AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 2000
REGISTRATION NO. 33-19048-NY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 4 TO FORM S-18 ON
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MURRAY UNITED DEVELOPMENT CORP.
(Name of Small Business Issuer in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
7391
(Primary standard industrial classification code number)
22-2856177
(I.R.S. Employer Identification No.)
P.O. BOX 224
LANDING, NEW JERSEY 07850
(908) 979-3025
(Address and telephone number of registrant's principal executive offices)
DWIGHT FOSTER, PRESIDENT
Murray United Development Corp.
P.O. Box 224
Landing, New Jersey 07850
(908) 979-3025
(Name, address and telephone number of agent for service)
------------------------
Copy to:
JOHN R. CALCAGNI, ESQ.
Haley, Weinblatt & Calcagni, LLP
300 Rabro Drive
Hauppauge, New York 11788
Telephone: (631) 582-5151
Fax: (631) 234-7108
------------------------
APPROXIMATE DATE OF SALE TO THE PUBLIC: From time to time after the
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (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 statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
of the Securities Act, please check the following box. / /
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,
check the following box. /X/
------------------------
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, or until the Registration Statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MURRAY UNITED DEVELOPMENT CORP.
CROSS-REFERENCE SHEET
Showing Location in Prospectus of Part I Items of Form SB-2
ITEM NUMBER AND HEADING
IN FORM SB-2 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
----------------------------------------------- ----------------------------------------
1. Front of Registration Statement and Outside
Front Cover of Prospectus.................... Front of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information and Risk Factors........... Prospectus Summary; Risk Factors
4. Use of Proceeds................................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................ Risk Factors; Determination of Offering
Price
6. Dilution....................................... Risk Factors; Dilution
7. Selling Securityholders........................ Not Applicable
8. Plan of Distribution........................... Plan of Distribution
9. Legal Proceedings.............................. Business
10. Directors, Executive Officers, Promoters and
Control Persons.............................. Management
11. Security Ownership of Certain Beneficial Owners
and Management............................... Principal Shareholders
12. Description of Securities...................... Description of Securities
13. Interest of Named Experts and Counsel.......... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Risk Factors; Indemnification
15. Organization Within Last Five Years............ Not Applicable
16. Description of Business........................ Prospectus Summary; Risk Factors;
Business
17. Management's Discussion and Analysis or Plan of
Operation.................................... Management's Discussion and Analysis or
Plan of Operation
18. Description of Property........................ Business
19. Certain Relationships and Related
Transactions................................. Certain Transactions; Management
20. Market for Common Equity and Related
Stockholder Matters.......................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Dividend Policy;
Description of Securities; Shares
Eligible for Future Sale
21. Executive Compensation......................... Executive and Director Compensation
22. Financial Statements........................... Selected Financial Data; Financial
Statements
23. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....... Not Applicable
SUBJECT TO COMPLETION, PROSPECTUS DATED APRIL 20, 2000
15,398,000 SHARES
MURRAY UNITED DEVELOPMENT CORP.
COMMON STOCK
Under a registration statement that the Securities Exchange Commission ("SEC")
declared effective on February 26, 1988, we sold 15,000,000 Units, each Unit
consisting of one share of Common Stock, one Class A Redeemable Common Stock
Purchase Warrant (the "Class A Warrants"), and one Class B Redeemable Common
Stock Purchase Warrant ("Class B Warrants"). The Class A Warrants expired on
October 25, 1991. The Class B Warrants will expire on March 11, 2001, unless our
Board of Directors extends them (the "B Exercise Period"). As of the date of
this Prospectus, 14,898,000 Class B Warrants are outstanding (not including
500,000 Class B Warrants held by certain underwriters ("Underwriter's Class B
Warrants") (See "Description of Securities -- Underwriter's Class B Warrants").
The Class B Warrants entitle you to purchase, during the B Exercise Period, one
share of Common Stock at a purchase price of $.15 per share. The Underwriter's
Class B Warrants entitle the holders of such Warrants to purchase, during the B
Exercise Period, one share of Common Stock at a price of $.225 per share. We may
redeem the Class B Warrants at any time at a price of $.0001 per Class B
Warrant, provided we give you thirty days' prior notice of our intention to do
so. Our Common Stock is listed on the OTC Bulletin Board under the symbol
"MRAY". See "Description of Securities."
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS
PROSPECTUS.
- ------------------------
THESE SHARES HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES
COMMISSION NOR HAVE THESE ORGANIZATIONS DETERMINED WHETHER THIS PROSPECTUS IS
COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
YOU SHOULD ONLY RELY ON INFORMATION INCORPORATED BY REFERENCE OR PROVIDED
IN THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE ELSE TO
PROVIDE YOU WITH DIFFERENT INFORMATION. OUR COMMON STOCK IS NOT BEING OFFERED IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
UNDERWRITING
PRICE TO DISCOUNTS & PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
-------------------- -------------------- --------------------
Per Share (1).............. $ .15 -0- $ .15
Per Share (2).............. $ .225 -0- $ .225
Total (3).................. $2,347,200 -0- $2,347,200
(1) Price per share and proceeds to Company relate to 14,898,000 Class B
Warrants that are not Underwriter's Class B Warrants.
(2) Price per share and proceeds to Company relate to 500,000 Underwriter's
Class B Warrants.
(3) This is the amount the Company will receive if all of the Class B Warrants
and Underwriter's Class B Warrants are exercised before deducting expenses
of the offering, estimated at $38,500, which include legal, accounting,
printing and registration fees and miscellaneous expenses.
See "Use of Proceeds" and "Plan Distribution."
MURRAY UNITED DEVELOPMENT CORP.
P.O. Box 224
Landing, New Jersey 07850
(908) 979-3025
------------------------
The date of this Prospectus is , 2000
TABLE OF CONTENTS
PAGE
----
Where You Can Find More Information................................ 3
Documents Incorporated By Reference................................ 3
Prospectus Summary................................................. 4
Summary Financial Information...................................... 7
Forward Looking Statements......................................... 7
Risk Factors....................................................... 8
Use of Proceeds.................................................... 13
Dividend Policy.................................................... 14
Dilution........................................................... 14
Market For Common Stock............................................ 15
Capitalization..................................................... 15
Selected Financial Information..................................... 15
Management's Discussion and Analysis Or Plan of Operations......... 16
Business........................................................... 20
Management......................................................... 24
Principal Shareholders............................................. 26
Certain Transactions............................................... 26
Description of Securities.......................................... 27
Shares Eligible for Future Sale.................................... 28
Plan of Distribution............................................... 29
How to Exercise Your Warrants...................................... 29
Indemnification.................................................... 29
Transfer Agent..................................................... 30
Determination of Exercise Price.................................... 30
Legal Matters...................................................... 30
Experts............................................................ 30
Index to Financial Statements...................................... 31
2
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information with
the SEC. You may read and copy any report or document we file at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the SEC's regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0880 for
more information about the public reference rooms. Our SEC filings are also
available from the SEC's web site located at http://www.sec.gov.
The Company is not required to, and does not intend at this time, to
furnish its shareholders with annual reports containing financial statements
audited by its independent auditors. However, such financial statements will be
included in its annual reports on Form 10-KSB that will be filed with the SEC
and will be available at the SEC's public reference facilities described above
and through the SEC's website at http://www.sec.gov.
We have filed with the SEC a Registration Statement on Form SB-2 under the
Securities Act with respect to the common stock covered by this Prospectus. This
Prospectus, which is a part of the Registration Statement, does not contain all
the information set forth in, or included as exhibits to, the Registration
Statement, as permitted by the SEC's rules and regulations. For further
information with respect to us and the Common Stock offered under this
Prospectus, please refer to the Registration Statement, including the exhibits.
Copies of the Registration Statement, including exhibits, may be obtained from
the SEC's public reference facilities listed above upon payment of the fees
prescribed by the SEC or may be examined without charge at these facilities.
Statements concerning any document filed as an exhibit are not necessarily
complete and, in each instance, we refer you to the copy of the document filed
as an exhibit to the Registration Statement.
DOCUMENTS INCORPORATED BY REFERENCE
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 after the date of this Prospectus
and prior to the termination of this offering shall be deemed to be incorporated
by reference into this Prospectus and to be a part of this Prospectus from the
date we file such documents with the SEC.
We will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents which are incorporated by reference in this
Prospectus, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to Murray United Development Corp., P.O. Box 224, Landing,
New Jersey 07850, Attention: Mr. Dwight Foster, President.
3
PROSPECTUS SUMMARY
THIS IS ONLY A SUMMARY AND DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THE MORE DETAILED INFORMATION CONTAINED LATER
IN THIS PROSPECTUS AND ALL OTHER INFORMATION , INCLUDING THE FINANCIAL
INFORMATION AND STATEMENTS WITH NOTES, INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS AS DISCUSSED IN THE "WHERE YOU CAN FIND MORE INFORMATION"SECTION OF
THIS PROSPECTUS.
ABOUT OUR BUSINESS
Murray United Development Corporation (sometimes referred to in this
Prospectus as the "Company") is a development stage corporation that was formed
in October 1987 to exploit commercially an internal combustion engine (referred
to in this Prospectus as the "Rotorcam Engine") that would run on fuels other
than gasoline, would have significantly fewer parts, and would be lighter and
operate more efficiently than conventional internal combustion engines.
We believe that pollution and depleting petroleum resources continue to
stimulate commercial interest in engines designed to run on alternative fuels.
Although numerous alternative engines have been researched and developed by both
the government and the private sectors, none of them has received widespread
commercial acceptance. We have been engaged in the research, design and
development of the Rotorcam Engine technology since our inception in 1988. Since
inception, we have spent, all together, approximately $840,000 on such research
and development. However, due principally to a shortage of operating funds, we
incurred only $14,750 for research and development costs during our 1999 fiscal
year and did not spend any amounts for research and development during either
our 1998 or 1997 fiscal years.
From March 1988 through December 1989 we completed the design and
production of a prototype of the Rotorcam Engine. In January 1990 we tested the
Rotorcam Engine using gasoline fuel. The Rotorcam Engine achieved combustion,
operated under its own power and maintained a stable speed. Following this
testing, we made certain modifications to the Rotorcam Engine and resumed
testing to obtain additional performance information and engineering data for
further development. Design changes to the prototype that were completed in the
latter part of 1992 reduced the availability of the Rotorcam Engine for
demonstration purposes and the gathering of engineering data. Subsequently, we
retrofitted the prototype with new components, thereby restoring it to
demonstrator status. In September 1995 we successfully converted the engine to
operate on propane and it has continued to operate on propane to date.
In July 1998 we entered into an agreement with the Southwest Research
Institute of San Antonio, Texas ("SRI"). SRI is generally considered to be one
of the country's foremost independent research institutes with approximately
2,500 scientists, engineers and support personnel. SRI conducts an average of
1,500 nationally and internationally sponsored projects each year. Under our
agreement with SRI, SRI agreed to provide an engineering study of the Rotorcam
Engine at a cost of $9,750. The study included an evaluation of existing
Rotorcam Engine hardware and data, including the test data on the current
prototype and design and analytical data that we had obtained to date. In
addition, SRI agreed to prepare an evaluation report summarizing its findings
and a technical and cost proposal for the next phase of work.
In December 1998, SRI issued its report on the results of the testing of
the Rotorcam Engine (the "Report"). In the Report, SRI concluded that there were
three (3) significant advantages of the Rotorcam Engine over conventional
reciprocating engines: higher torque at a specified rpm, a potential of improved
cycle efficiency and energy savings, and the improvement of overall efficiency
and packaging resulting from the ability to eliminate a gear box. However, SRI
also concluded that certain prior beliefs that we had concerning the advantages
of the Rotorcam Engine were not supported by the evidence that SRI had gathered
during its review and analysis. In particular, SRI concluded that the prototype
did not necessarily possess advantages over conventional reciprocating
4
engines with respect to high power-to-weight ratio, low manufacturing and
maintenance costs, improved packaging, multi-fuel potential, and variable
compression ratio. In addition to its findings, the Report recommended potential
applications for the Rotorcam Engine, including off-road power equipment,
utility equipment and gensets.
In response to the Report, assuming that funding becomes available, which
we cannot provide you with any assurances of, we have determined to redesign and
rebuild a second generation prototype of the Rotorcam Engine ("Second
Prototype") to address the issues raised by SRI in the Report. We estimate that
the cost of the Second Prototype will be approximately $350,000 to $375,000 and
that it will take approximately 15 to 18 months from the time funding for the
Second Prototype becomes available to complete.
If the Second Prototype should show clear advantages of the Rotorcam Engine
over conventional reciprocating engines in one or more specific markets, and if
we have funds available at such time, we plan to commission the development of a
third prototype ("Third Prototype") of the engine. The Third Prototype would be
designed to address performance, cost, reliability and producibility issues
associated with the markets that we select for possible sale.
We estimate that it will cost between $2 million and $3 million to develop
a Third Prototype and that it will take between 18 to 24 months from the time
the Second Prototype is completed and funding becomes available to complete it.
During this phase of development we plan to commission the production of several
variations of the Third Prototype that would be used for different purposes,
including performance development, durability assessment, and demonstrators to
be used in field testing.
We believe that if the Second Prototype is successfully completed, we will
be able to raise sufficient funds to complete the Third Prototype from research
grants, licensing fees and/or equity financing. However, since a decision to
proceed with a Third Prototype will depend on the results obtained from the
Second Prototype, we cannot give you any assurances that we will decide to build
a Third Prototype or that we will, in fact, be able to obtain sufficient funds
to complete the Third Prototype. Since a Third Prototype is essential to our
ability to market the Rotorcam Engine, if we are financially unable to produce a
Third Prototype or if the results of testing of the Second Prototype demonstrate
that it would not be advisable for us to produce a Third Prototype, it is very
unlikely that we will be able to successfully produce and market the Rotorcam
Engine at any time. If this occurs, you may lose your entire investment.
If we are able to raise the capital needed to complete the Third Prototype,
then, during the period in which the Third Prototype is being developed, we
intend to determine suitable markets for the Rotorcam Engine. Based on SRI's
Report, we currently believe that a market is available for the Rotorcam Engine
in off-road terrain equipment, such as earth-moving farm equipment, tanks, pony
engines, marine engines, generators, and co-generation systems that are used to
cool, as well as to provide an electrical power source for, home and industry.
If we are successful in our attempts to produce an engine that is commercially
viable, we intend to attempt to enter into licensing or contract manufacturing
arrangements with other companies for production and sale of the Rotorcam
Engine.
In view of the time we believe it will take to complete the Second and
Third Prototypes, and assuming that funding becomes available, which we cannot
provide you with any assurances of, we are presently seeking opportunities to
diversify the Company into businesses that are in addition to the Rotorcam
Engine. Our current diversification efforts are focused on two recently formed
businesses owned jointly by Mr. Anthony Campo, the Chairman of the Company, and
Mr. Dwight Foster, the President of the Company. See "Management's Discussion
and Analysis or Plan of Operation".
Our principal executive offices are located at P.O. Box 224, Landing, New
Jersey 07850, and our telephone number is (908) 979-3025.
5
ABOUT THE OFFERING
Common Stock Offered upon Exercise of
Class B Warrants and Underwriter's
Class B Warrants....................... 15,398,000 Shares
Common Stock Outstanding Presently....... 63,453,434 Shares (1)
Upon Exercise of all 15,398,000 Class B
Warrants............................... 78,851,434 Shares (1)
Class B Warrants Outstanding............. 15,398,000
Use of Proceeds.......................... We intend to use the proceeds of this offering
(after payment of offering expenses) for
development of new prototypes of our rotary
engine, for repayment of a certain amount of our
indebtedness to our Chairman and for working
capital. See "Use of Proceeds."
Risk Factors............................. The shares offered hereby are speculative,
involve a high degree of risk, and will result in
immediate substantial dilution to anyone who
exercises his or her Class B Warrants. You should
not exercise your warrants to purchase these
shares if you cannot afford the loss of your
entire investment. See "Risk Factors" and
"Dilution".
NASD Electronic Bulletin Board Trading
symbol (Common Stock): MRAY
- ------------------
(1) These numbers do not include 100 million shares reserved for issuance upon
exercise by the Chairman of the Company of his right to convert indebtedness
of the Company into shares of our Common Stock at the rate of one share of
Common Stock for each $.0075 of such indebtedness so converted.
6
SUMMARY FINANCIAL INFORMATION
The following financial information should be read in conjunction with our
financial statements, including the notes to such financial statements,
appearing elsewhere in this Prospectus.
YEAR ENDED
JULY 31, SIX MONTHS ENDED JANUARY 31,
----------------------------- -----------------------------
1999 1998 2000 1999
------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Interest Income..................... 0 0 0 0
Net loss............................ $ (210,594) $ (96,900) $ (60,841) $ (74,277)
Net loss per share.................. $ (.003) $ (NIL) $ (NIL) $ (NIL)
Weighted average number of shares
outstanding....................... 62,001,379 60,953,434 63,453,434 60,953,434
BALANCE SHEET DATA:
JULY 31, 1999 JANUARY 31, 2000
------------- ----------------
Working capital (deficit)................................... $ (254,603) $ (10,237)
Total Assets................................................ 90,900 83,154
Note payable to Stockholder and Affiliate................... 917,780 926,280
Total liabilities........................................... 1,370,694 1,423,790
Shareholder's equity (deficit).............................. 90,900 83,154
FORWARD LOOKING STATEMENTS
Some of the statements in this Prospectus discuss our future expectations,
contain our projections of results of operations or financial condition or state
other "forward-looking" information. These statements can be identified by the
use of words such as "expects," "anticipates," "intends," "plans" and similar
expressions. Those statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. We have based the
forward-looking information on various factors, using numerous assumptions.
Important factors that may cause actual results to differ from those
contemplated by forward-looking statements include, for example:
* the success or failure of our efforts to develop the Second and Third
Prototypes of the Rotorcam Engine;
* the success or failure of our diversification efforts;
* the effect of changing economic conditions;
* changes in government regulations, tax rates and similar matters;
* our ability to attract and retain qualified employees; and
* other risks which may be described in this Prospectus and in our future
filings with the SEC
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements.
7
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST
IN SHARES OF OUR COMMON STOCK. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
IF ANY OF THE FOLLOWING RISKS OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS
AND FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED. IN SUCH CASES,
THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE PART OR ALL
OF YOUR INVESTMENT.
WE ARE A COMPANY IN THE DEVELOPMENT STAGE WITH A LIMITED OPERATING HISTORY, AND
WE EXPECT TO ENCOUNTER RISKS FREQUENTLY FACED BY EARLY-STAGE COMPANIES.
We are still in the development stage, and as of January 31, 2000 (the end
of our second fiscal quarter) we had liquid assets of $301 and working capital
deficit of $10,237. From our inception through January 31, 2000, we have
sustained cumulative losses of $3,516,333. Our inability to generate operating
revenues and recurring losses from operations from inception, among other
matters, raise substantial doubt about our ability to continue as a going
concern. See "Report of Independent Public Accountants." We do not have
sufficient liquid assets to meet our presently estimated minimum obligations and
to continue with our research and development activities even on a limited basis
through the twelve-month period following January 31, 2000. We believe that our
continuation as a going concern during the twelve-month period following January
31, 2000 will depend upon our ability to obtain sufficient additional working
capital to fund completion of a Second Prototype of the Rotorcam Engine and
other research and development activities, as well as the general and
administrative expenses that we will incur during this period. Possible sources
of such capital include the exercise of the Class B Warrants, the private or
public sale of our common stock, obtaining research grants, and borrowing from
affiliated or unaffiliated third parties. However we cannot give you any
assurances that we will be able to obtain financing through any of these
sources. See "Business" and "Management's Discussion And Analysis or Plan of
Operations".
WE WILL NEED TO PERFORM ADDITIONAL RESEARCH AND DEVELOPMENT
At this time, our future success is completely dependent upon our ability
to commercially exploit the Rotorcam Engine. However, we cannot provide you with
any assurances that we will be able to do so. You should consider the likelihood
of our success in view of the problems, expenses, difficulties, complications
and delays that are frequently encountered in connection with a relatively
unproven product and the competitive environment in which we will operate. We
must continue substantial research and development activities in order to make
the Rotorcam Engine technology marketable and, to do so, we will need
significant additional funds. Because we are a development stage company, we are
expected to continue to sustain operating losses. Even assuming we are able to
successfully develop the Rotorcam Engine, we cannot provide you with any
assurances that the Rotorcam Engine will achieve commercial acceptance or
profitability. See "Business".
WE HAVE NOT GENERATED ANY SIGNIFICANT REVENUES, HAVE SUSTAINED SIGNIFICANT
LOSSES SINCE OUR INCEPTION, AND OUR ACCOUNTANTS HAVE CAUTIONED THAT WE MAY NOT
BE ABLE TO CONTINUE AS A GOING CONCERN.
We have not yet generated any meaningful revenues and will not generate any
meaningful revenues unless we successfully complete and market the Rotorcam
Engine or are able to diversify into other businesses. Between October 1987
(inception) and January 31, 2000, we incurred a cumulative net loss of
approximately $3,466,361. Since January 31, 2000, we have continued to incur
losses, and we anticipate that we will continue to incur losses until we
generate enough revenues to offset the significant expenditures and operating
costs associated with developing and commercializing
8
our engine. Our independent auditors have included an explanatory paragraph in
their report stating the recurring losses during our development stage raise
substantial doubt about the our ability to continue as a going concern. See the
Financial Statements included in this Prospectus.
WE ARE DEPENDENT ON THE PROCEEDS OF THIS OFFERING AND MAY REQUIRE ADDITIONAL
FINANCING.
Our capital requirements relating to the development and commercialization
of our Rotorcam Engine have been and will continue to be significant. We are
dependent on the proceeds of this offering or other financing in order to
continue in business and to develop and commercialize the Rotorcam Engine. Based
on our current plans and assumptions (including the timetable of, and costs
associated with, the development and commercialization of our engine), we
believe that the proceeds of this offering will be sufficient to satisfy our
cash requirements for at least 24 months following the completion of this
offering, assuming we receive at least $2 million of net proceeds in this
offering. If our plans change, or if our assumptions change or prove to be
inaccurate, or if the proceeds of this offering are not sufficient to fund our
operations, we will be required to seek additional financing sooner than we
currently anticipate. We cannot give you any assurance that the proceeds of this
offering will be sufficient to permit us to successfully develop and
commercialize the Rotorcam Engine. To the extent that the proceeds of this
offering are not sufficient to enable us to generate meaningful revenues or
achieve profitable operations, our inability to obtain additional financing will
have a material adverse effect on us, including possibly requiring us to cease
our operations. In addition, any implementation of our business plans following
the 24 month period after this offering may require proceeds that are in excess
of the proceeds of this offering. We cannot give you any assurance that we will
be able to obtain such additional financing on commercially reasonable terms or
on any terms. Moreover any financing that involves the issuance of our Common
Stock could result in substantial dilution to the interests of our shareholders.
WE ARE NOT CERTAIN THAT WE WILL BE ABLE TO SUCCESSFULLY DEVELOP THE ROTORCAM
ENGINE.
Although we believe that we will be able to successfully develop and market
our Rotorcam Engine, assuming we are able to obtain the funds necessary to
develop a Second and Third Prototype of the engine, continued development
efforts are subject to all of the risks inherent in the development of new
products and technologies, including unanticipated delays, expenses, and
technical problems or difficulties. We are not able to give you any assurance
that we will be able to successfully complete our product development on a
timely basis, or at all, or that unanticipated events will not occur which would
result in increased costs or significant delays in product development or
commercialization. Moreover, we cannot provide you with any assurance that the
Rotorcam Engine will perform all of the functions for which it has been designed
or prove to be sufficiently reliable in widespread commercial use.
WE ARE NOT CERTAIN THAT THE ROTORCAM ENGINE WILL ACHIEVE MARKET ACCEPTANCE OR
THAT OUR COMMERCIALIZATION STRATEGY WILL PROVE TO BE SUCCESSFUL.
The Rotorcam Engine, as a newly developed product, is subject to a high
level of uncertainty. Achieving market acceptance for the Rotorcam Engine will
require significant efforts and expenditures by us to create awareness and
demand. We have not yet begun significant marketing activities, and we have
limited experience and limited financial, personnel and other resources to
independently undertake such activities. Our marketing strategy and plans may be
unsuccessful, and they are subject to change as a result of a number of factors,
including progress or delays in the our marketing efforts, changes in market
conditions and economic, political, regulatory and competitive factors. To the
extent that we are able to enter into satisfactory third-party marketing and
distribution arrangements in the future, we will be largely dependent on the
efforts of such third parties and on the marketability and sales of their
products. We cannot give you any assurance that our strategy will result in
successful product commercialization or that our efforts will result in an
initial or continued market for the our Rotorcam Engine.
9
WE WILL BE SUBJECT TO SIGNIFICANT GOVERNMENTAL REGULATION.
The application of the technology for the Rotorcam Engine, even if
successfully developed, will be subject to a series of governmental regulations
relating to safety, fuel efficiency and pollution. We cannot give you any
assurance that the Rotorcam Engine will be able to meet these standards of
pollution and safety. In addition, compliance with such regulations may cause
delays and additional expense that may affect the commercial viability of the
Rotorcam Engine. See "Business -- Government Regulation".
WE HAVE LIMITED PATENT PROTECTION.
As a result of legal settlements signed on November 18, 1993 and June 26,
1996 between us and Jerome Murray, we obtained title to seven U.S. patents and
four international patents, as well as rights to certain patents pending
covering various aspects of the Rotorcam Engine. Of these seven U.S. patents,
three remain in effect and four have expired due to lack of funds necessary to
maintain them. Each of the foreign patents and the rights to patents pending
have also expired due to a lack of funds necessary to acquire or maintain such
patents. The patents that remain in effect each relate to certain design
features of the Rotorcam Engine that we believe give the Rotorcam Engine
advantages over conventional crankshaft internal combustion engines and prior
cam type rotary engines. However, these patents will not eliminate competition
from conventional crankshaft-type internal combustion engines or from cam-type
rotary engines that do not employ the design features covered by the claims of
our patents. In addition, we cannot give you any assurances that competitors or
others will not duplicate the essential technology represented by the patents in
such a way that it would not result in patent infringement. Such infringement
could undercut or eliminate our revenues from sales of the Rotorcam Engine. Even
if a competitor infringed on our patent rights, the expense of patent litigation
may effectively hinder our ability to prosecute such claims. We may also be
subject to competition from individuals or corporations in countries outside the
countries where the patents have been granted that would be able to utilize the
principles of the Rotorcam Engine and compete directly with us in the sale and
manufacture of the Rotorcam Engine in those countries. See "Business --
Technology".
WE ARE SUBJECT TO INTENSE COMPETITION.
We believe that competition in the alternative engine market is intense and
that we are competing with other entities that have financial and other
resources that are far greater than our own. Our research and development
efforts are competing directly with those of major automobile manufacturers as
well as with other commercial and industrial companies that have established and
well financed research and development efforts covering existing engines as well
as alternative engines. Our limited resources may hinder our ability to compete
successfully with these better financed entities. See "Business -- Competition".
OUR MANAGEMENT HAS SIGNIFICANT CONTROL OVER THE COMPANY.
Following completion of this Offering, our Board of Directors and
management will beneficially own approximately 67% of our outstanding Common
Stock. Accordingly, our management will have a significant voting influence in
connection with the election of the directors of the Company and will have
effective control of our business and affairs. See "Management," "Principal
Shareholders" and "Description of Securities."
WE ARE DEPENDENT ON KEY PERSONNEL.
Our success will be largely dependent on the efforts of Mr. Dwight Foster,
our President and Chief Executive Officer. The loss of Mr. Foster's services
could have a materially adverse effect on our business and prospects. Our
success is also dependent upon our ability to hire and retain additional
qualified management, marketing, financial and other personnel. Competition for
qualified personnel is intense, and we cannot give you any assurance that we
will be able to hire or retain
10
qualified personnel. Our inability to attract and retain qualified management
and other personnel could have a material adverse effect on us. See
"Management."
WE MAY BE SUBJECT TO CONFLICTS OF INTEREST.
We have entered into a promissory note agreement with our Chairman of the
Board. See "Certain Transactions". We believe that such transaction was fair and
reasonable to us and was on terms no less favorable than we could have obtained
from unaffiliated third parties. We cannot give you any assurance, however, that
future transactions or arrangements between us and our affiliates will continue
to be advantageous to us, that conflicts of interest will not arise with respect
to such transactions, or that if conflicts do arise, they will be resolved in a
manner that is favorable to us. We will attempt to insure that any such future
transactions will be on terms no less favorable to us than we could obtain from
unaffiliated parties and that they will be approved by a majority of the
independent and disinterested members of the Board of Directors. In addition, to
the extent that the Board believes that it is appropriate to do so, we will
obtain shareholder approval or fairness opinions in connection with any such
transaction.
WE HAVE NEVER PAID ANY DIVIDENDS AND MAY NOT PAY DIVIDENDS IN THE FUTURE.
We have never paid any dividends, and we cannot give you any assurance that
our business will result in sufficient revenues to enable us to generate
positive cash flow or to operate at profitable levels. For the foreseeable
future, we anticipate that any earnings will be used to finance our growth and
that we will not pay cash dividends to our stockholders. In addition, we may be
restricted from paying dividends in the future by banks or other third parties
that extend credit to us. Therefore, purchasers who anticipate the need for
immediate income by way of dividends should restrain from the exercise of the
Class B Warrants. See "Dividend Policy" and "Description of Securities."
POSSIBLE RESALES OF RESTRICTED SECURITIES UNDER RULE 144 MAY OCCUR.
As of March 25, 2000, 63,453,434 shares of the Company's common stock were
outstanding, of which 18,654,344 may be deemed to be "Restricted Securities". In
addition, as of March 25,2000 Mr. Anthony Campo, the Chairman of the Board of
the Company, had the right to acquire 100 million additional shares of our
Common Stock by converting amounts we owe Mr. Campo into shares of our Common
Stock. See "Certain Transactions". If Mr. Campo should exercise his right to
acquire these additional shares, they would also constitute Restricted
Securities. The Restricted Securities may under certain circumstances be
available for public sale by means of ordinary brokerage transactions in the
open market pursuant to Rule 144 enacted under the Securities Act, subject to
certain limitations. In general, under Rule 144, a person who has satisfied a
one-year holding period may sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
common stock or the average weekly trading volume of such stock during the four
calendar weeks prior to his or her sale. Rule 144 also permits, under certain
circumstances, the sale of securities, without any limitation, by a person who
is not an affiliate of the Company and who has satisfied a two-year holding
period. Any sale of a substantial number of shares of our Common Stock in
accordance with Rule 144 could have an adverse effect on the market price of our
Common Stock. See "Shares Eligible for Future Sale".
WE MAY REDEEM THE CLASS B WARRANTS AT ANY TIME FOR A NOMINAL AMOUNT.
We may redeem the Class B warrants at any time by giving warrant holders 30
days' prior written notice of our intention to do so, at $.0001 per Class B
Warrant. Redemption of the Class B Warrants would compel warrant holders either
to exercise the Class B Warrants at a time when it may not be advantageous for
them to do so or to accept the redemption price, which is likely to be
significantly lower than the market value of the Common Stock underlying the
Class B Warrants. See "Market for Common Stock" and "Description of Securities."
11
WE ARE REQUIRED TO CONTINUE TO MAINTAIN A CURRENT PROSPECTUS RELATING TO THE
COMMON STOCK THAT MAY BE ACQUIRED ON EXERCISE OF THE CLASS B WARRANTS.
Holders of the Class B Warrants will only have the right to exercise their
Warrants if a current prospectus relating to the shares underlying the Class B
Warrants is then in effect and only if such shares are registered for sale or
are exempt from registration under applicable securities laws of the states in
which the warrant holders reside. We presently intend to register the shares or
apply for exemptions from registration in the states of New York, New Jersey,
Florida, Connecticut, Maryland, California, Illinois, Pennsylvania, Alabama,
Michigan, North Carolina, Ohio, Rhode Island, Virginia, Minnesota, Texas,
Washington, Arizona, Indiana, Oklahoma and Massachusetts. A holder of the class
B warrants may be deprived of the value of his or her Class B Warrants if a
current prospectus covering the underlying shares is not in effect, or if the
underlying shares are not registered in the state in which the warrant holder
resides and an exemption from such registration is not available.
YOU WILL EXPERIENCE IMMEDIATE DILUTION UPON EXERCISE OF YOUR WARRANTS.
If you exercise your Class B warrants, you will suffer immediate dilution
in the net tangible book value of the underlying Common Stock that you acquire
when you exercise such Warrants amounting to approximately $0.138 per share if
all of the Class B Warrants are exercised. See "Dilution".
THE EXERCISE PRICE OF THE WARRANTS WAS DETERMINED ARBITRARILY.
We and the underwriter of our initial public offering determined the
exercise price of the Class B Warrants arbitrarily, and such price bears no
relationship to the economic value of the Company's assets, book value or any
other recognized criteria of investment value. See "Determination of Exercise
Price."
THERE IS A LIMITED MARKET FOR OUR COMMON STOCK.
Presently, there is a limited trading market for our Common Stock. We are
not able to provide you with any assurance that such trading market will be
sustained, or that you will be able to sell your Common Stock at acceptable
prices. See "Market For Common Stock."
WE MAY BE DEPENDENT ON OUTSIDE ADVISORS.
In order to supplement the business experience of our management, we may be
required to employ engineers, technical experts, appraisers, attorneys,
accountants or other consultants or advisors. We may select any such advisors
without any input from our stockholders. Furthermore, we anticipate that such
persons may be engaged on an "as needed" basis without a continuing fiduciary or
other obligation to us. It is also possible that we may hire individuals who are
our affiliates as outside advisors.
WE HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS OF THIS OFFERING.
We presently intend to use the net proceeds of this offering for
development of a Second and a Third Prototype of the Rotorcam Engine; for
repayment of a portion of our outstanding debt to the Chairman of the Company;
and for working capital. However, we reserve the right to use the net proceeds
of this offering to finance other opportunities consistent with our plan of
operation, based on facts and circumstances which may develop after the
completion of this offering. See "Business" and "Use of Proceeds."
THE DELAWARE GENERAL CORPORATION LAW CONTAINS ANTI-TAKOVER PROVISIONS.
As a Delaware corporation, we are governed by the provisions of Section 203
of the General Corporation Law of Delaware, an anti-takeover law enacted in
1988. As a result of Section 203, potential acquirers of the Company may be
discouraged from attempting to engage in acquisition transactions with the
Company, thereby possibly depriving our shareholders of certain opportunities to
12
sell or otherwise dispose of their shares at above-market prices in connection
with such transactions. See "Description of Securities -- Business Combination
Provisions".
OUR STOCK IS SUBJECT TO THE SEC'S PENNY STOCK RULES, WHICH MAY MAKE IT DIFFICULT
TO SELL YOUR SHARES.
Federal regulations under the Securities Exchange Act of 1934 regulate the
trading of so-called "penny stocks". Penny stocks are generally defined as any
security not listed on a national securities exchange or NASDAQ, priced at less
than $5.00 per share, and offered by an issuer with limited net tangible assets
and revenues. Under these rules, broker-dealers must take certain steps prior to
selling a "penny stock," which include: (i) obtaining financial and investment
information from the investor: (ii) obtaining a written suitability
questionnaire and purchase agreement signed by the investor; and (iii) providing
the investor a written identification of the shares being offered and in what
quantity. If the Penny Stock rules are not followed by the broker-dealer, the
investor has no obligation to purchase the shares. Accordingly, Penny Stock
rules may make it more difficult for broker-dealers to sell our Common Stock,
and purchasers of our Common Stock may have difficulty in selling their shares
in the future in the secondary trading market.
USE OF PROCEEDS
The net proceeds that we expect to receive from the sale of the 15,398,000
shares offered hereby are estimated to be $2,308,700, after deducting estimated
expenses of $38,500. We intend to use such net proceeds as follows:
APPROXIMATE
APPLICATION OF PROCEEDS DOLLAR AMOUNT PERCENTAGE
---------------------------------------------------- ------------- -------------
Construction of a Second and Third Prototype of
Rotorcam Engine (1)(4)............................ $ 1,500,000 65%
Repayment of Indebtedness (2)(4).................... 300,000 13%
Working capital (3)(4).............................. 508,700 22%
TOTAL.......................................... $ 2,308,700 100%
(1) We estimate that the total cost of a Second Prototype of the Rotorcam Engine
will be approximately $375,000 and that the total cost of a Third Prototype
will be between $2 million and $3 million. If we can successfully construct
a Second Prototype, we believe that we will be able to obtain a portion of
the cost of building a Third Prototype through licensing the Rotorcam
technology.
(2) At the sole option of our Chairman, Mr. Anthony Campo, we will repay up to
$300,000 of the approximately $907,685 (inclusive of accrued interest) that
we owed as of March 25, 2000 to Mr. Campo under our promissory note to him
dated August 1, 1998 (See "Certain Transactions"). We have defaulted on all
payments of principal and interest that have previously become due under the
August 1, 1998 Note. The August 1, 1998 Note matures on August 1, 2000 and
bears interest at 7.5% per annum.
(3) We intend to use this portion of the net proceeds for payment of salaries,
professional fees, transfer agent fees and other general and administrative
expenses.
(4) If we obtain less than the full net proceeds of $2,308,700, we intend to use
the first $375,000 of such net proceeds to produce the Second Prototype, and
we intend to allocate amounts in excess of $375,000 to the production of a
Third Prototype, to the repayment of a portion of our Note to the Chairman,
and to working capital in the proportions described in the table above.
Based on our current plans and assumptions (including the timetable of, and
costs associated with, development of a Second and Third Prototype of the
Rotorcam Engine), we believe that the proceeds of this offering will be
sufficient to satisfy our estimated cash requirements for at least 24 months
following the completion of this Offering, assuming we receive at least $2
million of net
13
proceeds in the Offering. In the event our plans or assumptions change or prove
to be inaccurate, or if the proceeds of this Offering prove to be insufficient
to fund operations (due to unanticipated expenses, delays, problems or
otherwise), we may find it necessary or desirable to reallocate a portion of the
proceeds within the above-described categories, to use proceeds for other
purposes, to seek additional financing or to curtail our operations. We can not
provide you with any assurances that we will be able to obtain additional
financing on commercially reasonable terms or at all. See "Management's
Discussion and Analysis or Plan of Operations."
We will invest any proceeds not immediately required for the purposes
described above principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
DIVIDEND POLICY
We have not paid any cash dividends on our Common Stock since our
inception, and we intend to retain any earnings in our Company. Therefore we do
not anticipate paying any cash dividends in the foreseeable future.
DILUTION
Upon exercise of your Class B Warrants, you will incur immediate and
substantial dilution. Dilution is determined by computing the difference between
the exercise price of a Class B Warrant and the adjusted net tangible book value
per share after this offering. Net tangible book value per share of Common Stock
is determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) on such date by the number of
outstanding shares of our Common Stock.
As of January 31, 2000, we had a negative net tangible book value of
($1,340,636) or ($.021) per share. After giving effect to our sale of 15,398,000
shares of Common Stock upon exercise of all of the outstanding Class B Warrants
and our receipt of the estimated proceeds of such sale (less estimated expenses
of this offering), our adjusted net tangible book value as of January 31, 2000
would have been approximately $968,064 or $.012 per share. This represents an
immediate increase in net tangible book value of $.033 per share to existing
shareholders and an immediate dilution of $.138 per share to individuals who
exercise their Class B Warrants.
We have provided below a table showing per share information on the
increase in net tangible book value per share to current stockholders and the
dilution per share to purchasers of shares underlying the Class B Warrants.
PER SHARE INFORMATION
Negative net tangible book value per share before offering................ $(.021)
Increase to current stockholders attributable to offering................. $ .033
Net tangible book value after offering.................................... $ .012
Dilution per share to Warrantholders who exercise their Class B
Warrants................................................................ $ .138
14
MARKET FOR COMMON STOCK
Our Common Stock has been quoted on the over-the counter market since March
24, 1988 but has not been included in the NASDAQ system. The range of high and
low bid quotations as reported by the National Quotation Bureau, Inc., without
adjustment for retail markup, markdown or commission, for the periods indicated
below are:
YEAR ENDED JULY 31
------------------------------------------ SIX MONTH PERIOD
ENDED
1999 1998 JANUARY 31, 2000
---------------- ----------------- ------------------
HIGH LOW HIGH LOW HIGH LOW
----- ----- ----- ------ ----- ----
1st Quarter..................... $.07 $.01 $.05 $ .03 $.031 $.01
2nd Quarter..................... .055 .02 .03 .005 .074 .01
3rd Quarter..................... .05 .01 .01 .005
4th Quarter..................... .11 .012 .015 .0075
Reporting by the National Quotation Bureau, Inc. of quotations for our
Common Stock does not evidence an established public trading market for such
stock, and holders of our Common Stock may not be able to liquidate their
investment at acceptable prices. Moreover, such quotations reflect inter-dealer
prices without retail mark-up, mark-down or commission and may not be indicative
of actual trading transactions. As of March 27, 2000 there were approximately
845 holders of record of our Common Stock.
Holders of our Common Stock are entitled to receive dividends when and as
declared by the Board of Directors out of funds legally available to pay such
dividends. To date, no dividends have been declared or paid, and the Board of
Directors has no present intention of declaring dividends on our Common Stock in
the foreseeable future. Whether dividends are declared in the future will depend
upon our profitability, financial condition and other factors deemed relevant by
its Board of Directors.
CAPITALIZATION
Our capitalization as of January 31, 2000 and as adjusted assuming all
15,398,000 of the Class B Warrants are exercised with net proceeds of $2,308,700
and the deferral of payments of a note payable to the Chairman of the Company is
set forth below.
JANUARY 31, 2000 AS ADJUSTED
---------------- -----------
Loans payable to Chairman(1)........................... $ 926,280 $ 626,280
Stockholders' deficiency -- Common stock, par value
$.0001 per share, authorized: 200,000,000 shares;
issued: 63,453,434 shares; 78,851,434 shares as
adjusted for exercise of Class B Warrants............ $ (6,346) $ 7,886
Additional paid-in capital............................. $ 2,169,351 $ 4,515,011
Deficit accumulated in development stage............... $ (3,516,333) $(3,516,333)
Total stockholders' deficiency......................... $ (1,340,636) $(1,006,564)
- ------------------
(1) See "Certain Transactions" and Note 4 to the Audited Financial Statements.
SELECTED FINANCIAL INFORMATION
The operations data for the fiscal years that ended on July 31, 1999 and
1998 and the balance sheet data presented as of July 31, 1999 and 1998 provided
below are derived from and should be read in conjunction with our more detailed
audited financial statements, including the notes to such financial statements,
that are included elsewhere in this Prospectus. The statement of operations data
15
for the six month periods that ended on January 31, 2000 and 1999, and the
selected balance sheet data as of January 31, 2000 presented below, are derived
from and should be read in conjunction with our more detailed interim unaudited
financial statements and the notes thereto also included elsewhere in the
Prospectus. In our opinion, the unaudited condensed financial statements reflect
all adjustments, consisting of normal recurring accruals, necessary to present
fairly the information set forth below.
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JULY 31,
--------------------------- ---------------------------
2000 1999 1999 1998
----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS DATA:
Interest Income................ $ 0 $ 0 $ 0 $ 0
Research and developments
costs........................ 0 14,750 14,750 0
General and administrative
expenses..................... 26,246 28,675 130,925 47,426
Interest -- stockholder and
affiliate.................... 34,595 30,852 64,919 49,474
----------- ----------- ----------- -----------
Totals......................... $ 60,841 $ 74,277 $ 210,594 $ 96,900
Net Loss....................... $ 60,841 $ 74,277 $ 210,594 $ 96,900
Net Loss per common share...... $ (NIL) $ (NIL) $ (.003) $ (.002)
BALANCE SHEET DATA:
Working capital (deficiency)... $ (10,237) $ (74,277) $ (254,503) $ (12,479)
Total Assets................... $ 83,154 $ 96,976 $ 90,900 $ 113,555
Note payable to stockholder and
affiliate.................... $ 926,280 $ 887,780 $ 917,780 $ 673,814
Total current liabilities...... $ 497,510 $ 847,064 $ 387,995 $ 425,476
Noncurrent note payable to
stockholder and affiliate.... 0 0 0 0
Total Liabilities.............. $ 1,423,790 $ 1,290,454 $ 1,370,694 $ 1,232,756
Total stockholders' equity
(deficiency)................. $(1,340,636) $(1,193,478) $(1,279,794) $(1,119,202)
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion provides information that we believe is relevant
to your assessment and understanding of our results of operations and financial
condition. This discussion should be read in conjunction with the financial
statements and notes to the financial statements appearing elsewhere in this
Prospectus.
Statements in this Prospectus that are not statements of historical or
current fact constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other unknown
factors that could cause our actual results to be materially different from the
historical results or from any future results that are expressed or implied by
such forward-looking statements. In addition to statements that explicitly
describe such risks and uncertainties, you are urged to consider statements
labeled with the terms "believes," "belief," "intends," "anticipates" or "plans"
to be uncertain and forward-looking. The forward-looking statements contained in
this Prospectus are also subject generally to other risks and uncertainties that
are described from time to time in our reports filed with the SEC.
16
GENERAL
We are a development stage company that began operations on October 13,
1987 and that is attempting to commercially exploit certain technology relating
to a rotary internal combustion engine which would have certain advantages over,
and provide an alternative to, conventional internal combustion engines. If we
are able to develop the Rotorcam Engine to production stage, we intend to
generate revenues primarily through the licensing of the engine technology and
secondarily through the manufacture and sale of engines or related components or
services.
FISCAL YEAR ENDED JULY 31, 1999
AS COMPARED TO FISCAL YEARS ENDED JULY 31, 1998 AND 1997
RESULTS OF OPERATIONS
We have never derived any revenues from our operations and have incurred
cumulative losses from our inception on October 13, 1987 through July 31, 1999
of $3,455,490. Our revenues from inception through July 31, 1999, totaling
$66,465, were derived from interest earned. There was no change in interest
income earned in our fiscal year that ended on July 31, 1999, as was the case in
fiscal 1998, due to a continued shortage of funds for investment purposes. We
had no interest income during either fiscal 1999 or 1998 as a result of a
decrease in the average amount of funds that were available to us for
investment.
Our cumulative loss from inception includes research and development costs
of $854,653. Research and development costs increased to $14,750 in 1999 from $0
in 1998. We did not incur any research and development costs in fiscal 1998 due
to a shortage of operating capital.
Our cumulative loss from inception includes general and administrative
expenses of $2,313,726. General and administrative expenses increased by 176% to
$130,925 in fiscal 1999 from $47,426 in fiscal 1998 and decreased by 43% during
fiscal 1998 from $82,828 in fiscal 1997. The increase in fiscal 1999 was due
principally to increases in general and administrative expenses, such as legal
and accounting fees, and other expenses.
The cumulative loss from inception also includes past licensing fees of
$57,260 that had accrued and been paid to one of our former officers. It
includes interest expense of $296,316 on loans payable to our Chairman, Mr.
Anthony Campo, and to one of our former officers. Interest expense increased to
$64,919 in fiscal 1999 from $49,474 in fiscal 1998, or 31%. Interest expense
decreased by 1% to $46,324 in fiscal 1998 from $46,713 in fiscal 1997 due to a
decrease in interest costs associated with the amount outstanding of a
promissory note from the Company to Mr. Anthony Campo.
The net loss of $210,594 in fiscal 1999 increased by $113,694, or 117%,
from fiscal 1998 due to increased research and development costs and general and
administrative costs. The net loss of $96,900 in fiscal 1998 decreased by
$74,024, or 43%, over the net loss of $170,924 in fiscal 1997. The net loss of
$170,924 in fiscal 1997 decreased by $104,627, or 37%, from the net loss of
$275,551 in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1999 we had cash and short-term investments totaling $2,038
(compared to liquid assets of $12,675 at July 31, 1998), a working capital
deficiency of $10,637 (compared to working capital of $11,998 at July 31, 1998),
and a total stockholders' deficiency of $1,279,794 (compared to $1,119,202 at
July 31, 1998). Cash balances decreased in fiscal 1999 because of the decrease
in accounts payable, whereas the increase in working capital in fiscal 1998 was
due to an increase in accounts payable and accrued expenses of $68,225. The
stockholders' deficiency increased by $160,593 due to the net loss incurred in
July 31, 1999, as compared to a $96,900 increase in stockholders' deficiency at
July 31, 1998.
As of July 31, 1999 we had current liabilities in excess of current assets
of $385,958. Since we have not been able to commercially use our engine
technology to generate any revenues through that
17
date, we have suffered recurring losses from operations from inception that have
generated the net capital deficiencies at July 31, 1999 and 1998 and significant
working capital deficiencies from time to time. We do not expect to generate any
significant revenues or positive cash flows during the twelve-month period
subsequent to July 31, 1999. Cash flows used by operating activities were
$254,603 and $12,479 in fiscal 1999 and fiscal 1998, respectively. The limited
amount of liquid resources that were available to us as of July 31, 1999 and our
inability to generate operating revenues and cash flows raise substantial doubts
about our ability to continue as a going concern.
SIX MONTHS ENDED JANUARY 31, 2000
AS COMPARED TO SIX MONTHS ENDED JANUARY 31,1999
RESULTS OF OPERATIONS
Research and development costs decreased to $0 in January 2000 from $14,750
in January 1999. The decrease of $14,750 was due to lack of funds available for
our use. We had to substantially reduce research and development activities due
to our liquidity problems.
General and administrative expenses decreased to $26,246 in January 2000
from $28,675 in January 1999, an 8% decrease. Decreased general and
administrative expenses can also be attributed to lack of funds available to us.
In addition to research and development and general and administrative
expenses, our cumulative loss from inception includes past licensing fees of $0
during the six month period ended January 31, 2000, and ,cumulatively, $57,260
since inception. The elimination of licensing fees is the result of the legal
settlement reached in fiscal 1994.
The cumulative loss from inception also includes interest expense of
$330,911 on promissory notes payable to our Chairman. Interest expense increased
to $34,595 in the second quarter of 2000 from $30,852 in 1999, primarily as a
result of increased loans made to us by the Chairman.
The net loss of $60,841 in the period ended January 31, 2000 decreased by
$13,436, or 18%, over the net loss of $74,277 in the comparable 1999 period.
Decreases in general and administrative costs and in research and development
costs caused the overall decrease.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2000,we had cash and short-term investments totaling $301
(compared to liquid assets of $2,038 at July 31, 1999), a working capital
decrease of $1,737 (compared with a working capital decrease of $10,637 at July
31, 1999), and a total stockholders' deficiency of $1,340,636 (compared to
$1,279,795 at July 31,1999). The stockholders' deficiency increased due to the
net loss of $60,841 incurred during the six months ended January 31, 2000.
PLAN OF OPERATION
As previously discussed, in July 1998 we entered into an agreement with
SRI. Under our agreement with SRI, SRI agreed to provide an engineering study of
the Rotorcam Engine at a cost of $9,750. SRI's study included an evaluation of
existing Rotorcam Engine hardware and data, including test data on the current
prototype, and design and analytical data that we had obtained to date. In
addition, SRI agreed to prepare an evaluation report summarizing its findings
and a technical and cost proposal for the next phase of work.
In December 1998, SRI issued its Report in which SRI concluded that there
were three (3) significant advantages of the Rotorcam Engine over conventional
reciprocating engines: higher torque at a specified rpm, a potential of improved
cycle efficiency and energy savings, and the improvement of overall efficiency
and packaging resulting from the ability to eliminate a gear box.
In response to the Report, assuming funding becomes available, which we
cannot provide you any assurances will occur, we have determined to redesign and
rebuild a Second Prototype to address the issues raised by SRI in its Report. We
estimate that the cost of such Second Prototype will be
18
approximately $350,000 to $375,000 and that it will take approximately 15 to 18
months from the time such funding becomes available to complete.
If the Second Prototype shows clear advantages of the Rotorcam Engine over
conventional reciprocating engines in a specific market, and if the necessary
funds are then available, we plan to commission the development of a Third
Prototype, which would be designed to address the performance, cost, reliability
and producibility issues associated with the chosen market.
We estimate that the cost to develop such a Third Prototype would be
between $2 million and $3 million and that it would take between 18 to 24 months
from the time the Second Prototype is completed and such funding becomes
available to complete. During this phase of development we plan to commission
the production of several variations of the Third Prototype that would be used
for different purposes, including performance development, durability
assessment, and demonstrators to be used in field testing.
We are attempting to locate a funding source for the $350,000 to $375,000
amount required to complete the Second Prototype. Since June 1998, we have been
attempting to obtain Small Business Innovation Research grant money from the
Lewis Research Center of the National Aeronautics and Space Administration. The
evaluation work provided by SRI, as described in its Report, has made us
eligible to obtain Phase I and Phase II grants from the Lewis Research Center.
However, we cannot give you any assurances that our applications for such grants
will be approved or, even if approved, that such grants will provide sufficient
funding to complete the Second Prototype. Other possible sources for funding
include, exercise of our 15,398,000 outstanding Class B Warrants in this
Offering, an offering our equity securities, and/or borrowing from private
sources. We intend to attempt to raise the funds necessary to complete the
Second Prototype from such sources but we cannot give you any assurances that we
will be able to do so. If we are unable to raise such funds, we may never be
able to further develop the Rotorcam Engine.
We believe that if the Second Prototype is successfully completed, we will
be able to raise sufficient funds to complete the Third Prototype from research
grants, licensing fees and/or equity financing. However, since a decision to
proceed with a Third Prototype will depend on the results obtained from the
Second Prototype, we cannot give you any assurances that we will decide to build
a Third Prototype or that we will, in fact, be able to obtain sufficient funds
to complete such Third Prototype. Since a Third Prototype is essential to our
ability to market the Rotorcam Engine, any determination by us that it is not
advisable to produce the Third Prototype, or our financial inability to do so,
will have a materially adverse effect on our ability to successfully market the
engine.
In view of the projected extended period of time that we estimate it will
take to complete the Second and Third Prototypes, assuming that we are able to
obtain the funds to do, of which we cannot provide you with any assurances, we
are presently seeking opportunities that will permit us to diversify into
businesses in addition to the Rotorcam Engine. Our current diversification
efforts are focused on two recently formed businesses owned jointly by Mr.
Anthony Campo, the Chairman of the Company, and Mr. Dwight Foster, the President
of the Company.
One of the Campo-Foster businesses manufactures and distributes a line
commercial degreasers that are environmentally safe and are not harmful to
contact surfaces or users. Products will be marketed to the automotive,
restaurant, marine, airline and other industries. Although this company has
begun sales, it has not achieved significant revenues to date. The second
Campo-Foster business is presently engaged in researching and developing an
emissions neutralizer control system that would counteract the pollutants
generated by fuel burning devices and equipment.
If one of or both of the Campo-Foster business begins to achieve
profitability, Messrs. Campo and Foster plan to merge such profitable
business(es) into the Company. Any such transaction would be approved by the
disinterested members of our Board of Directors.
Each of the Campo-Foster businesses is an early stage company, and we
cannot provide you with any assurances that either of them will achieve
profitability at any time. Therefore, shareholders
19
should not assume that we will merge with both or even one of these businesses
at any time. Moreover, we have not entered into a binding agreement with Messrs.
Campo and Foster, and, therefore, they are not legally obligated to proceed with
a merger even if the Foster-Campo businesses achieve profitability.
YEAR 2000 READINESS
Due principally to the fact that the Rotorcam Engine is in the prototype
stage, we have not found it necessary to expend any amounts to date to address
Year 2000 remediation issues. Moreover, we do not anticipate expending any
significant amounts in the future for remediation of Year 2000 problems.
BUSINESS
BACKGROUND
We are a development stage corporation formed under Delaware law on October
13, 1987 to exploit commercially an internal combustion engine that would run on
fuels other than gasoline, that would have significantly fewer parts, and that
would be lighter and operate more efficiently than conventional internal
combustion engines. Although the Rotorcam Engine is an internal combustion
engine, it differs from existing engines in that its four cylinders lie
radially, ninety degrees apart and rotate around the engine's central axis. The
Rotorcam Engine's cylinders radiate outward from a central axle like the spokes
of a wheel with the heads of the cylinders pointing inward. At the end of each
piston arm is a small wheel which runs along the inside of a large flat ring
that encloses the whole engine. The ring is oval in shape so that, when the
cylinders rotate around the central axle, the pistons are pushed in and out as
the wheels roll from the narrow part of the oval ring to the wide part. As they
rotate, a large port in each cylinder successively passes apertures through
which the air-fuel mixture enters and exhaust gases exit.
In October 1987 we acquired from our predecessor, Rotorcam Technology
Corp., an assignment of license under which we obtained the exclusive right and
license to exploit all existing technology relating to the Rotorcam Engine,
which had previously been licensed to Rotorcam Technology Corp. by one of our
former officers.
In July l993 we filed a lawsuit against two of our former officers and
directors (referred to herein as the "Murrays"). On November 18, 1993 we entered
into a settlement agreement terminating the litigation, under which we agreed to
pay to the Murrays $75,000, subject to certain contingencies, and to deliver a
promissory note in the principal amount of $50,000. In return, the Murrays
agreed to return ten million shares of our Common Stock that they owned at such
time and to transfer to us title to all of their patents for the Rotorcam
Engine.
Subsequently, certain of our shareholders brought a class action lawsuit
against the Murrays in the Superior Court of Morris County, New Jersey, alleging
fraud and misrepresentation. On June 25, 1996 a Stipulation of Settlement was
executed by us, the plaintiff class and the Murrays, and on September 24, 1996
the Court approved the settlement under which we paid the Murrays $26,769 and
received in return, on behalf of our shareholders, 27,306,100 shares of our
Common Stock that were previously owned by the Murrays. Of the 27,306,100 shares
tendered by the Murrays, 2,548,867 were transferred to the law firm that
represented the plaintiff class in partial payment of their legal fees and
disbursements, and we cancelled the remaining 24,757,233 shares.
We continue to believe that pollution and depleting petroleum resources
continue to stimulate commercial interest in engines designed to run on
alternative fuels. Although numerous alternative engines have been researched
and developed by both the government and the private sectors, none has received
widespread commercial acceptance. We have been engaged in the research, design
and development of the Rotorcam Engine technology since the our inception in
1988. Since inception, we have spent, all together, approximately $840,000 on
such research and development. However, due principally to a shortage of
operating funds, we incurred only $14,750 for research and development
20
costs during our 1999 fiscal year and did not spend any amount for research and
development during either our 1998 or 1997 fiscal years.
From March 1988 through December 1989, we carried out the design and
production of a prototype of the Rotorcam Engine. In January 1990 we tested the
Rotorcam Engine using gasoline fuel. The Rotorcam Engine achieved combustion,
operated under its own power and maintained a stable speed. After this testing,
we made certain modifications to the Rotorcam Engine and resumed testing to
obtain additional performance information and engineering data for further
development. Design changes to the prototype that we implemented in the latter
part of 1992 reduced the availability of the Rotorcam Engine for demonstration
purposes and the gathering of engineering data. We subsequently retrofitted the
prototype with new components, thereby restoring it to demonstrator status. In
September 1995 we successfully converted the engine to operate on propane, and
it has continued to operate on propane to date.
In March 1997 we entered into an agreement with the U.S. Merchant Marine
Academy at Kings Point, New York to house the Rotorcam Engine and related
equipment at the Academy's engineering and teaching facilities. We agreed to pay
the Academy $200 per month for one year for use of its facilities. The Academy
agreed to assist us with its preliminary analysis of the Rotorcam Engine and to
provide us with a letter of support in order to assist us in acquiring research
grants.
In July 1998 we entered into an agreement with the Southwest Research
Institute of San Antonio, Texas ("SRI"). SRI is generally considered to be one
of the country's foremost independent research institutes with approximately
2,500 scientists, engineers and support personnel. SRI conducts an average of
1,500 nationally and internationally sponsored projects each year. Under our
agreement with SRI, SRI agreed to provide an engineering study of the Rotorcam
Engine at a cost of $9,750. SRI's study included an evaluation of existing
Rotorcam Engine hardware and data, including test data on the current prototype,
and design and analytical data that we had obtained to date. In addition, SRI
agreed to prepare an evaluation report summarizing its findings and a technical
and cost proposal for the next phase of work. In September 1998, with the
agreement and consent of the Merchant Marine Academy, we moved the Rotorcam
Engine from the Academy to SRI's facility in San Antonio, Texas.
In December 1998, SRI issued its report on the results of the testing of
the Rotorcam Engine (the "Report"). In the Report, SRI concluded that there were
three (3) significant advantages of the Rotorcam Engine over conventional
reciprocating engines: higher torque at a specified rpm, a potential of improved
cycle efficiency and energy savings, and the improvement of overall efficiency
and packaging resulting from the ability to eliminate a gear box. However, SRI
also concluded that certain advantages of the Rotorcam Engine that we had
previously believed existed, based on our prior research, were not supported by
the evidence that it had gathered during its review. In particular, SRI
concluded that the prototype did not necessarily possess advantages over
conventional reciprocating engines with respect to high power-to-weight ratio,
low manufacturing and maintenance costs, improved packaging, multi-fuel
potential, and variable compression ratio. In addition to its findings, the
Report recommended potential applications for the Rotorcam Engine, including
off-road power equipment, utility equipment and gensets.
In response to the Report, assuming funding becomes available, which we
cannot provide you any assurances will happen, we have determined to redesign
and rebuild a second generation prototype of the Rotorcam Engine ("Second
Prototype") to address the issues raised by SRI in its Report. We estimate that
the cost of such Second Prototype will be approximately $350,000 to $375,000 and
that it will take approximately 15 to 18 months from the time such funding
becomes available to complete. The development work on the Second Prototype will
address substantially all of the technical problems of the first prototype and
be divided into six (6) phases:
Phase I Cycle simulation analysis to study and optimize the particular
features that make the Rotorcam Engine unique;
Phase II Redesign of the seals for the engine;
21
Phase III Redesign of combustion chambers, pistons and cylinders;
Phase IV Manufacture of the Second Prototype, which would contain new
components, including a static seal plate, sliding seals and springs, combustion
caps, cylinders, pistons, spark plugs, and ignition timing contacts;
Phase V Assembling the Second Prototype in preparation for a test program,
the objective of which would be to evaluate the capability of the Rotorcam
Engine for producing power and torque, engine speed range over which the engine
can be successfully operated, fuel economy and emissions of key exhaust
pollutants; and
Phase VI Testing the Second Prototype to evaluate key performance
measurements, including engine rotating speed and torque, mass air flow, mass
fuel flow, exhaust temperature, exhaust oxygen concentration and gaseous
emissions.
If the Second Prototype shows clear advantages of the Rotorcam Engine over
conventional reciprocating engines in a specific market, and if the necessary
funds are then available, we plan to commission the development of a third
prototype ("Third Prototype") of the engine. The Third Prototype would be
designed to address the performance, cost, reliability and producibility issues
associated with selected markets.
We estimate that the cost to develop such a Third Prototype would be
between $2 million and $3 million and that it would take between 18 to 24 months
from the time the Second Prototype is completed and such funding becomes
available to complete. During this phase of development we plan to commission
the production of several variations of the Third Prototype that would be used
for different purposes, including performance development, durability
assessment, and demonstrators to be used in field testing.
We are attempting to locate a funding source for the $350,000 to $375,000
amount required to complete the Second Prototype. Since June 1998, we have been
attempting to obtain Small Business Innovation Research grant money from the
Lewis Research Center of the National Aeronautics and Space Administration. The
evaluation work provided by SRI, as described in its Report, has made us
eligible to obtain Phase I and Phase II grants from the Lewis Research Center.
However, we cannot give you any assurances that our applications for such grants
will be approved or, even if approved, that such grants will provide sufficient
funding to complete the Second Prototype. Other possible sources for funding
include exercise of our 15,398,000 outstanding Class B Warrants in this
Offering, an offering of the Company's equity securities, and/or borrowing from
private sources. We intend to attempt to raise the funds necessary to complete
the Second Prototype from such sources but we cannot give you any assurances
that we will be able to do so. If we are unable to raise such funds, we may
never be able to further develop the Rotorcam Engine.
We believe that if the Second Prototype is successfully completed, we will
be able to raise sufficient funds to complete the Third Prototype from research
grants, licensing fees and/or equity financing. However, since a decision to
proceed with a Third Prototype will depend on the results obtained from the
Second Prototype, we cannot give you any assurances that we will decide to build
a Third Prototype or that we will, in fact, be able to obtain sufficient funds
to complete the Third Prototype. Since a Third Prototype is essential to our
ability to market the Rotorcam Engine, if we determine that it is not advisable
to produce the Third Prototype, or if we are financially unable to do so, we may
never be able to successfully market the Rotorcam Engine.
In view of the projected extended period of time that we estimate it will
take to complete the Second and Third Prototypes, assuming that we are able to
obtain the funds to complete such prototypes, of which we cannot provide you any
assurances, we are presently seeking opportunities that will permit us to
diversify into businesses in addition to the Rotorcam Engine. Our current
diversification efforts are focused on two recently formed businesses owned
jointly by Mr. Anthony Campo, the Chairman of the Company, and Mr. Dwight
Foster, the President of the Company.
22
One of the Campo-Foster businesses manufactures and distributes a line
commercial degreasers that are environmentally safe and are not harmful to
contact surfaces or users. Products will be marketed to the automotive,
restaurant, marine, airline and other industries. Although this company has
begun sales, it has not achieved significant revenues to date. The second
Campo-Foster business is presently engaged in researching and developing an
emissions neutralizer control system that would counteract the pollutants
generated by fuel burning devices and equipment.
If one of or both of the Campo-Foster business begins to achieve
profitability, Messrs. Campo and Foster plan to merge such profitable
business(es) into the Company. Any such transaction would be approved by the
disinterested members of our Board of Directors.
Each of the Campo-Foster businesses is an early stage company, and we
cannot provide you with any assurances that either of them will achieve
profitability at any time. Therefore, shareholders should not assume that we
will merge with both or even one of these businesses at any time. Moreover, we
have not entered into a binding agreement with Messrs Campo and Foster, and,
therefore, they are not legally obligated to proceed with a merger even if the
Foster-Campo businesses achieve profitability.
MARKETING
If we are able to raise the capital needed to complete the Third Prototype,
then, during the period in which the Third Prototype is being developed, we
intend to determine appropriate markets for the Rotorcam Engine. Based on SRI's
Report, we currently believe that a market is available for the Rotorcam Engine
in off-road terrain equipment, such as earth-moving farm equipment, tanks, pony
engines, marine engines, generators, and co-generation systems that are used to
cool, as well as to provide an electrical power source for, home and industry.
If we are successful in our attempts to produce an engine that is commercially
viable, we intend to attempt to enter into licensing or contract manufacturing
arrangements with other companies for production and sale of the Rotorcam
Engine.
COMPETITION
We believe that competition in the alternative engine market is intense and
that we are competing with other entities that have financial and other
resources far greater than our own. Our research and development efforts are
competing directly with major automobile manufacturers as well as with other
commercial and industrial companies that have established and well financed
research and development efforts in enhancement and improvements to existing
engines as well as in the development of alternative engines. Our limited
resources may hinder our ability to compete successfully. Moreover, unless we
receive substantial additional financing, it is unlikely that we will be able to
commercially exploit the Rotorcam Engine. Again, we cannot give you any
assurances that we will receive any additional funding.
If we are able to obtain sufficient funds to commercially exploit the
Rotorcam Engine, we expect to compete primarily on the basis of technological
advantage, which will permit favorable product cost and performance
differentials. Since engine technology is subject to rapid and dramatic changes,
however, competitors may develop better approaches to such technology, that
would seriously and adversely affect our ability to compete with them.
TECHNOLOGY
Under legal settlements signed in 1993 and 1996 with the Murrays, we
obtained title to seven U.S. patents and four international patents as well as
rights to various patents pending. Of these seven U.S. patents, three remain in
effect and four have expired due to lack of funds necessary to maintain such
patents. Each of the foreign patents and the rights to patents pending have also
expired due to a lack of funds necessary to acquire or maintain such patents.
23
EMPLOYEES AND CONSULTANTS
We currently have one employee, Mr. Dwight Foster, whom the Board appointed
as our President and Chief Executive Officer in December 1998. Mr. Anthony
Campo, who is our Chairman of the Board, Executive Vice-President, Secretary and
Treasurer, also provides us with general administrative services. We have
previously, from time to time, also retained the services of a consultant, who
provides us with engineering services as needed, with payment being made on an
hourly basis.
RECENT ISSUANCES OF SHARES
The Board of Directors authorized the issuance of 2.5 million shares of the
Company's Common Stock to Mr. Joseph Pesko in consideration of his prior
consulting and financing services to the Company. As of the issuance date of
March 15, 1999, such shares had a per share value of $.03 and an aggregate value
of $75,000.
PROPERTIES AND LEGAL PROCEEDINGS
The Company does not presently own or lease any properties and is not a
party to any legal proceedings.
GOVERNMENT REGULATION
If successfully developed, the Rotorcam Engine will be subject to a series
of governmental regulations with respect to safety, fuel efficiency and
pollution. We cannot provide you with any assurance that the Rotorcam Engine
will be able to meet these standards of pollution and safety. In addition, the
assembly and manufacture of products containing the Rotorcam Engine will be
subject to Federal and State regulations. We intend to comply with all
regulations that may be applicable to our business; however, the compliance with
such regulations may cause delays and additional expense, which could adversely
affect the commercial viability of the Rotorcam Engine.
MANAGEMENT
In December 1998, Mr. Anthony Campo resigned as President and Chief
Executive Officer of the Company but remained as Chairman of the Board, and the
Board appointed Mr. Dwight Foster as President and CEO and Mr. Campo as
Executive Vice President, Secretary and Treasurer. In December 1998, the Board
appointed Mr. Frank Pecorella as a Director of the Company, and in March 2000,
the Board appointed Mr. Dwight Foster as a Director of the Company. Our present
executive officers and directors, their ages and present positions are as
follows:
FIRST YEAR
NAME AGE POSITION ELECTED
- ------------------------------ --- ---------------------------------------------- -----------
Anthony Campo................. 60 Chairman of the Board, Executive Vice
President, Secretary and Treasurer 1993
Dwight Foster................. 51 Director, President and Chief Executive
Officer 2000
Frank Pecorella............... 48 Director 1998
All of our directors will hold office until the next annual meeting of the
shareholders and until their successors have been duly elected and qualified.
All of our executive officers will hold office until the next annual meeting of
the directors and until their successors have been duly appointed and qualified.
ANTHONY S. CAMPO
Mr. Anthony S. Campo has been a Director of the Company since January 1993.
He was elected Chairman of the Board on July 28 1995 and was appointed Secretary
of the Company in December 1995 and President and Chief Executive Officer in
December 1997. In December 1998, Mr. Campo
24
resigned as President and Chief Executive Officer and was appointed as Executive
Vice President, Secretary and Treasurer of the Company. Mr. Campo has been
President of Chester Hill Manors, Inc. from June 1996 to the present and of The
Campo Organization, Inc. from December 1998 to the present. From June 1996 to
December 1996, he was President of Archwood Estates, Inc. Each of such companies
developed and constructed residential housing.
DWIGHT FOSTER
Mr. Dwight Foster was elected President and Chief Executive Officer of the
Company in December 1998 and was appointed to the Board of Directors in March
2000. Since September 1997, Mr. Foster has been acting as a liaison between the
Company and Southwest Research Institute, a well-known not for profit research
and development organization. From 1983 to the present Mr. Foster has been the
owner/operator of the National Automobile Dealers Exchange Services, which
represents automobile dealers at premier automobile auctions. In addition, from
1972 to the present, Mr. Foster has been employed as a consultant to start-up
and emerging companies, advising such companies on product development,
marketing, public relations and financing. From February 1999 to the present,
Mr. Foster has acted as President of Sierra Cleansafe USA, Inc., which markets
and sells environmentally safe cleaning products.
FRANK PECORELLA
Mr. Frank Pecorella was appointed as a member of the Board of Directors in
December 1998. Since March 6, 2000, Mr. Pecorella has been employed by Citicorp
Investment Services as an investment consultant. From February 1999 to February
2000, Mr. Pecorella was employed by Chase Investment Services as an investment
consultant. From January 1996 to February 1999, Mr. Pecorella was employed by
Citicorp Investment Services as an investment consultant, and from January 1989
through December 1995, Mr. Pecorella was employed by A.J. Michaels as a stock
broker.
There are no family relationships among our directors and officers.
EXECUTIVE AND DIRECTOR COMPENSATION
Our President and Chief Executive Officer, Mr. Dwight Foster, who was
appointed to these offices in December 1998, did not receive any cash or other
compensation for his services during fiscal 1998 or 1999 or from August 1, 1999
to date. However, our Board of Directors is presently negotiating with Mr.
Foster for the grant of up to 10 million shares of our Common Stock as
compensation for Mr. Foster's past and future services. Any grant in excess of 2
million shares would be conditioned on the Company's meeting certain financial
and operating goals to be determined by agreement between the Company and Mr.
Foster. The Board expects to conclude its negotiations on this matter within the
next 60 days.
Mr. Anthony Campo, our Chairman of the Board, Executive Vice President,
Secretary and Treasurer, also received no compensation for his services to us
during our fiscal years ended July 31, 1999, 1998 or 1997. No other person
served as an executive officer of the Company during the fiscal year ended July
31, 1999, and none of our directors received any compensation for serving in
such capacity during our fiscal years ended July 31, 1999 or 1998.
The Board is considering the grant of up to 2 million shares of restricted
Common Stock or of a non-qualified option to purchase up to 2 million shares of
our Common Stock to Mr. Frank Pecorella, in consideration of his past and future
services as a Director of the Company. The Board intends to make its
determination within 60 days.
Our prior Key Employee Stock Option Plan terminated by its own terms in
October 1997. No options that were granted under that plan were exercised during
fiscal years ended 1999 or 1998, and no options granted under such plan are
presently outstanding. We do not presently have any other option plan or any
defined benefit plan in effect.
25
We do not have any employment agreement with any of our executive officers,
nor are there any compensatory plans or arrangements that would provide
compensation to any executive officer upon his or her resignation, retirement or
other termination of employment, or as a result of a change in control of the
Company or a change in such executive officer's responsibilities following a
change in control of the Company.
PRINCIPAL SHAREHOLDERS
We have provided below information as of March 25, 2000 concerning the
beneficial ownership of our Common Stock by (i) all persons whom we know to own
beneficially 5% or more of our Common Stock, (ii) each of our directors and
executive officers individually, and (iii) all of our directors and executive
officers as a group.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER (1)(2) BENEFICIAL OWNERSHIP CLASS
- ---------------------------------------------------------- -------------------- ----------
Anthony S. Campo (3)...................................... 109,043,500 65.9%
Dwight Foster (4)......................................... 96,500 .015%
Francis Pecorella......................................... 1,415,000 2.2%
All Directors and Executive Officers as a Group (3
persons).................................................. 110,555,000 66.8%
(1) Unless otherwise indicated, the address of each beneficial owner is in care
of the Company, P.O. Box 224, Landing, New Jersey 07850.
(2) Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities, which may be acquired by such person within 60 days
from the date of this Prospectus upon the exercise of options, warrants or
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that
are held by such person (but not those held by any other person) and which
are exercisable or convertible within 60 days of this Prospectus have been
exercised or converted.
(3) In addition to 3,960,000 owned individually by Mr. Campo, includes (i)
2,150,000 shares held by Mr. Campo's wife, (ii) 922,400 shares held by Mr.
Campo's children, (iii) 1,100,000 shares that may be acquired by Mr. Campo
upon the exercise of Class B Warrants, (iv) 911,100 shares that may be
acquired by the children of Mr. Campo upon exercise of Class B Warrants, and
(v) 100,000,000 shares that may be acquired by Mr. Campo upon the conversion
of his Promissory Note from the Company dated August 1, 1998 (see "Certain
Transactions".)
(4) Includes 21,500 shares held by Mr. Foster's wife.
CERTAIN TRANSACTIONS
On April 20, 1994, in consideration of prior loans made to us by Mr.
Anthony Campo, we issued to Mr. Campo a promissory note in the amount of
$100,000. On November 15, 1994 we issued another promissory note to Mr. Campo
for $79,300 in return for additional loans that he had made to us. On March 9,
1995 we again issued a new note in the amount of $328,000 to Mr. Campo that
consolidated the amounts that we owed to him under the previous two notes and an
additional $149,200 that he had advanced to us between November 15, 1994 and
March 9, 1995.
On October 20, 1995 we renegotiated the March 9, 1995 promissory note and
issued a new note in the amount of $568,000, which included the former principal
amount of $328,500, accrued interest thereon, additional cash advances that Mr.
Campo had made to us during fiscal 1995, and our purchase of an engineering
workstation and software from Mr. Campo. The new note bore interest at 7.5 % per
annum and matured on July 1, 1998. The note was convertible, in whole or in
part, into Common Stock of the Company at the conversion rate one share of our
Common Stock for each of
26
$.0075 in principal of the note converted. The conversion feature was subject to
anti-dilution. We did not make any payments to Mr. Campo under the October 20,
1995 promissory note.
We subsequently issued a new promissory note to Mr. Campo, dated August 1,
1998, in the amount of $807,280, which consolidated amounts owed under the
$568,000 note; accrued interest on such note to July 31, 1998 in the amount of $
122,070; cash advances made by Mr. Campo to us or on our behalf between October
20, 1995 and July 31, 1998 in the amount of $60,090; cash advances in the amount
of $42,000 made by Mr. Campo between May 6, 1993 and July 14, 1993 for which he
had not previously been credited; and interest on such 1993 advances through
July 31, 1993 in the amount of $15,120. The August 1, 1998 note bears interest
at 7.5% per annum and matures on July 3l, 2000. The note may be converted into
shares of our Common Stock at a conversion rate of one share of our Common Stock
for each $.0075 in principal amount of the note converted. In March 2000, Mr.
Campo agreed to limit the number of shares for which he may convert the August
1, 1998 Note to 100 million shares.
We have defaulted on the payment of one-half of the principal amount due on
August 1, 1999 and on our quarterly interest payments that were due on November
1,1998, February 1, May 1, August 1,and November 1, 1999, and February 1, 2000.
As of March 25, 2000, a total of $100,405 in unpaid interest was owed to Mr.
Campo under the August 1, 1998 Note. Since we do not have any revenues, it is
very doubtful that we will be able to pay any interest or principal amounts due
under the August 1, 1998 Note until such time as we have operating revenues or
until we raise funds from an independent source, both of which events may not
occur at any time. In addition to the right of converting amounts due under the
Note into Common Stock, as described above, Mr. Campo has the right at any time
to declare amounts due under such note immediately due and payable. At Mr.
Campo's option we will use up to $300,000 or the proceeds of this Offering to
pay amounts due to Mr. Campo under the August 1, 1999 Note. See "Use of
Proceeds".
In addition to amounts due to Mr. Campo under the August 1, 1998 Note,
since August 1, 1998, Mr. Campo has loaned the Company $173,515 for working
capital. Interest on such amount is payable at the same rate as on the August 1,
1998 Note (7.5% per annum). Therefore, as of March 25, 2000, in addition to the
amounts due to Mr. Campo under the August 1, 1998 Note, the Company owed Mr.
Campo $184,105.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 200,000,000 shares of Common Stock, par value
$.0001 per share. As of March 25, 2000 there were 63,453,434 shares issued and
outstanding. Holders of our Common Stock are entitled to one vote for each share
held. There are no preemptive, subscription, conversion or redemption rights
pertaining to our Common Stock. Holders of our Common Stock are entitled to
share ratably in any of our assets that are available upon liquidation.
Holders of our Common Stock are entitled to receive dividends when and as
declared by the Board of Directors out of funds legally available to pay such
dividends. To date, we have not paid any dividends, and our Board of Directors
has no present intention of declaring dividends in the foreseeable future.
Whether dividends are declared in the future will depend upon our profitability,
our financial condition and other factors that the Board deems relevant.
Of the 63,453,434 currently outstanding shares of our Common Stock,
18,654,434 may be deemed to be "restricted securities". The possible or actual
sale of these restricted securities in accordance with Rule 144 adopted under
the Securities Act of 1933 may have a depressive effect on the market price for
our Common Stock that is prevailing at the time(s) if such sales.
CLASS B WARRANTS
In our initial public offering made on February 26, 1988, we sold
15,000,000 units, each unit consisting of one share of Common Stock, $.0001 par
value, one Class A Warrant and one Class B
27
Warrant. The Class A Warrants were exercisable immediately and expired on
October 25, 1991. The Class B Warrants were exercisable immediately and were
originally scheduled to expire on February 26, 1991. However, our Board has
authorized the extension of the Class B Warrant exercise period each year,
including through March 11, 2001. As of the date of this Prospectus, 14,898,000
Class B Warrants are outstanding at an exercise price of $.15 per share.
We may redeem the Class B Warrants at any time, at a price of $.0001 per
Class B Warrant, by giving warrant holders thirty days' prior written notice of
our intention to do so. Holders of Class B Warrants may exercise their warrants
prior to the expiration of such thirty day notice period. A holder of the Class
B Warrants will not have any rights as a stockholder until he or she actually
exercises such Class B Warrant. The number of shares that may be purchased upon
exercise of the Class B Warrants and the exercise price of such Warrants are
subject to proportionate adjustment in the event of stock splits or stock
dividends involving our Common Stock.
UNDERWRITER'S CLASS B WARRANTS
In accordance with the underwriting agreement between us and the
underwriter of our initial public offering, the underwriter purchased, for $15,
warrants (the "Underwriter's Unit Warrants"), to purchase , at $.075 per unit,
1,500,000 units, each unit consisting of one share of Common Stock, one Class A
Common Stock Purchase Warrant to purchase one share of Common Stock at $.15 per
share, and one Class B Common Stock Purchase Warrant to purchase one share of
Common Stock at $.225 per share. Each of the Class A Common Stock Purchase
Warrants expired by its own terms on September 26, 1991. As of the date of this
Prospectus 500,000 Class B Common Stock Purchase Warrants, exercisable at $.225
per share, are still outstanding.
BUSINESS COMBINATION PROVISIONS
You should be aware that we are subject to the provisions of Section 203 of
the Delaware General Corporation Law. Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless certain conditions are met.
The three-year prohibition does not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of the majority of the
corporation's directors. The term "business combination" is defined generally to
include mergers or consolidations between a Delaware corporation and an
"interested stockholder," transactions with an "interested stockholder"
involving the assets or stock of the corporation or its majority-owned
subsidiaries, and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as a stockholder who, together with affiliates and associates, owns
(or, within three years prior, did own) 15% or more of a Delaware corporation's
voting stock. Section 203 could prohibit or delay a merger, takeover or other
change in control of the Company and therefore could discourage attempts to
acquire us.
SHARES ELIGIBLE FOR FUTURE SALE
All of the Common Stock that is being registered under the Registration
Statement will be freely tradeable without registration under the Securities Act
except for securities acquired upon exercise of Class B Warrants by an affiliate
of the Company.
As of the date of this Prospectus, a total of 18,654,344 outstanding shares
of our Common Stock are not registered under the Securities Act. Such
unregistered securities may, however, under certain circumstances, be available
for public sale by means of ordinary brokerage transactions in the open market
in accordance with the provisions of Rule 144 that was enacted under the
Securities Act, provided certain conditions are met.
28
In general, under Rule 144 as currently in effect, a shareholder, including
a shareholder who is one of our affiliates, may sell our Common Stock that he or
she acquired prior to this offering after at least one year has elapsed since he
or she acquired such stock from either us or one of our affiliates. The number
of shares that he or she may sell within any three month period is limited to
the greater of one percent of our then outstanding shares or the average weekly
trading volume in our Common Stock during the four calendar weeks preceding the
date on which such person filed a notice sale under Rule 144. Certain other
requirements of Rule 144 concerning availability of public information, manner
of sale and notice of sale must also be satisfied. In addition, a shareholder
who is not one of our affiliates(and who has not been an affiliate for 90 days
prior to the sale) and who beneficially owns shares that he or she acquired from
us or one of our affiliates more than two years previously may resell his or her
shares without compliance with the foregoing requirements under Rule 144.
In addition, Rule 144A as currently in effect generally permits unlimited
resales of certain restricted securities of any issuer provided that the
purchaser is an institution that owns and invests on a discretionary basis at
least $100,000,000 in securities or is a registered broker dealer that owns and
invests $10,000,000 in securities. Rule 144A allows holders of restricted
securities to sell their restricted securities to such institutions and
registered broker-dealers without regard to any volume or other restrictions.
Unlike under Rule 144, restricted securities sold under Rule 144A to
non-affiliates do not lose their status as restricted securities.
We cannot predict what effect, if any, that the sale or the availability
for sale of shares of our Common Stock under Rule 144 and/or Rule 144A will have
on the prevailing market prices of our Common Stock. Nevertheless, sales of
substantial amounts of such shares in the public market could adversely affect
prevailing market prices for the shares of Common Stock included in this
offering.
PLAN OF DISTRIBUTION
The Common Stock underlying the Class B Warrants will be continuously
offered by the officers of the Company, who will receive no compensation for
their efforts.
HOW TO EXERCISE YOUR WARRANTS
You may exercise your Class B Warrants by filling in the information called
for on the back of your original Class B Warrant Certificate and mailing the
completed and signed original Class B Warrant Certificate, together with a
certified or bank check payable to Murray United Development Corporation in the
full amount of the warrant exercise price ($.15 x the number of shares for which
you are exercising your Class B Warrants), by certified mail, return receipt
requested, to American Stock Transfer and Trust Company, 6201 15th Avenue, 2nd
Floor, Brooklyn, New York 11291, Attn: Warrant Exercise Unit.
INDEMNIFICATION
We have the authority under the Delaware General Corporation Law (DGCL) to
indemnify our directors and officers to the extent provided for in the DGCL. We
may also purchase and maintain insurance on behalf of a person who is or was one
of our directors, officers, employees or agents against liability asserted
against or incurred by such person while acting in such capacity or arising from
his or her status as a director, officer, employee or agent of the Company.
Our Bylaws provide that we must indemnify, to the fullest extent permitted
by law, any of our directors or officers who are made, are threatened to be
made, or otherwise become a party to any action or proceeding as a result of the
fact that such person was serving as a director and/or officer of the Company.
The Bylaws further provide that we must pay expenses that a director or officer
incurs in defending a proceeding prior to the final disposition of the
proceeding, provided the director or officer agrees to repay any amounts that we
advance if it is ultimately determined that the director or officer was not
entitled to indemnification.
29
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons, we
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by one or more of our
directors, officers or controlling persons in the successful defense of any
action, suit or proceeding) is asserted by any such director, officer or
controlling person in connection with the securities being registered, we will,
unless, in the opinion of our counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final adjudication of
such issue.
TRANSFER AGENT
The Company's transfer and warrant agent is American Stock Transfer and
Trust Company.
DETERMINATION OF EXERCISE PRICE
We and the underwriter of our initial public offering made in 1988
arbitrarily determined the exercise price of the Class B Warrants. Although
certain factors, including then prevailing market conditions, assessment of our
management and commercial potential of our business, were considered in
determining such exercise price, the exercise price did not then and does not
now necessarily bear any relationship to our assets, book value, net worth or
any other recognized criteria of investment value.
LEGAL MATTERS
All matters relating to legality of the shares offered hereby will be
passed upon by our counsel, Haley Weinblatt & Calcagni, LLP, 300 Rabro Drive,
Hauppauge, New York, 11788.
EXPERTS
The financial statements included in this Registration Statement have been
examined and certified by James P. O'Day, CPA, P.C., as set forth in such firm's
report appearing elsewhere in this Prospectus. Such financial statements are
included herein in reliance upon such report and upon the authority of such firm
as experts in accounting and auditing. During the last 11 years, Mr. O'Day's
firm has provided accounting services to certain privately held businesses of
Mr. Campo, the Chairman of the Company.
30
MURRAY UNITED DEVELOPMENT CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE NO.
--------
(i) Report of Independent Auditors.............................................. F-1
(ii) Audited Balance Sheets as of July 31, 1999 and July 31, 1998 and (unaudited)
for the six month periods ended January 31, 2000 and January 31, 1999
(Restated)................................................................ F-2
(iii) Audited Statements of Operations for the fiscal years ended July 31, 1999,
1998 and 1997 and (unaudited) for the six months periods ended January 31,
2000 and January 31, 1999 (Restated)...................................... F-4
(iv) Audited Statements of Changes in Stockholders' Equity (Deficiency) for the
fiscal years ended July 31, 1999, 1998 and 1997 and (unaudited)for the six
month periods ended January 31, 2000 and January 31, 1999 (Restated)...... F-5
(v) Audited Statements of Cash Flows for the fiscal years ended July 31, 1999,
1998, and 1997 and (unaudited) for the six month periods ended January 31,
2000 and January 31, 1999 (Restated)...................................... F-12
(vi) Notes to Financial Statements............................................... F-13
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Murray United Development Corporation
We have audited the accompanying balance sheets of MURRAY UNITED DEVELOPMENT
CORPORATION (A Company in the Development Stage) as of July 31, 1999 and 1998,
the related statements of operations, cash flows and stockholders' equity
(deficiency) for the years ended July 31, 1999, 1998 and 1997 and the cumulative
amounts from October 13, 1987 (date of inception). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Murray United Development
Corporation as of July 31, 1999 and 1998, and its results of operations and cash
flows for the years ended July 31, 1999, 1998 and 1997 and the cumulative
amounts from October 13, 1987 (date of inception), in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, as of July 31, 1999, the Company had not generated any
operating revenues and had suffered recurring losses from operations from
inception and had a net capital deficiency. These matters raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
James P. O'Day, C.P.A., P.C.
April 6, 2000
Glen Cove, New York
F-1
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
JULY 31, 1999 AND 1998
ASSETS
1999
Current assets (RESTATED) 1998
---------- --------
Cash & cash equivalents............................................ $ 2,038 $ 12,675
Prepaid expenses................................................... -- --
-------- --------
Total current assets............................................... $ 2,038 $ 12,675
Furniture & equipment, at
cost, net of accumulated
depreciation....................................................... 88,862 100,880
-------- --------
Total Assets......................................................... $ 90,900 $113,555
-------- --------
-------- --------
The accompanying notes are an integral part of the financial statements.
F-2
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
JULY 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities: 1999 1998
----------- -----------
Accounts payable and Accrued Expenses.......................... $ 387,995 $ 425,476
----------- -----------
Total current liabilities...................................... 387,995 425,476
Other liabilities:
Accrued Interest Payable....................................... 64,919 133,466
Notes payable--other stockholder............................... 917,780 673,814
----------- -----------
Total other liabilities........................................ 982,699 807,280
----------- -----------
Total liabilities.............................................. 1,370,694 1,232,756
----------- -----------
Stockholders' deficiency:
Common Stock, par value $.0001;
Common Stock, par value $.0001;
Authorized: 200,000,000 shares;
issued and outstanding:
63,453,434 and 60,953,434 shares............................... 6,346 6,096
Additional paid-in capital....................................... 2,169,351 2,119,599
Deficit accumulated in the development stage..................... (3,455,491) (3,244,897)
----------- -----------
Total stockholders' deficiency................................. (1,279,794) (1,119,202)
----------- -----------
Total Liabilities and Stockholders' Equity..................... $ 90,900 $ 113,554
----------- -----------
----------- -----------
The accompanying notes are an integral part of the financial statements.
F-3
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1999, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
(DATE OF INCEPTION)
CUMULATIVE
1999 1997 AMOUNTS FROM
(RESTATED) 1998 (RESTATED) INCEPTION
----------- ----------- ----------- ------------
Income
Interest income............................... $ -- $ -- $ -- $ 66,465
------------
Total income.................................. 66,465
Expenses
Research and Development costs................ 14,750 -- 854,654
Licensing fees stockholder and affiliate...... -- -- 57,260
General and administrative expenses........... 130,925 47,426 121,061 2,313,726
Interest expense stockholder and affiliate.... 64,919 49,474 49,863 296,316
----------- ----------- ----------- ------------
Total loss.................................... $ (210,594) $ (96,900) $ (170,924) $ (3,521,956)
----------- ----------- ----------- ------------
Net loss per common share..................... (0.003) $ (nil) $ (nil) (0.054)
Weighted average number of common shares
outstanding................................. 62,001,379 73,332,051 85,610,667 63,453,434
----------- ----------- ----------- ------------
The accompanying notes are an integral part of the financial statements.
F-4
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JULY 31, 1999, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
(DATE OF INCEPTION)
DEFICIT
COMMON ACCUMULATED
STOCK ADDITIONAL IN THE STOCK
NUMBER OF PAID IN DEVELOPMENTAL SUBSCRIPTIONS
SHARES AMOUNTS CAPITAL STAGE RECEIVABLE TOTAL
---------- ------- ---------- ------------- ------------- ---------
Issuance in October 1987 to
Principal Stockholder......... 49,000,000 $4,900 $(4,900)
Issuance in October 1987 for
Cash.......................... 3,000,000 300 $ 49,800 (100) $ 50,000
Issuance through initial public
offering of 15,000,000 units
in February 1988 for cash at
$.05 per unit, net of Issuance
costs of $220,900............. 15,000,000 1,500 527,600 529,100
Net loss -- 1988................ $(156,821) (156,821)
Exercise of Class A Warrants:
at $.045 per share.............. 312,588 31 14,035 14,066
at $0.10 per share.............. 21,000 2 2,098 2,100
Costs related to continuing
registration of warrants...... (29,532) (29,532)
Reclassification of common
stock......................... (333,588) (33) (16,133) (16,166)
Net Loss -- 1989................ (362,922) (362,922)
---------- ------- -------- --------- ------- ---------
Balance, July 31, 1989.......... 67,000,000 $6,700 $547,868 $(519,743) $(5,000) $ 29,825
---------- ------- -------- --------- ------- ---------
---------- ------- -------- --------- ------- ---------
The accompanying notes are an integral part of the financial statements.
F-5
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JULY 31, 1999, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
DEFICIT
ACCUMULATED
ADDITIONAL IN THE STOCK
NUMBER OF PAID IN DEVELOPMENT SUBSCRIPTION
SHARES AMOUNTS CAPITAL STAGE RECEIVABLE TOTAL
---------- ------- ---------- ----------- ------------- ---------
Exercise of Class A warrants:
At $.045 per share................ 5,201,205 $ 520 $233,534 $ 234,054
At $0.10 per share................ 409,000 41 40,859 40,900
Exercise of Class B warrants
At $0.15 per share................ 25,000 3 3,747 3,750
Costs related to continuing
registration and solicitation of
warrants........................ (24,588) (24,588)
Cash received for stock
subscription.................... 5,000 5,000
Reclassification of common
stock........................... (5,635,205) (564) (278,140) (278,704)
Charge for stock bonus............ 40,000 40,000
Net Loss -- 1990.................. (422,314) (422,314)
---------- ------- -------- --------- ------- ---------
Balance, July 31, 1990............ 67,000,000 $6,700 $563,310 $(942,057) $ -- $ 372,047
---------- ------- -------- --------- ------- ---------
---------- ------- -------- --------- ------- ---------
The accompanying notes are an integral part of the financial statements.
F-6
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JULY 31, 1999, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
(DATE OF INCEPTION)
DEFICIT
ACCUMULATED
COMMON ADDITIONAL IN THE STOCK
NUMBER OF STOCK PAID IN DEVELOPMENT SUBSCRIPTIONS
SHARES AMOUNTS CAPITAL STAGE RECEIVABLE TOTAL
---------- ------- ---------- ----------- ------------- ---------
Sale of 3,297,000 shares
through private placement
at $0.8 per share and............ 3,297,000 $ 329 $244,871 245,200
Exercise of Class A warrants
at $0.10 per share............... 3,152,472 315 314,933 315,248
Exercise of Class B warrants
at $0.15 per share............... 60,000 6 8,994 9,000
Costs related to continuing
registration of warrants....... (80,607) (80,607)
Reclassification of common
stock.......................... (3,212,472) (321) (323,927) (324,248)
Net Loss -- 1991................. $ (354,727) (354,727)
---------- ------- -------- ----------- ----- ---------
Balance, July 31, 1991........... 70,297,000 $7,029 $727,574 $(1,296,784) $ -- $(562,181)
---------- ------- -------- ----------- ----- ---------
---------- ------- -------- ----------- ----- ---------
The accompanying notes are an integral part of the financial statements.
F-7
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JULY 31, 1999, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
(DATE OF INCEPTION)
DEFICIT
ACCUMULATED
COMMON ADDITIONAL IN THE STOCK
NUMBER OF STOCK PAID IN DEVELOPMENT SUBSCRIPTIONS
SHARES AMOUNTS CAPITAL STAGE RECEIVABLE TOTAL
---------- ------- ---------- ----------- ------------- ---------
Exercise of Class A warrants:
at $0.10 per share.............. 3,779,425 $ 378 $ 377,565 $ 377,943
Exercise of Class B warrants
at $0.15 per share.............. 4,000 1 599 600
Exercise of underwriters
warrants...................... 63,000 6 4,719 4,725
Costs related to:
Exercise of warrants............ (33,191) (33,191)
Registration of privately placed
shares........................ (55,496) (55,496)
Issuance for: Compensation at
$.065 per share............... 50,000 5 3,245 3,250
Agency fee at $0.10 per share... 25,000 2 2,498 2,500
Claim settlement at $.085 per
share......................... 1,000 1 84 85
Reclassification of common
stock......................... 9,181,265 918 618,200 619,118
Charge for compensation......... 180,900 180,900
Net Loss -- 1992................ (606,508) (606,508)
---------- ------- ---------- ----------- ------- ---------
Balance, July 31, 1992.......... 83,400,690 $8,340 $1,826,697 $(1,903,292) $ -0- $ (68,255)
---------- ------- ---------- ----------- ------- ---------
---------- ------- ---------- ----------- ------- ---------
The accompanying notes are an integral part of the financial statements.
F-8
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JULY 31, 1999, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
(DATE OF INCEPTION)
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL IN THE
NUMBER OF PAID IN DEVELOPMENT
ISSUANCE FOR: SHARES AMOUNTS CAPITAL STAGE TOTAL
- ----------------------------------------- ------------ ------- ---------- ----------- ---------
Compensation at $.065 per share.......... 100,000 $ 10 $ 6,490 $ 6,500
Exercise of Underwriters warrants at
$.075 per share........................ 500,000 50 37,450 37,500
Exercise of Class B Warrants at $.15 per
Share.................................. 13,000 1 1,949 1,950
Retirement of 8,970,300 Share of Stock... (8,970,300) (897) (897)
Net loss for 1993........................ -- (470,621) (470,621)
---------- ------- ---------- ----------- ---------
Balance July 31, 1993.................... 75,043,390 $7,504 $1,872,586 $(2,373,913) $(493,822)
---------- ------- ---------- ----------- ---------
---------- ------- ---------- ----------- ---------
The accompanying notes are an integral part of the financial statements.
F-9
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JULY 31, 1999, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
(DATE OF INCEPTION)
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL IN THE
NUMBER OF PAID IN DEVELOPMENT
ISSUANCE FOR: SHARES AMOUNTS CAPITAL STAGE TOTAL
- ----------------------------------------- ------------ ------- ---------- ----------- ---------
Prior period adjustment.................. 369,329 369,329
Net loss for 1994........................ (342,783) (342,783)
---------- ------- ---------- ----------- ---------
Balance July 31, 1994.................... 75,043,390 $7,504 $1,872,586 $(2,347,367) $(467,276)
---------- ------- ---------- ----------- ---------
---------- ------- ---------- ----------- ---------
Issuance for: Compensation at $.015 per
share.................................. 2,000,000 200 29,800 30,000
Net Loss for 1995........................ (354,155) (354,155)
---------- ------- ---------- ----------- ---------
Balance July 31, 1995.................... 77,043,390 $7,704 $1,902,386 $(2,701,522) $(791,431)
---------- ------- ---------- ----------- ---------
---------- ------- ---------- ----------- ---------
Issuance for services.................... 2,000,000 200 30,000
Issuance for services.................... 340,000 34 6,766 6,800
Private placement........................ 8,182,833 818 818
Retired shares........................... (2,055,556) (205) (92,294) (92,500)
Net loss for 1996........................ (275,551) (275,551)
---------- ------- ---------- ----------- ---------
Balance July 31, 1996.................... 85,510,667 $8,561 $2,079,642 $(2,977,073) $(888,880)
---------- ------- ---------- ----------- ---------
---------- ------- ---------- ----------- ---------
The accompanying notes are an integral part of the financial statements.
F-10
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (RESTATED)
YEARS ENDED JULY 31, 1999, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
(DATE OF INCEPTION)
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL IN THE
NUMBER OF PAID IN DEVELOPMENT
ISSUANCE FOR: SHARES AMOUNTS CAPITAL STAGE TOTAL
- --------------------------------------- ------------ ------- ---------- ----------- -----------
Video Fee.............................. 200,000 20 1,980 2,000
Legal Fees............................. 2,548,867 254 37,979 38,233
Retirement............................. (2,548,867) (254) (254)
Net Loss for 1997...................... (170,924) (170,924)
------------ ------- ---------- ----------- -----------
Balance July 31, 1997.................. 85,710,667 8,571 2,119,601 (3,147,997) (1,019,825)
------------ ------- ---------- ----------- -----------
------------ ------- ---------- ----------- -----------
Retired................................ (24,757,233) (2,475) (2,475)
Net Loss for 1998...................... (96,900) (96,900)
------------ ------- ---------- ----------- -----------
Balance July 31, 1998.................. 60,953,434 6,096 2,119,601 (3,244,897) (1,119,200)
------------ ------- ---------- ----------- -----------
------------ ------- ---------- ----------- -----------
Issuance for Services.................. 2,500,000 250 49,750 50,000
Net Loss for 1999...................... -- -- -- (210,594) (210,594)
------------ ------- ---------- ----------- -----------
Balance July 31, 1999.................. 63,453,434 6,346 2,169,351 (3,455,491) (1,279,794)
------------ ------- ---------- ----------- -----------
------------ ------- ---------- ----------- -----------
The accompanying notes are an integral part of the financial statements.
F-11
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1999, 1998 AND 1997
AND CUMULATIVE AMOUNTS FROM OCTOBER 13, 1987
(DATE OF INCEPTION)
CUMULATIVE
1999 1997 FROM
(RESTATED) 1998 (RESTATED) INCEPTION
---------- -------- ---------- ------------
Operating activities:
Net Loss............................................ (210,594) (96,900) ($ 170,924) (3,455,491)
Adjustments to reconcile net loss to net cash used
in operations Depreciation:....................... 12,018 14,475 25,197 171,634
Expenses paid through issuance of
common stock by:
Company........................................... 50,000 -- 39,978 225,035
Principal Stockholder............................. -- -- -- 220,900
Changes in operating assets and liabilities:
Security Deposits................................. -- -- 2,000 --
Prepaid expenses.................................. -- 1,721 (638) --
Accounts Payable Accrued Expenses................. (106,027) 68,225 (36,870) 452,917
---------- -------- ---------- ------------
Net cash used in operating activities............... (254,603) (12,479) (141,257) (2,385,005)
Investing Activities:
Purchase of furniture and equipment............... -- -- -- (260,497)
---------- -------- ---------- ------------
Net cash provided by (used in) investing
activities........................................ -- -- -- (260,497)
Financing activities:
Note payable to stockholder: Proceeds............. 243,966 26,952 123,800 969,447
Principal payments................................ -- -- (6,695) (51,667)
Proceeds from sale of common stock................ -- (2,475) -- 1,729,760
Expenditures for costs related to continuing
registration statement......................... -- -- -- --
Proceeds from stock subscription receivable....... -- -- -- --
---------- -------- ---------- ------------
Net cash provided by financing activities........... 243,966 24,477 117,105 2,647,540
---------- -------- ---------- ------------
Net increase (decrease) in cash and cash
equivalents....................................... (10,637) 11,998 (24,152) 2,038
Cash and cash equivalents, beginning of period...... 12,675 677 24,828 --
---------- -------- ---------- ------------
Cash and cash equivalents, end of period............ 2,038 12,675 676 2,038
---------- -------- ---------- ------------
---------- -------- ---------- ------------
Supplemental disclosure of cash flow data:
Interest paid..................................... -- -- 89 32,420
The accompanying notes are an integral part of the financial statements.
F-12
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BUSINESS AND BASIS OF PRESENTATION:
The Company was incorporated on October 13, 1987 under the laws of the State of
Delaware. It was organized to further develop and exploit commercially certain
technology for a rotary internal combustion engine that would utilize
alternative fuels. The patent and related rights to the use of the technology
have been assigned to the Company.
The Company has been in the development stage since inception. Activities of the
Company have been limited to the acquisition of funds from the sale of its
common stock; the acquisition of the licensing rights for and, subsequently,
title to, the engine technology; research and development related to the
development of an initial fuel-driven prototype of the engine that was
successfully tested on a preliminary basis in January 1990; and the additional
testing and development of the engine prototype to obtain performance data for
the demonstration of the engine to potential licensees. The Company intends to
continue to conduct research and development activities with respect to the
manufacture of a rotary engine during the ensuing twelve month period
principally through Southwest Research Institute, assuming it is able to raise
the funds necessary to conduct such research, of which there can be no
assurances.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, as of July 31, 1999, the
Company had not been able to commercially utilize its engine technology to
generate revenues or cash flows from operating activities. As a result, it has
suffered recurring losses from operations from inception that have generated the
net stockholders' deficiency of $1,279,794 as of July 31, 1999 and have also
generated significant working capital deficiencies from time to time. Management
does not expect the Company to generate any significant revenues or positive
operating cash flows during the twelve-month period subsequent to July 31, 1999
and has also generated significant working capital deficiencies from time to
time. The limited amount of liquid resources available at July 31, 1999, and the
inability to generate operating revenues and cash flows raise substantial doubts
about the Company's ability to continue as a going concern.
The Company plans to continue research and development activities principally
through Southwest Research Institute on at least a limited basis through the
twelve-month period subsequent to July 31, 1999. However, management believes
that, the net liquid assets available at July 31, 1999 will not be sufficient to
enable the Company to meet its obligations and to continue as a going concern
during the ensuing twelve-month period even on this limited basis without
limiting research and development and other operating activities more severely
unless it obtains additional debt or equity financing and/or government
sponsored research grants.
Management also believes that continuation of the Company as a going concern
during the twelve-month period subsequent to July 31, 1999 and thereafter will
depend upon the Company's ability to obtain sufficient additional working
capital to fund the building of a second prototype of its engine and such other
research and development activities, as are necessary to accumulate sufficient
data for the marketing and licensing of the engine technology; marketing costs;
and the general and administrative expenses to be incurred during the remaining
development period. Potential sources of such working capital include: the
private or public sale of common stock (the Company has historically depended
primarily on the sale of equity securities to finance its operations); the
exercise of a substantial portion of the 15,398,000 outstanding Class B warrants
prior to their proposed expiration on March 11, 2001 14,898,000 of which are
exercisable at $0.15 per share and 500,000 of which are exercisable at $.225 per
share; the deferral, if necessary, of payments to related parties; government
sponsored research grants; and borrowing additional amounts from related parties
or other sources. However, there can be no assurances that such financing will
be available The
F-13
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
accompanying financial statements do not include any adjustments that might
result from the uncertainties related to the ability of the Company to continue
as a going concern.
NOTE 2 -- SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES:
Depreciation:
Depreciation of furniture and equipment is provided over the estimated
useful lives of the related assets using declining balance methods.
Research and development:
Costs and expenses related to research and development are expensed as
incurred.
Net loss per common share:
Net loss per common share was computed on the basis of the weighted average
number of shares of common stock outstanding during each period. The effect of
assuming the exercise of outstanding warrants was antidilutive and, accordingly,
not included in the computation of net loss per share.
NOTE 3 -- FURNITURE AND EQUIPMENT:
Furniture and equipment consists of the following:
JULY 31
--------------------- ESTIMATED
1999 1998 USEFUL LIVES
--------- ---------
Furniture............................................. $ 2,098 $ 2,098 7 Years
Equipment............................................. 129,541 129,451 5 Years
Leasehold improvements................................ 3,947 3,947 3 Years
Patent................................................ 125,000 125,000 15 years
--------- ---------
260,496 260,496
Less accumulated deprecation.......................... (171,634) (159,616)
--------- ---------
Totals................................................ $ 88,862 $ 100,880
--------- ---------
--------- ---------
NOTE 4 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
JULY 31
---------------------
1999 1998
-------- --------
Professional fees............................................ $232,832 $264,938
Payroll...................................................... 148,128 148,128
Other........................................................ 7,036 12,410
-------- --------
Totals....................................................... $387,996 $425,476
-------- --------
-------- --------
F-14
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
NOTE 5
Effective April 15, 1994 the Company issued a promissory note, ("the First
Note"), to Mr. Anthony Campo, the Chairman of the Board, Executive Vice
President, Secretary and Treasurer of the Corporation, to evidence cash advances
of $79,300. The First Note provided for an interest rate of 6% on the unpaid
balance and was due in equal installments for one-half of the principal amount
on April 15, 1996 and the remaining one-half on April 20, 1997. The First Note
had warrants attached to purchase 1,666,667 million shares of common stock at an
excise price of $0.06 per common share and expired on April 30, 1997. On
November 15, 1994 the Company issued a second promissory note ("the Second
Note"), to Mr. Campo to evidence additional cash advances to the Company
amounting to $100,000. The Second Note provided for an interest rate of 6% on
the unpaid balance and was due in equal installments for one-half of the
principal amount on April 15, 1997 and the remaining one-half on April 15, 1999.
The Second Note had warrants attached to purchase 7,930,000 million shares of
common stock at an excise price of $0.01 per common share which were scheduled
to expire on April 30, 1999.
Effective March 24, 1995 the Company restructured the obligations under the
First Note and the Second Note by issuing a new note payable to Mr. Campo in the
amount of $328,500. This restructured note, "the Third Note", provided for
interest at a rate of 6% per year on the outstanding principal balance in two
equal quarterly installments of principal beginning March 24, 1995 through April
30, 1999. This Third Note was issued with warrants attached to acquire
32,850,000 shares of common stock at the excise price of $0.01 per share which
were scheduled to expire on April 30, 1999.
Effective October 20, 1995 the Company re-negotiated the outstanding debt and
interest owed to Mr. Campo under the Third Note . The new note bore interest at
7.5% per year and matured on July 1, 1999. The principal amount of $568,000 plus
interest was convertible into common shares of the Company at $.0075 per share.
It was also agreed that any additional monies loaned to the Company would bear
interest at 7.5% per year. During the year ending July 31, 1999, Mr. Campo
loaned an additional $26,952 to the Company.
Accordingly, the balances of the restructured obligations were classified as
long-term debt at July 31, 1999 and 1998.
Effective, August 1, 1998 the Company consolidated the outstanding principal and
interest owed to Mr. Campo under the Fourth Note with additional cash advances
of $102,090 made by Mr. Campo, with accrued interest thereon at 7.5% per annum.
The new note in the amount of $807,280 bears interest at 7.5% per annum, matures
on August 1, 2000 and carries a conversion feature of one share for each $.0075
of debt converted. In March 2000, Mr. Campo agreed to limit the number of shares
for which he may convert the August 1, 1998 Note to 100 million shares. As of
July 31, 1999, the note balance increased to $917,780. Additional funds were
loaned to the Company by Mr. Campo. The additional funds accrue interest at 7.5%
per annum.
The Company has defaulted on its principal payment due August 1, 1999 and its
quarterly interest payments due on November 1, 1998, February 1, May 1, August
1, and November 1, 1999, and February 1, 2000. As of March 25, 2000, a total of
$100,405 in unpaid interest is owed to Mr. Campo under the August 1, 1998 Note.
Since the Company does not have any revenues, it is doubtful that the Company
will be able to pay any interest or principal amounts due under the August 1,
1998 Note until such time as it has operating revenues or raises funds from an
independent source, both of which events may not occur at any time. In addition
to the right of converting amounts due under the Note
F-15
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
into common stock, as described above, Mr. Campo has the right at any time to
declare amounts due under such note immediately due and payable.
NOTE 6 -- STOCKHOLDERS' EQUITY AND INITIAL PUBLIC OFFERING:
In October 1987, the Company issued 49,000,000 shares of common stock to Jerome
Murray and 5,989 shares of common stock to another officer in consideration for
$4,900 and $100, respectively. Payments for the shares were received in November
1989.
In an initial public offering of the Company's common stock on February 26,
1988, the Company sold 15,000,000 units at a price of $0.05 per unit. Each unit
consisted of one share of common stock, one Class A redeemable common stock
purchase warrant and one class B redeemable common stock purchase warrant.
Proceeds, net of $220,900 of underwriting discounts and other registration
costs, amounted to $529,100. Concurrent with the public offering, the Company
issued warrants (the "underwriter's warrants") to the underwriter for nominal
consideration to purchase 1,500,000 units consisting of 1,500,000 shares of
common stock and certain other warrants to purchase additional shares (the other
warrants were not exercised and expired prior to July 31, 1991). The
underwriter's warrants were exercisable through February 1993 at an exercise
price of $0.75 per unit. In February 1993, the Company received $37,500 from the
exercise of 500,000 underwriter warrants pursuant to which, the Company issued
500,000 shares of common stock and 500,000 Class B stock purchase warrants,
whose exercise price is 150% of the Class B warrants, or $.225 per share, and
expire on the same date as the Class B warrants.
The Class A warrants were exercisable through October 25, 1992 (as last extended
on June 25, 1991) at an exercise price of $.10 per share. Effective for the 60
day period from June 16, 1989, the Company reduced the exercise price of the
Class A warrants to $.045 per share. The Class B warrants are exercisable
through March 11, 2001 at an exercise price of $.15 per share. There were
3,779,425, 3,152,472, 409,000 and 21,000 Class A warrants exercised in Fiscal
year ends 1992, 1991, 1990 and 1989, respectively, at $.10 per share and
5,201,205 and 312,588 Class A warrants exercised in 1990 and 1989, respectively
at $.045 per share. The remaining 2,124,310 Class A warrants expired in 1991.
There were 13,000,64,000 and 25,000 Class B warrants exercised in 1993, 1991 and
1990 respectively, at $0.15 per share and 500,000 underwriter's warrants
exercised in 1993 at $0.075 per share. Proceeds, net of solicitation costs, from
exercises of Class A, Class B and underwriter's warrants were credited to
stockholders' equity.
As a result of the exercises and expiration of warrants, the Company had no
Class A warrants, 14,898,000 Class B warrants ,and 500,000 underwriter's B
warrants outstanding as of July 31, 1999. The Class B warrants are redeemable at
any time at the option of the Company at a price of $.0001 per warrant. Holders
of the Class B warrants have certain rights with respect to the registration of
those warrants under the Securities Act of 1993.
During 1991, the Company offered for purchase to qualified investors a minimum
total of 1,000,000 and a maximum total of 5,000,000 shares of common stock at
$.08 per share and received $245,200 from the sale of 3,065,000 shares prior to
the closing of the offering on March 31, 1991. The Company issued an additional
232,000 shares as commissions in connection with certain of the sales for a
total of 3,297,000 shares issued.
F-16
MURRAY UNITED DEVELOPMENT CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 -- INCOME TAXES:
At July 31, 1999, the Company had net operating loss carry forwards of
approximately $3,113,468 available to reduce future Federal taxable income, and
tax credits of approximately $59,991 available to offset future Federal income
tax, that expire from 2003 through 2008.
NOTE 8 -- COMMITMENTS:
Registration rights:
The Company is obligated to file and incur the related costs of post-effective
amendments to the registration statement under the 1933 Act for its initial
public offering covering periods in which any of the Class B stock purchase
warrants sold in that offering are exercisable. However, due principally to a
lack of funds, the Company had not previously filed the post-effective amendment
with the Securities and Exchange Commission that would permit the Company to
issue its Common Stock upon exercise of the Class B Warrant since August 1992.
F-17
- ------------------------------------------------------
- ------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY US . NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE UNDER THIS PROSPECTUS SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
MURRAY UNITED
DEVELOPMENT CORP.
15,398,000 SHARES
PROSPECTUS
, 2000
- ------------------------------------------------------
- ------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law provides, in general, that a
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he or she is or was a director or officer of the corporation. Such
indemnity may be against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding, if the person to be indemnified acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal action or
proceeding, he or she must not have had reasonable cause to believe his or her
conduct was unlawful.
Section 145(b) of the General Corporation Law provides, in general, that a
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director or officer of the
corporation (including attorneys' fees) actually and reasonably incurred by him
or her in connection with the defense or settlement of such action or suit if he
or she acted in good faith and in a manner such person reasonably believed to be
in, or not opposed to, the best interest of the corporation.
Section 145(g) of the General Corporation Law provides in general that a
corporation shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the corporation against any
liability asserted against him or her or incurred by such person in any
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under the provisions of the law.
Section 102(b) of the General Corporation Law permits a Delaware
corporation, by so providing in its Certificate of Incorporation, to eliminate
or limit the personal liability of a director to the corporation for damages
arising out of certain alleged breaches of the director's duties to the
corporation.
The General Corporation Law, however, provides that no such limitation of
liability may affect a director's liability with respect to any of the
following: (i) for breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for unlawful
payment of dividends or unlawful purchase or redemption of its capital stock, or
(iv) for any transaction from which the director derived an improper personal
benefit.
Our Bylaws provide that we must indemnify, to the fullest extent permitted
by law, any of our directors or officers who are made, are threatened to be
made, or otherwise become a party to any action or proceeding as a result of the
fact that such person was serving as a director and/or officer of the Company or
any of our affiliates. The Bylaws further provide that we must pay expenses that
a director or officer incurs in defending a proceeding prior to the final
disposition of the proceeding, provided the director or officer agrees to repay
any amounts that we advance if it is ultimately determined that the director or
officer was not entitled to indemnification.
II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated expenses to be
incurred by the Registrant in connection with this Offering:
SEC Registration fee.................................................... $ -0-+
Blue Sky fees and expenses.............................................. 8,000*
Printing and engraving expenses......................................... 11,000*
Legal fees and expenses of issuance..................................... 12,000*
Accounting fees and expenses............................................ 6,000*
Miscellaneous........................................................... 1,500*
-------
TOTAL.............................................................. $38,500*
- ------------------
+ Previously Paid
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Registrant sold the following securities:
We issued 2,500,000 shares, which had a market value on March 15, 1999, the date
of issuance, of $.03 per share or $75,000 in the aggregate, to Joseph Pesko in
consideration of consulting services previously rendered to us.
In connection with all the transactions described above, no general
advertisement or solicitation of offerees was made, and all purchasers signed
and delivered to the Registrant agreements wherein they represented, among other
things, that the securities would be held for their own account, for investment
only and not with a view to the distribution thereof. Unless no longer required,
the certificates representing such securities bear legends restricting
transferability in transactions not registered under the Act, and the
Registrant's records bear stop transfer restrictions with respect thereto.
ITEM 27. EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----- ----------------------------------------------------------------------------------
(3) (a) Articles of Incorporation*
(b) Amended and Restated Bylaws
(5) Opinion of Counsel
(10) Material contracts
(a) Key Employee Stock Option Plan*
(b) License Agreement between Rotorcam Technology Corp. and Jerome Murray dated
October 18, 1992*
(c) Assignment of License Agreement*
(d) Executive Employment Agreement by and between Jerome Murray and the registrant**
(e) Jecko, Inc. agreement dated August 1, 1989 **
(f) Renewal of Jecko, Inc. agreement dated November 12, 1989**
(g) Amended and Restated Assignment of License Agreement.***
(h) Amended and Consolidated Promissory Note in the amount of $108,463 from the
registrant to the Rotorcam Technology Corp.***
(i) Amended and Consolidated Promissory Note in the amount of $86,619 from the
registrant to Jerome Murray.***
(j) First Amendment to Executive Employment Agreement between Jerome Murray and the
registrant***
II-2
(k) Lease for 10 Orben Drive, Landing, New Jersey dated July 31, 1991.***
(l) Renewals of Jecko, Inc. agreement dated April 16, 1990, June 27, 1990, November
12, 1990 January 28, 1991 and August 29, 1991.***
(m) Employment agreement by and between James J. Cronin and the registrant.****
(n) Option issued by the registrant to James J. Cronin.****
(o) Amended and Consolidated promissory Note in the amount of $108,463 from the
registrant to the Rotorcam Technology Corp.****
(p) Amended and Consolidated promissory Note in the amount of $86,619 from the
registrant to Jerome Murray.****
(q) Amended and Consolidated promissory Note in the amount of $116,399 from the
registrant to the Rotorcam Technology Corp.****
(r) Amended and Consolidated promissory Note in the amount of $104,268 from the
registrant to Jerome Murray.****
(s) Executive Employment Agreement by and between James J. Cronin and the registrant.+
(t) Agreement by and between Francis Pecorella and the registrant.+
(u) Settlement Agreement between Jerome Murray, Frances Gardiner, Rotorcam Technology
Corporation and the registrant.+
(v) Proprietary Information and Inventions Agreement by and between Albert J. Richey
and the registrant++
(w) Revolving Subordinated Note in the amount of $100,000 between Anthony S. Campo and
the registrant.++
(x) Revolving Subordinated Note in the amount of $79,300 between Anthony S. Campo and
the registrant.++
(y) Option Agreement between Robert J. Tiernan and the registrant.++
(z) Independent Contractor Agreement by and between Joseph O. Mosca and the
registrant.++
(aa) Amended & Consolidated Revolving Subordinated Note in the amount of $328,500
between Anthony S. Campo and the registrant.++
(ab) Lease agreement for Tuxedo Park, NY office dated 10/5/93++
(ac) Lease agreement for Stony Brook, NY office dated 6/l/94.++
(ad) Note agreement dated 10/20/95 in the principal amount of $568,000.+++
(ae) Lease agreement for Islandia, NY laboratory site dated 6/l/94 between Anthony S.
Campo and the registrant.+++
(af) Lease agreement for Huntington, NY laboratory site dated 10/l/95 between Anthony
S. Campo and the registrant.+++
(ag) Promissory Note dated August 1, 1998 from the Company to Mr. Anthony S. Campo.++++
(ah) Amendment dated March 15, 2000 to registrant's Promissory Note dated August 1,
1998.
(23) (a) Consent of James P. O'Day, CPA, P.C.
(b) Consent of Haley Weinblatt & Calcagni, LLP
(24) Power of Attorney
(25) Financial Data Schedule+++++
* Filed with the registrant's Registration Statement on Form S-18 dated
December 9, 1987 (Registration No. 33-19048-NY) and Amendment Nos. 2 and 3
thereto dated February 17, 1988 and February 22, 1988, respectively, and
incorporated herein by reference.
II-3
** Filed with the registrant's Amendment Nos. 1, 2 and 3 to Post-Effective
Amendment No. 2 on Form S-18 (Registration No. 33-19048-NY) dated July 16,
1990,September 26, 1990 and November 8, 1990, respectively, and incorporated
herein by reference.
*** Filed with registrant's Annual Report on Form 10-K for the year ended
July 31, 1991, and incorporated herein by reference.
**** Filed with registrant's Post Effective Amendment No. 3 on Form S-18
(Registration No-3319048-NY) dated August 6, 1992, and incorporated herein by
reference.
***** Filed with registrant's Annual Report on Form 10-K for the year ended
July 31, 1993, and incorporated herein by reference.
****** Filed with registrant's Annual Report on Form 10-K for the year
ended July 31, 1994, and incorporated herein by reference.
+ Filed with registrant's Annual Report on Form 10-K for the year ended
July 31, 1993, and incorporated herein by reference.
++ Filed with registrant's Annual Report on Form 10-K for the year ended
July 31, 1994, and incorporated herein by reference.
+++ Filed with registrant's Annual Report on Form 10-K for the year ended
July 31, 1995 and incorporated herein by reference.
++++ Filed with registrant's Annual Report on Form 10-KSB for the year
ended July 31, 1998 and reincorporated herein by reference.
+++++ Filed with registrant's annual report on Form 10-KSB for its fiscal
year ended July 31, 1999 and its quarterly report on Form 10-QSB for its fiscal
quarter ended January 31, 2000.
ITEM 28. UNDERTAKINGS
(a) The undersigned small business issuer undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment thereto) which, individually
or together, represent a fundamental change in the information
in the Registration Statement; and
(iii) include any material information relating the plan of
distribution not previously disclosed in the Registration
Statement or any material change in such information.
(2) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions or otherwise, the small
business issuer 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 small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer, 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 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-4
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
the Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the small business issuer under Rule 424(b)(1)
or (4) or 497 (h) under the Securities Act shall be deemed to be part of
the Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement for the securities offered in
the Registration Statement, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of those securities.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, at Hauppauge, State of
New York, on April 6, 2000.
MURRAY UNITED DEVELOPMENT CORPORATION
(Registrant)
By: /s/ DWIGHT FOSTER
___________________________________
Dwight Foster
President and Chief Executive Officer
Dated: April 6, 2000
By: /s/ ANTHONY S. CAMPO
___________________________________
Executive Vice President Secretary
and Treasurer
Chief Financial Officer
Dated: April 6, 2000
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ ANTHONY S. CAMPO
______________________________________
Anthony S. Campo,
Chairman of the Board
/s/ DWIGHT FOSTER
______________________________________
Dwight Foster, Director
/s/ FRANCIS PECORELLA
______________________________________
Francis Pecorella, Director
Dated: April 6, 2000
II-6