As filed with the Securities and Exchange Commission on August 28, 2002
Registration No. 333-75294
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INFINITE GROUP, INC.
(Exact name of Registrant as specified in its
charter)
Delaware 3674 52-1490422
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2364 Post Road
Warwick, RI 02886
(401) 738-5777
(Address, including zip code, and telephone number,
including area code, of Registrant's executive offices)
Clifford G. Brockmyre II, CEO
2364 Post Road
Warwick, RI 02886
(401) 738-5777
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Kenneth S. Rose, Esq.
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
(212) 838-5030
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are to be offered
pursuant to dividend or 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, as amended (the "Securities Act") other than securities offered only in
connection with dividend or 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, please 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. |_|
CALCULATION OF REGISTRATION FEE
======================================================================================================================
Proposed Proposed Maximum
Title of Each Class of Securities Amount to be Maximum Aggregate Offering Amount of
to be Registered Registered (3) Offering Price Price(1) Registration Fee
------------------------------------ ---------------- ----------------- -------------------------- -------------------
------------------------------------ ---------------- ----------------- -------------------------- -------------------
Common stock, par value $.001 per
share (2) 592,518 $2.81 $1,664,976 $416.24
------------------------------------ ---------------- ----------------- -------------------------- -------------------
Shares of common stock, par value
$.001 per share underlying
Common Stock Purchase Warrants
(2) 73,400 $2.81 $ 206,254 $ 73.40
------------------------------------ ---------------- ----------------- -------------------------- -------------------
Common stock, par value $.001 per
share (4) 75,000 $1.35(5) $ 101,250 $ 9.32
------------------------------------ ---------------- ----------------- -------------------------- -------------------
Shares of common stock, par value
$.001 per share underlying
Common Stock Purchase Warrants
(4) 475,000 $1.35(5) $ 641,250 $ 59.00
------------------------------------ ---------------- ----------------- -------------------------- -------------------
Shares of common stock, par value
$.001 per share underlying
Convertible Notes (4) 937,500 $1.35(5) $1,265,625 $116.44
------------------------------------ ---------------- ----------------- -------------------------- -------------------
------------------------------------ ---------------- ----------------- -------------------------- -------------------
Total Registration Fee $674.40(6)
------------------------------------ ---------------- ----------------- -------------------------- -------------------
-------------------
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
(2) These shares were included in the initial filing of this registration
statement. The registration fee with respect to these securities is
calculated based upon the price of the Common Stock on December 13, 2002
($2.81).
(3) Pursuant to Rule 416(a) under the Securities Act, there are also being
registered hereby such additional indeterminate number of shares as may
become issuable pursuant to the antidilution provisions of the warrants
and notes and in connection with stock splits, stock dividends or similar
transactions.
(4) These shares were added to the Registration Statement by amendment #2.
187,500 of these shares were eliminated by amendment #3 to the
Registration Statement.
(5) Pursuant to Rule 457(c), the maximum offering price for the common stock
is based upon the average of the high and low sales prices of the Common
Stock on the Nasdaq on August 5, 2002 of $1.35.
(6) Previously paid.
================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement of which this
prospectus is a part filed with the Securities and Exchange Commission is
declared effective. This prospectus is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION
DATED August 28, 2002
1,965,918 Shares
Common Stock
INFINITE GROUP, INC.
The selling stockholders identified in this prospectus are offering to
sell up to 1,965,918 shares of our common stock. Of this amount, 548,400 shares
are covered by warrants held by selling stockholders that have not yet been
exercised and 750,000 shares are issuable upon conversion of an outstanding
note.
Except for the proceeds from the exercise of the warrants, we will not
receive any of the proceeds from the sale of these shares. The shares are being
registered for resale by the selling stockholders.
Our common stock is quoted on the Nasdaq SmallCap Market under the symbol
"IMCI." The last reported sale price of our common stock on the Nasdaq SmallCap
Market on August 26, 2002 was $1.30 per share.
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 3.
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 _________________, 2002
TABLE OF CONTENTS
Page
----
Risk Factors...................................................................3
Where You Can Find More Information............................................9
Reports to Security Holders...................................................10
Incorporation of Certain Documents by Reference...............................10
Special Note Regarding Forward-Looking Statements.............................11
The Company...................................................................12
Recent Developments...........................................................16
Use of Proceeds...............................................................19
Selling Stockholders..........................................................20
Plan of Distribution..........................................................21
Legal Matters.................................................................22
Experts.......................................................................22
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
any other information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front cover.
SUMMARY OF BUSINESS
We have two business segments, our Laser Group and our Photonics Group.
Our Laser Group provides comprehensive laser-based materials and processing
services (cutting, welding, drilling and assembly) to aerospace, power
generation and medical device customers. Our Laser Group provides comprehensive
laser-based materials and processing services (cutting, welding, drilling and
assembly) to aerospace, power generation and medical device customers. Our
Photonics Group develops and markets diode lasers for source and pump lasers and
semiconductor optical amplifiers. Diode lasers amplifiers are very small
semiconductor products used as the laser "light" source in a variety of defense,
telecommunications, material processing and medical device applications. A more
detailed explanation of our business can be found beginning on page 13.
2
We maintain web sites at www.infinite-group.com, www.laserfare.com and
www.infinitephotonics.com. None of the information contained in any of our web
sites constitute part of this prospectus.
We own various intellectual property rights to our name and the names of
our subsidiaries, as well as the Infinite Group logo. This prospectus also
contains trademarks and tradenames belonging to other persons.
RISK FACTORS
A purchase of our common stock is speculative and involves a high degree
of risk. You should carefully consider the risks described below together with
all of the other information included or incorporated by reference in this
prospectus before making an investment decision. If any of the following risks
actually occur, our business, financial condition or operating results could be
harmed. In such case, the trading price of our common stock could decline and
you could lose all or part of your investment.
We have experienced losses in the current and prior years and we anticipate that
we may continue to generate operating losses during 2002.
Our operations to date have not been profitable. As of June 30, 2002 we had an
accumulated deficit of approximately $24.9 million. We expect to continue
operating at a loss during the third quarter of 2002. The majority of the
operating losses during 2001 were primarily attributable to discontinued
injection molding operations at our former Osley & Whitney, Inc. subsidiary and
start up costs at our Infinite Photonics, Inc. subsidiary (which are accounted
for in accordance with SOP 98-5). Other factors that have effected our operating
results during 2002 include:
o the cost of manufacturing scale-up and production at our Photonics
Group;
o introduction of new products and product enhancements by us or our
competitors;
o delays in receipt of orders from our Laser Group customers;
o changes in applied photonics technologies; and
o changes in general economic conditions.
We cannot assure you that our revenues will increase sufficiently to offset our
operating costs or that, even if they do, that our operations will ever be
profitable.
We are highly leveraged, which increases our operating deficit and makes it
difficult for us to grow.
At June 30, 2002 we had current liabilities, including trade payables, of $4.1
million, and long-term liabilities of $3.7 million and a working capital deficit
of approximately $141,000, (and positive working capital of $833,000 after
eliminating the assets and liabilities of our discontinued operations). We
continue to experience working capital shortages that impair our business
operations and growth strategy. If we continue to incur operating losses and
experience working capital limitations, our business, operations and financial
condition will be materially adversely affected.
We have been dependent on our chief executive officer to fund working capital
needs and provide equipment.
Our chief executive officer lent us $974,000 and $150,000 during 2000 and 2001,
respectively. He converted $974,000 and $100,000 during 2000 and 2001,
respectively, into shares of our common stock.
3
In addition Mr. Brockmyre has purchased and leased to us equipment necessary for
our operations. There is no assurance that he will be willing or able to fund
future working capital needs.
We may require additional financing in the future, which may not be available on
acceptable terms.
We may require additional funds to expand our production capability, continue to
develop new applications for our diode technology and for working capital and
general corporate purposes. At this time, we cannot assure you that cash flow
from product sales will reach the level required to sustain our operations and
growth plans in the near term. Further, we cannot assure you that adequate
additional financing will be available or, if available, will be offered on
acceptable terms. In addition, any additional equity financing may be dilutive
to stockholders, and debt financings, if available, may involve restrictive
covenants that further limit our ability to make decisions that we believe will
be in our best interests. In the event we cannot obtain additional financing on
terms acceptable to us when required, our operations will be materially
adversely affected and we may have to cease or substantially reduce operations.
Some of our products and services are at an early stage of development and may
not achieve market acceptance.
Our primary focus is to develop new commercial applications for our diode laser
and laser-driven technologies. Many of the benefits of our diode laser and laser
technologies are not widely known. Therefore, we anticipate that we will need to
educate our target markets to generate demand for our products and services and,
as a result of market feedback, we may be required to further refine these
services. In order to persuade potential customers to purchase our services, we
will need to overcome industry resistance to, and suspicion of, new
technologies. In addition, developing new applications for these technologies
and other new technologies may require significant further research,
development, testing and marketing prior to commercialization. We cannot assure
you that commercial applications of these technologies can be successfully
developed, marketed or produced.
Some of our current products and services have not been commercially successful.
Our laser materials processing services have not generated a significant amount
of revenue, even though they have been available for some time. In addition,
since the number of jet engine, aerospace and medical device manufacturers is
relatively small, most of our revenue from these businesses is generated from a
limited number of customers. We cannot assure you that these customers will
continue to purchase these products and services or that we will be able to
expand the market for these products and services. Therefore, any material
delay, retooling, cancellation or reduction in orders from the customers who
purchase these products and services could have a material adverse affect on our
business, operations and financial condition.
We have limited marketing and sales capabilities and must make sales in
fragmented markets.
Our future success depends, to a great extent, on our ability to successfully
market our products and services. We currently have limited sales and marketing
capabilities and experience at our Photonics Group (generally limited to
technical trade conferences, technical publications, and direct customer
inquiry) and we will need to hire qualified sales and marketing personnel,
develop additional sales and marketing programs and establish sales distribution
channels in order to achieve and sustain commercial sales of our products. In
addition, our ability to successfully market our products and services is
further complicated by the fact that our principal markets, laser photonics,
telecommunications, aerospace and medical components, are highly fragmented.
Consequently, we will need to identify and successfully target particular market
segments in which we believe we will have the most success. These efforts will
4
require a substantial amount of effort and resources. We cannot assure you that
any marketing and sales efforts undertaken by us will be successful or will
result in any significant product sales.
We depend on the aerospace, laser photonic, telecommunications and medical
device industries, which continually produce technologically advanced products.
A majority of our sales in our Laser Group are to companies in the aerospace,
laser photonic, telecommunications and medical device industries, which are
subject to rapid technological change and product obsolescence. If our customers
are unable to create products that keep pace with the changing technological
environment and market demand, their products could become obsolete and the
demand for our services could decline significantly. If we are unable to offer
cost-effective, quick-response manufacturing services to customers, demand for
our services will also decline. This would have a material adverse affect on our
business, operations and financial condition.
We depend on government research and development contracts to support our
Photonics Group.
Substantially all of our Photonics Group revenue has been derived from
governmental research programs. Any reduction in spending on these programs
would have a material adverse affect on our business, operations and financial
condition.
Our industry is intensely competitive, which may adversely affect our operations
and financial results.
All our markets are intensely competitive and numerous companies offer
conventional and laser driven products and services that compete with our
products and services. We anticipate that competition for our products and
services will continue to increase. Most of our competitors have substantially
greater capital resources, research and development staffs, manufacturing
capabilities, sales and marketing resources, facilities and experience. These
companies, or others, could undertake extensive research and development in
laser technology and related fields that could result in technological changes.
Many of these companies also are primary customers for various components, and
therefore have significant control over certain markets that we have targeted.
In addition, we may not be able to offer prices as low as some of our
competitors because those competitors may have lower cost structures. Our
inability to provide comparable or better products and services at a lower cost
than our competitors could adversely effect demand for our products and
services. We cannot assure you that our competitors will not succeed in
developing technologies in these fields which will enable them to offer laser
services more advanced and less costly than those we offer or which could render
our technologies obsolete.
Our products and services are subject to industry standards, which increases
their cost and could delay or bar their commercial acceptance.
Since some of our products and services in development are used in the
telecommunications industry, they must comply with the Bellcore Testing
standards for traditional equipment. These standards govern the design,
manufacture and marketing of these items. If we fail to comply with these
standards, we will not be able to sell our products. We may encounter
significant delays or incur additional costs in our efforts to comply with these
industry standards.
We depend on our relationship with third parties to develop and commercialize
new products.
Our strategy for research and development and for the commercialization of our
products contemplates a continuing relationship with various publicly and
privately funded consortia and our existing relationships will continue with
strategic partners, original equipment manufacturers (OEMs), potential licensees
and
5
others. We depend on these associations and relationships not only to underwrite
our research and development efforts, but also for product testing and to create
markets for our products and services. The majority of our product research has
been funded by customers or potential customers. We cannot assure you that our
existing relationships will continue or the extent to which the parties to such
arrangements will continue to allocate time of resources to these strategic
alliances. Similarly, we cannot assure you that we will be able to enter into
new arrangements in the future. In addition, we cannot assure you that any
agreement will progress to a production phase or, if production commences, that
we will receive significant revenues as a result of these relationships. The
majority of our relationships for product development or contract research is
for one to two years in duration, and is generally cancelable based on attaining
or not attaining the customers' milestones.
We have only limited manufacturing capabilities and our inability to
continuously manufacture products on a cost-effective basis would harm our
business.
We have limited production facilities and limited experience in manufacturing
our product offerings. To the extent any of our existing or future products must
be produced in commercially reasonable quantities, we will have to either
develop that expertise quickly or outsource that function. Developing
manufacturing capability is an expensive and time-consuming endeavor and we do
not have the resources that are required for a full-scale manufacturing
capability. Therefore, in all likelihood we will have to engage a third party to
manufacture our products for us. In that event, we will depend on the
manufacturer to produce high-quality products based on our specifications, on
time and within budget. If we are unable to manufacture products in sufficient
quantities and in a timely manner to meet customer demand ourselves or by
others, our business, financial condition and results of operations will be
materially adversely affected.
We depend on our intellectual property rights to provide us with a competitive
advantage.
Our ability to compete successfully depends, in part, on our ability to protect
our products and technologies under United States and foreign patent laws, to
preserve trade secrets and other proprietary information and technologies, and
to operate without infringing the proprietary rights of others. We cannot assure
you that patent applications relating to our products or potential products will
result in patents being issued, that any issued patents will afford adequate
protection or not be challenged, invalidated, infringed or circumvented, or that
any rights granted will give us a competitive advantage. Furthermore, we cannot
assure you that others have not independently developed, or will not
independently develop, similar products and/or technologies, duplicate any of
our product or technologies, or, if patents are issued to, or licensed by, us,
design around those patents. We cannot assure you that patents owned or licensed
and issued in one jurisdiction will also be issued in any other jurisdiction. In
addition, we cannot assure you that we can adequately protect our proprietary
technology and processes that we maintain as trade secrets. If we are unable to
develop and adequately protect our proprietary technology and other assets, our
business, financial condition and results of operations will be materially
adversely affected.
We depend on the continued services of our key personnel.
Our future success depends, in part, on the continuing efforts of our senior
executive officers, Clifford G. Brockmyre II, Thomas Mueller, Bruce J. Garreau,
and Jeff Bullington who conceived our strategic plan and who are responsible for
executing that plan. The loss of any of these key employees may adversely affect
our business. At this time we do not have any term "key man" insurance on any of
these executives other than a $1.7 million policy on Clifford G. Brockmyre II.
If we lose the services of any of these senior executives, our business,
operations and financial condition could be materially adversely affected.
6
We may have difficulties in managing our growth.
Our future growth depends, in part, on our ability to implement and expand our
financial control systems and to expand, train and manage our employee base and
provide support to an expanded customer base. If we cannot manage growth
effectively, it could have material adverse effect on our results of operations,
business and financial condition. Acquisitions and expansion involve substantial
infrastructure and working capital costs. We cannot assure you that we will be
able to integrate our acquisitions and expansions efficiently. Similarly, we
cannot assure you that we will continue to expand or that any expansion will
enhance our profitability. If we do not achieve sufficient revenue growth to
offset increased expenses associated with our expansion, our results will be
adversely affected.
We must attract, hire and retain qualified personnel.
As we continue to develop new products and as our business grows, significant
demands will be placed on our managerial, technical, financial and other
resources. One of the keys to our future success will be our ability to attract,
hire and retain highly qualified scientific, engineering, marketing, sales and
administrative personnel. Competition for qualified personnel in these areas is
intense and we will be competing for their services with companies that have
substantially greater resources than we do. We cannot assure you that we will be
able to identify, attract and retain employees with skills and experience
necessary and relevant to the future operations of our business. Our inability
to retain or attract qualified personnel in these areas could have a material
adverse effect on our business and results of operations.
We face potential product liability claims.
The sale of our telecommunications, aerospace and medical products and services
will involve the inherent risk of product liability claims by others. We
maintain product liability insurance coverage. However, we cannot assure that
the amount and scope of our existing coverage is adequate to protect us in the
event that a product liability claim is successfully asserted. Moreover, we
cannot assure you that we will continue to maintain the coverage we currently
have. Product liability insurance is expensive, subject to various coverage
exclusions and may not always be obtainable on terms acceptable to us.
Our stock price is volatile and could be further affected by events not within
our control.
The trading price of our common stock has been volatile and will continue to be
subject to:
o volatility in the trading markets generally;
o significant fluctuations in our quarterly operating results;
o announcements regarding our business or the business of our
competitors;
o changes in prices of our or our competitors' products and services;
o changes in product mix; and
o changes in revenue and revenue growth rates for us as a whole or for
geographic areas, and other events or factors.
Statements or changes in opinions, ratings or earnings estimates made by
brokerage firms or industry analysts relating to the markets in which we operate
or expect to operate could also have an adverse effect on the market price of
our common stock. In addition, the stock market as a whole has from time to time
experienced extreme price and volume fluctuations which have particularly
affected the market price for the securities of many small cap companies and
which often have been unrelated to the operating performance of these companies.
7
The price of our common stock may be adversely affected by the possible issuance
of shares as a result of the exercise of outstanding warrants and options.
As of June 30, 2002, we had granted options covering 1,157,251 shares of our
common stock under our stock option plans. In addition, we had issued warrants
covering 1,358,375 shares of common stock and have notes outstanding convertible
into 750,000 shares of common stock. The shares of common stock issuable in
satisfaction of these obligations represents approximately 52% of our
outstanding shares at June 30, 2002. As a result of the actual or potential sale
of these shares into the market, our common stock price may decrease.
Concentration of ownership
As of June 30, 2002, our chief executive officer, Clifford G. Brockmyre II, is
our largest stockholder, owning approximately 21% of the issued and outstanding
shares of our common stock. Mr. Brockmyre, as a result, effectively controls all
our affairs, including the election of directors and any proposals regarding a
sale of the Company or its assets or a merger.
Some provisions in our charter documents and bylaws may have anti-takeover
effects.
Our certificate of incorporation and bylaws contain provisions that may make it
more difficult for a third party to acquire us, with the result that it may
deter potential suitors. For example, our board of directors is authorized,
without action of the stockholders, to issue authorized but unissued common
stock and preferred stock. The existence of undesignated preferred stock and
authorized but unissued common stock enables us to discourage or to make it more
difficult to obtain control of us by means of a merger, tender offer, proxy
contest or otherwise.
Absence of dividends to shareholders.
We have never declared a dividend on our common stock. We do not anticipate
paying dividends on the common stock in the foreseeable future. We anticipate
that earnings, if any, will be reinvested in the expansion of our business and
debt reduction.
We have agreed to limitations on the potential liability of our directors.
Our certificate of incorporation provides that, in general, directors will not
be personally liable for monetary damages to the company or our stockholders for
a breach of fiduciary duty. Although this limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission, the presence of these provisions in the certificate of incorporation
could prevent us from recovering monetary damages.
We must maintain compliance with certain criteria in order to maintain listing
of our shares on the Nasdaq market.
Our common stock is traded on the Nasdaq SmallCap Market. In order to maintain
this listing, we are required to meet certain requirements relating to our stock
price and net tangible assets of $2.0 million (stockholders' equity, less
unamortized goodwill). If we fail to meet these requirements, our stock could be
delisted. If our stock is delisted, it will trade on the OTC Bulletin Board or
in the "pink sheets" maintained by the National Quotation Bureau Incorporated.
As a consequence of such delisting, an investor could find it more difficult to
dispose of or to obtain accurate quotations as to the market value of
8
our securities. Among other consequences, delisting from Nasdaq may cause a
decline in our stock price and difficulty in obtaining future financing.
The liquidity of our stock could be severely reduced if it becomes classified as
"penny stock".
The Securities and Exchange Commission has adopted regulations which generally
define a "penny stock" to be any non-Nasdaq equity security that has a market
price (as therein defined) of less than $5.00 per share or with an exercise
price of less than $5.00 per share. If our securities were subject to the
existing rules on penny stocks, the market liquidity for our securities could be
severely adversely affected. For any transaction involving a penny stock, unless
exempt, the rules require substantial additional disclosure obligations and
sales practice obligations on broker-dealers where the sale is to persons other
than established customers and accredited investors (generally, those persons
with assets in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with their spouse). For transactions covered by these rules,
the broker-dealer must make a special suitability determination for the purchase
of the common stock and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a risk disclosure document mandated by the Commission relating
to the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole market
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of broker-dealers to sell the common stock
and accordingly the market for our common stock.
WHERE YOU CAN FIND MORE INFORMATION
We are required to comply with the informational and reporting
requirements of the Securities Exchange Act of 1934, as amended. As required by
that statute, we have filed various reports, proxy statements and other
information with the Securities and Exchange Commission. You may inspect these
reports, proxy statements and other information at the public reference
facilities of the Securities and Exchange Commission at its principal offices at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at its regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You can get copies of these reports, proxy statements and
other information from these offices by paying the required fees. Please call
the Securities and Exchange Commission at (800) SEC-0330 for further information
regarding the operation of its public reference room. These reports, proxy
statements and other information can also be accessed over the Internet at the
web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
We have filed a registration statement on Form S-3 with the Securities and
Exchange Commission under the Securities Act regarding the shares of our common
stock covered by this prospectus. This prospectus, which forms a part of that
registration statement, does not contain all of the information included in that
registration statement and its accompanying exhibits. Statements contained in
this prospectus regarding the contents of any document are not necessarily
complete and are qualified in their entirety by that reference. You should refer
to the actual document as filed with the Securities and Exchange Commission.
9
Reports to Security Holders
We furnish our stockholders with annual reports containing audited
financial statements. In addition, we are required to file reports on Forms 8-K,
10-QSB and 10-KSB with the Securities and Exchange Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by us with the Securities and Exchange
Commission are incorporated in this prospectus by reference:
(1) Annual Report on Form 10-KSB for the fiscal year ended December 31,
2001.
(2) Quarterly Reports on Form 10-QSB for the quarters ended March 31,
2002 and June 30, 2002.
(3) Current Reports on Form 8-K dated February 14, 2002, March 15, 2002
and March 29, 2002.
(4) The description of our Common Stock as contained in our Registration
Statement on Form 8-A.
Each document filed after the date of this prospectus under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act but before this offering
terminates is incorporated in this prospectus by reference and is to be treated
as part of this prospectus as of the date it is filed. Any statement contained
in a document incorporated or deemed to be incorporated in this prospectus by
reference is modified or superseded to the extent that a statement contained in
this prospectus or in any other subsequently filed document that is incorporated
in this prospectus by reference modifies or supersedes that statement.
We will provide, without charge, each person to whom a copy of this
prospectus is delivered, a copy of any document incorporated by reference in
this prospectus (other than exhibits, unless those exhibits are specifically
incorporated by reference in those documents) if it is requested. Requests
should be directed to Infinite Group, Inc., 2364 Post Road, Warwick, Rhode
Island 02886, Attention: Clifford G. Brockmyre II, President and Chief Executive
Officer.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF SHARES OF OUR COMMON STOCK
COVERED BY THIS PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS
PROSPECTUS OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY CIRCUMSTANCES IN
WHICH THE OFFER OR SOLICITATION IS UNLAWFUL.
10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by forward-looking words such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"should," "will" and "would" or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
position or state other "forward-looking" information. We believe that it is
important to communicate our future expectations to our stockholders. However,
there may be events in the future that we are not able to accurately predict or
control. The factors listed above in the section captioned "Risk Factors," as
well as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, results of operations, financial
position and the price of our common stock.
11
THE COMPANY
BUSINESS
We operate through two business segments, our Laser Group and our Photonics
Group.
Revenues from our Laser Group for the quarter ended March 31, 2002 were
$1,529,046 (69.3% of total quarterly continuing revenues) compared to $1,961,200
for the quarter ended March 31, 2001. Revenues related to the Photonics Group in
the quarter ended March 31, 2002 were $678,077 (30.7% of total quarterly
continuing revenues) compared to $108,013. Each business segment is essential to
our overall growth. The Laser Group has been in business for over twenty years,
while the Photonics Group started just over one year ago. Research and
development performed in the Laser Group led to the original patent on the diode
technology that became the core business of the Photonics Group. We expect the
Laser Group to grow at the rate of the general economy, and for the Photonics
Group to grow from approximately $1.2 million in annual revenues in 2001 to in
excess of approximately $5.7 million of revenues from the DARPA contract in
2002. We anticipate developing diode lasers for defense, telecommunications,
materials processing, laser printers, and medical applications and anticipate
that the Photonics Group will continue to grow much more rapidly than the Laser
Group. In general, we expect most commercial and governmental customers to pay
for contract research and development in order to design diodes specific to
their application in terms of wattage output needed and other characteristics.
During 2001 and the first quarter of 2002, we also had a Plastics Group, which
consisted of two subsidiaries, Express Pattern, Inc. (EP) and Osley & Whitney,
Inc. (O&W). Our Plastics Group provided rapid prototyping services and
proprietary mold building services. In November 2001 and December 2001, our
board of directors determined to dispose of O&W and EP. Our plan consisted of
shutting down the operations of O&W and selling the assets of EP. The sale of EP
was consummated on March 14, 2002. During the first quarter of 2002, all of the
inventory and equipment of O&W were sold at auction, resulting in net proceeds
of approximately $416,000 and a gain of approximately $27,000. The O&W land and
building were sold at auction in July 2002 for $650,000 and the transaction
closed on August 8, 2002, resulting in a net loss of approximately $151,000,
including estimated closing costs. The carrying value of the land and building
was reduced by this amount as of June 30, 2002. This closing completes the
liquidation of the O&W assets, resulting in a net obligation to the secured
lender, including accrued interest and closing expenses, of approximately
$200,000. Infinite guaranteed the obligation of O&W to the secured lender.
Accordingly, we will assume that remaining outstanding balance. The secured
lender has tentatively agreed to convert the balance into a term loan amortizing
monthly based upon a seven year amortization schedule, with a balloon payment
due eighteen months from issuance. It is anticipated that this transaction will
be documented during the third quarter of 2002.
The Laser Group
Our Laser Group provides comprehensive laser-based materials and processing
services (cutting, welding, drilling and assembly) to aerospace, power
generation and medical device customers. As to the Laser Group, the majority of
revenues are derived from one-time purchase orders, usually from repeat
customers such as General Electric, United Technologies, Barnes Aerospace, Dey
Laboratories, etc. Work begins when materials arrive from the customer (our
inventories are minimal and the customer is responsible for the quality of the
materials), and we cut, weld, drill and assemble the parts according to
engineering drawings and specifications provided by the customer or determined
by our engineers with customer approval. Upon completion of the parts, they are
inspected by quality control personnel, compared to the engineering
specifications, packaged and delivered to the customer. The customer is billed
for the number of parts delivered.
12
The Laser Group uses 26 laser workstations to process parts ranging in size from
very large (jet engine or gas turbine parts) to very small medical products,
such as stents (stents are medical implants used to open veins for better blood
flow). Substantially all of our laser workstations employ multi-axis lasers,
commonly used for industrial component fabrication. One of our laser
workstations uses a new system developed with and licensed from Sandia National
Laboratories (Sandia). This workstation uses a process called Laser Engineered
Net Shaping (LENS(R)), which was developed cooperatively at Sandia by Sandia and
a consortium that included our Laser Group, Ford, Motorola, Lockheed Martin and
others. The LENS(R) workstation is used to make parts or resurface parts
directly in metal by introducing powdered metals through a feeder system,
melting the airborne powdered metals as they pass through a small tube with a
laser beam, and depositing the metal on to a surface. This process is computer
controlled and the systems deposit metals based on information provided from
three-dimensional engineering files, such as AutoCad(R). LENS(R) workstations
are useful for the overhaul and repair of expensive aerospace parts that would
otherwise be discarded, and for depositing rare metals, such as titanium, in
complex structures used in medical devices. Lockheed Martin, Barnes Aerospace,
United States Government military overhaul depots and Triton Systems are our
primary customers to date for these services.
To meet aerospace customer needs, our Laser Fare subsidiary is certified for
overhaul and repair of jet engine and aerospace parts by the FAA. We maintain
the overhaul and repair license in order to perform laser material processing
services on jet engine parts (cutting, welding, drilling) and to use the LENS
process to repair or deposit titanium or other metals to aerospace components.
To become FAA certified for overhaul and repair of jet engine and aerospace
parts, Laser Fare contacted the FAA and submitted a quality manual and the
required procedures for the parts involved. After the FAA staff reviewed the
documentation, FAA inspectors visited the facility and performed an inspection.
Thereafter, they require an inspection if procedures are changed. Our last
change was in 2000, for which we passed inspection. We are subject to audit by
the FAA at any time, either on a scheduled or periodic basis, or at our request
if we change procedures. Loss of the license could impair our ability to conduct
overhaul and repair of jet engine and aerospace parts.
Additionally, we are registered with the FDA as a Contract Manufacturer of
medical devices to produce products such as asthma testing devices for Dey
Laboratories (in which some of the components are cut using laser workstations).
Although we are subject to quality control audits by the FDA at any time, either
on a scheduled basis or if the FDA believes it has a quality issue, we have
never been audited by their inspectors. However, our medical customers are
responsible for the inspection, sale and distribution of their products and
devices and we do not believe we have liability to end-users. The process for
registration as a contract manufacturer involves completion of an application
Form FDA 2891A, which Laser Fare completed in 1995, and renewal forms every two
years thereafter. Loss of the registration could impair our ability to perform
contract manufacturing of medical devices or components.
Our Laser Group also provides laser-related contract research and development.
We are both a prime contractor and subcontractor on several projects sponsored
by the Defense Advanced Research Projects Agency (DARPA). We are a subcontractor
on all four of DARPA's Mesoscopic Integrated Conformal Electronics (or MICE)
programs. Mesoscopic refers to "handheld", and MICE programs are aimed at
providing a series of sophisticated handheld devices for military, industrial
and consumer use based on very small electronic components, many of which may be
manufactured using lasers. Other research and development projects include
research for the United States Naval Underwater Warfare Center, the Electric
Boat division of General Dynamics, and the United States Air Force Research
Laboratory (AFRL).
The Laser Group employs 68 full-time technical and engineering personnel in
Smithfield and Narragansett, RI in 16,800 square feet of facilities that we own
and 8,326 square feet of facilities that we
13
lease.
The Photonics Group
Our Photonics Group develops and markets diode lasers for source and pump
lasers and semiconductor optical amplifiers. Diode lasers and amplifiers are
small semiconductor products (as small as one millimeter). The structure of a
diode laser is much the same as a basic laser, with two specially designed slabs
of semiconductor material on top of each other, with another material in between
them forming the "active layer." An electrical current is sent through the
device in order to excite electrons, which can then fall back to the non-excited
ground state and give out photons ("particles" of light). Depending on the power
generated (as measured in watts) and other characteristics, the laser energy
generated can be used as the light source for a wide variety of products ranging
from being the light source for fiber optic cable to the energy source to cut
metals in materials processing equipment. Just as light bulbs can be designed
with different shapes, characteristics and wattage for different applications,
we can design diodes to provide different characteristics and wattages to meet
specific customer needs.
An amplifier couples two or more of these diode lasers in such a fashion
that the output of the second or third diode in terms of wattage is much greater
than one diode laser alone.
Photonics is the science of generating and harnessing light to do useful
work. Lasers and fiber optics are the best-known expressions of photonics
technology. We believe photonics technology will be as important to the 21st
century as electronics was to the 20th century.
The basic unit of light is the photon, while in electronics it is the
electron. Because photons are massless and travel faster than electrons,
photonic devices can be smaller and significantly faster than electronic
devices. For example, replacing electronics (copper wire) with photonics (fiber
optic cable) boosts the capacity of telecommunications transmission lines by a
factor of 10,000.
Photonic components are the "enabling technology" in many familiar
consumer products including CD-ROM players, digital cameras, displays on laptop
computers and calculators, fiber optic cable for telephones, cable television
and networked computer systems. In industry, photonic "eyes" enable robots to
"see." Photonics is also found in semiconductor manufacturing as well as
analytical and process-monitoring applications. In medicine, photonics is at the
core of diagnostic instrumentation, laser microsurgery, and filmless real-time
imaging.
In April 2001, we organized Infinite Photonics, Inc. to develop and market
laser diodes based on our proprietary, patented and patent pending grating
coupled surface emitting lasers (GCSEL) diode technology platform developed by
our Laser Group's research and development unit over the last four years. In
addition to our staff researchers, we also engaged researchers at the Photonics
Research Center at the University of Connecticut, the Ioffe Institute in St.
Petersburg, Russia and the Center for Research and Education in Optics and
Lasers at the University of Central Florida in Orlando to develop applications
of our GCSEL's. To date we have obtained one patent (expiring in 2018), have ten
patents pending and an additional ten patents are under development for GCSEL
and related technologies. We own the intellectual property, which in addition to
patents and patent applications, includes the trade secrets and processing
techniques used to manufacture these diodes.
Our diode lasers are produced from two to four inch semiconductor wafer
material, usually indium phosphide (InP), gallium arsenide (GaAs), or gallium
nitride (GaN). The semiconductor wafer material chosen determines the wavelength
of the laser beam, such as 980 nanometers for GaAs, 1550
14
nanometers for InP, and 1480 nanometers for GaN. A nanometer is one billionth of
a meter. The semiconductor diode wafers we currently use in the manufacture of
GCSEL's are processed at Industrial Microphotonics Company (a TRW subsidiary).
We are currently qualifying a second wafer-manufacturing source, as required by
most larger telecommunications equipment manufacturers.
A three-inch semiconductor wafer has the potential to produce
substantially more than 2,000 individual diode lasers as small as a millimeter
by one and one-half millimeters. Each diode can emit laser energy (lase) with
continuous power of greater than one watt. Each individual diode has two
sections, active and passive. The passive area of each diode on the wafer is
etched with one of a variety of grating patterns. It is through this grating on
the surface of the diode that the laser beam emits, hence the name, Grating
Coupled Surface Emitting Laser. At the opposite end of the diode from the
grating, a contact is placed on the diode to provide electrical power, and a
thermo-electric cooler or heat sink may be used to cool the diode during
operation. When electrical power is applied to the contact, lasing begins in the
semiconductor material, and laser energy is emitted through the grating. The
device is packaged to protect the diode, along with a very small focusing lens,
and that lens is used to focus the laser beam into the end of the fiber optic
cable.
Our competitors produce diode lasers that can either emit from the edge of
the wafer material, such as processes known as Fabry-Perot or Distributed
Feedback diode lasers, or through the surface, such as through a surface
emitting technology different from ours, known as Vertically Coupled Surface
Emitting Lasers. Each technology has different characteristics in terms of cost,
power output and laser beam quality. We believe that our GCSEL diodes produce
the best overall combination of cost, power and beam quality of emitted light
for high power (0.5 to 8 watts) applications used in defense,
telecommunications, materials processing, laser printers and medical device
equipment. Because the beam comes out of the grating in a cylindrical shape (low
beam spreading), our diodes require lower cost focusing optics. Emitting the
beam from the wide surface of the wafer (as opposed to the narrow edge of the
wafer) allows our diodes to be tested on the wafer, which provides lower test,
burn-in and packaging costs. Finally, the very narrow line width of the beam
allows for tunability over a greater number of available channels. The qualities
of our diode lasers in comparison to competitive diodes include:
o Power of up to eight watts compared to currently commercially
available power of under one watt;
o Beam spreading of less than one degree as compared to 12 to 30
degrees for edge emitted laser energy (which reduces the cost and
complexity of the optics needed to focus to the fiber); and
o Relatively narrow line width of emitted laser energy (which allows
for more than 50 communication channels on a single fiber optic
cable).
We have many of the same disadvantages of most emerging technology
start-ups, which includes among others: market acceptance of a new technology;
customer commitment to engineer or re-engineer their products to incorporate our
technology; the need to expand rapidly and attract talented personnel; and the
need to raise capital to fund that expansion.
On January 23, 2002, Infinite Photonics, Inc. signed and commenced a $12.0
million research and development contract with DARPA, which is scheduled to
conclude by the end of 2003. Payments under this contract will be received as
services are rendered and billed for. As of June 30, 2002, approximately $1.9
million has been billed under this contract in the current year. Of the
remaining contract balance we believe that an additional $3.8 million will be
billed during 2002 with the balance billed during 2003. If we fail to meet
technical milestones and defense contract audit requirements, DARPA may
terminate the contract which could result in less than $12 million of revenue to
us under this contract. The purpose of the contract is to provide DARPA with
pump and source laser diodes and grating coupled semiconductor
15
optical amplifiers with powers much higher than the current industry standard of
about 0.3 watts (more than one watt with a goal as high as ten watts), high
repetition rates (up to 20,000 laser pulses per second), and high beam quality
(minimum beam spreading of the laser). We will own the intellectual property
developed under the contract.
In March 2002, we signed a one-year lease with the Central Florida
Research Park in Orlando, Florida for a 6,750 square foot laboratory and
manufacturing facility. This facility replaces laboratory and office space we
were leasing on a short-term basis from the University of Central Florida.
Depending on market acceptance of our products once we achieve full production,
we may require more space in the foreseeable future.
Our Photonics Group employs 12 full-time personnel. We expect to grow our
Photonics Group staff to approximately 30 to 40 full-time employees by the end
of 2002. We currently have subcontractors producing raw material (semiconductor
wafers), electrical drivers, power supplies and devices to control the heat
produced by our diodes (thermal management). The proprietary grating patterns
etched into the semiconductor wafers for different applications are accomplished
at our current facilities in Orlando, FL and in St. Petersburg, Russia at the
Ioffe Institute.
We expect to acquire a minimum of approximately $1.2 million in capital
equipment over the next year through equipment operating leases that will be
negotiated under terms available at the time of acquisition. Additionally, we
currently have semiconductor steppers and other relatively high cost equipment
available to us on a per hour basis from the University of Central Florida, as
well as from other commercial facilities. We estimate that this equipment will
support up to $10.0 million in annual revenue capacity. Our Florida facility is
certified for exemption by the Governor's Office from sales and use taxes under
Florida's Semiconductor, Defense and Space Technology Facilities Program.
Dey Laboratories, Inc. accounted for 12% and 7% of our revenues during the
year ended December 31, 2000 and 2001, respectively. DARPA accounted for 12 % of
our revenues for 2001 and we expect DARPA to account for over 40% of our
consolidated revenues for the year ending December 31, 2002.
We intend to continue to use a combination of direct sales to customers,
contract research and development for new and existing customer applications and
early stage prototype assistance to foster our Photonics Group's growth.
We were incorporated under the laws of the state of Delaware on October
14, 1986. On January 7, 1998, we changed our name from Infinite Machines Corp.
to Infinite Group, Inc. Our principal executive offices are located at 2364 Post
Road, Warwick, RI 02886 and our facsimile number is (401) 738-6180. Our
subsidiaries are located in Rhode Island and Florida. We maintain sites on the
World Wide Web at www.infinite-group.com, www.laserfare.com, and
www.infinitephotonics.com. Information contained on any of our websites do not
constitute a part of this prospectus.
RECENT DEVELOPMENTS
Osley & Whitney Liquidation
During 2002, we continued to liquidate the assets of our Osley & Whitney
(O&W) subsidiary following the discontinuance of its operation in November 2001.
The O&W inventory and equipment was sold at auction in March 2002 resulting in
net proceeds of approximately $416,000 and a gain of approximately $27,000. The
O&W land and building were sold at auction in July 2002 for $650,000 and the
transaction closed on August 8, 2002, resulting in a net loss of approximately
$151,000, including
16
estimated closing costs. The carrying value of the land and building was reduced
by this amount as of June 30, 2002. This closing completes the liquidation of
the O&W assets, resulting in a net obligation to the secured lender, including
accrued interest and closing expenses, of approximately $200,000. Infinite
guaranteed the obligation of O&W to the secured lender. Accordingly, we will
assume that remaining outstanding balance. The secured lender has tentatively
agreed to convert the balance into a term loan amortizing monthly based upon a
seven year amortization schedule, with a balloon payment due eighteen months
from issuance. It is anticipated that this transaction will be documented during
the third quarter of 2002.
Termination of Equity Line of Credit
On July 23, 2002 we terminated the equity line of credit agreement which
we entered into with Cockfield Holdings Limited (Cockfield) on November 30,
2000. As a result, we were released, and we released Cockfield, from any further
obligation thereunder. In light of the limited availability of funds under this
facility since inception, due primarily to stock price and trading volume
requirements, its termination will not adversely impact our liquidity.
As consideration for establishing the equity line of credit, we granted
Cockfield warrants to purchase up to 200,000 shares of our common stock. As
consideration for the services rendered by Jesup & Lamont as placement agent in
connection with the equity line of credit, we granted Jesup & Lamont warrants to
purchase up to 100,000 shares of our common stock. These warrants, covering
300,000 shares of our common stock, are exercisable at any time prior to
November 20, 2003, for $3.135 per share and survived the termination of the
agreement. The resale of the shares underlying these warrants are covered by
this prospectus.
Laurus Financings
On June 21, 2002, we issued an additional $500,000 convertible note to
Laurus Master Fund, Ltd. The note is convertible at an initial conversion price
of $2.00 (subject to downward adjustment upon a default by the company under the
note and related agreements. The note bears interest at 15% per annum (subject
to downward adjustment based upon a conversion formula), payable monthly and may
be repaid by us at any time without penalty. $100,000 of the net proceeds of
this financing were used to fund operations at our Photonics subsidiary and the
balance was applied for general corporate purposes. In connection with this
financing, we issued Laurus a five-year warrant to purchase 25,000 shares of our
common stock at $2.40 per share.
In connection with the closing of this financing round, we agreed to
certain amendments to the $1 million note issued to Laurus in February 2002 and
the related agreements. As a result, the note was modified to provide for its
convertibility into shares of our common stock at the option of the holder at a
conversion price of $2.00 per share (instead of the original conversion price of
$2.25 per share). Further, the exercise price of the warrant to purchase 50,000
shares of our common stock was reduced to $2.40 per share from an original
exercise price of $2.65 per share. In consideration of these amendments, Laurus
agreed to defer certain registration obligations that we had with respect to the
shares issuable upon conversion of the note and warrant issued in February 2002.
We have agreed with Laurus to register for resale both the shares issuable
upon exercise of the February and June warrants and the shares issuable upon
conversion of the February and June notes. The shares issuable upon conversion
of the June and February notes and the exercise of the June and February
warrants are included in this prospectus.
17
Investor Relations Agreement
On June 18, 2002, we entered into an agreement with Investor Relations
Services, Inc. to provide us with investor and public relations services over a
two-year period. Under the agreement, Investor Relations Services is required to
expend up to $500,000 in furtherance of our investor and public relations
programs. In exchange for these services, we issued Investor Relations Services
500,000 unregistered shares of our common stock in a private placement
transaction. These shares were valued at $750,000 ($1.50 per share) and this
expense will be amortized as a general and administrative expense over the 24
month period of the agreement.
Sale of Express Pattern Assets
On March 14, 2002, we sold the net assets of our Express Pattern
subsidiary for $725,000, consisting of $575,000 in cash (of which $300,000 was
paid to the O&W secured lender) and a five-year 8% subordinated $150,000 note,
due upon maturity with quarterly interest payments. The purchasers included a
former employee of Express Pattern and Thomas J. Mueller, our chief operating
officer, who is a passive investor in the purchasing entity. The sale was
negotiated at "arm's length" by disinterested management with the former
employee and his financier.
Conversion of Debt into Equity
In November 2001, we entered into a securities purchase agreement with the
estate of a former stockholder of O&W, which was amended and restated during the
quarter ended June 30, 2002. In accordance with the agreement, as revised, the
Estate purchased 379,253 shares of our common stock, which were paid for by the
cancellation of certain indebtedness we had to the Estate amounting to $758,507.
The Indebtedness related to past due consulting fees, outstanding debt and
related accrued interest that we owed to the Estate, and fees incurred by the
Estate relating to the conversion transaction. The original provision of the
agreement, which provided us with an option to repurchase certain of the shares
and the Estate with the option to sell certain of the shares back to us, was
eliminated in the amended and restated agreement. As a result, we are no longer
obligated for the indebtedness and we have recorded the purchase of the
securities as an increase in equity in our balance sheet at June 30, 2002.
During 2001, accrued but unpaid salaries of $108,973 due to two of our
officers was applied to the exercise price of then outstanding stock options by
these officers. The options were exercisable at prices ranging from $1.00 to
$1.50 per share.
Board of Director Resignation; Consulting Arrangement
J. Terence Feeley retired as a director and officer of Infinite on July 1,
2002. He will continue to be affiliated with us as a consultant pursuant to a
consulting agreement. Pursuant to the consulting agreement Mr. Feeley will
provide consulting services for us, similar to the services he provided during
his employment, for a term which expires January 30, 2005, in consideration for
payments aggregating $148,220 over the term, substantially all of which are
payable during the first twelve month period. In addition, the agreement
provides that 591,619 stock options previously granted to Mr. Feeley shall
remain exercisable through the term of the consulting agreement. As a result of
the change in grantee status, we will recognize the value of the options as
compensation expense over the remaining vesting term of the options. The value
of the options, utilizing the Black-Scholes pricing model, aggregated
approximately $504,000. Certain options were fully vested as of June 30, 2002,
resulting in compensation costs and an
18
increase in additional paid in capital of approximately $87,000 which is
recognized in our June 30, 2002 unaudited financial statements.
USE OF PROCEEDS
All of the shares of our common stock offered by this prospectus are being
registered for the account of the selling stockholders. We will not receive any
of the proceeds from the sale of these shares. However, we will receive the
proceeds from the exercise of the warrants covering the 548,400 shares of common
stock covered by this prospectus to the extent those warrants are exercised.
These proceeds would be approximately $1,645,100 if all the warrants are
exercised. We expect to use any proceeds from the exercise of the warrants for
general corporate purposes.
19
SELLING STOCKHOLDERS
The following table sets forth the name and the number of shares of our
common stock beneficially owned by each selling stockholder as of June 30, 2002
and as adjusted to reflect the sale of the shares offered by this prospectus, by
each selling stockholder. Except as otherwise indicated, the persons listed
below have sole voting and investment power with respect to all shares of common
stock owned by them including those shares not yet issued. In addition, unless
otherwise indicated, none of the selling stockholders has had a material
relationship with us or any of our affiliates within the past three years. All
information with respect to beneficial ownership has been furnished to us by the
respective selling stockholder.
Shares Beneficially Owned Shares Beneficially
Prior to Offering(1) Owned After the Offering
------------------------------- --------------------------
Shares
Name of Beneficial Owner Number Percent Offered Number Percent
--------------------------------------- -------------- ------------ -------------- ----------- ----------
Roger P. Moore (2) 13,750 * 13,750 -- --
Gulati Family, LP (Ramesh Gulati) (2) 13,750 * 13,750 -- --
Douglas J. Rademacher (2) 13,750 * 13,750 -- --
David R. Johnson Living Trust (2) 27,250 * 13,750 13,500 *
(David R. Johnson)
Delivery From Heaven Foundation 54,500 * 27,500 27,000 *
(Michael Casey) (3)
David P. Pilotte 75,000 1.2% 75,000 -- --
Christopher DiNapoli (3) 41,000 * 27,500 13,500 *
John J. Perkins (4) 82,500 1.3% 82,500 -- --
Dana A. Marshall (5) 55,000 * 55,000 -- --
Daniel Cohen 100,000 1.6% 100,000 -- --
Larry Dosser 16,268 * 16,268 -- --
Allan Ligi 117,500 1.8% 117,500 -- --
Idea Capital, Inc. (Sean McEllin) (6) 15,400 * 15,400 -- --
Rhino Capital (Michael Johnson) (7) 34,000 * 34,000 -- --
Christopher Murney (8) 16,500 * 16,500 -- --
John F. Corridan III 3,750 * 3,750 -- --
William M. Johnson 35,000 * 35,000
Richard G. Heidt 50,000 * 50,000
IHC, Inc. (Brian Bussanich) 30,000 * 30,000 -- --
Laurus Master Fund, LTD (9) 825,000 11.8% 825,000 -- --
(David Grin - Partner)
Rosecrest Venture Management (10) 200,000 3.1% 200,000 -- --
(Chris DiNapoli & Dave Johnson)
Cockfield Holdings, LLC (11) 200,000 3.1% 200,000 -- --
(David Sims, Lamberto Banchetti)
----------
* Less than 1%.
20
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of common stock underlying options and warrants held by
that person that are currently exercisable or exercisable within 60 days
of June 30, 2002 are deemed outstanding. These shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership
of any other person.
(2) Includes 1,250 shares subject to currently exercisable warrants
(exercisable at $4.00 per share through June 15, 2004).
(3) Includes 2,500 shares subject to currently exercisable warrants
(exercisable at $4.00 per share through June 15, 2004).
(4) Includes 7,500 shares subject to currently exercisable warrants
(exercisable at $3.00 per share through June 15, 2004).
(5) Includes 5,000 shares subject to currently exercisable warrants
(exercisable at $4.00 per share through June 15, 2004).
(6) Includes 15,400 shares subject to currently exercisable warrants
(exercisable at $4.00 per share through June 15, 2004).
(7) Includes 34,000 shares subject to currently exercisable warrants
(exercisable at $3.00 per share through November 6, 2004.
(8) Includes 1,500 shares subject to currently exercisable warrants
(exercisable at $3.00 per share through November 30, 2004.
(9) Includes 50,000 shares subject to currently exercisable warrants
(exercisable at $2.40 per share through February 5, 2007), 25,000 shares
subject to currently exerciseable warrants (exerciseable at $2.40 per
share through June 21, 2007), and 750,000 shares issuable upon conversion
of outstanding notes. The address of the holder is c/o Onshore Corporate
Services Ltd., PO Box 1234 G.T., Queensgate House, South Church Street,
Grand Cayman, Cayman Islands.
(10) Includes 200,000 shares subject to currently exercisable warrants
(exercisable at $3.00 per share through April 15, 2005) in full payment of
$58,826 of outstanding public relations and marketing consulting fees
which were included in accounts payable.
(11) Includes 200,000 shares subject to currently exercisable warrants
(exercisable at $3.135 per share) though November 29, 2003.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock covered by this prospectus on any stock exchange, market or
trading facility on which the shares are traded or in private transactions.
These sales may be at fixed or negotiated prices. The selling stockholders may
use any one or more of the following methods when selling 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 resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
21
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades. The
selling stockholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such 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.
We will pay all of the expenses relating to the registration of the shares
covered by this prospectus except for selling and brokerage commissions. These
expenses are estimated at $67,500.00.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon by
Morse, Zelnick, Rose & Lander, LLP. Members of Morse, Zelnick, Rose & Lander,
LLP own options to purchase 65,000 shares of our common stock.
EXPERTS
The financial statements of Infinite Group, Inc. as of December 31, 2001
and 2000, and for the years then ended, are incorporated by reference in this
prospectus and in the registration statement in reliance upon the report of
Freed Maxick & Battaglia CPAs, P.C., independent certified public accountants,
incorporated by reference herein, upon the authority of said firm as experts in
accounting and auditing.
22
PROSPECTUS
INFINITE GROUP, INC.
1,965,918 Shares
Common Stock
Dated: ______________________, 2002
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The fees and expenses we incurred in connection with the offering are
payable by us and, other than registration fees, are estimated as follows:
SEC registration fee................................................. $ 831
Accounting fees and expenses......................................... 15,000
Legal fees and expenses.............................................. 50,000
Printing costs....................................................... 1,000
Miscellaneous expenses............................................... 669
--------
Total.......................................................... $ 67,500
========
Item 15. Indemnification of Officers and Directors
Our Certificate of Incorporation provides that the indemnification
provisions of Sections 102(b)(7) and 145 of the Delaware General Corporation Law
shall be utilized to the fullest extent possible. Further, the Certificate of
Incorporation contains provisions to eliminate the liability of our directors to
Infinite or its stockholders to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law, as amended from time to time.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent of the corporation. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which the director derived
an improper personal benefit. Our Certificate of Incorporation provides for such
limitation of liability.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, is permitted for our directors, officers or controlling
persons, pursuant to the above mentioned statutes or otherwise, we understand
that the Securities and Exchange Commission is of the opinion that such
indemnification may contravene federal public policy, as expressed in said Act,
and therefore, may be unenforceable. Accordingly, in the event that a claim for
such indemnification is asserted by any of our directors, officers or
controlling persons, and the Commission is still of the same opinion, we (except
II-1
insofar as such claim seeks reimbursement from us of expenses paid or incurred
by a director, officer of controlling person in successful defense of any
action, suit or proceeding) will, unless the matter has theretofore been
adjudicated by precedent deemed by our counsel to be controlling, submit to a
court of appropriate jurisdiction the question whether or not indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees as to which indemnification is sought, nor
are we aware of any threatened litigation or proceeding that may result in
claims for indemnification.
Item 16. Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit No. Description
----------- ----------------------------------------------------------------
5.1 Opinion and consent of Morse, Zelnick, Rose & Lander, LLP**
10-A Agreement between the Registrant and DARPA dated January 2002**
10-B Securities Purchase Agreement, Convertible Note and Warrant
Agreement between the Registrant and Laurus Master Fund, LTD.
dated June 21, 2002**
10-C Amendment No. 1 to Securities Purchase Agreement between the
Registrant and Laurus Master Fund, LTD. dated February 4, 2002
and Allonge to Promissory Note and Warrant**
10-D Termination Agreement between the Registrant and Cockfield
Holdings Limited dated July 23, 2002**
10-E Warrant Agreement between the Registrant and Rosecrest Venture
Capital dated April 15, 2002**
10-F Amended and Restated Securities Purchase Agreement between the
Registrant and The Estate of Ralph P. Lazzara dated as of
November 14, 2001**
10-G Asset Purchase Agreement among the Registrant, Express Pattern,
Inc., a Delaware corporation, Express Pattern, Inc., an Illinois
corporation, Thomas Mueller and David Flynn, dated March 13,
2002**
10-H Waiver letter from First International Capital to the Registrant
dated March 13, 2002**
10-I Consulting Agreement between J. Terence Feeley and the
Registrant dated July 1, 2002*
10-J Form of Amendment, dated August 28, 2002, to the Securities
Purchase Agreements between the Registrant and Laurus Master
Fund, LTD.*
23.1 Consent of Freed Maxick & Battaglia CPAs, PC*
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in
Exhibit 5.1)*
24 Power of Attorney**
------------------------
* Filed herewith.
** Previously filed.
II-2
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 20% 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 (a)(1)(i) and (a)(1)(ii) above do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, that are incorporated by reference in this
Registration Statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of this offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 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 this 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.
(c) 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 foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
II-3
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
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 Warwick, State of Rhode Island and Providence
Plantations on this 27th day of August, 2002.
INFINITE GROUP INC.
By: /s/ Clifford G. Brockmyre II
------------------------------------
Clifford G. Brockmyre II,
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Clifford G. Brockmyre II as his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any or all
amendments or post-effective amendments to this Registration Statement, and to
file the same, with all exhibits thereto, which amendments may make such changes
in this Registration Statement as such agent deems appropriate, and to file any
new registration statement (and any post-effective amendment thereto) which
registers additional securities of the same class and for the same offering as
this Registration Statement in accordance with Rule 462(b) under the Securities
Act (each, a "462(b) Registration Statement"), and the Registrant and each such
person hereby appoints each such Agent as attorney-in-fact to execute in the
name and on behalf of the Registrant and each such person, individually and in
each capacity stated below, any such amendments to this registration statement
and any such 462(b) Registration Statements, and other documents in connection
therewith, with the Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on August 27, 2002.
Signature Title
---------------------------- -----------------------------------------------
/s/ Clifford G. Brockmyre II* President, Chief Executive Officer and
---------------------------- Chairman of the Board
Clifford G. Brockmyre II (Principal Executive Officer)
/s/ Bruce J. Garreau* Chief Financial Officer
---------------------------- (Principal Financial and Accounting Officer)
Bruce J. Garreau
/s/ Brian Q. Corridan* Director
----------------------------
Brian Q. Corridan
/s/ Michael S. Smith* Director
----------------------------
Michael S. Smith
*By: /s/ Clifford G. Brockmyre II
----------------------------
Clifford G. Brockmyre II
Attorney-in-fact
II-5