to the
Company in consideration for $50,000 advanced by Access Information Services,
Inc. (the "Option Assignment"). Access Information Services, Inc. is a
corporation owned and controlled by Robertson.
On December 14, 1994, the Company issued 3,000,000 shares to Dr. Smith and
3,000,000 shares to Access Information Services Ltd. pursuant to the Option
Assignment. The value assigned to the 3,000,000 shares issued to Dr. Smith was
a total of $0.50 and the value assigned to the 3,000,000 shares issued to Access
Information Systems, Inc. was $0.50. These valuations of the 3,000,000 shares
issued to Dr. Smith and Access Information Systems, Inc. were arbitrarily
determined by the Company's Board of Directors. The $250,000 paid to ICI was a
one-time payment.
On July 10, 1995, ICI granted an exclusive worldwide sublicense to the Company
to: (1) manufacture, sell copies of, sublicense and distribute the process and
equipment related to the design, construction and operation of the CTHA; and,
(2) to sublicense others to manufacture, sell copies of, license and distribute
the same, excluding all military and governmental applications and resulting
procurement interests (the "Sublicense"). The Sublicense was the culmination of
the agreements between ICI and SMR, and SMR and the Company. On December 27,
1995, SMR assigned all of its rights and duties in the CTHA technology to the
Company pursuant to the Option Assignment. The term of the Sublicense, subject
to compliance of the terms thereof, is perpetual and requires the payment of a
minimum annual royalty of $3,000. Further, the Company will pay a royalty of
l0% of the net revenues derived from sales, leases or sublicenses of the CTHA
technology less a credit for the minimum royalty. In addition, the Company
shall pay to ICI a royalty of 3% of the gross revenues derived from the sales,
leases or sublicenses of the CTHA technology.
The Sublicense was amended effective March 4, 1997, to (i) reduce the amount of
the royalty payable by the Company by 50% over the next 3 years, (ii) clarify
that the Company's rights pertain to commercial applications, excluding military
and governmental applications, and (iii) enlarge the definition of Technology to
include all future enhancements to the CTHA technology developed by ICI, ETC, or
the Company.
The Company entered into a joint venture agreement with ETC on March 4, 1997, to
fund and develop a research and development laboratory through a new
corporation, The Eclipse Antenna Manufacturing Corporation, a West Virginia
corporation, ("TEAM"). The purpose of the joint venture is to cooperate in the
research and development of certain
17
<PAGE>
applications for the CTHA. The Company and ETC each own 50% of the issued and
outstanding common shares of TEAM. Pursuant to a voting agreement the Company
can vote 100% of the shares of TEAM. The Company and ETC granted to TEAM
certain rights to sell and manufacture the antennas. All sales of antennas by
TEAM will be for the credit of either the Company or ETC, according to the end-
user. However, the Company and ETC retained the rights to sublicense certain
rights, including development and manufacturing rights relating to the
Technology. The Company and ETC intend to focus on research and development of
the CTHA and arrange for other manufacturers to fill initial orders.
Circuit Systems, Inc. ("Circuit Systems") has agreed to consult with the Company
on manufacturing matters and to manufacture all orders for the Company. Circuit
Systems is located in Elk Grove Village, Illinois and is an underwriters
laboratory recognized manufacturer of single-sided, double-sided and multi-layer
printed circuit boards. Circuit Systems is reputed for producing high volume
quality printed circuit boards and special orders with short lead times.
THE PRODUCT
The CTHA is a low profile, lightweight, resonant antenna the size of a postage
stamp that is shaped like a donut and is 1/60 the size of a standard monopole
antenna. It has a toroidal (donut-shaped) geometry about which has been wrapped
helical windings (coils). The windings occur in pairs which are wrapped with
opposite pitch to each other (i.e. left handed windings versus right handed
windings) and are referred to as contra-windings. The small size of the CTHA
results from both the effect of taking long wires and wrapping them onto a small
geometry and the winding interactions which serve to slow the propagation of the
electrical current within the antenna thus behaving as a larger, lower frequency
antenna.
It can be placed on the ground, the deck of a boat, or embedded into a variety
of items like a cellular phone, pager, or meter reading devices. It can be mass
produced inexpensively for numerous wireless applications giving it an
impressive advantage over conventional monopole and dipole antennas.
The whole unit is ground plane independent. Traditional antennas are dependent
on the conductive plane found at the surface of the earth to achieve geographic
coverage. For that reason the higher above the surrounding terrain that an
antenna is installed, the greater its range of coverage. The CTHA appears from
anecdotal data and observed practical experiments to achieve its range of
coverage without reference to or being dependent on the conductive ground plane.
The result of "ground plane independence" is that the CTHA does not need to be
mounted on a tall tower or at the top of a mountain. The CTHA's coverage
apparently can be achieved with a ground level installation. The elimination of
such towers is a major cost advantage and reduces interference in the visual
environment as well as in the physical environment. Signals are fed to the
antenna through up to four networks which attach to the structure at evenly-
spaced locations. Resulting electromagnetic fields act as if they are solely
produced by a ring of pure magnetic currents; in other words, the contributions
due to electric currents are canceled. This planar ring of magnetic current is
electromagnetically equivalent to a linear electric current.
Compared to traditional dipole and monopole antennas, the CTHA is much shorter
in height, yet its toroidal magnetic field is equivalent to the linear electric
field produced by other taller antennas. This makes CTHAs particularly
excellent candidates for low frequency broadcast transmission that otherwise
require prohibitively tall monopole structures above the earth ground plane.
For higher frequency applications, for example, the Company believes that the
CTHA could replace a car antenna with a structure that could be made part of the
rear view mirror or similarly sized object.
The Company believes that the CTHA has outperformed monopole antennas by over
300% in distances achieved in some cases. The basis for this statement is the
United States Department of Defense as reported by Jack Parsons of ETC. While
the Company's license for the CTHA does not include military applications, the
Company believes that the results from the Department of Defense testing will
support the non-military application and use of the CTHA. In addition, the CTHA
is half the diameter of the ground plane structure necessary for quarterwave
monopole antennas. According to Mr. Parsons, the United States Department of
Defense tested the CTHA at distances of over 37 miles, which is much farther
than the typical 10 mile distances for monopole antennas over a period of
several weeks.
ADVANTAGES/DISADVANTAGES
The principle advantages of this antenna are: (1) low physical profile; (2)
resonant operation providing improved efficiency; and, (3) low susceptibility to
electrostatic disturbances. The CTHA is well suited to long distance
communication applications which require vertical polarization for improved
efficiency. The low physical profile is conducive to flush mounted applications
for reducing aerodynamic drag on vehicles. For low frequency fixed
applications, the significantly shorter structures can be made lighter, more
economical, more aesthetic, and less hazardous to aircraft than the tall
antenna structures that are presently used. The CTHA can be constructed on
rectangular or polygonal frames which can be folded and stored for portable
applications.
18
<PAGE>
APPLICATIONS
There are many applications which can exploit the advantages of the CTHA. The
small size and especially low profile make it well suited to both commercial and
military applications that would benefit from an inconspicuous antenna package.
These would include both land, air and sea vehicles. The low profile and
magnetic principle of operation enable the antenna to be concealed in the
fuselage of the body of an airplane, car, truck, train or boat so as to reduce
drag. The CTHA can also be applied in commercial applications, including AM, FM
and TV broadcasting and reception, and cellular phone communications.
Vice President for Research for the Company, Larry Hawkes, demonstrated the ham
radio version of the CTHA at the Dayton, Ohio Hamvention on May 15-17, 1998.
This convention is the largest hamfest in the world, with 60-90 thousand
attendees annually. The CTHA display generated much interest and was well
attended by the visitors. In the demo, a 3-foot diameter CTHA was placed on the
hood of a GMC Suburban, where it was able to send and receive signals. When the
CTHA was placed under the truck, it still worked, which impressed audiences and
drew inquiries from CEOs and presidents of antenna and electronic companies.
The demo CTHAs were tuned to 7.2 MHz and 14.213 MHz, thereby replacing dipoles
65- and 33-feet long, respectively. Audience members participated in all of the
tests and were also shown high frequency circuit board versions of the CTHA.
This demonstration successfully introduced the CTHA to users in the ham
frequency range.
LICENSING
The Company intends to license the technology to manufacture the CTHAs to third
parties. The licenses will be limited to specific applications on an exclusive
or nonexclusive basis, depending upon the terms of the license.
SALES AND MARKETING
The Company intends to market the CTHA through licensing with third party users
and in some cases the manufacture and sale of the antenna using third party
manufacturers.
COMPETITION
The market for antennas is highly competitive. There are numerous manufacturers
of antennas in the United States with substantially greater financial,
technical, marketing and other resources than the Company. To the Company's
knowledge, no competitors are currently manufacturing any product which is
substantial similar to the CTHA and patent research does not reveal any
competing technology. The Company has not determined if it will compete with
satellite dishes.
RAW MATERIALS
All materials necessary to make the antenna are readily available in the
marketplace from a variety of suppliers.
DEPENDENCE ON MAJOR CUSTOMERS
Since the Company is just beginning to receive orders, it will be dependent on a
few major customers for the near future. On February 27, 1997, the Company
announced an initial order to buy antennas. The Company and ETC announced on
April 21, 1997, that TEAM had received an order to include its antenna in a
wrist watch. On June 12, 1997, the Company and ETC announced that TEAM had
received its first order from a company in the automatic meter reading industry.
On June 11, 1998, the Company signed a license agreement for the CTHA antenna
with ARINC, Incorporated, an ORBCOMM value added reseller. ARINC provides
communications and systems integration engineering to business and industry.
ARINC's Dominium product line uses the ORBCOMM low earth orbit (LEO) satellite
communication system which provides global communications coverage especially
useful in remote areas that are not serviced by conventional or cellular
telephone or other terrestrial communications networks. The Dominium tracker
unit is battery powered and equipped with the Global Positioning System. It can
be programmed to automatically report its position and other information like
temperature, engine speed or load capacity at any desired time interval or upon
reaching a user-determined alarm value. Dominium also markets a data messaging
line of products which integrates input/output devices for sending and receiving
text messages. A subscriber installs the tracker unit on the asset to be
tracked or monitored for a variety of applications including truck tractors,
detached truck trailers, rail cars, ships and containers. Dominium currently
provides service to national and regional trucking companies and to national
railroads. Container shipping companies are currently evaluating the product
for delivery in 1999.
19
<PAGE>
PATENTS
WVURC received a patent for the CTHA in August 1995. Dr. Smith is a tenured
professor at WVU and conducts his research and development regarding the CTHA at
WVU's facilities. As a result, WVURC owns the patent rights to the CTHA which
it licensed to ICI. The ICI License provides that ICI can grant sublicenses of
the technology covered by the patent to third parties. On July 10, 1995, ICI
issued the Sublicense to the Company which was amended in March 1997.
On July 29, 1997, the Company announced that the second US patent had been
granted on the CTHA. This patent broadened the protection it already had for
the CTHA by encompassing several different geometry's not specifically covered
by the first patent.
NEED FOR GOVERNMENT APPROVAL
No government approval is necessary for the antenna other than meeting certain
frequency guidelines.
EFFECT OF EXISTING OR PROPOSED GOVERNMENTAL REGULATIONS
The antenna must meet existing governmental guidelines for antennas. The
Company believes that the antenna meets all governmental requirements.
RESEARCH AND DEVELOPMENT
The Company has spent $1,670,284 on research and development over the past two
years. Research and development is being jointly funded with ETC through TEAM.
Additional research and development of both a scientific and practical nature is
required to complete the commercialization of the CTHA. The cost of some future
research and development will be borne by customers for specific applications.
EMPLOYEES
In addition to its Officers, the Company currently employs three part-time
employees. The Company anticipates adding employees as needed in the future.
PROPERTY
The Company's executive offices are located at #185-10751 Shellbridge Way,
Richmond, British Columbia V6X2W8, and the telephone number is (604)278-5996.
The Company leases, on a month-to-month basis, approximately 200 square feet of
space at the aforementioned office from John Robertson. The monthly rent is
$500.00. The Company shares space with TEAM in Morgantown, West Virginia. The
Company also leases approximately 7,500 square feet for a research and
development facility in Kokomo, Indiana.
LEGAL PROCEEDINGS
To the best knowledge of the Officers and Directors of the Company, neither the
Company nor any of its Officers and Directors are parties to any legal
proceeding or litigation other than as described below. Further, the Officers
and Directors know of no threatened or contemplated legal proceedings or
litigation other than as described below. None of the Officers and Directors
have been convicted of a felony or none have been convicted of any criminal
offense, felony and misdemeanor relating to securities or performance in
corporate office. To the best of the knowledge of the Officers and Directors,
no investigations of felonies, misfeasance in office or securities
investigations are either pending or threatened at the present time.
The Company was sued in April 1998 in a civil action filed in U.S. District
Court for the District of Oregon (the "Oregon Litigation"). The Plaintiff, Kurt
L. Vanvoorhies ("Plaintiff"), seeks money damages and equitable relief against
the Company alleging patent infringement by the Company for the CTHA. The
Company has notified WVU of this claim and will assist WVU in the defense. Two
patents were granted for the CTHA to WVU; one in August 1995, and another in
August 1997. The Plaintiff's patent was approved on March 31, 1998. Based upon
the information available to the Company at this time, the Company believes that
the Plaintiff's alleged claim of infringement is without legal or factual basis.
The Plaintiff in the Oregon Litigation is also a defendant in a pending civil
action in the U.S. District Court for the Northern District of West Virginia
brought by WVU (the "West Virginia Litigation") claiming that the CTHA invention
is owned by the
20
<PAGE>
WVU. As alleged in the West Virginia Litigation, the Company believes that the
patent rights for the CTHA technology belongs to WVU and therefore, based on the
ICI License and the Sublicense, the Company owns the world wide rights to the
CTHA commercial applications. The Company intends to vigorously defend the
Oregon Litigation. Dr. James Smith, the Chairman of the Board of the Company,
has been sued by Plaintiff in a third party complaint in the West Virginia
Litigation together with WVU and Integral Concepts, Inc.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company trades on the OTC Bulletin Board under the
symbol "IASCA" where it has traded since April 16, 1996. The Company's Common
Stock has traded at between $1.125 and $4.62 per share since April 16, 1996.
The following table sets forth the high and low prices for the Company's Common
Stock, as provided by OTC and reported on the Bulletin Board for the quarters
presented. These quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
Bid Price Asked Price
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Quarter ended July 31, 1996 $2.38 $1.38 $2.75 $1.62
Quarter ended October 31, 1996 $4.37 $1.87 $4.62 $2.12
Quarter ended January 31, 1997 $3.00 $1.94 $3.25 $2.06
Quarter ended April 30, 1997 $3.06 $2.00 $3.12 $2.25
Quarter ended July 31, 1997 $2.43 $1.56 $2.75 $1.75
Quarter ended October 31, 1997 $3.75 $1.68 $4.00 $1.87
Quarter ended January 31, 1998 $3.00 $2.06 $3.18 $2.37
Quarter ended April 30, 1998 $2.71 $1.93 $2.81 $2.06
Quarter ended July 31, 1998
</TABLE>
As of September 24, 1998, there were 9,549,350 shares of Common Stock
outstanding, held by 156 shareholders of record.
DIVIDEND POLICY
To date the Company has not paid any dividends on its Common Stock and does not
expect to declare or pay any dividends on such Common Stock in the foreseeable
future. Payment of any dividends will be dependent upon future earnings, if
any, the financial condition of the Company, and other factors as deemed
relevant by the Company's Board of Directors.
SELLING SHAREHOLDER
The Selling Shareholder is the holder of the Debentures and the Warrant. The
Shares are obtainable on conversion of the Debentures and exercise of the
Warrant. The Selling Shareholder acquired the Debentures and Warrant and may
acquire Subsequent Debentures and Subsequent Warrants pursuant to the
Subscription Agreement from the Company for cash. Pursuant to the Subscription
Agreement, the Company sold to the Selling Shareholder one Unit as of July 15,
1998 consisting of $500,000 in aggregate principal amount of the Debentures and
the Warrant. The Company may also require the Selling Shareholder to purchase up
to an additional nine (9) units in the future, each such unit consisting of
$500,000 aggregate principal amount of Subsequent Debentures and one Subsequent
Warrant. The following table sets forth certain information regarding ownership
of the Debentures and Warrant as of September 24, 1998 and the number of Shares
that may be offered for the account of the Selling Shareholder or their
transferees or distributees from time to time upon conversion of the Debentures
and exercise of the Warrant.
21
<PAGE>
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY OFFERED FOR SHARES BENEFICIALLY
Name OWNED BEFORE OFFERING /(1)/ SALE OWNED AFTER OFFERING /(1)/
- ------------------ --------------------- ----------- ---------------------
<S> <C> <C> <C>
NUMBER OF NUMBER OF
SHARES /(1)/ PERCENT /(2)/ SHARES PERCENT /(2)/
------ ------- ------ -------
Augustine Fund, L.P. 469,444 4.7 469,444 -0- -0-
</TABLE>
__________
(1) The Selling Shareholder is deemed to beneficially own the shares of Common
Stock into which the Debentures held by it is convertible and the shares of
Common Stock issuable upon exercise the Warrant.
(2) Total shares of Common Stock outstanding for the purpose of this percentage
calculation includes the Common Stock into which the Debentures are convertible
and the 25,000 shares issuable upon exercise of the Warrant but does not include
1,122,000 shares of Common Stock issuable on exercise of outstanding stock
options or an additional 670,000 shares of Common Stock issuable on exercise of
warrants, 11,667 shares of Common Stock issuable upon conversion of outstanding
convertible debentures or shares that may be granted under the Company's
Performance Stock Plan.
The Selling Shareholder has not had any material relationship with the Company,
or any of its affiliates, within the past three years.
The Selling Shareholder has represented to the Company that it purchased the
Units for its own account for investment only and not with a view towards the
public sale or distribution thereof, except pursuant to sales registered under
the Securities Act or exemptions therefrom. In recognition of the fact that the
Selling Shareholder, even though purchasing the Units for investment, may wish
to be legally permitted to sell its Shares when its deems appropriate, the
Company agreed with the Selling Shareholder to file with the Commission under
the Securities Act the Registration Statement with respect to the sale of the
Shares from time to time in transactions in the over-the-counter market, in
privately negotiated transactions, or through a combination of such methods of
sale, and has agreed to prepare and file such amendments and supplements to the
Registration Statement as may be necessary to keep the Registration Statement
effective until the Shares are no longer required to be registered for the sale
thereof by the Selling Shareholder. The natural persons who control the Selling
Shareholder are John Porter, Brian Porter and Thomas Dusynski. In the event the
registration of additional shares are necessary, the Company has agreed to
prepare and file such additional registration statements as may be necessary to
allow the Selling Shareholder to sell all of the Shares.
PLAN OF DISTRIBUTION
All of the Shares offered hereby may be sold from time to time by the Selling
Shareholder, or by its pledgees, donees, distributees, transferees or other
successors-in-interest. The sale of the Shares by the Selling Shareholder may
be effected from time to time in transactions in the over-the-counter market, or
on one or more other securities markets and exchanges, in privately negotiated
transactions, or through a combination of such methods of sale, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
relating to such prevailing market prices or at negotiated prices. The Selling
Shareholder may effect the above-mentioned transactions by selling the Shares
directly to purchasers, acting as principals for their own accounts, or by or
through broker-dealers acting as agents for the Selling Shareholder, or to
broker-dealers who may purchase Shares as principals and thereafter sell such
Shares from time to time in transactions on any exchange or market on which such
securities are listed or quoted, as applicable, in negotiated transactions,
through a combination of such methods of sale, or otherwise. Such broker-
dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholder and/or the purchasers of the Shares for
whom such broker-dealer may act as agents or to whom they may sell as
principals, or both (which compensation as to a particular broker-dealer may be
in excess of customary commissions). Any broker-dealer may act as a broker-
dealer on behalf of the Selling Shareholder in connection with the offering of
certain of the shares by the Selling Shareholder. None of the proceeds from the
sale of the Shares by the Selling Shareholder will be received by the Company.
In addition, any of the Shares that qualify for sale pursuant to Rule 144
promulgated under the Securities Act may be sold in transactions complying with
such Rule, rather than pursuant to this Prospectus.
The Company has the right to suspend use of this Prospectus for a discrete
period of time under certain circumstances.
To the extent required, the amount of the Shares to be sold, purchase prices,
public offering prices, the names of any agents, dealers or underwriters, and
any applicable commissions or discounts with respect to a particular offer will
be set forth by the
22
<PAGE>
Company in a Prospectus Supplement accompanying this Prospectus or, if
appropriate, a post-effective amendment to the Registration Statement.
The Selling Shareholder may be deemed to be an "underwriter" under the
Securities Act. Also any broker-dealers who act in connection with the sale of
the Shares hereunder may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by them and
profit on any resale of the Shares as principal may be deemed to be underwriting
discounts and commissions under the Securities Act. The Company has agreed to
bear all expenses (other than selling commissions and fees and stock transfer
taxes) in connection with the registration and sale of the Shares being offered
by the Selling Shareholder. The Company has agreed to indemnify the Selling
Shareholder against certain liabilities, including liabilities under the
Securities Act.
Offers or sales of the Shares have not been registered or qualified under the
laws of any country, other than the United States. To comply with certain
states' securities laws, if applicable, the Shares will be offered or sold in
such jurisdictions only through registered or licensed brokers or dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Shares may be limited in its ability to engage
in market activities with respect to such Shares. In addition and without
limiting the foregoing, the Selling Shareholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the Shares by
the Selling Shareholder. The foregoing may affect the marketability of the
Shares.
There can be no assurance that the Selling Shareholder will sell any or all of
the Shares offered by them hereunder.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is presently authorized to issue 100,000,000 shares of its Common
Stock. As of September 24, 1998, there were 9,549,350 shares issued and
outstanding. The holders of Common Stock are entitled to one vote per share on
each matter submitted to a vote at any meeting of shareholders. Shares of Common
Stock do not carry cumulative voting rights and, therefore, a majority of the
outstanding shares of Common Stock will be able to elect the entire Board of
Directors and, if they do so, minority shareholders would not be able to elect
any members to the Board of Directors.
Shareholders of the Company have no preemptive rights to acquire additional
shares of Common Stock or other securities. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. In the event of
liquidation of the Company, the shares of Common Stock are entitled to share
equally in corporate assets after satisfaction of all liabilities. The Shares,
when issued, will be fully paid and non-assessable.
WARRANT
The Warrant will entitle the holder to purchase 25,000 shares of Common Stock at
a price of $2.85 per share. The Warrant is exercisable at any time beginning on
July 15, 1998 and ending on July 15, 2001. The shares of Common Stock underlying
the Warrant, when issued upon exercise of the Warrant in whole or in part, will
be fully paid and nonassessable.
DEBENTURES
The 8% Redeemable Convertible Debentures, Series A, are convertible at any time
after the effective date of the Registration Statement. The conversion price for
the Debentures is the lesser of seventy-five percent (75%) of the average
closing bid price of the Common Stock for the five (5) trading days prior to the
date on which the Debentures are presented for conversion or $2.85 per share.
The conversion price for the Series B 8% Redeemable Convertible Debentures will
be the lesser of eighty-five percent (85%) of the average closing bid price of
the Common Stock for the five (5) trading days prior to the date on which the
debentures is presented for conversion or $2.85 per share.
The Debentures and the Warrant contain provisions that protect the holder
against dilution by adjustment of the exercise price. Such adjustments will
occur in the event, among others, of a merger, stock split or reverse stock
split, stock dividend or recapitalization. The holder of the Debenture and the
Warrant will not possess any rights as a shareholder of the Company until such
holder converts the Debenture or exercises the Warrant.
23
<PAGE>
For the life of the Debenture and the Warrant, the holder thereof has the
opportunity to profit from a rise in the market price of the Common Stock
without assuming the risk of ownership of the shares of Common Stock issuable
upon conversion of the Debenture or the exercise of the Warrant. The Warrant
holder may be expected to exercise the Warrant at a time when the Company would,
in all likelihood, be able to obtain any needed capital by an offering of Common
Stock on terms more favorable than those provided for by the Warrant.
Furthermore, the terms on which the Company could obtain additional capital
during the life of the Warrant may be adversely affected.
MANAGEMENT
The following table sets forth the name, age and position of each Executive
Officer and Director of the Company:
<TABLE>
<CAPTION>
===========================================================================================================================
NAME AGE POSITION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James Earl Smith, Ph.D. 49 Chairman of the Board of Directors
- ---------------------------------------------------------------------------------------------------------------------------
John G. Robertson 57 President, Principal Executive Officer and a member of
the Board of Directors
- ---------------------------------------------------------------------------------------------------------------------------
Jennifer Lorette 26 Secretary/Treasurer, Principal Accounting Officer and
Chief Financial Officer
- ---------------------------------------------------------------------------------------------------------------------------
Patrick Badgley 54 Member of the Board of Directors
- ---------------------------------------------------------------------------------------------------------------------------
Paul E. Lamarche 55 Member of the Board of Directors
===========================================================================================================================
</TABLE>
All Directors of the Company have served since December 13, 1994. The Executive
Officers were elected on February 4, 1995, and will serve for one year or until
their respective successors are elected and qualified. All officers currently
devote part-time to the operation of the Company.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY:
JAMES EARL SMITH PH.D - CHAIRMAN OF THE BOARD OF DIRECTORS
- ----------------------------------------------------------
Dr. Smith is a founder and Chairman of the Board of Directors. Since 1989, Dr.
Smith has been an Associate Professor in the Mechanical and Aerospace
Engineering Department, West Virginia University, Morgantown, West Virginia.
Since September 1990, Dr. Smith has been a Director of the Center for Industrial
Research Applications, West Virginia University. Since February 1994, Dr. Smith
has been President and a Director of Integral Visions Systems, Inc. a West
Virginia corporation engaged in the business of 3-D machine vision calorimetry.
Since September 1992, Dr. Smith has been President and a Director of Integral
Concepts, Inc., a West Virginia corporation engaged in the business of
technology transfer from the research to the commercial sector. From April 1992
to March 1994, Dr. Smith was a consultant to CK Engineering, Inc., located in
Montreal, Canada, which is engaged in the business of mechanism analysis and
development. From January 1992 to March 1993, Dr. Smith was a consultant to Reg
Technologies, Inc. located in Richmond, British Columbia which is engaged in the
business of mechanism analysis and development. Dr. Smith holds the degree of
Doctor of Philosophy in Mechanical Engineering from West Virginia University.
JOHN G. ROBERTSON - PRESIDENT, PRINCIPAL EXECUTIVE OFFICER AND A MEMBER OF THE
- ------------------------------------------------------------------------------
BOARD OF DIRECTORS
- ------------------
Mr. Robertson is a founder, President, Principal Executive Officer and a member
of the Board of Directors of the Company. Since May 1977, Mr. Robertson has
been President and a member of the Board of Directors of SMR Investments Ltd., a
British Columbia corporation engaged in the business of management and
investment consulting. Since October 1984, Mr. Robertson has been President and
a Director of Reg Technologies, Inc., a British Columbia corporation engaged in
the business of developing a rotary engine. Since June 1994, Mr. Robertson has
been President of REGI U.S., Inc. ("REGI U.S."), an Oregon corporation which is
engaged the business of developing a rotary engine. REGI U.S. is controlled by
Rand Energy Group, Inc., a British Columbia corporation of which Reg
Technologies, Inc. is the majority shareholder. Both REGI U.S. and Reg
Technologies, Inc. are engaged in the business of developing a rotary engine and
other devices utilizing Rand Cam(TM) Technology. REGI U.S. owns the U.S. rights
to the Rand Cam(TM) technology and Rand Energy Group, Inc. owns the worldwide
rights exclusive of the U.S. Since May 1980, Mr. Robertson has been President
and a Director of Teryl Resources Corp., a British Columbia corporation,
24
<PAGE>
engaged in exploring and developing gold properties. Since February 1979, Mr.
Robertson has been President and Director of Flame Petro-Minerals Exploration
Co., a British Columbia corporation engaged in exploration of oil, gas and gold
properties.
JENNIFER LORETTE - SECRETARY/TREASURER, PRINCIPAL FINANCIAL OFFICER AND
- -----------------------------------------------------------------------
PRINCIPAL ACCOUNTING OFFICER
- ----------------------------
Ms. Lorette is a founder, Secretary/Treasurer, Principal Financial Officer and
Principal Accounting Officer of the Company. Since April 1994, Ms. Lorette has
been Vice President of Administration of Reg Technologies Inc. Since June 1994,
Ms. Lorette has been a Vice President of REGI U.S. and Chief Financial Officer
and Vice President of Flame Petro Minerals Corp. From February 1994 to April
1994, Ms. Lorette was an executive assistant and from December 1992 to February
1994, she was a receptionist at Reg Technologies, Inc.
PATRICK BADGLEY - A MEMBER OF THE BOARD OF DIRECTORS
- ----------------------------------------------------
Mr. Badgley is a founder and a member of the Board of Directors of the Company.
Since February 1994, Mr. Badgley has been a Vice President of REGI U.S., and
since July 1993 has been a Director of Reg Technologies, Inc. From November
1986 to February 1994, Mr. Badgley was the Director of Research and Development
for Adiabatics, Inc., an Indiana corporation, which was engaged in the business
of advanced engine concepts. Prior to this he worked for Cummins Engine
Company, Curtiss Wright Corporation and Deere and Company. Mr. Badgley holds a
Bachelor of Mechanical Engineering degree from the Ohio State University,
Columbus, Ohio.
PAUL E. LAMARCHE - A MEMBER OF THE BOARD OF DIRECTORS
- -----------------------------------------------------
Mr. Lamarche is a founder and member of the Board of Directors. Since October
1991, Mr. Lamarche has been President of Troy Design Manufacturing, driveline
division, which is engaged in the business of automotive power train engines.
Since 1990, Mr. Lamarche has been a Director of Pioneer Automotive, driveline
division, and President to Neotech Industries, Inc., which is engaged in the
business of engineering services (automotive). Since 1994, Mr. Lamarche has
been a director for the driveline dynamics group for Aerotek Engine Services, a
Michigan corporation. Mr. Lamarche holds a Bachelor of Science degree from the
University of Waterloo, Ontario, Canada.
SIGNIFICANT EMPLOYEES:
LARRY HAWKS
- -----------
Mr. Hawks has been appointed Vice President in charge of Research and
Development and the Chief Engineer for the CTHA project. Mr. Hawks has
extensive experience in ELF, VLF & RF technology. Mr. Hawks has worked for the
Hebrew University in Israel (responsible for radiation studies). He was
previously Engineering Manager in charge of all divisional engineering
operations for producing and design of the IBM PC Junior for AMP Corp. Mr.
Hawks is currently the Chief Engineer for ACM (a division of Eikenberry
Associates in Kokomo, Indiana, an injection moulding company).
BARCLAY HAMBROOK P. ENG. MBA
- -----------------------------
Mr. Hambrook has been appointed Vice President of Business Development. Mr.
Hambrook has acted as advisor to IAS having completed the Company's initial
business plan in 1996. He had been active in communications over the last five
years and successfully negotiated the establishment of technology driven, joint
venture companies in Asia, Europe and North America. Mr. Hambrook as a
principal of Enercana Capital provides corporate finance services.
STEVE GULYAS
- ------------
Mr. Gulyas has been appointed Vice President of Sales for the CTHA for
commercial applications. Mr. Gulyas is an experienced salesperson with several
important connections in the telecommunications industry. He has introduced the
CTHA to several major potential end users.
FAMILY RELATIONSHIPS - none.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
To the best knowledge of the Officers and Directors of the Company, neither the
Company nor any of its Officers and Directors are parties to any legal
proceeding or litigation other than as described below. Further, the Officers
and Directors know of no
25
<PAGE>
threatened or contemplated legal proceedings or litigation other than as
described below. None of the Officers and Directors have been convicted of a
felony or none have been convicted of any criminal offense, felony and
misdemeanor relating to securities or performance in corporate office. To the
best of the knowledge of the Officers and Directors, no investigations of
felonies, misfeasance in office or securities investigations are either pending
or threatened at the present time.
The Company was sued in April 1998 in a civil action filed in U.S. District
Court for the District of Oregon (the "Oregon Litigation"). The Plaintiff, Kurt
L. Vanvoorhies ("Plaintiff"), seeks money damages and equitable relief against
the Company alleging patent infringement by the Company for the CTHA. The
Company has notified WVU of this claim and will assist WVU in the defense. Two
patents were granted for the CTHA to WVU; one in August 1995, and another in
August 1997. The Plaintiff's patent was approved on March 31, 1998. Based upon
the information available to the Company at this time, the Company believes that
the Plaintiff's alleged claim of infringement is without legal or factual basis.
The Plaintiff in the Oregon Litigation is also a defendant in a pending civil
action in the U.S. District Court for the Northern District of West Virginia
brought by WVU (the "West Virginia Litigation") claiming that the CTHA invention
is owned by the WVU. As alleged in the West Virginia Litigation, the Company
believes that the patent rights for the CTHA technology belongs to WVU and
therefore, based on the ICI License and the Sublicense, the Company owns the
world wide rights to the CTHA commercial applications. The Company intends to
vigorously defend the Oregon Litigation. Dr. James Smith, the Chairman of the
Board of the Company, has been sued by Plaintiff in a third party complaint in
the West Virginia Litiagation together with WVU and Integral Concepts, Inc.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate cash compensation paid for services
rendered to the Company during the last three fiscal years by the Company's
Chief Executive Officer and the Company's most highly compensated executive
officers who served as such at the end of the last fiscal year. No executive
officer had an annual salary and bonus in excess of $100,000 during such year.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------------------------------- ------------
Name and Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#)(1)
- --------------------------- ---------- ------------------------ ------------------ ---------------------- ---------------------
<S> <C> <C> <C> <C> <C>
John G. Robertson 1998 -0- -0- -0- -0-
President, Chief 1997 -0- -0- -0- -0-
Executive Officer 1996 -0- -0- -0- 150,000
James E. Smith 1998 $15,000 -0- -0- -0-
Chairman and 1997 $30,000 -0- -0- -0-
Director 1996 $30,000 -0- -0- 150,000
Patrick Badgley 1998 -0- -0- -0- -0-
Director 1997 -0- -0- -0- -0-
1996 -0- -0- -0- 50,000
Paul Lamarche 1998 $ 8,000 -0- -0- -0-
Director 1997 $ 6,000 -0- -0- -0-
1996 -0- -0- -0- 50,000
Jennifer Lorette 1998 -0- -0- -0- -0-
Vice President 1997 -0- -0- -0- -0-
1996 -0- -0- -0- 50,000
</TABLE>
_____________________
(1) Represents options granted under the Company's 1996 Stock Option Plan.
26
<PAGE>
A management fee of $2,500.00 per month is accrued for payment to Access
Information Services, Inc., a corporation controlled by Robertson. Further, the
sum of $1,500.00 is accrued for payment to Access Information Services, Inc. for
rent and secretarial services.
A fee of $2,500.00 per month is accrued for payment to Dr. Smith in his capacity
as a director and as Chairman of the Board of Directors.
Mr. Lamarche is paid $8,000 per year by the Company.
No other compensation is paid to any of the Executive Officers or Directors of
the Company. The Company may in the future create retirement, pension, profit
sharing, insurance and medical reimbursement plans covering its Officers and
Directors. At the present time, no such plans exist. No advances have been
made or are contemplated by the Company to any of its Officers or Directors.
STOCK OPTIONS GRANTED
No stock options were granted to any of the Executive Officers or Directors
during the past fiscal year.
STOCK OPTIONS EXERCISED AND HELD AT YEAR END
The following table sets forth certain information concerning exercises of stock
options pursuant to stock option plans by the named Executive Officers and
Directors during the year ended April 30, 1998 and stock options held at year
end.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Number of Value of
Unexercised Unexercised Options at
Options at Year End Year End
--------------------------------------------------------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John G. -0- -0- 150,000 -0- $337,500 -0-
Robertson
- ------------------------------------------------------------------------------------------------------------------------
Jennifer Lorette -0- -0- 50,000 -0- $112,500 -0-
- ------------------------------------------------------------------------------------------------------------------------
Patrick Badgley -0- -0- 90.000 -0- $122,500 -0-
- ------------------------------------------------------------------------------------------------------------------------
Dr. James Smith 40,000 $83,600 200,000 -0- $350,000 -0-
- ------------------------------------------------------------------------------------------------------------------------
Paul Lamarche 8,000 $17,790 85,000 -0- $121,250 -0-
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On April 30, 1998, the closing price of Common Stock was $2.12. For
purposes of the foregoing table, stock options with an exercise price less
than that amount are considered to be "in-the-money" and are considered to
have a value equal to the difference between this amount and the exercise
price of the stock option multiplied by the number of shares covered by the
stock option.
LONG TERM INCENTIVE PLAN AWARDS
The Company does not have any Long Term Incentive Plans.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Company does not have any employment contracts, termination of employment
and change of control arrangements.
REPRICING OF OPTIONS
27
<PAGE>
The Company has never repriced any outstanding options.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 24, 1998, the outstanding
Common Stock of the Company owned of record or beneficially by each person who
owned of record, or was known by the Company to own beneficially, more than 5%
of the Company's Common Stock, and the name and shareholdings of each Executive
Officer and Director and all Executive Officers and Directors as a group. A
person is deemed to be the beneficial owner of securities that can be acquired
by such person within 60 days from the date of this report upon the exercise of
warrants or options. Each beneficial owner's percentage ownership is determined
by assuming that options that are held by such person and which are exercisable
within 60 days from the date are exercised.
<TABLE>
<CAPTION>
====================================================================================================================
Percentage of Class A
CLASS A Shares Owned
SHARES OWNED
NAME
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James Earl Smith[1]
Chairman of the Board of Directors 3,205,005 33.5%
- --------------------------------------------------------------------------------------------------------------------
John G. Robertson[1][2] President and member of the Board of
Directors 3,197,200 33.5%
- --------------------------------------------------------------------------------------------------------------------
Jennifer Lorette[1]
Secretary/Treasurer, Chief Financial Officer and Principal 106,000 1.1%
Accounting Officer
- --------------------------------------------------------------------------------------------------------------------
Patrick Badgley[1] 90,000 0.94%
- --------------------------------------------------------------------------------------------------------------------
Paul E. Lamarche[1] 85,000 0.89%
- --------------------------------------------------------------------------------------------------------------------
ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP (FIVE
INDIVIDUALS) 6,678,205 66.90%
====================================================================================================================
</TABLE>
All shares are held beneficially and of record and each record shareholder has
sole voting and investment power.
[1] These individuals are the Executive Officers and Directors of the Company
and may be deemed to be "parents or founders" of the Company as that term
is defined in the Rules and Regulations promulgated under the Securities
Act of 1933, as amended. Includes options to purchase shares of Class A
Voting Common Stock at exercise prices of $0.25 and $2.25 per share.
[2] 3,000,000 shares are registered in the name of Access Information Services,
Inc., a corporation controlled by Mr. Robertson.
CHANGES IN CONTROL
There are no arrangements known to the Company the operation of which may result
in a change of control of the Company.
28
<PAGE>
CERTAIN TRANSACTIONS
The Company issued 100 shares of Class A Voting Common Stock to its directors on
December 13, 1994. On July 12, 1995, these shares were donated back to the
Company and canceled.
Dr. Smith, a tenured professor at WVU and the Company's Chairman of the Board of
Directors organized development of the concept of the CTHA at WVU. Pursuant to
terms of his employment at WVU, WVU and WVURC own the world wide rights to any
invention made or developed by WVU personnel. Accordingly ownership rights to
the CTHA belong to WVU and WVURC.
On April 12, 1994, WVURC granted the ICI License to ICI, which is owned by Dr.
Smith to: (1) manufacture CTHAs and (2) sublicense others to manufacture,
market, sell copies of, license and distribute CTHAs. The consideration for the
license was: (1) $1.00 and (2) a royalty of $3,000.00 per year or 10% of the
net revenues received by ICI which ever is greater.
ICI entered into an option agreement with SMR Investments Ltd. ("SMR"), a
corporation owned by Sue Robertson, the wife of Robertson, dated November 18,
1994, and amended December 16, 1994 (the "Option Agreement"). The Option
Agreement provided that ICI would issue a sublicense to SMR for the CTHA subject
to the payment of $250,000; a 3% royalty from gross sales; and a subsequent
public entity to be established. The Company was organized by SMR and Robertson
as a result. ICI retained all military applications and resulting procurement
interests. The contract period relating to the three percent royalty to be paid
to ICI commences when sales are made by SMR/the Company and continue during the
life of the Option Agreement. The term of the Option Agreement is perpetual as
is the ICI License.
On December 13, 1994, SMR assigned the rights to the Option Agreement to the
Company in consideration of $50,000 advanced by Access Information Services,
Inc. (the "Option Assignment"). Access Information Services, Inc. is a
corporation owned and controlled by Robertson.
On December 14, 1994, the Company issued 3,000,000 Class A Shares to Dr. Smith
and 3,000,000 Class A Shares to Access Information Services, Inc., pursuant to
the Option Assignment. The value assigned to the 3,000,000 Class A common
shares issued to Dr. Smith was a total of $0.50 and the value assigned to the
3,000,000 Class A common shares issued to Access Information Services Inc. was
$0.50. The valuation of the 3,000,000 shares issued to Dr. Smith and Access
Information Services, Inc. was arbitrarily determined by the Company's Board of
Directors. The $250,000 has been paid to ICI and was a one time payment.
On July 10, 1995, ICI entered into the Sublicense wherein ICI granted to the
Company the exclusive worldwide right to manufacture, sell copies of, sublicense
and distribute the process and equipment related to the design, construction and
operation of the CTHA and to further sublicense others the rights to
manufacture, sell copies of, license and distribute the same, excluding all
military applications and procurement interests. The Sublicense was the
culmination of the agreement between ICI and SMR, and SMR and the Company. On
December 27, 1995, SMR assigned all of its rights and duties in the CTHA
technology to the Company. The purpose of this assignment was to assign any and
all rights or duties which may have been held by SMR as a result of the Option
Agreement, it being understood that the Option Agreement was nothing more than
an agreement in principle. The term of the Sublicense is perpetual and requires
the payment of a minimum annual royalty of $3,000. Further, the Company will
pay a royalty of 10% of the net revenues derived from sales, licenses or
sublicenses of the CTHA technology with a credit for the minimum royalty. In
addition the Company shall pay a royalty of 3% of the gross revenues derived
from the sales, licenses or sublicenses of the CTHA technology.
The Company and ICI amended the Sublicense in March 1997 to clarify the
applications of CTHA technology subject to the Company's sublicense. As amended,
the Company has exclusive rights to all commercial applications. ETC has the
exclusive rights to all governmental and military applications for the CTHA
antenna. In consideration for the amendment, the Company received a 50%
reduction in royalties to be paid to ICI over a three year period plus an
enlarged definition of Technology to include all future enhancements to the CTHA
technology.
The Company entered into a joint venture with ETC to fund a research and
development laboratory and a manufacturing facility, TEAM. The Company and ETC
each own 50% of TEAM. They granted TEAM certain rights to sell and manufacture
the antennas. All sales of antennas by TEAM will be for the credit of either
the Company or ETC, according to the end user. However the Company and ETC
retained certain rights to sublicense development and manufacturing of antennas.
To date, there have not been any transactions between the Company and its
officers, directors, principal shareholders or affiliates other than as set
forth above. The Company believes that the transactions described here were on
terms more
29
<PAGE>
favorable to the Company's officers, and directors, than otherwise could be
obtained if such transactions were with non-related parties.
LIMITATION ON LIABILITY AND DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The by-laws of the Company provide for indemnification of the Company's
directors and officers to the fullest extent permitted by law. Insofar as
indemnification for liabilities under the Securities Act may be permitted to
directors, officers or controlling persons of the Company pursuant to the
Company's Articles of Incorporation, as amended, by-laws and Oregon law, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for the
Company by Vandeberg Johnson & Gandara, Seattle, Washington.
EXPERTS
The consolidated financial statements of the Company contained herein for the
year ended April 30, 1998, have been audited by Elliot Tulk Pryce Anderson,
Chartered Accountants, as set forth in their report thereon (which contains an
explanatory paragraph describing conditions that raise substantial doubt about
the Company's ability to continue as a going concern as described in Note 1 to
the consolidated financial statements included therein). Such consolidated
financial statements are contained herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
30
<PAGE>
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT
- ----------------------------
Board of Directors
IAS Communications, Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of IAS
Communications, Inc. (a Development Stage Company) as of April 30, 1998 and
1997, and the related statements of operations, stockholders' equity (deficit)
and cash flows for the period from December 13, 1994 (inception) to April 30,
1998 and the years ended April 30, 1998 and 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at April 30, 1998
and 1997, and the results of its operations and its cash flows for the period
from December 13, 1994 (inception) to April 30, 1998, and the years ended April
30, 1998 and 1997, in conformity with U.S. generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has not generated any revenues or profitable
operations since inception. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The financial statements do not
include any adjustments which might result from the outcome of this uncertainty.
"Elliott, Tulk, Pryce, Anderson"
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
July 22, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
April 30, 1998 and 1997
1998 1997
$ $
<S> <C> <C>
Assets
Current Assets
Cash 15,882 135,039
Prepaid expenses 14,925 11,950
--------- ---------
30,807 146,989
Capital Assets (Note 3) 40,437 45,381
Licence and Patent Protection Costs (Note 4) 368,836 285,895
--------- ---------
440,080 478,265
========= =========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 370,512 113,860
Accrued liabilities 80,160 127,000
--------- ---------
450,672 240,860
Convertible Debentures (Note 6) 40,000 -
--------- ---------
490,672 240,860
--------- ---------
Redeemable Class "A" Shares (Note 7) - 197,750
--------- ---------
Commitments and Contingencies (Notes 9 and 10)
Stockholders' Equity (Deficit)
Common Stock (Note 7)
Class "A" voting - 100,000,000 shares authorized
without par value; 9,320,350
and 8,481,000 shares issued
and outstanding respectively 3,155,884 1,648,084
- paid for but unissued - 20,000 shares 35,000 -
Class "B" non-voting - 100,000,000 shares authorized without
par value; none issued - -
--------- ---------
3,190,884 1,648,084
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C> <C>
Preferred Stock 50,000,000 shares authorized; none issued - -
Deficit Accumulated During The Development Stage (3,241,476) (1,608,429)
---------- ----------
(50,592) 39,655
---------- ----------
440,080 478,265
========== ==========
</TABLE>
F-3
<PAGE>
Consolidated Statements of Operations
Accumulated from December 13, 1994 (Inception)
to April 30, 1998 and the years ended
April 30, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated 1998 1997
$ $ $
<S> <C> <C> <C>
Revenue - - -
--------- --------- ---------
Administration Expenses
Bank charges 2,124 929 819
Business plan 45,219 26,619 18,600
Depreciation 1,154 1,030 124
Interest on convertible debentures 2,720 2,720 -
Investor relations - advertising 224,138 152,188 71,950
Investor relations - consulting 206,829 119,773 70,560
Management fees 207,500 60,000 65,000
Office, postage and courier 80,445 53,093 15,288
Professional fees 332,217 63,267 100,604
Rent and secretarial 82,223 38,223 18,500
Telephone 75,802 29,082 35,587
Transfer agent and regulatory 28,132 16,787 6,647
Travel and promotion 58,379 19,609 27,147
Less interest income (13,447) (1,622) (5,245)
--------- --------- ---------
1,333,435 581,698 425,581
--------- --------- ---------
Research and Development Expenses
Royalty 9,000 3,000 3,000
Consulting 202,419 32,000 152,752
Depreciation and amortization 36,220 26,634 9,586
Market awareness and development 60,000 60,000 -
Subcontract - West Virginia University
Research Corporation 826,243 421,691 247,462
Subcontract - Emergent Technologies Corporation 1,162,877 896,742 206,135
Less contributions by a non-controlling shareholder (363,718) (363,718) -
Less engineering contribution by a third party (25,000) (25,000) -
--------- --------- ---------
1,908,041 1,051,349 618,935
--------- --------- ---------
Net Loss 3,241,476 1,633,047 1,044,516
========= ========= =========
Net Loss Per Share (.18) (.13)
========= =========
Weighted Average Shares Outstanding 8,900,000 8,100,000
========= =========
</TABLE>
F-4
<PAGE>
Consolidated Statements of Cash Flows
Accumulated from December 13, 1994 (Inception)
to April 30, 1998 and the years ended
April 30, 1998 and 1997
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Accumulated 1998 1997
$ $ $
<S> <C> <C> <C>
Cash Flows to Operating Activities
Net loss (3,241,476) (1,633,047) (1,044,516)
Adjustments to reconcile net loss to cash
Gain on shares cancelled (10) - -
Depreciation and amortization 37,374 27,664 9,710
Shares issued for services 268,458 260,125 -
Change in non-cash working capital items
Increase in prepaid expenses (14,925) (2,975) (2,192)
Increase in accounts payable 370,512 256,652 86,746
Increase (decrease) in accrued liabilities 80,160 (46,840) 127,000
---------- ---------- ----------
Net Cash Used in Operating Activities (2,499,907) (1,138,421) (823,252)
---------- ---------- ----------
Cash Flows to Investing Activities
Increase in capital assets (55,991) (5,686) (50,305)
Increase in licence (250,000) - -
Increase in patent protection costs (140,655) (99,975) (25,192)
---------- ---------- ----------
Net Cash Used in Investing Activities (446,646) (105,661) (75,497)
---------- ---------- ----------
Cash Flows from Financing Activities
Increase in common stock 2,922,435 1,084,925 848,750
Increase in convertible debentures 40,000 40,000 -
---------- ---------- ----------
Net Cash Provided by Financing Activities 2,962,435 1,124,925 848,750
---------- ---------- ----------
Increase (Decrease) in Cash 15,882 (119,157) (49,999)
Cash - Beginning of Period - 135,039 185,038
---------- ---------- ----------
Cash - End of Period 15,882 15,882 135,039
========== ========== ==========
</TABLE>
F-5
<PAGE>
<TABLE>
<S> <C> <C> <C>
Non-Cash Financing Activities
The Company issued 6,000,000 Class "A"
common shares at a deemed value of $1
in total for property 1 - -
Shares issued to an officer at inception
donated back to the Company and cancelled (10) - -
Shares issued for services 8,333 - 8,333
Shares issued pursuant to performance
stock agreements for services 260,125 260,125 -
---------- ---------- ----------
268,449 260,125 8,333
========== ========== ==========
Supplemental disclosures:
Interest paid 2,720 2,720 -
Income tax paid - - -
</TABLE>
F-6
<PAGE>
Consolidated Statement of Stockholders' Equity (Deficit)
Accumulated from December 13, 1994 (Inception)
to April 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Common During the
Stock Stock Development
Shares Class "A" Class "B" Stage
# $ $ $
<S> <C> <C> <C> <C>
Balance - December 13, 1994 (Inception) - - - -
Shares issued to an officer at inception
for cash at $0.10 per share 100 10 - -
Shares issued, at inception, for property
at a nominal value of $1 in total
or $.00000017 per share 6,000,000 1 - -
Shares issued for cash pursuant to a
private placement at $0.10 per share 700,000 - 70,000 -
Shares issued for cash pursuant to a public
offering memorandum at $0.75 per share 336,333 - 252,250 -
Net loss for the period - - - (83,615)
--------- --------- --------- ----------
Balance - April 30, 1995 7,036,433 11 322,250 (83,615)
Shares issued to an officer at inception
donated back and cancelled (100) (10) - -
Share exchange - 322,250 (322,250) -
Shares issued for cash pursuant to
options exercised at $0.25 per share 210,000 52,500 - -
Net loss for the year - - - (480,298)
--------- --------- --------- ----------
Balance - April 30, 1996 7,246,333 374,751 - (563,913)
Shares issued for cash pursuant to a
private placement at $1.25 per share 500,000 625,000 - -
Shares issued for services at $0.33 per share 25,000 8,333 - -
Shares issued for cash pursuant to options
exercised at $0.25 per share 139,500 34,875 - -
Shares issued for cash pursuant to options
exercised at $1.25 per share 84,500 105,625 - -
Shares issued for cash pursuant to a
private placement at $2.25 per share 222,000 499,500 - -
Net loss for the year - - - (1,044,516)
--------- --------- --------- ----------
Balance - April 30, 1997 8,217,333 1,648,084 - (1,608,429)
--------- --------- --------- ----------
</TABLE>
F-7
<PAGE>
Consolidated Statement of Stockholders' Equity (Deficit)
Accumulated from December 13, 1994 (Inception)
to April 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Common During the
Stock Stock Development
Shares Class "A" Class "B" Stage
# $ $ $
<S> <C> <C> <C> <C>
Carryforward from April 30, 1997 8,217,333 1,648,084 - (1,608,429)
Shares previously issued, for cash during
1994, pursuant to a public offering
memorandum at $0.75 per share,
transferred to shareholders' equity
from redeemable status (Note 7(c)) 263,667 197,750 - -
Shares issued for cash pursuant to options
exercised at $0.25 per share 83,500 20,875 - -
Shares issued for cash pursuant to options
exercised at $1.50 per share 4,000 6,000 - -
Shares issued for cash pursuant to a
private placement at $2.25 per share 7,000 15,750 - -
Shares issued for cash pursuant to a
private placement, at $1.75 per share 575,600 1,007,300 - -
Shares issued for services pursuant to a
performance stock agreement at a
deemed value of $1.17 per share 100,000 117,000 - -
Shares issued for services pursuant to a
performance stock agreement at a
deemed value of $2.50 per share 9,250 23,125 - -
Shares issued for services pursuant to a
performance stock agreement at a
deemed value of $2.00 per share 60,000 120,000 - -
Net loss for the year - - - (1,633,047)
--------- --------- --------- ----------
Balance - April 30, 1998 9,320,350 3,155,884 - (3,241,476)
========= ========= ========= ==========
</TABLE>
Notes to the Consolidated Financial Statements
F-8
<PAGE>
1. Development Stage Company
IAS Communications, Inc. herein "the Company" was incorporated on
December 13, 1994, pursuant to the Laws of the State of Oregon.
The Company is a development stage company engaged in the
commercialization of advanced antenna technology known as the
Contrawound Torroidal Helical Antenna, herein "CTHA", for wireless
communications markets including cellular, meter reading and global
positioning services. The CTHA, developed in conjunction with
researchers at West Virginia University, is a technologically advanced
antenna design which can be incorporated into a wide variety of
telecommunications applications. The Company has been granted
worldwide sublicensing rights for commercial applications, excluding
military and governmental applications, for the CTHA pursuant to an
agreement with Integral Concepts Inc. and West Virginia University
Research Corporation.
In a development stage company, management devotes most of its
activities to establishing a new business. Planned principle
activities have not yet produced significant revenue. The ability of
the Company to emerge from the development stage with respect to its
planned principle business activity is dependent upon its successful
efforts to raise additional equity financing and develop markets for
its products.
The Company has subsequently raised $131,250 to complete a private
placement of units at $1.75 per unit and plans to raise additional
funds through a $5,000,000 units private placement, each unit
consisting of a three year 8% convertible debenture and a warrant to
acquire 25,000 Class "A" shares. The Company also received $67,000
towards a $100,000 non-recurring engieering fee from a potential
licensee. Warrants in the amount of 670,600 at $1.75 may be exercised
to net $1,173,550.
2. Summary of Significant Accounting Policies
(a) Basis of Consolidation
These financial statements include the accounts of the Company
and a newly incorporated company, The Eclipse Antenna
Manufacturing Co. herein "TEAM", which is 50% equity owned and
100% controlled through a voting agreement. All significant
inter-company accounts have been eliminated.
(b) Year-End
The Company's fiscal year-end is April 30.
(c) Research and Development
Research and development costs are expensed in the period in
which they are incurred.
(d) Capital Assets
Capital assets are recorded at cost and are depreciated on a
straight-line basis over their estimated useful lives of five
years.
(e) Licence and Patent Protection Costs
Costs associated with patent protection and licences are
amortized over 20 years upon licenceable product being developed
which occurred on February 1, 1997.
(f) Cash and Cash Equivalents
The Company considers all highly liquid instruments with a
maturity of three months or less at the time of issuance to be
cash equivalents.
(g) Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the periods. Actual results could differ
from those estimates.
F-9
<PAGE>
(h) Tax Accounting
Potential benefits of income tax losses are not recognized in
the accounts until realization is more likely than not. Research
and development costs are deducted in the year incurred and
added to net operating loss.
The Company has adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109") as of its inception. The Company
has incurred net operating losses as scheduled below:
<TABLE>
<CAPTION>
Year of Loss Amount Year of
$ Expiration
<S> <C> <C>
1995 89,000 2010
1996 497,000 2011
1997 1,057,000 2012
1998 1,425,000 2013
</TABLE>
Pursuant to SFAS 109 the Company is required to compute tax
asset benefits for net operating losses carried forward.
Potential benefit of net operating losses have not been
recognized in these financial statements because the Company
cannot be assured it is more likely than not it will utilize the
net operating losses carried forward in future years.
The components of the net deferred tax asset at the end of April
30, 1998 and 1997, and the statutory tax rate, the effective tax
rate and the elected amount of the valuation allowance are
scheduled below:
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Net Operating Loss 1,425,000 1,056,537
Statutory Tax Rate 113,900 + 34% 113,900 + 34%
in excess of in excess of
$ 335,000 $ 335,000
Effective Tax Rate - -
Deferred Tax Asset 485,000 359,000
Valuation Allowance (485,000) (359,000)
---------- ----------
Net Deferred Tax Asset - -
========== ==========
</TABLE>
F-10
<PAGE>
3. Capital Assets
<TABLE>
<CAPTION>
1998 1997
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer equipment 7,991 1,154 6,837 2,181
Research and development equipment 48,000 14,400 33,600 43,200
------ ------ ------ ------
55,991 15,554 40,437 45,381
====== ====== ====== ======
Depreciation per class of capital asset:
Computer equipment 1,030 124
Research and development equipment 9,600 4,800
</TABLE>
4. Licence and Patent Protection Costs
<TABLE>
<CAPTION>
1998 1997
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Licence 250,001 16,667 233,334 245,834
Patent protection costs 140,655 5,153 135,502 40,061
------- ------ ------- -------
390,656 21,820 368,836 285,895
======= ====== ======= =======
</TABLE>
Pursuant to the terms of an option agreement dated November 18, 1994,
and amended December 16, 1994, between SMR Investments Ltd. ("SMR")
and Integral Concepts Inc. ("ICI") and an assignment of this option
agreement dated December 13, 1994, the Company acquired a sublicence
to the CTHA, subject to entering into a formal sublicence agreement.
Pursuant to the terms of the option agreement, the Company paid
$250,000 to ICI, which owns the exclusive licence obtained from West
Virginia University Research Corporation ("WVURC") in an agreement
dated April 12, 1994. SMR, ICI and WVURC are not related to each
other. Pursuant to the assignment agreement, the Company issued
3,000,000 shares to each of Access Information Systems Inc. (A
company controlled by SMR) and a director of the Company (principal of
ICI) for a total deemed value of $1 for all 6,000,000 shares issued.
Pursuant to the original licence agreement between WVURC and ICI, ICI
was granted the exclusive licence to manufacture the CTHA or
sublicence others to manufacture, market, sell copies of, licence and
distribute the CTHA. On July 10, 1995, the Company and ICI entered
into a sublicence agreement, which incorporates the terms and
conditions of the original licence agreement between WVURC and ICI.
The sublicence is exclusive, covering any and all international
markets but excludes all military and governmental applications and
resulting procurement interests which are retained by ICI and WVURC
for development purposes. All improvements and embodiments that are
created as a result of these military applications and additional
research and development efforts by ICI and WVURC will be transferred
directly to the Company. The terms of the sublicence agreement, which
incorporates the financial obligations that ICI owes WVURC pursuant to
the original licence agreement, are as follows:
(i) The Company will pay WVURC a minimum annual royalty of $3,000 on
or before December 31 of each year.
(ii) The Company will pay WVURC an earned royalty on sales, leases or
sublicences of the CTHA of 10% of net revenues less a credit for
the minimum annual royalty. No revenues have been earned to
date.
F-11
<PAGE>
(iii) The Company will pay ICI an earned royalty on sales, leases or
sublicences of the CTHA of 3% of gross revenues. As amended on
March 4, 1997, ICI agreed to reduce the amount of royalties to
be paid by 50% in an amount not to exceed $5,000,000 for up to
3 years.
All royalties are payable within 30 days of each calendar quarter.
The term of the original licence agreement and the sublicence
agreement, subject to compliance with the terms thereof, is perpetual
and renewable annually.
5. Joint Venture Agreement
The Company entered into a Joint Venture Agreement ("JVA") with
Emergent Technologies Corporation (ETC) on March 4, 1997. The JVA
required a new company to be incorporated (TEAM) whereby the Company
owns 50% and ETC owns 50%. Pursuant to a voting agreement the Company
can vote 100% of the shares of TEAM and therefore the accounts of TEAM
are consolidated with the accounts of the Company. The President of
ETC is the President of TEAM. TEAM was organized on June 4, 1997,
under the laws of the State of West Virginia. The Company retains the
worldwide commercial sublicence rights to the CTHA excluding all
military and governmental applications.
The business purpose of TEAM is to cooperate in the research and
development of certain applications for the CTHA and to assemble and
manufacture certain products relating thereto. IAS can buy product
from TEAM at cost to manufacture plus 30% for all commercial
applications and ETC can buy product from TEAM at cost to manufacture
plus 30% for all military applications. ETC acquired the worldwide
sublicence from ICI for all military and governmental applications on
January 2, 1997.
TEAM entered into a contract with ETC to carry out combined research
and development activities to December 31, 1997. This contract is
renewable on a monthly basis at the option of TEAM. ETC and the
Company have each funded TEAM $250,000 as required in the JVA. The
Company has advanced a further $285,700 and ETC has advanced a further
$113,668 towards combined research and development activities.
6. Convertible Debentures
The Company offered, in a private placement a three year, 8 3/4%
interest, convertible debenture to raise $500,000, of which $40,000
was sold prior to closing. Interest is paid annually and the
debenture is convertible into Class "A" common shares at $2.50, $3.00
and $3.50 on June 15, 1998, 1999 and 2000, respectively. In the event
the shares are trading below $4.00 per share over a ten-day average
prior to exercising into shares of the Company during the last month
of the third year, the convertible debenture will be exercisable at
20% below the said ten-day average. The maturity date is June 15,
2000.
7. Common Stock
(a) Stock Option Plan
On October 2, 1996 the Company registered 1,000,000 Class "A"
shares for issuance under a Stock Option Plan. Pursuant to the
Plan the Company has granted stock options to certain directors
and employees. The options are granted for services provided or
to be provided to the Company. Statement of Financial Accounting
Standards No. 123 ("SFAS 123") requires that an enterprise
recognize, or at its option, disclose, the impact of the fair
value of stock options and other forms of stock based
compensation in the determination of income. The Company has
elected under SFAS 123 to continue to measure compensation cost
on the intrinsic value basis set out in APB Opinion No. 25. As
options are granted at exercise prices based on the market price
of the Company's shares at the date of grant, no intrinsic value
adjustment is required.
<TABLE>
<CAPTION>
April 30, Price Granted Exercised April 30, Expiry
1997 $ # # 1998 Date
# #
<S> <C> <C> <C> <C> <C>
173,000 0.25 - 83,500 89,500 December 29, 1999
37,500 0.25 - - 37,500 February 4, 2000
3,000 1.25 - - 3,000 March 4, 2001
25,000 1.50 - 4,000 21,000 August 21, 2001
</TABLE>
F-12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
530,000 2.25 - - 530,000 December 19, 2001
- 2.50 17,500 - 17,500 August 1, 2001
- 2.25 25,000 - 25,000 April 14, 2003
------- ------ ------ -------
768,500 42,500 87,500 723,500
======= ====== ====== =======
</TABLE>
(b) Units Offering
A total of $1,173,550 ($131,250 received after April 30, 1998)
has been received to July 9, 1998 (date of closing) pursuant to a
private placement and foreign offering of 670,600 units at $1.75
per unit. Each unit has been issued and contained one share and
one warrant to acquire one additional share at $1.75 per share
expiring one year after receipt of funds and $2.25 per share
expiring two years after.
(c) Redeemable Class "A" Shares
Between December 14, 1994 and March 6, 1995, the Company received
subscriptions for 263,667 Class "B" shares and received $197,750
from investors in States where they have the right to revoke
their subscription and demand their investment be returned to
them within three years of subscription as to $161,500 and within
six years as to $36,250. The 263,667 redeemable Class "B" shares
were issued and then exchanged for 263,667 Class "A" shares.
Holders of these shares did not revoke their subscriptions and/or
have sold these shares and thus all 263,667 Class "A" shares are
not considered redeemable and $197,750 has been transferred to
shareholders' equity.
8. Related Party Transactions
Management fees of $60,000 (1997 - $65,000) and rent and secretarial
fees of $18,000 (1997 - $18,500) has been paid to directors or
companies under their control. All fees were recorded at their
exchange amounts.
9. Commitments and Contingencies
(a) Contractual Commitments
(i) The Company entered into an agreement on October 21, 1997
and amended May 15, 1998 with WVURC to fund ongoing
research and development of the CTHA in the amount of
$444,927. The budget ending date is October 20, 1998. A
total of $334,311 of this budget has been spent to April
30, 1998.
(ii) See Note 10 for ongoing compensation commitments including
a Performance Stock Plan.
(iii) See Note 7 for commitments to issue shares upon the
exercise of stock options and warrants.
(b) Contingent liability - Development Stage Company (See Note 1).
(c) Litigation
An action has commenced against the Company by a company owned by
a former student of West Virginia University with respect to an
alleged infringement of a certain U.S. Patent.
The Company is disputing the validity of this claim and based on
the current legal action with the plaintiff by West Virginia
University regarding the CTHA the Company is requesting a motion
to stay the action.
10. Compensation Agreements and Performance Stock Plan
(a) The Company has allotted up to 1,000,000 shares to be issued
pursuant to a Performance Stock Plan. Compensation is recorded
when the shares are issued, which approximates the period when
the services are rendered, and recorded at the fair market value
of the shares issued.
(i) The Company is committed to issue up to 500,000 shares to
the President of ETC and President of TEAM whom is also an
employee of the Company. A total of 100,000 shares
F-13
<PAGE>
were issued on May 5, 1997, at a deemed value of $1.17 per
share for compensation of $117,000. The amount of $117,000
was accrued as of April 30, 1997, and charged to research
and development consulting expense. The remaining 400,000
shares shall be earned as to 100,000 shares for every
1,000,000 CTHA's sold.
(ii) The Company is committed to issue 182,000 shares to two
financial consulting firms. A total of 60,000 shares were
issued during the year at $2.00 per share, 12,000 shares
were issued May 28, 1998 at $2.37 per share ($28,440 was
accrued at April 30, 1998) 55,000 shares were issued June
23, 1998, 30,000 shares are to be issued in July, 1998 and
25,000 shares are to be issued in December, 1998.
(b) The Company is committed to pay compensation of $30,000 to each
of Access Information Systems and Dr. Smith for fiscal 1999.
11. Subsequent Events
Subsequent to April 30, 1998 the Company has:
(i) received a further $131,250 and, together with $35,000
received prior to April 30, 1998, issued 95,000 units at
$1.75 per unit.
(ii) issued 67,000 shares and is committed to issue a further
455,000 shares pursuant to various performance stock
agreements entered into.
(iii) granted stock options to acquire 100,000 shares at prices
between $2.25 and $3.00.
(iv) received $67,000 towards a $100,000 non-recurring
engineering fee from a potential licensee.
(v) issued 2,000 shares pursuant to $5,000 of convertible
debentures converted at $2.50 per share.
(vi) entered into an agreement with an investment banker to place
up to $5,000,000 of units, each unit consisting of one
$500,000, three year, 8% interest, convertible debenture and
one warrant to purchase 25,000 Class "A" shares. One unit
was sold on July 22, 1998.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
MANAGEMENT'S DISCUSSION
The Company is a development stage company engaged in the commercialization of
advanced antenna technology known as the Contrawound Torroidal Helical Antenna,
("CTHA"), for wireless communications markets including cellular, meter reading
and global positioning services. The CTHA, developed in conjunction with
researchers at West Virginia University, is a technologically advanced antenna
design which can be incorporated into a wide variety of telecommunications
applications. The Company has been granted world-wide sublicensing rights for
commercial applications, excluding military and governmental applications, for
the antenna.
By News Release dated July 15, 1998, the Company announced that an agreement was
completed to build and test the CTHA for receiver sites in the narrowband
personal communications system network of MobileComm (MobileMedia
Communications, Inc.). MobileComm has agreed to assist the Company in the
completion of the design and the building of ten prototypes of the CTHA by
September 11, 1998. Based on successful test results, the Company will make the
CTHA available for purchase by MobileComm by October 30th, 1998. MobileComm is
one of the largest providers of paging and personal communications services in
the United States. MobileComm offers local, regional and nationwide coverage in
all 50 states, reaching markets of over 95% of the U.S. population, and in the
Caribbean.
On June 11, 1998, the Company announced the successful completion of a license
agreement for the CTHA Antenna with ARINC, Incorporated, an ORBCOMM value added
reseller. ARINC was founded in 1929 and is headquartered in Annapolis, Maryland.
It provides communications and systems integration engineering to business and
industry. ARINC's dominion product line uses the ORBCOMM low earth orbit
satellite communication system, which provides global communications coverage
especially useful in remote areas that are not serviced by conventional or
cellular telephone or other terrestrial communications networks.
F-14
<PAGE>
On May 19, 1998, the Company announced the successful testing of the CTHA by
Larry Hawks for the ham version of the CTHA at the Dayton Hamvention, which
demonstration served to introduce the CTHA to users in the ham frequency range.
On April 3, 1998, the Company announced that it had received a summons and
complaint in a civil action filed in the U.S. District Court for the District of
Oregon regarding alleged patent infringement by the Company for the CTHA. The
Plaintiff seeks money damages and equitable relief against the Company alleging
patent infringement by the Company for the CTHA. The Plaintiff is also a
Defendant in a pending civil action in the U.S. District Court for the Northern
District of West Virginia brought by West Virginia University ("WVU") claiming
that the CTHA invention is owned by WVU. As a result of the pending civil
action, the Company believes that the CTHA invention belongs to WVU and
therefore, based on the license agreement between WVU and Integral Concepts and
the Sublicense Agreement between Integral Concepts and the Company, the Company
owns the worldwide rights to the CTHA commercial applications. The Company
intends to vigorously defend the Oregon litigation.
On January 22, 1998, the Company announced that Circuit Systems, Inc. confirmed
that it would commence production on the CTHA pursuant to the Company. Circuit
Systems, Inc. is located in Elk Grove, Illinois and is an underwriters
laboratory recognized manufacturer of single-sided, double-sided and multi-layer
printed circuit boards.
RESULTS OF OPERATIONS FOR FISCAL 1998 COMPARED TO FISCAL 1997
There were no revenues from licensing the CTHA during the two years.
The net loss in 1998 increased by $489,000 to $1,633,000 compared to $1,044,000
in 1997. Administrative expenses increased by $156,000 to $582,000 compared to
$426,000 in 1997. The major reason for the increase was $60,000 worth of shares
issued to a financial consulting firm during 1998 and $75,000 paid to public
relations firm for advertising the Company's stock. Research and development
activity increased by $432,000 to $1,051,000 compared to $619,000 in 1997. TEAM
entered into an eight month subcontract with Emergent Technologies Corporation
to conduct combined research and development activities expiring December 31,
1997. The contract was extended on a month to month basis after December 31,
1997 and a total amount of $897,000 was paid to Emergent. Emergent contributed
$364,000 towards the funding of these activities and the Company funded
$533,000. The subcontract with the WVURC was increased from $247,000 during
fiscal 1997 to $422,000 during fiscal 1998 to fund the ongoing research and
development program with CIRA. The Company also received $25,000 as a non-
recurring engineering fee from a third party to assist the Company in building
prototypes for testing.
LIQUIDITY - FISCAL 1998
During the year ended April 30, 1998, the Company financed its operations, in
part, from proceeds from two private placements. The Company raised $15,750 and
issued 7,000 shares at $2.25 per share pursuant to a private placement. The
Company raised $1,042,300 and issued 595,600 units at $1.75 per unit pursuant to
a private placement units offering. The Company received $26,875 pursuant to
options exercised and issued 87,500 shares. The Company received $40,000
pursuant to a convertible debenture.
The Company's financial resources, including an opening cash balance as at April
30, 1997 of $135,000, totalled $1,260,000. Cash used, as a result of the net
loss for the year, totalled $1,138,421, after adjustments to reconcile net loss
to cash. The Company spent $6,000 on computer equipment and $100,000 on patent
protection costs. The Company has a cash position of $16,000 as at April 30,
1998.
The Company is committed to spending $110,000 by October 20, 1998 to complete
the funding of the research and development program in conjunction with CIRA.
Subsequent to April 30, 1998 the Company has added additional funds through
completion of the units offering which raised an additional $131,000 and through
a non-recurring engineering fee of $67,000 received from a potential licensee.
The Company also entered into an agreement with an investment banker to place up
to $5,000,000 of units, each unit consisting of one $500,000, three year, 8%
interest, convertible debenture and one warrant to purchase 25,000 shares. One
unit was sold on July 22, 1998. The Company also has the potential to raise up
to $1,173,550 upon the exercise of warrants.
F-15
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
The following supplementary financial information is unaudited.
Consolidated Balance Sheets
July 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Assets
Current Assets
Cash and equivalents 420,748 155,397
Prepaid expenses 54,508 10,336
--------- ---------
475,256 165,733
Capital Assets 37,638 44,357
Licence and Patent Protection Costs 363,952 282,262
--------- ---------
876,846 492,352
========= =========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 441,248 232,642
Accrued liabilities 132,003 5,250
Due to related companies 8,440 21,725
--------- ---------
581,691 259,617
Convertible Debentures 535,000 25,000
--------- ---------
Total Liabilities 1,116,691 284,617
--------- ---------
Redeemable Class "A" Shares - 197,750
--------- ---------
Stockholders' Equity (Deficit)
Common Stock
Class "A" voting - 100,000,000 shares authorized without par value;
9,491,350 shares and 8,602,500 shares issued
and outstanding respectively 3,474,824 1,784,459
- paid for but unissued - 37,500
Class "B" non-voting - 100,000,000 shares authorized without par value;
none issued - -
--------- ---------
3,474,824 1,821,959
</TABLE>
F-16
<PAGE>
<TABLE>
<S> <C> <C>
Preferred Stock 50,000,000 shares authorized; none issued - -
Deficit Accumulated During The Development Stage (3,714,669) (1,811,974)
--------- ---------
(239,845) 9,985
--------- ---------
876,846 492,352
========= =========
</TABLE>
F-17
<PAGE>
Consolidated Statements of Operations
For the three months ended July 31, 1998 and 1997
(expressed in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Revenue - -
--------- ---------
Administration Expenses
Bank charges 353 537
Business plan 11,910 -
Depreciation 400 166
Financing commission and legal fees 47,500 -
Interest on convertible debentures 2,287 -
Investor relations - advertising 14,800 31,042
Investor relations - consulting 145,167 18,495
Management fees 15,000 15,000
Office, postage and courier 6,755 5,196
Professional fees 50,043 2,006
Rent and secretarial 8,009 13,500
Telephone 9,985 6,000
Transfer agent and regulatory 3,240 2,762
Travel and promotion 19,146 3,312
Less interest (762) (635)
--------- ---------
333,833 97,381
--------- ---------
Research and Development Expenses
Royalty 750 750
Depreciation and amortization 7,283 6,033
Consulting 6,000 12,000
Subcontracts
Others 6,147 -
West Virginia University Research Corporation 73,740 87,381
Emergent Technologies Corporation 112,440 -
Less engineering contribution by a third party (67,000) -
--------- ---------
139,360 106,164
--------- ---------
Net Loss 473,193 203,545
========= =========
Net Loss Per Share (.05) (.02)
========= =========
Weighted Average Shares Outstanding 9,389,000 8,595,000
========= =========
</TABLE>
F-18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company successfully tested the CTHA for the ham version of the CTHA at the
Dayton Hamvention, which demonstration served to introduce the CTHA to users in
the ham frequency range.
The Company completed a license agreement for the CTHA Antenna with ARINC,
Incorporated, an ORBCOMM value added reseller. ARINC was founded in 1929 and is
headquartered in Annapolis, Maryland. It provides communications and systems
integration engineering to business and industry. ARINC's dominion product line
uses the ORBCOMM low earth orbit satellite communication system, which provides
global communications coverage especially useful in remote areas that are not
serviced by conventional or cellular telephone or other terrestrial
communications networks.
An agreement was completed to build and test the CTHA Antenna for receiver sites
in the narrowband personal communications system network of MobileComm
(MobileMedia Communications, Inc.). MobileComm has agreed to assist the Company
in the completion of the design and the building of ten prototypes of the CTHA
by September 11, 1998. Based on successful test results, the Company will make
the CTHA available for purchase by MobileComm by October 30, 1998. MobileComm is
one of the largest providers of paging and personal communications services in
the United States. MobileComm offers local, regional and nationwide coverage in
all 50 states, reaching markets of over 95% of the U.S. population, and in the
Caribbean.
A Financing Agreement was completed with an investment banker to purchase a
total of US$5 Million of the Company's units. Each unit consists of a three year
8% convertible redeemable debenture in the principle amount of $500,000 together
with a warrant to purchase 25,000 Class A common shares at a price not exceeding
$2.85 per share. As of July 22, 1998 the Company received $500,000 from the
exercise of one unit and expects to receive additional funds in increments of
$500,000 as required by the Company.
Results of operations for the three months ended July 31, 1998 ("current
- ------------------------------------------------------------------------
quarter") compared to the three months ended July 31, 1997 ("comparative
- ------------------------------------------------------------------------
quarter")
- ---------
There were no revenues from the sale or licensing of the CTHA during the current
and comparative quarters.
The net loss for the current quarter was $473,000 compared to $204,000 for the
comparative quarter. The increase of $269,000 was due to a $30,000 financing
commission paid and $65,000 of professional fees paid in connection with the
$5,000,000 convertible redeemable debenture unit offering. The Company also
issued shares to two financial consulting firms for investor relation activities
during the current quarter. The total non-cash expense was $77,000 and an amount
of $60,000 was accrued which will be settled by issuing 30,000 shares in the
next quarter. None of the above activities took place during the comparative
quarter. The Company continued contracting out to West Virginia University which
totalled $74,000 in the current quarter compared to $87,000 in the comparative
quarter. The Company contracted Emergent Technologies Corporation through TEAM
to develop the 20 prototypes to be delivered to ARINC Incorporated. A total of
$112,000 has been paid to Emergent and a total of $67,000 has been received by
ARINC Incorporated to offset the costs incurred to build the proof-of-concept
antennas.
Liquidity -fiscal 1999
- ----------------------
During the three months ended July 31, 1998 the Company financed its operations
by completing a units offering which raised an additional $140,000 during the
quarter. This units offering is now complete and a total of 675,600 units were
issued and a total of $1,182,300 was raised. Each unit contained one share and
one warrant to acquire one additional share at $1.75 expiring one year from
receipt of funds and at $2.25 expiring two years after. The Company completed a
financing agreement during the quarter with an Investment Banker to issue a
total of $5,000,000 in aggregate principal amount of units. Each unit consists
of a three year, 8% Convertible Redeemable Debentures in the amount of $500,000
and a warrant to purchase 25,000 shares at a price not exceeding $2.85 per
share. The Company has received $500,000 from the exercise of one unit and will
receive additional funds in increments of $500,000 as required. A 6% commission
and a warrant for 5,000 shares at $2.85 was paid to Dutchess Capital Partners,
Inc. of New York, New York. The 6% commission and warrant for 5,000 shares will
be paid for each unit sold.
The Company also received $67,000 from ARINC Incorporated which represents two-
thirds of a Fixed Price Agreement for CTHA Development and Prototypes. The
Company is to deliver 20 proof-of-concept antennas for further evaluation. Once
delivered, the final payment of $33,000 will be made.
F-19
<PAGE>
The Company has allotted 705,600 shares for the potential exercise of warrants
outstanding, which, if exercised, would total $1,267,800. The Company has
granted certain directors and employees options to acquire 821,500 shares
exercisable at prices between $0.25 and $3.00 per share. If all options are
exercised the Company would received approximately $1,600,000.
The Company's current working capital deficit is $106,435. A total of $60,000
represents accrued liabilities which are to be settled with the issuance of
performance shares pursuant to a performance share agreement for financial
services. The Company plans to sell Convertible Redeemable Debentures units when
needed to pay liabilities as they become due and to finance ongoing development
of antenna applications.
F-20
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
<TABLE>
<CAPTION>
____________________
TABLE OF CONTENTS PAGE
<S> <C>
Available Information ..................................................... 2
Prospectus Summary ........................................................ 3
Risk Factors .............................................................. 4
The Subscription Agreement ................................................ 8
Use of Proceeds ........................................................... 9
Determination of Offering Price ........................................... 9
Selected Financial Data ................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................... 14
The Company ............................................................... 17
Price Range of Common Stock ............................................... 21
Dividend Policy ........................................................... 21
Selling Shareholder ....................................................... 21
Plan of Distribution ...................................................... 22
Description of Securities ................................................. 23
Management ................................................................ 25
Principal Shareholders .................................................... 28
Certain Transactions ...................................................... 29
Legal Matters ............................................................. 30
Experts ................................................................... 30
Limitation on Liability and Disclosure of Commission Position on
Indemnification For Securities Act Liabilities .......................... 30
Report of Independent Auditors ............................................ F-1
Consolidated Financial Statements ......................................... F-2
</TABLE>
================================================================================
<PAGE>
469,444 SHARES OF
COMMON STOCK
IAS COMMUNICATIONS, INC.
P R O S P E C T U S
November__, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions, will be
paid by the Company. Such expenses are estimated as follows:
Registration fee............................................ $ 205
Legal fees and expenses..................................... $20,000
Accounting fees and expenses................................ $ 1,000
Miscellaneous............................................... $ 495
-------
Total................................................. $21,700
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation provide that the Company must indemnify
each of its (i) fiduciaries within the meaning of the Employee Retirement Income
Security Act of 1974, as amended, with respect to any employee benefit plan, and
(ii) directors and officers, to the fullest extent permitted under the Oregon
Business Corporation Act against all liabilities incurred by reason of the fact
that the person is or was a director or officer of the Company or a fiduciary of
an employee benefit plan, or is or was serving at the request of the Company as
a director or officer, or fiduciary of an employee benefit plan, of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise.
The effect of these provisions is potentially to indemnify the Company's
directors and officers from all costs and expenses of liability incurred by them
in connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with the Company.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy and expressed in the Securities Act and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In July 1997, the Company sold, in a private placement, 99,000 shares of Class A
Common Stock at a price of $2.25 per share to 15 accredited investors. These
transactions were exempt from registration under the Act by reason of Section
4(2) thereof and Rule 505 of Regulation D. Each certificate representing shares
issued to the investors in this private placement bears a legend restricting
transfer.
In December 1997, the Company sold, in a private placement, $30,000 in aggregate
principal amount of its 8 3/4% of Convertible Debentures due June 15, 1998. Each
Debentures is convertible into Common Stock of the Company at any time at or
prior to maturity at a conversion price of $2.50 per share up to June 15, 1998;
at $3.00 from June 16, 1998 to June 15. 1999, and at $3.50 from June 16, 1999 to
June 15, 2000. In the event the shares of Common Stock are trading below $4.00
per share any consecutive ten trading day period during the period May 15, 2000
to June 15, 2000, the conversion price on June 15, 2000 shall be 80% of the
average closing bid price of Common Stock over said ten day trading period. to 4
accredited investors. These transactions were exempt from registration under the
Act by reason of Section 4(2) thereof and Rule 506 of Regulation D. Each
certificate representing debentures issued to the investors in this private
placement bears a legend restricting transfer.
II-1
<PAGE>
In December 1997, the Company sold, in a private placement, 226,600 Units at a
price of $1.75 per Units to 21 accredited investors. Each Unit consists of one
share of Common Stock and one Warrant allowing the holder to purchase an
additional share of Common Stock at $1.75 during the first year following the
issue date, and $2.25 per share during the second year following the issue date.
The purchasers of these Units were, in the opinion of management, fully informed
with respect to the financial position, business and prospects of the Company.
These transactions were exempt from registration under the Act by reason of
Section 4(2) thereof and Rule 506 of Regulation D. Each certificate representing
securities issued to the investors in this private placement bears a legend
restricting transfer.
ITEM 16. EXHIBITS
4.1 Subscription Agreement between the Company and Augustine Fund, LP
dated as of July 15, 1998.*
4.2 Form of Series A Debentures.*
4.3 Form of Series B Debentures.*
4.4 Form of Warrant.*
4.5 Amendment to Subscription Agreement dated as October 30, 1998
5.1 Opinion of Vandeberg Johnson & Gandara.
23.1 Consent of Elliott Tulk Pryce Anderson.*
23.2 Consent of Vandeberg Johnson & Gandara (included in Exhibit 5).
24.1 Powers of Attorney (included in this Registration Statement).
* Previously Filed
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, as amended (the "Securities Act");
(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; 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.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act, 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.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered that remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act), that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be in the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Richmond, British Columbia, on October 30, 1998.
IAS COMMUNICATIONS, INC.
By /s/ John G. Robertson
--------------------------------------------
John G. Robertson
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints John G. Robertson as attorney-in-fact with full power of substitution,
to execute in the name and on the behalf of each person, individually and in
each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments, and any
related Rule 462(b) Registration Statement and any amendment thereto.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons on October 30, 1998 in
the capacities indicated.
Signature Title
- --------- -----
/s/ John G. Robertson President, Chief Executive Officer
- ---------------------------------- and Director
John G. Robertson
/s/ James E. Smith Chairman of the Board of Directors
- ----------------------------------
James E. Smith
/s/ Patrick Badgley Director
- ----------------------------------
Patrick Badgley
/s/ Paul Lamarche Director
- ----------------------------------
Paul Lamarche
/s/ Jennnifer Lorette Chief Financial Officer
- ---------------------------------- and Principal Accounting Officer
Jennifer Lorette
II-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
Number DESCRIPTION
------ -----------
4.1 Subscription Agreement between the Company and Augustine Fund, LP
dated as of July 15, 1998. *
4.2 Form of Series A Debentures.*
4.3 Form of Series B Debentures.*
4.4 Form of Warrant.*
4.5 Amendment to Subscription Agreement dated as of October 30, 1998.
5.1 Opinion of Vandeberg Johnson & Gandara.
23.1 Consent of Elliott Tulk Pryce Anderson.*
23.2 Consent of Vandeberg Johnson & Gandara (included in Exhibit 5).
24.1 Powers of Attorney (included in this Registration Statement).
* Previously filed
_____________________________________
II-5
<PAGE>
EXHIBIT 4.5
AMENDMENT TO SUBSCRIPTION AGREEMENT
This amendment to subscription agreement is made and entered into as of October
30, 1998, by and between IAS Communications, Inc., an Oregon corporation, (the
"Company") and Augustine Fund, L.P. ("Subscriber").
WHEREAS, the parties have previously made and entered into a Subscription
Agreement dated as of July 15, 1998 (the "Subscription Agreement") whereby the
Subscriber agreed to purchase up to ten Units, as defined in the Subscription
Agreement, from the Company and the Company agreed to sell such Units to
Subscriber, and
WHEREAS, the parties desire to amend the Subscription Agreement according to the
terms and conditions contained herein.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
1. The Subscription Agreement is hereby amended in the following respects:
a. Section 1 (b) (ii) is amended to read in full as follows:
"(i) The second Unit shall be payable at such date as the
Company shall advise the Subscriber on not less than five (5) nor more than ten
(10) business days' written notice, which notice may not be given earlier than
the sixtieth (60th) day after the effective date of the Initial Registration
Statement, as defined in Paragraph 7 of this Agreement; provided, however, that
if the Initial Registration Statement shall not have been declared effective by
the Commission six months from the Initial Closing Date, the Subscriber's
obligations to purchase additional Units shall terminate."
b. Section 2 (h) is hereby deleted in its entirety.
c. Section 5 (b) (ii) is hereby amended to read in full as follows:
"(ii) The Initial Registration Statement and any Subsequent
Registration Statement shall have been declared effective by the Commission, all
Shares issuable upon conversion of any outstanding Debenture and upon exercise
of any outstanding Warrant issued on such Subsequent Closing Date shall have
been registered, no stop order shall be pending or shall have been threatened
with respect to any Registration Statement, and no event shall have occurred
which could in any manner prohibit the use of any Registration Statement to sell
any of the Shares."
d. Section 7 (a) is hereby amended to read in full as follows:
1
<PAGE>
"(a) The Company shall (i) file or cause to be filed with the
Commission, not later than thirty (30) days after the Initial Closing Date, a
registration statement (the "Initial Registration Statement") on Form S-3 or
Form S-1 providing for the sale by the Subscriber of all of the Shares and (ii)
use its best efforts to have the Initial Registration Statement declared
effective by the Commission not later than ninety (90) days from the Initial
Closing Date, time being of the essence. The Company shall also (i) file or
cause to be filed with the Commission, not later than thirty (30) days after
each Subsequent Closing Date, a registration statement (the "Subsequent
Registration Statements") (the Initial Registration Statement and the Subsequent
Registration Statements together the "Registration Statements") on Form S-3 or
Form S-1 providing for the sale by the Subscriber of all of the Shares and (ii)
use its best efforts to have the Subsequent Registration Statements declared
effective by the Commission not later than ninety (90) days from each Subsequent
Closing Date, time being of the essence. The Registration Statements shall
register a sufficient number of shares of Common Stock to cover the maximum
possible number of shares of Common Stock issuable upon conversion of the
Debentures and upon exercise of the Warrants. The Registration Statements shall
cover the issuance of the Shares and the sale by the Subscriber or the
Subscriber's transferee in the manner or manners designated by the Subscriber.
The Company agrees to keep the Registration Statements continuously effective
until all of the Shares have been sold. References in this Paragraph 7 to the
Subscriber shall include, in addition to the Subscriber, any holder of the
Shares or the Securities, other than pursuant to the Registration Statements.
Such Shares shall be registered regardless of whether, at the effective date of
any Registration Statement, the Debentures shall have been converted or the
Warrants shall have been exercised."
2. All other terms and conditions of the Subscription Agreement shall remain
in full force and effect.
IAS COMMUNICATIONS, INC.
By:______________________________________
John G. Robertson, President
AUGUSTINE FUND, L.P.
By:______________________________________
2
<PAGE>
EXHIBIT 5.1
[VJG letterhead]
October 30, 1998
Board of Directors
IAS Communications, Inc.
Gentlemen:
We have acted as counsel to IAS Communications, Inc. (the "Company") in
connection with the filing of Amendment No. 1 on form S-1 to the a Registration
Statement on Form S-3 (the "Registration Statement") under the Securities Act of
1933, as amended, relating to the issuance of up to 469,444 shares of Common
Stock (the "Shares"), which are issuable upon conversion of the Company's Series
A 8% Redeemable Convertible Debentures (the "Debentures") and exercise of
Warrants (the "Warrants"), both issued or to be issued pursuant to Subscription
Agreement dated as of July 15, 1998, between the Company and Augustine Fund LP,
as amended as of October 30, 1998. We have reviewed the corporate actions of the
Company in connection with this matter, and we have examined such corporate
records and other documents as we deemed necessary for the purposes of this
opinion.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Oregon.
2. The Shares have been duly reserved for issuance upon conversion of the
Debentures and exercise of the Warrants, and when issued upon such conversion or
exercise in accordance with the terms of the Debentures or Warrants and in
accordance with the terms of the Company's Articles of Incorporation and Bylaws,
the Shares will be validly issued, fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ VANDEBERG JOHNSON & GANDARA
