As filed with the Securities and Exchange Commission on October 31, 1997
Registration No. 333-06966
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IMMECOR CORPORATION
(Name of small business issuer in its charter)
California 1115 68-0324628
(State or jurisdiction of
incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
100 Professional Center Drive
Rohnert Park, California 94928-2137
(707) 585-3036
(Address and telephone number of principal executive offices and principal
place of business)
Heinot H. Hintereder, President & Chief Executive Officer
Immecor Corporation
100 Professional Center Drive
Rohnert Park, California 94928-2137
(707) 585-3036
(Name, address and telephone number of agent for service)
Copies to:
Kenneth M. Christison, ESQ
601 Glenwood Avenue
Mill Valley, CA 94941
Approximate date of commencement of proposed
sale to the public: As soon as practicable after the
effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
Title of each Proposed maximum Proposed maximum Amount of
class of securities Amount to be offering price aggregate offering registration fee
to be registered registered per share price
Common Stock, without par value 750,000 $5.25 $3,937,500 $1,478
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: /x/
IMMECOR CORPORATION
Cross-reference Sheet Showing Location in Prospectus:
PART I - INFORMATION REQUIRED IN PROSPECTUS
Form SB-2 Item Number and Caption Caption in Prospectus
1. Front of Registration Statement
Outside Front Cover of Prospectus ......Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus ................Inside Front Cover Page of Prospectus
3. Summary Information and Risk Factors ..... Prospectus Summary; Risk Factors
4. Use of Proceeds .......................................... Use of Proceeds
5. Determination of Offering Price ........
Plan of Distribution - Determination of Offering Price
6. Dilution ..................................................... Dilution
7. Selling Security Holders ............................. Not Applicable
8. Plan of Distribution ..................................Plan of Distribution
9. Legal Proceedings ............................
Business - Legal Proceedings & Litigation
10. Directors, Executive Officers, Promoters
and Control Persons ................................ Management
11. Security Ownership of Certain Beneficial
Owners and Management ....................... Principal Shareowners
12. Description of Securities ......................Description of Common Stock
13. Interest of Named Experts and Counsel ..... Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act .......
Management - Indemnification of Officers and
Directors
15. Organization within Last Five Years .......... Not Applicable
16. Description of Business ..................Prospectus Summary; Risk Factors;
Selected Financial Data; Business;
Certain Transactions
17. Management's Discussion and Analysis
or Plan of Operation ..........Management's Discussion and Analysis of
Financial Condition and Results of Operations
18. Description of Property ...................Business - Properties/Facilities
19. Certain Relationships and Related
Transactions ..........................Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters ..........Risk Factors; Dividend Policy;
Description of Common Stock; Shares Eligible
for Future Resale
21. Executive Compensation ............................Executive Compensation
22. Financial Statements .......................Index to Financial Statements
23. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure ................................ Not Applicable
IMMECOR CORPORATION
750,000 SHARES COMMON STOCK
All of the 750,000 shares of common stock are being sold directly by
IMMECOR Corporation ("Immecor" or the "Company"). Prior to this offering, there
has been no public market for the Company's common stock; therefore, the public
offering price has been determined by the Company. The Pacific Stock Exchange
has confirmed the eligibility of the shares for listing, pending the number of
shares sold within twelve months azfter the effective date of this Prospectus,
and the receipt of the required documentation. If less than the required number
of shares is sold, an order matching service will be established for persons
wishing to buy or sell shares. See "Plan of Distribution."
This offering is being made directly by the Company for not more than
750,000 shares (the "maximum" amount). There is no minimum number of shares to
be sold in this offering and all funds received will go immediately to the
Company. See "Use of Proceeds." This offering will be terminated upon the
earlier of: the sale of the maximum amount, twelve months after the date of this
Prospectus or the date on which the Company decides to close the offering. A
minimum purchase of 100 shares is required. The Company reserves the right to
reject any Share Purchase Agreement in full or in part. See "Plan of
Distribution."
The common stock offered hereby involves a high degree of risk. See "Risk
Factors."
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.
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
Per Share $5.25 None $5.25
Total Maximum (750,000 shares) $3,937,500 None $3,937,500
(1) The shares are being sold directly by the Company through its executive
officers, who will be registered as sales representatives, where required, and
who will not receive any commission. See "Plan of Distribution".
(2) Before deducting estimated expenses of $195,000 payable by the Company,
including registration fees, escrow agent fees, costs of printing, copying and
postage and other offering costs, in addition to legal and ac- counting fees.
The date of this Prospectus is October 31, 1997
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus, and, if given or made, such information and representations
must not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which such offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof.
This Prospectus is available in an electronic format, upon appropriate
request from a resident of those states in which this offering may lawfully be
made. The Company will transmit promptly, without charge, a paper copy of this
Prospectus to any such resident upon receipt of a request.
TABLE OF CONTENTS
Page
Reference Data .............................. 02
Prospectus Summary .......................... 03
Risk Factors ................................ 05
Use of Proceeds ............................. 08
Dividend Policy ............................ 08
Capitalization .............................. 09
Dilution .................................... 10
Management's Discussion & Analysis of
Financial Condition & Results of Operations .. 11
Business ..................................... 14
Management .................................. 18
Executive Compensation ...................... 19
Principal Shareowners ....................... 20
Certain Transactions ........................ 20
Description of Common Stock ................. 20
Shares Eligible for Future Resale ........... 21
Plan of Distribution ........................ 21
Legal Matters ............................... 21
Experts ...................................... 21
Additional Information ....................... 22
Index to Financial Statements ............... F1
Until January 30, 1998 (90 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
REFERENCE DATA
As a result of this Offering, the Company will become subject to the
informational filing requirements of the Securities Exchange Act of 1934, (the
"Exchange Act") for at least one fiscal year and as of the end of the fiscal
year may be required to register under the Exchange Act and continue to file
required annual and quarterly reports.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent public accounting firm
after the end of its fiscal year. The Company's fiscal year ends on December 31.
The Company will send shareholders quarterly reports with unaudited financial
information for the first three quarters of each fiscal year.
The Company was incorporated in the State of California on January 14,
1994. The Company's corporate offices are located at 100 Professional Center
Drive, Rohnert Park, California 94928. The Company's telephone number is (707)
585-3036. The Company's facsimile number is (707) 585-6838. The Company's email
address is immecor@immecor.com, and the Company's world wide web home page is
http//www.immecor.com.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety and should be read
in conjunction with the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus gives retroactive effect
to a one for five reverse stock split of the Company's outstanding common stock
prior to this offering. See "Shares Eligible for Future Resale."
The Company
Immecor Corporation ("Immecor") designs, assembles, and markets
high-quality fault-tolerant specialty computers used in automated wafer defect
inspection systems for the semiconductor industry, high performance file servers
and workstations for networks, intra and internet file servers, and personal
computers, all based on Intel Pentium Pro (P6) processors and configured to meet
customer specifications. Immecor uses single, dual, and quad versions of the
processor, all of which are Microsoft Windows NT, Novell, Banyan, and Token Ring
compatible. Immecor also markets other brand-name personal computers and
accessories. The Company also provides related services to its customers,
including integration and staging services, configuration control, upgrading
existing systems and warranty support. The Company markets its products through
its own sales staff to large corporations, small businesses, local state and
federal agencies and individual end-users. See "Business" and "Products".
The Company objective is to become a recognized leader in the specialty
computer for the computer aided manufacture and defect review station market
place within the semiconductor industry.
Immecor Corporation is located in Rohnert Park, California. Rohnert
Park is located in Sonoma County, approximately 50 miles north of San Francisco.
Proposed Development
The Company's development goals for 1997-1998 are to (i) further
capitalize the Company through this offering, (ii) obtain strategic partners,
(iii) lower production costs through vendor and strategic partner relationships
and increased sales volume, (iv) increase distribution of personal computers
through companies that already have computer distribution channels to chain
stores and large government and corporate end users and (v) continue to build
the Company's management team.
The Offering
Common Stock Offered by the Company ... 750,000 shares (Maximum)
Common Stock Outstanding Prior to the Offering .... 2,421,000 shares 1
Use of Proceeds ................................. Proceeds from the
sale of the
shares will be used to fund
expansion and marketing, and
general working capital.
Note 1: There will be 1,921,000 shares outstanding in the event the Company's
action for rescission of the issuance of 500,000 shares related to a previous
reorganization agreement is successful. See "Legal Proceedings and Litigation".
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Summary Financial Data
The summary financial data for the years ended December 31, 1995, and 1996
have been derived from the Financial Statements and Notes to Financial
Statements, audited by L. V. Dorn II, independent auditor, whose report thereon
is also included. The summary financial data for the nine months ended September
30, 1996 and 1997 have been derived from unaudited interim financial statements
of the Company contained elsewhere herein and reflect, in Management's opinion,
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results of operations for these periods. Results of
operations for any interim period are not necessarily indicative of results to
be expected for the full fiscal year. The selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and Notes thereto
included elsewhere in this Prospectus.
Years ended Nine Months ended
December 31, September 30,
-1995- -1996- -1996- -1997-
(unaudited)
Statements of Income Data:
Revenue .......................................................... $2,010,094 $3,591,382 $2,827,988 $3,858,002
Cost of goods sold ................................................ 1,763,856 3,137,320 2,403,922 2,892,064
--------- --------- --------- ---------
Gross profit (loss) ...................................... 246,238 454,062 424,066 965,938
Operating costs and expenses:
Selling, general and administrative expenses 318,510 435,253 329,302 494,467
Depreciation 4,017 9,408 5,422 10,454
Insurance proceeds - (65,244) (65,244) -
------- ------- -------
Total operating costs and expenses 322,527 379,417 269,500 504,921
------- ------- ------- -------
Operating income(loss) .................................. (76,289) 74,645 154,566 461,017
Other income:
Interest income ......................................... 78 722 203 3,239
Interest expense ........................................ (770) (3,786) (2,264) (1,731)
---- ------ ------ ------
Income (loss) before for taxes .......................... (76,981) 71,581 152,505 462,525
Income taxes ..................................................... (16,100) 18,800 52,300 186,500
------- ------ ------ ------
Net income (loss) ...................................... $ (60,881) $ 52,781 $ 100,205 $ 276,025
December 31, September 30,
1996 1997
(unaudited)
Balance Sheet Data:
Working capital ............................................... $ 210,580 $ 455,588
Total assets .................................................. 647,802 1,164,843
Long term obligations ......................................... 0 13,639
Stockholders' equity .......................................... 268,788 554,803
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RISK FACTORS
An investment in the shares being offered by this Prospectus involves a
high degree of risk and should only be made by persons who can afford to risk
their entire investment. Prospective investors should consider carefully the
following risk factors, in addition to other information concerning the Company
and its business contained in this Prospectus, before purchasing shares.
The Company has a limited operating history.
At the effective date of this offering, the Company had an operating
history of approximately three years and nine months. During such period, the
Company has experienced sustained growth in its business but there is no
assurance that such growth will continue. If the Company's growth is sustained,
additional technical support and assistance facilities will be needed.
The share offering price was set by the Company.
Prior to this self-underwritten offering, there has not been any public
market for the Company's common stock; therefore, the initial offering price for
the shares was determined by the Company. Among factors considered in
determining the public offering price were the Company's results of operations,
its current financial condition and dependence upon the offering proceeds, its
future prospects, the state of the markets for its products, the experience of
management, the state of the economy in general and the demand for similar
securities considered comparable to the shares offered by the Company. See "Plan
of Distribution - Determination of Offering Price."
Dependence upon offering proceeds.
The Company will depend upon proceeds of the offering to expand it's
business and marketing activities and for general working capital purposes.
Because the offering is self-underwritten, there is no assurance that any or all
of the shares offered will be sold.
Investors will experience immediate dilution of book value per share.
Purchasers of shares in this offering will realize immediate substantial
dilution per share in the net tangible book value from the initial public
offering price. The per share dilution will be $4.63 if 250,000 shares are sold,
$4.23 if 500,000 shares are sold, and $3.90 if all 750,000 shares offered are
sold. See "Dilution."
A public trading market for the shares may not develop.
Prior to this offering, there has not been any public market for the
Company's Common Stock and there can be no assurance that a public market will
develop or be sustained. The Pacific Stock Exchange has confirmed the
eligibility of the shares for listing, pending the number of shares sold within
twelve months after the effective date of the Prospectus, and receipt of the
required documentation. If less than the required number of shares is sold and
approval for listing should be denied, an order matching service will be
established for persons wishing to buy or sell shares. However, there is
currently no agreement between the Company and a registered securities
broker-dealer. See "Plan of Distribution."
The share price may vary after this offering.
The price of the shares, after the completion of this offering, may
vary due to general economic conditions and forecasts, the general business
condition of the Company, the release of the Company's financial reports and
sales of shares outstanding prior to this offering.
Sales of existing shares could adversely affect the market price.
Sales of shares outstanding prior to this offering may adversely affect
the market price of the shares after this offering. All of the shares of common
stock outstanding prior to this offering are "restricted securities" and
therefore may not be sold in a public distribution except in compliance with the
registration requirements of the Federal Securities Act of 1933 (the "Securities
Act") or an applicable exemption under the Securities Act, including an
exemption pursuant to Rule 144 of the General Rules and Regulations under the
Securities Act. Upon completion of this offering, up to 66,000 of the presently
issued and outstanding shares owned by 14 non-affiliated shareholders are
eligible for resale under exemption pursuant to Rule 144. See "Shares Eligible
for Future Resale".
Penny Stock Regulation.
The Commission has adopted regulations that generally define a penny
stock to be any equity security that has a market price of less than $5.00,
except: (1) an equity security listed on NASDAQ; or (2) an equity security of
any issuer that has (i) net tangible assets of at least $2,000,000, if it has
been in continuous operation for three years; (ii) net tangible assets of at
least $5,000,000, if it has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the
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preceeding three years. If the Company's Common Stock falls below the price of
$5.00 per share, trading in the stock would be covered by Rule 15g-9 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Under such rule, broker-dealers recommending such securities to persons other
than established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Unless anexception is available, the
regulations require the delivery, prior to any transaction involving penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with it. If the Company's common stock were to become subject to the
regulations applicable to penny stocks, the market liquidity for the common
stock would be severely affected, limiting the ability of broker-dealers and the
ability of purchasers in this offering to sell their common stock in the
secondary market. There is no assurance that trading in the common stock will
not be subject to these or other regulations that would adversely affect the
market for such securities.
No minimum amount set for this offering.
Because there is no required minimum amount of shares to be sold in
this offering, all proceeds received will go directly to the Company, to be used
as described in "Use of Proceeds". If only a minimum amount were sold, the
result could be that all the proceeds were used to pay expenses of this
offering.
No dividends are intended.
It is the Company's intention to retain any earnings for use in its
business and pay no dividends on its common stock. See "Dividend Policy".
Voting control will remain with current management.
Immediately prior to this offering, the Company's management
beneficially owned 66.08% of the Company's common stock. After the completion of
this offering, if the maximum is sold, management will own 50.46% and will
effectively be able to control the Company. See "Principal Shareholders."
Cumulative voting for directors.
With limited exceptions not presently applicable to the Company, P708
of the California Corporation Code provides that every shareholder may cumulate
the shareholder's votes at any election of directors and give one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which the shareholder's shares are normally entitled, or may
distribute the shareholder's votes on the same principle among as many
candidates as the shareholder thinks fit. The most immediate effect of this
provision is to enable one or more minority shareholders to cumulate their votes
in order to obtain representation on the board of directors.
The current Board of Directors has the ability to issue "blank check" preferred
stock.
The Company's Certificate of Incorporation authorizes the issuance of
20,000,000 shares of "blank check" Preferred Stock with such designations,
rights and preferences as may be determined from time to time by its Board of
Directors. Accordingly, the Company's Board of Directors is empowered, without
further approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of the Common Stock. The Company has no current
plans to issue any shares of Preferred Stock; however, in the event of issuance,
the Preferred Stock could used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. See
"Description of Securities".
Loss of key personnel could interrupt progress.
The Company's business depends to a large extent on the services of
Jason C. Lai (Vice President, Sales and Marketing) and Nhon K. Tran (Vice
President, Engineering). Both are principal stockholders and helped develop the
Company to its present position. Further progress is dependent upon their
continued commitment. The Company maintains a one million dollar key-person life
insurance policy on Nhon K. Tran and an employment contract with Jason C. Lai
that either party may renew or cancel as circumstances may require at the end of
each anniversary date (see "Management - Employment Agreements".
Present customer base consists of major customers only.
The Company's present business is based on a small number of relatively
large transactions. The majority of the Company's total sales in 1995, 1996, and
during the first nine months of 1997 were made to large corporate customers, one
of which integrates the Company's core product into its own. These sales are not
subject to long term contracts, but rather depend upon the quality of the
Company's products and ability (i) to comply with these customer's technical
specifications and (ii) to provide the funds necessary to finance the purchase
of the materials needed for the assembly of the product and to extend credit
terms of 30 to 60 days net. In the recent past the Company has had difficulty in
attracting new corporate customers because of capital requirements and
limitations in its cash flow. For sales to new customers the Company currently
requires cash on delivery or substantial down payments at order time, a tactic
that benefits the Company's cash flow requirements but prevents the Company from
expanding its business and increasing sales volume and profits. Despite these
problems, the Company is
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currently expanding its customer base to lessen the effect of having a
small number of major customers only, the loss of anyone of which would
adversely affect the Company's business (see "Management Discussion and Analysis
of Financial Condition and Results of Operations" and "Financial Statements -
Note 7").
Fluctuations in cost of computer components.
The Company purchases the various components used in the assembly of
its computers from domestic and foreign manufacturers and distributors. Supply
and prices can be affected by multiple factors, such as under- or over- supply,
or the introduction of new technology, making components and inventories based
on older technologies obsolete. The Company's management practices
"just-in-time" inventory controls and believes that it will be able to assess
and to react to price fluctuation indicators based upon its past experience in
this market.
Uncertain market.
Although the Company believes that the products and services which it
has developed and which it is currently developing will be commercially
marketable, there can be no assurance that such products and services will be
commercially accepted by those companies and individuals which the Company
believes presently constitute the market. The Company intends to develop new
computer products for semiconductor manufacturing processes and the emerging
wireless communications technology and to seek new markets for such products in
addition to the existing markets, but there can be no assurance that such
developmental and marketing efforts will be successful.
Competition consists of large business entities.
The Company conducts in-depth research on the potential market for the
products it develops, prior to actual production and sales by introducing pilots
to existing customers; however, there can be no assurance that any of the
Company's products will be able to compete on a technological or cost basis with
other similar products which may be available before or after the time the
Company's products are introduced into the market. Large business entities with
greater financial strength and greater technical production capacity than the
Company are proactive competitors in the computer products field and especially
in the semiconductor wafer fabrication and the emerging wireless communications
technology segments of the overall market. These business entities may develop
systems and/or products which are competitive with, or superior to, the
Company's products, or which can be marketed more effectively.
Planned management of growth may create risk.
The Company plans and will make acquisitions of other companies in the
future and may use a portion of the net proceeds received by the Company from
this Offering to pay for legal and accounting expenses associated with due
diligence to do so. Significant uncertainties accompany any acquisition plans.
The actual acquisition of another company and its integration, include, without
limitation, the possibility of understated incurred, but not yet reported, costs
and contingent liabilities. Due to such uncertainties, any acquisition could
have an adverse effect on the Company. Also, as the so-called "Information Super
Highway" develops over the next few years, so will competition for acquisitions
of emerging promising high-technology companies intensify. There can be no
assurance that the Company will be successful in completing acquisitions in the
future. The Company's future results will be affected by its ability to acquire
technology companies with new products or significant annual sales volumes
complementing the Company's business strategy, and by its ability to manage its
anticipated growth.
Additional capital may not be available for the Company to carry out its plans.
The proceeds of this offering are intended to achieve certain
objectives. See "Use of Proceeds." More capital may be required for those
purposes than the Company will have. See "Capitalization." Changes in the
Company's objectives, to take advantage of opportunities or to meet competitive
challenges, may require additional capital. Raising additional funds through
issuance of equity securities will result in dilution to existing shareholders.
Debt financing would require interest expense and principal repayments, reducing
the Company's net cash flow and earnings potential. If required funding cannot
be secured, the Company may be forced to limit growth. See "Business Strategy,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Liquidity and Capital Resources."
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USE OF PROCEEDS
The Company has no minimum amount of shares to be sold in this
offering. The net proceeds available to the Company from the sale of the shares
in this offering are estimated to be approximately $1,117,500 if 250,000 shares
are sold, $2,430,000 if 500,000 shares are sold and $3,742,500 if 750,000 shares
are sold.
The Company expects to use the net proceeds for the purposes outlined
below. If the Company raises less than the maximum amount of this offering, it
intends to prioritize expenditures as follows: first use funds from the offering
for working capital and corporate needs, second increase sales and assembly
capacity, third improve existing products and develop new products and fourth
pursue strategic acquisitions to enhance the Company's position in its industry.
250,000 500,000 750,000
Shares Shares Shares
1. Increase of assembly capacity $ 200,000 17.9% $ 300,000 12.3% $ 500,000 13.4%
2. Increase demonstration equipment
and wholesale inventory 300,000 26.8% 600,000 24.7% 900,000 24.0%
3. New product development 200,000 17.9% 250,000 10.3% 500,000 13.4%
4. Working Capital
and General Corporate Purposes 417,500 37.4% 1,280,000 52.7% 1,842,500 49.2%
------- ---- --------- ---- --------- ----
Total net proceeds $ 1,117,500 100.0% $ 2,430,000 100.0% $ 3,742,500 100.0%
------------ ----- ----------- ----- ----------- -----
None of the net proceeds of this offering will be used to pay existing
debt as the Company is virtually debt-free.
Management does not anticipate changes in the proposed allocation of
estimated net proceeds of this offering but reserves the right to make changes,
if management believes those changes are in the best interests of the
Company.
DIVIDEND POLICY
The Company has not declared or paid dividends since its inception,
presently intends to retain any earnings to facilitate growth and does not
anticipate paying cash dividends in the foreseeable future. The Company's future
lending agreements may also prohibit the payment of dividends.
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CAPITALIZATION
The following table sets forth the actual capitalization of the Company
on September 30, 1997 and also an adjusted capitalization of the Company as of
September 30, 1997, to reflect sale of 250,000 shares, 500,000 shares, and the
maximum 750,000 shares offered hereby at the public offering price of $5.25 per
share and the application of the estimated net proceeds. The Company has no
minimum amount of shares to be sold in this offering:
September 30, As Adjusted September 30,
-1997- -1997-
250,000 500,000 750,000
Actual Shares Sold Shares Sold Shares Sold
Short-term debt:
Notes payable: $ 61,221 $ 61,221 $ 61,221 $ 61,221
Advances from Stockholders: $ 1,261 $ 1,261 $ 1,261 $ 1,261
Total short-term debt: $ 62,482 $ 62,482 $ 62,482 $ 62,482
Long-term debt:
Total long-term debt, less current maturities: $ 13,639 $ 13,639 $ 13,639 $ 13,639
Shareholders' equity:
Common Stock, no par value,
50,000,000 shares authorized
2,421,000, 2,671,000, 2,921,000, and 3,171,000
shares outstanding, respectively: $ 320,500 $1,438,000 $2,750,500 $4,063,000
Preferred Stock, no par value,
20,000,000 shares authorized
none outstanding - - - -
Retained earnings (deficit): $ 224,303 $ 224,303 $ 224,300 $ 224,303
Total shareholders' equity: $ 544,803 $1,662,303 $2,974,803 $4,287,303
Total capitalization $ 620,924 $1,738,424 $3,050,924 $4,363,424
<FN>
Note 1: There will be 1,921,000 shares outstanding as of September 30, 1997 in
the event the Company's action for rescission of the issuance of 500,000 shares
related to a previous reorganization agreement is successful. See "Legal
Proceedings and Litigation".
</FN>
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DILUTION
On September 30, 1997 the Company had a net tangible book value of
$383,522, or $0.16 per share. The Net tangible book value per share is equal to
the Company's total tangible assets, less its total liabilities and divided by
its total number of shares of common stock outstanding. After giving effect to
the sale of shares being offered, at the public offering price of $5.25 per
share, and the application of the estimated net proceeds, the pro forma net
tangible book value of the Company as of June 30, 1997, would have been
$4,169,127 or $1.31 per share if 750,000 shares (maximum) were sold, $2,856,627
or $0.98 per share if 500,000 shares were sold and $1,544,127 or $0.58 per share
if $250,000 shares were sold. The following table illustrates the per share
dilution in net tangible book value per share to new investors:
250,000 500,000 750,000
Shares Shares Shares
Public Offering price per share $5.25 $5.25 $5.25
Net tangible book value per share
on September 30, 1997 $0.20 $0.20 $0.20
Increase in net tangible book value per share
attributable to new investors $0.42 $0.82 $1.15
Pro forma net tangible book value per share
as of Sept. 30, 1997, after this offering $0.62 $1.02 $1.35
Net tangible book value dilution per share
to new investors $4.63 $4.23 $3.90
The following table sets forth on a pro forma basis as of September 30,
1997 the difference between existing shareowners and new investors purchasing
shares in this offering, with respect to the number of shares purchased, the
total consideration paid and the average price paid per share, at the maximum of
750,000 shares, at 500,000 shares and at 250,000 shares:
Average
Price
Shares Purchased Total Consideration Per
Number Percent Amount Percent Share
250,000 Shares Sold
Existing Shareholders 2,421,000 90.64% $ 320,500 19.63% $0.13
New Investors 250,000 9.36 1,312,500 80.37 5.25
Total 2,671,000 100.00% $ 1,633,000 100.00%
500,000 Shares Sold
Existing Shareholders 2,421,000 82.88% $ 320,500 10.88% $ 0.13
New Investors 500,000 17.12 2,625,000 89.12 5.25
Total 2,921,000 100.00% $ 2,945,500 100.00%
750,000 Shares Sold
Existing Shareholders 2,421,000 76.35% $ 320,500 7.53% $ 0.13
New Investors 750,000 23.65 3,937,500 92.47 5.25
Total 3,171,000 100.00% $ 4,258,000 100.00%
NOTE: The information and calculations disclosed regarding dilution do
not consider the changes that would result subject to the outcome of a pending
law suit. See "Legal Proceedings and Litigation".
- 10 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Financial
Statements and Notes thereto, "Capitalization" and "Selected Financial Data"
appearing elsewhere in this Prospectus. Operating Data presented in this
discussion are unaudited.
Overview The Company designs and assembles highly specialized computer
systems used in semiconductor manufacturing processes in addition to personal
computers customized to specifications by business and individual users. The
necessary components are purchased from domestic and foreign manufacturers and
distributors. The Company markets the finished product through its own sales
force. The sales force is divided into Corporate and Retail.
Corporate solicits requests for proposals from manufacturers in need of
specialty computers for various computer aided manufacturing processes in
quantity, installs the prototypes at the customers site for various customer
related evaluation processes that include hardware components and operating and
application software changes until the computer system conforms to the customers
specifications and expectations so that letters of compliance from the various
domestic and international safety standard agencies can be obtained, if the
computer becomes part of a product to be sold outside the United States. This
process may consume several weeks and even months. During the process the
personnel involved becomes a team and develops understanding about the technical
problems encountered, and when the process is completed the customer's
satisfaction is guaranteed and the Company's profit margin is not diminished by
excessive after sale service calls and employee technical expertise is enhanced.
These sales are made on a credit basis with net 15, 30, 45, and 60 day terms,
depending upon the size of the sale, past payment experience, and other Company
credit policy criteria.
Retail advertises various personal computer systems in local newspapers
and displays these computer systems in the Company's showroom, where customers
can test the various systems and can decide upon the features they want. These
sales are made on a 25% down payment policy with the remainder due before
delivery. Currently assembly, 72-hour burn-in and testing consumes approximately
four days with delivery occurring on the fifth day. Delivery and installation of
the personal computer at the end users site is free of charge within a 25 mile
radius of the Company's facilities. Outside this radius a $25.00 delivery and
installation charge is billed.
Net sales are net of product returns. When a product built to customer
specifications is returned, the Company charges a 15% restocking fee. The
Company grants all its customers a thirty (30) day money back guarantee on all
computer systems that do not perform to customer specifications.
All personal computers carry a one year free labor warranty covered by
the Company, and a one to three year limited warranty on hardware components
covered by the respective manufacturers, with free on-site service during the
first thirty days following purchase. In conjunction with personal computer
sales, the Company sells one, two, and three year service contracts providing
depot or on-site maintenance. The Company earns a modest commission by selling
these service contracts for a major service provider. In addition, the Company
provides regular computer upgrade services to individuals and businesses at its
maintenance facility. Corporate customers may employ Company technicians on a
temporary basis.
The Company's cost of sales consists of the purchase price of the
various computer components going into the product, production labor and related
production overhead expenses, and after sale service calls. The Company intends
to negotiate component purchasing contracts directly with manufacturers rather
than with vendors as soon as large scale assembly becomes possible in order to
take advantage of manufacturers discounts. The Company has no contractual
relationship with any of its vendors.
The Company's growth strategy is to increase net sales by augmenting
its marketing and sales force, by increased advertising in technical
publications specific to the Company's specialty computers, and by increasing
distribution of personal computers through retail and wholesale organizations.
The Company will make the development of specialty computers for computer aided
manufacturing (CAM) and automated defect classification (ADC) for the
semiconductor industry its core business. The Company plans to acquire
technology companies with new products under development or with significant
annual sales volumes complementing the Company's business strategy.
- 11 -
Financial Condition and Results of Operations:
The following table sets forth, as a percentage of net sales, certain
items included in the Company's Statements of Income and Retained Earnings (see
Financial Statements and Notes thereto elsewhere in this Prospectus) for the
periods indicated:
Years Ended Nine Months Ended
December 31, September 30,
-1995- -1996- -1996- -1997-
Statements of Income Data:
Net sales......................................... 100.00% 100.00% 100.00% 100.00%
Cost of sales .................................. 87.75 87.36 85.00 74.96
Gross profit ..................................... 12.25 12.64 15.00 25.04
Depreciation and amortization .................... 0.20 0.26 0.19 0.27
Selling, general and administrative expenses ..... 0.00 (1.82) (2.30) 0.00
Total operating costs and expenses ............... 16.05 10.56 9.53 13.09
Operating income (loss) .......................... (3.80) 2.08 5.47 11.95
Interest income (loss) ........................... 0.00 0.02 0.01 0.08
Interest expense.................................. (0.04) (0.11) (0.08) (0.04)
Income (loss) before income taxes................. (3.83) 1.99 5.39 11.99
Income Tax ...................................... (0.80) 0.52 1.85 4.83
Net income (loss) ................................ (3.03) 1.47 3.54 7.16
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Net sales. Net Sales increased by $1,581,288 or 78.67% from $2,010,094
in 1995 to $3,591,382 in 1996. Sales to major customers who accounted for over
10% of the Company's sales in 1995 decreased from $1,473,097 in 1995 to
$1,413,168 in 1996.
Gross profit. Gross Profit increased, as a percentage of net sales,
from 12.25% in 1995 to 12.64% in 1996, in a market characterized by heavy price
competition. Downward pressure on component prices also contributed to this
improvement.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased significantly as a percentage of net sales
from 15.85% in 1995 to 12.12% in 1996. This decrease in expenses as a percentage
of net sales was primarily due to increased sales volume and improvements in
operating efficiency.
Flood insurance proceeds. Flood insurance proceeds of $65,244 in 1996
is fully described in Note 8 of the Financial Statements included elsewhere in
this Prospectus.
Nine Months Ended September 30, 1996 Compared to the Nine Months Ended September
30, 1997
Net sales. Net Sales increased by $1,030,014 or 36.42% from $2,827,968
for the nine months ended September 30, 1996 (the "1996 period") to $3,858,002
for the nine months ended September 30, 1997 (the "1997 period"). The net sales
increase resulted primarily from increased demand from major customers
responsible for the majority of the Company's sales for each period and
fluctuations from period to period are primarily influenced by this constraint
(see Note 7 to Financial Statements). Sales to these corporate customers for
high-end specialty computers have continued to increase steadily since the
Company has been able to meet strict shipping deadlines and to maintain high
quality control standards. Firm orders on the books of the Company for the
remainder of 1997 indicate that this trend will continue. Nevertheless, the loss
of any one of these major customers would have a material adverse effect on the
Company's financial position and results of operations.
Gross profit. As a percentage of net sales, gross profit increased from
15.00% in the 1996 period to 25.04% in the 1997 period because of higher gross
profit margins realized for high-end customized specialty computers.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased as a percentage of net sales from 11.64% in
the 1996 period to 12.82% in the 1997 period. The increase in expenses as a
percentage of net sales was primarily due to hiring of additional employees,
increased compensation levels for employees and higher occupancy cost offset by
increased sales volume.
- 12 -
Liquidity and Capital Resources
On September 30, 1997 and December 31, 1996, the Company had a working
capital of $455,588 and $210,580, respectively. The increase in working capital
was primarily due to improved profitability offset by offering costs and
repayments of notes and shareholder advances.
The Company had net cash provided by operating activities of $5,235 in
1996 and net cash used by operating activities of $225,034 in 1995. Net cash
provided by operating activities was $57,595 in the nine months ended September
30, 1997, and $55,418 for the same period of 1996. The increase in net cash
provided by operating activities from 1995 to 1996 consisting primarily of a net
income of $52,781 in 1996 versus a net loss of $60,881 in 1995, and no
additional provisions for losses or accounts receivable in 1996 and decrease in
deferred taxes in 1996 compared with 1995. The increase in net cash provided by
operating activities for the nine months ended September 30, 1997 compared with
the nine months ended September 30, 1996 consisted primarily of increased
profitability and higher accounts payable in 1997, offset by higher accounts
receivable and additional offering costs in 1997.
The Company had net cash provided by financing activities of $64,688 in
1996 compared to $167,491 in 1995. This decrease was primarily due to the
collection in 1995 of promissory notes in the amount of $170,000 on sale of
common stock purchased by two related parties in December of 1994 which did not
reoccur in 1996, and which was partially offset by additions to notes payable
and shareholder advances in 1996 less offering costs which occurred in 1996. Net
cash used by financing activities was $48,649 for the nine months ended
September 30, 1997, compared to net cash provided by financing activities of
$30,162 for the nine months ended September 30, 1996. The primary reason for the
change was increases in notes payable and shareholder advances in 1996 compared
with significant repayments of notes payable and shareholder advances in 1997.
In addition, additional offering costs were paid during the nine months ended
September 30, 1997 and not during the nine months ended September 30, 1996.
The Company's primary capital needs are to fund anticipated working
capital and general corporate purposes to further its growth strategy, which
includes increasing its net sales, increasing its marketing and sales force,
increasing distribution channels, introducing new products, and the continuing
improvement of existing product lines.
The Company believes that the net proceeds from this offering, which in
the worst scenario might be zero because the offering is self-underwritten,
together with the Company's $250,000 line of credit, the terms of which are
described in Note 4 of the Financial Statements elsewhere in this Prospectus,
the approximately $500,000 credit extended to the Company by its vendors, and
the funds that may be generated from operations, will be sufficient to fund the
Company's anticipated working capital and general corporate purposes
requirements of approximately $417,500 for a 12 month period (see "Use of
Proceeds").
Federal and state net operating losses carryforward
The Company has available for carryforward for federal income tax
purposes of approximately $63,900 at December 31, 1996 and approximately $44,900
for state income tax purposes. These carryforwards expire as described in Note 9
to Financial Statements included elsewhere in this Prospectus..
Recent Accounting Pronouncements During October of 1995, the Financial
Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which established a fair value-based method of
accounting for stock-based compensation plans. The Company currently has no
stock-based compensation plans but plans to adopt SFAS No. 123 in the future.
Inflation
The Company practices just-in-time inventory purchases to prevent
losses from industry-wide component price reductions. As such the Company does
not foresee any material inflationary trends for its components.
- 13 -
BUSINESS
Company History
The Company was founded and incorporated on July 9, 1993 under the laws
of the State of Delaware. The original purpose of the Company was to develop a
business entity which would comprise the full spectrum of computerized
technologies and assorted services. The original founders' strategy was to
acquire and to consolidate a number of established computer related businesses
in order to reach a combined substantial annual sales volume and to use expected
profits to develop marketable products. In December of 1993 the original
founders decided to simplify their business plan, to retain the Company's
original name and to incorporate a new Company in the State of California on
January 14, 1994. Through a tax free exchange of common stock the two companies
were merged immediately thereafter.
In order to expand its expertise and business operations into the
computer networking area, on March 1, 1994, the Company entered into a Plan of
Reorganization and Merger (the "Merger Agreement") with Advanced Network
Communications, Inc. ("ANC"), a company which claimed to have extensive
experience, expertise, ongoing business, and good will in computer networking.
Pursuant to the Merger Agreement, the Company issued a total of 500,000 shares
of its common stock (as adjusted) in equal amounts to James Chu ("Chu"), Fred
Pao ("Pao"), and Grace Lee ("Lee") in exchange for all of the issued and
outstanding shares of capital stock of ANC. The Company subsequently learned
that a number of the material representations on which it relied in executing
the Merger Agreement were false and that other material facts about ANC were not
disclosed prior to the consummation of the Merger Agreement. The Company also
learned that Chu, Pao, and Lee conspired to obtain and use positions as officers
and directors of the Company for their own benefit and to the detriment of the
Company, including the making of unauthorized payments of Company funds to Lee,
Pao, and other individuals and companies (see also "Legal Proceedings and
Litigation").
In order to grow more rapidly the Company attempted additional
acquisitions of two medium sized computer retailers. Due diligence revealed
unacceptable debt ratios and negotiations were halted.
Industry Background
During the last decade, the PC industry has grown rapidly as increased
functionality combined with lower pricing have made personal computers valuable
and affordable tools for business and personal use. Recent advances in the
technology, including the development of high-speed read-write CD-ROM drives,
high-speed data transmission hardware, multimedia, graphics and animation, have
increased the potential market dramatically. This trend has been further
augmented by the introduction of faster microprocessors and the introduction of
high performance chipsets with higher clock speeds such as the Power PC
architecture, new caching techniques and low power consumption features. While
the corporate market has become somewhat saturated with workstations for word
processing, data lookup and data formatting, new major opportunities present
themselves, from work-at-home to inverse multiplexing, from videoconferencing
and audio broadcasting to remote disaster recovery and worldwide networking,
with some of these features and activities beginning to be integrated into the
Internet, with wireless communications technologies, and with many associated
opportunity niches ready to go mainstream.
Specialty computers that must meet sophisticated user written software
and advanced technologies requirements are beginning to play a larger role in
these developing business services markets. Another major market segment is
developing on the Internet and in home/education systems. This market segment
offers major opportunity now with new software releases and new hardware
(particularly multimedia packages and CD-ROM technology) and is no longer
limited to the computer-adept buyer, but is being driven by the emergence of a
younger generation of computer-literate juveniles and young adults.
In addition, many older machines are no longer adequate to deal with
state-of-the-art software, and many existing computer owners will be upgrading
their equipment over the next few years. As much as 40 to 50% of 1997 sales and
sales over the next five years will be replacements of existing equipment. A
very high number of the currently installed computer user base consists of older
486 and lower version PC's.
Industry Growth Pattern Observations
There are three different growth patterns employed by the Company's
competitors, which are followed by most computer manufacturing and computer
sales organizations. Each has its own set of risks and rewards:
The Innovator Model: This model requires significant capital and strong
commitment to R&D and innovation, and can only be followed by the largest
players. Several large manufacturers follow this pattern. Retooling of large
centralized assembly plants with complementing parts inventories and staffing
retraining requirements, together with significant capital outlay are associated
with this model whenever existing technology changes. These models are also
technology bound, are
- 14 -
marketed at runs of 100,000 or more copies at predetermined profit
margins that require hardware components to be manufactured inexpensively and en
masse for that model alone, making integration of new technologies that come
along nearly impossible or very expensive.
The Customer Access Model: This model requires focus on the ability to
aggregate and configure computer products to meet specific but average needs.
Midsize computer manufacturers follow this pattern, either by association with
larger manufacturers and assemblers or by maintaining their own sizable
facilities with challenges similar to the Innovator Model, with the exception
that integration of later technologies is possible giving these models a longer
life span.
The Technology Manager Model: This model targets customer areas where
higher margin specialty software and advanced technologies meet specific
application requirements. The assembly of these models require up-to-date
knowledge of the customer's technological needs and matching expertise of the
supplier in the selection of technology and software available or forthcoming,
an approach that represents high-risk proprietary resources and financial in-
vestments up-front by the partners to such projects but also a high-return
pattern if large volume sales, between 50 and 500 copies, materialize.
Market Observations
The Innovator Model is always exclusively marketed in large quantities
to small and large businesses with low computing power workstations for word
processing, data lookup and data formatting via office product chains and other
distributors "moving boxes" without providing satisfactory after-sale customer
services. This model is also sold to individual end users with no need for
special usage computing power and who are able to depreciate cost in a very
short time. This model is relatively high priced ranging from $2,000 to $3,000
because of certain featured innovations, and at the end of its cycle is sold at
discounted prices while the newer model becomes available.
The Customer Access Model is marketed to end users with specific but
average needs. Almost all independent computer equipment dealers who assemble
their own customized computers or who have them build by small computer assembly
houses sell this model for business and home use. Integration of later
technologies, so called "upgrades" is possible giving dealers repeat sales not
only for hardware components but also for software upgrades and troubleshooting
services. This model is more realistically priced ranging between $999 to $2,500
(depending upon configuration) because it must compete in the market with the
Innovator model and because it must afford upgradeability and hold its value
longer. In most cases, after-sale customer services are adequate.
The Technology Manager Model is marketed to users with specific needs
in all areas of scientific research and in specific areas, e. g., architecture,
construction, materials design, product development and computer aided
manufacturing. This market requires financial commitment to superior up-front
customer service including on-site technical support and the provision of
equipment for evaluation and demonstration purposes. Once the quality of the
product has been proven and satisfactory customer relationship has been
established, this market is highly profitable if the quality of the product is
maintained even though newer technologies might have to be integrated at a later
time. Depending upon configuration, this models price ranges from $10,000 to
$35,000 and up.
Company Strategy
The Company's strategic plan encompasses three areas of endeavor: 1)
design and develop products for emerging technology improvements in the
integrated circuit manufacturing process, 2) increase retail sales of high-end
computers and at the same time begin entry into the wholesale market, and 3)
make acquisitions of technology companies that fit or complement the Company's
own corporate profile and efforts to enter the fibre optics and wireless
communications market segments.
Retail and Wholesale Market
The Company has chosen the Customer Access Model for its retail and
wholesale business strategy. The Company is totally committed to customer
satisfaction and currently provides this model at a high value, low cost, almost
commodity like prices, with the largest degree of current and future technical
customizing possible to the consumer. Only nationally known brand name
components are used in its assembly. Assembly line improvements and the increase
in working capital accomplished with this offering will result in even higher
quality and lower prices with better profit margins for both retail and
wholesale operations. The Company currently assembles this model at its own
facilities and as sales volume increases will assemble at small independently
owned companies capable of following the Company's requirements as to
technological advances and price changes rapidly at competitive cost and
acceptable profit margins to the Company. These companies would be required to
be responsible for their own risk management and product development and could
become candidates for acquisition if they complement the Company's business
plans.
- 15 -
Corporate Market
The Company has chosen the Technology Manager Model for its corporate
customers that utilize the model in various configurations for their computer
aided manufacturing efforts. The most promising opportunity for the Company is
its recent break-in into computer aided manufacture of automatic reticle,
photomask defect inspection, wafer level defect inspection, line width and
registration systems with customer proprietary software integrated to a level
that supports wafer yield management. To truly manage yield, the collected data
must be stored, analyzed, interpreted, and then shared among the fab areas it
affects. Currently the Company's machines utilized in this process are
pre-assembled at the Company's facilities, installed and tested at the customers
site. In the future many of the necessary pretests will be accomplished at the
Company's facilities when the planned mini-environment designed to provide
adequate conditions for highly sensitive photo-optical and mechanical equipment
has been completed. Company management understands that the number one industry
requirement namely that computer suppliers provide cost effective products that
are based on extendible technology. Cost of ownership and the ability to satisfy
customer delivery requirements are critical ingredients in the selection process
for advanced computer equipment. It is the intention of the Company to make this
business area its core business, to train its essential employees in all facets
of the involved mechanical engineering and associated software development tasks
and to make every effort to broaden its presence and to increase sales
substantially in this market by participating in the long-term challenge for
semiconductor manufacturers towards transition from 8-inch wafers and 0.5 micron
to 12-inch wafers and "sub 0.2-micron" line geometrics.
Major Customers
The Company's present business is dependent upon three major customers.
Sales to these three customers individually accounted for 46% of the Company's
total sales during the nine months ended September 30, 1997. Sales to the
largest of the three major customers accounted for 63% of the Company's total
sales during the nine months ended September 30, 1997. The loss of any one of
these three major customers would have a material adverse affect on the
Company's financial position and results of operations.
In the recent past the Company has had difficulty in attracting new
corporate customers because of capital requirements and limitations in its cash
flow. In order to improve its customer base and to extent trading terms to
potential new clients the Company applied for and in July of 1997 the Company
received approval for a $250,000 line of credit to finance short-term working
capital needs. A major supplier of the Company increased the Company's trading
credit to $300,000. Since its improved financial position the Company added one
large corporate customer and one of smaller size. The Company has allocated 10%
of its current working capital to its efforts to attract new corporate customers
and plans to maintain this allocation throughout of 1998. Upon succesful
completion of this effort, the Company may increase its efforts accordingly.
Sales Force
The Company's retail sales force consists of three full-time salaried
employees who utilize printed advertisements in local newspapers, radio
announcement by local radio stations, television advertisements in specific
areas, a showroom at the Company's headquarters, and various brochures,
pamphlets and other printed materials. Depending upon the funds raised with this
offering, the Company will augment its retail sales force accordingly.
The Company's corporate sales force consists of two full-time salaried
employees who make contact with potential corporate customers. Upon contact the
sales staff is supported by one or two technical employees and if necessary by
the Company's CFO if financial arrangements need to be negotiated. Depending
upon the funds raised with this offering, the Company will augment its corporate
sales force accordingly.
Products
The Company purchases from various sources computer components which
are protected by various basic patents owned by others and which are produced by
licensed domestic and foreign manufacturers under their own trademarks in the
United States or abroad. The Company does not own any patents or trademarks that
protect such components and the cost for research and development of these
components are born by the patent holders and the various manufacturers. The
Company at this time is not involved in R&D for new components. The cost of
design and development of various computer configurations the Company uses in
its marketing efforts are minimal and have no material impact upon the cost of
doing business.
The Company uses these components to design and assemble Pentium based
personal computers configured for use by individuals, high-end personal
computers configured for use by small business, medium and large network servers
with associated workstations for general networks, and specialty computers
designed and configured to customer specifications at negotiated prices
depending upon configurations.
The Company also sells computer components, computers, file servers,
printers and scanners assembled by Compaq, Digital Equipment, Epson, Hewlett
Packard, IBM, MicroSoft, NEC, Novell, Toshiba, 3COM, and others. The names of
the companies listed are also trademarks.
The markets for the Company are individuals, small, medium and large
merchants, local government agencies, school districts, colleges and
universities, and large corporations.
Computer Associated Business Services
The Company will continue to extend efforts in the area of wireless
data communications services in the northern part of California. This effort
will consist mostly of information gathering of what is being done in this
market to enhance the Company's expertise in this area and to position it for
the future alignment with or the acquisition of a wireless services provider
with a plant and customer base. The cost for this effort is included in the
amount allocated for New Product Development and is estimated to be minimal and
will be funded with income from operations or from the proceeds of this offering
if sufficient funds are raised. If insufficient funds are raised the Company
will abandon this venture.
- 16 -
Research and Products under Development
The market serviced by the Company is characterized by rapid
technological change. Accordingly, the Company's product and process development
programs are devoted to the development of new computer configurations,
including new generations of products for existing markets, enhancements and
extensions of existing products engineering for specific customers. The Company
believes that its future success will depend, in part, upon its ability to
successfully introduce and market new and enhanced products and processes which
satisfy a broad range of customer needs and achieve market acceptance.
Future Acquisitions
The Company's basic acquisition strategy is to first concentrate on
small companies involved in distribution, and then to complement its operations
by acquisitions through the entire spectrum of small companies involved in
computer related services, i.e., motherboard assembly, parts construction,
software development, maintenance services, environmental services, and in
research and development of new computer products. In this respect, the Company
has entered into preliminary discussions with Advanced Vision Technologies, Inc.
("AVT"), a California corporation, organized to develop, produce, and market
vision technology hardware and software for multimedia computers capable of
converging with common television sets and also capable of providing
high-resolution video conferencing via the Internet. While no formal agreement
has been consummated, in the event results of the Company's evaluation of the
performance of ATV's products are satisfactory, the Company and ATV intend to
negotiate mutually agreeable terms and conditions for the Company's acquisition
of AVT.
Competition
There are many company's with unlimited financial resources designing,
manufacturing, assembling, distributing and selling personal and specialty
computers with large research and development budgets and for the Company to
successfully compete in the market it has chosen it must constantly provide
lower pricing for high-end computer configurations and faster service response
times than available from competitors.
Company Location and Facilities
The Company's corporate headquarters are located at 100~105
Professional Center Drive, Western Business Park, Rohnert Park, California,
where the Company maintains 6,000 square feet of office, showroom and assembly
space. The Company intends to expand into 4,000 additional square feet of
available space in the same building to accommodate a second assembly area for
increased production, a research and testing facility for the Company's fibre
optic and wireless data transmission switching development efforts, and if
sufficient funds are raised, the Company plans to replace the recently
established mini environment with a clean-room designed to provide adequate
conditions for highly sensitive equipment as per industry standards. The cost
for the expansion plans are included in the cost indicated for "Increase of
Assembly Capacity" and New "Product Development" in "Use of Proceeds".
Employees
As of September 30, 1997 the Company had 11 full time and 4 part time
employees. The Company hires temporary employees for nontechnical projects.
Legal Proceedings and Litigation
After execution of the Merger Agreement with ANC described in
"Business", above, the Company learned that a number of the material
representations made by ANC in order to induce the Company to enter into that
agreement were false; the Company further learned that Chu, Pao, and Lee had
conspired to use and had used their positions as officers and directors of the
Company to make unauthorized payments of Company funds to Lee, Pao, and another
individual and to take other actions for their own benefit which were
detrimental to the best interests of the Company. As a result, on September 11,
1996, the Company filed a lawsuit in the Superior Court of California, Santa
Clara County, Case Number CV760682, against Chu, Pao, and Lee seeking rescission
of the issuance of 500,000 shares of the Company's common stock, return of
Company funds in the approximate amount of $98,000, recovery of punitive damages
in the amount of $250,000, and for other appropriate relief.
While the Company intends to vigorously pursue its claim against Chu,
Pao, and Lee, it is unlikely that the action will come to trial before mid-1998
and there can be no assurance as to the outcome of the litigation.
Although the Company is the Plaintiff and does not incur the risk of an
adverse judgment, the litigation costs of the action are material to any
individual interim period or fiscal year and will be material to the outstanding
share balance. The Company's counsel has estimated the litigation cost to be
less than $10,000 but there is no assurance as to what the real cost could
amount to. See also "Note 6 of Financial Statements".
- 17 -
Qualified Small Business Stock
IRS Code Section 1202(a) in the 1993 Federal Tax Law (the "Omnibus
Budget Reconciliation Act of 1933") which became effective in August 1993,
provides as follows:
A none corporate taxpayer can exclude 50% of any gain from the sale or
exchange of qualified small business stock held for more than five years. Gain
eligible for the 50% exclusion may not exceed the greater of $10,000,000 or 10
times the taxpayer's basis in the stock. The remaining gain is capital gain,
taxed at the maximum rate.
The stock must have been issued after August 10, 1993, and acquired by
the taxpayer at its original issue (directly or through an underwriter) in
exchange for money or property, or as compensation for services provided to the
corporation.
A "qualified small business" is a domestic C corporation with aggregate
gross assets that do not exceed $50,000,000 as of the date of Issuance. All
corporations that are members of the same parent-subsidiary controlled group are
treated as one corporation in determining whether the small business
requirements have been met.
At least 80 percent, by value, of the corporation's assets must be used
in the active conduct of one or more qualified trades or businesses. The
performance of services in the fields of law, engineering, architecture, etc.,
is not qualified trade or business, nor are the hospitality, farming, insurance,
financing or mineral extraction industries. However, a Specialized Small
Business Investment Company, licensed under section 301(d) of the Small Business
Investment Act of 1958, will meet the active business test.
The Internal Revenue Service has not yet issued Regulations or other
interpretations of this law, and it is uncertain how this new tax provision will
apply to the Company and to investors in its common stock, and because
qualifying for the benefits of the tax provision will depend in part on future
events about which the Company can provide no assurances, the Company makes no
representations as to the availability of the benefits of this provision to
prospective purchasers of its common stock. The Company intends to submit
reports to the Internal Revenue Service and to the Company's shareholders as may
be required under the law for use of this exclusion.
Potential investors are advised to consult their own tax counsel for
further details.
MANAGEMENT
Executive Officers, Significant Employees and Directors
The executive officers, significant employees and directors of the
Company are as follows:
Name Age Position
Heinot H. Hintereder 66 President & CEO, Director
Jason C. Lai 30 Vice President, Sales & Marketing,
Director
Keith W. Racuya 52 Secretary, Director
Richard C. Thiede 60 Treasurer, Director
Nhon K. Tran 34 Vice President, Engineering,
Director
Heinot H. Hintereder is cofounder of the Company. Was the Founder and
served as President and CEO of Immecor Corporation of Delaware until its
acquisition by the Company. Served 5 years as Manager of the Financial &
Corporate Support Unit, Fireman's Fund Insurance Companies until retirement in
1992. For 25 years held various other managerial and supervisory positions at
Firemans Fund. President, Founder, and CEO of Biblionics Corporation, a software
development company. Founder, Partner, and General Manager of W. Koehler K.G., a
German trading company. In all, Mr. Hintereder has 35 years experience in large
business systems design, selection of computer equipment and system
configuration. Mr. Hintereder was educated in Germany and holds the German
equivalent of a Masters degree in Business Administration.
Jason C. Lai is cofounder of the Company. Served as Vice President
Sales & Marketing of Immecor Corporation of Delaware until its acquisition by
the Company in 1994. Before joining the Company Mr. Lai served 3 years as Sales
and Marketing Executive for Comrex Systemation from 1991 to 1993. Before 1991
Mr. Lai was an independent distributor for Apple computers. Mr. Lai has 10 years
experience in the computer business.
- 18 -
Keith W. Racuya is a local businessman for the last 4 years. Mr. Racuya
previously served as large scale computer equipment planner for Fireman's Fund
Insurance Companies until retirement in 1994 after 30 years of service, all in
computer related capacities.
Richard C. Thiede served as executive in the Systems Department of
Firemans Fund Insurance Companies where he was responsible for the development
and implementation of several large corporate computer systems. He also served
as Director of M.I.S. Administration for the same company from which he retired
in 1991 after 25 years of service. Mr. Thiede was director of finance and
administration for the Sea Ranch Association for 4 years and in 1995 became an
independent computer consultant. Mr. Thiede combines 30 years of experience in
the field of computer system design and computer financing. Mr. Thiede holds a
B.S. degree in Finance from Lehigh University.
Nhon K. Tran is a major investor in the Company. Before joining the Company
in July of 1995 as Vice President, Engineering, Mr. Tran served 10 years with
Parker Hannifin Corporation in the field of computer driven robotic motion
control products, five years of which he served as Associate Engineer for new
product development. Mr. Tran received part of his education in Vietnam.
Executive Compensation
The following table sets forth, for the twelve-month period ending
December 31, 1996, certain compensation paid by the Company, including salary,
bonuses and certain other compensation, to its executive officers.
Summary Twelve Months Ending December 31, 1996 Compensation Table:
Compensation All Other
Name and Principal Position Salary Bonus Compensation
Heinot H. Hintereder, Chief Executive Officer $ 34,834.00 $ - 0 - $ - 0 -
Jason C. Lai, Vice President, Sales & Marketing $ 46,620.00 $ 65,000 $ - 0 -
Nhon K. Tran, Vice President, Engineering $ 43,020.00 $ - 0 - $ - 0 -
Employment Agreements On April 16, 1997, the Company entered into a one (1)
year employment agreement with Jason C. Lai ("Lai") the Company's Vice President
of sales and marketing. The agreement is renewable for successive one year terms
with the consent of both parties. The Company may terminate the agreement for
cause at any time and Lai may terminate the agreement at any time by giving
written notice to the Company. For a period of one year after its expiration or
its termination by the Company for cause, the agreement prohibits Lai from
selling any products then being marketed by the Company to its three major
customers.This provision may not be enforceable in whole or in part, subject to
California court determination.
As consideration for performance of specified duties, the Company will
pay Lai a base annual salary of $100,000 and, in months in which gross sales
exceed $250,000, a monthly cash bonus ranging from 0.5% to 1.5% of the Company's
gross sales.
There are no other employment agreements between the Company and any of
its employees.
Number of Directors, Term of Office and Compensation
All Directors hold office until the next annual meeting of shareholders
of the Company or until their successors have been elected and qualified.
Unsalaried board members receive $100 for their service on the Board and for
expenses they incur to attend meetings.
Indemnification of Officers and Directors
The Company's By-Laws provide that the liability of the directors for
monetary damages shall be limited to the fullest extent permissible under
California law. Insofar as indemnification for liabilities arising under the
federal securities laws may be permitted to directors, officers controlling
persons of the Company pursuant to that provision, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
- 19 -
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock immediately
prior to this offering, and as adjusted to reflect the sales of the shares
offered hereby, for (i) each director and executive officers of the Company,
(ii) each shareholder known by the Company to own beneficially 5% or more of the
outstanding shares of its common stock and (iii) all directors and officers as a
group for each class of capital stock of the Company.
As of September 30, 1997
Directors Shares Percentage of Common Shares Outstanding
Officers Beneficially Before Offering Maximum Sold
and 5% Shareowners Owned ( 2,421,000 shares) ( 3,171,000 shares)
Jason C. Lai 337,500 13.94 10.64
Heinot H. Hintereder 887,300 36.65 27.99
Nhon K. Tran 375,000 15.49 11.83
Officers & Directors as a Group 1,599,800 66.08 50.46
James Chu * 166,666 6.88 5.26
Fred Pao * 166,667 6.88 5.26
Grace Lee * 166,667 6.88 5.26
Other Stockholders 321,200 13.28 10.12
<FN>
* The issuance of these shares may be rescinded subject to the outcome
of a pending law suit. See "Legal Proceedings and Litigation".
</FN>
CERTAIN TRANSACTIONS
Since its inception, from time to time, certain executive officers,
directors and shareholders have provided short-term funds to the Company in
order to finance medium to large purchases of computer components. All of these
funds have been repaid by the Company with the exception of one demand note in
the amount of $7,303. See "Notes to Financial Statements".
DESCRIPTION OF COMMON STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, no-par value. Immediately prior to this offering, there were
2,421,000 shares of Common Stock outstanding and held by 33 shareholders. Owners
of Common Stock are entitled to one vote per share in all matters to be voted on
by shareholders, except that, upon giving the legally required notice,
shareholders may cumulate their votes in the election of directors. Subject to
the rights of holders of outstanding shares of Preferred Stock, if any, the
holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. In
the event of liquidation, dissolution or winding up of the Company, the Common
Stock shareholders are entitled to share ratably in all assets remaining which
are available for distribution to them after payment of all liabilities and
after provision has been made for each class of stock, if any, having preference
over the Common Stock. Common Stock shareholders, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are, and the shares of Common Stock offered by this Prospectus, when issued for
the consideration set forth in this Prospectus, will be fully paid and
nonassessable.
Registration Rights
There are no agreements between current shareholders and the Company
with respect to registration of Company shares under the Securities Act.
Transfer Agent and Registrar
The Company has appointed US Stock Transfer Company as its transfer
agent and registrar for the Company's Common Stock.
DESCRIPTION OF PREFERRED STOCK
The Company's Restated Certificate of Incorporation provides for the
issuance of 20,000,000 shares of Preferred Stock, no-par value. No preferred
shares are presently outstanding and the Company has no plans, arrangement,
commitments or understandings to issue any preferred stock.
- 20 -
The Board of Directors has the authority to issue up to 20,000,000
shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges, qualifications, limitations and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without any
further vote or action by the shareholders. The issuance of Preferred Stock may
have the effect of delaying or preventing a change in control of the Company
without further action by the shareholders. The issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. Because
the terms of the Preferred Stock may be fixed by the Board of Directors without
Stockholder action, Preferred Stock could be issued quickly with terms
calculated to defeat a proposed takeover of the Company, or to make the removal
of current or future management of the Company more difficult. The Management of
the Company is not aware of any threatened transaction to obtain control of the
Company.
SHARES ELIGIBLE FOR FUTURE RESALE
Upon completion of this offering, the Company will have 3,171,000
shares of common stock outstanding if the maximum amount is sold. The shares
sold in this offering will be freely tradeable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. Sales of outstanding shares to residents of certain
states or jurisdictions may only be effected pursuant to a registration in or
applicable exemption from the registration provision of the securities laws of
such states or jurisdictions.
The outstanding shares of common stock, which are held of record by
shareholders prior to this offering are "restricted securities" and may not be
sold in a public distribution except in compliance with the registration
requirements of the Securities Act or an applicable exemption under the
Securities Act, including an exemption pursuant to Rule 144 which, effective
April 30, 1997, permits the resale of limited amounts of these restricted
securities after a one-year holding period (including the holding period of any
prior owner except an affiliate of the Company) and Rule 144(k) provides that
persons who are not deemed to be "affiliate" and who have beneficially owned
shares for at least two years are entitled to sell their shares at any time
under Rule 144 without regard to the limitations described above. Sales of
substantial amounts of shares in the public market could adversely affect the
prevailing market prices and could impair the Company's future ability to raise
capital through an offering of its equity securities. Upon completion of this
offering, up to 66,000 of the presently issued and outstanding shares owned by
14 non-affiliated shareholders are eligible for immediate resale under exemption
pursuant to Rule 144.
The Company's common stock is not listed or quoted on any organized
exchange or other trading market, nor has the Company applied for a formal
listing or quotation. There can be no assurances that a market will develop or
be sustained. The post-offering fair value of the Company's common stock,
whether or not any secondary trading market develops, is variable and may be
impacted by the business and financial condition of the Company, as well as
factors beyond the Company's control. The price may also vary due to economic
conditions and forecasts and general conditions in the computer industry.
PLAN OF DISTRIBUTION
The Company proposes to offer and sell the shares directly to members
of the public residing in selected states. Announcements of this offering, in
the form prescribed by Rule 134 of the Securities Act, will be communicated to
selected persons. A copy of this Prospectus will be delivered to those who
request it, together with the Share Purchasing Agreement. All shares will be
sold at the public offering price of $5.25 per share and a minimum purchase of
100 shares is required. The Company reserves the right to reject any
subscription or share purchase agreement in full or in part.
The Company will effect offers and sales of shares through printed copies
of this Prospectus delivered by mail and upon request electronically by e-mail.
Any voice or other communications will be conducted through its executive
officers, Messrs. Jason C. Lai, Heinot H. Hintereder and Nhon Tran. Under Rule
3a4-1 of the Exchange Act, none of these employees of the Company will be deemed
a "broker", as defined in the Exchange Act, solely by reason of participation in
this offering, because (i) none is subject to any of the statutory
disqualifications set forth in Section 3(a)(39) of the Exchange Act; (ii) in
connection with the sale of the shares hereby offered, none will receive,
directly or indirectly, any commissions or other remuneration based either
directly or indirectly on transactions in securities; (iii) none is an
associated person (partner, officer, director or employee) of a broker or
dealer; and (iv) each meets all of the following conditions: (a) primarily
perform substantial duties for the issuer otherwise than in connection with
transactions in securities; (b) was not a broker or dealer, or as an associated
person of a broker or dealer, within the preceding 12 months; and (c) will not
participate in selling an offering of securities for any issuer more than once
every 12 months. The Company has no plans, proposals, arrangements or
understandings with any potential sales agent with respect to participating in
the distribution of the Company's securities. The Company's registration
statement will be amended to identify the persons involved if any such
participation develops in the future.
- 21 -
Prior to this offering there has been no market for the common stock of
the Company, and there can be no assurances that a market will develop or be
sustained. Accordingly, the public offering price has been determined by the
Company's Board of Directors. Among factors considered in determining the public
offering price were the Company's results of operation, the Company's current
financial condition, its future prospects, the state of the markets for its
products, the experience of management and the economics of the industry segment
in general.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon by Kenneth M. Christison, Attorney at Law, 601 Glenwood Avenue, Mill
Valley, California 94941.
EXPERTS
The Financial Statements of the Company as of and for the years ending
December 31, 1995, and December 31, 1996 and for the nine months ended September
30, 1997, have been included herein and in the Registration Statement in
reliance on the report of L. V. Dorn II, independent certified public
accountant, appearing elsewhere herein, and upon the authority of said firm as
an expert in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the shares offered hereby has been filed with the Securities and
Exchange Commission, Office of Small Business Policy, Washington, D.C.. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the shares offered hereby, reference is made to such
Registration Statement, exhibits and schedules. The Registration Statement may
be viewed at the Security Exchange Commission's website at www.sec.gov via Edgar
on-line. A copy of the Registration Statement may also be inspected by anyone
without charge at the Commission's principal office located at 450 Fifth Street,
N.W., Washington, D.C. 20549, the Northeast Regional Office located at 7 World
Trade Center, 13th Floor, New York, New York, 10048, and the Midwest Regional
Office located at Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511 and copies of all or any part thereof may be obtained from
the Public Reference Branch of the Commission upon the payment of certain fees
prescribed by the Commission.
- 22 -
IMMECOR CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountant F-2 to F-3
Financial Statements
Balance Sheets F-4
Statements of Income F-5
Statements of Cash Flows F-6
Statements of Shareholders' Equity F-7
Notes to Financial Statements F-8 to F-14
F-1
REPORT OF INDEPENDENT ACCOUNTANT
Immecor Corporation
Rohnert Park, California
I have audited the accompanying balance sheets of Immecor Corporation (the
Company) as of December 31, 1995 and 1996, and the related statements of income,
cash flows and shareholders' equity for the years then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements present fairly, in all material
respects, the financial position of Immecor Corporation as of December 31, 1995
and 1996, and the results of its operations and its cash flows for the years
ended December 31, 1995 and 1996, in conformity with generally accepted
accounting principles.
/s/
L.V. Dorn II
Certified Public Accountant
Fort Bragg, California
May 15, 1997
F-2
REPORT OF INDEPENDENT ACCOUNTANT
I have reviewed the accompanying balance sheet of Immecor Corporation as of
September 30, 1997 and the related statements of income, cash flows, and
shareholders' equity for the nine months ended September 30, 1996 and 1997 in
accordance with Statement on Standards for Accounting and Review Services issued
by the American Institute of Certified Public Accountants. All information
included in these financial statements is the representation of management of
Immecor Corporation.
A review consists principally of inquires of organization personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. According, I do not express such an opinion.
Based upon my review, I am not aware of any material modifications that should
be made to the accompanying financial statements as of September 30, 1997 and
for the nine months ended September 30, 1996 and 1997 in order for them to be in
conformity with generally accepted accounting principles.
/s/
L.V. Dorn II
Certified Public Accountant
Fort Bragg, California
October 14, 1997
F-3
Immecor Corporation
Balance Sheets
ASSETS
December 31 September 30,
-1995- -1996- -1997-
(unaudited)
Current assets:
Cash $ 6,358 $ 54,677 $ 31,731
Accounts receivable (net of allowance for doubtful
accounts of $ 10,000, $ 10,000 and $ 20,000) 311,981 380,357 647,600
Inventories (Note 2) 142,667 129,421 359,791
Notes receivable 4,500 5,765 5,283
Income taxes receivable 4,266 - -
Prepaid expenses and other current assets 3,050 4,550 10,550
Deferred income taxes 32,834 14,834 7,034
------ ------ -----
Total current assets 505,656 589,604 1,061,989
Equipment and
improvements, net (Note 3) 32,525 41,960 53,036
Offering costs - 16,238 49,818
------ ------
Total assets $ 538,181 $ 647,802 $ 1,164,843
-------------- ------------- -----------
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 4) $ - $ 29,606 $ 61,221
Accounts payable 296,448 254,374 327,111
Accrued liabilities 11,943 30,671 38,908
Advances from shareholders (Note 5) 10,259 61,579 1,261
Customer deposits 3,534 2,794 -
Income taxes - - 177,900
-------
Total current liabilities 322,184 379,024 606,401
Long-term debt:
Notes payable (Note 4) - - 13,639
Total long-term debt - - 13,639
Total liabilities 322,184 379,024 620,040
Commitments and Contingencies (Note 6)
Shareholders' equity:
Common stock, no par value, 50,000,000 shares authorized;
2,421,000 shares issued and outstanding 320,500 320,500 320,500
Preferred stock, no par value, 20,000,000 shares authorized;
no shares issued and outstanding - - -
Retained earnings (deficit) ( 104,503) ( 51,722) 224,303
- ------- - ------ -------
Total shareholders' equity 215,997 268,778 554,803
------- ------- -------
Total liabilities and shareholders' equity $ 538,181 $ 647,802 $ 1,164,843
--------------- ----------- -----------
See accompanying notes to financial statements
F4
Immecor Corporation
Statements of Income
Year ended Nine months ended
December 31, September 30,
-1995- -1996- -1996- -1997-
(unaudited)
Net sales (Note 7) $ 2,010,094 $ 3,591,382 $ 2,827,988 $ 3,858,002
Cost of sales 1,763,856 3,137,320 2,403,922 2,892,064
--------- --------- --------- ---------
Gross profit 246,238 454,062 424,066 965,938
Operating costs and expenses:
Selling, general and
administrative expenses 318,510 435,253 329,302 494,467
Depreciation 4,017 9,408 5,442 10,454
Flood insurance proceeds (Note 8) - (65,244) (65,244) -
-------- ------- ------- ------
Total operating costs and expenses 322,527 379,417 269,500 504,921
------- ------- ------- -------
Operating income (loss) (76,289) 74,645 154,566 461,017
Interest income 78 722 203 3,239
Interest expense (770) (3,786) (2,163) (1,731)
---- ------ ------ ------
Income (loss) before income taxes (76,981) 71,581 152,505 462,525
Income taxes (Note 9) (16,100) 18,800 52,300 186,500
- ------- ------ ------ -------
Net income (loss) $ (60,881) $ 52,781 $ 100,205 $ 276,025
-------------- ------------- ----------- -----------
Net income (loss) per share $ (.025) $ .022 $ .041 $ .114
Weighted average shares outstanding 2,421,000 2,421,000 2,421,000 2,421,000
--------- --------- --------- ---------
See accompanying notes to financial statements
F5
Immecor Corporation
Statements of Cash Flows
Year ended Nine months ended
December 31, September 30,
-1995- -1996- -1996- -1997-
(unaudited)
Operating Activities:
Net income (loss) $ (60,881) $ 52,781 $ 100,205 $ 276,025
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 4,017 9,408 5,442 10,454
Provision for losses on accounts receivable (46,000) - -
10,000
Deferred income taxes (12,634) 18,000 29,834 7,800
Gain on disposal of equipment - 2,761 1,314 10,367
Changes in:
Accounts and notes receivable (182,486) (69,641) (308) (276,761)
Inventories (98,279) 13,246 36,216 (230,370)
Income taxes (11,373) 4,266 25,932 177,900
Prepaid expenses and all other 4,914 (1,500) - (6,000)
Accounts payable 204,101 (42,074) (156,515) 72,737
Accrued liabilities and customer deposits (26,413) 17,988 13,318 5,443
------- ------ ------ -----
Net cash (used) provided by operating activities (225,034) 5,235 55,438 57,595
-------- ----- ------ ------
Investing Activities:
Purchase of equipment (19,342) (21,604) (20,211) (31,897)
Other - - - -
Net cash used by investing activities (19,342) (21,604) (20,211) (31,897)
------- ------- ------- -------
Financing Activities:
Collection of notes receivable arising from
sale of common stock 170,000 - - -
Additions to notes payable - 29,606 15,000
74,860
Offering costs - (16,238) - (33,580)
Principal payments on notes payable - - -
(29,606)
Shareholder advances (2,559) 51,320 15,162 (60,318)
------ ------ ------ -------
Net cash (used) provided by financing activities 167,441 64,688 30,162 (48,644)
------- ------ ------ -------
Increase (decrease) in cash (76,935) 48,319 65,389 (22,946)
Cash balance, beginning of period 83,293 6,358 6,358 54,677
------ ----- ----- ------
Cash balance, end of period $ 6,358 $ 54,677 $ 71,747 $ 31,731
------------ ------------- ----------- -----------
Supplemental Disclosure of Cash flow Information:
Cash paid during the year for:
Interest $ 770 $ 2,086 $ 1,014 $ 1,741
------------- -------------- ----------- ------------
Income taxes $ 7,907 $ 800 $ 800 $ 800
------------ -------------- ----------- ------------
See accompanying notes to financial statements
F6
Immecor Corporation
Statements of Shareholders' Equity
Number of Retained
Outstanding Common Earnings
Shares Stock (Deficit) Total
Balance, December 31, 1994 2,421,000 $ 150,500 $ (43,622) $ 106,878
Year ended December 31, 1995:
Collection of note receivable arising from
sale of common stock 170,000 - 170,000
Net loss - (60,881) (60,881)
------- -------
Balance, December 31, 1995 2,421,000 320,500 (104,503) 215,997
Year ended December 31, 1996:
Net income - 52,781 52,781
------ ------
Balance, December 31, 1996 2,421,000 320,500 (51,722) 268,778
Nine months ended September 30, 1997(unaudited):
Net income - 276,025 276,025
Balance, September 30, 1997(unaudited) 2,421,000 $ 320,500 $ 224,303 $ 544,803
--------- ------------ ----------- -----------
See accompanying notes to financial statements
F7
Immecor Corporation
Notes to Financial Statements
Years ended December 31, 1995 and 1996
Nine months ended September 30, 1996 and 1997(unaudited)
Note 1: Summary of Significant Accounting Policies
Basis of presentation:
Immecor Corporation has prepared the financial statements on an accrual basis of
accounting and in accordance with generally accepted accounting principles. The
financial statements and notes thereto are the responsibility of the Company's
management. During 1996 and 1997 the Company had a division which operated under
the name of Computer 2000 and its results of operations for 1996 and
1997(unaudited) and financial position as of December 31, 1996 and September 30,
1997(unaudited) are included in the accompanying financial statements.
Description of business:
The company designs and assembles specialized computer systems used in
semiconductor manufacturing processes in addition to personal computers
customized to specifications by business and individual users. The necessary
components are purchased from domestic and foreign manufacturers and
distributors. The Company markets the finished product through its own sales
force.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Equipment and improvements:
Equipment and improvements are carried at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over estimated useful lives
generally ranging from five to seven years.
Expenditures for major renewals that extend useful lives of equipment and
improvements are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred.
For income tax purposes, depreciation is computed using the accelerated
depreciation methods.
Advertising:
The Company expenses costs of advertising the first time the advertising takes
place.
Income taxes:
The Company has adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. Accordingly, the Company computes income taxes
using the asset and liability method, under which deferred income taxes are
provided for temporary differences between the financial basis and the tax basis
of the company's assets and liabilities.
Earnings per share:
Earnings per share amounts are based on the weighted average number of common
stock shares outstanding during the periods adjusted retroactively to reflect a
one for five reverse stock split approved by the Company's shareholders on May
14, 1997. There were no common stock equivalents to be considered.
Note 2: Inventories:
Inventories consist of the following: December 31, September 30,
-1995- -1996- -1997-
(unaudited)
Purchased parts $ 111,247 $ 104,124 $ 233,271
Finished systems 31,420 25,297 126,520
------ ------ -------
$ 142,667 $ 129,421 $ 359,791
------------ ---------- -----------
F8
Immecor Corporation
Notes to Financial Statements
Years ended December 31, 1995 and 1996
Nine months ended September 30, 1996 and 1997(unaudited)
Note 3: Equipment and Improvements:
Equipment and improvements consist of the following:
December 31, September 30,
-1995- -1996-
- -1997-
(unaudited)
Equipment and furniture $ 39,060 $ 49,497 $ 50,222
Transportation equipment 4,330 12,243 24,814
----- ------ ------
43,390 61,740 75,036
Less accumulated depreciation 10,865 19,780 22,000
------ ------ ------
$ 32,525 $ 41,960 $ 53,036
Note 4: Notes Payable
Notes payable consist of the following: December 31, September 30,
-1995- -1996- -1997-
(unaudited)
Note payable to Jerry Liu with interest at
12% due in January 1997 $ - $ 15,000 $ -
Note payable to Thu Tran with interest at
18% due on demand - 14,606 -
------
Line of credit with Westamerica with interest at 4% over prime rate (12.50% at
September 30, 1997) with a maturity date of May 31, 1998. Additional terms
of the line of credit are described below. - - 57,546
Note payable to GMAC, secured
by transportation equipment, payable in monthly
installments of $ 433 including interest of 10.50%
through September 2001. - - 17,314
------
$ - $ 29,606 $ 74,860
Less notes payable due within one year - 29,606 61,221
------ ------
Total long-term debt - - 13,639
------
The Company received approval on July 9, 1997 for a $ 250,000 line of credit to
finance short-term working capital needs. The line of credit bears interest at
4.0% over prime rate with a maturity date of May 31, 1998. Advances under the
line of credit can not exceed 80% of eligible accounts receivable and is secured
by a security interest in all accounts receivable, inventory and equipment. The
line of credit is also personally guaranteed by the Company's major shareholder.
Maturities of long-term debt are as follows for the twelve months ended
September 30, 1997 (unaudited):
1998 $ 3,673
1999 4,080
2000 4,530
2001 5,029
---- -----
$ 17,314
---------
F9
Immecor Corporation
Notes to Financial Statements
Years ended December 31, 1995 and 1996
Nine months ended September 30, 1996 and 1997(unaudited)
Note 5: Advances from Shareholders
The Company receives advances from some of the corporate officers who are also
major shareholders to meet working capital requirements. These advances are
generally repaid within 30 to 60 days.
Note 6: Commitments and Contingencies
Long-Term Lease
The Company leases its corporate headquarters under a non-cancelable operating
lease which expires in February 1998. The Company is also obligated to pay the
lessor its pro-rata share of utilities for the building on a monthly basis.
Minimum future rental payments under the lease agreement as of December 31, 1996
are as follows:
1997 $ 50,367
1998 8,726
------------
$ 59,093
Rental expense under the above lease was $ 26,921 in 1995 and $ 37,983 in
1996 and $ 26,883 and $ 39,389 for the nine months ended September 30, 1996 and
1997, respectively (unaudited).
Litigation
The Company filed a lawsuit in 1996 against three former shareholders who were
formerly officers and directors of the Company seeking recession of the issuance
of 500,000 shares of the Company's common stock in the acquisition of Advanced
Network Communication, Inc.
in 1994.
In addition, the Company is seeking the return of funds it believes were
embezzled and taken through fraud during 1994 by the three defendants. The
Company and its legal counsel are rigorously pressing this litigation but the
case has not been set for trial. It is unlikely that the trial will commence
before the spring of 1998 and there is no assurance of the outcome of the
litigation. All legal expenses relating to this case have not been significant
to date and have been expensed as incurred on the accompanying financial
statements.
Note 7: Sales to Major Customers
A material part of the Company's business is dependent upon sales to major
customers, the loss of which would have a material adverse effect on the
Company's financial position and results of operations. Three customers
individually accounted for over 10% of the Company's 1995 sales. Sales to these
three customers aggregated over 73% of total sales in 1995. Two customers
individually accounted for over 10% of the Company's 1996 sales. Sales to these
two customers aggregated over 38% of total sales in 1996. Three customers
individually accounted for over 10% of the Company's sales during the nine
months ended September 30, 1996 (unaudited). Sales to these three customers
aggregated over 46% of total sales during the nine months ended September 30,
1996 (unaudited). One customer accounted for over 10% of the Company's sales
during the nine months ended September 30, 1997 (unaudited). Sales to this
customer aggregated over 63% of total sales during the nine months ended
September 30, 1997 (unaudited). The Company is attempting to expand its customer
base to lessen the effect of having major customers.
Note 8: Insurance Proceeds
On February 4, 1996, the Company incurred major rain damage to its corporate
offices and production facilities due to leaks in the roof which caused an
interruption of its operations. The loss was covered by insurance as follows:
Inventory replacement $ 77,392
Business interruption 38,821
Equipment replacement 6,550
Miscellaneous cost reimbursement 24,383
------------
147,146
Less deductible 250
--------------
Proceeds from insurance company 146,896
Amounts allocated to inventory, equipment and repairs 81,652
------------
Insurance proceeds per statement of income $ 65,244
-----------
F10
Immecor Corporation
Notes to Financial Statements
Years ended December 31, 1995 and 1996
Nine months ended September 30, 1996 and 1997(unaudited)
Note 9: Income Taxes
A reconciliation of the statutory federal income tax rate with the Company's effective tax rate is as follows for the periods ended:
December 31, September 30,
-1995- -1996- -1996- -1997-
(unaudited)
Statutory rate for income from
$ 100,000 to $ 335,000 (39.0) % 39.0 % 39.0 % 39.0 %
Reductions due to income
under $ 100,000 20.3 (20.7) (9.2) (5.0)
State income taxes, net of
federal income tax benefit (7.5) 7.7 5.7 6.1
Non-deductible costs 1.0 1.0 - -
Other 4.3 (.7) (1.2) .2
--- --- ---- --
Effective tax rate (20.9) % 26.3 % 34.3 % 40.3 %
----- ---- ---- ----
The provision (credit) for income taxes
consists of the following for
the periods ended: December 31, September 30,
-1995- -1996- -1996- -1997-
(unaudited)
Currently payable (receivable):
Federal $ ( 4,266) $ - $ 16,850 $ 138,800
State 800 800 5,616 39,900
Deferred liability (benefit) (12,634) 18,000 32,834 12,334
------- ------ ------ ------
(16,100) 18,800 $ 29,834 $ 186,500
------- ------ --------- ----------
Deferred income taxes (benefits) reflect the tax effect of temporary differences
between the amounts of assets and liabilities for financial reporting and
amounts as measured for tax purposes. The tax effect of temporary differences
and carryforwards that cause significant portions of deferred tax assets and
liabilities are as follows for the periods ended:
December 31, September 30,
-1995- -1996- -1996--1997-
(unaudited)
Depreciation $ 77 $ ( 255) $ (200) $ (200)
Inventory and accounts
receivable allowances (12,591) 18,375 25,534 (8,650)
Tax loss carryforward - - - 16,504
Other, net (120) (120) (100) 150
---- ---- ---- ---
$ (12,634) $ 18,000 $ 29,834 $7,800
--------- -------- --------- ------
The Company has net operating losses for income purposes which can be used to
offset future taxable income. Federal losses total approximately $ 63,900 at
December 31, 1996 and expire $ 17,200 in 2010 and $ 46,700 in 2011. State losses
total approximately $ 44,900 at December 31, 1996 and expire $ 21,700 in 2000
and $ 23,200 in 2001.
F11
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section xx of Article of the Registrant's By-laws provides that it may
indemnify any director, officer, agent or employee as to those liabilities and
on those terms and conditions as are specified in Section 317 of the California
Corporations Code. In any event, the Registrant shall have the right to purchase
and maintain insurance on behalf of any such persons whether or not the
Registrant would have the power to indemnify such persons against the liability
insured against.
Insofar as indemnification for liabilities arising under the Securities
Act, indemnification may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing section. The Registrant has
been informed that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution
Expenses of the Registrant in connection with the issuance and sitribution
of the securities being registered are estimated as follows, assuming the
Maximum offering amount is sold:
Securities and Exchange Commission filing fee .................... $ 1,478
Blue sky filing fees ............................................. 5,500
Accountant's fees and expenses ..................................... 30,000
Legal fees and expenses ...................................... 42,375
Printing ...................................................... 50,000
Marketing expenses .............................................. 25,000
Postage ...................................................... 16,000
Transfer Agent's fees .......................................... 5,000
Miscellaneous ..................................................... 19,647
------
Total ........................................................ $ 195,000
=============
The Registrant will bear all expenses shown above.
Item 26. Recent Sales of Unregistered Securities
(a) The following information is given for all securities that Immecor
Corporation (the "Company") sold within the past three years without registering
the securities under the Securities Act in reliance on exemption from
registration under P 3 (a) (11).
Date Title Amount
(1) 1/14/94 Common Stock 1,000,000
(2) 2/1/94 Common Stock 500,000
(3) 3/1/94 Common Stock 500,000
(4)12/31/94 Common Stock 421,000
(b) No underwriters were used in connection with any of the issuances of
shares. The class of persons to whom the Company issued shares was those persons
known to the (1) Founders (2) Founders 3) Directors, Business associates (4)
Employees, Directors, private investors
(c) No underwriters were used in connection with any of the issuances of
shares or options so there were no underwriting discounts or commissions. The
transactions and the types and amounts of consideration received by the Company
were:
(1) $25,000
(2) $25,000
(3) ANC common stock valued at $60,000. See "Legal
Proceedings and Litigation."
(4) $210,500
Item 27. Exhibits
The exhibits listed below are filed as part of this Registration Statement
pursuant to item 601 of Regulation S-B.
Exhibit
Number Description
Articles of Incorporation
Amendment to Articles of Incorporation filed March 7,
1994
By-laws
Financial Data Schedule
Form of Common Stock Certificate
Opinion and consent of counsel with respect to the
legality of the shares being registered
Consent of L. V. Dorn II, Certified Public Accountant
Consent of Kenneth M. Christison, Attorney at Law
(Reference is made to Exhibit 5)
Power of Attorney
Employment contract with Jason C. Lai
Lease of Registrants facilities and Amendments to
Lease Agreement
Share Purchase Agreement
Item 28. Undertakings
(a) The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(xxx) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the Registration
Statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
SIGNATURES
In accordance with the requirements of the Securities Act of 1993, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2, and authorized this Pre-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, in the City of Rohnert Park, State of California, on October 20,
1997.
(Registrant)
By /s/ By /s/
Heinot H. Hintereder, President & CEO Richard C. Thiede,Chief Financial Officer
Each person whose signature appears below appoints Heinot H.
Hintereder, Jason C. Lai, Keith W. Racuya, Richard C. Thiede and Nhon K. Tran or
any of them, his or her attorney-in-fact, with full power of substitution and
resubstitution, to sign any and all amendments (including post-efective
amendments) to this Registration Statement on Form SB-2 of Immecor Corporation,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to the Registration Statement was signed by the
following persons in the capacities and on the dates stated.
Signatures Title Date
/s/ President & Chief Executive Officer October 20, 1997
Heinot H. Hintereder Director
/s/ Vice President, Sales & Marketing October 20, 1997
Jason C. Lai Director
/s/ Secretary and Director October 20, 1997
Keith W. Racuya
/s/ Treasurer & Chief Financial Officer October 20, 1997
Richard C. Thiede Director
/s/ Vice President, Engineering October 20, 1997
Nhon K. Tran Director
EXHIBIT INDEX
Item 27. Exhibits
The exhibits listed below are filed as part of this Registration
Statement pursuant to item 601 of Regulation S-B.
Page Exhibit
Number Number Description
Articles of Incorporation
Amendment to Articles of Incorporation filed March 7,
1994
By-laws
Financial Data Schedule
Form of Common Stock Certificate
Opinion and consent of counsel with respect to the
legality of the shares being registered
Employment contract with Jason C. Lai
Lease of Registrants facilities
Consent of L. V. Dorn II, Certified Public Accountant
Consent of Kenneth M. Christison, Attorney at Law
(Reference is made to Exhibit 5)
Power of Attorney
Share Purchase Agreement