AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 2005
REGISTRATION NO. 333-122394
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE AMENDMENT NO. 2
TO FORM S-1
ON FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EMRISE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
77-0226211
(I.R.S. employer identification number)
---------------
9485 HAVEN AVENUE, SUITE 100
RANCHO CUCAMONGA, CALIFORNIA 91730
(909) 987-9220
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CARMINE T. OLIVA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EMRISE CORPORATION
9485 HAVEN AVENUE, SUITE 100
RANCHO CUCAMONGA, CALIFORNIA 91730
(909) 987-9220
(909) 987-9228 (FAX)
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES OF ALL CORRESPONDENCE TO:
LARRY A. CERUTTI, ESQ.
CRISTY LOMENZO PARKER, ESQ.
RUTAN & TUCKER, LLP
611 ANTON BOULEVARD, 14TH FLOOR
COSTA MESA, CALIFORNIA 92626
(714) 641-5100
(714) 546-9035 (FAX)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]___________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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 STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SUBJECT TO COMPLETION, DATED OCTOBER 28, 2005
PROSPECTUS
16,015,581 SHARES
EMRISE CORPORATION
COMMON STOCK
---------------------
This a public offering of 16,015,581 shares of our common stock. All shares
are being offered by selling security holders identified in this prospectus. We
will not receive any of the proceeds from the sale of shares by the selling
security holders. Our common stock is listed and trades on the Archipelago
ExchangeSM ("ArcaEx(R)"), a facility of the Pacific Exchange(R), under the
symbol "ERI." On October 4, 2005, the closing sale price of our common stock on
ArcaEx was $1.81 per share.
The mailing address and the telephone number of our principal executive
offices are 9485 Haven Avenue, Rancho Cucamonga, California 91730, (909)
987-9220.
---------------------
Investing in our shares of common stock involves risks. See "Risk Factors"
beginning on page 8 for factors you should consider before buying shares of our
common stock.
---------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 2005.
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................................2
Risk Factors..................................................................7
Special Note Regarding Forward-Looking Statements............................12
Use of Proceeds..............................................................12
Dividend Policy..............................................................12
Selling Security Holders.....................................................13
Plan of Distribution.........................................................19
Legal Matters................................................................23
Experts......................................................................23
Where You Can Find Additional Information....................................24
i
PROSPECTUS SUMMARY
TO FULLY UNDERSTAND THIS OFFERING AND ITS CONSEQUENCES TO YOU, YOU SHOULD
READ THE FOLLOWING SUMMARY ALONG WITH THE MORE DETAILED INFORMATION AND OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS. IN THIS PROSPECTUS, THE WORDS "WE," "US," "OUR"
AND SIMILAR TERMS REFER TO EMRISE CORPORATION TOGETHER WITH ITS SUBSIDIARIES
UNLESS THE CONTEXT PROVIDES OTHERWISE.
EMRISE CORPORATION
We are a Delaware corporation that was formed July 14, 1989. We have three
wholly-owned operating subsidiaries, Emrise Electronics Corporation, a New
Jersey corporation that was formed in 1983 ("Emrise Electronics"), CXR Larus
Corporation, a Delaware corporation that was formed in 1984 ("CXR Larus"), and
CXR-Anderson Jacobson, a French company that was formed in 1973 ("CXR-AJ").
Emrise Electronics and its subsidiaries design, develop, manufacture and market
electronic components for defense, aerospace and industrial markets. CXR Larus
and CXR-AJ design, develop, manufacture and market network access and
transmission products and communications test equipment. CXR Larus also
manufactures and sells communication timing and synchronization products.
In December 2004, CXR Larus changed its name from CXR Telcom Corporation
when it succeeded by merger to the assets and liabilities of Larus Corporation,
a San Jose, California-based manufacturer and seller of telecommunications
products, and Vista Labs, Incorporated, a subsidiary of Larus Corporation that
provided engineering services to Larus Corporation. We acquired Larus
Corporation and Vista Labs, Incorporated in July 2004.
In March 2005, XCEL Corporation Ltd., a United Kingdom-based subsidiary of
Emrise Electronics ("XCEL"), acquired Pascall Electronic (Holdings) Limited
("PEHL") and its wholly-owned subsidiary, Pascall Electronics Limited
("Pascall"). Pascall is based in the United Kingdom and manufactures a range of
proprietary power systems and radio frequency ("RF") components and subsystems.
As of August 31, 2005, Emrise Electronics acquired RO Associates
Incorporated ("RO"). RO is based in Sunnyvale, California and designs and
manufactures standard and semi-custom DC-DC (direct current-direct current) and
AC-DC (alternating current-direct current) converters and other related
components for telecommunications, industrial, commercial and quasi-military
applications.
Through our operating subsidiaries, Emrise Electronics, CXR Larus and
CXR-AJ, and through the divisions and subsidiaries of those subsidiaries, we
design, develop, manufacture, assemble, and market products and services in the
following two material business segments:
o Electronic Components
-- digital and rotary switches
-- electronic power supplies
-- RF components
-- subsystem assemblies
2
o Communications Equipment
-- network access and transmission products
-- communication timing and synchronization products
-- communications test instruments
Our sales are primarily in North America, Europe and Asia. Sales to
customers in the electronic components segment, primarily to defense and
aerospace customers, defense contractors and industrial customers, were 59.2%
and 62.3% of our total net sales during the six months ended June 30, 2005 and
2004, respectively, and 51.1%, 63.4% and 59.1% of our total net sales during
2004, 2003 and 2002, respectively. Sales of communications equipment and related
services, primarily to private customers and public carrier customers, were
40.8% and 37.7% of our total net sales during the six months ended June 30, 2005
and 2004, respectively, and 48.9%, 36.6% and 40.9% of our total net sales during
2004, 2003 and 2002, respectively.
Our objective in our electronic components business is to become the
supplier of choice for harsh environment digital and rotary switches, custom
power supplies and RF and microwave products. Our objective in our
communications equipment business is to become a leader in quality, cost
effective solutions to meet the requirements of communications equipment
customers. We believe that we can achieve these objectives through
customer-oriented product development, superior product solutions, and
excellence in local market service and support.
CORPORATE INFORMATION
Our principal executive offices are located at 9485 Haven Avenue, Suite
100, Rancho Cucamonga, California 91730. Our telephone number is (909) 987-9220.
Our Internet address is http://www.emrise.com. Information contained on, or that
is accessible through, our websites should not be considered to be part of this
prospectus.
THE OFFERING
This prospectus covers the resale by the selling security holders of the
shares of common stock described below:
Outstanding shares of common stock 11,563,896 shares
Shares of common stock underlying warrants 4,451,685 shares
Use of proceeds All proceeds of this offering
will be received by selling
security holders for their own
accounts. See "Use of Proceeds."
ArcaEx trading symbol ERI
Risk factors You should read the "Risk
Factors" beginning on page 8, as
well as other cautionary
statements throughout or
incorporated by reference in
this prospectus, before
investing in shares of our
common stock.
3
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The following financial data should be read in conjunction with the
consolidated financial statements and the notes to those statements and our
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" discussions, all of which are incorporated by reference into this
prospectus. The consolidated statements of operations and comprehensive income
data for the three months June 30, 2005 and 2004 and the consolidated balance
sheet data as of June 30, 2005 and 2004 are derived from unaudited financial
statements that are incorporated by reference into prospectus and that, in the
opinion of our management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial data for these
periods.
The consolidated statements of operations and comprehensive income data for
the years ended December 31, 2004, 2003 and 2002 and the consolidated balance
sheet data at December 31, 2004 and 2003 are derived from the consolidated
audited financial statements incorporated by reference into this prospectus. The
historical results that appear below are not necessarily indicative of results
to be expected for any future periods.
SIX SIX
MONTHS MONTHS
ENDED ENDED
JUNE 30, JUNE 30, YEAR ENDED DECEMBER 31,
---------- ---------- --------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND 2005 2004 2004 2003 2002
COMPREHENSIVE INCOME (LOSS) DATA: ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales ......................................... $ 17,261 $ 12,624 $ 29,861 $ 25,519 $ 22,664
Cost of sales ..................................... 10,186 6,978 16,146 14,835 14,147
Gross profit ...................................... 7,075 5,646 13,715 10,684 8,517
Selling, general and administrative expenses ...... 6,278 4,284 10,226 7,812 7,731
Engineering and product development expenses ...... 1,136 595 1,521 951 1,015
Income (loss) from operations ..................... (339) 767 1,968 1,921 (229)
Total other income (expense) ...................... 25 (226) (439) (474) (361)
Income (loss) from operations before income taxes . (314) 541 1,529 1,447 (590)
Income tax (benefit) expense ...................... 15 102 49 286 (20)
Net income (loss) ................................. (329) 439 1,480 1,161 (570)
Foreign currency translation adjustment ........... 756 64 379 705 446
Total comprehensive income (loss) ................. $ (1,085) $ 375 $ 1,859 $ 1,866 $ (124)
Basic earnings (loss) per share ................... $ (0.01) $ 0.02 $ 0.06 $ 0.05 $ (0.03)
Diluted earnings (loss) per share ................. $ (0.01) $ 0.02 $ 0.06 $ 0.05 $ (0.03)
Weighted average shares outstanding, basic ........ 37,017 23,481 24,063 22,567 21,208
Weighted average shares outstanding, diluted ...... 37,017 23,481 24,839 23,811 21,208
AT AT
JUNE 30, JUNE 30, AT DECEMBER 31,
---------- ---------- --------------------------------------
2005 2004 2004 2003 2002
CONSOLIDATED BALANCE SHEET DATA: ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Cash and cash equivalents ......................... $ 6,435 $ 1,436 $ 1,057 $ 1,174 $ 254
Working capital ................................... 13,909 5,890 5,540 5,696 3,961
Total assets ...................................... 40,666 16,490 25,086 17,169 16,786
Long-term debt, net of current portion ............ 322 853 985 819 927
Stockholders' equity .............................. 26,632 8,292 10,909 7,916 5,732
Convertible redeemable preferred stock ............ -- -- -- -- 282
No cash dividends on our common stock were declared during any of the
periods presented above. Various factors materially affect the comparability of
the information presented in the above table. These factors relate primarily to
the acquisition of Larus Corporation in July 2004, the acquisition of Pascall in
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March 2005, changes in foreign currency conversion rates and new accounting
pronouncements that may affect the consistency in the generally accepted
accounting principles that we use. The year ended December 31, 2004 includes
five months of Larus Corporation activity. The six months ended June 30, 2005
includes approximately three and one-half months of Pascall activity. We
acquired RO subsequent to June 30, 2005.
SUMMARY UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA
The following tables present a summary of our unaudited condensed
consolidated pro forma financial data for the six months ended June 30, 2005 and
the year ended December 31, 2004. You should read this financial data together
with our "Management's Discussion and Analysis of Financial Condition and
Results of Operations" discussions and our historical audited and unaudited
consolidated financial statements and the related notes thereto and the
historical audited financial statements of PEHL and subsidiary and RO
incorporated by reference into this prospectus. The unaudited condensed
consolidated statements of operations data for the periods ended June 30, 2005
and December 31, 2004 give effect to our acquisition of PEHL and Pascall and our
acquisition of RO as if the acquisitions had been consummated on January 1,
2004. We previously acquired, effective as of July 13, 2004, all of the issued
and outstanding common stock of Larus Corporation. The unaudited condensed
consolidated statements of operations data for the year ended December 31, 2004
also give effect to the acquisition of Larus Corporation and Larus Corporation's
subsidiary as if that acquisition had been consummated on January 1, 2004.
The summary unaudited condensed consolidated pro forma financial data are
presented for illustrative purposes only and do not represent what our results
of operations actually would have been if the transactions referred to above had
occurred as of the dates indicated or what our results of operations will be for
future periods. The presented information does not include certain cost savings
and operational synergies that we expect to achieve upon fully consolidating our
acquisitions.
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
------------------------- -------------------------
PRO FORMA PRO FORMA
EMRISE AND EMRISE AND
EMRISE ACQUISITIONS EMRISE ACQUISITIONS
---------- ------------ ---------- ------------
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales ..................................... $ 17,261 $ 23,216 $ 29,861 $ 52,995
Cost of sales ................................. 10,186 13,683 16,146 32,128
Gross profit .................................. 7,075 9,533 13,715 20,867
Selling, general and administrative expenses .. 6,278 8,015 10,226 14,884
Engineering and product development expenses .. 1,136 1,749 1,521 2,735
Income (loss) from operations ................. (339) (231) 1,968 3,248
Total interest and other income (expense) ..... 25 (133) (439) (623)
Income (loss) before income taxes ............. (314) (252) 1,529 2,625
Income tax (benefit) expense .................. 15 15 49 260
Net income (loss) ............................. $ (329) $ (267) $ 1,480 $ 2,365
Earnings (loss) per share, basic ............. $ (0.01) $ (0.01) $ 0.06 $ 0.10
Earnings (loss) per share, diluted ............ $ (0.01) $ (0.01) $ 0.06 $ 0.10
Shares outstanding, basic ..................... 37,017 37,017 24,063 24,063
Shares outstanding, diluted ................... 37,017 37,017 24,839 24,839
5
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
------------------------- -------------------------
PRO FORMA PRO FORMA
EMRISE AND EMRISE AND
EMRISE ACQUISITIONS EMRISE ACQUISITIONS
---------- ------------ ---------- ------------
INCOME (LOSS) PER SHARE: (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Numerator:
Net income (loss) attributable to common
stockholders .............................. $ (329) $ (267) $ 1,480 $ 2,365
Denominator:
Weighted average number of common shares
outstanding during the period, basic .... 35,803 35,803 23,418 23,418
Common shares issued to acquire Larus ..... 1,214 1,214 645 1,214
Adjusted weighted average shares .......... 37,017 37,017 24,063 24,632
Incremental shares from assumed
conversations of warrants, options and
preferred stock ......................... -- -- 776 776
Adjusted weighted average shares .......... 37,017 37,017 24,839 25,408
Income (loss) per share, basic ............... $ (0.01) $ (0.01) $ 0.06 $ 0.10
Income (loss) per share, basic ............... $ (0.01) $ (0.01) $ 0.06 $ 0.09
6
RISK FACTORS
THE FOLLOWING SUMMARIZES MATERIAL RISKS THAT YOU SHOULD CAREFULLY CONSIDER
BEFORE YOU DECIDE TO BUY OUR COMMON STOCK IN THIS OFFERING. ANY OF THE FOLLOWING
RISKS, IF THEY ACTUALLY OCCUR, WOULD LIKELY HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. AS A RESULT, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE, AND YOU COULD LOSE THE MONEY YOU PAID TO BUY OUR
COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
OUR LACK OF LONG-TERM PURCHASE ORDERS OR COMMITMENTS MAY ADVERSELY AFFECT OUR
BUSINESS IF DEMAND IS REDUCED.
During 2004 and the six months ended June 30, 2005, the sale of electronic
components accounted for 51.1% and 59.2%, respectively, of our total net sales,
and the sale of communications equipment and related services accounted for
48.9% and 40.8%, respectively, of our total net sales. In many cases we have
long-term contracts with our electronic components and communications equipment
customers that cover the general terms and conditions of our relationships with
them but that do not include long-term purchase orders or commitments. Rather,
our customers issue purchase orders requesting the quantities of communications
equipment they desire to purchase from us, and if we are able and willing to
fill those orders, then we fill them under the terms of the contracts.
Accordingly, we cannot rely on long-term purchase orders or commitments to
protect us from the negative financial effects of reduced demand for our
products that could result from a general economic downturn, from changes in the
electronic components and communications equipment industries, including the
entry of new competitors into the market, from the introduction by others of new
or improved technology, from an unanticipated shift in the needs of our
customers, or from other causes.
MANY OF OUR COMPETITORS HAVE GREATER RESOURCES THAN US. IN ORDER TO COMPETE
SUCCESSFULLY, WE MUST KEEP PACE WITH OUR COMPETITORS IN ANTICIPATING AND
RESPONDING TO THE RAPID CHANGES INVOLVING THE ELECTRONIC COMPONENTS AND
COMMUNICATIONS EQUIPMENT INDUSTRIES.
Our future success will depend upon our ability to enhance our current
products and services and to develop and introduce new products and services
that keep pace with technological developments, respond to the growth in the
electronic components and communications equipment markets in which we compete,
encompass evolving customer requirements, provide a broad range of products and
achieve market acceptance of our products. Many of our existing and potential
competitors have larger technical staffs, more established and larger marketing
and sales organizations and significantly greater financial resources than we
do. Our lack of resources relative to our competitors may cause us to fail to
anticipate or respond adequately to technological developments and customer
requirements or to experience significant delays in developing or introducing
new products and services. These failures or delays could reduce our
competitiveness, revenues, profit margins or market share.
WE RELY HEAVILY ON OUR MANAGEMENT, AND THE LOSS OF THEIR SERVICES COULD
ADVERSELY AFFECT OUR BUSINESS.
Our success is highly dependent upon the continued services of key members
of our management, including Carmine T. Oliva, our Chairman of the Board,
President and Chief Executive Officer, Graham Jefferies, our Executive Vice
President and Chief Operating Officer, and Randolph Foote, our Senior Vice
President, Chief Financial Officer and Secretary. Mr. Oliva co-founded Emrise
Electronics and has developed personal contacts and other skills that we rely
upon in connection with our financing, acquisition and general business
strategies. Mr. Jefferies is a long-time employee of Emrise who we have relied
7
upon in connection with our United Kingdom acquisitions and who fulfills
significant operational responsibilities in connection with our foreign and
domestic operations. We rely upon Mr. Foote's skills in financial reporting,
accounting and tax matters in addition to his skills in the analysis of
potential acquisitions and general corporate administration. Consequently, the
loss of Mr. Oliva, Mr. Jefferies, Mr. Foote or one or more other key members of
management could adversely affect us. Although we have entered into employment
agreements with each of our executive officers, those agreements are of limited
duration and are subject to early termination by the officers under some
circumstances. We maintain key-man life insurance on Mr. Oliva and Mr.
Jefferies. However, we cannot assure you that we will be able to maintain this
insurance in effect or that the coverage will be sufficient to compensate us for
the loss of the services of Mr. Oliva or Mr. Jefferies.
IF WE ARE UNABLE TO SUCCESSFULLY IDENTIFY OR MAKE STRATEGIC ACQUISITIONS, OUR
LONG-TERM COMPETITIVE POSITIONING MAY SUFFER.
Our business strategy includes growth through acquisitions that we believe
will improve our competitive capabilities or provide additional market
penetration or business opportunities in areas that are consistent with our
business plan. Identifying and pursuing strategic acquisitions and integrating
acquired products and businesses requires a significant amount of management
time and skill. Acquisitions may also require us to expend a substantial amount
of cash or other resources, not only as a result of the direct expenses involved
in the acquisition transaction, but also as a result of ongoing research and
development activities that may be required to maintain or enhance the long-term
competitiveness of acquired products, particularly those products marketed to
the rapidly evolving telecommunications industry. If we are unable to make
strategic acquisitions due to our inability to identify appropriate targets, or
to manage the difficulties or costs involved in the acquisitions, our long-term
competitive positioning may suffer.
IF WE ARE UNABLE TO FULFILL BACKLOG ORDERS DUE TO CIRCUMSTANCES INVOLVING US
OR ONE OR MORE OF OUR SUPPLIERS OR CUSTOMERS, OUR ANTICIPATED RESULTS OF
OPERATIONS WILL SUFFER.
As of June 30, 2005, we had $16,673,000 in backlog orders for our products.
Backlog orders represent revenue that we anticipate recognizing in the future,
as evidenced by purchase orders and other purchase commitments received from
customers, but on which work has not yet been initiated or with respect to which
work is currently in progress. Our backlog orders are due in large part to the
long lead-times associated with our electronic components products, which
products generally are custom built to order. We cannot assure you that we will
be successful in fulfilling orders and commitments in a timely manner or that we
will ultimately recognize as revenue the amounts reflected as backlog. Factors
that could affect our ability to fulfill backlog orders include difficulty we
may experience in obtaining components from suppliers, whether due to
obsolescence, production difficulties on the part of suppliers or other causes,
or customer-induced delays and product holds. Our anticipated results of
operations will suffer to the extent we are unable to fulfill backlog orders
within the timeframes we establish, particularly if delays in fulfilling backlog
orders cause our customers to reduce or cancel their orders.
IF OUR PRODUCTS FAIL TO COMPLY WITH EVOLVING GOVERNMENT AND INDUSTRY
STANDARDS AND REGULATIONS, WE MAY HAVE DIFFICULTY SELLING OUR PRODUCTS.
We design our products to comply with a significant number of industry
standards and regulations, some of which are evolving as new technologies are
deployed. In the United States, our communications equipment products must
comply with various regulations defined by the United States Federal
Communications Commission, or FCC, and Underwriters Laboratories as well as
industry standards established by Telcordia Technologies, Inc., formerly
8
Bellcore, and the American National Standards Institute. Internationally, our
communications equipment products must comply with standards established by the
European Committee for Electrotechnical Standardization, the European Committee
for Standardization, the European Telecommunications Standards Institute,
telecommunications authorities in various countries as well as with
recommendations of the International Telecommunications Union. The failure of
our products to comply, or delays in compliance, with the various existing and
evolving standards could negatively affect our ability to sell our products.
OUR BUSINESS COULD SUFFER IF WE ARE UNABLE TO OBTAIN COMPONENTS OF OUR
PRODUCTS FROM OUTSIDE SUPPLIERS.
The major components of our products include circuit boards,
microprocessors, chipsets and memory components. Most of these components are
available from multiple sources. However, we currently obtain some components
used in our products from single or limited sources. Some modem chipsets used in
our data communications equipment products have been in short supply and are
frequently on allocation by semiconductor manufacturers. We have, from time to
time, experienced difficulty in obtaining some components. We do not have
guaranteed supply arrangements with any of our suppliers, and there can be no
assurance that our suppliers will continue to meet our requirements. Further,
disruption in transportation services as a result of enhanced security measures
in response to terrorism threats or attacks may cause some increases in costs
and timing for both our receipt of components and shipment of products to our
customers. If our existing suppliers are unable to meet our requirements, we
could be required to alter product designs to use alternative components or, if
alterations are not feasible, we could be required to eliminate products from
our product line.
Shortages of components could not only limit our product line and
production capacity but also could result in higher costs due to the higher
costs of components in short supply or the need to use higher cost substitute
components. Significant increases in the prices of components could adversely
affect our results of operations because our products compete on price and,
therefore, we may not be able to adjust product pricing to reflect the increases
in component costs. Also, an extended interruption in the supply of components
or a reduction in their quality or reliability would adversely affect our
financial condition and results of operations by impairing our ability to timely
deliver quality products to our customers. Delays in deliveries due to shortages
of components or other factors may result in cancellation by our customers of
all or part of their orders. Although customers who purchase from us products,
such as many of our digital switches and all of our custom power supplies, that
are not readily available from other sources would be less likely than other
customers of ours to cancel their orders due to production delays, we cannot
assure you that cancellations would not occur.
FINANCIAL STATEMENTS OF OUR FOREIGN SUBSIDIARIES ARE PREPARED USING THE
RELEVANT FOREIGN CURRENCY THAT MUST BE CONVERTED INTO UNITED STATES DOLLARS
FOR INCLUSION IN OUR CONSOLIDATED FINANCIAL STATEMENTS. AS A RESULT, EXCHANGE
RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR REPORTED RESULTS OF OPERATIONS.
We have established and acquired international subsidiaries that prepare
their balance sheets in the relevant foreign currency. In order to be included
in our consolidated financial statements, these balance sheets are converted, at
the then current exchange rate, into United States dollars, and the statements
of operations are converted using weighted average exchange rates for the
applicable period. Accordingly, fluctuations of the foreign currencies relative
to the United States dollar could affect our consolidated financial statements.
Our exposure to fluctuations in currency exchange rates has increased as a
result of the growth of our international subsidiaries. Sales of our products
and services to customers located outside of the United States accounted for
approximately 57.3% and 61.2% of our net sales for 2004 and the six months ended
June 30, 2005. We use derivatives to manage foreign currency rate risk. Our
ultimate realized gain or loss with respect to currency fluctuations will depend
on the currency exchange rates and other factors in effect as the contracts
mature. Net foreign exchange transaction losses included in other income and
expense in our consolidated statements of operations totaled $36,000 for the six
months ended June 30, 2005. There was no hedging in the year ended December 31,
2004.
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BECAUSE WE BELIEVE THAT PROPRIETARY RIGHTS ARE MATERIAL TO OUR SUCCESS,
MISAPPROPRIATION OF THESE RIGHTS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION.
Our future success will be highly dependent on proprietary technology,
particularly in our communications equipment business. However, we do not hold
any patents and we currently rely on a combination of contractual rights,
copyrights, trademarks and trade secrets to protect our proprietary rights. Our
management believes that because of the rapid pace of technological change in
the industries in which we operate, the legal intellectual property protection
for our products is a less significant factor in our success than the knowledge,
abilities and experience of our employees, the frequency of our product
enhancements, the effectiveness of our marketing activities and the timeliness
and quality of our support services. Consequently, we rely to a great extent on
trade secret protection for much of our technology. However, there can be no
assurance that our means of protecting our proprietary rights will be adequate
or that our competitors or customers will not independently develop comparable
or superior technologies or obtain unauthorized access to our proprietary
technology. Our financial condition would be adversely affected if we were to
lose our competitive position due to our inability to adequately protect our
proprietary rights as our technology evolves.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK PRICE HAS BEEN VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL
LOSSES FOR INVESTORS PURCHASING SHARES OF OUR COMMON STOCK AND IN LITIGATION
AGAINST US.
The market prices of securities of technology-based companies currently are
highly volatile. The market price of our common stock has fluctuated
significantly in the past. In fact, during 2004, the high and low closing sale
prices of a share of our common stock were $1.68 and $0.52, respectively.
Between January 1, 2005 and October 4, 2005, the high and low closing sale
prices of a share of our common stock were $1.98 and $0.93, respectively. The
market price of our common stock may continue to fluctuate in response to the
following factors, many of which are beyond our control:
o changes in market valuations of similar companies and stock market
price and volume fluctuations generally;
o economic conditions specific to the electronic components or
communications equipment industries;
o announcements by us or our competitors of new or enhanced products,
technologies or services or significant contracts, acquisitions,
strategic relationships, joint ventures or capital commitments;
o delays in our introduction of new products or technological
innovations or problems in the functioning of these new products or
innovations;
o third parties' infringement of our intellectual property rights;
o changes in our pricing policies or the pricing policies of our
competitors;
o foreign currency translations gains or losses;
10
o regulatory developments;
o fluctuations in our quarterly or annual operating results;
o additions or departures of key personnel; and
o future sales of our common stock or other securities.
The price at which you purchase shares of common stock may not be
indicative of the price of our stock that will prevail in the trading market.
You may be unable to sell your shares of common stock at or above your purchase
price, which may result in substantial losses to you. Moreover, in the past,
securities class action litigation has often been brought against a company
following periods of volatility in the market price of its securities. We may in
the future be the target of similar litigation. Securities litigation could
result in substantial costs and divert management's attention and resources.
THE UNPREDICTABILITY OF OUR QUARTERLY OPERATING RESULTS MAY CAUSE THE PRICE
OF OUR COMMON STOCK TO FLUCTUATE OR DECLINE.
Our quarterly operating results have varied significantly in the past and
will likely continue to do so in the future due to a variety of factors, many of
which are beyond our control. Fluctuations in our operating results may result
from a variety of factors. Our operating results from our communications segment
tend to be less stable and predictable than our operating results from our
electronic components segment.
For example, the general decline in telecommunications market activity and
other changes affecting the telecommunications industry, including
consolidations and restructuring of United States and foreign telephone
companies, cause our sales to decrease or increase. Our sales may increase if we
obtain new customers as a result of the consolidations or restructurings.
However, our sales may decrease, either temporarily or permanently to the extent
our customers are acquired by or combined with companies that are and choose to
remain customers of our competitors.
In addition, the cyclical nature of the telecommunications business due to
the budgetary cycle of Regional Bell Operating Companies, or RBOCs, has had and
will continue to have for the foreseeable future an effect on our quarterly
operating results. RBOCs generally obtain approval for their annual budgets
during the first quarter of each calendar year. If an RBOC's annual budget is
not approved early in the calendar year or is insufficient to cover its desired
purchases for the entire calendar year, we are unable to sell products to the
RBOC during the period of the delay or shortfall.
Quarter to quarter fluctuations may also result from the uneven pace of
technological innovation, the development of products responding to these
technological innovations by us and our competitors, our customers' acceptance
of these products and innovations, the varied degree of price, product and
technological competition and our customers' and competitors' responses to these
changes.
Due to these factors and other factors, including changes in general
economic conditions, we believe that period-to-period comparisons of our
operating results will not necessarily be meaningful in predicting future
performance. If our operating results do not meet the expectations of investors,
our stock price may fluctuate or decline.
11
FUTURE SALES OF SHARES OF OUR COMMON STOCK BY OUR STOCKHOLDERS COULD CAUSE
OUR STOCK PRICE TO DECLINE.
We cannot predict the effect, if any, that market sales of shares of our
common stock or the availability of shares of common stock for sale will have on
the market price prevailing from time to time. As of October 4, 2005, we had
outstanding 37,497,750 shares of common stock. An aggregate of 11,563,896 of
these shares were included for resale under this prospectus. As of October 4,
2005, we also had outstanding options and warrants to purchase up to 5,942,683
shares of common stock. Of these, 4,451,685 shares of common stock underlying
warrants were included for resale under this prospectus and 1,490,998 shares
underlying options were covered on existing registration statements. Sales of
shares of our common stock in the public market after the registration statement
of which this prospectus is a part is declared effective, or the perception that
those sales may occur, could cause the trading price of our common stock to
decrease or to be lower than it might be in the absence of those shares or
perceptions.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including statements
concerning future conditions in the electronic components and communications
equipment industries, and concerning our future business, financial condition,
operating strategies, and operational and legal risks. We use words like
"believe," "expect," "may," "will," "could," "seek," "estimate," "continue,"
"anticipate," "intend," "goal," "future," "plan" or variations of those terms
and other similar expressions, including their use in the negative, to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which speak only as to our expectations as of the
date of this prospectus. These forward-looking statements are subject to a
number of risks and uncertainties, including those identified under "Risk
Factors" and elsewhere in this prospectus. Although we believe that the
expectations reflected in these forward-looking statements are reasonable,
actual conditions in the electronic components and communications equipment
industries, and actual conditions and results in our business, could differ
materially from those expressed in these forward-looking statements. In
addition, none of the events anticipated in the forward-looking statements may
actually occur. Any of these different outcomes could cause the price of our
common stock to decline substantially. Except as required by law, we undertake
no duty to update any forward-looking statement after the date of this
prospectus, either to conform any statement to reflect actual results or to
reflect the occurrence of unanticipated events.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of our
common stock in this offering. Rather, all proceeds will be received by selling
security holders.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock in the
past, and we do not anticipate declaring or paying cash dividends on our common
stock in the foreseeable future. In addition, our credit facility with Wells
Fargo Bank, N.A., described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," restricts the payment of dividends without the bank's consent.
We will pay dividends on our common stock only if and when declared by our
board of directors. Our board of directors' ability to declare a dividend is
subject to restrictions imposed by Delaware law. In determining whether to
declare dividends, the board of directors will consider these restrictions as
well as our financial condition, results of operations, working capital
requirements, future prospects and other factors it considers relevant.
12
SELLING SECURITY HOLDERS
SELLING SECURITY HOLDER TABLE
This prospectus covers the offer and sale by the selling security holders
of up to an aggregate of 16,015,581 shares of common stock, including an
aggregate of 11,563,896 issued and outstanding shares of our common stock and an
aggregate of 4,451,685 shares of our common stock underlying warrants. The
following table sets forth, to our knowledge, certain information about the
selling security holders as of October 4, 2005, the date of the table, based on
information furnished to us by the selling security holders. Except as indicated
in the private placement descriptions or footnotes following the table, each
selling security holder has indicated to us that it is acting individually, not
as a member of a group, and none of the selling security holders or their
affiliates has held any position or office or had any other material
relationship with us in the past three years.
Beneficial ownership is determined in accordance with the rules of the
Commission, and includes voting or investment power with respect to the
securities. To our knowledge, except as indicated by footnote, and subject to
community property laws where applicable, the persons named in the table below
have sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. Shares of common stock underlying
derivative securities, if any, that currently are exercisable or convertible or
are scheduled to become exercisable or convertible for or into shares of common
stock within 60 days after the date of the table are deemed to be outstanding in
calculating the percentage ownership of each listed person or group but are not
deemed to be outstanding as to any other person or group. Percentage of
beneficial ownership is based on 37,497,750 shares of common stock outstanding
as of the date of the table. Shares shown as beneficially owned after the
offering assume that all shares being offered are sold.
The shares of common stock being offered under this prospectus may be
offered for sale from time to time during the period the registration statement
of which this prospectus is a part remains effective, by or for the accounts of
the selling security holders described below. Roth Capital Partners, LLC ("Roth
Capital") is an NASD-registered broker-dealer that received warrants as
compensation for services rendered as placement agent in the January 2005
private placement described below. Roth Capital has represented to us that it is
not acting as an underwriter in this offering, it received the warrants whose
underlying shares are offered under this prospectus in the ordinary course of
business, and at the time of such receipt, it had no agreements or
understandings, directly or indirectly, with any person to distribute the
warrants or underlying shares.
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES OF AFTER OFFERING
NAME OF ------------------------------- COMMON STOCK ---------------------------
BENEFICIAL OWNER NUMBER PERCENTAGE BEING OFFERED NUMBER PERCENTAGE
----------------------------- --------------- ------------ --------------- ----------- ------------
JLF Offshore Fund, Ltd...... 1,731,933 (1) 4.57% 1,674,618 (1) 57,315 *
JLF Partners I, LP.......... 1,179,580 (2) 3.12% 1,086,701 (2) 92,879 *
JLF Partners II, LP......... 89,116 (3) * 82,813 (3) 6,303 *
The Pinnacle Fund, L.P...... 4,363,960 (4) 11.45% 3,125,000 (4) 1,238,960 3.30%
Bonanza Master Fund Ltd..... 1,312,500 (5) 3.47% 1,312,500 (5) -- --
Roaring Fork Capital SBIC,
L.P...................... 1,706,250 (6) 4.51% 1,706,250 (6) -- --
13
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES OF AFTER OFFERING
NAME OF ------------------------------- COMMON STOCK ---------------------------
BENEFICIAL OWNER NUMBER PERCENTAGE BEING OFFERED NUMBER PERCENTAGE
----------------------------- --------------- ------------ --------------- ----------- ------------
Lagunitas Partners LP....... 1,125,000 (7) 2.98% 1,125,000 (7) -- --
Gruber & McBaine
International............ 250,000 (8) * 250,000 (8) -- --
Jon D. Gruber & Linda W.
Gruber JTWROS............ 1,581,250 (9) 4.18% 206,250 (10) -- --
J. Patterson McBaine........ 1,481,250 (11) 3.92% 106,250 (12) -- --
MicroCapital Fund LP........ 1,080,000 (13) 2.86% 1,080,000 (13) -- --
MicroCapital Fund Ltd....... 607,500 (14) 1.61% 607,500 (14) -- --
Omicron Master Trust........ 217,125 (15) * 217,125 (15) -- --
Stratford Partners, L.P..... 431,250 (16) 1.15% 431,250 (16) -- --
Select Contrarian Value
Partners, L.P............ 265,630 (17) * 265,630 (17) -- --
Precept Capital Master
Fund, G.P................ 56,250 (18) * 56,250 (18) -- --
Roth Capital Partners, LLC.. 650,310 (19) 1.70% 650,310 (19) -- --
Noel C. McDermott, Trustee
of the Noel C. McDermott
Revocable Living Trust
dated December 18, 1995.. 764,211 (20) 2.03% 764,211 (20) -- --
Warren P. Yost and Gail A.
Yost, Co-Trustees Under
Declaration of Trust
dated March 9, 1988...... 599,381 (21) 1.60% 599,381 (21) -- --
Hayden Communications, Inc.. 125,000 (22) * 125,000 (22) -- --
George Farndell............. 314,748 (23) * 150,000 (23) 164,748 *
Steven Jacobus.............. 50,000 (24) * 50,000 (24) -- --
Jacques Moisset............. 78,042 (25) * 78,042 (25) -- --
Jason Oliva................. 401,708 (26) 1.07% 200,500 (26) 201,208 *
Joseph Mirabella............ 50,000 (27) * 50,000 -- --
Placido Albanese............ 15,000 (28) * 15,000 -- --
-------------
* Less than 1.00%
(1) Includes 413,675 shares underlying warrants. Power to vote or dispose of
the shares is held by Jeffrey L. Feinberg, as managing member of JLF Asset
Management, LLC. JLF Asset Management, LLC is investment manager of JLF
Offshore Fund, Ltd. and of JLF Partners I, LP and JLF Partners II, LP, two
other selling security holders. The address for Mr. Feinberg is c/o JLF
Asset Management, LLC, 2775 Via de la Valle, Suite 204, Del Mar, CA 92014.
(2) Includes 265,925 shares underlying warrants. Power to vote or dispose of
the shares is held by Jeffrey L. Feinberg, as managing member of JLF Asset
Management, LLC. See footnote (1) above for information regarding JLF Asset
Management, LLC.
(3) Includes 20,400 shares underlying warrants. Power to vote or dispose of the
shares is held by Jeffrey L. Feinberg, as managing member of JLF Asset
Management, LLC. See footnote (1) above for information regarding JLF Asset
Management, LLC.
(4) Includes 11,599 shares underlying a warrant. Also includes 613,401
additional shares underlying the warrant, which shares exceed the
contractual 9.999% beneficial ownership limitation that applied as of the
date of the table and therefore are not considered by The Pinnacle Fund,
L.P. to be beneficially owned by it as of the date of the table. Power to
vote or dispose of the shares is held by Barry M. Kitt, as sole member of
Pinnacle Fund Management, LLC, which entity is the general partner of
Pinnacle Advisers, L.P., which entity is the general partner of The
Pinnacle Fund, L.P. The address for Mr. Kitt is c/o The Pinnacle Fund,
L.P., 4965 Preston Park, Blvd., Suite 240, Plano, TX 75093.
14
(5) Includes 350,000 shares underlying a warrant. Power to vote or dispose of
the shares is held by Bernay Box, as president of Bernay Box & Co., which
entity is the general partner of Bonanza Master Fund Ltd.
(6) Includes 341,250 shares underlying a warrant. Sole power to vote or dispose
of the shares is held by Eugene McColley as manager of Roaring Fork
Management, LLC, which entity is the general partner of Roaring Fork
Capital SBIC, L.P.
(7) Includes 225,000 shares underlying a warrant. Power to vote or dispose of
the shares is held by Jon D. Gruber and J. Patterson McBaine, as managers
of Gruber & McBaine Capital Management, which entity is the general partner
of Lagunitas Partners LP.
(8) Includes 50,000 shares underlying a warrant. Power to vote or dispose of
the shares is held by Jon D. Gruber and J. Patterson McBaine, as managers
of Gruber & McBaine Capital Management, which entity is the investment
advisor to Gruber & McBaine International.
(9) Includes 165,000 outstanding shares and 41,250 shares underlying a warrant
held by Jon D. Gruber and Linda W. Gruber JTWROS. Also includes aggregates
of 1,100,000 outstanding shares and 275,000 shares underlying warrants held
by Lagunitas Partners, LP and Gruber & McBaine International, two other
selling security holders.
(10) Represents 165,000 outstanding shares and 41,250 shares underlying a
warrant held by Jon D. Gruber and Linda W. Gruber JTWROS.
(11) Includes 85,000 outstanding shares and 21,250 shares underlying a warrant
held by Mr. McBaine. Also includes aggregates of 1,100,000 outstanding
shares and 275,000 shares underlying warrants held by Lagunitas Partners,
LP and Gruber & McBaine International, two other selling security holders.
(12) Represents 85,000 outstanding shares and 21,250 shares underlying a warrant
held by Mr. McBaine.
(13) Includes 216,000 shares underlying a warrant. MicroCapital LLC is the
general partner and investment advisor to MicroCapital Fund LP and
MicroCapital Fund Ltd. Ian P. Ellis is the principal owner of MicroCapital
LLC and has sole responsibility for the selection, acquisition and
disposition of the portfolio securities by MicroCapital LLC on behalf of
its funds.
(14) Includes 121,500 shares underlying a warrant. MicroCapital LLC is the
general partner and investment advisor to MicroCapital Fund LP and
MicroCapital Fund Ltd. Ian P. Ellis is the principal owner of MicroCapital
LLC and has sole responsibility for the selection, acquisition and
disposition of the portfolio securities by MicroCapital LLC on behalf of
its funds.
(15) Represents shares underlying a warrant. Omicron Capital, L.P., a Delaware
limited partnership (Omicron Capital), serves as investment manager to
Omicron Master Trust, a trust formed under the laws of Bermuda (Omicron).
Bruce Bernstein is the managing member of Omicron Capital. Omicron Capital,
Inc., a Delaware corporation (OCI), serves as general partner of Omicron
Capital, and Winchester Global Trust Company Limited (Winchester) serves as
the trustee of Omicron. By reason of such relationships, Omicron Capital
and OCI may be deemed to share dispositive power over the shares of our
common stock owned by Omicron, and Winchester may be deemed to share voting
and dispositive power over the shares of our common stock owned by Omicron.
Omicron Capital, OCI and Winchester disclaim beneficial ownership of such
shares of our common stock. No other person has sole or shared voting or
dispositive power with respect to the shares of our common stock being
offered by Omicron, as those terms are used for purposes of Regulation
13D-G under the Exchange Act. Omicron and Winchester are not "affiliates"
of one another, as that term is used for purposes of the Exchange Act, or
of any other person named in this prospectus as a selling security holder.
No person or "group" (as that term is used in Section 13(d) of the Exchange
Act or Regulation 13D-G) controls Omicron and Winchester.
(16) Includes 86,250 shares underlying a warrant. Power to vote or dispose of
the shares is shared by Mark Fain and Chad Comiteau, as managing directors
of Stratford Advisors LLC, which entity is the general partner of Stratford
Partners, L.P.
(17) Includes 75,000 shares underlying a warrant. Power to vote or dispose of
the shares is held by David W. Berry as principal of Kaizen Capital, LLC,
which entity is the general partner of Select Contrarian Value Partners,
L.P.
(18) Represents shares underlying a warrant. Power to vote or dispose of the
shares is held by D. Blair Baker, as president of Precept Management, LLC,
which entity is the general partner of Precept Capital Management, L.P.,
which entity is the agent of Precept Capital Master Fund, G.P.
15
(19) Represents shares underlying a warrant. Power to vote or dispose of the
shares is held by Byron Roth, as Chief Executive Officer, and Gordon J.
Roth, as Chief Financial Officer, of Roth Capital.
(20) Includes 84,066 shares underlying a warrant. Sole power to vote or dispose
of the shares is held by Mr. McDermott as trustee. Mr. McDermott was an
officer and shareholder of Larus Corporation until its acquisition by
Emrise in July 2004.
(21) Includes 65,934 shares underlying a warrant. Mr. Yost was an officer and
shareholder of Larus Corporation until its acquisition by Emrise in July
2004.
(22) Represents 125,000 shares underlying warrants. Power to vote or dispose of
the shares is held by Matthew Hayden as president of Hayden Communications,
Inc. Hayden Communications, Inc. acts as an investor relations consultant
to Emrise.
(23) Includes 150,000 shares underlying a warrant and 103,181 shares held by Mr.
Farndell's spouse. Mr. Farndell is a former human resources consultant to
Emrise and is the brother-in-law of Carmine T. Oliva, who is an executive
officer and director of Emrise.
(24) Represents shares underlying a warrant. Mr. Jacobus is a former financial
advisor to Emrise.
(25) Mr. Moisset is a former employee of and former consultant to Emrise.
(26) Includes 200,500 shares underlying warrants. Jason Oliva is a former
financial advisor to Emrise and is the son of Carmine T. Oliva, who is an
executive officer and director of Emrise.
(27) Mr. Mirabella is a former consultant to Emrise.
(28) Mr. Albanese is a former financial advisor to Emrise.
PRIVATE PLACEMENTS THROUGH WHICH THE SELLING SECURITY HOLDERS OBTAINED
BENEFICIAL OWNERSHIP OF THE OFFERED SHARES
All of the shares of common stock being offered under this prospectus were
issued, or are issuable upon exercise of warrants that were issued, in the
below-described private placement transactions.
JANUARY 2005 PRIVATE PLACEMENT OF COMMON STOCK AND WARRANTS
On January 5, 2005, we issued to 17 accredited record holders in a private
offering an aggregate of 12,503,500 shares of our common stock at a purchase
price of $1.44 per share and five-year investor warrants to purchase up to an
additional 3,125,875 shares of our common stock at an exercise price of $1.73
per share.
Roth Capital, an NASD-registered broker-dealer, acted as placement agent in
connection with the offering. We paid to Roth Capital cash placement agent fees
and expenses of approximately $961,000 and issued five-year placement warrants
to purchase up to an aggregate of 650,310 shares of our common stock at an
exercise price of $1.73 per share in connection with the offering.
We agreed to register for resale the shares of common stock issued to
investors and the shares of common stock issuable upon exercise of the investor
warrants and placement warrants. The registration obligations require, among
other things, that the registration statement of which this prospectus is a part
be declared effective no later than June 4, 2005. We were unable to meet this
obligation and therefore paid to each investor liquidated damages equal to 1% of
the amount paid by the investor to us in the offering, which damage payments
totaled an aggregate of approximately $180,000. We also paid or must pay to each
investor liquidated damages for the period from June 5, 2005 through the date
the registration of which this prospectus is a part was declared effective, and
for any future periods in which we are unable to maintain the effectiveness of
the registration in accordance with the requirements of the registration rights
agreement that we entered into with the investors. These liquidated damages are
equal to 2% of the amount paid by each investor for the common shares still
owned by the investor on each monthly anniversary of the date of the default
that occurs prior to the cure of the default, pro rated on a daily basis for
periods of default shorter than one month. The maximum aggregate liquidated
16
damages payable to any investor will be equal to 10% of the aggregate amount
paid by the investor for the shares of common stock. Accordingly, the maximum
aggregate penalty that we would be required to pay under this provision is 10%
of the approximate $18,005,000 initial purchase price of the shares of common
stock, which would be $1,801,000.
The investor warrants and the placement warrants contain customary
anti-dilution provisions for stock splits, stock dividends and the like and
contain a net exercise cashless exercise feature that will permit the warrants
to be exercised for a net number of shares using the spread between the warrant
exercise price and the average of the closing sale prices for the five trading
days immediately prior to the exercise of the warrant as payment for a reduced
number of common shares. Use of the cashless exercise feature by the investors
is limited to times when a valid resale prospectus is not then available for use
by the investors.
The investor warrants and the placement warrants also contain a call
provision. The call provision generally provides that if, at any time after the
first anniversary of the issuance of the warrants, the volume weighted average
trading price of our common stock for each of 30 consecutive trading days
exceeds $3.46, a valid resale prospectus is available for the shares of common
stock underlying the warrants or the shares are eligible for resale without
volume restrictions pursuant to Rule 144(k) under the Securities Act, and we
have complied with our obligations under the warrant and related agreements,
then we may require the warrant holder to exercise the warrant in full (subject
to the 9.999% limitation described below) on the 30th day following written
notice to the warrant holder if the call eligibility criteria described above
continue to be met until that date.
In addition, the investor warrants and the placement warrants contain
provisions limiting the exercise or call of the warrants to the extent necessary
to insure that following the exercise or call, the total number of shares of
common stock then beneficially owned by the warrant holder and its affiliates
and others whose beneficial ownership would be aggregated with the holder's for
purposes of Section 13(d) of the Exchange Act does not exceed 9.999% of the
total number of then issued and outstanding shares of our common stock
(including for such purpose the shares of common stock issuable upon such
exercise or call). The 9.999% beneficial ownership limitation may not be waived.
However, the beneficial ownership limitation does not preclude a holder from
exercising a warrant and selling the shares underlying the warrant in stages
over time where each stage does not cause the holder and its affiliates to
beneficially own shares in excess of the limitation amount.
We have registered for resale under this prospectus the shares of common
stock issued to investors in the offering and the shares of common stock
underlying the investor warrants and the placement warrants. The securities
purchase agreement, registration rights agreement and placement agent
arrangements contain various indemnification provisions in connection with the
offering and registration of the shares and warrants. There are no material
relationships between us or our affiliates and any of the investors or placement
agents, except that each of The Pinnacle Fund, L.P., JLF Offshore Fund, Ltd.,
JLF Asset Management, LLC (which entity is investment manager of three of the
selling security holders, including JLF Offshore Fund, Ltd.) and Jeffrey L.
Feinberg (the managing member of JLF Asset Management, LLC), became a beneficial
owner of more than 5% of our outstanding common stock at the closing of the
offering.
LARUS CORPORATION ACQUISITION
As described elsewhere in this prospectus, we acquired the outstanding
capital stock of Larus Corporation in July 2004 from Noel C. McDermott, Trustee
of the Noel C. McDermott Revocable Living Trust dated December 18, 1995, and
Warren P. Yost and Gail A. Yost, Co-Trustees Under Declaration of Trust dated
March 9, 1988. The purchase price for the acquisition consisted of $1,000,000 in
cash, the issuance of 1,213,592 shares of our common stock with a fair value of
$1,000,000, $887,500 in the form of two short-term, zero interest promissory
17
notes that have since been repaid, $3,000,000 in the form of two subordinated
secured promissory notes, warrants to purchase up to an aggregate of 150,000
shares of our stock at $1.30 per share and approximately $580,000 of acquisition
costs. In addition, we assumed $245,000 in accounts payable and accrued expenses
and entered into an above-market real property lease with the sellers. The
warrants contain a net exercise cashless exercise feature that will permit the
warrants to be exercised for a net number of shares using the spread between the
warrant exercise price and the average of the last reported sale prices for a
share of our common stock on its principal trading market for the five trading
days immediately prior to the exercise of the warrant as payment for a reduced
number of common shares. We granted the sellers piggyback and demand
registration rights for the shares we issued to them in the acquisition and for
the shares that are issuable upon exercise of the warrants issued in the
acquisition and have registered all of those shares for resale under this
prospectus.
HAYDEN COMMUNICATIONS, INC. INVESTOR RELATIONS WARRANTS
In November 2004, we issued to Hayden Communications, Inc. warrants to
purchase up to 100,000 shares of common stock as partial consideration for
investor relations services. The warrants vested and become exercisable in three
installments. The warrants vested on November 3, 2004 as to 25,000 underlying
shares with an exercise price of $0.85 per share and on March 3, 2005 as to
25,000 underlying shares with an exercise price of $1.00 per share. The warrants
vested on June 3, 2005 as to the remaining 50,000 underlying shares with an
exercise price of $1.15 per share. The warrants are exercisable for a period of
three years commencing on their respective vesting dates.
On January 24, 2005, we issued to Hayden Communications, Inc. a
fully-vested three-year warrant to purchase up to 25,000 shares of common stock
as additional consideration for investor relations services. The exercise price
of the warrant is $2.00 per share. All of the warrants issued to Hayden
Communications, Inc. contain a net exercise cashless exercise feature that will
permit the warrants to be exercised for a net number of shares using the spread
between the warrant exercise price and the average of the last bid and asked
prices reported on the last business day immediately prior to the exercise of
the warrant as payment for a reduced number of common shares. We agreed to
register for resale and have included in this prospectus the 125,000 shares of
common stock underlying the warrants issued to Hayden Communications, Inc.
OTHER PRIVATE PLACEMENT TRANSACTIONS
In October 2001, we issued to Placido Albanese a three-year warrant to
purchase up to 15,000 shares of common stock at a per share exercise price of
$0.25 in consideration for financial advisory services rendered. Mr. Albanese
exercised this warrant, and we have included the 15,000 outstanding shares of
common stock for resale under this prospectus.
In October 2001, we issued to Joseph Mirabella a three-year warrant to
purchase up to 50,000 shares of common stock at a per share exercise price of
$0.31 in consideration for consulting services rendered. Mr. Mirabella exercised
this warrant, and we have included the 50,000 outstanding shares of common stock
for resale under this prospectus.
In September 2002, we issued to Jacques Moisset a three-year warrant to
purchase up to 120,000 shares of common stock at a per share exercise price of
$0.50 in consideration for post-retirement business services rendered. We have
included these underlying shares for resale under this prospectus. On August 3,
2005, Mr. Moisset received 78,042 shares of common stock through a cashless
exercise of this entire warrant.
18
In April 2003, we issued to George Farndell a three-year warrant to
purchase up to 150,000 shares of common stock at a per share exercise price of
$0.75 in consideration for human resources consulting services rendered. We have
included these underlying shares for resale under this prospectus.
In April 2003, we issued to Steven Jacobus a three-year warrant to purchase
up to 50,000 shares of common stock at a per share exercise price of $0.75 in
consideration for financial advisory services rendered. We have included these
underlying shares for resale under this prospectus.
In April 2003, we issued to Jason Oliva three-year warrants to purchase up
to 100,000 shares of common stock at a per share exercise price of $0.75 and up
to 100,500 shares of common stock at a per share exercise price of $1.00 in
consideration for financial advisory services rendered. We have included these
underlying shares for resale under this prospectus.
PLAN OF DISTRIBUTION
The selling security holders and any of their donees, pledgees, assignees
and other successors-in-interest may, from time to time, sell any or all of
their shares of common stock being offered under this prospectus on any stock
exchange, market or trading facility on which the shares are traded, or in
private transactions. These sales, which may include block transactions, may be
at fixed or negotiated prices. The selling security holders may use any one or
more of the following methods when disposing of shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resales by the
broker-dealer for its own account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o through the distribution of the shares by any selling security holder
to its partners, members or stockholders;
o broker-dealers may agree with the selling security holders to sell a
specified number of shares at a stipulated price per share;
o one or more underwritten offerings on a firm commitment or best
efforts basis;
o a combination of any of these methods of sale; or
o any other method permitted by applicable law; provided, however, that
the selling security holders have agreed not to engage in short sales
involving the shares offered under this prospectus.
19
The shares may also be sold under Rule 144 under the Securities Act, if
available, rather than under this prospectus. The selling security holders have
the sole and absolute discretion not to accept any purchase offer or make any
sale of shares if they deem the purchase price to be unsatisfactory at any
particular time.
The selling security holders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling security holder
defaults on a margin loan, the broker may, from time to time, offer and sell the
pledged shares.
Broker-dealers engaged by the selling security holders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling security holders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated, which commissions as to a particular broker or dealer
may be in excess of customary commissions to the extent permitted by applicable
law.
If sales of shares offered under this prospectus are made to broker-dealers
as principals, we would be required to file a post-effective amendment to the
registration statement of which this prospectus is a part. In the post-effective
amendment, we would be required to disclose the names of any participating
broker-dealers and the compensation arrangements relating to such sales.
The selling security holders and any broker-dealers or agents that are
involved in selling the shares offered under this prospectus may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with these
sales. Commissions received by these broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Any broker-dealers or agents
that are deemed to be underwriters may not sell shares offered under this
prospectus unless and until we set forth the names of the underwriters and the
material details of their underwriting arrangements in a supplement to this
prospectus or, if required, in a replacement prospectus included in a
post-effective amendment to the registration statement of which this prospectus
is a part.
The selling security holders may sell all or any part of the shares offered
under this prospectus through an underwriter. To our knowledge, no selling
security holder has entered into any agreement with a prospective underwriter,
and we cannot assure you as to whether any such agreement will be entered into.
If a selling security holder informs us that it has entered into such an
agreement or agreements, any material details will be set forth in a supplement
to this prospectus or, if required, in a replacement prospectus included in a
post-effective amendment to the registration statement of which this prospectus
is a part.
The selling security holders and any other persons participating in the
sale or distribution of the shares offered under this prospectus will be subject
to applicable provisions of the Exchange Act, and the rules and regulations
under that act, including Regulation M. These provisions may restrict activities
of, and limit the timing of purchases and sales of any of the shares by, the
selling security holders or any other person. Furthermore, under Regulation M,
persons engaged in a distribution of securities are prohibited from
simultaneously engaging in market making and other activities with respect to
those securities for a specified period of time prior to the commencement of
such distributions, subject to specified exceptions or exemptions. All of these
limitations may affect the marketability of the shares.
This prospectus does not cover the sale or other transfer of any of the
derivative securities whose underlying shares of common stock are being offered
for sale pursuant to this prospectus. If a selling security holder transfers
those derivative securities prior to conversion or exercise, then the transferee
of those derivative securities may not sell the underlying shares of common
stock under this prospectus unless we amend or supplement this prospectus to
cover such sales.
20
In addition, if any of the shares of common stock offered for sale pursuant
to this prospectus are transferred other than pursuant to a sale under this
prospectus, then subsequent holders could not use this prospectus until a
post-effective amendment or prospectus supplement is filed, naming such holders.
We offer no assurance as to whether any of the selling security holders will
sell all or any portion of the shares offered under this prospectus.
For the period a selling security holder holds a derivative security whose
underlying shares of common stock are being offered for sale pursuant to this
prospectus, the selling security holder has the opportunity to profit from a
rise in the market price of our common stock without assuming the risk of
ownership of the underlying shares of common stock. The terms on which we could
obtain additional capital during the period in which those derivative securities
remain outstanding may be adversely affected. The holders of derivative
securities are most likely to voluntarily convert or exercise their derivative
securities when the conversion or exercise price is less than the market price
for our common stock. However, we offer no assurance as to whether any of those
derivative securities will be converted or exercised.
We have agreed to pay all fees and expenses incident to the registration of
the shares being offered under this prospectus. However, each selling security
holder and purchaser is responsible for paying any discounts, concessions and
similar selling expenses they incur.
We and certain of the selling security holders have agreed to indemnify one
another against certain losses, claims, damages and liabilities arising in
connection with this prospectus, including liabilities under the Securities Act.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Commission allows us to incorporate by reference information we file
with it, which means we can disclose important information to you by referring
you to documents we have filed with the SEC. The information incorporated by
reference is considered to be a part of this prospectus. We incorporate by
reference the documents listed below and any future filings we make with the
Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to
the termination of the offering covered by this prospectus:
o Our current report on Form 8-K for January 5, 2005, as filed with the
Commission on January 6, 2005 (File No. 1-10346);
o Amendment No. 1 to our current report on Form 8-K for January 5, 2005,
as filed with the Commission on January 7, 2005;
o Amendment No. 1 to our current report on Form 8-K for December 29,
2004, as filed with the Commission on January 7, 2005;
o Our current report on Form 8-K for March 2, 2005, as filed with the
Commission on March 7, 2005;
o Our current report on Form 8-K for March 18, 2005, as filed with the
Commission on March 24, 2005;
o Our current report on Form 8-K for April 5, 2005, as filed with the
Commission on April 8, 2005;
21
o Our annual report on Form 10-K for the year ended December 31, 2004,
as filed with the Commission on April 8, 2005;
o Amendment No. 4 to our current report on Form 8-K for July 13, 2004,
as filed with the Commission on April 12, 2005;
o Our quarterly report on Form 10-Q for the quarter ended March 31,
2005, as filed with the Commission on May 16, 2005;
o Our current report on Form 8-K for May 6, 2005, as filed with the
Commission on May 19, 2005;
o Amendment No. 1 to our current report on Form 8-K for March 18, 2005,
as filed with the Commission on May 27, 2005;
o Amendment No. 2 to our current report on Form 8-K for March 18, 2005,
as filed with the Commission on June 17, 2005;
o Amendment No. 1 to our quarterly report on Form 10-Q for the quarter
ended March 31, 2005, as filed with the Commission on June 17, 2005;
o Amendment No. 3 to our current report on Form 8-K for March 18, 2005,
as filed with the Commission on June 28, 2005;
o Our current report on Form 8-K for July 3, 2005, as filed with the
Commission on July 5, 2005;
o Our current report on Form 8-K for July 8, 2005, as filed with the
Commission on August 15, 2005;
o Our quarterly report on Form 10-Q for the quarter ended June 30, 2005,
as filed with the Commission on August 22, 2005;
o Our current report on Form 8-K for August 25, 2005, as filed with the
Commission on August 31, 2005;
o Our current report on Form 8-K for August 26, 2005, as filed with the
Commission on September 1, 2005;
o Amendment No. 1 to our current report on Form 8-K for August 26, 2005,
as filed with the Commission on September 8, 2005;
o Our current report on Form 8-K for September 2, 2005, as filed with
the Commission on September 9, 2005;
o Amendment No. 1 to our current report on Form 8-K for September 2,
2005, as filed with the Commission on October 4, 2005;
o Amendment No. 2 to our current report on Form 8-K for September 2,
2005, as filed with the Commission on October 20, 2005; and
22
o The description of our capital stock contained in our Form 8-A12B, as
filed with the Commission on August 4, 2005, including any amendment
or reports filed for the purpose of updating such description.
Any statement in a document incorporated or deemed to be incorporated by
reference in this prospectus is deemed to be modified or superseded to the
extent that a statement contained in this prospectus, or in any other document
we subsequently file with the Commission, modifies or supersedes that statement.
If any statement is modified or superseded, it does not constitute a part of
this prospectus, except as modified or superseded.
Notwithstanding the above, information that is "furnished to" the
Commission shall not be deemed "filed with" the Commission and shall not be
deemed incorporated by reference into this prospectus or the registration
statement of which this prospectus is a part.
We will provide to each person, including any beneficial owner, to whom a
prospectus is delivered, a copy of any or all of the information that has been
incorporated by reference in this prospectus but not delivered with this
prospectus. You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and phone number:
Emrise Corporation
9485 Haven Avenue, Suite 100
Rancho Cucamonga, CA 91730
Attn: Chief Financial Officer
Telephone: (909) 987-9220
LEGAL MATTERS
The validity of the shares of common stock offered in this offering will be
passed upon for us by Rutan & Tucker, LLP, Costa Mesa, California.
EXPERTS
Grant Thornton LLP, independent registered public accounting firm, has
audited Emrise Corporation's consolidated balance sheets as of December 31, 2004
and 2003, and related consolidated statements of operations, comprehensive
income (loss), stockholders' equity and cash flows for the years ended December
31, 2004, 2003 and 2002, as set forth in their report. Grant Thornton LLP has
also audited Emrise Corporation's Schedule II for the years ended December 31,
2004, 2003 and 2002. We have incorporated by reference those consolidated
financial statements and Schedule II in the prospectus and elsewhere in the
registration statement in reliance on Grant Thornton LLP's report, given on
their authority as experts in accounting and auditing.
Grant Thornton UK LLP, independent auditor, has audited the consolidated
balance sheets and the company balance sheets of Pascall Electronic (Holdings)
Limited as of March 18, 2005 and March 31, 2004, and the consolidated profit and
loss accounts and consolidated cash flows for the periods from April 1, 2004 to
March 18, 2005 and for the year ended March 31, 2004. We have incorporated by
reference those consolidated financial statements in the prospectus and
elsewhere in the registration statement in reliance on Grant Thornton UK LLP's
report, given on their authority as experts in accounting and auditing.
23
Mayer Hoffman McCann P.C., independent auditor, has audited RO Associates
Incorporated's balance sheet as of May 31, 2005 and the related statements of
income and retained earnings and cash flow for the year then ended. We have
incorporated by reference those financial statements in the prospectus and
elsewhere in the registration statement in reliance on said firm's report, given
on their authority as experts in accounting and auditing.
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for our common stock is
Computershare Investor Services. Its telephone number is (303) 986-5400.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-3 with respect to the
common stock offered in this prospectus with the Commission in accordance with
the Securities Act, and the rules and regulations enacted under its authority.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information included in the registration statement and
its exhibits and schedules. Statements contained in this prospectus regarding
the contents of any document referred to in this prospectus are not necessarily
complete, and in each instance, we refer you to the full text of the document
which is filed as an exhibit to the registration statement. Each statement
concerning a document which is filed as an exhibit should be read along with the
entire document. For further information regarding us and the common stock
offered in this prospectus, we refer you to this registration statement and its
exhibits and schedules, which may be inspected without charge at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
Public Reference Room.
The Commission also maintains an Internet website that contains reports,
proxy and information statements, and other information regarding issuers, such
as us, that file electronically with the Commission. The Commission's website
address is http://www.sec.gov.
24
EMRISE CORPORATION
PROSPECTUS
, 2005
WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND ANY ACCOMPANYING SUPPLEMENT TO THIS PROSPECTUS. YOU MUST NOT RELY
UPON ANY INFORMATION OR REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT. THIS PROSPECTUS AND ANY ACCOMPANYING
SUPPLEMENT TO THIS PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE, NOR DO THIS PROSPECTUS AND ANY ACCOMPANYING
SUPPLEMENT TO THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THE
INFORMATION CONTAINED IN THIS PROSPECTUS AND ANY ACCOMPANYING SUPPLEMENT TO THIS
PROSPECTUS IS ACCURATE AS OF THE DATES ON THEIR COVERS. WHEN WE DELIVER THIS
PROSPECTUS OR A SUPPLEMENT OR MAKE A SALE PURSUANT TO THIS PROSPECTUS OR A
SUPPLEMENT, WE ARE NOT IMPLYING THAT THE INFORMATION IS CURRENT AS OF THE DATE
OF THE DELIVERY OR SALE.
PART II
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses to be paid by the registrant in
connection with this offering. All amounts shown are estimates except for the
SEC registration fee.
SEC registration fee $ 3,225
Legal fees and expenses $ 230,000
Accounting fees and expenses $ 249,000
Printing expenses $ 12,000
Blue sky fees and expenses $ 10,000
Transfer agent and registrar fees and expenses $ --
Miscellaneous $ --
---------
Total $ 504,225
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to officers,
directors and other corporate agents in terms sufficiently broad to permit
indemnification under certain circumstances and subject to certain limitations,
such as if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
registrant, and with respect to any criminal proceeding, had no reasonable cause
to believe such person's conduct was unlawful.
As permitted to Section 145 of the Delaware General Corporation Law, the
registrant's amended and restated certificate of incorporation includes a
provision that eliminates the personal liability of its directors of monetary
damages for breach of their fiduciary duty as directors.
In addition, as permitted by Section 145 of the Delaware General
Corporation Law, the bylaws of the registrant provide that:
o The registrant shall indemnify its directors and officers for serving
the registrant in those capacities or for serving other business
enterprises at the registrant's request, to the fullest extent
permitted by Delaware law.
o The registrant may, in its discretion, indemnify employees and agents
in those circumstances where indemnification is not required by law.
o The registrant is required to advance expenses, as incurred, to its
directors and officers in connection with defending a proceeding,
except that such director or officer shall undertake to repay such
advance if it is ultimately determined that such person is not
entitled to indemnification.
o The rights conferred in the bylaws are not exclusive, and the
registrant is authorized to enter into indemnification agreements with
its directors, officers, employees and agents and to obtain insurance
to indemnify such persons.
II-1
o The Registrant may not retroactively amend the bylaw provisions to
reduce its indemnification obligations to directors, officers,
employees and agents.
The registrant's policy is to enter into separate indemnification
agreements with each of its directors and officers that provide the maximum
indemnity allowed to directors and officers by Section 145 of the Delaware
General Corporation Law and which allow for additional procedural protections.
The registrant also maintains directors' and officers' insurance to insure those
persons against various liabilities.
Registration rights agreements between the registrant and various investors
provide for cross-indemnification in connection with registration of the
registration's common stock on behalf of those investors.
These indemnification provisions and the indemnification agreements entered
into between the registrant and its officers and directors may be sufficiently
broad to permit indemnification of the registrant's officers and directors for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act.
Reference is made to exhibits 4.2 and 4.5 to this registration statement
regarding certain relevant indemnification provisions described above and
elsewhere herein.
ITEM 16. EXHIBITS
The following exhibits are included or incorporated herein by reference.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Stock Purchase Agreement dated July 13, 2004 between MicroTel
International Inc.; Noel C. McDermott; Warren P. Yost; Noel C.
McDermott, as Trustee of the Noel C. McDermott Revocable Living
Trust dated December 19, 1995; and Warren P. Yost and Gail A.
Yost, as Co-Trustees Under Declaration of Trust dated March 9,
1988 (1)
2.2 Agreement dated March 1, 2005 among Intelek Properties Limited,
XCEL Corporation Limited, Intelek plc and Emrise Corporation
relating to the sale and purchase of the outstanding capital
shares of Pascall Electronic (Holdings) Limited (17)
2.3 Supplemental Agreement dated March 18, 2005 among Intelek
Properties Limited, XCEL Corporation Limited, Intelek plc and
Emrise Corporation (17)
2.4 Loan Agreement dated March 18, 2005 among XCEL Corporation
Limited, Pascall Electronics Limited and Pascall Electronic
(Holdings) Limited (17)
2.5 Stock Purchase Agreement dated September 2, 2005 between Emrise
Electronics Corporation, a New Jersey corporation, Robert H.
Okada, as Trustee of the Robert H. Okada Trust Agreement dated
February 11, 1992, and Sharon Vavro, an individual (21)
2.6 Amendment No. 1 dated effective as of September 28, 2005 to Stock
Purchase Agreement dated September 2, 2005 between Emrise
Electronics Corporation, a New Jersey corporation, Robert H.
Okada, as Trustee of the Robert H. Okada Trust Agreement dated
February 11, 1992, and Sharon Vavro, an individual (22)
4.1 Securities Purchase Agreement dated December 29, 2004 among
Emrise Corporation and the investors listed on an attachment
thereto (4)
II-2
4.2 Registration Rights Agreement dated December 29, 2004 among
Emrise Corporation and the investors who are parties to the
Securities Purchase Agreement listed as Exhibit 4.1 (4)
4.3 Form of Investor Warrant issued by Emrise Corporation to the
investors who are parties to the Securities Purchase Agreement
listed as Exhibit 4.1 (4)
4.4 Form of Placement Warrant issued by Emrise Corporation to Roth
Capital Partners, LLC covering 650,310 shares of common stock (4)
4.5 Registration Rights Agreement dated July 13, 2004 among the
Registrant and Noel C. McDermott, as Trustee of the Noel C.
McDermott Revocable Living Trust dated December 19, 1995, and
Warren P. Yost and Gail A. Yost, as Co-Trustees Under Declaration
of Trust dated March 9, 1988 (18)
4.6 Form of Common Stock Purchase Warrant dated July 13, 2004 issued
by the Registrant to: (a) Noel C. McDermott, as Trustee of the
Noel C. McDermott Revocable Living Trust dated December 19, 1995
(84,066 shares); and (b) Warren P. Yost and Gail A. Yost, as
Co-Trustees Under Declaration of Trust dated March 9, 1988
(65,934 shares) (18)
4.7 Warrants to Purchase Common Stock dated November 3, 2004 issued
by the Registrant to Hayden Communications, Inc. (100,000 shares)
(18)
4.8 Warrants to Purchase Common Stock dated January 24, 2005 issued
by the Registrant to Hayden Communications, Inc. (25,000 shares)
(18)
4.9 Warrants to Purchase Common Stock dated April 3, 2001 issued by
the Registrant to Coffin Partners LLC (35,000 shares) (18)
4.10 Warrants to Purchase Common Stock dated September 25, 2002 issued
by the Registrant to Jacques Moisset (120,000 shares) (18)
4.11 Form of Warrants to Purchase Common Stock dated April 2, 2003
issued by the Registrant to: (a) Jason Oliva (100,000 shares at
$0.75 per share); (b) Jason Oliva (100,500 shares at $1.00 per
share); (c) Steven Jacobus (50,000 shares at $0.75 per share);
and (d) George Farndell (150,000 shares at $0.75) (18)
5 Opinion of Rutan & Tucker, LLP (20)
21 Subsidiaries of the Registrant (5)
23.1 Consent of Grant Thornton LLP, Independent Registered Public
Accounting Firm *
23.2 Consent of Rutan & Tucker, LLP (contained in Exhibit 5) (20)
23.3 Consent of Grant Thornton UK LLP, Independent Auditors*
23.4 Consent of Mayer Hoffman McCann P.C., Independent Auditors*
24 Power of Attorney (contained on the signature page to the initial
filing of this registration statement)
---------------
* Filed herewith.
(#) Management contract or compensatory plan, contract or arrangement required
to be filed as an exhibit.
II-3
(1) Filed as an exhibit to the Registrant's current report on Form 8-K for July
13, 2004 and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's current report on Form 8-K for
December 8, 2004 and incorporated herein by reference.
(3) Filed as Appendix G to the Registrant's definitive proxy statement for the
Registrant's 2004 annual meeting of stockholders and incorporated herein by
reference.
(4) Filed as an exhibit to the Registrant's current report on Form 8-K for
December 29, 2004 and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's annual report on Form 10-K for the
year ended December 31, 2004 and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's annual report on Form 10-K for the
year ended December 31, 2000 and incorporated herein by reference.
(7) Filed as an exhibit to the Registrant's definitive proxy statement for the
Registrant's annual meeting of stockholders held June 11, 1998 and
incorporated herein by reference.
(8) Filed as an exhibit to the Registrant's definitive proxy statement for the
special meeting of stockholders held January 16, 2001 and incorporated
herein by reference.
(9) Filed as an exhibit to the Registrant's quarterly report on Form 10-Q for
September 30, 2001 and incorporated herein by reference.
(10) Filed as an exhibit to the Registrant's quarterly report on Form 10-Q for
June 30, 2004 and incorporated herein by reference.
(11) Filed as an exhibit to the Registrant's quarterly report on Form 10-Q for
June 30, 2003 and incorporated herein by reference.
(12) Filed as an exhibit to Amendment No. 1 to the Registrant's quarterly report
on Form 10-Q for June 30, 2003 and incorporated herein by reference.
(15) Filed as an exhibit to the Registrant's registration statement on Form S-8
(Registration Statement No. 333-29925) and incorporated herein by
reference.
(16) Filed as an exhibit to the initial filing of the Registrant's registration
statement on Form S-1 (Registration Statement No. 333-63024) and
incorporated herein by reference.
(17) Filed as an exhibit to the Registrant's current report on Form 8-K for
March 18, 2005 and incorporated herein by reference.
(18) Filed as an exhibit to Amendment No. 1 to the Registrant's registration
statement on Form S-1 (Registration Statement No. 333-122394) and
incorporated herein by reference.
(19) Filed as an exhibit to the Registrant's current report on Form 8-K for May
6, 2005 and incorporated herein by reference.
II-4
(20) Filed as an exhibit to Amendment No. 3 to the Registrant's registration
statement on Form S-1 (Registration Statement No. 333-122394) and
incorporated herein by reference.
(21) Filed as an exhibit to the Registrant's current report on Form 8-K for
September 2, 2005 and incorporated herein by reference.
(22) Filed as an exhibit to Amendment No. 1 to the Registrant's current report
on Form 8-K for September 2, 2005 and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided however, that paragraphs (1)(i) and (1)(ii) shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is incorporated by reference from periodic reports filed with the
Commission by the registrant under the Exchange Act.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that for the purpose of
determining liability under the Securities Act of 1933 to any purchaser:
(1) If the registrant is relying on Rule 430B:
II-5
(i) Each prospectus filed by the registrant pursuant to Rule 424(b)(3)
shall be deemed to be part of the registration statement as of the date the
filed prospectus was deemed part of and included in the registration statement;
and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5) or (b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x), for
the purpose of providing the information required by section 10(a) of the
Securities Act of 1933 shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of prospectus is
first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer and any person that is at that date
an underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference in to the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
contract of sale prior to such effective date, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to such
effective date; or
(2) If the registrant is subject to Rule 430C, each prospectus filed
pursuant to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and
included in the registration statement as of the date it is first used after
effectiveness. Provided, howerver, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use, supersede or
modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such date of first use.
For the purpose of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 hereof, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
II-6
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registration hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Rancho Cucamonga, State of California on October 28,
2005.
EMRISE CORPORATION
By: /s/ Carmine T. Oliva
---------------------------------
Carmine T. Oliva
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
post-effective amendment no. 2 to registration statement has been signed by the
following persons in the capacities and on the dates indicated.
NAME TITLE DATE
-------------------------------- ------------------------------------ ------------------
/s/ Carmine T. Oliva Chairman of the Board, President, October 28, 2005
-------------------------------- Chief Executive Officer (principal
Carmine T. Oliva executive officer) and Director
/s/ Randolph D. Foote Chief Financial Officer October 28, 2005
-------------------------------- (principal accounting and
Randolph D. Foote financial officer)
/s/ Robert B. Runyon* Director October 28, 2005
--------------------------------
Robert B. Runyon
/s/ Laurence P. Finnegan, Jr.* Director October 28, 2005
--------------------------------
Laurence P. Finnegan, Jr.
/s/ Otis W. Baskin* Director October 28, 2005
--------------------------------
Otis W. Baskin
* By: /s/ Carmine T. Oliva
--------------------
Carmine T. Oliva,
Attorney-in-Fact
II-8
INDEX TO EXHIBITS ATTACHED TO THIS POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1 ON FORM S-3
Exhibit
Number Description
------ -----------
23.1 Consent of Grant Thornton LLP, Independent Registered Public
Accounting Firm
23.3 Consent of Grant Thornton UK LLP, Independent Auditors
23.4 Consent of Mayer Hoffman McCann P.C., Independent Auditors