AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1996
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INCOMNET, INC.
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(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 7375 95-2871296
----------------- ----------------- --------------
(State or Other (Primary Standard (IRS Employer
Jurisdiction Industrial Identification
of Incorporation Classification Number)
or Organization) Code Number)
21031 VENTURA BOULEVARD, SUITE 1100
WOODLAND HILLS, CALIFORNIA 91364
(818) 887-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MELVYN REZNICK, PRESIDENT
INCOMNET, INC.
21031 VENTURA BOULEVARD, SUITE 1100
WOODLAND HILLS, CALIFORNIA 91364
(818) 887-3400
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MARK J. RICHARDSON, ESQ.
1299 OCEAN AVENUE, SUITE 900
SANTA MONICA, CALIFORNIA 90401
(310) 393-9992
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT RULE 415 UNDER THE SECURITIES ACT OF 1933,
CHECK THE FOLLOWING BOX /X/
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CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS PROPOSED PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE OFFERING PRICE REGISTRATION FEE
Common Stock.................... 214,000 $5.75 $1,230,500 $ 424.31
157,500 12.00 1,890,000 $ 651.72
32,500 12.00 390,000 $ 134.48
31,000 5.00 155,000 $ 53.45
190,000 10.00 1,900,000 $ 655.16
Common Stock Underlying
Warrants to Purchase Common
Stock(1)....................... 75,000 11.25 843,750 290.95
Total........................ 700,000 -- $6,409,250 $ 2,210.07
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(1) Pursuant to Rule 416, there are also being registered such additional
shares of Common Stock as may become issuable pursuant to the
anti-dilution provisions of the Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED MAY 9, 1996
INCOMNET, INC.
700,000 SHARES OF COMMON STOCK
The shares covered by this Prospectus are comprised of (i) 75,000 shares
of the Common Stock of Incomnet, Inc., a California corporation (the
"Company") which may be purchased upon the exercise of 75,000 warrants (the
"Warrants") held by a consultant to the Company (the "Warrantholder"), (ii)
411,000 shares of the Common Stock of the Company (the "Outstanding Shares")
which were issued to several investors in prior private placements or
conversions of privately placed convertible promissory notes, and (iii)
214,000 shares of the Company's Common Stock (the "Shares"), some or all of
which may be issued in connection with settlement agreements with existing
shareholders and, to the extent shares remain after paying settlement
amounts, will be offered and sold from time to time at the prevailing market
price through a registered member of the National Association of Securities
Dealers, Inc. (the "Underwriter"). The Underwriter for the offer and sale of
the Shares is J. Alexander Securities, Inc. The shares of Common Stock
issuable upon the exercise of the Warrants are referred to herein as the
"Underlying Shares." The Outstanding and Underlying Shares are being offered
for resale by the Warrantholder and the Shareholders and not pursuant to an
initial issuance of stock by the Company. The Warrants have not been
separately registered and are not offered by this Prospectus. The Warrants
and Outstanding Shares were issued in private placements pursuant to Section
4(2) of the Securities Act of 1933, as amended. See "DESCRIPTION OF CAPITAL
STOCK" and "SELLING SECURITY HOLDERS."
The Company's Common Stock is traded on the NASDAQ Small Capital Market
("NASDAQ/Small Cap") under the symbol "ICNT." The last reported sale price
of the Common Stock on the NASDAQ/Small Cap on May 6, 1996 was $5.75 per
share. See "PRICE RANGE OF COMMON STOCK AND DIVIDENDS."
See "RISK FACTORS" for certain factors that should be considered by
prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company
PER UNDERLYING SHARE (2). . . . . . . . $11.25 $0 $843,750
PER SHARE (3) . . . . . . . . . . . . . $ --- $ --- $ ---
TOTAL (4) . . . . . . . . . . . . . . . $ --- $ --- $ ---
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(1) No underwriters will be involved in the exercise of Warrants nor were any
underwriters involved in the issuance of the Warrants or the Outstanding
Shares. The Warrantholder and Shareholders do not have any specific plan
of distribution with respect to the Outstanding Shares or Underlying
Shares. The sale of the Outstanding Shares and Underlying Shares may be
made in the open market through broker-dealers or in individual negotiated
transactions.
(2) The price per share for the Underlying Shares reflects the exercise price
of the Warrants held by the Warrantholder.
(3) Those Shares which are not issued as part of existing settlement agreements
may be issued from time to time at the prevailing market price through the
Underwriter. The price per Share and underwriting commission are therefore
undetermined at this time.
(4) The total proceeds to the Company will equal the aggregate exercise price
of 75,000 Warrants and the original issuance price of the Shares. The
proceeds from the sale of the Shares is not known at this time since the
number of Shares remaining after the finalization of the settlement
agreements will not be known until five business days after the effective
date of the registration statement encompassing this Prospectus.
Furthermore, the remaining Shares, if any, will be issued from time to time
at the prevailing market price through the Underwriter. The amount of
underwriting discounts and commissions on the sale of the Shares is also
not known at this time. See "THE COMPANY - Settlement Agreements with
Prior Noteholders." The Warrantholder and Outstanding Shareholders will
receive all net proceeds from the sale of their respective Outstanding
Shares and Underlying Shares.
AVAILABLE INFORMATION
Incomnet, Inc. is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Copies of such reports, proxy
statements and other information can be obtained, upon payment of prescribed
fees, from the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. In addition, such reports, proxy statements and other
information can be inspected at the SEC's facilities referred to above and at
the SEC's Regional Office at 5670 Wilshire Boulevard, 11th Floor, Los Angeles,
California 90036-3648. The Company's Common Stock is reported on the National
Association of Securities Dealers Automated Quotation Small Capital System and
such reports, proxy statements and other information regarding Incomnet are
available for inspection and copying at 33 Whitehall, New York, New York 10004.
The Company has filed with the SEC a Registration Statement on Form S-3
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Underlying Shares. This Prospectus does not contain all the information set
forth in the Registration Statement. Such additional information may be obtained
from the SEC's principal office in Washington, D.C.
Statements contained in this Prospectus or in any document incorporated by
reference in this Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC are incorporated in this
Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 filed on April 8, 1996 (provided that the information referred
to in Item 402(a)(8) of Regulation S-K shall not be deemed to be specifically
incorporated herein).
(b) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1995 filed on May 12, 1995, as amended by the Company's Form 8
for the fiscal quarter ended March 31, 1995, filed on July 27, 1995.
(c) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1995 filed on August 2, 1995.
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(d) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1995, filed on November 14, 1995.
(e) The Company's Current Report on Form 8-K filed on July 25, 1995, its
Current Report on Form 8-K filed on August 18, 1995, its Current Report on Form
8-K filed on November 15, 1995, its Current Report on Form 8-K filed on
November 30, 1995, its Current Report on Form 8-K filed on February 9, 1996, its
Current Report on Form 8-K filed on April 29, 1996, its Current Report on Form
8-K filed on February 8, 1995, its Current Report on Form 8-K filed on May 13,
1992 and amended on October 9, 1992, and its Current Report on Form 8-K filed on
January 12, 1994 and amended on February 14, 1994, July 22, 1994 and September
20, 1994 regarding the change of the Company's Certifying Accountant.
(f) The Company's Proxy Statement on Schedule 14A, dated June 14, 1996
and filed with the Securities and Exchange Commission on May 2, 1996.
(g) All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus.
Any statement contained in a document incorporated herein by reference will
be deemed to be modified or superseded for the purpose of this Prospectus to the
extent that a statement contained herein or in a subsequently filed document
modifies or supersedes such statement. Any such statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered with this Prospectus. Such documents relating to the Company
are available without charge upon request made to Incomnet, Inc., 21031 Ventura
Boulevard, Suite 1100, Woodland Hills, California 91364 (telephone (818) 887-
3400), attention: Melvyn Reznick, President.
No person is authorized to give any information or to make any
representations other than as contained herein and, if given or made, such
information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such an offer or solicitation is not qualified to
do so or to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any distribution of
securities made hereunder shall under any circumstances create an implication
that there has been no change in the affairs of the Company since the date
hereof or that the information herein is correct as of any time subsequent to
the date of this Prospectus.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS.
THE COMPANY
Incomnet, Inc. (the "Company" or "Incomnet") and its two subsidiaries,
National Telephone Communications, Inc. ("NTC") and Rapid Cast, Inc. ("RCI"),
are engaged in three types of businesses: (i) interactive computer networking
products and services, (ii) discount long distance telephone communications
services to residential and commercial customers in the United States, and (iii)
manufacture and marketing of the Fast Cast-TRADEMARK- LenSystem that allows
retail
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optical stores and wholesale optical lens manufacturing laboratories to
produce single vision, flat-top bifocal and progressive multifocal lenses
rapidly on demand. NTC is a wholly-owned subsidiary of the Company and RCI
is 51% owned by the Company.
Incomnet, Inc. was incorporated under the laws of the State of
California on January 31, 1974. The Company acquires and develops computer
hardware and software for interactive communications networks. It currently
operates a communications network under the tradename "AutoNETWORK" for
several hundred automobile dismantling companies in California, Colorado,
Nevada, Arizona, Oregon and Washington. The network permits the subscribers
to share information simultaneously and to communicate electronically on a
real-time basis through individual computer workstations linked by the
Company's proprietary software, central message switching computer and
front-end network processor. The Company is evaluating other business
applications for its communications technology in order to establish more
subscriber-based communications networks. The Company's principal executive
office is located at 21031 Ventura Boulevard, Suite 1100, Woodland Hills,
California, 91364. Its telephone number is (818) 887-3400.
National Telephone Communications, Inc. was incorporated under the laws
of the State of Nevada on September 6, 1984. Since July 1989 NTC has operated
as an inter-exchange carrier and reseller of long distance telephone service,
providing nationwide long distance telephone access to its residential and
commercial customers. NTC purchases large blocks of time from long distance
national and regional telecommunications carriers at rates based upon high
volume usage. NTC resells the time to its customers at discounted
telecommunications retail rates. In general, NTC provides its customers with
rates that are 5% to 50% below the published retail rates of major national
carriers like AT&T and MCI with complete domestic and international coverage.
NTC's products include (i) fixed rate per minute services called Call$aver,
(ii) a prepaid calling card product, Sure$aver, which eliminates calling card
surcharges such as those imposed by AT&T, MCI and Sprint, and (iii) a
measured rate Dial-1 service that is interconnected to local telephone
companies throughout the United States. NTC is licensed to provide
telecommunication services by the Public Utilities Commissions of numerous
states. NTC markets its services through referral marketing agents and
affinity groups on a nationwide basis. NTC's offices are located at 2801
North Main Street, Irvine, California, 92714. Its telephone number is (714)
251-8000.
Rapid Cast, Inc. was incorporated under the laws of the State of
Delaware February 12, 1994. RCI owns 100% of the issued and outstanding
stock of Q2100, Inc. ("Q2100"), which it acquired from Pearle, Inc. on
February 8, 1995. The Company acquired 51% of the issued and outstanding
stock of RCI on February 8, 1995, as well. Q2100 owns certain domestic and
foreign patents and patent applications relating to a new technology,
commonly known as Thick Film Radiation Cured Polymer Technology (the
"Technology"), which enables retail optical stores, small to mid-sized
wholesale optical lens manufacturing laboratories and other dispensers of
prescription ophthalmic lenses to produce lenses on site rapidly and at a
cost generally lower than if they were purchased from third party
manufacturers and distributors. RCI is currently manufacturing and marketing
this technology through the sale of casting machines and liquid monomer under
the name Rapid Cast or the Fast Cast Lensystem. RCI's principal executive
office is located at 1500 Hempstead Turnpike, East Meadow, New York 11554 and
its telephone number is (516) 465-7312. RCI also has executive offices
located at 4415 Poplar Level Road, Louisville, Kentucky 40233, where its
telephone number is (502) 459-6722.
* * *
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THE OFFERING
Type of Security Registered . . . . . . . . . . . Common Stock, no par value.
Number of Outstanding Shares. . . . . . . . . . . 411,000
Number of
Underlying Shares . . . . . . . . . . . . . . . . 75,000
Number of Shares. . . . . . . . . . . . . . . . . 214,000
Selling Security Holders . . . . . . . . . . . . The Outstanding Shares are held primarily by
affiliates of the Company or RCI who purchased
them in a private placement made on June 30,
1995, or who converted 8% convertible
promissory notes (issued in February 1995 to
finance the acquisition of a controlling
interest in RCI) into shares in July 1995.
The holders of the Outstanding Shares also
include other investors in the 8% convertible
promissory notes who converted their notes
into shares or who were issued shares pursuant
to settlement agreements. The Underlying
Shares are issuable upon the exercise of
75,000 Warrants held by Price International,
Inc. See "SELLING SECURITY HOLDERS."
Terms of the Warrants. . . . . . . . . . . . . . The 75,000 Warrants entitle Price International,
Inc. to purchase 75,000 shares of the Company's
Common Stock at an exercise price of $11.25
per share, exercisable until November 15, 1997.
See "SELLING SECURITY HOLDERS."
Issuance of Shares . . . . . . . . . . . . . . . The unissued Shares are reserved for issuance
pursuant to settlement agreements entered into
with certain existing shareholders, depending on
the average public market price of the Company's
Common Stock during the five trading days
immediately preceding or following the effective
date of this Prospectus. To the extent that
Shares remain unissued after the satisfaction of
the settlement agreements, the Company may issue
them from time to time through the Underwriter
in open market transactions in accordance with
Rule 415. The amount of net proceeds to be
received by the Company from the sale of the
Shares, if any, is not known at this time
because it depends on the number of unissued
Shares remaining after the settlement with
certain existing shareholders,
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and the prevailing market price of the Company's
Common Stock on the dates that it elects to sell
the Shares, if any. See "THE COMPANY-Settlement
With Prior Noteholders." Assuming an average
market price of $5.00 per share for the purpose
of calculating the settlement amounts, an
additional 45,500 Shares would be required to be
issued pursuant to the settlement agreements.
Assuming a net sale price of $5.00 per Share for
all remaining Shares sold by the Company through
the Underwriter, the Company would receive net
proceeds of $842,500 from the sale of 168,500
Shares. See "SELLING SECURITY HOLDERS."
Shares to be Outstanding After
Issuance of Shares and Exercise
of Warrants. . . . . . . . . . . . . . . . . . . 13,513,024
Voting Rights. . . . . . . . . . . . . . . . . . Each Share and Underlying Share of Common Stock
will have one vote per share, if and when
issued, and each Outstanding Share has one vote.
The Warrants do not have any voting rights
associated with them.
Use of Proceeds. . . . . . . . . . . . . . . . . The Company would receive net proceeds of
$843,750 from the exercise of all 75,000
Warrants. The amount of net proceeds to be
received by the Company from the sale of the
Shares, if any, is not known at this time. The
Company will not receive any proceeds from the
sale of the Outstanding Shares or the Underlying
Shares. The Company expects to use the net
proceeds from the exercise of the Warrants and
sale of Shares, if any, for general working
capital purposes. There is no assurance that
the Warrants will be exercised or that any
Shares will be sold by the Company through the
Underwriter. See "USE OF PROCEEDS."
NASDAQ Symbol. . . . . . . . . . . . . . . . . . ICNT
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SUMMARY CONSOLIDATED FINANCIAL DATA
INCOMNET, INC., NATIONAL TELEPHONE COMMUNICATIONS, INC. AND RAPID CAST, INC.
YEAR ENDED DECEMBER 31
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1995 1994 1993 1992(2) 1991(1)
---- ---- ---- ----- -----
STATEMENT OF REVENUES
Revenues $86,564,917 $46,815,057 $11,298,972 $5,534,874 $1,898,071
Income (Loss) before income taxes and
extraordinary items and minority interest 856,543 4,000,242 (1,606,844) (2,264,597) 13,257
Income (Loss) before extraordinary items 1,366,025 3,999,187 (1,606,844) (2,461,697) 1,322
Net Income (Loss)(3) 1,366,025 4,071,194 (948,769) (2,021,333) 1,322
PER COMMON SHARE DATA
Net Income (Loss) .11 .42 (.12) (.28) 0
Cash Dividends 0 0 0 0 0
Book Value 3.21 1.58 .48 .13 .20
Number of Shares 13,262,648 10,482,854 8,183,877 7,189,671 6,936,311
BALANCE SHEET DATA
Total Assets 74,105,629 26,158,346 8,665,839 6,744,994 2,174,428
Long-Term Debt 8,459,772(1) 900 20,000 176,000 83,334
Shareholders' Equity 42,548,056 16,535,153 3,929,148 1,047,125 1,396,000
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(1) Long term liabilities include $8,449,050 of deferred tax liability arising
from the nondeductibility of the RCI patent rights, which will be eliminated
in accordance with Statement of Financial Accounting Standards No. 109 as
the underlying patent rights are amortized to expense.
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FINANCIAL RATIOS AND OTHER DATA:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31,1995 DECEMBER 31,1994 DECEMBER 31,1993
Operating Cash Flow $1,378,839 $3,083,887 ($1,237,225)
Capital Expenditures 28,824,127 2,100,464 (1,991,998)
Operating cash flow less capital
expenditures (27,445,288) 983,423 (482,452)
Capital expenditures as
percentage of operating cash flow 2,090% 68.1% (5)
Operating cash flow to interest
expense, net of interest income 896.3% (4) (5)
Operating cash flow less capital
expenditures to interest expense,
net of interest income (6) (4) (5)
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1. In 1991 the Company wrote-off its entire investment in
Incomnet India Limited. See footnote 12 to the Notes to
Consolidated Financial Statements of Incomnet in its 1994
Form 10-K for an explanation of the investment and the
write-off of the investment in Incomnet India Limited. See
also "Item 14. Financial Statements" in the Company's 1994
Form 10-K.
2. The historical financial information of the Company is
consolidated with the financial information of NTC
commencing in 1992 to reflect the acquisition by the Company
of a majority of the outstanding shares of NTC in February
1992. See "Item 14. Financial Statements" in the Company's
1994 Form 10-K. No provision for minority interest is made
in the consolidated financial statements because NTC has a
negative shareholders' equity.
3. After provision for income taxes.
4. The Company had no net interest expense during the year ended December
31, 1994.
5. During the twelve month period ended December 31, 1993, the
Company had a negative operating cash flow. Interest expense
was $51,455 for the year ended December 31, 1993.
6. During the twelve month period ended December 31, 1995, the
Company had capital expenditures substantially in excess
of operating cash flow, as indicated in the table.
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RISK FACTORS
Prospective investors should consider carefully, in addition to the
other information contained in this Prospectus, the following factors before
purchasing the Underlying Shares.
RISKS RELATING TO INCOMNET, INC. AND NTC
POSSIBLE DEFICIENCIES IN CARRIER SERVICE. The telecommunications
business is extremely competitive and its success depends upon several factors,
including high quality technology, effective marketing, accurate billing and
responsive customer service. As a "switchless" reseller of long distance
telephone service registered with the Federal Communications Commission and
state public utility commissions, the Company provides billing and customer
service directly. The Company is, however, dependent upon services provided to
it and its customers by telecommunications carriers. The Company has the right
to provide long distance telephone service to its customers through any
telecommunications carriers that it chooses. At present, the Company has
contracts with several carriers. The two main carriers which provide service to
the Company are Wiltel, which handles most calls in the mainland United States,
and U.S. Sprint, which handles calls from Hawaii to the United States. The
Company is subject to the risk that its carriers may not provide high quality
telephone service to the Company's customers, along with accurate, timely
billing records of that service to the Company.
RISK OF TERMINATION OF CARRIER SERVICE. The Company's newest contract
with Wiltel commenced on September 15, 1995 as an amendment to the contract
entered into on November 15, 1994 (service had been provided under a prior
arrangement since July 1992). The Wiltel Carrier Switched Services Agreement
expires by its terms on November 15, 1999. Wiltel may terminate its carrier
agreement with the Company or modify the charges upon 60 days prior written
notice to the Company. The Company may not terminate the new Wiltel contract
without a cancellation charge (the cancellation charge would be 100% of the
minimum purchase requirement for the remaining term of the agreement) unless
Wiltel increases its rates under the agreement by an amount the effect of which
would be to cause total charges for the three months immediately preceding the
rate increase to be 5% greater than they were with the original discounts. The
Sprint contract commenced on April 7, 1993 and is terminable by either party
upon 30 days prior notice. The termination of the contracts with either of
these carriers or an increase in rates would have an adverse impact on the
Company's financial condition and operating results if the Company could not
replace either carrier with similar service at an equivalent price. The Company
could lose its carrier contracts for reasons beyond its control. While the
Company has the right to switch its customers to other carriers in its
discretion, there is no assurance that the Company could replace its carrier
contracts on substantially similar terms if its current contracts were
terminated or were not renewed upon their expiration. Should the Company lose
its contracts and not be able to replace them, it would have a significant
adverse impact on both the Company's telephone and marketing related revenues
because the Company would not be able to sign on new customers. There is also
no assurance that the Company will continue to have the capital available and
retain the qualified personnel that are required to maintain a satisfactory
level of services to its customers. See "Item 1. Business" in the Company's
1995 Form 10-K.
MINIMUM PURCHASE REQUIREMENT. Pursuant to its new Carrier Service
Agreement with Wiltel, the Company is obligated to purchase a minimum amount of
telephone time on a "take-or-pay" basis. If the Company is not able to use the
minimum amount of telephone time under the new agreement, then it must pay to
Wiltel the difference between the actual usage and the minimum usage requirement
in cash. The Company could experience operating losses as the result of the
minimum purchase requirement in the new carrier contract. The Company
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currently relies on purchases by an unaffiliated party under the Wiltel
agreement (at no profit to the Company) in order to meet the minimum purchase
requirement. If the unaffiliated co-purchaser ceases to purchase telephone
time under the agreement, the Company could experience significant operating
losses. See "Item 1. Business - Contract with Wiltel" in the Company's 1995
Form 10-K."
SEC INVESTIGATION AND RELATED LAWSUITS. In August 1994, the Company
was notified by the Pacific regional office of the Securities and Exchange
Commission that the Commission had initiated a confidential investigation of the
Company. In September 1994 the Commission issued a formal order of private
investigation. The Commission stated in its correspondence to the Company that
the investigation "should not be construed as an adverse reflection on any
person, entity or security, or as an indication by the Commission or its staff
that any violation of law has occurred." In August and September 1994, the
Company supplied copies of its books and records to the Commission, and the
Company's present and prior independent certified public accounting firms
submitted their working papers pursuant to the Commission's subpoena. In
February 1995, the Company provided to the Commission pursuant to its subpoena
additional documents associated with NTC's regulatory authorizations and with
the Company's recent acquisition of a controlling interest in RCI. The Company
continues to fully cooperate with the Commission. While the Company believes
that the outcome of the fact finding investigation will not have a material
adverse effect on the financial condition or operating results of the Company,
no assurance can be given on this matter until the investigation is concluded.
See "Item 3. Legal Proceedings - Securities and Exchange Commission
Investigation" in the Company's 1995 Form 10-K.
On January 20, 1995, a class action lawsuit was filed in the United
States District Court of the Central District of California against Incomnet,
Inc. and Sam D. Schwartz, known as Isabel M. Sperber vs. Incomnet, Inc and Sam
D. Schwartz, alleging violations of federal securities laws. In particular, the
suit alleges that the defendants violated Section 10(b) and Rule 10b-5 of the
Securities Exchange Act of 1934, as amended, by not disclosing in August 1994
that the Securities and Exchange Commission had initiated a confidential
investigation of the Company. The suit also alleges that the Company issued
false and misleading press releases on January 17, 1995 and January 18, 1995.
On October 17, 1995, the complaint was amended to add claims that the Company
and its former Chairman, Sam D. Schwartz, violated federal and state securities
laws because Mr. Schwartz did not disclose until August 1995 purchases and sales
of the Company's stock made in the open market by an affiliate of Mr. Schwartz
between September 1994 and August 1995. Two additional civil lawsuits were
filed in federal district court in Georgia making similar claims and
allegations, one of which has been transferred to the same California court as
the Sperber case. Litigation has been threatened by other potential claimants.
The suit seeks recision and damages on behalf of the plaintiffs. There is no
assurance that these pending and threatened lawsuits will not have a material
adverse effect on the Company and its financial and operating results. See
"Item 3. Legal Proceedings" in the Company's 1995 Form 10-K and "RISK FACTORS -
Risks Relating to Incomnet and NTC - Status of Settlement Agreements."
RISKS INHERENT IN NETWORK MARKETING PROGRAMS. The Company sells its
telephone service through a network marketing program in which independent sales
representatives sign up both new independent sales representatives and
telecommunications customers. The independent sales representatives are
independent contractors, not employees of the Company, and pay all their own
expenses. New independent representatives purchase sales materials, training
and limited product inventories from the Company. As the representatives sign
up new representatives, who themselves also sign up new representatives, the
initial representative builds a "downline" of representatives that can reach
through multiple levels. The Company's marketing plan allows a representative to
build a network down to seven levels. Representatives do not receive
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commissions for bringing in new representatives. Representatives only receive
commissions, overrides and bonuses based on bringing telephone customers and
revenues to the Company. While the development of a strong network marketing
program can result in a stable base of independent sales representatives who
generate revenues from signing up both new customers and new representatives,
there are risks inherent in network marketing. Because the representatives
are structured in downlines, there is a much higher risk associated with
competitive programs designed to attract the Company's existing base of
representatives. If representatives decide to leave the Company's program for
a competitive program, there is a strong incentive for those representatives
to bring other representatives in their downlines to the new program, all of
whom will also try to move their telephone customers to the new program. As
the momentum of representatives switching to new programs builds, the Company
would experience a substantial loss of both representatives and customers.
As a result, a sales force based upon network marketing has the inherent risk
of eroding more rapidly than would otherwise occur if the Company operated
through a base of representatives who worked directly for the Company. There
are no assurances that the Company can keep its marketing plan competitive
against competitive plans. Consequently, there is a risk that the Company's
base of representatives and customers could decline in a manner that would
have a serious impact on the Company's revenues and earnings.
RECENT LOSS OF INDEPENDENT SALES REPRESENTATIVES. In February 1994, a
group of approximately ten independent sales representatives in Northern
California left the Company to market a competitive telephone service using a
multi-level marketing approach. These representatives attempted to recruit other
representatives and telephone customers away from the Company to their
competitive program. The Company believes that these representatives took
proprietary lists of the Company's representatives and customers with the
intention of soliciting them to join their program, which was in direct
violation of contracts that these representatives signed when they joined the
Company's marketing program. As a result, the Company has filed suit against the
representatives for damages of $500,000 for the loss of customers who were
obtained through the taking of proprietary lists from the Company. The Company
also sought and received a temporary restraining order against the
representatives from continuing to use the Company's proprietary materials to
solicit customers from the Company. The Company estimates that it has lost
under 100 representatives and under 1,000 customers as a result of actions by
the former marketing representatives. The Company's request for a permanent
injunction was denied by the court on the grounds that the Company had not
sustained enough continuing damages to warrant a permanent injunction. There
are no assurances that the losses will remain at the current level. The
defendants have filed a cross-complaint against NTC and the Company claiming
that NTC failed to meet its contractual obligations to the defendants, and that
the actions taken by the defendants were legal. The cross-complaint seeks
compensatory and special damages, along with general and punitive damages.
There is no assurance that the Company will prevail in its lawsuit to recover
damages or that it may not lose more representatives and customers in the
future, or that the defendants will not be successful with their cross-
complaint. See "Item 3. Legal Proceedings - Legal Action Against Prior
Representatives" in the Company's 1995 Form 10-K.
QUALIFICATION OF PRIOR AUDIT REPORTS. The reports of the independent
certified public accountants with respect to the Company's financial statements
for the fiscal year ending December 31, 1995 include an explanatory paragraph
with respect to uncertainties related to the pending shareholders' class action
matter. The reports of the independent certified public accountants with
respect to the Company's financial statements for the fiscal years ending
December 31, 1992 and 1993 raised substantial doubts regarding the Company's
ability to continue as going concerns because the current liabilities of the
Company exceeded current assets by a significant margin. In addition, the scope
of Grant Thornton's audit report with respect to Incomnet for the fiscal year
ending December 31, 1990 was limited to the extent that it was not
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able to verify certain amounts with respect to Incomnet's investment in
Incomnet, India, Ltd. In 1991 Incomnet wrote-off its entire investment in
Incomnet India, Ltd.
POSSIBLE NEED FOR ADDITIONAL FINANCING - DILUTION OF OWNERSHIP IN RCI.
The Company may need additional capital in order to finance its anticipated
growth, especially the growth of its subsidiaries, NTC and RCI. NTC must
purchase and install more computer hardware and software to add capacity.
Unforeseen events such as the unexpected loss of customers or expenditures which
were not budgeted could also require the Company to seek additional capital. In
January and early February 1995, the Company utilized $5,000,000 of its own cash
to acquire 51% of RCI and approximately $4,776,638 of its own cash to repurchase
its shares in the open market, leaving it with cash working capital of only
approximately $1,644,968 as of December 31, 1995. Furthermore, the Company's
ownership of RCI would be diluted below 51% if RCI sells additional equity to
raise capital and the Company does not participate in such investment. On
January 1996 the Company contributed an additional $326,400 in capital to RCI in
order to maintain its relative percentage interest in that subsidiary. On April
19, 1996, the Company loaned an additional $510,000 to RCI as its pro rata share
of advances made by RCI's shareholders to finance its operations. There is no
assurance that the Company or its subsidiaries could obtain additional capital
or financing, if necessary, or obtain it on acceptable terms.
NO ASSURANCE OF PROFITABILITY - RECENT LOSSES. In the past the
Company and its wholly owned subsidiary, NTC, have incurred substantial
operating losses and have only recently achieved profitability. RCI and its
wholly owned subsidiary, Q2100, have only recently emerged from the development
stage and have incurred substantial operating losses since their inception. See
"RISK FACTORS - Risks Relating to RCI - Recent Emergence From Development
Stage." There is no assurance that the Company's consolidated revenues will
continue to grow or be earned at current levels, or that the Company will
continue to be profitable. For the fiscal year ending December 31, 1993 the
Company had a net loss of $948,769 on a consolidated basis and NTC had a net
loss of $1,033,232, although the Company had net income on a consolidated basis
of $4,071,194 for the year ended December 31, 1994. For the fiscal year ending
December 31, 1995, the Company had a net income on a consolidated basis of
$1,366,025. As of December 31, 1995, NTC had an accumulated shareholders'
deficit of approximately $2,602,340 and RCI had an accumulated shareholders'
deficit of approximately $1,450,085. There is no assurance that the Company
will not incur operating deficits in the future. See "SELECTED CONSOLIDATED
FINANCIAL INFORMATION", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", and "Item 14. Financial Statements" in
the Company's 1995 Form 10-K.
COMPETITION. The telephone and telecommunications industries are
extremely competitive, especially the provision of long distance telephone
services. In its long distance telephone business, the Company competes with
several long distance carriers such as AT&T, MCI, Sprint and others, which have
substantially greater financial, marketing and other resources than the Company.
The Company depends on independent marketing representatives in order to obtain
customers for its long distance telephone services. Several other network
marketing firms also utilize independent marketing representatives to sell long
distance telephone services, and may compete with the Company for marketing
representatives. Independent marketing representatives may leave the Company to
work for competitors from time to time, adversely affecting the Company's
business. The Company's network telecommunications business is also subject to
competition, and both business segments may experience competition from new
competitors in the future. Many of the Company's competitors have higher
national, regional and local recognition than the Company. There is no assurance
that the Company will be able to continue to successfully compete in the long
distance telephone or network telecommunications businesses. See "THE COMPANY"
and "Item 1. Business - Operations" in the Company's 1995 Form 10-K.
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ADVERSE IMPACT OF GOVERNMENT REGULATION. The Company's businesses are
subject to government regulation in several respects which could cause
additional operating costs and which must be monitored for compliance. The
Company must comply with advertising and disclosure rules relating to its sale
of long distance telephone services to the public. Its retail marketing program
utilizing independent representatives to recruit retail customers and additional
representatives is subject to state laws regulating public network marketing
programs. The Company's telephone subsidiary, NTC, must be registered with the
public utility commissions of most states in order to provide telephone service
in those states. While NTC's registrations are effective in most of those
states, it continues to operate through agency contracts in certain states where
its registrations are pending. NTC anticipates that the balance of its pending
registrations will be approved.
NO DIVIDENDS ON COMMON STOCK. The Company has not paid dividends on
its Common Stock in the past and does not anticipate the payment of any cash
dividends in the near future. See "PRICE RANGE OF COMMON STOCK AND DIVIDENDS."
STATUS OF SETTLEMENT AGREEMENTS. The Company entered into or has
offered a series of settlement agreements with former holders of the 8%
convertible promissory notes issued by the Company on February 8, 1995 to
finance the acquisition of 51% of RCI. The settlements provide for the issuance
of additional shares of the Company's Common Stock depending on the prevailing
average market price of the Company's Common Stock on the NASDAQ on the five
trading days immediately preceding or following the effective date of this
Prospectus. There is no assurance regarding the number of additional shares
which the Company may have to issue under those settlement agreements.
Furthermore, one of the settlement agreements covering 10,000 shares (i.e.,
$100,000 of investment) has not yet been executed by a prior noteholder and
there is no assurance that he will enter into the proposed settlement. The
unsigned prior noteholder may elect instead to file a lawsuit against the
Company for his claims. See "THE COMPANY - Settlement With Prior Noteholders"
and "Item 3. Legal Proceedings - Claims By Prior Noteholders" in the Company's
1995 Form 10-K.
CONTROL BY THE PRINCIPAL STOCKHOLDERS. The principal stockholders own
in the aggregate approximately 10.2% of the combined voting power of the
Company's Common Stock, not including those shares owned by its prior Chairman
and President, Sam D. Schwartz (who owns approximately 15% of the outstanding
shares). Accordingly, the principal stockholders are able to exercise
significant control of the vote on matters submitted to a vote of the Company's
stockholders. Such control by the principal stockholders may have the effect of
discouraging certain types of transactions involving an actual or potential
change of control of the Company, including transactions in which the holders of
Common Stock might otherwise receive a premium for their shares over then
current market prices. See "PRINCIPAL STOCKHOLDERS."
BUSINESS DEPENDENT ON KEY PERSONNEL. The Company's business is
partially dependent upon the performance of certain key individuals, including
its President and Chief Executive Officer, certain executives of its wholly-
owned subsidiary, NTC, and certain executives of its 51% owned subsidiary, RCI.
The Company has entered into a two year employment agreement with Melvyn
Reznick, its President and Chief Executive Officer, a three year employment
agreement with Edward R. Jacobs, the President of NTC, and employment agreements
with Larry Joel and Jeff Rubin, executive officers of RCI, but has not entered
into long term employment agreements with any other individuals, although it may
do so in the future. The Company does not anticipate a termination of its
employment relationships with any of its key executives. The loss of one or more
key executives of the Company, NTC or RCI could have an adverse impact on the
Company's business. See "Item 1. Business - Employees" in the Company's 1995
Form 10-K.
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SHORT-SWING PROFITS PAYABLE TO THE COMPANY. Based on the Company's
calculations and those by plaintiff's counsel in the pending lawsuit filed
against the Company and Sam D. Schwartz, the Company's prior President, entitled
RICHARD MORALES VS. INCOMNET, INC. AND SAM D. SCHWARTZ, 96 Civil 0225, filed in
January 1996 in the United States District Court in the Southern District of New
York, the Company is owed $2,128,000 in short-swing profits pursuant to Section
16(b) of the Securities and Exchange Act of 1934, as amended, by Mr. Schwartz.
The Company and Mr. Schwartz are currently in settlement discussions regarding a
payment schedule for the short-swing profits, which may be made by the
redemption of a sufficient number of shares of the Company's Common Stock owned
by Mr. Schwartz to equal the amount of the short-swing profits plus interest
owed to the Company. See "Item 3. Legal Proceedings - Section 16(b) Lawsuit"
in the Company's 1995 Form 10-K. Furthermore, on February 29, 1996, the Company
made a written demand to Joel W. Greenberg, the Chairman of the Board of
Directors, for the payment of $46,500 in short-swing profits to the Company
pursuant to Section 16(b) of the Exchange Act. Those short-swing profits have
not yet been paid to the Company. There is no assurance regarding if or when
the short-swing profits owed to the Company will be paid.
RISKS RELATING TO RCI
RECENT EMERGENCE FROM DEVELOPMENT STAGE. RCI recently emerged from
its development stage. RCI was incorporated in February 1994 and did not
commence marketing its products until after a controlling interest in it was
acquired by the Company on February 8, 1995. RCI has a limited operating
history and only began shipping its products in April 1995. RCI and Q2100 have
incurred substantial operating losses since their inception. As of December 31,
1995, they had a consolidated shareholders' deficiency accumulated during their
development stage of $1,450,085. The likelihood of RCI's success must be
considered in light of the foregoing facts, together with the expenses,
difficulties, uncertainties and delays frequently encountered in connection with
the early phases of a new business. Unanticipated difficulties relating to
marketing, manufacturing or competition, for instance, could materially
adversely affect RCI's ability to achieve its business objectives. See "Item 1.
Business - Rapid Cast, Inc."
RISK OF UNCERTAIN MARKET ACCEPTANCE; COST OF LENSYSTEM. RCI's success
depends substantially upon the acceptance of the LenSystem as an alternative to
traditional methods of purchasing and fabricating eyeglass lenses. Factors that
may adversely affect market acceptance include potential customers'
unfamiliarity with the Company's relatively new technology, lens making
processes, products, lens designs and materials, their reluctance to change
current methods of purchasing and fabricating lenses, and the initial capital
investment in purchasing the LenSystem. Furthermore, potential customers may be
reluctant to purchase the LenSystem because it cannot currently manufacture all
possible prescriptions and lens types. In addition, lens dispensers can obtain
single vision lenses (approximately 50% of the lens type dispensed) at prices
competitive with or lower than the cost of producing such lenses utilizing the
LenSystem. After LenSystems are purchased, there can be no assurance that
customers will continue to use their LenSystem to fabricate lenses.
Consequently, there can be no assurance that customers will accept RCI's
products as an alternative to traditional methods of purchasing and fabricating
optical lenses. Moreover, market acceptance of the LenSystem will depend, in
large part, upon its pricing (of both the LenSystem and the Rapid Cast Liquid
Monomer) and RCI's ability to demonstrate the advantages of the LenSystem over
competing products, technologies, and current distribution channels. See "Item
1. Business - Rapid Cast, Inc." in the Company's 1995 Form 10-K.
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POSSIBLE LOSSES; POSSIBLE NEED FOR ADDITIONAL FINANCING; UNCERTAINTY
OF ADDITIONAL FINANCING. RCI's operations to date have consumed substantial
amounts of capital, and RCI expects its capital and operating expenditures to
increase in the next few years. Such operating expenses may exceed RCI's
revenues. RCI believes that its existing capital resources and anticipated cash
flow from planned operations together with the net proceeds of future placements
of securities should be adequate to satisfy its capital requirements in the
foreseeable future. There is no assurance, however, that RCI will be able to
obtain additional financing or capital from any source. RCI's need for
additional financing will depend upon numerous factors, including, but not
limited to, the extent that and duration of RCI's future operating losses, the
level and timing of future revenues and expenditures, market acceptance of new
products, the results of ongoing research and development projects, competing
technologies, market developments, and the ability of RCI to maintain and
develop additional collaborative arrangements and international distribution
agreements. Except for a credit line of up to $500,000 with Bank Leumi Trust,
which is fully drawn as of December 31, 1995, the Company currently has no
committed external source of funds. To the extent that existing resources are
insufficient to fund RCI's activities, RCI may seek to raise additional funds
through public or private financings. There can be no assurances that
additional financing will be available or, if available, that it will be
available on acceptable terms. If additional funds are raised by issuing equity
securities, further dilution to then existing stockholders may result. If
adequate funds are not available, RCI's results of operation may be adversely
affected. See "Item 1. Business - Rapid Cast, Inc." in the Company's 1995 Form
10-K.
LOANS FROM RCI FOUNDERS. As of April 30, 1996, RCI owed approximately
$1,463,334 to the founding stockholders of RCI, which does not include an
additional $1,648,000 loaned or to be loaned to RCI in January, April and May
1996 by its existing shareholders and executives, including the Company, which
loaned its pro rata share of $836,400. See "THE COMPANY - Loans to Rapid Cast,
Inc." The indebtedness to the RCI founders and any additional amounts loaned by
them to RCI accrues interest at the rate of 7% per annum. The indebtedness is
due July 31, 1996 subject to certain conditions. No funds are presently
available to repay the indebtedness. See "Item 1. Business - Acquisition of
Rapid Cast, Inc." in the Company's 1995 Form 10-K.
COMPETITION. The vision care industry is subject to intense
competition from a variety of sources. RCI competes with conventional channels
of distribution, including lens manufacturers and wholesale lens laboratories
and, to a lesser extent, with manufacturers of point of sale lens fabrication
systems, manufacturers of contact lenses and providers of equipment related to
medical treatments to correct refractive disorders. Many of RCI's competitors
have significantly greater financial, technological, marketing and other
resources than RCI, which could enable such competitors to develop new processes
or products that could render RCI's products obsolete or less competitive. In
addition, many of RCI's competitors have significantly greater experience than
RCI in developing new lenses, lens materials and fabrication technologies, and
there can be no assurance that RCI will be able to compete effectively with such
competitors. The effects of such competition could have a material adverse
effect on RCI's financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE. The potential market for the LenSystem is
one characterized by rapidly changing technology, and many of RCI's competitors
have substantially greater resources for the research and development of new
technologies than RCI will have for such purposes. There can be no assurance
that technologies or medical advances, including, without limitation, laser
vision correction, Radial Keratotomy (RK) and new ophthalmic drugs which could
obviate the need for prescription lenses, will not render the LenSystem
uncompetitive or obsolete. RCI's ability to anticipate changes in technology,
and then to
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improve the Technology or development or acquire new technologies in
response to such changes, will therefore be a critical factor affecting RCI's
ability to grow and become profitable. There accordingly can be no assurance
that the Technology will not be subject to the development or widespread
acceptance of any new processes or products that cause the Technology to become
noncompetitive, incompatible, or result in early product obsolescence, or that
RCI's business will not be materially adversely affected as a result.
Substantial research and development is being conducted by competitors and
others with respect to lens fabrication systems that could enable eyewear
dispensers to fabricate plastic eyeglass lenses at the point of sale. RCI
believes that this research and development will continue and may intensify and
accelerate. The development or widespread acceptance of any new process or
products, including new lens shapes, sizes, coatings and materials that cause
RCI's products to become obsolete, noncompetitive or incompatible, would have a
material adverse effect on RCI's financial condition and results of operations.
THE OPTICAL MARKETPLACE. RCI's success will depend, in significant
part, on its ability to anticipate trends and changes in the optical marketplace
and to develop or acquire technology capable of satisfying the demands of the
marketplace in connection with such trends and changes. Among the factors RCI
must be aware of are fashion, lens material, lens coatings and treatments. Some
or all of the changes required to be made in response to these factors may not
be adaptable to an onsite lens manufacturing environment and could have a
material adverse effect on RCI's financial condition and results of operations.
PATENTS AND PROPRIETARY RIGHTS. In February 1995, RCI acquired all
of the capital stock of Q2100 and thus all of Q2100's issued patents and patent
applications that relate to the Technology. As of the date of this Prospectus,
five United States patents have issued, eight United States patent applications
are pending, and over 20 foreign applications are pending. RCI's success
depends, in significant part, on its ability to obtain patent protection for its
products, both in the United States and in other countries, to preserve its
intellectual property rights and to operate without infringing on the rights of
third parties. There can be no assurances that RCI will be able to protect its
intellectual property rights adequately, that competitors will not be able to
develop similar technology independently, that the claims allowed on any patents
held by RCI will be sufficiently broad to protect RCI's technology or that RCI's
patents will provide a significant competitive advantage for its products.
Moreover, RCI believes that obtaining foreign patents may be more difficult than
obtaining domestic patents because of differences in patent laws. In addition,
the protection provided by foreign patents, once they are obtained, may be
weaker than the protection provided by United States patents. The failure by
RCI to protect adequately its intellectual property rights could have a material
adverse effect on RCI's financial condition and results of operations. RCI has
been the subject certain legal disputes involving the intellectual property
rights of others. See "Item 3. Legal Proceedings - Patent Infringement
Lawsuit." Any litigation in the future to enforce patents issued to RCI, to
protect trade secrets or know-how possessed by RCI or to defend RCI against
claimed infringement of the rights of others would be time-consuming and costly,
and could have a material adverse effect on RCI's financial condition and
results of operations. Additionally, the manufacture and sale of products that
RCI develops or markets may involve the use of processes, products or
information, the rights to which may be held by others. There can be no
assurance that RCI will be able, for financial reasons or otherwise, to obtain
ownership or license rights with regard to the use of such processes, products
or information or, if obtained, that the use of such rights will be on terms
favorable to RCI. Failure to obtain such rights, if any, could have a material
adverse effect upon the financial condition and results of operations of RCI.
RCI also relies, and will continue to rely, on trade secrets and proprietary
known-how which it seeks to protect, in part, by secrecy agreements with its
employees, consultants, licensees, potential strategic partners and others.
There can be no assurance that any such
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agreements will not be breached, that RCI would have adequate remedies for
any such breach, or that RCI's trade secrets are not already known to, or
will not otherwise become known to, or be independently developed by, RCI's
competitors. To the extent that consultants, licensees or other third
parties (such as prospective joint venture partners or subcontractors engaged
to manufacture the LenSystem) participate in RCI's projects, technological
information independently developed by them or by others may be the subject
of disputes as to the proprietary rights to such information, which disputes
may not be resolved in favor of RCI. The LenSystem uses as its raw material
the Rapid Cast Liquid Monomer, which is injected into a lens mold and then
cured (i.e., hardened) into a finished lens. The Rapid Cast Liquid Monomer
is a proprietary trade secret which is not protected by any issued patents
nor the subject of any patent applications. RCI does not currently intend to
seek patent protection for the Rapid Cast Liquid Monomer. See "Item 1.
Business - Rapid Cast, Inc. - Technical Overview of the Rapid Cast LenSystem"
in the Company's 1995 Form 10-K.
MANUFACTURING UNCERTAINTIES. RCI currently does not have the
facilities to manufacture the LenSystem's equipment components and raw materials
(i.e., the Rapid Cast Liquid Monomer) and has no plans to develop its own
manufacturing capabilities. RCI engages subcontractors and licensees to produce
such components and raw materials. RCI is at present substantially dependent
upon four suppliers from which it purchases different components and the Rapid
Cast Liquid Monomer. RCI believes that it could take in excess of six months to
secure alternatives for its suppliers in the event of the loss of RCI's current
suppliers. The glass molds utilized by the LenSystem to produce a specific
progressive multifocal design are available from only one supplier. Alternative
suppliers for those glass molds or any other component of the LenSystem may not
be available. RCI has certain of its components and tooling manufactured abroad
and may have additional components provided by foreign suppliers in the future.
The loss of a supplier for any material or component used by RCI or the
inability of a supplier to fulfill RCI's requirements might cause significant
delays in deliveries and the incurrence of additional costs. Such delays or
increased costs could have a material adverse effect on RCI's financial
condition and results of operations.
MARKETING UNCERTAINTIES, DOMESTIC. RCI's marketing efforts in the
United States have relied primarily on trade journals, trade shows and
conventions to present its products to the marketplace. RCI has not expended
significant funds on direct or other marketing campaigns and has a dedicated
sales and marketing staff of four persons. There can be no assurance that the
implementation of RCI's future marketing plans will be effective or that RCI
will not be required to expend more than it currently anticipates in order to
market its products.
MARKETING UNCERTAINTIES; INTERNATIONAL. RCI generally markets its
LenSystem internationally through exclusive local distributors and has entered
into several exclusive distribution agreements worldwide. There can be no
assurance that the purchase commitments and other obligations contained in these
agreements will be honored. Nor can there be any assurance that suitable
distributors for other countries to which RCI is not currently distributing will
be found. Laws and regulations imposed by foreign countries may also adversely
affect the marketing or commercial viability of the LenSystem and the Rapid Cast
Liquid Monomer. Additionally, significant fluctuations in the value of the
United States dollar could adversely affect future demand for the LenSystem in
foreign countries.
PRODUCT LIABILITY CLAIMS AND UNINSURED RISKS. The manufacturing,
marketing and sale of prescription ophthalmic lenses entail the inherent risk of
exposure to product liability claims. These claims might be made by, among
others, consumers who purchase lenses manufactured by, or businesses that
utilize, the Lensystem. Currently, RCI maintains product liability insurance
which provides coverage of $6,000,000 per occurrence and $7,000,000 in the
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aggregate. There can be no assurance that RCI will be able to maintain such
insurance at commercially reasonable rates, if at all, or that the coverage
provided thereby is sufficient to fully protect RCI against liability. RCI's
inability or failure to protect itself adequately against such liabilities could
have a material adverse effect upon its prospects, financial condition and
results of operations.
EQUIPMENT INSTALLATION AND SERVICE. RCI does not presently have any
contracts or arrangements with qualified companies to install and service the
LenSystem, currently relying on its staff of installers and technicians.
Furthermore, equipment malfunctions may cause RCI to incur unanticipated
operating expenses that may not be covered by component manufacturers'
warranties.
DEPENDENCE UPON KEY PERSONNEL. The success of RCI will be largely
dependent upon the continuing services and efforts of certain of its directors
and executive officers. The loss of the services of Dr. Larry Joel, Jeffrey
Rubin, Dr. Shawn Zimberg or Dr. Omar Buazza could have a material adverse effect
upon RCI's ability to achieve its business objectives. RCI has entered into
employment agreements with only two of its officers, Dr. Larry Joel, Chairman of
the Board and President, and Jeffrey Rubin, Executive Vice President. RCI may
enter into employment agreements with some of its other existing officers. RCI
expects that its ability to achieve its business objectives will also depend in
large part upon its ability to attract and retain highly qualified management
personnel in the future, including sales, marketing and scientific staff. There
can be no assurance that RCI will be able to attract and retain personnel with
the requisite skills and experience necessary to successfully manage RCI's
business and operations.
REGULATORY CONSIDERATIONS. The lenses produced by the LenSystem are
regarded by the United States Food and Drug Administration (the "FDA") as
medical "devices" within the meaning of the Federal Food, Drug, and Cosmetic Act
(the "Food and Drug Act"), but the lenses may be marketed without pre-market
notification, review, approval or clearance by the FDA. Other requirements,
principally those concerning impact resistance, current good manufacturing
practices, labeling and reporting of certain allegedly device-related adverse
effects will apply. RCI believes that the LenSystem, as manufacturing
equipment, is itself not a "medical device" under the Food and Drug Act. If the
LenSystem is itself a medical device, RCI believes that LenSystem may be
marketed without premarket notification, review, approval, or clearance by the
FDA, although other requirements, principally those concerning current good
manufacturing practices, labeling, and reporting of certain allegedly device-
related adverse affects, and of device malfunctions in certain circumstances,
would apply. In any event, certain state and local government authorities (such
as the State of California) also regulate medical device manufacturers.
Depending upon where LenSystem equipment is manufactured, RCI may be subject to
such additional state regulations. Although there can be no assurance in this
regard, RCI does not anticipate that compliance with such governmental
regulation will have an adverse effect upon its business. Failure to comply
with FDA, and in some cases, the state requirements, could result in civil
sanctions, e.g., product seizure, injunction versus product manufacturing or
distribution, or criminal prosecution and conviction. In addition, certain
legal impediments and foreign regulatory restrictions may affect the sale and
exportation of the LenSystem to countries other than the United States.
PAYMENT OF ACQUISITION PRICE OF RCI. The Company issued 600,000
shares of restricted Common Stock to the founding shareholders of RCI to
complete the payment of the purchase price of 51% of RCI in lieu of issuing up
to 750,000 shares of performance based stock. RCI's financial performance
during the twelve month period ending March 31, 1996 indicates that the
-18-
founding shareholders of RCI would not have been issued any additional shares
of the Company's common stock under the original stock purchase agreement.
See "Item 1. Business -- Acquisition of Rapid Cast, Inc." in the Company's 1995
Form 10-K.
NO ANTICIPATED DIVIDENDS. Since inception, RCI has not declared or
paid any cash dividends on its common stock and does not anticipate paying any
cash or other dividends on its common stock in the foreseeable future. The
declaration and payment of any cash dividends in the future will be determined
solely by the Board of Directors of RCI (which will, for the foreseeable future,
be elected by RCI's current stockholders, including the Company).
AUTHORIZATION OF ADDITIONAL SECURITIES. RCI's Certificate of
Incorporation authorizes the issuance of up to 30,000,000 shares of common
stock. RCI's Board of Directors has the power to issue any and all of such
shares without stockholder approval. RCI may issue a substantial number of
additional shares in the future. In this regard, RCI plans to make a private
placement of its securities in the near future to raise additional capital which
would result in a dilution of the Company's ownership in RCI. To the extent
that additional shares of common stock are issued, dilution of the interests of
RCI's stockholders will occur.
OPTION PLAN. Pursuant to its stock option plan, RCI may grant options
to purchase up to 1,500,000 shares of its common stock to directors, officers
and employees of, and consultants to, RCI. RCI has issued options to purchase
1,142,000 shares of common stock under the option plan. During the respective
exercise periods of the above-mentioned options, the holders thereof are given
an opportunity to profit from a rise in the market price of the common stock (if
RCI's stock becomes publicly traded), with a resultant dilution of the interests
of the then existing stockholders. As a result, the terms upon which RCI may
obtain additional equity financing during such periods could be adversely
affected. These holders may be expected to exercise their rights to acquire
common stock at a time when RCI would, in all likelihood, be able to obtain
needed capital through a new offering of securities on terms more favorable than
those provided by these options.
GENERAL RISKS
DILUTION CAUSED BY FUTURE SALES OF SHARES. As of March 31, 1996, the
Company has approximately 4,807,200 shares of Common Stock (not including the
Shares or Underlying Shares) issued and outstanding which may be deemed
"restricted securities" as that term is defined under Rule 144 of the Securities
Act of 1933, as amended (the "Securities Act"). The restricted securities may
be sold in the future in compliance with Rule 144 or Regulation S of the
Securities Act. Ordinarily, under Rule 144 a person who is an affiliate of the
Company (as that term is defined in Rule 144) and has beneficially owned
restricted securities for a period of two years may, every three months, sell in
brokerage transactions an amount that does not exceed the greater of (i) 1% of
the outstanding class of such securities or (ii) the average weekly trading
volume in such securities on all national exchanges or reported through the
automated quotation system of a registered securities association during the
four weeks prior to the filing of a notice of sale by a securities holder. A
person who is not an affiliate of the Company who beneficially owns restricted
securities is also subject to the foregoing volume limitations but may, after
the expiration of three years, sell unlimited amounts of such securities under
certain circumstances. Pursuant to Regulation S, foreign shareholders may
resell their shares without restriction after the expiration of 40 days from the
date of the sale of the stock to them. The Company can make no prediction as
to the effect, if any, that sales of shares of Common Stock, or the availability
of shares for future sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock
(including the Shares and the Underlying Shares) in the public market, or the
perception that such sales could
-19-
occur, could depress prevailing market prices for the Company's Common Stock.
Such sales may also make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price
which it deems appropriate.
DILUTION CAUSED BY FUTURE ISSUANCES OF STOCK BY THE COMPANY. The
Company's Certificate of Incorporation, as amended, authorizes the issuance of
20,000,000 shares of Common Stock and 100,000 shares of preferred stock. The
Company currently has 13,224,024 shares of Common Stock outstanding and no
shares of preferred stock outstanding. Assuming the issuance of all of the
Shares and Underlying Shares covered by this Prospectus, the Company would have
13,513,024 shares of its Common Stock outstanding. The remaining shares of
Common Stock not issued or reserved for specific purposes may be issued without
any action or approval of the Company's stockholders. Although there are no
present plans, agreements or undertakings involving the issuance of such shares,
except as disclosed in this Prospectus, any such issuance could be used as a
method of discouraging, delaying or preventing a change in control of the
Company or could dilute the public ownership of the Company. There can be no
assurance that the Company will not undertake to issue such shares if it deems
it appropriate to do so. See "DESCRIPTION OF CAPITAL STOCK."
POSSIBLE ADVERSE EFFECTS OF ISSUANCE OF PREFERRED STOCK. The
Company's Certificate of Incorporation, as amended, authorizes the issuance of a
maximum of 100,000 shares of Preferred Stock on terms that may be established by
the Company's Board of Directors without further stockholder action. The terms
of any series of Preferred Stock, which may include priority clams to assets and
dividends and special voting rights, could adversely affect the rights of
holders of the Common Stock. To date, no Preferred Stock has been issued and the
Company has no current plans to issue such Preferred Stock. The issuance of
Preferred Stock could make the possible takeover of the Company or the removal
of the Company's management more difficult, or otherwise dilute the rights of
holders of Common Stock and the market price of the Common Stock. See
"DESCRIPTION OF CAPITAL STOCK - Preferred Stock."
THE COMPANY
GENERAL
The Company, its wholly-owned subsidiary, NTC, and its 51% owned
subsidiary, RCI, are engaged in three businesses: (i) interactive
communications networking services by the Company, (ii) the provision of long
distance telephone services by NTC, and (iii) the manufacture and marketing
of the Fast Cast--TM-- Lensystem that allows retail optical stores and
wholesale optical lens manufacturing laboratories to produce single vision,
flat-top bifocal and progressive bifocal and multifocal lenses rapidly on
demand.
The Company provides interactive communications networking services
using its proprietary communications software, a central message switching
computer and front-end network processor. All subscribers to Incomnet's
communications network can simultaneously access the information on the system,
can communicate on the system on a real-time basis and can leave electronic
messages. The technology is particularly well suited to networks of buyers and
sellers because requests for quotes can be broadcast to all participants
simultaneously, while responses and subsequent negotiations associated with the
quote can be done privately.
The Company's major network is the Auto Dismantler Network, known
under the tradename "AutoNETWORK," which currently links several hundred
licensed automobile dismantlers in California, Colorado, Nevada, Arizona, Oregon
and Washington. AutoNETWORK is a monthly subscription service that automobile
dismantlers utilize to buy,
-20-
sell and trade used parts that have been salvaged from automobiles damaged in
traffic collisions. The Company continually evaluates other applications for
its telecommunications networking technology, including other industries
where electronic broadcast and point-to-point communications would add value
to the conduct of their business. See "Item 1. Business - AutoNETWORK" and
"Item 1. Business - Network Services" in the Company's 1995 Form 10-K.
The Company was incorporated under the laws of the State of California
in 1974. Its principal place of business is located at 21031 Ventura Boulevard,
Suite 1100, Woodland Hills, California 91364. Its telephone number is (818) 887-
3400. Additional information about the Company is included in documents
incorporated by reference in this Prospectus. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The Company's wholly owned subsidiary, NTC, is an inter-exchange
carrier and reseller of long distance telephone services and provides nationwide
long distance telephone access to commercial and residential customers across
the United States. Customers of NTC purchase and pay for specific amounts of
time either through direct billing from NTC, billing from the customer's local
telephone company, or by prepaying for the use of NTC calling cards. NTC's
primary products are its Call $aver Calling Card, its Sure $aver Calling Card
and its Dial-1 Telephone Service. In order to provide these NTC services, NTC
purchases large amounts of long distance time from national and regional
carriers at rates based upon high volume usage. NTC then resells this time to
customers at discounted retail rates. Its calling cards also eliminate the
calling card surcharges generally imposed by AT&T, MCI and Sprint. NTC utilizes
a multi-level marketing network of independent sales representatives to market
its long distance telephone services to retail customers. NTC was incorporated
under the laws of the State of Nevada on September 6, 1984. Its principal
offices are located at 2801 North Main Street, Irvine, California 92714 and its
telephone number is (714) 251-8000. See "Item 1. Business - Acquisition of
National Telephone Communications, Inc. - Operations." See also "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The Company's 51% owned subsidiary, RCI, manufactures and markets the
Fast Cast-TM- LenSystem that allows retail optical stores and wholesale
optical lens manufacturing laboratories to produce single vision, flat-top
bifocal and progressive bifocal lenses on demand, and in minutes. The Fast
Cast-TM- LenSystem uses a series of high-accuracy prescription glass molds
that are filled with a proprietary liquid monomer (plastic). When exposed to
ultraviolet light within the system's curing chamber, the monomer undergoes a
chemical reaction that rapidly "cures" or hardens the lens in 15 minutes.
RCI commenced assembling and marketing the Rapid Cast equipment, molds and
liquid monomer for the Fast Cast-TM-LenSystem in February 1995, when it
acquired 100% of the outstanding stock of Q2100, Inc. from Pearle, Inc., and
when the Company acquired its controlling interest in RCI. See "Item 1.
Business -- Acquisition of Rapid Cast, Inc." and "Item 1. Business -- Rapid
Cast, Inc." in the Company's 1995 Form 10-K.
SETTLEMENT WITH PRIOR NOTEHOLDERS
Commencing in January 1996 the Company entered into a series of
settlement agreements with certain prior holders of 8% convertible promissory
notes issued by the Company on February 8, 1995 to finance the acquisition of
51% of RCI. See "Item 1. Business - Acquisition of RCI" in the Company's 1995
Form 10-K. Settlement agreements have been executed by six of the prior
noteholders who held $725,000 of convertible notes, and a proposed agreement
with
-21-
one other noteholder who held $100,000 of notes is presently pending
signature. The settlement agreements and proposed settlement agreement
relate to an aggregate of $825,000 of convertible notes.
Pursuant to the settlement agreements and proposed settlement
agreements, the Company may have to issue additional shares of its Common Stock
to these prior noteholders depending on the average quoted price of the
Company's stock on the NASDAQ market during the five trading days immediately
preceding or following the effective date of this Prospectus. The shares
covered by this Prospectus are reserved for possible issuance to the prior
noteholders who are parties to signed settlement agreements. See "SELLING
SECURITY HOLDERS." If all seven settlement agreements are effective and the
average market price of the Company's Common Stock on the NASDAQ market is $5.00
per share during the relevant five day trading periods, the Company would not be
obligated to issue any additional shares to Jules Nordlicht, and would be
obligated to issue a total of 45,500 shares of its Common Stock to the other six
prior noteholders. If the average market price of the Company's Common Stock on
the NASDAQ market is $12 or more during the relevant five day trading period,
then the Company will not be obligated to issue any additional shares of its
Common Stock to any of the prior noteholders. Pursuant to the proposed unsigned
settlement agreement with a prior noteholder who invested $100,000 in the
convertible notes, if the registration statement covering this Prospectus is not
effective by October 31, 1996, then the Company would be obligated to redeem his
10,000 shares of Incomnet Common Stock for $125,000 in cash in lieu of the
standard arrangement, no additional shares would be issued, and he would have no
shares to be included in this Prospectus. See "SELLING SECURITY HOLDER." See
also "Item 3. Legal Proceedings - Claims By Prior Noteholders."
LOANS TO RCI
In January 1996, most of the shareholders of RCI made their pro rata
share of a total loan of $648,000 to RCI to finance its operations. In
consideration for their loans, the RCI shareholders who made the advances
received convertible notes bearing simple interest at the rate of 8% per annum,
payable quarterly, with all principal and accrued but unpaid interest due in
full on December 31, 1999. The notes are convertible into shares of RCI common
stock at a conversion price of $.80 per share at any time. The Company loaned
$326,400 as its pro rata share of the total loan made by the RCI stockholders.
In April and May 1996, the existing shareholders and executives of RCI
or their affiliates made or agreed to make one year loans aggregating $1,000,000
to RCI to finance its operations. Incomnet, Inc. loaned its pro rata share of
the total advance by lending $510,000 to RCI. The loans bear simple interest at
the rate of 10% per annum, with interest payable monthly and principal payable
in full upon the earlier of (i) one year from the date of the advance, or (ii)
upon RCI receiving equity or debt financing from another source totalling
$3,000,000 or more. As additional consideration for making the loans, the
stockholders of RCI were issued seven year warrants to purchase up to 1,000,000
additional shares of RCI common stock for an exercise price of $2.25 per share.
The warrantholders have certain piggyback and demand registration rights with
respect to the shares underlying these RCI warrants. The Company made its pro
rata share of the loan from the proceeds of an advance made to the Company by
its President, Melvyn Reznick, from a line of credit he obtained personally from
a bank. See "Certain Relationships and Related Transactions - Loans to the
Company by Melvyn Reznick" in the Company's Proxy Statement for the 1996 Annual
Meeting of the Shareholders.
-22-
RECENT DEVELOPMENTS
On April 8, 1996, the Company's Board of Directors held a meeting pursuant
to which it unanimously declined to renominate Joel W. Greenberg to stand for
reelection as a director or to be Chairman of the Company. Mr. Greenberg did
not attend the meeting and may contest the Company's slate of Board nominees who
are proposed in the Company's Proxy Statement for its 1996 Annual Meeting of the
Shareholders. On May 6, 1996, the Company filed a lawsuit against Mr. Greenberg
to collect $46,500 of short-swing profits owed by him to the Company pursuant to
Section 16(b) of the Securities and Exchange Act of 1934, as amended. The
Company had requested payment of the short-swing profits by written letter to
Mr. Greenberg on February 29, 1996. See the Company's Proxy Statement for the
1996 Annual Meeting of the Shareholders, filed on May 2, 1996, and the Company's
Form 8-K, filed on April 29, 1996, relating to the Company's announcement of its
decision not to renominate Mr. Greenberg to its slate of nominated members of
the Company's Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS OF RCI
THE DIRECTORS AND EXECUTIVE OFFICERS OF RCI. The directors and executive
officers have held their positions with RCI since its inception, except for
Melvyn Reznick and Joel W. Greenberg, who became directors of RCI in March 1995
and November 1995, respectively, Henry Dachowitz, who became an officer in March
1995, and Steve Luetke, Dr. Omar Buazza and Dr. Shawn Zimberg, who became
officers in April 1995. RCI's officers serve at the discretion of its Board of
Directors. See "Item 1. Business-Acquisition of Rapid Cast, Inc." in the
Company's 1995 Form 10-K, for the rights of the Company to designate directors
of RCI, and for the Company's designation of Melvyn Reznick and Joel W.
Greenberg as directors of RCI. At the next annual meeting of the RCI
shareholders, expected to be held in June 1996, Mr. Greenberg is not expected to
be renominated or reelected to the RCI Board of Directors.
NAME AGE POSITION WITH RCI
- ---- --- -----------------
Larry Joel, O.D. 49 Chairman of the Board of Directors, Chief
Executive Officer and President
Robert Cohen, O.D.(1) 52 Director
Alan Cohen, O.D. 45 Vice-President, Treasurer
and Director
Melvyn Reznick(1) 53 Director
Joel W. Greenberg 58 Director
Jeffrey Rubin 28 Executive Vice President
and Secretary
Omar Buazza, Ph.D. 44 Vice President of Research
and Development
Henry Dachowitz 40 Chief Financial Officer and Treasurer
Thomas Freedman 43 Chief Operating Officer
Shawn Zimberg, M.D. 30 Vice President of Strategic Planning
Steve C. Luetke 41 Director of Products Development
- ----------------------
(1) These persons are the administrators of RCI's Amended and Restated Stock
Option Plan.
-23-
Robert Cohen and Alan Cohen are brothers. Jeffrey Rubin is married to
Robert Cohen's daughter. There are no other family relationships between any of
the directors or executive officers of RCI. RCI has obtained "key person" life
insurance in the amount of $1,000,000 on the lives of each of Jeffrey Rubin and
Dr. Omar Buazza.
LARRY JOEL, O.D. Since 1983, Dr. Joel has been Chairman of the Board of
Vision Centers of America, which is engaged in the retail optical business. Dr.
Joel was a founder and principal stockholder of ORGIC and has served as its
Chairman since 1989. Under his direction, ORGIC developed the Technology which
was sold to Q2100 (a subsidiary of Pearle) in 1991. Dr. Joel has also served as
President of Q2100 since 1991. In 1969, Dr. Joel received a Bachelor of Science
degree and a Doctor of Optometry degree from the Illinois College of Optometry.
ROBERT COHEN, O.D. Dr. Cohen has been engaged in the retail and wholesale
optical business since 1968. He has been the President, a director and a
significant stockholder of Cohen's Fashion Optical since its formation in 1970.
Cohen's Fashion Optical, an operator and franchisor of approximately 110 retail
optical stores, is one of the nation's top ten retailers of eyewear products, as
measured by 1992 sales. Since 1992, Dr. Cohen also has been the Chairman of the
Board, Chief Executive Officer and a significant shareholder of Sterling Vision.
Sterling Vision is an operator, franchisor and licensor of approximately 235
retail optical stores. Dr. Cohen additionally is a significant stockholder of
and a consultant to Neolens, Inc. which manufactures and markets polycarbonate
prescription ophthalmic lenses. In 1968, Dr. Cohen received a Bachelor of
Science Degree and a Doctor of Optometry degree from the Pennsylvania College of
Optometry.
ALAN COHEN, O.D. Dr. Cohen has been engaged in the retail and wholesale
optical business since 1974. He has been a director, Executive Vice President
and significant stockholder of Cohen's Fashion Optical since 1975. Since 1992,
Dr. Cohen has also been the Chief Operating Officer, a director and a
significant stockholder of Sterling Vision. Dr. Cohen is also a significant
stockholder of and a consultant to Neolens, Inc. In 1974, Dr. Cohen received a
Bachelor of Science degree and a Doctor of Optometry degree from the
Pennsylvania College of Optometry.
MELVYN REZNICK. Mr. Reznick was appointed President and Chief Executive
Officer of Incomnet, Inc. in November 1995. He has 30 years experience in
engineering, manufacturing, management, marketing, real estate and corporate
development. From 1977 to November 1995, Mr. Reznick served as President of
Property Research and Management Co., a Los Angeles-based company engaged in the
business of real estate syndication, development and management. He is a member
of the National Association of Corporate Directors (NACD). He received both his
Bachelor of Science and Master of Science degrees in Mechanical Engineering
Science from the Massachusetts Institute of Technology.
JOEL W. GREENBERG. Mr. Greenberg is a commodities trader and an
independent investment counselor in Chicago, Illinois. Mr. Greenberg is a
member of the Chicago Mercantile Exchange and the International Monetary Market.
From 1987 to 1989, Mr. Greenberg was a vice president of Shearson Lehman Hutton
in Chicago, Illinois. From 1985 to 1987, Mr. Greenberg was a vice president of
Bear Stearns & Co., Inc. in Chicago, Illinois. Mr. Greenberg has been a
director of Incomnet, Inc. since April 1988 and its Chairman since November
1995. Mr. Greenberg is a director of Smithfield Foods, Inc., a publicly traded
company. Mr. Greenberg was not renominated to run for reelection to the
Incomnet, Inc. Board of Directors and may not be reelected to the RCI Board of
Directors by its shareholders at their meeting in June 1996.
-24-
JEFFREY RUBIN. From 1989 to January 1994, Mr. Rubin served as a Vice
President of American European, Inc., an international import and export
firm. Since 1993, Mr. Rubin has been an Executive Vice-President and
significant stockholder of Lensco, a firm that provides consulting services
to the optical industry. Mr. Rubin has also been a significant stockholder
of and a consultant to Neolens since 1993. See "RISK FACTORS -- Risks
Relating to RCI -- Conflicts of Interest." He received a Bachelor of Arts
degree in Political Science from the University of Michigan, Ann Arbor, in
1989 and studied at the London School of Economics.
OMAR BUAZZA, PH.D. From 1985 until he joined RCI in February 1995, Dr.
Buazza worked at the University of Louisville on developing methods for
photopolymerizing eyeglass lenses. Prior to joining RCI in February 1995,
Dr. Buazza was employed by ORGIC since its inception in 1988. Dr. Buazza
received his Ph.D. in Polymer Chemistry from the University of Louisville in
1987 and his Master of Science in Chemistry from the same University in 1978.
His undergraduate work was completed at the University of Tripoli where he
received a Bachelor of Science degree in Chemistry.
HENRY M. DACHOWITZ. From 1992 until joining RCI in February 1995, Mr.
Dachowitz was Chief Financial Officer of Pharmos Corporation, a company
engaged in the business of developing pharmaceutical products. Prior to
assuming his position with Pharmos Corporation in 1992, Mr. Dachowitz was
Director of Financial Service Management Consulting for Richard A. Eisner &
Company. From 1988 to 1992, Mr. Dachowitz was a Vice President at Bankers
Trust. Mr. Dachowitz is a Certified Public Accountant. He received his
Bachelor of Science in Accounting from Brooklyn College in 1977 and his
Masters in Business Administration from Harvard Business School in 1980.
THOMAS FREEDMAN. Prior to joining RCI in March 1996, Mr. Freedman was the
Vice-President of Operations at Travel Related Services, Inc., a subsidiary of
American Express, in its North Carolina Regional Operations Center from October
1993 until February 1996. Mr. Freedman was the Vice-President of Quality
Control and Vice-President of Operations and Engineering for Pearle Vision,
Inc., a subsidiary of Grand Metropolitan, PLC, from September 1991 until October
1993. Prior to his position with Pearle Vision, Inc., Mr. Freedman was a Plant
Operations Manager, Senior Industrial Engineer and Production Manager with
Frito-Lay, Inc., a subsidiary of Pepsico, Inc., from May 1982 until September
1991. Mr. Freedman has a Bachelors of Science in Industrial Engineering and
Operations Research which he received from Cornell University, College of
Engineering in 1974, and a Masters in Business Administration in Operations
Management from the University of Pittsburgh, Graduate School of Business, which
he received in 1975.
SHAWN ZIMBERG, M.D. Prior to joining RCI on a full time basis in March
1995, Dr. Zimberg had served as a consultant to RCI since its inception from
April 1994 to March 5, 1995. Dr. Zimberg also served as a consultant to
Integrated Financial Strategies, Inc., a company that invests in the equity
securities of small to middle sized capitalization companies in the medical,
bio-technology and computer industries. In 1986, he also was founder of DNA
Software, Inc., a vertical market software firm. Dr. Zimberg serves as a
consultant and Director of MediVisions, Inc., a medical instrument
manufacturer. Dr. Zimberg received his Bachelors of Science and M.D. from the
University of Michigan in 1991, and completed his specialty training in
Radiation Oncology at Memorial Sloan -- Kettering Cancer Center.
STEVE C. LUETKE. From 1988 until he joined RCI in February 1995, Mr.
Luetke worked at ORGIC on the development of the LenSystem. He is named as
an inventor on three patent applications filed by ORGIC related to
ultraviolet lens curing technology. Mr. Luetke began his career as a
Dispensing Optician and then served as a District Manager for D&K
-25-
Optical in Minnesota through the early 1980's. He was General Manager of
Mobile Eye Care Inc. from 1986 through 1988. Mr. Luetke holds a Bachelor of
Science degree in Business Administration from Butler University in
Indianapolis.
All of RCI's current directors will hold office until the annual meeting of
stockholders to be held with respect to RCI's fiscal year ended March 31, 1996
(the "1996 Annual Meeting"), which is expected to be held in June 1996, and
until their successors are duly elected and qualified. In May 1996, the Board
of Directors plans to propose an Amended and Restated Certificate of
Incorporation of RCI. Pursuant to the amendment, the Certificate of
Incorporation would provide that commencing after the 1996 Annual Meeting, the
terms of office of the directors would be divided into three classes, designated
Class I, Class II and Class III. At the 1996 Annual Meeting, Class I directors
would be elected for a term expiring at the annual meeting of stockholders to be
held in 1997, Class II directors would be elected for a term expiring at the
annual meeting of stockholders to be held in 1998, and Class III directors would
be elected for a term expiring at the annual meeting of stockholders to be held
in 1999. At each annual meeting of stockholders beginning with the 1997 annual
meeting, the successors to directors whose terms would then expire would be
elected to serve from the time of election and qualification until the third
annual meeting following election (and in each case until their successors have
been duly elected and qualified). Any additional directorships resulting from
an increase in the number of directors would be distributed among the three
classes so that, as nearly as possible, each class will consist of an equal
number of directors. The RCI directors and stockholders have not yet approved
the amendment and there is no assurance that the RCI directors or shareholders
will adopt the proposed amendment to RCI's Certificate of Incorporation.
RCI DIRECTOR COMPENSATION
RCI reimburses its directors for reasonable travel and other expenses
incurred in connection with their activities on behalf of RCI, including
attendance at Board meetings, but does not pay its directors any fees for Board
participation (although it may do so in the future).
RCI EXECUTIVE COMPENSATION
For the fiscal year ended March 31, 1996, the President and four most
highly compensated executive officers of RCI in the aggregate were paid
approximately $497,250. The following table sets forth information concerning
the cash and other compensation paid by RCI during the fiscal year ended March
31, 1996 to its President and each of its four other most highly compensated
executive officers.
-26-
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------
NAME AND PRINCIPAL ANNUAL COMPENSATION LONG-TERM ALL OTHER
POSITION SALARY ($) BONUS ($) COMPENSATION- COMPENSATION
SECURITIES UNDERLYING
OPTIONS(1)
- -------------------------------------------------------------------------------------------
Larry Joel, Chairman $150,000 $ - 0- - 0 - $ - 0 -
and President
- -------------------------------------------------------------------------------------------
Thomas Freedman, $5,000 $ - 0 - - 0 - $ - 0 -
Chief Operating
Officer(2)
- -------------------------------------------------------------------------------------------
Jeffrey Rubin, $125,000 $ - 0 - - 0 - $ - 0 -
Executive Vice-
President & Secretary
- -------------------------------------------------------------------------------------------
Henry Dachowitz, Chief $108,750 $10,000 200,000 $ - 0 -
Financial Officer &
Treasurer
- -------------------------------------------------------------------------------------------
Shawn Zimberg, Vice- $90,000 $ - 0 - 200,000 $ 8,500(3)
President of Strategic
Planning(3)
- -------------------------------------------------------------------------------------------
(1) Represents incentive stock options granted pursuant to RCI's 1994 Stock
Option Plan. See the table immediately below and "THE COMPANY -- RCI 1994
Stock Option Plan."
(2) Mr. Freedman joined RCI in March 1996.
(3) The other compensation for Dr. Zimberg reflects automobile and parking
allowances.
RCI OPTION GRANTS DURING THE FISCAL YEAR ENDED MARCH 31, 1996
The following table sets forth for each of the named executive officers of
RCI certain information concerning stock options granted by RCI during the
fiscal year ended March 31, 1996.
-27-
- ------------------------------------------------------------------------------------------
NAME NUMBER OF PERCENT OF TOTAL EXERCISE PRICE EXPIRATION
SECURITIES OPTIONS GRANTED TO PER SHARE(3) DATE(4)
UNDERLYING OPTIONS EMPLOYEES IN FISCAL
GRANTED(1) YEAR 1996(2)
- ------------------------------------------------------------------------------------------
Larry Joel 0 0% 0 --
- ------------------------------------------------------------------------------------------
Thomas Freedman 0 0% 0 --
- ------------------------------------------------------------------------------------------
Jeffrey Rubin 0 0% 0 --
- ------------------------------------------------------------------------------------------
Henry Dachowitz 200,000 17.5% $ 2.00 11/15/2000
- ------------------------------------------------------------------------------------------
Shawn Zimberg 200,000 17.5% $ 2.00 11/15/2000
- ------------------------------------------------------------------------------------------
(1) These options include 50,000 incentive stock options each for Mr. Dachowitz
and Dr. Zimberg, and 150,000 nonqualified stock options for each of them
granted pursuant to RCI's 1994 Stock Option Plan. See "THE COMPANY -- RCI
1994 Stock Option Plan."
(2) During the fiscal year ended March 31, 1996, RCI granted options to
purchase an aggregate of 1,142,000 shares of its Common Stock.
(3) In determining the fair market value of the RCI common stock, the Board of
Directors considered various factors, including RCI's financial condition
and results of operations, the book and tangible value of its assets, the
absence of a market for its Common Stock and the risks normally associated
with high technology companies. Based on these factors, the Board of
Directors considered the fair market value of the RCI stock to be $2.00 per
share at the time of the grant of the options.
(4) Options may terminate before their expiration dates if the optionee's
status as an employee is terminated, or within a certain period of time
after the optionee's death or disability.
RCI COMMON STOCK UNDERLYING UNEXERCISED OPTIONS AS OF FISCAL YEAR ENDED MARCH
31, 1996
The following table sets forth for each of the named officers of RCI the
number of shares of RCI common stock subject to both exercisable and
unexercisable stock options as of March 31, 1996. All of such options are
incentive stock options granted pursuant to RCI's 1994 Stock Option Plan.
None of the named officers exercised any options during the fiscal year ended
March 31, 1996, and none of the exercisable or unexercisable stock options
held by them as of that date represented "in-the-money" options. See "THE
COMPANY -- RCI 1994 Stock Option Plan."
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NUMBER OF SHARES OF COMMON STOCK
UNDERLYING UNEXERCISED OPTIONS
AT MARCH 31, 1996
Name Exercisable Unexercisable
Larry Joel 0 0
Thomas Freedman 0 0
Jeffrey Rubin 0 0
Henry Dachowitz 200,000 0
Shawn Zimberg 200,000 0
RCI EMPLOYMENT AGREEMENTS
LARRY JOEL. In February 1995, RCI entered into an employment agreement
with Dr. Larry Joel, its Chairman of the Board and President, which expires on
December 31, 1999. Under this agreement, Dr. Joel will generally be required to
devote his full time to RCI's affairs and is entitled to an annual salary of
$150,000. He is also entitled to participate in the option plan referred to
below and to receive such insurance, vacation, disability and other benefits as
will be made generally available to RCI's executive officers. The agreement
requires that all confidential information developed by or made known to Dr.
Joel during the course of his employment is to be kept confidential and not
disclosed to third parties, except in certain circumstances, and that all
inventions conceived by Dr. Joel during his employment relating to RCI's
business shall be its exclusive property. The agreement also provides that RCI
will be the exclusive owner of all information relating to the RCI Technology or
the LenSystem which was developed by or made known to Dr. Joel prior to the term
of his employment agreement. Under the agreement, Dr. Joel is also prohibited,
subject to certain terms and conditions, from engaging in business activities
competitive with RCI's business for a period of three years following the
expiration of the agreement.
JEFFREY RUBIN. In February 1995, RCI entered into an employment agreement
with Jeffrey Rubin, its Executive Vice President and Secretary, which will
expire on December 31, 1997. This agreement has terms and conditions
substantially identical to those of Dr. Joel's employment agreement, except that
Mr. Rubin's annual salary is established at $125,000.
RCI COMPENSATION COMMITTEE
From the formation of RCI in February 1994 until the election of Sam D.
Schwartz and Joel W. Greenberg as directors in February 1995, RCI's Board of
Directors did not have a separate Compensation Committee. Accordingly, each of
the members of the Board of Directors (then comprised of Dr. Larry Joel, Dr.
Robert Cohen, Dr. Alan Cohen and Jeffrey Rubin) participated during that period
in deliberations regarding compensation that would be payable including, in the
case of Dr. Joel and Mr. Rubin, deliberations regarding their own compensation.
In April 1995, the RCI Board established a Compensation Committee consisting
solely of nonemployee directors, namely Mr. Schwartz and Robert Cohen. Upon Mr.
Schwartz's resignation from the RCI Board of Directors in November 1995 and
Melvyn
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Reznick's appointment as his replacement, Mr. Reznick also replaced Mr.
Schwartz on the RCI Compensation Committee. The Compensation Committee makes
recommendations concerning salaries, benefits and incentive compensation
(including grants under RCI's Stock Option Plan) for directors, officers,
employees and consultants of RCI.
RCI STOCK OPTION PLAN
In February 1994, RCI's Board of Directors and its stockholders adopted
RCI's 1994 Stock Option Plan (the "Plan"). The purpose of the Plan is to
attract key employees, officers and directors and to encourage their continued
employment and their increased stock ownership in RCI. The Board of Directors
believes that the granting of stock options under the Plan will promote
continuity of management, and will result in increased incentives for those who
are or may become responsible for managing RCI. The Plan provides for the grant
of options to purchase up to 1,500,000 shares of RCI common stock. If any
options expire or terminate without having been exercised in full, the
unpurchased shares will again be available for issuance under the Plan. The
Plan is administered by a committee of at least two directors (the
"Administrators") of RCI who are disinterested with the meaning of
Rule 16b-3(c)(2)(i) under the Securities Exchange Act of 1934, as amended.
To be disinterested, a director may not have received options under any of
RCI's stock option plans, except pursuant to a formula, during the prior
one-year period. Currently, Robert Cohen and Melvyn Reznick are the
Administrators of the Plan. Options which qualify as Incentive Stock Options
("ISO's") under the Internal Revenue Code of 1986, as amended (the "Code"),
and non-qualifying options ("NQSO's") may be issued under the Plan. The Plan
provides for a two-prong method for calculating the number of options to be
granted based upon a formula and upon the discretion of the Administrators.
Formula grants of options to purchase that number of shares of RCI common
stock having a fair market value of $25,000 are made to each of the
Administrators once each calendar year following RCI's Annual Meeting of
Stockholders. The formula provisions of the Plan may be amended not more
than once every six months other than to comport with changes in IRS and
ERISA rules and regulations.
The purchase price of RCI common stock subject to each option issued under
the Plan will be determined by the Administrators, but in the case of an ISO (or
NQSO issued pursuant to a formula grant under the Plan) may not be less than (i)
the fair market value of the RCI common stock subject to the option on the date
of grant or (ii) in the case of an option granted to an employee who, at the
time the option is granted, owns (within the meaning of the Code) more than 10%
of the total combined voting power of all classes of stock of RCI, 110% of the
fair market value of the RCI common stock subject to the option on the date of
grant. Options under the Plan may be exercised in a manner and at such times
fixed by the Board of Directors, but may not be exercised for a term of more
than 10 years, or for a term of five years in the case of an employee who, at
the time an ISO is granted, owns (within the meaning of the Code) more than 10%
of the total combined voting power of all classes of stock of RCI. In no event
may ISO's which are exercisable for stock having an aggregate fair market value
of more than $100,000 (together with all ISO's granted under any other Plan) be
granted which first become exercisable in any one calendar year. Options are
not transferable except by will or intestacy on the death of the optionee. In
general, options granted under the Plan terminate when an optionee ceases to be
employed by RCI or within a specified period after the termination of employment
depending upon the reason for such termination. The Plan terminates and no
further options can be granted on February 16, 2004. During the fiscal year
ended March 31, 1995, no options were granted under the Plan. During the fiscal
year ended March 31, 1996, options were granted in respect of an aggregate of
1,142,000 shares of RCI common stock.
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LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS. As permitted by the
Delaware General Corporation Law (the "Delaware Law"), RCI's Certificate of
Incorporation includes a provision that eliminates, to the maximum extent
permitted by the Delaware Law, any director's personal liability to RCI or its
stockholders for monetary damages in respect of any breach by such director of
his fiduciary duty. The Delaware Law does not permit a director's personal
liability to be eliminated (i) for any breach of a director's duty of loyalty to
RCI or its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions, as provided
in Section 174 of the Delaware Law, or (iv) for any transaction from which the
director derived an improper personal benefit. In addition, as permitted by
Section 145 of the Delaware Law, the By-Laws of RCI provide that RCI shall
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware Law, including those circumstances in which indemnification
would otherwise be discretionary, subject to certain exceptions. The By-Laws
also provide that RCI will advance expenses to directors and executive officers
incurred in connection with an action or proceeding as to which they may be
entitled to indemnification, subject to certain exceptions. RCI currently
carries director and officer liability insurance.
RCI has entered or will enter into indemnity agreements with each of its
directors and executive officers that provide the maximum indemnity allowed to
directors and executive officers by the Delaware Law and RCI's By-Laws, subject
to certain exceptions, as well as certain additional procedural protection. In
addition, the indemnity agreements provide generally that RCI will advance
expenses incurred by directors and executive officers in any action or
proceeding as to which they may be entitled to indemnification, subject to
certain exceptions.
RCI currently expects to carry director and officer liability insurance in
the near future.
PRINCIPAL STOCKHOLDERS OF RCI. The table below sets forth, as of March 31,
1996, the number of shares of common stock beneficially owned (which includes
the number of warrants to purchase common stock) by (i) each of the RCI
directors and executive officers, (ii) each person known by RCI to be the
beneficial owner of five percent or more of its outstanding shares of common
stock and (iii) all directors and executive officers of RCI as a group. Unless
otherwise indicated, RCI believes that the beneficial owner has sole voting
power over such shares.
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NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OWNED(3)
- ------------------ --------------------- --------------------
Larry Joel 3,266,667 16.1%
Jeffrey Rubin(4) 1,088,889 5.4%
Alan Cohen(5) (6) 1,088,889 5.4%
Robert Cohen(6) 1,088,889 5.4%
Melvyn Reznick(7) 10,200,000 50.4%
Incomnet, Inc.(8) 10,200,000 50.4%
Joel W. Greenberg 0 0.0%
Steve C. Luetke(9) 0 0.0%
Omar Buazza (10) 0 0.0%
Henry M. Dachowitz(11) 0 0.0%
Shawn H. Zimberg(12) 0 0.0%
Laura Huberfeld(13) 1,633,334 8.1%
Naomi Bodner(14) 1,633,334 8.1%
All directors and executive officers
as a group (11 persons) 16,733,332 82.6%
- ----------------------
(1) The address for each named individual or entity is in care of Rapid Cast,
Inc., 1500 Hempstead Turnpike, East Meadow, New York 11554, except that (i)
Incomnet, Inc. and Melvyn Reznick have an address at Incomnet, Inc., 21031
Ventura Boulevard, Suite 1100, Woodland Hills, California 91364, and (ii)
Laura Huberfeld and Naomi Bodner have an address at 152 West 57th Street,
New York, New York 10019.
(2) Unless otherwise indicated, RCI believes that all persons and entities
named in the table have sole voting and investment power with respect to
all shares of Common Stock beneficially owned by them, except to the extent
authority is shared by spouses under applicable law. A person is deemed to
be the beneficial owner of securities that can be acquired by such person
within 60 days from the date of this 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 within 60 days of the date of
this Prospectus have been exercised and converted. The table does not
include any shares issuable (a) upon the exercise of RCI warrants issued on
February 8, 1995 in connection with the Company's issuance of 8%
convertible notes to finance the acquisition of a controlling interest in
RCI, or (b) upon the exercise of options granted under the 1994 RCI Stock
Option Plan, or (c) upon the conversion of 8% convertible notes issued by
RCI in January 1996 to RCI stockholders who made loans to RCI at that time,
or (d) upon the exercise of warrants issued to RCI stockholders who
participated in the loan to RCI in April 1996. See "THE COMPANY - Loans to
RCI."
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(3) Assumes a total of 20,250,000 shares outstanding, not including any stock
options granted under the RCI 1994 Stock Option Plan, and not including
1,000,000 shares which may be acquired pursuant to the exercise of
1,000,000 outstanding warrants to purchase RCI common stock at a price
equal to 50% of the average of the last reported sales price during the
first 30 business days after the date RCI's common stock first becomes
publicly traded. See "THE COMPANY - RCI Option Grants During the Fiscal
Year Ended March 31, 1996" and "Item 1. Business - Acquisition of Rapid
Cast, Inc. - Financing" in the Company's 1995 Form 10-K. The total shares
outstanding also do not include any shares issuable upon the conversion of
8% convertible notes issued by the Company in January 1996, or upon the
exercise of warrants issued by RCI in April 1996 in connection with loans
made to RCI by is shareholders at that time. See "THE COMPANY - Loans to
RCI."
(4) Includes 290,370 shares of RCI common stock beneficially owned by a trust
the sole beneficiary of which is Mr. Rubin's wife, Stephanie Cohen Rubin,
as to which shares Mr. Cohen disclaims all beneficial interest.
(5) Includes 435,555 shares of RCI common stock beneficially owned by each of
Alan Cohen's two minor children, Jacqueline Cohen and Gabrielle Cohen, as
to which shares Mr. Cohen disclaims all beneficial interest. Does not
include 70,000 shares of RCI Common Stock issuable upon the exercise of RCI
warrants issued on February 8, 1995.
(6) Does not include 60,000 shares owned by Broadway Partners, a partnership
comprised of the children of Alan Cohen and Robert Cohen, as to which
Robert Cohen disclaims all beneficial interest. Does not include 70,000
shares of RCI Common Stock issuable upon the exercise of RCI warrants
issued on February 8, 1995.
(7) Consists of shares of RCI common stock beneficially owned by Incomnet by
virtue of Mr. Reznick's position as the President and Chief Executive
Officer of Incomnet. Does not include shares issuable upon the conversion
of 8% promissory notes issued by RCI in January 1996 or warrants to
purchase RCI common stock issued by RCI in April 1996.
(8) Incomnet acquired 10,200,000 shares of RCI common stock as part of a
private placement of securities which was consummated in February 1995.
See "Item 1. Business - Acquisition of Rapid Cast, Inc." in the Company's
1995 Form 10-K. Does not include shares issuable upon the conversion of 8%
promissory notes issued by RCI in January 1996 or warrants to purchase RCI
common stock issued by RCI in April 1996.
(9) Does not include 200,000 shares of RCI common stock issuable upon the
exercise of stock options granted under the RCI 1994 Stock Option Plan.
(10) Does not include 200,000 shares of RCI common stock issuable upon the
exercise of stock options granted under the RCI 1994 Stock Option Plan.
(11) Does not include 200,000 shares of RCI common stock issuable upon the
exercise of stock options granted under the RCI 1994 Stock Option Plan.
(12) Does not include 200,000 shares of RCI common stock issuable upon the
exercise of stock options granted under the RCI 1994 Stock Option Plan.
(13) Includes 544,444 shares of RCI common stock beneficially owned by each of
Laura Huberfeld's two minor children, Jessica Huberfeld and Rachel
Huberfeld, as to which shares Mrs. Huberfeld disclaims all beneficial
interest. Laura Huberfeld is the wife of Murray Huberfeld, a principal of
Broad Capital Associates, Inc.
(14) Includes 163,333 shares of RCI common stock beneficially owned by each of
Naomi Bodner's eight minor children, Moshe Bodner, Aaron Bodner, Elizar
Bodner, Tzypporah Bodner, Mordechi Bodner, Yaakov Bodner, Rachel Bodner,
and Yissochar Bodner, as to which shares Mrs. Bodner disclaims all
beneficial interest. Naomi Bodner is the wife of David Bodner, a principal
of Broad Capital Associates, Inc.
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SECURITIES OF RCI
RCI is authorized to issue 30,000,000 shares of common stock, par value
$.001 per share. As of April 30, 1996, 20,250,000 shares of RCI common stock
are issued and outstanding, warrants to purchase 1,000,000 shares of RCI common
stock are issued and outstanding (not including up to an additional 1,000,000
warrants to purchase RCI common stock expected to be issued in May 1996 pursuant
to the issuance of short-term notes by RCI in April and May 1996), convertible
notes convertible into 679,333 shares of RCI common stock are issued and
outstanding (not including an additional 130,667 shares which would be issued
upon the conversion of notes not yet funded), and options to purchase 1,142,000
shares of common stock are issued and outstanding. All issued and outstanding
shares of common stock are fully paid and nonassessable. Holders of shares of
common stock, as such, have no conversion, preemptive or other subscription
rights. There are no redemption provisions applicable to the common stock. The
holders of common stock are entitled to receive dividends when, as if declared
by the Board of Directors out of funds legally available therefor, subject to
the prior rights of holders of preferred stock, if any. In the event of
liquidation, dissolution or winding up of RCI, the holders of common stock are
entitled to share ratably in all assets remaining available for distribution to
them after payment of liabilities and after provision has been made for each
class of stock (if any) having preference over the common stock. The holders of
common stock are entitled to one vote for each share held of record on all
matters to be voted on by the stockholders. There is no cumulative voting with
respect to the election of directors, with the result that the holders of more
than 50% of the shares of common stock voting for the election of directors can
elect all of the directors then being elected.
RCI has outstanding warrants to purchase 1,000,000 shares of common stock
issued on February 8, 1995 (the "RCI Warrants"). The RCI Warrants are
exercisable to purchase shares of common stock commencing on the 35th business
day after any date before December 31, 1998 (the "Start Date") on which
securities of RCI are first traded publicly. The exercise price of the RCI
Warrants will be equal to 50% of the average of the last reported sales price on
the first 30 business days after the Start Date. The RCI Warrants will expire
180 days after the date, if any, on which they first become exercisable. See
"Item 1. Business - Financing of Acquisition of RCI" in the Company's 1995 Form
10-K. RCI has outstanding warrants to purchase an additional 1,000,000 shares
of common stock issued on April 30, 1996 ("RCI Additional Warrants"). The RCI
Additional Warrants confer on the holders the right to purchase a total of
1,000,000 shares of RCI common stock at any time for a period of seven years at
a price of $2.25 per share. See "THE COMPANY - Loans to RCI."
CERTAIN RCI TRANSACTIONS
RCI leases office space in two locations from companies owned by certain of
its stockholders. See "Item 1. Business - Rapid Cast, Inc. - Facilities" in the
Company's 1995 Form 10-K. Cohen's Fashion Optical, Sterling Vision and Vision
Centers of America are affiliates of certain of RCI's directors and executive
officers. See "THE COMPANY - Directors and Executive Officers of RCI." Retail
optical stores that are operated by those companies have purchased 33 LenSystems
and $1,194,000 of Rapid Cast Liquid Monomer. RCI anticipates that retail
optical stores that are operated by or are franchisees of those companies may
seek to purchase or lease an undeterminable number of additional LenSystems and
Rapid Cast Liquid Monomer from RCI. Except for Vision Centers of America, which
has committed to purchase 50 of the LenSystems, which obligation is guaranteed
by Dr. Larry Joel, Chairman of the Board and President of RCI, none of such
companies or their respective franchisees have made any commitments or executed
any contracts to purchase the LenSystem, and there can be no assurance that any
additional sales will be agreed upon or consummated. RCI will make the
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LenSystem available to such users upon terms and conditions comparable to all
other purchasers with orders of similar size and nature.
The founding stockholders of RCI (not including Incomnet) own 9,800,000
shares of RCI common stock and acquired these shares at a purchase price of
approximately $.03 per share. The RCI founding stockholders and their
affiliates had, as of March 31, 1996, loaned approximately $1,463,334 to RCI,
not including loans made to RCI pursuant to rights offerings in January and
April, 1996. See "THE COMPANY - Loans to RCI." The loan, together with any
additional loans which are thereafter made by them, are due and payable on July
31, 1996, together with interest at 7% per annum, subject to the following
restrictions: until RCI's revenues from continuing operations aggregate at
least $1,000,000 in any three consecutive months, RCI may repay these loans only
if the lenders furnish or guaranty equivalent lines of credit.
In connection with a private placement of RCI units by Incomnet (each unit
consisting of one 8% convertible promissory note in the principal amount of
$1,000,000 and one RCI Warrant to purchase 100,000 shares of RCI common stock)
in February 1995, affiliates of Broad Capital Associates, Inc. purchased 3-1/3
units. In addition, Larry Joel and Robert and Alan Cohen and certain of their
affiliates purchased 2-1/2 units. Sam D. Schwartz, the former President and
Chairman of the Board of Incomnet, purchased 0.9 units. These purchasers waived
interest accrual on the notes included in their units. In connection with this
private placement, Incomnet also issued to the RCI founding stockholders 750,000
shares of Incomnet's Common Stock.
Incomnet originally agreed to issue to the RCI founding stockholders a
maximum of 750,000 additional shares of Incomnet's Common Stock depending on
RCI's pre-tax earnings during the first fiscal year after RCI's February 1995
acquisition of Q2100. On June 16, 1995, Incomnet agreed to issue 600,000
additional shares of its Common Stock to the RCI founding stockholders without
registration rights in exchange for their relinquishment of their rights to be
issued any of the 750,000 shares. See "Item 1. Business - Acquisition of Rapid
Cast, Inc. - Certain Transactions" in the Company's 1995 Form 10-K.
In January 1996 RCI raised $648,000 in additional capital pursuant to an
offering of convertible notes to all of its existing shareholders and
executives. Incomnet, Inc. loaned $326,400 to RCI on January 1996 as its pro
rata share of the loan pursuant to which the Company has the right to convert
the note into 408,000 shares of RCI common stock. In April and May 1996, RCI is
in the process of raising $1,000,000 in additional capital pursuant to the
issuance of short term notes and seven year warrants. Incomnet, Inc. loaned
$510,000 to RCI as its pro rata share of the April loan to RCI.
See "THE COMPANY - Directors and Officers of RCI" for information on
certain directors and officers of RCI who are also affiliated with potential
users of the LenSystem. SEE "Item 1. Business - Rapid Cast, Inc. - Development
of Technology" in the Company's 1995 Form 10-K for information on the
involvement of Dr. Larry Joel in the development of the Technology and in the
sale of the Technology to Pearle. See "THE COMPANY - Directors and Officers of
RCI" for information on the current employment of Dr. Joel as President of
Q2100.
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ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and thus subject to Section 203 of
the Delaware General Corporation Law ("Section 203"), which is generally viewed
as an anti-takeover statute. In general, Section 203 prohibits a Delaware
corporation from engaging in any "business combination" (as defined) with any
"interested stockholder" (as defined) for a period of three years following the
date that such stockholder became an interested stockholder, unless (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder; (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (a) by persons
who are directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting
stockholders, and not by written consent, by the affirmative vote of at least
66-2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
In general, Section 203 defines a "business combination" to include: (i)
any merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition involving the
interested stockholder of 10% or more of the assets of the corporation; (iii)
(subject to certain exceptions) any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the effect
of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the receipt
by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an "interested stockholder" as (a) any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or (b) any entity or person affiliated with or controlling or
controlled by such entity or person.
The existence of Section 203 would be expected to have the effect of
discouraging takeover attempts involving RCI, including attempts that might
result in a premium over the market price of RCI's common stock (if it is then
publicly traded).
USE OF PROCEEDS
The Company will not receive any net proceeds from the sale of the
Outstanding Shares or the Underlying Shares, if and when issued. The Company
would receive $843,750 of net proceeds from the exercise of the Warrants, if and
when they are exercised. The amount of net proceeds to be received from the
sale of Shares by the Company is uncertain and depends on (i) whether any Shares
remain after the issuance of Shares in accordance with the settlement agreements
entered into by the Company with certain prior holders of the 8% convertible
promissory notes issued by the Company in February 1995, and (ii) the price at
which Shares are sold through the Underwriter in the NASDAQ over-the-counter
market from time to time. The net proceeds received from the sale of the Shares
and the exercise of the Warrants, if any, will be used by the Company for
general working capital purposes. See "DESCRIPTION OF CAPITAL STOCK."
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is quoted on the NASDAQ Small Capital Market
System under the symbol "ICNT." The following table sets forth, for the
calendar quarters indicated, the actual high and low sale prices of the
Company's Common Stock as reported on the NASDAQ/Small Capital Market commencing
for the first quarter of 1994. The approximate number of record holders of
Common Stock on May 6, 1996 was 789.
HIGH LOW LAST SALE
---- --- ---------
1994
First Quarter 7.25 6.00 6.75
Second Quarter 11.12 6.37 9.75
Third Quarter 12.50 8.00 11.37
Fourth Quarter 14.62 9.94 14.62
1995
First Quarter 14.62 8.25 14.37
Second Quarter 16.37 10.87 15.00
Third Quarter 24.50 9.00 11.00
Fourth Quarter 11.25 2.50 4.56
1996
First Quarter 6.20 4.25 5.12
Second Quarter(a) 5.75 4.50 5.75
- -----------------
(a) Through May 6, 1996.
A recent closing sale price for the Common Stock as reported in
published financial sources is set forth on the cover page of this Prospectus.
There is no public trading market for the Warrants nor is one expected to
develop. The Company intends to retain future earnings for use in its business
and does not anticipate paying any dividends on shares of its Common Stock in
the foreseeable future.
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CAPITALIZATION
The following table sets forth the actual capitalization of the
Company at December 31, 1995 and the capitalization of the Company reflecting
(i) the issuance of 75,000 Underlying Shares assuming the exercise of all 75,000
Warrants, and (ii) no issuance of Shares.
December 31, 1995
-----------------
Actual As Adjusted
------ -----------
Long-Term Debt:(1) $ 8,459,772 $ 8,459,772
Minority Interest $ 6,905,983 $ 6,905,983
Stockholders' Equity (Deficiency)
Preferred Stock, no par value; 100,000 shares
authorized, no shares issued and outstanding -- --
Common Stock, no par value; 20,000,000 shares
authorized, 13,224,024 shares issued and
outstanding (13,299,024 as adjusted)(2) $60,883,892 $61,727,642
Retained earnings (accumulated deficit) (12,843,991) (12,843,991)
Treasury Stock (5,491,845) (5,491,845)
Total stockholders' equity (deficiency) 42,548,056 43,391,806
----------- -----------
Total capitalization $57,913,811 $58,757,561
----------- -----------
----------- -----------
- ---------------------
(1) Excludes current portion of long-term debt. See the Company's Balance Sheet
in its Form 10-K for the fiscal year ended December 31, 1995, which is
incorporated in this Prospectus by reference. The long term debt includes
$8,449,050 of net deferred tax liability arising from the nondeductibility
of the RCI patent rights, which will be eliminated in accordance with
Statement of Financial Accounting Standards No. 109 as the underlying
patent rights are amortized to expense.
(2) Assumes a total of 75,000 Underlying Shares of the Company's Common Stock
is issued pursuant to the exercise of the Warrants.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information for the Company presented
under the captions "Statement of Operations Data" and "Balance Sheet Data" for,
and as of the end of, each of the years in the five-year period ended December
31, 1995, is derived from the Company's Consolidated Financial Statements. The
Company's Consolidated Financial Statements as of December 31, 1993, 1994, and
1995 and for each of the years in the three-year period ended December 31, 1995,
and the report thereon, have been incorporated in this Prospectus by reference.
This selected consolidated financial information should be read in conjunction
with the Company's Consolidated Financial Statements and the related notes
thereto included in the Company's 1995 Form 10-K incorporated herein by
reference, and with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" in this Prospectus.
-39-
INCOMNET, INC.
STATEMENT OF OPERATIONS DATA:
Year Ended December 31
----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Revenues $86,564,917 $46,815,057 $11,298,972 $5,534,874 $1,898,071
Income (Loss) before
income taxes, extra-
ordinary items and
minority interest 957,044 4,000,242 (1,606,844) (2,264,597) 13,257
Income (Loss)
before extra-
ordinary item and
minority interest 856,543 3,999,187 (1,606,844) (2,461,697) 1,322
Minority Interest 509,482 -- -- -- --
Net Income (Loss) 1,366,025 4,071,194 (948,769) (2,021,333) 1,322
Net Income (Loss)
per share before
extraordinary items 0.11 0.42 (0.20) (0.34) 0
Net Income (Loss)
per share 0.11 0.42 (0.12) (0.28) 0
Cash dividends per
common share 0 0 0 0 0
Weighted average
number of shares 12,706,401 9,593,207 8,183,877 7,189,671 6,936,316
BALANCE SHEET DATA:
At December 31
----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total assets $74,105,629 $26,158,346 $8,665,839 $6,744,944 $2,174,428
Long-term obligations(1) 8,459,772 900 20,000 176,000 83,334
- ---------------
(1) The long term obligations include $8,449,050 of net deferred tax
liability arising from the nondeductibility of the RCI patent rights, which
will be eliminated in accordance with Statement of Financial Accounting
Standards No. 109 as the underlying patent rights are amortized to expense.
-40-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
GENERAL
Gross revenues from NTC's operations have been increasing steadily since
the Company acquired a controlling interest and commenced advancing working
capital to NTC in early 1992. Upon acquiring control of NTC, the Company
implemented a new marketing plan for NTC pursuant to which compensation payments
to the independent marketing representatives were calculated and paid on a more
timely basis. NTC uses a network marketing program of independent
representatives to sell its telecommunications-related services to retail
customers. The growth in NTC's telecommunications-related revenues is directly
tied to its network marketing program. NTC's independent representatives
typically purchase materials, training and services from NTC to assist them in
selling new retail customers and enrolling other representatives in the NTC
program. NTC pays the independent representatives a residual monthly commission
on the telecommunications revenue. In addition, the network marketing program
pays various bonuses and overrides when and if new representatives obtain a
minimum number of new telephone customers, typically 10, within a 30 to 60 day
period. This program has been designed to bring NTC new retail telephone
customers even if little or no growth occurs in the marketing program revenues
itself. The new telecommunications revenue generally lags the marketing program
revenues by one to six weeks. When the marketing program revenues increase, an
increase in NTC's telecommunications-related revenues is expected to follow.
Net operating revenues at NTC have also been improving steadily due to (i)
increased sales and (ii) increased collection of accounts receivable. As part
of its new management program, the billing system was enhanced to allow for
multiple billing cycles each month. An arrangement was also made to use local
exchange carriers to reduce billing costs, improve collections and terminate
telephone service more rapidly when invoices are in arrears. The pre-paid
calling card products now offered by NTC also significantly reduce losses due to
uncollectible accounts receivable. The Company on a consolidated basis, and the
Company's business and NTC's business on a stand-alone basis, are now operating
profitably.
NTC's long distance telephone services and marketing programs subject the
Company to the regulatory control of the Federal Communications Commission and
various state regulatory agencies, including but not necessarily limited to
state Public Utility Commissions or equivalent, state attorney general offices,
and state consumer relations and protection offices. From time-to-time in the
normal course of business, NTC receives inquiries, requests and demands from
such agencies for information and action. Management does not believe any such
inquiries, requests or demands received by the Company to date have had, or are
reasonably likely to have in the future, any material impact on NTC's business.
The Company's current emphasis with respect to NTC is to continue to ensure
that (i) processing capacity is maintained and increased to handle growing
sales, (ii) the independent marketing force continues to expand, resulting in a
growing base of telephone customers, and (iii) the business is operated
efficiently with reliable reporting. While the improved computer processing
system is expected to reduce operating expenses as a percentage of gross
revenues due in part to increased speed and decreased errors, on-going costs in
1996 for expansion of NTC's infrastructure may result in expenses in 1996 which
are comparable, as a percentage of gross revenues, to expenses in 1995 and 1994,
depending upon the rate of NTC's growth.
-41-
In addition to the focus on NTC, the Company anticipates that it will
receive more revenues and potential profits in 1996 from its acquisition of
Rapid Cast, Inc. on February 8, 1995. See "Item 1. Business - Acquisition of
Rapid Cast, Inc." and "Item 1. Business - Rapid Cast, Inc." in the Company's
1995 Form 10-K. The Company continues to seek more business for AutoNETWORK,
its interactive computer network and electronic bulletin board system. Although
no specific plans have been made, the Company may seek to make an acquisition of
a computer network or long distance telephone-related business in the future.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
SALES. Total 1995 sales increased by 85% from $46.8 million in 1994 to
$86.6 million in 1995. The majority of this increase was attributable to NTC's
sales increase from $45.6 million in 1994 to $83.1 million in 1995. The
following table summarizes the Company's year-to-year sales performance by
subsidiary and segment:
SUBSIDIARY SEGMENT DOLLARS IN MILLIONS
1995 1994
---- ----
NTC Telephone (telecommunications services) $70.0 $34.2
NTC Telephone (marketing programs) 13.1 11.4
RCI Optical 2.0 --
AutoNETWORK Network 1.5 1.2
---- ----
Total Company Sales $86.6 $46.8
---- ----
---- ----
NTC's sales increase was driven largely by continued expansion of the
customer base for its telecommunications services. As a result of this
continuing expansion, NTC's telecommunication service revenues represented 84%
of NTC's total 1995 revenues with the remaining 16% generated by sales of NTC's
marketing programs. This 1995 revenue mix compares to NTC's 1994 mix of 75%
from telecommunication services and 25% from marketing programs.
The consolidation of RCI in the third and fourth quarters of 1995 added
$2.0 million of optical product sales to the total year results.
COST OF SALES. Total Company cost of sales, which tends to vary directly
with sales, increased from $31.2 million or 67% of sales in 1994 to $57.9
million or 67% sales in 1995. The following table summarizes the Company's
year-to-year changes in two major cost components:
DOLLARS IN MILLIONS
1995 1994
---- ----
Commissions paid to NTC independent sales representatives $ 14.2 $ 7.7
All other costs of sales 43.7 23.5
------ -----
Total Company Cost of Sales $ 57.9 $31.2
------ -----
------ -----
NTC's total commission expense increased from $7.7 million in 1994 to $14.2
million in 1995. The most significant single factor in this year-to-year change
was an annual increase of $3.0 million in residual monthly sales commissions
paid to independent sales representatives on NTC's expanding telecommunication
service revenues. The remainder of the year-to-year change was caused by
increases in various bonuses and overrides paid to sales representatives who
signed up new telephone service customers for NTC.
-42-
The second cost component shown in the table above is "all other costs of
sales" which represents (1) NTC's long distance carrier costs, (2) NTC's costs
of producing sales materials for its independent sales representatives, (3)
RCI's costs of producing optical systems and ancillary goods, and (4)
AutoNETWORK's costs of providing communications network products and services.
GENERAL AND ADMINISTRATIVE. Total general and administrative costs
increased from $9.4 million or 20% of sales in 1994 to $19.8 million or 23% of
sales in 1995. General and administrative costs generally include the costs of
employee salaries, fringe benefits, supplies, and related support costs which
are required in order to provide such operating functions as customer service,
billing, marketing, product development, information systems, collections of
accounts receivable, and accounting.
NTC's general and administrative costs increased during 1995 in order to:
(1) support its continuing sales growth in 1995 and, (2) build stronger
infrastructure to accommodate still greater sales growth and improved cost
efficiencies in the future. RCI incurred substantial general and administrative
costs in 1995 relating to its startup of operations.
DEPRECIATION AND AMORTIZATION. Total Company depreciation and amortization
expense increased from $0.4 million in 1994 to $1.0 million in 1995. This
increase was caused by greater investment by NTC in computer hardware and
software, furniture and equipment, and leasehold improvements required to
support its rapid expansion in sales.
BAD DEBT EXPENSE. Total Company bad debt expense increased from $1.8
million or 3.8% of sales in 1994 to $4.1 million or 4.8% of sales in 1995. The
year-to-year increase in bad debt was caused primarily by increased provisioning
of NTC's Dial-1 receivables and secondarily by the Company's establishment of a
bad debt reserve for a potentially uncollectible note receivable from a Company
shareholder.
OTHER INCOME AND EXPENSE. The Company's net income and expense declined
from net other income of $0.3 million in 1994 to net other expense of $1.0
million in 1995. This $1.3 million net decline was primarily caused by: (1) a
$382,500 settlement with convertible noteholders relating to the acquisition of
RCI, (2) a $244,010 settlement with a former Company officer, and (3) a $337,500
write-off of marketable securities by NTC.
ACQUISITION COSTS AND EXPENSES. Acquisition costs increased from $0.3
million in 1994 to $1.7 million in 1995. This increase in costs was caused
almost entirely by the acquisition of RCI and includes (1) $1,228,206 of
amortization expense relating to the acquisition of RCI patent rights, (2)
$118,743 of interest expense on notes used to finance the RCI acquisition and
related legal costs, and (3) $107,841 of equity in RCI's losses from February
1995 (date of acquisition) through June, 1995 (the period during which the
Company's 51% ownership of RCI was recorded under the equity method of
accounting).
MINORITY INTEREST. Beginning on July 1, 1995, the Company converted from
the equity method to the consolidated method of accounting for its 51% ownership
in RCI. As a result, 49% of RCI's losses from July 1, 1995 through December 31,
1995 (the "minority interest") were eliminated from the Company's "Consolidated
Statements of Operations" for 1995.
NET INCOME. Total Company net income declined from $4.1 million or 8.7% of
sales in 1994 to $1.4 million or 1.6% of sales in 1995. Although NTC's year-to-
year net income increased substantially, those increases were more than offset
by losses sustained from the Company's internal operations and from RCI's
operations.
-43-
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993.
In 1994, total revenues were $46,815,057 as compared to $11,298,972 in
1993, an increase of $35,516,085 or 314%. Telecommunications-related revenues
(including revenue for the Company's AutoNETWORK business) increased to
$35,397,830 in 1994 from $7,022,716 in 1993, an increase of $28,375,114 or 404%,
while marketing-related revenues increased to $11,417,227 from $4,260,942 in
1993, an increase of $7,156,285 or 167%. The growth of the Company's
telecommunications-related revenues was associated with the increase in the base
of marketing representatives, which results in the signing of new telephone
customers. The growth of the Company's marketing-related revenues was due to a
marketing program involving the sale of marketing programs and materials to
independent sales representatives.
Operating costs from communication products and services, including
commissions to independent sales representatives, increased to $31,148,773 in
1994 from $9,521,803 in 1993, an increase of $21,626,970 or 227%. Expenses
associated with commissions, bonuses and overrides paid to NTC's independent
representatives for 1994 were $7,658,904 versus $2,339,517 in 1993, an increase
of $5,319,389 or 227%.
Other increases in expenses were primarily attributable to the increased
costs of communication services from NTC's primary carriers and in the increased
investment being made in NTC's customer service, marketing support services,
billing and other related operations.
Selling, general and administrative costs were $9,437,851 in 1994 versus
$2,643,583 in 1993, an increase of $6,794,268 or 257%. This increase is
attributable to substantial growth in NTC's telecommunications and marketing
revenues, which has necessitated substantial increases in the Company's selling,
general and administrative operations. The increase in these operations,
however, is lower as a percentage increase than the increase in revenues,
reflecting an improved economy of scale in the Company's operations.
Depreciation and amortization increased to $709,857 in 1994 from $514,598
in 1993, an increase of $195,259 or 38%. This increase is due to the increased
investment in capital goods required to conduct and expand operations.
Bad debt expense increased to $1,788,772 in 1994 from $174,377 in 1993, an
increase of $1,614,395 or 925%. The increase in bad debt was due to the rapid
growth in telecommunications revenues in 1994 versus 1993, although the rate of
growth of bad debt from 1993 to 1994 reflects an over-reserve for bad debt in
1992 of $1,078,428, which was applied against bad debt in 1993. The actual rate
of growth of bad debt in 1994 was commensurate with the rate of growth in
telecommunications revenues from 1993 to 1994.
Other (income) expense changed from an expense of $51,455 in 1993 to income
of $342,445 in 1994, a gain of $393,900, or 765%. The increase is due to the
decreased need for the Company to borrow funds in 1994 versus 1993, along with
the increase in the Company's cash position, which has resulted in interest
gains on funds held in cash accounts.
The Company experienced net profit of $4,071,194 in 1994 versus a loss of
$948,769 in 1993, an increase of $5,019,963 or 529%. The Company's net profit
reflects the improved and profitable operations at NTC in 1994.
-44-
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992.
Total revenues for 1993 were $11,298,972 as compared to $5,534,874 in 1992,
an increase of $5,764,098 or 104%. Communications products and services revenues
increased to $7,022,716 from $4,702,521 in 1992, an increase of $2,320,195 or
49%. Marketing services revenues increased to $4,260,942 from $732,372 in 1992,
an increase of $3,528,570 or 481%. The increase in communications services
revenues reflects the growth in NTC's base of telephone service users, while the
increase in marketing services revenues reflects the growing success of NTC in
attracting independent representatives to market its products. The Company had
an extraordinary gain in 1993 of $658,075, attributable to a settlement with
creditors.
Communications products and services operating costs increased to
$9,521,803 in 1993 from $3,383,694 in 1992, an increase of $6,138,109 or 181%.
This increase was primarily attributable to the increased costs of communication
services from NTC's primary carriers and in the increased investment being made
in NTC's customer service, marketing support services, billing and other related
operations.
Research and development costs decreased to $69,966 in 1993 from $91,212 in
1992, a decrease of $21,246. This decrease was due to cost controls placed on
expenditures and to the Company's focus on improving the operation of existing
products.
Selling, general and administrative costs were $2,413,237 in 1993 versus
$2,671,534 in 1992, a decrease of $258,297 or 10%. This decrease is attributable
to improved cost controls in NTC's marketing operations, whose revenues
increased from $732,372 to $4,260,942 with no appreciable increase in costs
associated with sales.
Depreciation and amortization increased to $541,598 in 1993 from $392,230
in 1992, an increase of $122,368 or 31%. This increase is due to the increased
investment in capital goods required to conduct and expand operations. Bad debt
expense decreased to $174,377 in 1993 from $1,078,428 in 1992, a decrease of
$904,051 or 83%. The decrease in bad debt was due to improved customer service
and billing operations, particularly the process of submitting call records to
Local Exchange Carriers for billing when customers do not pay their telephone
bills promptly.
Interest expense increased to $211,835 in 1993 from $31,989 in 1992, an
increase of $179,846 or 562%. The increase is due to the increased amount of
funds loaned to NTC in 1993.
The Company experienced a loss of $1,606,844 before extraordinary items in
1993 versus a loss of $2,461,697 before extraordinary items in 1992, a decrease
of $854,853 or 34%. While the loss reflects that NTC's operations were not
profitable for the 1993 calendar year, the decrease of the loss reflects
improvement in NTC's operations.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, the Company had a net profit of
$1,366,025 and, at that date, current assets exceeded current liabilities by
$1,440,515. Since the Company acquired a controlling interest in NTC in early
1992, the Company's capital needs have primarily been satisfied from outside
sources such as the private placement of securities, the exercise of warrants
and options, and loans and bank credit lines guaranteed by its principal
shareholders. Cash flow from operations did not provide net working capital to
the Company during the period from February 1992 to May 1994, but has been
positive since that date.
-45-
The Company had net working capital of $1,440,515 at December 31, 1995, as
compared to net working capital of $8,798,793 at December 31, 1994. During
1995, net cash flow from operations was $1,378,839 compared to net cash flow
from operations of $3,083,887 in 1994.
During 1995, the Company's cash requirements were met through a combination
of a cash flow from operations, exercise of warrants to purchase the Company's
common stock and private placements of its Common Stock. In 1995, the Company
raised $29,058,773 in either private placements or from the exercise of
warrants. The Company anticipates that it will continue to attain cash flow
sufficient to meet the Company's cash requirements in 1996 through a combination
of operations, bank borrowings, private placements of its common stock and the
exercise of warrants to purchase the Company's Common Stock. On February 5,
1996, Melvyn Reznick, the President and a director of the Company, personally
guaranteed and arranged for a $500,000 bank line of credit for the Company,
which may be expanded to a range of $750,000 to $1,000,000 in the near future.
As of April 30, 1996, the line had been drawn upon to the extent of $515,000 to
fund loans to RCI pursuant to a rights offering made to RCI's stockholders. See
"THE COMPANY - Loans to RCI." The Company anticipates that during 1996 it and
RCI will need financing in addition to their respective cash flows to fund
operations and, in the case of RCI, to finance the growth of its business.
The Company had no material commitments for capital expenditures at
December 31, 1995, but does expect to continue expanding the NTC headquarters
building and purchasing additional equipment commensurate with the requirements
of its customer base. During 1995, the Company had capital expenditures of
$7,389,419 for plant and equipment.
Effective February 12, 1992, the Company entered into a Letter of Agreement
(the "Agreement") with NTC to ultimately acquire a controlling interest in NTC.
The Company loaned NTC $2,850,000 during 1992, collateralized by substantially
all the assets of NTC, from its available working capital resources. In 1993,
the Company loaned an additional $1,935,961 to NTC, bringing the total to
$4,785,961. In 1994, the Company loaned NTC an additional $308,879, bringing
the total to $5,094,810. All loans to NTC were converted into an additional
equity investment in NTC at the end of 1994. No further loans were made to NTC
during 1995.
In May 1992, as settlement with a creditor on a past due accounts payable
of approximately $725,000, the Company entered into a non-interest bearing
credit facility of approximately $432,000, resulting in a gain of approximately
$293,000 ($.04 per common share). The contract was payable in monthly
installments of $12,000 for the first twelve months and monthly installments of
$16,000 thereafter through November 1994. Maturities of the contract were
$84,000 in 1992, $172,000 in 1993 and $176,000 in 1994. This obligation was
paid in full in 1994
At December 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $16,800,000, which are expected to
be available to offset taxable income in future years. The Company and its
subsidiaries are engaged in legal proceedings where the ultimate outcome cannot
presently be determined. This information is described at "Item 3. Legal
Proceedings" in the Company's 1995 Form 10-K.
-46-
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of the Company's Common Stock as of April 30, 1996. Persons and
groups named in the table represent (i) each person known by the Company to
own beneficially more than 5% of the Company's Common Stock, (ii) each
director of the Company or its NTC subsidiary, (iii) each executive officer
of the Company or its NTC subsidiary, and (iv) all directors and executive
officers of the Company and its NTC subsidiary as a group.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF SHARES OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK OUTSTANDING(10)
- ------------------- ------------------------ ----------------------------
Melvyn Reznick 205,300(2) 1.51%
21031 Ventura Boulevard
Suite 1100
Woodland Hills, CA 91364
Sam D. Schwartz 1,998,500(3) 14.74%
21031 Ventura Boulevard
Suite 1100
Woodland Hills, CA 91364
Joel W. Greenberg 260,000(4) 1.92%
21031 Ventura Boulevard
Suite 1100
Woodland Hills, CA 91364
Nancy Zivitz 669,300(5) 4.94%
7234 Silverbell Drive
Sarasota, Florida 34241
Albert Milstein 48,000(6) 0.35%
21031 Ventura Boulevard
Suite 1100
Woodland Hills, CA 91364
Edward R. Jacobs 30,000 0.22%
2801 Main Street
Irvine, CA 92715
Stephen A. Caswell 20,000(7) 0.15%
21031 Ventura Boulevard
Suite 1100
Woodland Hills, CA 91364
Jerry W. Ballah 0 0%
2801 Main Street
Irvine, California 92715
William D. Savage 51,000(8) 0.38%
2801 Main Street
Irvine, California 92715
-47-
Richard A. Marting 55,000(9) 0.41%
2801 Main Street
Irvine, California 92715
All directors and officers
as a group (seven persons) 1,338,600 9.9%
(1) See the Company's Proxy Statement for the 1996 Annual Meeting of the
Shareholders for additional information regarding outstanding stock options
and warrants to purchase the Company's Common Stock.
(2) Includes stock options to purchase 25,000 shares at an exercise price of
$4.87 per share, exercisable at any time until February 28, 2001, stock
options to purchase 25,000 shares at an exercise price of $4.87 per share,
exercisable at any time until May 31, 2001, and stock options to purchase
100,000 shares at an exercise price of $4.37 per share, exercisable at any
time until April 5, 2001. Does not include stock options to purchase
200,000 shares at an exercise price of $4.87 per share, which do not vest
until RCI achieves certain financial performance goals, stock options to
purchase 50,000 shares at an exercise price of $4.37 per share, which do
not vest until RCI becomes a public company, and stock options to purchase
an additional 100,000 shares at exercise prices ranging from $4.37 to $4.87
per share, which do not vest until later dates in 1996 and 1997. See
"Ratification of 1996 Stock Option Program for Directors, Officers and Key
Consultants" in the Company's Proxy Statement for its 1996 Annual Meeting
of the Shareholders.
(3) Excludes 90,000 shares owned by Rita L. Schwartz, which are her sole and
separate property, in which Mr. Schwartz disclaims any beneficial interest.
Includes 90,000 shares acquired upon the conversion of 8% convertible
promissory notes.
(4) Includes warrants to purchase 35,000 shares at an exercise price of $4.87
per share, expiring on August 29, 1997, and stock options to purchase
25,000 shares of the Company's Common Stock at an exercise price of $4.37
per share, expiring on April 5, 2001.
(5) Includes 644,300 shares owned by Clarence R. Zivitz, Nancy Zivitz' husband,
and stock options to purchase 25,000 shares owned by Nancy Zivitz, a member
of the Company's Board of Directors, at an exercise price of $4.37 per
share at any time until February 28, 2001.
(6) Includes stock options to purchase 25,000 shares at an exercise price of
$4.37 per share at any time until April 5, 2001.
(7) Does not include stock options to purchase 50,000 shares at an exercise
price of $4.37 per share, which do not vest until RCI achieves certain
financial performance goals.
(8) Includes warrants to purchase 50,000 shares at an exercise price of $8.50
per share, expiring on May 27, 1997.
(9) Includes warrants to purchase 50,000 shares at an exercise price of $8.50
per share, expiring on May 27, 1997.
(10) Assumes 13,559,024 shares outstanding, including 335,000 shares issuable
upon the exercise of stock options and warrants which have vested, but
which do not include any Shares or Underlying Shares.
-48-
Based upon the Company's review of Forms 3, 4 and 5 and any amendments
thereto furnished to the Company in compliance with Section 16 of the Securities
Exchange Act of 1934, as amended, all of such Forms were filed on a timely basis
by such reporting persons.
DESCRIPTION OF CAPITAL STOCK
The following summaries of certain provisions of the Articles of
Incorporation, as amended, and Bylaws of the Company do not purport to be
complete and are qualified in their entirety by reference to such instruments,
each of which is incorporated by reference as an exhibit to the Registration
Statement of which this Prospectus is a part. See "AVAILABLE INFORMATION."
GENERAL
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock and 100,000 shares of Preferred Stock, without par value. As of
April 30, 1996, there were 13,224,024 shares of the Company's Common Stock
outstanding, excluding any Shares or Underlying Shares issuable upon the
exercise of Warrants. As of April 30, 1996, no shares of the Company's
Preferred Stock were issued or outstanding and no Common Stock or Preferred
Stock were held as treasury stock.
COMMON STOCK
DIVIDENDS. Subject to the rights of holders of the Company's Preferred
Stock, if any, to receive certain dividends prior to the declaration of
dividends on shares of the Company's Common Stock, when and as dividends are
declared by the Company's Board of Directors payable in cash, stock or other
property, the holders of the Company's Common Stock are entitled to share
ratably in such dividends.
VOTING RIGHTS. Each holder of the Company's Common Stock has one vote for
each share held on matters presented for consideration by the shareholders.
PREEMPTIVE RIGHTS. The holders of the Company's Common Stock have no
preemptive rights to acquire any additional shares of the Company.
ISSUANCE OF STOCK. Under California law the Company's Board of Directors
generally may issue authorized shares of the Company's Common Stock or Preferred
Stock without shareholder approval.
LIQUIDATION RIGHTS. In the event of the liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, the holders of the
Company's Common Stock will be entitled to share ratably in any of its assets or
funds that are available for distribution to its shareholders after the
satisfaction of its liabilities (or after adequate provision is made therefor)
and after payment of the liquidation preferences of outstanding Preferred Stock,
if any.
PREFERRED STOCK
The Company's authorized Preferred Stock may be issued from time to time as
a class without series, or if so determined by the Board of Directors, in one or
more series. The voting rights, dividend rights, conversion rights, redemption
rights and liquidation preferences of any Preferred Stock, the number of shares
constituting any such series and the terms and conditions
-49-
of the issue of the Preferred Stock may be fixed by resolution of the
Company's Board of Directors. The Company's Preferred Stock, if and when
issued, will have a preference over the Company's Common Stock with respect
to the payment of dividends and the distribution of assets in the event of
the liquidation of the Company, and such other preferences as may be fixed by
the Board of Directors.
WARRANTS AND OPTIONS
In November 1994, the Company approved the Incomnet 1994 Stock Option
Plan for the directors, employees and key outside consultants of the Company
and its subsidiaries, which provided for the issuance of stock options
covering up to 1,500,000 shares of the Company's Common Stock. In November
1994, options to purchase 1,200,000 shares of the Company's Common Stock were
granted at an exercise price of $10 per share provided, that the stock
options vest and become exercisable only upon NTC earning at least $15
million in pre-tax profits during any continuous four audited quarterly
periods until December 31, 1997. See footnote 6, "Shareholders' Equity --
Stock Options" in the Consolidated Financial Statements of the Company
included in "Item 8. Financial Statements" in the Company's 1995 Form 10-K.
On February 6, 1996, the Company entered into a Management Incentive
Agreement pursuant to which Edward R. Jacobs, the grantee of the 1,200,000
stock options issued under the 1994 Stock Option Plan, agreed to cancel all
of those options upon adoption of a new stock option plan for NTC, to be
effective once NTC becomes a publicly traded company. No additional stock
options are intended to be issued under the 1994 Stock Option Plan.
On November 30, 1995, the Company issued 300,000 stock options to Melvyn
Reznick, the President and Chief Executive Officer of the Company, pursuant
to the Employment Agreement entered into by the Company and Mr. Reznick on
that date. See "Item 1. Business -- Employees, Officers and Directors --
Officers" in the Company's 1995 Form 10-K. On February 5, 1996, as modified
on March 13, 1996 and on April 25, 1996, the Company's Board of Directors
adopted the Incomnet 1996 Stock Option Plan for the directors, officers and
key outside consultants of the Company pursuant to which an aggregate of
1,300,000 stock options are authorized to be granted, 700,000 of which have
been granted (240,000 of which are vested and 460,000 of which are not yet
vested), including the 300,000 stock options issued pursuant to Mr. Reznick's
Employment Agreement. See "Ratification of 1996 Stock Option Program for
Directors, Officers and Key Consultants" in the Company's Proxy Statement for
the 1996 Annual Meeting of the Shareholders.
In July 1995, ten year stock options held by Sam D. Schwartz (250,000),
Rita Schwartz (35,000), Joel Greenberg (35,000) and Stephen A. Caswell
(25,000) were converted into three year warrants expiring on August 29, 1997.
Mr. Schwartz' 250,000 warrants were cancelled on August 18, 1995 and
September 1, 1995 as part of his tender of short-swing profits pursuant to
Section 16(b) of the Securities and Exchange Act of 1934, as amended. See
"Item 3. Legal Proceedings -- Section 16(b) Lawsuit" in the Company's 1995
Form 10-K. On April 8, 1996, Stephen A. Caswell and the Company agreed to
cancel his 25,000 warrants exercisable at $4.87 per share in consideration
for the issuance of an additional 20,000 stock option under the Incomnet 1996
Stock Option Plan. Stock options and warrants for the purchase of an
additional 107,000 shares of the Company's Common Stock (i.e. 50,000 held by
Richard Marting, 50,000 held by William Savage and 7,000 held by four other
employees), other than stock options recently granted pursuant to Incomnet's
1996 Stock Option Plan and the performance-based stock options issued under
its 1994 Stock Option Plan (which may be cancelled in the future pursuant to
the Management Incentive Agreement entered into by the Company with NTC on
February 6, 1996), remain outstanding with different exercise prices and
expiration dates. See footnote 6, "Shareholders' Equity -- Warrants" to the
Company's Consolidated Financial Statements included in "Item 8. Financial
Statements" of the Company's 1995 Form 10-K.
-50-
The holders of warrants and options do not have any voting rights until
they exercise the warrants or options and receive voting shares of Common Stock
pursuant to such exercise. The number of shares of Common Stock which can be
purchased upon the exercise of the warrants and options and the exercise price
are subject to adjustment in certain events, such as a stock split, reverse
stock split, stock dividend or similar event, in order to prevent dilution to
the warrant and option holders under those circumstances.
SIZE OF BOARD OF DIRECTORS
The Company's Bylaws provide that the Company's Board of Directors will
consist of no fewer than four and no more than nine members. The Company's Board
of Directors presently has four directors and there are no vacancies.
CUMULATIVE VOTING
Pursuant to the Company's Bylaws and in accordance with the California
Corporations Code, each shareholder is entitled to one vote for each share of
the Company's Common Stock held, and such holders may be entitled to cumulative
voting rights in the election of directors. Under the California Corporations
Code, cumulative voting is not required unless, at the annual meeting and prior
to the voting, at least one shareholder gives notice of his intention to
cumulate his votes. If one shareholder give notice of an intention to cumulate
votes, then all shareholders have cumulative voting rights in the election of
directors. If no such notice is given, voting for directors is noncumulative,
which means that a simple majority of the shares voting may elect all of the
directors. Under cumulative voting, each shareholder entitled to vote has the
right to give one candidate a number of votes equal to the number of authorized
directors multiplied by the number of votes to which his shares are entitled, or
to distribute his votes on the same principle among as many candidates as he
desires. As a result, each share of the Company's Common Stock has a number of
votes equal to the number of authorized directors. The California cumulative
voting law applies only to the election of directors and not to any other
matters as to which shareholders may vote.
DIRECTOR'S LIABILITY
The California Corporations Code and the Company's Bylaws provide that a
director of the Company will have no personal liability to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director
except (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the corporation or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard for
the director's duty to the corporation or its shareholders in circumstances in
which the director was aware, or should have been aware, in the ordinary course
of performing a director's duties, of a risk of serious injury to the
corporation or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders, or (vi) for an unlawful dividend,
distribution, stock repurchase or redemption. This provision would generally
absolve directors of personal liability for negligence in the performance of
duties, including gross negligence.
-51-
INDEMNIFICATION
The Company's Bylaws and Sections 204 and 317 of the California
Corporations Code contain comprehensive provisions for indemnification of
directors, officers and agents of California corporations against expenses,
judgments, fines and settlements in connection with litigation. Under the
California Corporations Code, other than an action brought by or in the right
of the Company, such indemnification is available if it is determined that
the proposed indemnitee acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company and,
with respect to any criminal action or proceeding, has no reasonable cause to
believe his conduct was unlawful. In actions brought by or in the right of
the Company, such indemnification is limited to expenses (including
attorneys' fees) actually and reasonably incurred if the indemnitee acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company. No indemnification may be made, however,
in respect of any claim, issue or matter as to which such person is adjudged
to be liable to the Company unless and only to the extent that the court in
which the action was brought determines that in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper. To the extent that the proposed
indemnitee has been successful in defense of any action, suit or proceeding,
he must be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the action. The Company's
Articles of Incorporation, as amended, provide for indemnification of the
directors and officers of the Company against liabilities to the maximum
extent provided by California law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
Under the California Corporations Code, a corporation's certificate of
incorporation can be amended by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote, and a majority of the
outstanding stock of each class entitled to vote as a class, unless the
certificate requires the vote of a larger portion of the stock. The Company's
Articles of Incorporation, as amended, do not require a larger percentage
affirmative vote. As is permitted by the California Corporations Code, the
Company's Bylaws give its Board of Directors the power to adopt, amend or
repeal the Company's Bylaws. The Company's shareholders entitled to vote have
concurrent power to adopt, amend or repeal the Company's Bylaws.
DIVIDENDS
The California Corporations Code provides that, subject to any
restrictions in the corporation's articles of incorporation, dividends may be
declared from the corporation's surplus or, if there is no surplus, from its
net profits for the fiscal year in which the dividend is declared and the
preceding fiscal year. Dividends may not be declared, however, if the
corporation's capital has been diminished to an amount less than the
aggregate amount of all capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets.
-52-
TRANSFER AGENT
The Transfer Agent and Registrar for the capital stock of the Company is
American Stock Transfer Company.
SELLING SECURITY HOLDERS
THE PRIOR NOTEHOLDERS. The selling security holders include ten persons
who previously held an aggregate of $2,225,000 of 8% convertible promissory
notes issued by the Company on February 8, 1995 to finance the acquisition of
51% of RCI. All of the prior noteholders except Jules Nordlicht converted
their notes into shares of the Company's Common Stock at the rate of one
share for every $10 of outstanding original principal amount of notes. The
Outstanding Shares relating to the notes and any additional Shares which may
be issued pursuant to the settlement agreements entered into with certain
prior noteholders are therefore being offered for resale by the prior
noteholders and not pursuant to an initial issuance of stock by the Company.
The following table lists the selling security holders who are prior
noteholders, the original amount of notes purchased by them, and their
position with respect to the Company. See "THE COMPANY -- Settlement With
Prior Noteholders" and "Item 1. Business -- Acquisition of Rapid Cast, Inc. --
Financing of Acquisition" in the Company's 1995 Form 10-K.
ORIGINAL AMOUNT
OF 8% CONVERTIBLE NUMBER OF
NAME OF NOTEHOLDER NOTES (1) OUTSTANDING SHARES
- -------------------------------------------------------------------------------
Jules Nordlicht 500,000 31,000(3)
- -------------------------------------------------------------------------------
Moshe Mueller 25,000 2,500(4)
- -------------------------------------------------------------------------------
Alan Cohen (5)** 700,000 50,000(5)
- -------------------------------------------------------------------------------
Robert Cohen (5)** 700,000 50,000(5)
- -------------------------------------------------------------------------------
Sam D. Schwartz (1)** 900,000 90,000
- -------------------------------------------------------------------------------
Rita Folger 50,000 5,000(4)
- -------------------------------------------------------------------------------
Kenneth Lebow 75,000 7,500(4)
- -------------------------------------------------------------------------------
Richard C. Jaffe 50,000 5,000(4)
- -------------------------------------------------------------------------------
Lenore Katz 25,000 2,500(4)
- -------------------------------------------------------------------------------
Arthur Caplan 100,000* 10,000(4)
- -------------------------------------------------------------------------------
- ------------------------------
* An executed settlement agreement has not yet been received from this person.
** These persons have not been offered settlement agreements by the Company.
They are affiliates of the Company or RCI, one of its subsidiaries.
-53-
- ------------------------------
(1) Sam D. Schwartz is the prior President and Chairman of the Board of
Directors of the Company who resigned on November 30, 1995.
(2) All of these notes were converted into shares of the Company's Common
Stock in July 1995 at a conversion price of $10 per share, other than
Mr. Nordlicht's note which was repaid in full on January 31, 1996. See
"Item 3. Legal Proceedings -- Claims By Prior Noteholders" in the Company's
1995 Form 10-K.
(3) Pursuant to the settlement agreement with Mr. Nordlicht, the Company is
obligated to issue additional Shares to Mr. Nordlicht if the average last
sale price on the NASDAQ on the five trading days immediately proceeding
the date of this Prospectus is less than $5.00 per share. See "Item 3.
Legal Proceedings -- Claims By Prior Noteholders" in the Company's 1995
Form 10-K.
(4) Pursuant to the settlement agreements with these prior noteholders, the
Company is obligated to issue additional Shares to these persons if the
average last sale price on the NASDAQ on the five trading days immediately
preceding the date of this Prospectus is less than $12.00 per share. See
"Item 3. Legal Proceedings -- Claims By Prior Noteholders" in the Company's
1995 Form 10-K.
(5) Alan Cohen and Robert Cohen are brothers and officers, directors and
founding shareholders of RCI. They also own optical stores which have
placed orders for RCI's LenSystem. In August 1995 they sold a total
of 40,000 of the 140,000 shares of the Company's Common Stock which
they previously owned upon the conversion of their notes.
THE WARRANTHOLDER. The selling security holders include Price
International, Inc., the holder of 75,000 Warrants to purchase 75,000
Underlying Shares at an exercise price of $11.25 per share, exercisable at
any time until November 15, 1997. These Underlying Shares are therefore
being offered for resale by the Warrantholder if and when it exercises its
Warrants and not pursuant to an initial issuance of stock by the Company. See
"Item 1. Business -- Agreement With Price International, Inc." and Item 3.
Legal Proceedings -- Potential Lawsuits" in the Company's 1995 Form 10-K.
THE OUTSTANDING SHAREHOLDERS. The selling shareholders include seven
investors who purchased units of the Company's securities in a private
placement on June 30, 1995 at a price of $12.00 per unit pursuant to
Section 4(2) of the Securities Act of 1933, as amended. Each unit consisted
of one share of Common Stock and one warrant to purchase one share of Common
Stock for a price of $14.00 per share at any time until December 31, 1995.
All of the $14 warrants expired unexercised. See footnote 6, "Shareholders'
Equity -- Private Placements," to the Consolidated Financial Statements of
the Company included in "Item 8. Financial Statements" in the Company's 1995
Form 10-K. The following table lists the selling security holders who are
Outstanding Shareholders and the number of Outstanding Shares owned by them.
-54-
NAME OF OUTSTANDING SHAREHOLDER NUMBER OF SHARES
- ----------------------------------------------------------------------
Lenore Katz(1) 1,750
- ----------------------------------------------------------------------
Broadway Partners(1) 7,000
- ----------------------------------------------------------------------
Dr. Alan Cohen(1) 8,750
- ----------------------------------------------------------------------
Dr. Robert Cohen(1) 8,750
- ----------------------------------------------------------------------
Mueller Trading LP 52,500
- ----------------------------------------------------------------------
Delton Trading SA 52,500
- ----------------------------------------------------------------------
Ace Foundation, Inc. 26,250
- ----------------------------------------------------------------------
(1) Dr. Alan Cohen and Dr. Robert Cohen are officers and directors of RCI.
Broadway Partners is a partnership comprised of Alan Cohen's and Robert
Cohen's children.
SHARES ELIGIBLE FOR FUTURE SALE
As of April 30, 1996, the Company has approximately 4,807,200 shares of
its Common Stock (not including the Shares or the Underlying Shares issuable
upon the exercise of the Warrants covered by this Prospectus, but including
all other shares of the Company's Common Stock which can be acquired pursuant
to the exercise of other vested outstanding warrants and options) issued and
outstanding which may be deemed to be "restricted securities" as that term is
defined in Rule 144 of the Securities Act. These restricted securities may be
sold in the future in compliance with Rule 144 or Regulation S of the
Securities Act. The Company can make no prediction as to the effect, if any,
that sales of shares of Common Stock, or the availability of shares for
future sale, will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock (including
shares issued upon the exercise of warrants or options) in the public market,
or the perception that such sales could occur, could depress the prevailing
market price for the Common Stock. Such sales may also make it more difficult
for the Company to sell equity securities or equity-related securities in the
future at a time and price which it deems appropriate. See "RISK FACTORS --
General Risks -- Dilution Caused by Future Sales of Shares."
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock covered by
this Prospectus will be passed upon for the Company by Mark J. Richardson,
Esq., Counsel to the Company, 1299 Ocean Avenue, Suite 900, Santa Monica,
California, 90401. In consideration for certain legal services, the Company
has issued to Mr. Richardson options to purchase 50,000 shares of the
Company's Common Stock at a purchase price of $4.37 per share, 15,000 of
which have vested and are exercisable at any time until April 5, 2001, and
35,000 of which vest on January 1, 1997 and are exercisable at any time until
January 1, 2002
EXPERTS
The financial statements of the Company, included and incorporated by
reference from the Company's Annual Report (Form 10-K) for the years ended
December 31, 1995, 1994 and 1993, have been audited by Stonefield Josephson,
independent auditors, as set forth in their reports thereon and incorporated
herein by reference. Such financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
-55-
===================================== =====================================
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION 700,000 Shares
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY INCOMNET, INC.
UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY Common Stock
SECURITIES OTHER THAN THOSE TO WHICH
IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE
SUCH AN OFFER OR SOLICITATION WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
__________
TABLE OF CONTENTS
Available Information 2
Incorporation of Certain
Documents by Reference 2
Prospectus Summary 3
Risk Factors 9
The Company 20 __________
Use of Proceeds 36
Price Range of Common Stock PROSPECTUS
and Dividends 37 May 9, 1996
Capitalization 38
Selected Consolidated __________
Financial Information 39
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 41
Principal Stockholders 47
Description of Capital Stock 49
Selling Security Holders 53
Shares Eligible for
Future Sale 55
Legal Matters 55
Experts 55
===================================== =====================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
offering described in this Registration Statement. All amounts are estimated
except the registration fees.
Registration Fee $ 2,210.07
Printing Costs for Registration Statement,
Prospectus and related documents $ 5,000.00
Accounting Fees and Expenses $ 5,000.00
Legal Fees and Expenses $ 30,000.00
Blue Sky Fees and Expenses $ 5,000.00
-----------
Total $ 47,210.67
-----------
-----------
- -----------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
See "DESCRIPTION OF CAPITAL STOCK - Indemnification" in the Prospectus.
ITEM 16. EXHIBITS.
Exhibit
No. Description
------- -----------
3.1 The Articles of Incorporation, as amended, of Incomnet, Inc. (A)
3.2 The Bylaws of Incomnet, Inc. (A)
4.1 Warrant to Purchase 500,000 Shares of Incomnet, Inc., dated
January 17, 1994. (C)
4.2 Warrant to Purchase 500,000 Shares of Incomnet, Inc., dated
May 27, 1994. (D)
4.3 Form of Warrant to Purchase 986,667 Shares of Incomnet, Inc. (E)
4.4 Form of Warrant to Purchase 75,000 Shares of Incomnet, Inc.
4.5 Form of Warrant to Purchase 510,000 Shares of RCI Common Stock
with Registration Rights Agreement, dated April 19, 1996.
4.6 Form of Warrant to Purchase RCI Common Stock, dated
February 8, 1995.
5.1 Form of Legal Opinion and Consent of Mark J. Richardson, Esq.
with respect to securities being registered.
10.1 Agreement by and between Broad Capital Associates, Inc. and
Incomnet, Inc., dated February 14, 1994. (C)
II-1
10.2 Agreement by and between Broad Capital Associates, Inc. and
Incomnet, Inc., dated May 10, 1994. (C)
10.3 Agreement and Plan of Exchange by and between Incomnet, Inc. and
National Telephone Communications, Inc., dated May 12, 1994. (B)
10.4 Consulting Agreement by and between Broad Capital Associates, Inc.
and Incomnet, Inc., dated January 17, 1994. (C)
10.5 Agreement by and between Broad Capital Associates, Inc. and
Incomnet, Inc., dated August 17, 1994. (C)
10.6 Carrier Switched Services Agreement with Wiltel, Inc., dated
September 30, 1993. (B)(1)
10.7 Network Wats Enrollment Form with U.S. Sprint, dated
April 7, 1993. (B)
10.8 Carrier Switched Services Agreement with Wiltel, Inc., dated
November 15, 1994. (D)(1)
10.9 The Stock Purchase Agreement for the acquisition of RCI, dated
January 18, 1995. (F)
10.10 The Stock Purchase Agreement for the acquisition of Q2100, dated
October 29, 1994. (F)
10.11 Stock Pledge Agreement, dated February 8, 1995. (F)
10.12 Form of 8% Convertible Secured Promissory Note, dated February 8,
1995. (F)
10.13 Agreement for Promotion of Pagers between NTC and Page Prompt.
10.14 Carrier Switched Services Agreement Wiltel, Inc, dated September 15,
1995.(1)
10.15 Amendment to Stock Purchase Agreement Between Incomnet, Inc. and Rapid
Cast, Inc., Dated June 15, 1995.
10.16 Agreement for Promotion of Internet Access Services Between NTC and
EarthLink Network.
10.17 Severance Agreement Between Incomnet, Inc. and Sam D. Schwartz, dated
November 30, 1995. (G)
10.18 Employment Agreement Between Incomnet, Inc. and Melvyn Reznick, dated
November 30, 1995. (G)
10.19 Management Incentive Agreement, dated February 6, 1996, between
Incomnet, Inc. and National Telephone Communications, Inc. (H)
10.20 Settlement Agreements and Proposed Settlement Agreements With Prior
Noteholders.
10.21 Form of 8% Convertible Note Issued By RCI in January 1996.
10.22 Form of Short-Term 10% Note Issued By RCI in April 1996.
II-2
13.1 The Annual Report on Form 10-K for the fiscal year ending
December 31, 1995 for Incomnet, Inc.
13.2 The Proxy Statement for the 1996 Annual Meeting of Incomnet's
Shareholders, dated April 26, 1996.
16. Letter re Change in Certifying Accountant. (B)
21. Subsidiaries of the Registrant. (A)
23.1 Consent of Stonefield Josephson, independent Certified Public
Accountants, relating to the financial statements.
23.2 Consent of Mark J. Richardson, Esq. is included in his opinion.
24. Power of Attorney is included on the signature page of this
Registration Statement.
- ------------
(1) Certain information has been deleted from this agreement pursuant to a
request for confidential treatment under Rule 406.
(A) Incorporated by reference from Incomnet, Inc.'s Annual Report on Form 10-K
for the year ending December 31, 1994.
(B) Incorporated by reference from Incomnet Inc.'s Registration Statement on
Form S-4 filed with the Securities and Exchange Commission on May 12, 1994,
and declared effective on October 27, 1994.
(C) Incorporated by reference from the Registration Statement on Form S-3
filed with the Securities and Exchange Commission on June 17, 1994 and
declared effective on October 27, 1994.
(D) Incorporated by reference from Incomnet's Registration Statement on Form
S-3 filed with the Securities and Exchange Commission on December 12, 1994
and declared effective on December 22, 1994.
(E) Incorporated by reference from Incomnet's Registration Statement on Form
S-3 filed with the Securities and Exchange Commission on January 5, 1995
and declared effective on January 9, 1995.
(F) Incorporated by reference from the Company's Report on Form 8-K, dated
February 8, 1995, relating to the Company's acquisition of a controlling
interest in RCI.
(G) Incorporated by reference from the Company's Report on Form 8-K dated
November 30, 1995, relating to the resignation of Sam D. Schwartz and
employment of Melvyn Reznick.
(H) Incorporated by reference from the Company's Report on Form 8-K, dated
February 9, 1996, relating to the management incentive agreement between
Incomnet and NTC.
II-3
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provision described in Item 15 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
RULE 430A UNDERTAKINGS. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
RULE 415 UNDERTAKINGS. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(i) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(ii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement;
II-4
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, the President of the
Registrant duly thereunto authorized, in the City of Woodland Hills, State of
California, on the 8th day of May, 1996.
INCOMNET, INC.
Registrant
By:
-----------------------------------
Melvyn Reznick, President
and Chief Executive Officer
II-5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark J. Richardson his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents of each of them, or their or his substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 8th day of May, 1996, by
the following persons in the capacities indicated.
Signatures Title
---------- -----
President, Chief Executive
- --------------------------------------- Officer and Director
Melvyn Reznick (Chief Executive Officer and
Principal Financial Officer)
Vice President of Information
- --------------------------------------- Systems, Secretary (Principal
Stephen A. Caswell Accounting Officer)
- --------------------------------------- Director
Joel W. Greenberg
- --------------------------------------- Director
Albert Milstein
- --------------------------------------- Director
Nancy Zivitz
II-6
File No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549.
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INCOMNET, INC.
EXHIBIT VOLUME
TO THE
REGISTRATION STATEMENT
INDEX TO THE EXHIBIT VOLUME TO
REGISTRATION STATEMENT ON FORM S-3
3.1 The Articles of Incorporation, as amended, of Incomnet, Inc. (A)
3.2 The Bylaws of Incomnet, Inc. (A)
4.1 Warrant to Purchase 500,000 Shares of Incomnet, Inc., dated
January 17, 1994. (C)
4.2 Warrant to Purchase 500,000 Shares of Incomnet, Inc., dated
May 27, 1994. (D)
4.3 Form of Warrant to Purchase 986,667 Shares of Incomnet, Inc. (E)
4.4 Form of Warrant to Purchase 75,000 Shares of Incomnet, Inc.
4.5 Form of Warrant to Purchase 510,000 Shares of RCI Common Stock with
Registration Rights Agreement, dated April 19, 1996.
4.6 Form of Warrant to Purchase RCI Common Stock, dated February 8, 1995.
5.1 Form of Legal Opinion and Consent of Mark J. Richardson, Esq. with
respect to securities being registered.
10.1 Agreement by and between Broad Capital Associates, Inc. and Incomnet,
Inc., dated February 14, 1994. (C)
10.2 Agreement by and between Broad Capital Associates, Inc. and Incomnet,
Inc., dated May 10, 1994. (C)
10.3 Agreement and Plan of Exchange by and between Incomnet, Inc. and
National Telephone Communications, Inc., dated May 12, 1994. (B)
10.4 Consulting Agreement by and between Broad Capital Associates, Inc. and
Incomnet, Inc., dated January 17, 1994. (C)
10.5 Agreement by and between Broad Capital Associates, Inc. and Incomnet,
Inc., dated August 17, 1994. (C)
10.6 Carrier Switched Services Agreement with Wiltel, Inc., dated
September 30, 1993. (B)(1)
10.7 Network Wats Enrollment Form with U.S. Sprint, dated April 7, 1993. (B)
10.8 Carrier Switched Services Agreement with Wiltel, Inc., dated
November 15, 1994. (D)(1)
10.9 The Stock Purchase Agreement for the acquisition of RCI, dated
January 18, 1995. (F)
10.10 The Stock Purchase Agreement for the acquisition of Q2100, dated
October 28, 1994. (F)
10.11 Stock Pledge Agreement, dated February 8, 1995. (F)
10.12 Form of 8% Convertible Secured Promissory Note, dated February 8,
1995. (F)
10.13 Agreement for Promotion of Pagers between NTC and Page Prompt.
10.14 Carrier Switched Services Agreement with Wiltel, Inc, dated
September 15, 1995.(1)
10.15 Amendment to Stock Purchase Agreement Between Incomnet, Inc. and Rapid
Cast, Inc., Dated June 15, 1996.
10.16 Agreement for Promotion of Internet Access Services Between NTC and
EarthLink Network.
10.17 Severance Agreement Between Incomnet, Inc. and Sam D. Schwartz, dated
November 30, 1995. (G)
10.18 Employment Agreement Between Incomnet, Inc. and Melvyn Reznick, dated
November 30, 1995. (G)
10.19 Management Incentive Agreement, dated February 6, 1996, between
Incomnet, Inc. and National Telephone Communications, Inc. (H)
10.20 Settlement Agreements and Proposed Settlement Agreements With Prior
Noteholders.
10.21 Form of 8% Convertible Note Issued By RCI in January 1996.
10.22 Form of Short-Term 10% Note Issued By RCI in April 1996.
13.1 The Annual Report on Form 10-K for the fiscal year ending December 31,
1995 for Incomnet, Inc.
13.2 The Proxy Statement for the 1996 Annual Meeting of Incomnet's
Shareholders, dated April 26, 1996.
16. Letter re Change in Certifying Accountant. (B)
21. Subsidiaries of the Registrant. (A)
23.1 Consent of Stonefield Josephson, independent Certified Public
Accountants, relating to the financial statements.
23.2 Consent of Mark J. Richardson, Esq. is included in his opinion.
24. Power of Attorney is included on the signature page of this Registration
Statement.
- ------------
(1) Certain information has been deleted from this agreement pursuant to a
request for confidential treatment pursuant to Rule 406.
(A) Incorporated by reference from Incomnet, Inc.'s Annual Report on Form 10-K
for the year ending December 31, 1994.
(B) Incorporated by reference from Incomnet Inc.'s Registration Statement on
Form S-4 filed with the Securities and Exchange Commission on May 12,
1994, and declared effective on October 27, 1994.
-9-
(C) Incorporated by reference from the Registration Statement on Form S-3
filed with the Securities and Exchange Commission on June 17, 1994 and
declared effective on October 27, 1994.
(D) Incorporated by reference from Incomnet's Registration Statement on
Form S-3 filed with the Securities and Exchange Commission on
December 12, 1994 and declared effective on December 22, 1994.
(E) Incorporated by reference from Incomnet's Registration Statement on
Form S-3 filed with the Securities and Exchange Commission on
January 5, 1995 and declared effective on January 9, 1995.
(F) Incorporated by reference from the Company's Report on Form 8-K, dated
February 8, 1995, relating to the Company's acquisition of a controlling
interest in RCI.
(G) Incorporated by reference from the Company's Report on Form 8-K, dated
November 30, 1995, relating to the resignation of Sam D. Schwartz and
employment of Melvyn Reznick.
(H) Incorporated by reference from the Company's Report on Form 8-K, dated
February 9, 1996, relating to the management incentive agreement between
Incomnet and NTC.
* * *