-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AEOumKW6ZnxSnWJoFtSLBlWGVU0if1wkXzgogI9Jwv5bhtKwUOMybsYnkDk1DHNt lv92gmQw6ZnZalMxhPkEnw== 0000912057-96-010520.txt : 19960522 0000912057-96-010520.hdr.sgml : 19960522 ACCESSION NUMBER: 0000912057-96-010520 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960521 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUKO INFORMATION SYSTEMS INC /CA/ CENTRAL INDEX KEY: 0000108949 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 160962874 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-01626 FILM NUMBER: 96570686 BUSINESS ADDRESS: STREET 1: 2235 QUME DRIVE CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 3106524959 MAIL ADDRESS: STREET 1: 2235 QUME DR CITY: SAN JOSE STATE: CA ZIP: 95131 FORMER COMPANY: FORMER CONFORMED NAME: GROWERS EXPRESS INC DATE OF NAME CHANGE: 19940224 SB-2/A 1 SB-2/A As filed with the Securities and Exchange Commission on May 21, 1996 REGISTRATION NO. 333- 01626 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- AMENDMENT NO. 3 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ NUKO INFORMATION SYSTEMS, INC. (Name of small business issuer in its charter) NEW YORK 3662 16-0962874 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification incorporation or organization) No.)
NUKO INFORMATION SYSTEMS, INC. 2235 QUME DRIVE SAN JOSE, CA 95131 (408) 526-0288 (Address and telephone number of principal executive offices and principal place of business) -------------------------- PRATAP KESAV KONDAMOORI, CHAIRMAN AND CHIEF EXECUTIVE OFFICER NUKO INFORMATION SYSTEMS, INC. 2235 QUME DRIVE SAN JOSE, CA 95131 (408) 526-0288 (Name, address and telephone number of agent for service) -------------------------- Copies to: AMY M. GROSSMAN, ESQ. GROVER T. WICKERSHAM, ESQ. GROVER T. WICKERSHAM, P.C. 430 CAMBRIDGE AVE., SUITE 100 PALO ALTO, CA 94306 (415) 323-6400 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier 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 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./ / 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, please check the following box./X/ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE (1) OFFERING PRICE REGISTRATION FEE Common Stock (2)............................ 1,069,000 $2.375 $2,538,875 $876 Common Stock (2)............................ 331,000 $6.50 $2,151,500 $742 Common Stock................................ 5,114,445 $12.875 $65,848,479 $22,706 Common Stock................................ 40,000 $14.437 $577,480 $200 Total................................... 6,554,445 $71,116,334 $24,524(3)
(1) These figures are estimates made solely for the purpose of calculating the registration fee pursuant to Rule 457(h). (2) Issuable upon exercise of stock options granted under the Registrant's 1995 Stock Option Plan. (3) Of this amount, $24,324 was previously paid to the Commission. THE REGISTRANT HEREBY AMENDS THE 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NUKO INFORMATION SYSTEMS, INC. CROSS REFERENCE SHEET BETWEEN ITEMS OF FORM SB-2 AND PROSPECTUS 1. Front of Registration Statement and Outside Front Cover of Prospectus................. Facing Page; Outside Front Cover Page 2. Inside Front and Outside Back Cover Page of Prospectus................................ Inside Front Cover Page; Outside Back Cover Page 3. Summary Information and Risk Factors....... Prospectus Summary; Risk Factors 4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds 5. Determination of Offering Price............ Outside Front Cover Page; Plan of Distribution 6. Dilution................................... Not Applicable 7. Selling Security Holders................... Selling Stockholders 8. Plan of Distribution....................... Inside Front Cover Page; Plan of Distribution 9. Legal Proceedings.......................... Not Applicable 10. Directors, Executive Officers, Promoters and Control Persons....................... Management 11. Security Ownership of Certain Beneficial Owners and Management..................... Principal Stockholders 12. Description of Securities.................. Outside Front Cover Page; Capitalization; Description of Securities 13. Interest of Named Experts and Counsel...... Legal Matters 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities............................... Not Applicable 15. Organization Within Last Five Years........ Management -- Certain Transactions 16. Description of Business.................... Prospectus Summary; Business 17. Management's Discussion and Analysis or Plan of Operation......................... Management's Discussion and Analysis of Financial Condition and Results of Operations 18. Description of Property.................... Business -- Properties 19. Certain Relationships and Related Transactions.............................. Management -- Certain Transactions 20. Market for Common Equity and Related Stockholder Matters....................... Price Range of Common Stock 21. Executive Compensation..................... Management -- Executive Compensation 22. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure................................ Not Applicable
ii INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 21, 1996 1,400,000 SHARES NUKO INFORMATION SYSTEMS, INC. COMMON STOCK ------------------ This Prospectus covers the exercise of up to one million four hundred thousand incentive and non-qualified stock options ("Options") granted under NUKO Information Systems, Inc.'s (the "Company") 1995 Stock Option Plan (the "1995 Option Plan") and the reoffer and resale of 862,832 shares of common stock, $0.001 par value ("Common Stock") issuable upon exercise of the Options by affiliates of the Company. Options have been granted from time to time in the discretion of the Company's Board of Directors or a committee thereof (the "Administrator") at exercise prices determined by the Administrator. As of the date hereof, all 1,400,000 shares are subject to issuance upon exercise of outstanding options at exercise prices ranging from $2.375 to $6.50. No options currently remain available for future grant under the 1995 Option Plan. The Company's Common Stock is currently traded on the over-the-counter market and quoted on the Electronic Bulletin Board under the symbol "NUKO." On May 17, 1996, the closing bid price for the Common Stock was $17.25. See "Price Range of Common Stock." Concurrently with this offering, the Company is registering on the registration statement of which this Prospectus is a part but pursuant to a separate prospectus, 5,154,445 shares of Common Stock for reoffer or resale by certain selling stockholders of the Company's securities, purchased by the selling stockholders in various private transactions. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ THE DATE OF THIS PROSPECTUS IS , 1996. ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") pursuant to 15(d) thereof, and, in accordance therewith, files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices located at 7 World Trade Center, Suite 1300, New York, New York 10048, and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company has filed with the Securities and Exchange Commission a Registration Statement on Form SB-2 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), with respect to the securities offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. The Registration Statement, including exhibits thereto, may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained by mail at prescribed rates from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. 2 PROSPECTUS SUMMARY THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED HEREIN, AND IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL PERIOD ENDED DECEMBER 31, 1995 AND ITS QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 1996, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. THE COMPANY NUKO Information Systems, Inc. (the "Company") designs and markets codecs, an important building block in the creation of video and multi-media networks. Marketed under the trade name Highlander, the Company's "codecs" (i) digitally encode, (ii) compress, (iii) transmit, (iv) decompress and (v) decode data; thereby minimizing the time required to transmit video and audio data to remote locations. Because they comply with the MPEG-1 and MPEG-2 international standards for data compression, Highlander codecs not only can compress data at ratios ranging from 1:10 up to 1:200 (depending on content), they also are compatible with all other equipment that meets MPEG design standards. The Company's strategy is based on its belief, of which there can be no assurance, that the MPEG-2 standard will be accepted by the technical community, thereby promoting a rapid proliferation of multimedia services on public data networks, such as the Internet, and on fiber networks operated by cable or telephone providers. The Company intends to capitalize on the emergent MPEG-2 standard by marketing its products to carriers (I.E., cable and telephone companies) for use in public voice, video and data networks, and also to large organizations such as universities, government agencies and Fortune 1000 corporations for use in proprietary networks. Typical private network applications include multi-site locations for large companies and universities that transmit to off-campus locations. During 1995, Highlander products underwent field trials by potential customers that included regional Bell operating companies, cable broadcasters, satellite broadcasters and resellers of inter-exchange and network equipment. Although the Company believes Highlander test units demonstrated full compliance during these field trials, there can be no assurance that the Company will achieve commercial acceptance of its products. With the exception of high speed digital signal processing chips, most of the Company's codec chip sets consist of standard electronic components, including transistors, integrated circuits, resistors, capacitors and circuit boards, that are manufactured by several suppliers. Since the Company has no formal contractual relationships with any of its vendors, there is no assurance that there will not be delays in the manufacture and delivery of products, or other problems that could result in a need to find alternative manufacturing facilities. The Company subcontracts its manufacturing to companies certified as meeting the BellCore and ISO 9000 standards observed by the telecommunications industry. The Company was incorporated in the State of New York in 1968 under the name Yondata Corporation and, in October 1992, changed its name to Growers Express Corporation. In May 1994, Growers Express Corporation merged with NUKO Technologies, Inc., a California corporation, and following the merger, Growers Express changed its name to NUKO Information Systems, Inc., and commenced operations through NUKO Technologies, Inc., which survived the merger as its wholly-owned subsidiary. References herein to the "Company" or "NUKO" refer to NUKO Information Systems, Inc., a New York corporation, and its subsidiary, NUKO Technologies, Inc. The Company's principal executive offices are located at 2235 Qume Drive, San Jose, California and its telephone number is (408) 526-0288. 3 THE OFFERING Common Stock Offered................... 1,400,000 shares issuable upon exercise of Options granted under the terms of the 1995 Option Plan. Common Stock Outstanding............... 10,250,918 shares as of May 20, 1996. (1) Use of Proceeds........................ Proceeds of this offering, if any, will be used for working capital and general corporate purposes. See "Use of Proceeds." OTC Electronic Bulletin Board Symbol... NUKO All transactions made pursuant to this Prospectus are eligible for Form S-8 and could have been registered on that form.
- ------------------------ (1) Does not include (i) 398,400 shares issuable upon exercise of outstanding warrants; and (ii) 2,800,000 shares issuable upon exercise of options under the Company's stock option plans. See "Management -- Stock Options." SUMMARY FINANCIAL INFORMATION
THREE MONTHS ENDED EIGHT MONTHS FISCAL YEAR ENDED APRIL 30,* MARCH 31, ENDED, DECEMBER ---------------------------- ---------------------------- 31, 1995 1995 1994 1996 1995 ----------------- -------------- ------------ -------------- ------------ CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues........................ $ 296,330 $ 88,299 $ 346,146 $ 474,413 $ 1,261 Cost of revenues................ 89,296 6,688 72,080 142,321 -- Net loss........................ (1,957,645) (1,743,862) (703,225) (3,064,775) (440,987) Loss per common share........... $ (0.70) $ (0.81) $ (0.38) $ (0.37) $ (0.18)
DECEMBER 31, 1995 MARCH 31, 1996 ----------------- -------------- CONSOLIDATED BALANCE SHEET DATA: Working capital............................................................. $ 11,091,081 $ 12,139,566 Total assets................................................................ 13,327,869 15,270,311 Total current liabilities................................................... 1,523,951 2,173,466 Senior notes................................................................ 325,000 325,000 Accumulated deficit......................................................... (4,373,614) (7,438,389) Total shareholders' equity.................................................. 11,377,232 12,696,439
- ------------------------ * In December 1995, the Company changed its fiscal year end from April 30 to December 31. 4 RISK FACTORS THE PURCHASE OF THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK, AND THE PURCHASE OF THESE SECURITIES SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A TOTAL LOSS OF THEIR INVESTMENT. PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER, AMONG OTHER FACTORS, THE FOLLOWING: HISTORY OF LOSSES. Since its inception, the Company has operated at a loss because the Company's revenues were insufficient to support the comparatively substantial expenses incurred by the Company, primarily for research and development. The Company recorded net losses of $703,225 in fiscal 1994, $1,743,862 in fiscal 1995 and $1,957,645 for the eight months ended December 31, 1995 and a loss of $3,064,775 for the three months ended March 31, 1996. The Company expects to incur substantial losses until such time as it achieves significant revenues from product sales or licensing. There can be no assurance that the Company will achieve profitable operations in the foreseeable future, if at all. As of December 31, 1995, the Company has net operating loss carryforwards of approximately $3,800,000 and $1,900,000 available to offset future federal and state taxable income, respectively. The utilization of these losses is contingent upon the Company's ability to generate taxable income in the future. Management does not believe, based upon available evidence, that it is more likely than not that the Company will be able to realize the deferred tax assets. SHORT OPERATING HISTORY. The Company's operations are subject to all of the risks inherent in a new business enterprise, including the absence of a substantial operating history, and expense of new product development. Various problems, expenses, complications and delays may be encountered in connection with the development of the Company's products and business. Future growth beyond present capacity will require significant expenditures for expansion, marketing, research and development. These expenses must be paid out of future equity or debt financings or out of generated revenues and Company profits. The availability of funds from any of these sources cannot be assured. EARLY STAGE OF PRODUCT DEVELOPMENT. Since early 1994, the Company has been primarily engaged in research and development of its technologies, product design and establishment of strategic alliances on which the Company expects to depend for manufacturing, sales and distribution of its potential products. The Company has not yet begun to generate significant revenues from the commercialization of products. The Company has to date sold its initial product only in limited quantities, primarily for use in development, demonstration and testing of prototypes. The Company's potential products are based on technologies that have not been widely used or commercially proven, and there can be no assurance that the Company will be able successfully to market its initial products, generate the substantially increased revenues necessary to sustain full scale commercial production or that the potential products will be well received when introduced into the marketplace on a full commercial scale. Moreover, management of the Company has limited experience with the distribution of technologically-complex products in commercial quantities and there can be no assurance that the Company will be able to make necessary adaptations to successfully move from the development stage to full commercial production and distribution. COMPETITION. The Company faces strong competition in its efforts to market its initial products. Most of the Company's potential competitors have been in business substantially longer and have considerably greater financial, marketing and technological resources than does the Company. There is no assurance that the Company will be able to compete successfully with such other companies. ADDITIONAL CAPITAL REQUIREMENT. Although the Company has raised approximately $19,800,000 in private offerings as of March 31, 1996, the Company may require additional capital in the future to finance its business activities. The timing and amount of such capital requirements cannot be accurately predicted. Consequently, although the Company believes that the proceeds from recent private offerings will provide adequate funding for its capital requirements through fiscal 1996, the Company may be required to raise additional funds to support its operating plan for fiscal 1997. Additional future financing may occur through the sale of unregistered Common or convertible securities in exempt offerings or through the public offering of registered stock or convertible debt. In any case, 5 such additional equity or convertible debt financing may result in additional dilution to investors. There can be no assurance that any additional capital, funding or revenues can be satisfactorily arranged. DEPENDENCE ON CUSTOMER CAPITAL SPENDING. The Company's business is directly impacted by capital spending requirements and funding of the Regional Bell Operating Companies and long-distance telephone carriers. The capital budgets of these customers or potential customers is beyond the control of the Company and can be impacted by numerous factors completely unrelated to the performance, quality and price of the Company's products. Should the Company's customers or potential customers suffer budgeting cutbacks affecting their capital purchasing plans, the Company's results of operations could be adversely affected. DEPENDENCE ON SUPPLIERS. The Company purchases certain of the chips and chip sets needed in its initial products from single source suppliers. The Company is dependent upon such suppliers to deliver parts and components as needed for the manufacture of the Company's initial products, but there can be no assurance that such suppliers will continue to be able to serve the Company's needs. While there are alternative sources of supply for each of the components outsourced by the Company, the Company would incur delays if required to switch to another supplier. Any disruption of the Company's relationships with any of its key single source suppliers or manufacturers or other limitations on the availability of these products provided by such suppliers could have an adverse effect on the Company's business and operating results. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. Neither the Company nor any of its directors, officers or shareholders own any patent or patent rights respecting products developed or marketed by the Company or any aspect of the Company's technology. The Company has not yet adopted a formal intellectual property protection program, and currently relies on a combination of trade secret protection, nondisclosure agreements and licensing agreements to establish and protect its proprietary rights. The Company will endeavor to keep the results of its research and development program proprietary, but may not be able to prevent others from using some or all of such information or technology with or without compensation. The Company's ultimate success will depend to some extent on its ability to avoid infringement of patent or other proprietary rights of others. The Company is not aware that it is infringing any such rights, nor is it aware of proprietary rights of others for which it will be required to obtain a license in order to market its initial products. However, there is no assurance that the Company is not infringing proprietary rights of others or that it will be able to obtain any technology licenses it may require in the future. See "Business -- Intellectual Property and Proprietary Rights." POSSIBLE TECHNOLOGICAL ADVANCES. The market for the Company's initial products is expected to be characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The Company's future success will depend in part upon its ability to successfully bring to market and then enhance its existing products and to introduce new products and features to meet changing customer requirements and emerging industry standards. There can be no assurance that the Company will successfully complete the development of its initial or future products or that the Company's initial or future products will achieve market acceptance. Any delay or failure of these products to achieve market acceptance would adversely affect the Company's business. In addition, there can be no assurance that products or technologies developed by others will not render the Company's initial or future products or technologies non-competitive or obsolete. DEPENDENCE ON KEY PERSONNEL. The Company will depend to a large extent on the abilities and continued participation of certain key employees. The loss of key employees could have a material adverse effect on the Company's business. The Company anticipates purchasing "key man" insurance on certain key employees, and is currently negotiating employment agreements with those employees. The Company believes that, as its activities increase and change in character, it will be necessary to 6 retain the services of additional, experienced personnel. Competition for such personnel is intense and there is no assurance that they will be available when required, or that the Company will have the ability to attract them. CONTROL BY OFFICERS AND DIRECTORS. As of April 25, 1996, the officers and directors of the Company control, directly or indirectly, approximately 40.7% of the voting power of the Company's voting stock including options and warrants immediately exercisable or exercisable within 60 days. In addition, such persons hold, directly or indirectly, options and warrants to purchase an aggregate of 391,089 additional shares of Common Stock that are currently exercisable or will become exercisable within 60 days from the date of this Prospectus. Although management does not control a majority of the outstanding stock, it holds a sufficient amount to make it more difficult for an independent third party to effect a change in control of the Company than would be the case if the stock ownership were less concentrated among members of management. STOCK MARKET VOLATILITY; VOLATILITY OF THE COMPANY'S COMMON STOCK. There have been periods of extreme volatility in the stock market that, in many cases, were unrelated to the operating performance of, or announcements concerning, the issuers of the affected securities. General market price declines or volatility in the future could adversely affect the price of the Common Stock. There can be no assurance that the Common Stock will maintain its current market price. Short-term trading strategies of certain investors can have a significant effect on the price of specific securities. The price of the Company's Common Stock, in particular, has been extremely volatile. Due to the sporadic trading and chronic volatility, the Company does not believe that an established trading market exists for its Common Stock. ABSENCE OF DIVIDENDS. The Company does not expect to declare or pay any cash or stock dividends in the foreseeable future, but instead intends to retain all earnings, if any, to invest in the Company's operations. The payment of future dividends is within the discretion of the Board of Directors and will depend upon the Company's future earnings, if any, its capital requirements, financial condition and other relevant factors. SHARES ELIGIBLE FOR FUTURE SALE. Future sales of Common Stock by existing shareholders under Rule 144 of the Act or through the exercise of outstanding registration rights or otherwise could have an adverse effect on the price of the Common Stock. There will be 9,351,477 shares of Common Stock eligible for sale in the public market, subject to compliance with Rule 144, from time to time from May 1996 to February 1998. The possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect the prevailing market price for the Common Stock and could impair the Company's ability to raise additional capital through the sale of equity securities. BLANK CHECK PREFERRED STOCK; ANTI-TAKEOVER PROVISION. The Company's Certificate of Incorporation, as amended, authorizes the issuance of up to 5,000,000 shares of Preferred Stock, none of which are outstanding. The Board of Directors has the authority to fix and determine the relative rights and preferences of preferred shares, as well as the authority to issue such shares, without further shareholder approval. As a result, the Board of Directors could authorize the issuance of a series of Preferred Stock which would grant to holders preferred right to the assets of the Company upon liquidation, the right to receive dividends before dividends would be declared to Common shareholders, and the right to the redemption of such shares, together with a premium, prior to the redemption of the Common Stock, or such other preferred provisions as the Board may in its sole discretion deem appropriate. Common shareholders have no redemption rights or other preferences. In addition, the Board could issue large blocks of Preferred Stock to fend against unwanted tender offers or hostile takeovers without further shareholder approval. 7 DIVIDEND POLICY The Company has never paid any cash dividends on its capital stock. At present, the Company intends to retain all of its earnings, if any, for use in the expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. Any payment of cash dividends on the Common Stock in the future will be dependent upon the Company's financial condition, results of operations, current and anticipated cash requirements, plans for expansion, as well as other factors that the Board of Directors deems relevant. USE OF PROCEEDS As of the date of this Prospectus, all 1,400,000 Options are outstanding out of a total of 1,400,000 shares initially available for grant under the 1995 Option Plan. Of this amount, 720,418 Options are currently exercisable within 60 days of the date of this Prospectus, with the balance vesting in monthly installments for three years from the respective dates of grant in May 1995 and February 1996. Assuming exercise of all outstanding Options, the Company will receive gross proceeds of $4,690,375. There is no assurance that any Options will be exercised or that the Company will receive any proceeds. However, the Company presently intends to apply the net proceeds, if any, for general working capital purposes. 8 PRICE RANGE OF COMMON STOCK Effective September 7, 1992, the Company's shares commenced trading on the over-the-counter Electronic Bulletin Board under the symbol "GROX." There were no reported or known trades on the Electronic Bulletin Board from September 7, 1992 until the merger with NUKO Technologies, Inc., on May 27, 1994 (the "Merger"). After the Merger (and the concurrent name change from Growers Express Incorporated to NUKO Information Systems, Inc.), trading commenced under the new OTC symbol of NUKO. Due to the sporadic trading and chronic volatility, the Company does not believe that an established trading market exists for its Common Stock. Accordingly, the reported historical prices for the Common Stock should not be viewed as a reliable indicator of the value of the Company's stock. The following table sets forth the range of high and low bid prices of the Company's Common Stock in the over-the-counter market for the periods indicated. The table below only includes market activity since the date of the Merger. The prices presented are bid and ask quotations that represent interdealer prices and do not include retail mark-ups and mark-downs or any commissions to the broker dealer. The quoted prices may not reflect prices in actual transactions. The high and low bid prices are as follows:
COMMON STOCK BID ------------------------------- FISCAL YEAR ENDED: HIGH LOW - ------------------------------------------------------------ ---------- ----- APRIL 30, 1995* First Quarter (commencing on May 27, 1994)................ $ 4 7/8 $ 2 1/4 Second Quarter............................................ $ 4 3/4 $ 2 1/4 Third Quarter............................................. $ 7 3/4 $ 2 1/4 Fourth Quarter............................................ $ 6 $ 2 1/2 DECEMBER 31, 1995* First Quarter............................................. $ 5 1/2 $ 2 3/8 Second Quarter............................................ $ 5 3/8 $ 3 1/8 Third Quarter (through December 31, 1995)................. $10 10/16 $ 5 DECEMBER 31, 1996* First Quarter............................................. $ 10 6 1/2 Second Quarter (through May 20, 1996)..................... $ 19 1/2 $ 7 5/8
- ------------------------ * In December 1995, the Company changed its fiscal year end from April 30 to December 31. On May 17, 1996, the closing bid and ask prices for the Company's Common Stock were $17.25 and $17.50, respectively. There were approximately 1,500 shareholders of record of the Company's Common Stock as of May 20, 1996. 9 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1996. The table should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Prospectus. Capitalization on an "as adjusted" basis is not included because the number of shares which will be sold upon the exercise of options, if any, under the 1995 Option Plan is uncertain. Senior Notes.................................................................. $ 325,000 Stockholders' equity: Common stock, $0.001 par value per share; 20,000,000 shares authorized, 10,250,918 shares issued and outstanding (1)............................... 10,250 Preferred stock, $0.001 par value per share; 5,000,000 shares authorized, none outstanding........................................................... -- Additional paid-in capital.................................................. 20,124,578 Accumulated deficit......................................................... (7,438,389) ----------- Total stockholders equity................................................. 12,696,439 ----------- Total capitalization...................................................... $13,021,439 ----------- -----------
- ------------------------ (1) Does not include (i) up to 2,800,000 shares issuable upon exercise of options under the Company's option plans and (ii) 398,400 shares issuable upon exercise of outstanding warrants. 10 SELECTED FINANCIAL DATA The following selected consolidated statements of operations data for the fiscal years ended April 30, 1994 and 1995, the eight months ended December 31, 1995, and the selected consolidated balance sheet data as of December 31, 1995, are derived from the Company's consolidated financial statements, which have been audited by Grant Thornton LLP, independent certified public accountants, as indicated in their report included elsewhere in this Prospectus. The selected consolidated statement of operations data for the three months ended March 31, 1996 and 1995 and the selected consolidated balance sheet data at March 31, 1996, have been derived from the Company's unaudited financial statements which, in the opinion of management, reflect all adjustments (consisting solely of normal recurring adjustments), necessary for a fair presentation of the results for these periods and as of such date. The selected financial data provided below for the three months ended March 31, 1996 are not necessarily indicative of future results of operations or financial performance of the Company. The following selected financial data should be read in conjunction with the financial statements and related notes thereto appearing elsewhere in this Prospectus and Management's Discussion and Analysis of Financial Condition and Results of Operations.
THREE MONTHS FISCAL YEAR ENDED APRIL ENDED EIGHT MONTHS 30,* MARCH 31, ENDED, DECEMBER --------------------------- ---------------------------- 31, 1995 1995 1994 1996 1995 ----------------- -------------- ----------- -------------- ------------ CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues......................... $ 296,330 $ 88,299 $ 346,146 $ 474,413 $ 1,261 Cost of revenues................. 89,296 6,688 72,080 142,321 -- General and administrative expenses........................ 792,497 913,913 492,882 1,305,480 92,737 Research and development expenses........................ 1,268,515 803,449 449,366 2,188,047 328,597 Operating loss................... (1,853,978) (1,635,751) (668,182) (3,161,435) (420,073) Net loss......................... (1,957,645) (1,743,862) (703,225) (3,064,775) (440,987) Loss per common share............ $ (0.70) $ (0.81) $ (0.38) $ (0.37) $ (0.18)
DECEMBER 31, 1995 MARCH 31, 1996 ----------------- -------------- CONSOLIDATED BALANCE SHEET DATA: Working capital............................................................. $ 11,091,081 $ 12,139,566 Total assets................................................................ 13,327,869 15,270,311 Total current liabilities................................................... 1,523,951 2,173,466 Senior notes................................................................ 325,000 325,000 Accumulated deficit......................................................... (4,373,614) (7,438,389) Total shareholders' equity.................................................. 11,377,232 12,696,439
- ------------------------ * In December 1995, the Company changed its fiscal year end from April 30 to December 31. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, OF THE COMPANY CONTAINED ELSEWHERE IN THIS PROSPECTUS. OVERVIEW Since inception, the Company has pursued its strategic multi-media networking direction with open-systems standards-based software products and video codecs, incurring continuing operating losses and substantial research and development expenditures. The Company's performance is largely impacted by Regional Bell Operating Companies and long-distance telephone carriers' capital spending. The Company has incurred significant operating losses since its shift in business focus in early fiscal 1994 to the video codec business from the software consulting and software products business. After a research and development phase which began in fiscal 1994, the Company's Highlander MPEG-2 video codec equipment completed five successful field trials with Pacific Bell Corporation in July 1995. Because these trials fulfilled the customers' specifications for video transmission, the Company believes considerable progress in the research and development of its initial products has been achieved. Since the successful completion of the field trials, the Company has entered into several purchase order agreements, letters of intent and memoranda of understanding with a number of companies, including telecommunications carriers, telecommunications equipment suppliers and systems integration companies. Performance under these agreements has caused expenses to increase as the Company begins commercial production and positions itself to begin commercial deployment to its customers. In addition, the Company believes the private financing it has obtained will enable it to pursue its business objectives during fiscal 1996, however it may be required to seek additional funds if demand for the Company's products causes an increase in working capital requirements, or if unforeseen expenses or problems arise. RESULTS OF OPERATIONS FISCAL PERIOD ENDED MARCH 31, 1996 (UNAUDITED) COMPARED TO FISCAL PERIOD ENDED MARCH 31, 1995 (UNAUDITED) Net sales for the first quarter of 1996 were $474,413 compared to $1,261 for the same period in 1995. Sales for the quarter included shipments of the Company's products which included software, billings for the rental of its Highlander equipment, software licensing fees and software maintenance charges. The net loss for the quarter was $3,064,775 or $0.37 per share, compared with $440,987 or $0.18 per share for the same period in 1995. Net losses reflect the Company's continued investment in its Highlander product line through research and development efforts as well as the hiring of additional personnel to enable the Company to support the market and their customer's requirements. Cost of revenues for the three months ended March 31, 1996 was $142,321 compared to no separately identifiable cost for the same period in 1995. The gross margin resulting from the cost of revenues as a percentage of net sales for the first quarter of 1996 was 70%. This percentage was inflated by the non-product revenue for the quarter. The change in volume invalidated comparison with the same period in 1995. Research and development expenses for the three months ended March 31, 1996 were $2,188,047 compared to $328,597 for the same period in 1995. The increase in the current year reflects the Company's commitment to invest in the development and enhancement of its Highlander product line. The substantial increase in the current quarter as compared to the prior year is a result of receiving adequate funds thereby enabling the Company to hire a substantial number of qualified engineers capable of finishing its Highlander product development efforts. Selling, general and administrative expenses for the three months ended March 31, 1996, were $1,305,480 compared to $92,737 for the same period in 1995. The expenses increased substantially as a result of adding marketing and other personnel needed as the Company began commercialization. 12 Other income consists primarily of interest income and interest expense. Other income for the three month period ended March 31, 1996 was $96,860 compared to an expense of $20,714 for the same period in the prior year. The increase in interest income in the period ended March 31, 1996 compared to the same period in 1995 was the result of a higher cash balances available to invest. FISCAL PERIOD ENDED DECEMBER 31, 1995 (AN EIGHT-MONTH PERIOD) COMPARED TO FISCAL YEAR ENDED APRIL 30, 1995 AND TO THE UNAUDITED EIGHT MONTH PERIOD ENDED DECEMBER 31, 1994 In December 1995, the Company changed its fiscal year end from April 30 to December 31. Accordingly, financial and certain other information for the fiscal year ended December 31, 1995 (the "December 1995 Fiscal Period") is reflective of eight months of operations compared to a full year of operations for the fiscal year ended April 30, 1995 (the "April 1995 Fiscal Year"). Discussed below, where the Company believes such information would be informative, are unaudited results for the eight month period ended December 31, 1994 (the "December 1994 Unaudited Period") as compared to the audited results for the December 1995 Fiscal Period. During the eight months ended December 31, 1995, the Company focused its efforts on accomplishing two major objectives: (i) "productizing" the Highlander technology by moving from the prototype (field trial) design stage to a commercial manufacturing capability, and (ii) developing key alliances for the sales and distribution of these products. These efforts resulted in minimal increased revenue and a substantial increase in expenses in the Eight Month fiscal period ending December 31, 1995 compared to same fiscal period ended December 31, 1994 and to the twelve month fiscal period ended April 30, 1995. Revenues for the December 1995 Fiscal Period increased approximately 235% to $296,330 as compared to $88,299 in the April 1995 Fiscal Period. Total revenues for the December 1994 Unaudited Period were $100,740. The primary component of revenues was product sales, net of returns, which totaled $174,690 in the December 1995 Fiscal Period compared to only $17,600 in the April 1995 Fiscal Period, an increase of approximately 892%. This increase reflected the completion of field trials and the commencement of commercialization of the Company's initial products. In addition, revenues in the December 1995 Fiscal Period reflect $120,000 of contract development fees, of which there were none in the April 1995 Fiscal Year. These development fees were the result of the Company's execution of a Development and OEM Purchase Agreement with Northern Telecom Limited ("Nortel"), pursuant to which the Company has agreed to develop customized products for Nortel's use and exclusive distribution. The Company expects to receive an additional $240,000 from this contract in the first half of 1996. These sales and contract development fee increases were offset by a $70,000 decrease in royalties from the April 1995 Fiscal Year to the December 1995 Fiscal Period as a result of the Company's decision to shift its business focus from its prior software business to its current video codec business. Although the Company has entered into a source code purchase agreement in March 1996 with Digi International, Inc. for the licensing of the Company's primary software product, "Message Port," the Company does not anticipate royalty revenues to constitute a significant portion of total revenues in the near future. In December 1995, the Company and Southwestern Bell Video Services, Inc. ("Southwestern Bell") entered into a Purchase Agreement under which Southwestern Bell may execute orders for the Company's MPEG-2 encoder system and associated software, valued at approximately $3,300,000. However, Southwestern Bell has the right to terminate any orders placed by it under the agreement, with liability to the Company, if any, severely restricted by the contract. Accordingly, there is no assurance that the Southwestern Bell Purchase Agreement will positively impact revenues. The Company incurred operating costs and expenses of $2,150,308 in the December 1995 Fiscal Period compared to $1,724,050 and $1,069,128 for the April 1995 Fiscal Year and the December 1994 Unaudited Period, respectively. The increase from the 1994 eight month period to the 1995 eight month period represents over a 100% increase in expenses. Cost of product sales has increased both in dollar amount and as a percentage of product sales from the April 1995 Fiscal Year to the December 1995 Fiscal Period. Cost of sales increased from 13 $6,688 in the April 1994 Fiscal Year to $89,296 in the December 1995 Fiscal Period. Cost of sales increased, as expected, as the Company moved from field trials toward commercial production of its products during the December 1995 Fiscal Period. The largest component of costs and expenses in the December 1995 Fiscal Period was research and development expenses, which accounted for approximately 59% of costs and expenses during such period and represents an increase of approximately $750,000 over the amount expended on research and development during the December 1994 Unaudited Period. The Company incurred research and development expenses of $803,449 in the April 1995 Fiscal Year as it continued the development of its Highlander video codec. A principal reason for the substantial increase was the addition of engineering staff members during the last several months of the December 1995 Fiscal Period. The Company believes that a substantial portion of the research and development expense required for the development of the Highlander video codec has been incurred, but nevertheless expects to continue to incur substantial ongoing research and development expenses as it works to enhance existing products and develop new products incorporating newly-emerging digital audio and video networking technologies. The Company incurred selling, general and administrative expenses of $792,497 and $913,913 in the December 1995 Fiscal Period and the April 1995 Fiscal Year, respectively. The Company has added a significant number of additional employees to its staff as it has moved into commercial production, which has had the effect of increasing all categories of selling, general and administrative expense. The Company expects significant increases in such expenses in the 1996 fiscal year as it continues to strengthen its management team through the recent addition of new executive officers, including among others, a chief financial officer, a chief operating officer, and other employees. As a result of the foregoing, the Company's operating loss for the December 1995 Fiscal Period totaled $1,853,978, compared to an operating loss of $968,388 for the December 1994 Unaudited Period and $1,635,751 for the April 1995 Fiscal Period. The net loss for such periods was $1,957,645 (December 1995 Fiscal Period), $1,001,633 (December 1994 Unaudited Period) and $1,743,862 (April 1995 Fiscal Year). Although the Company expects revenues to increase in future periods, management anticipates that due to expected continued significant increases in all items of costs and expenses, the Company will continue to incur substantial losses for the foreseeable future. As of December 31, 1995, the Company had net operating loss carryforwards of approximately $3,800,000 and $1,900,000 available to offset future federal and state taxable income, respectively. The utilization of these losses is contingent upon the Company's ability to generate taxable income in the future. Management does not believe, based upon available evidence, that it is more likely than not that the Company will be able to realize the deferred tax assets. FISCAL YEAR ENDED APRIL 30, 1995 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1994 Revenues for the fiscal year ended April 30, 1995 were $88,299, which is $257,847 less than the prior year. Revenues were generated from the sales of the Company's software products, including royalties of approximately 8% paid to the Company by its software publisher in Japan. Revenues decreased during the period because of the Company's decision to cease its software consulting and retail software products sales in the United States in order to divert its management and engineering resources to the Highlander video codec development. For the fiscal year ended April 30, 1995, retail software product sales in the United States dropped to $17,600 from $188,586 a year earlier; however, software product royalties increased to $70,000 from introduction of the software product in Japan. The Company's software consulting revenue also dropped to zero as compared to $157,560 a year earlier as a result of the cessation of all software consulting activity. No revenues were generated from its Highlander video codec products during the period due to prolonged digital video field trials with Pacific Bell and delays in deployment of MPEG digital video compression technology by the telecommunications industry. General delays in digital video compression deployment were caused by reasons out of the Company's control, including high component costs from single-source vendors, delays in establishing MPEG-2 standards by standards committees and the FCC auctioning of PCS wireless spectrum which caused telephone companies to divert substantial capital to the procurement of its 14 spectrum. The Company believes that these impediments to deployment are no longer relevant. Currently, various Regional Bell Operating Companies, such as Bell Atlantic and Nynex, are moving toward two significant deployments of commercial video services compatible with MPEG-2 standards. For the year ended April 30, 1995, cost of product sales decreased by $65,392 from $72,080 in the prior year due to the cessation of all software product sales in the United States. The shift in business from software product sales to Highlander video codecs also contributed to an increase of $354,083 in research and development expense and increases in selling, general and administration expense by $421,031. LIQUIDITY AND CAPITAL RESOURCES During the eight months ended December 31, 1995, the Company experienced substantial negative cash flow which was the result of the combination of low revenues and a significant increase in operating expenses due to the Company's undertaking to enter the video codec market. At December 31, 1995, the Company had working capital of $11,091,081, primarily as a result of funding received from private placements of securities in November and December 1995. As of March 31, 1996, cash and cash equivalents consisting of investments in demand deposits and commercial paper, with a maturity of less than 90 days, were $11,449,908. Short term investments totaling $1,668,634 were invested in commerical paper with maturities of less than 120 days. The ending balance at March 1996 totaled $13, 118,542 compared to a balance of $11,255,820 at December 31, 1995. The increase is related to the final closing of a private placement in February 1996 resulting in the Company receiving gross proceeds of $4,112,500 in exchange for 822,500 shares of the Company's common stock. In addition the Company received $540,000 from the exercise of 300,000 previously issued warrants. During the period, cash required for research and development and other operating activities represents the majority of the Company's cash usage. Historically, the Company has not been able to rely upon cash flow from operations to finance its growth. Based on the current projections of operations, management expects cash and cash equivalents at March 31, 1996, and cash generated from operations will be adequate to fund operating requirements and property and equipment purchases in 1996. However, management recognizes the dynamic nature of the telecommunications industry and the possibility that the Company's product offerings may achieve better than expected market acceptance which could increase working capital requirements in 1997. In such event, the Company would consider appropriate financing alternatives. OTHER FINANCIAL INFORMATION The Company's backlog includes sales orders received by the Company that have a scheduled delivery date prior to March 31, 1997. The aggregate sales price of orders received and included in backlog was approximately $3,100,000 at March 31, 1996. The Company believes the orders included in the backlog are firm orders and will be shipped prior to March 31, 1997. However, some orders may be canceled by the Customer without penalty where management believes it is in the Company's best interest to allow such cancellations. 15 BUSINESS OVERVIEW NUKO Information Systems, Inc. (the "Company") designs and markets codecs, which are key components in the transmission of audio and video data for digital communication systems. These products are an essential building block in the development of broadband (high capacity) video and multimedia networks. The Company's codec technology is used to encode and compress complex, data-intensive audio and video signals, enabling the transmission of this information over existing communication lines. The Company's codecs, sold under the trade name Highlander, allow a user to digitally encode, compress, transmit, decompress and decode data, enabling the rapid and cost-effective communication of data from the point of origin to remote locations. The Company supplies system-level products to carriers, such as cable and telephone companies. Other potential customers include corporations and universities for proprietary voice, video and data networks. TECHNOLOGY BACKGROUND Electronic signals come in two varieties: analog (also referred to as "linear") or digital. Analog signals are continuous, wave-based functions generally reflecting real-world phenomena, such as light, sound and pressure. (Broadcast television signals are an example of analog transmissions.) In contrast to the potentially infinite number of states for an analog signal, digital signals take only one of two forms: "on" or "off." Although computing devices use this digital information to perform complex mathematical manipulations with exceptional speed, their input and output is limited to the digital form factor. Accordingly, the capture of frames from a broadcast television signal for processing or storage in a computer system requires that the signal be digitized. While the availability of data in digital form is potentially more useful than analog, complex signals, such as video or multimedia contain a significantly larger volume of data in their digital state. For example, when a typical 180 minute analog NTSC video (the standard presently used for conventional television in the United States) is digitized, it requires more than one million bytes (one gigabyte) of storage for each minute of transmission time at 30 frames per second. This is more than the entire data storage capacity available for most desktop computers. Technical advances leading to greater signal complexity, such as the adoption of a High Definition Television standard, will serve to exacerbate the problems of data storage and transmission. Data compression provides a means for coping with the storage and transmission of large volumes of digital information. The compression of digitized video is typically done by using compression/ decompression algorithms either in software alone, or combined with special-purpose chip sets (the Company's products use this hardware/software combination). The term "codec" is used to describe the compression/decompression system, which encodes and compresses digital signals prior to broadcast and decodes and decompresses them for viewing or other use after reception. The Company's codecs have the ability to multiplex (combine) multiple channels of data into a single transmission signal on a high-capacity line, such as a fiber-optic cable, then uncombine the signal into multiple channels after reception of the transmission. A channel refers to a stream of contiguous data, such as a video signal or other audio sources, which can be simultaneously transmitted in an efficient and compressed form. The term "multiplexer" refers to a device that interleaves audio and video stream elements into a single combined audio/video stream. It can also refer to a device that can interleave multiple audio/video stream elements into a single audio/video stream that is network compatible. Since video, voice and data networks are often national or international in scope, it is critical that communications vendors maintain compatibility between devices manufactured by different companies. In light of this, the telecommunications industry has devoted substantial efforts to defining technical standards through organizations such as the Motion Picture Experts Group (MPEG) of the International Standards Organization. The MPEG-1 data compression standard, developed several years ago, provides a compression ratio of approximately 6:1. By contrast, compliance with the 16 industry's latest standard, MPEG-2, permits delivery of full-screen video at 30 frames per second with compression ratios ranging from 10:1 up to 200:1, depending on program material and desired playback quality. Announced in 1994, this MPEG-2 industry standard allows users to select varying compression profiles, multiple levels of processing complexity (or resolution) and different sampling frequencies. Since the MPEG-2 standard can incorporate a range of compression ratios, end-users can balance storage and bandwidth against picture quality, based on economic considerations. MPEG-3, the group's follow-on proposal, has been abandoned as a potential standard by the industry, leaving MPEG-2 as the de facto standard at least until November 1998, the current target date for delivery of the MPEG-4 proposal. Intended for a very narrow bandwidth, MPEG-4 is anticipated to find primary applications in areas such as speech and video systems, fractal geometry, computer visualization and artificial intelligence. The Company designs and produces products which support both the MPEG-1 and MPEG-2 international standards. Using proprietary algorithms that are compatible with these industry standards, the Company's Highlander models of video codecs meet current MPEG-1 and MPEG-2 specifications. The use of proprietary algorithms is unique to every vendor that implements the MPEG-1 and MPEG-2 based systems. The Company believes that the creation of these algorithms is of such an inventive nature as to be a hindering factor, but by no means a bar, to market entry by potential competitors. The Company's Highlander products can also be upgraded to a professional-level (MPP) system, delivering the advanced resolution necessary for high-end video production and storage. The system also includes the provision for multichannel compression ("multiplexing"). Highlander prototypes underwent evaluation and testing by potential customers during field trials completed in July 1995. The Company believes Highlander codec test units have demonstrated both high-quality resolution and reliability of performance necessary for successful trial completion. In addition, the Company's multiplexers have demonstrated the capability of transmitting as many as seven channels (I.E., "video streams") on a single 45Mb/s DS3 network line, enhancing the transmission capacity of the connection and potentially delivering a significant cost savings for the user. Although the Company believes that it is one of the first to develop prototypes that support multiple channels of audio and video streams, there can be no assurance that production units will be successfully delivered in commercial quantities. The Company believes that the ability to multiplex multiple data streams on a single 45Mb/s DS-3 network has significant commercial value at this stage of the market development. PRODUCTS The Company develops system-level products for use by carrier service providers in building voice and data networks. The Company has completed its design phase and expects to commence low-volume manufacturing during 1996 of the Highlander family of digital audio/video codecs, utilizing a variety of audio and video compression formats and network interfaces. The Company's product offerings described herein are currently undergoing pre-production engineering with a view towards commencing commercial deliveries in mid-1996. However, various factors, both within and outside the Company's control could cause the timing of commercial production and delivery to be delayed and there can be no assurance that the currently anticipated schedule will be met. The Company's Highlander products support both analog and digital audio and video input, converting these data streams in real time into compressed digital formats specified by MPEG-1 and MPEG-2 standards for transmission over broadband networks. The Company's codecs are designed to be configured for multiplexing multiple data channels into a single transmission on a high-capacity line, such as fiber optic cable. The digital stream can then be decoded at the receiving end by another Highlander-based system, or by MPEG decoders, such as set-top cable boxes, from various other manufacturers. 17 The Highlander codecs support variable bit rates from 3 Mb/s to 15 Mb/s which can be changed "on the fly," due to real-time dynamic bandwidth allocation, a software-controlled capability built into the product architecture. The NUKO digital video enhancement techniques ensure crisp picture quality, superior to normal off-air cable TV reception. With their back-up and redundancy capabilities, the Company believes the Highlander codecs offer reliable, hot-swappable and field-upgradable (via software) versatility and "future-ready" technology. The current primary network interface for Highlander products is the high-speed DS3 connection common among telecommunications carriers. DS3 networks support up to 45 Mb/s. The flexibility incorporated by the product's architecture enables the handling of multiple channels of real-time encoding and decoding across this connection, effectively increasing data capacity or delivery channel redundancy and fault-tolerance. Transmission bit-rate, compression mode and resolution per channel can be configured either by the Company or the customer, and can be reconfigured at any time, even from remote locations. These and other such features increase the network management flexibility for a given telecommunications carrier, which can be an important consideration in product implementation. Terrestrial transmission over fiber is accomplished in a variety of networks. The emerging telecommunications networks of high bandwidth and high speed switching capabilities are based on Asynchronous Transfer Mode (ATM) for transmission over Synchronous Optical Network (SONET) backbone rings. The Company is currently developing network interfaces to satisfy these emerging telecommunications networks; however, there is no assurance that these additional network interfaces will be successfully developed. Highlander codecs interoperate with set-top boxes from multiple vendors and can accommodate add-on modules for video delivery with both commercial and consumer applications. They support a full range of network interfaces, including DS1, DS2 and DS3, satellite and wireless. These codecs are compliant with either in-band control directly through ATM connections or out of band control via Ethernet-based SNMP interface. All this suggests seamless integration with virtually any existing system strategy for network application, configuration and performance management. However, due to rapidly changing technology, there can be no assurance that the Company's codecs will integrate with newly-developed interfaces and it will be essential that the Company continue to keep pace with such changes in order to successfully compete. The Company's initial products provide one-way point-to-point and point-to-multi-point communication, as is common in broadcast applications. The Company is also designing two-way point-to-point and point-to-multipoint communications systems and the next generation of Highlander products which support ATM for transmission over SONET backbone rings. If fully developed, of which there can be no assurances, these two-way systems could be used in applications such as interactive video conferencing, two-way distance learning, telemedicine and remote arraignment. (See "-- Research and Development -- Potential Products and Applications.") INITIAL COMMERCIAL PRODUCTS: THE VF FAMILY. The Company's initial product offering for the commercial marketplace is the VF-9000 series codecs support the transmission and reception of broadcast audio and video streams using the formats specified by MPEG-1 and MPEG-2 standards. The Company believes these products will offer the user complete systems including up to nine channels of encoders in a hot-swappable VM chassis, coupled with a multi-channel video switch and a nine channel ATM Multiplexer, all encapsulated in a stand-alone, fully powered, harnessed and cabled, and conditioned enclosure for turn-key deployment. Broadcast carriers such as the Regional Bell Operating Companies (RBOCs), cable television companies and satellite broadcast companies are currently building networks that integrate voice, video and data transmission. Certain of these carriers are currently conducting trials to evaluate the technical feasibility of offering additional channels for carrying real-time television broadcasts or "on-demand" programming from a central video file library. The Company's Highlander codecs have been used during field trials as part of prototype systems for encoding real-time channels at off-air and 18 satellite receive stations and other transmission locations (such as classrooms for distance learning). For example, Pacific Bell, an RBOC, has conducted field trials of the Highlander codecs for distance learning applications. Test units have also been used for converting digital compression streams to analog format for distribution from a cable facility to residential neighborhoods. MARKETING, SALES AND CUSTOMERS Since early 1994, the Company has been engaged in research and development and testing of product prototypes. Its primary means of marketing has been through its participation in customer sponsored video networking trials and relationships it has developed with other vendors with which the Company partners. As it nears initial production on these products, the Company has been increasing its efforts to create awareness of its products through the use of traditional marketing techniques. Its marketing efforts will be focused on developing a strong image and awareness within specific target customer bases including RBOCs, service providers, cable companies, satellite broadcast companies, inter-exchange carriers and telecommunication network equipment providers. Other potential customers or end-users include large corporations needing remote communication capabilities and universities seeking to expand the availability of their course offerings to off-site locations. The Company is in the process of establishing a direct sales force and an external distribution network. Currently, it offers products for direct sale to RBOCs, as well as to carriers through reseller partners, original equipment manufacturers (OEMs) and system integrators. In the case of OEMs, the Company designs its technology under a non-recurring engineering charge and sells the OEM modules to the third party for resale. The Company intends to respond to existing demand for its products with existing personnel. However, the diverse nature and regional locations of its potential customers will require the Company to explore alternatives in providing a complete product solution for its customers. In response to this need, the Company will provide post-sales support and maintenance services through third parties. The Company is negotiating such arrangements with various distributors. The effectiveness of these distributors can vary greatly and will be managed to maximize the success of the program. The Company has generated only limited sales to date and, while it has engaged in initial marketing efforts, there can be no assurances that its analysis of the potential markets for its products will be confirmed by actual experience. As a result of its recent marketing efforts, the Company is actively responding to inquiries from potential customers and partners in Europe, India and the United States. MANUFACTURING The Company subcontracts the manufacture of its products to other companies that have BellCore and ISO 9000 certified manufacturing facilities and that produce chip sets having the high-speed processors needed in video compression. Digital compression chip-sets typically command higher prices than the analog-based chip-sets used in conventional analog codecs. The Company believes that the digital video compression market is currently in an embryonic stage and that advancements in digital video compression technology will result in smaller form factors and lower prices for these chip-sets. It believes this will make possible the design and manufacture of digital compression systems at analog codec prices, which should result in increased acceptance of digital compression technology. Recent announcements by other manufacturers of digital compression chip-sets are expected to accelerate this increased acceptance of the technology. The Company has formalized contractual relationships with its most significant vendors, which the Company believes are of significant size and scope as to minimize risk from both the manufacturers' process capability as well as procurement capabilities; however, any possible delays in the manufacture and delivery of product could result in a need to find alternative manufacturing resources. Should it be required to find alternative sources of manufacturing, the Company believes it could do so, but there could be significant delays in production that could have a necessary adverse impact on the Company's results of operations. Of the product lines which the Company offers for sale, certain 19 products are based upon the existing technologies available, which in some cases are single sourced. Although there is no current shortage for these components, there is no guarantee of future availability for these parts. Most of the materials and supplies purchased by the Company are standard electronic components, including transistors, integrated circuits, resistors, capacitors and circuit boards manufactured by multiple suppliers. The cabinet housing for the Company's products is also available from multiple manufacturers, but is presently manufactured by one of the Company's strategic alliances. Currently, the Company purchases only one component, its video-compression RISC processors, from a single qualified source. In the event of a failure of the current sole source supplier, a material delay in shipments could result. The Company is seeking to qualify additional video compression vendors; however, there is no assurance that the Company will be able to locate additional sources of supply in a timely manner. RESEARCH AND DEVELOPMENT The Company believes its success will depend in large part on its ability to enhance existing products and continue developing new products incorporating emerging digital audio and video networking technologies. The Company has devoted a substantial portion of the investment capital it has received since inception to research and development. During the fiscal years ended April 30, 1995 and 1994, the Company expended approximately $803,500 and $450,000, respectively, on Company-sponsored research and development. The Company expended $1,268,515 on Company-sponsored research and development during the eight month fiscal period ended December 31, 1995. Although the Company did not engage in any customer-sponsored research and development activities during the fiscal years ended April 30, 1995 or 1994, in the current fiscal year the Company is performing research and development under contract of Northern Telecom, Limited. The Company is committed to continuing the development of its core technologies and anticipates that it will devote a significant portion of revenues to ongoing research and development. The Company is currently developing the next generation of Highlander products, which are anticipated to support form factor reduction, ATM and DS3 networks with enhanced network management capabilities and better integration of features for carrier companies. POTENTIAL PRODUCTS AND APPLICATIONS. The Company has targeted its products for business broadband services such as corporate training, distance learning, telemedicine and remote arraignment. However, until the products are developed and demonstrated, there is no assurance that they will be used in these applications or that these proposed applications will gain market acceptance. Potential applications for the Company's products include: TELECOMMUNICATIONS SUPERTRUNKING -- The Company's technology could enable telephone companies to build SONET/ATM/DS3-based network architectures to deliver cable television or on-demand video to homes. CORPORATE VIDEO-CONFERENCING -- The Company believes its codecs are highly suitable for use in corporate teleconferencing. DISTANCE LEARNING -- Universities, elementary and high schools, and other educational institutions are investigating the feasibility of delivering lectures in real time to students at remote locations. Assuming the use of a two-way communications system similar to video-conferencing, this would allow for a desirable level of student-teacher interaction. TELEMEDICINE -- Patients and physicians may communicate directly at a distance for diagnostic and consultation purposes. This advancement could reduce visits to hospitals or at doctors' clinics, resulting in considerable savings in the cost of healthcare costs. 20 CORPORATE TRAINING -- Application of the Company's codecs in advanced video systems can enhance the efficiency of the corporate training operation and deliver significant savings in related costs. REMOTE ARRAIGNMENT -- The high cost of transporting suspects from jails to the courthouse may be reduced by using high-resolution video conferencing solutions that enable people in the courtroom to view prisoners in rooms at the jail facility. COMPETITION The video networking market is characterized by rapid technological change and intense competition. The Company believes that while there is no dominant leader in this emerging market, it has several competitors, all of whom have significantly greater engineering, manufacturing, marketing and financial resources than the Company. Competitive technologies include those incorporated in analog compression devices and proprietary compression systems, both of which are currently available at lower prices. The Company believes its ability to compete successfully in existing and future markets will depend on elements both within and outside its control, including, but not limited to, the success and timing of new product development by the Company and its competitors, product performance, price, productivity enhancement, distribution and customer support. Performance in these areas will, in turn, depend upon the Company's ability to attract and retain highly qualified technical personnel in a competitive market. The Company believes that carriers will prefer systems based on open standards for end-to-end interoperability, such as those contained in products being developed by the Company. Until these products are demonstrated in the market, however, there can be no assurance that they will receive widespread acceptance. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS Although the Company believes that several aspects of its technology could be patented, it has not yet filed any applications for patent protection. There can be no assurance, even if patents are obtained in the future, that any issued patents will provide any certainty of successful application, commercial success or impediments to reverse engineering of the Company's products. Moreover, there is no assurance that any patents, if issued, will be upheld if the Company seeks to enforce its rights against an infringer, or that the Company will have sufficient resources to protect its rights; nor is there any assurance that such patents, if issued, will provide meaningful protection from competition. In addition, reverse engineering of the Company's hardware is feasible. The Company protects its trade secrets and other intellectual property through agreements with customers and suppliers, proprietary information agreements with employees and consultants and other security measures. Although the Company continues to implement protective measures and intends to defend its intellectual property rights, there is no assurance that these protections will be adequate or that the Company's competitors will not independently develop technologies that are equivalent or superior to the Company's technology. There is also no assurance that any particular aspect of the Company's technology or products will not be found to infringe the claims of existing patents, although, to date, the Company has not received any claims that its products infringe on the proprietary rights of third parties. GOVERNMENT REGULATION Although the Company itself is not required to obtain governmental approval of any of its products, several of the Company's customers are subject to extensive regulation by the Federal Communications Commission (FCC), Public Utilities Commission (PUC) and other regulatory agencies. The regulations of these agencies tend to constantly change, which could severely impact the Company's business in an unpredictable manner. EMPLOYEES As of May 20, 1996, the Company had 51 full-time employees and six consultants working in various capacities for and on behalf of the Company. Of this total, six were engaged in administration 21 and finance, seven in marketing and sales with the remaining 38 in engineering. In addition, there are six engineers supporting the Company's efforts through an associated firm by the name of NUKO Information Systems (India) Private Ltd. located in Bangalore, India. PROPERTY In July 1994, the Company moved its engineering operations and headquarters to a building located at 2235 Qume Drive, San Jose, California. The subleased premises consist of approximately 12,000 square feet of usable space. The sublease calls for an annual base rent of approximately $135,600 and expires in April 1999. The Company believes additional facilities will be required to meet the Company's anticipated needs as it expands during the 1996 time frame. The Company is presently exploring suitable additional or alternative space which will be available as needed on commercially reasonable terms. LEGAL PROCEEDINGS The Company is not currently subject to any legal proceedings which would have a material adverse effect upon the Company's business, operations or financial condition. The Company may from time to time become a party to various legal proceedings arising in the normal course of its business. These actions could include disputes with vendors or customers and employee or stockholder related issues. 22 MANAGEMENT The officers and directors of the Company as of May 20, 1996 are as follows:
NAME AGE POSITION - ------------------------------- --- ------------------------------------------------- Pratap Kesav Kondamoori 35 President, Chief Executive Officer and Chairman of the Board John Gorman 58 Vice President, Finance and Chief Financial Officer Ram Kedlaya (1) 36 Vice President, Strategic Planning, Assistant Secretary and Director Anders O. Field, Jr. (1) 65 Director and Assistant Secretary Marc Dumont (1) 52 Director Bruce Young 51 Executive Vice President, Chief Operating Officer John Glass 41 Vice President, Business Development Chadalavada Rao 43 Vice President, Engineering Davinder Gulati 48 Vice President, Sales Neil Mammen 33 Chief Technical Officer Grover T. Wickersham 47 Corporate Secretary
- ------------------------ (1) Member of the Compensation Committee. The bylaws of the Company provide for a board of seven members. The board currently has three vacancies and while the Company does not presently intend to fill these vacancies, it will consider candidates for these seats if and when the feasibility of adding additional management becomes clear. All directors hold office until the next annual meeting of shareholders or until their successors have been duly elected and qualified. Officers serve at the discretion of the Board of Directors. Mr. Kondamoori has served as the Company's Chief Executive Officer, President, Chairman of the Board and Chief Financial Officer since May 1994, when NUKO Technologies, Inc. merged with Growers Express Incorporated. From October 1992 to the present, he has also served as the President and Chief Executive Officer of NUKO Technologies, Inc., the Company's subsidiary ("NUKO Technologies"). From February 1991 through August 1992, Mr. Kondamoori served as the data and video systems product line manager for NEC America, San Jose, California. Mr. Kondamoori holds a Bachelor's degree in Engineering from Clemson University. Mr. Gorman joined the Company in April 1996 as the Company's Vice President, Finance and Chief Financial Officer. From March 1992 to April 1996, he has served as Vice President and Chief Financial Officer of BroadBand Technologies, Inc., a manufacturer of telecommunications equipment. Prior to March 1992, Mr. Gorman was Vice President and Corporate Controller of Telco Systems, Inc., another manufacturer of telecommunications equipment. Mr. Gorman holds a B.S. degree from Elizabethtown College and an MBA from Penn State (Shippensburg) University. Mr. Kedlaya has served as the Company's Vice President, Business Development, Assistant Secretary and Director since May 1994. In February 1996, he became Vice President, Strategic Planning and no longer serves as Vice President, Business Development. Since October 1992, Mr. Kedlaya has also served as NUKO Technologies' Vice President of Engineering and Business Development. Mr. Kedlaya has an M.S. in Materials Science from the University of Florida and an M.S. in Computer Science from the University of Texas. Prior to October 1992 Mr. Kedlaya worked for GO Corporation on architectures for messaging systems for pen-based computers. 23 Mr. Field has served as a Director since May 1994 and as a consultant to the Company since October 1993. Mr. Field has been associated with his Nevada business consulting firm, the Lowell Corporation, for over five years. As a consultant has acted as an advisor to start-up companies particularly in technology-based businesses. Mr. Field holds a B.A. in Economics and an MBA from Stanford University and is certified in International Economics from the University of Lund, Sweden. Mr. Dumont was elected to the Company's Board in November 1995. Since March 1995 Mr. Dumont has acted as an independent international business consultant. He also serves as chairman of the board and chief executive officer of Manoir Murisaltien Winery, Meursault, France, positions he has held since October 1995. Until March 1995 and for more than five years, Mr. Dumont served as President of (PSA) Peugeot Citroen Group, Geneva, Switzerland. Mr. Dumont serves on the Board of Directors of a number of companies, including PinterBank Zurich; Banque Internationale, a Luxembourg corporation; and Irvine Sensors Corporation, Costa Mesa, California, a developer of semiconductor packaging technology. Mr. Young has served as the Company's Chief Operating Officer since March 1996. From March 1995 to March 1996, he had been associated with his Massachusetts business consulting firm, Global Business Consultants, Inc. As a consultant, he acted as an advisor to businesses in transition, growth and expansion. Prior to March 1995, Mr. Young served as Senior Vice President and General Manager of Telco Systems, Fiber Optic Division. Mr. Young holds a B.B.A. from Nichols College and graduated from the Advanced Management Program of Harvard University in 1993. Mr. Glass has served as the Company's Vice President, Business Development since March 1996 and as a systems engineering consultant to the Company since October 1995. From 1992 to October 1995, Mr. Glass served as Vice President and General Manager of Grass Valley Group/Tektronix Video Transport Business Unit. Prior to 1992, he served as Director of Marketing and Assistant General Manager of DSC Communications Corporation. Mr. Glass holds a B.A. in Economics from Washington State University and an MBA from Western New England College. Mr. Rao has served as the Company's Vice President of Engineering since March 1996 and as a consultant to the Company for Prototype Codecs since March 1994. Prior to January 1996, and for more than five years, he had served as Engineering Manager for Sun Microsystems, Inc. Mr. Rao holds a Bachelor of Technology degree from Regional Engineering College in Warangal, India, a M.S. in Computer Engineering from Oakland University, and a M.S. in Chemical Engineering from Ohio University. Mr. Gulati joined the Company in December 1995 and has served as the Company's Vice President, Sales since March 1996. From June 1990 to December 1995, he served as Vice President, Business Development of ASA Computers. Mr. Gulati holds a BEE from Jabalpur Engineering College, University of Jabalpur, India and an MSIE from San Jose State University. Mr. Mammen has served as the Company's Chief Technical Officer since March 1996 and has been employed by the Company since September 1994. From September 1992 to September 1995, he served as Systems Engineer Group Manager to C-Cube Microsystems. From June 1989 to September 1992, Mr. Mammen served as SPARC Applications Manager and Senior Staff Engineer with LSI Logic. He holds a Bachelor of Science degree in Electrical Engineering and a Master of Science Degree in Electrical Engineering from Oregon State University. Mr. Wickersham has served as the Company's Corporate Secretary since December 1995 and has been a member of the law firm, Grover Wickersham, P.C., Palo Alto, California, for more than five years. This firm serves as securities counsel to the Company. Mr. Wickersham holds an A.B. from the University of California at Berkeley, a J.D. from the University of California (Hastings) and an MBA from Harvard Business School. 24 BOARD MEETINGS AND COMMITTEES The Board of Directors held a total of five meetings during the fiscal year ended December 31, 1995 (an eight month period) and took no action by unanimous written consent. No director attended fewer than 75% of the meetings of the Board of Directors or committees of which he was a member during the fiscal year ended December 31, 1995. The Compensation Committee of the Board of Directors consists of Messrs. Kedlaya, Field and Dumont. This Committee makes recommendations to the Board of Directors as to the salaries of officers, administers the Company's executive bonus programs and recommends to the Board the award of stock options to key employees, officers and directors. LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS As permitted by the New York Business Corporations Law (the "Corporations Law"), the Company's Certificate of Incorporation provides that directors will not be personally liable to the Company for monetary damages arising from a breach of their fiduciary duty as directors. Under current New York law, liability is not eliminated for the liability of any director if a judgment or other final adjudication adverse to him establishes that his acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled or that his acts violated section 719 of the Corporations Law. Such provision does not eliminate the liability of any director for any act or omissions prior to the adoption of the provision. The Company's Certificate of Incorporation also provides that the Company must, to the fullest extent permitted by the Corporations Law, indemnify all persons whom it has the power to indemnify from and against all expenses, liabilities or other matters. The Company's By-laws further provide that the Company must indemnify its directors, officers, employees and agents to the fullest extent permitted by the Corporations Law and provides for the advancement of expenses incurred by such persons in advance of the final disposition of any civil or criminal action, suit or proceeding, subject to repayment if it is ultimately determined that he or she was not entitled to indemnification. The indemnification and advancement of expenses provided in the By-laws are expressly deemed to not be exclusive of any other rights to which a person seeking indemnification or advancement of expenses may otherwise be entitled. The Company has entered into indemnification agreements between the Company and its officers and directors. EXECUTIVE COMPENSATION The following table sets forth certain information regarding compensation paid by the Company for services rendered during the eight month fiscal period ended December 31, 1995, and the two fiscal years ended April 30, 1995 to the Company's Chief Executive Officer (the "Named Executive Officer"). No executive officer of the Company received total annual salary and bonus, or annual salary and other compensation, exceeding $100,000 in the last full fiscal year or eight-month fiscal period ended December 31, 1995. 25 SUMMARY COMPENSATION TABLE*
ANNUAL COMPENSATION ALL OTHER NAME PERIOD SALARY (2) COMPENSATION - ------------------------------------------------------------ --------------------- ------------- ------------- Pratap Kesav Kondamoori Eight Month $ 66,150 -- Chief Executive Officer, President, Chief Period Ended Financial Officer and Chairman of the December 31, Board 1995 Fiscal Year Ended $ 13,250 $ 27,748(3) April 30, 1995 Fiscal Year Ended $ 1,000 $ 17,471(4) April 30,1994 (1)
- ------------------------ * Prescribed columns in the Summary Compensation Table have been omitted if they are not relevant to the Named Executive Officer. (1) Prior to May 27, 1994, Growers Express, Incorporated ("Growers Express"), the predecessor of the Company, was a dormant, non-operating company. On May 27, 1994, Growers Express merged with NUKO Technologies, Inc. and changed its name to NUKO Information Systems, Inc., which merged entity is continuing the business and operations of NUKO Technologies, Inc. The Company believes compensation information pertaining to Growers Express, if it had access to such information, which it does not, would nevertheless be immaterial and irrelevant to current operations. Compensation information for the Named Executive Officer for the 1994 fiscal year reflects compensation received from the operating subsidiary and its parent prior to the Merger. (2) During fiscal 1994 and 1995, due to the Company's cash flow problems, all executive officers, including Mr. Kondamoori, agreed to defer certain payments. The salary figure indicated in the above table for the fiscal year ended April 30, 1995 does not include $22,750 of accrued salary, which was paid in the eight months ended December 31, 1995. (3) Represents $27,748 as advances in the fiscal year ended April 30, 1995. (4) Includes $5,125 paid for consulting fees and $12,346 as advances in fiscal year 1994. STOCK OPTIONS The NUKO Information Systems, Inc. 1995 Stock Option Plan (the "1995 Option Plan") was adopted by the Board of Directors in May 1995. The Company had not previously had a stock option plan. The Board of Directors has reserved 1,400,000 shares of Common Stock for issuance under the 1995 Option Plan. The Board of Directors believes that, in order to attract qualified employees and consultants to the Company and to provide an incentive to them, it is appropriate and deemed advisable to grant options to purchase Common Stock to such employees and consultants pursuant to the 1995 Option Plan. Options granted under the 1995 Option Plan may be either "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock options at the discretion of the Board of Directors and as reflected in the terms of the written option agreement. The Board of Directors, at its discretion, may also grant rights to purchase Common Stock directly, rather than pursuant to stock options. The 1995 Option Plan is not a qualified deferred compensation plan under Section 401(a) of the Code, and is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 26 In March 1996, the Board of Directors adopted the NUKO Information Systems, Inc. 1996 Stock Option Plan (the "1996 Stock Option Plan"), which is identical to the 1995 Stock Option Plan, and the NUKO Information Systems, Inc. 1996 Director Stock Option Plan (the "1996 Director Stock Option Plan") and initially reserved 1,300,000 and 100,000 shares of Common Stock, respectively, for issuance thereunder. The Named Executive Officer is eligible to participate in each of these plans. As of the date hereof, all 1,400,000 Options have been granted under the 1995 Stock Option Plan, 1,282,250 Options have been granted under the 1996 Stock Option Plan and 35,000 Options have been granted under the 1996 Director Stock Option Plan. The following table sets forth information regarding stock option grants made during the eight-month fiscal period ended December 31, 1995 to the Named Executive Officer: OPTION GRANTS IN THE EIGHT MONTH PERIOD ENDED DECEMBER 31, 1995
NUMBER OF SECURITIES PERCENT OF TOTAL UNDERLYING OPTIONS GRANTED EXERCISE EXPIRATION NAME OPTIONS GRANTED DURING THE PERIOD PRICE DATE - --------------------------------------------- -------------------- ------------------- ----------- ---------------- Pratap Kesav Kondamoori 43,379(1) 4.1% 2.375 May 25, 2000 Chief Executive Officer, President, Chief Financial Officer and Chairman of the Board
- ------------------------ (1) Does not include 13,608 options granted to the spouse of the Named Executive Officer, an employee of the Company. No employee of the Company received additional compensation for his services as a director. The Company is currently discussing the features to be included in a 401(k) and/or profit sharing program for the benefit of its directors, officers and other employees, and the Board of Directors is expecting to adopt one or more such programs in 1996. EMPLOYMENT AGREEMENTS. The Company historically has not entered into employment agreements with any of its executive officers. However, the Company is currently negotiating employment agreements with certain of its executive officers, including an agreement with Mr. Kondamoori. CERTAIN TRANSACTIONS During the last two years, there were no transactions exceeding $60,000 to which the Company was a party in which any director or executive officer, principal shareholder or member of any such person's immediate family had a direct or indirect material interest except as follows: Marc Dumont, a member of the Board of Directors, received a commission of $203,845 in connection with the private placement of Common Stock to various accredited investors in February 1996. Anders O. Field, Jr., a member of the Board of Directors, has entered into a consulting agreement with the Company. Under the terms of this agreement, Mr. Field receives $6,000 per month to serve as Consultant to the Office of the President. Mr. Field received less than $60,000 in each of the fiscal years 1994 and 1995. During the eight-month fiscal period ended December 31, 1995, Mr. Field was paid a total of $88,200 which included fees owed from prior years. He continues in this capacity in the current fiscal year at the same monthly rate. At April 30, 1994, Mr. Kondamoori, Mr. Kedlaya and Mr. Field executed promissory notes to NUKO Technologies, Inc., the predecessor entity to the Company prior to the merger with Growers Express Corporation, in the amounts of $95,529, $95,529 and $47,542, respectively. As of the date hereof, the notes, plus accrued interest, have been paid in full. 27 1995 STOCK OPTION PLAN The NUKO Information Systems, Inc. 1995 Stock Option Plan (the "1995 Option Plan") was adopted by the Board of Directors in May 1995. The Company has not previously had a stock option plan. The Board of Directors has initially reserved 1,400,000 shares of Common Stock for issuance under the 1995 Option Plan. The Board of Directors believes that, in order to attract qualified employees and consultants to the Company and to provide an incentive to them, it is appropriate and deemed advisable to grant options to purchase Common Stock to such employees and consultants pursuant to the 1995 Option Plan. Options granted under the 1995 Option Plan may be either "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock options at the discretion of the Board of Directors and as reflected in the terms of the written option agreement. The Board of Directors, at its discretion, may also grant rights to purchase Common Stock directly, rather than pursuant to stock options. The 1995 Option Plan is not a qualified deferred compensation plan under Section 401(a) of the Code, and is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. PURPOSE The purposes of the 1995 Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees and consultants of the Company and to promote the success of the Company's business. ADMINISTRATION The 1995 Option Plan may be administered by the Board of Directors or by a committee (or subcommittee in certain instances) of the Board of Directors. If all members of the Board of Directors or relevant committee do not meet the definition of "outside directors" under Code Section 162(m), a committee or subcommittee of the Board consisting of such "outside directors" will have the exclusive authority to grant stock options and purchase rights and otherwise administer the 1995 Option Plan with respect to "covered employees" described in Code Section 162(m) (generally the Company's highest paid executive officers). Members of the Board of Directors receive no additional compensation for their services in connection with the administration of the 1995 Option Plan. All questions of interpretation of the 1995 Option Plan are determined by the Board of Directors or its committee and its decisions are final and binding upon all participants. ELIGIBILITY The 1995 Option Plan provides that either incentive stock options or nonstatutory options may be granted to employees (including officers and directors who are also employees) of the Company or any of its subsidiaries. In addition, the 1995 Option Plan provides that nonstatutory options may be granted to consultants (not including directors who are not compensated for their services or are paid only a director's fee by the Company) of the Company or any of its subsidiaries. The Board of Directors or its committee selects the optionees and determines the number of shares to be subject to each option. In making such determination, certain factors are taken into account, including the duties and responsibilities of the optionee, the value of the optionee's services, the optionee's present and potential contribution to the success of the Company and other relevant factors. For incentive stock options granted under the 1995 Option Plan, the aggregate fair market value, determined at the time of grant, of the shares of Common Stock with respect to which such options are exercisable for the first time by an optionee during any calendar year (under all such plans of the Company and its affiliates) may not exceed $100,000. TERMS OF OPTIONS Each option is evidenced by a stock option agreement between the Company and the optionee. Each option is subject to the following additional terms and conditions: 28 (a) EXERCISE OF THE OPTION. The Board of Directors or its committee determines when options may be exercised. An option is exercised by giving written notice of exercise to the Company specifying the number of full shares of Common Stock to be purchased and by tendering payment of the purchase price. The purchase price of the shares purchased upon exercise of an option shall be paid in consideration of such form as is determined by the Board of Directors or its committee and specified in the option agreement, and such form of consideration may vary for each option. Such consideration may include one or more of the following: (i) cash, (ii) check, (iii) promissory note, (iv) other shares of the Company's Common Stock that (A) in the case of shares acquired upon exercise of an option, have been owned by the optionee for more than six months of the date of surrender or such other period as may be required to avoid a charge to the Company's earnings and (B) have a fair market value (as defined in the 1995 Option Plan) on the date of surrender equal to the aggregate exercise price of the Shares as to which such option will be exercised, (v) authorization for the Company to retain from the total number of shares as to which the option is exercised that number of shares having a fair market value on the date of exercise equal to the exercise price for the total number of shares as to which the option is exercised, (vi) delivery of a properly executed exercise notice together with such other documentation as the Board or committee and the broker, if applicable, will require to effect an exercise of the option and delivery to the Company of the sale or loan proceeds required to pay the exercise price and any applicable income or employment taxes, (vii) delivery of an irrevocable subscription agreement for the shares that irrevocably obligates the optionee to take and pay for the shares not more than twelve months after the date of delivery of the subscription agreement, (viii) such other consideration and method of payment for the issuance of shares to the extent permitted under applicable laws. (b) EXERCISE PRICE. The exercise price under the 1995 Option Plan is determined by the Board of Directors or its committee and, in the case of an Incentive Stock Option, may not be less than 100 percent of the fair market value of the Common Stock on the date the option is granted or, in the case of a Nonstatutory Stock Option (as defined in the 1995 Option Plan), 85 percent of the fair market value on the date of grant. In the case of an option granted to an optionee who owns more than ten percent of the voting power of all classes of stock of the Company or any of its subsidiaries, the exercise price must not be less than 110 percent of the fair market value on the date of grant. (c) TERMINATION OF EMPLOYMENT. If the optionee's employment or consulting relationship terminates for any reason other than disability or death, options under the 1995 Option Plan may be exercised not later than three months (or such other period of time not less than thirty days as determined by the Board of Directors or its committee, with such determination in the case of an incentive stock option being made at the time of grant of the option and not exceeding three months) after such termination and may be exercised only to the extent the option was exercisable on the date of termination. In no event may an option be exercised by any person after the expiration of its term. (d) DISABILITY. If an optionee is unable to continue his or her employment or consulting relationship with the Company as a result of his or her total and permanent disability, options may be exercised within twelve months of termination and may be exercised only to the extent the option was exercisable on the date of termination, but in no event may the option be exercised after the expiration of its term. If an optionee is unable to continue his or her employment or consulting relationship with the Company as a result of his or her disability that does not fall within the definition of total and permanent disability, as defined in the Code, options may be exercised within six months of termination and may be exercised only to the extent the option was exercisable on the date of termination, but in no event may the option be exercised after the expiration of its term. The foregoing not withstanding, if an optionees fails to exercise an option which is an incentive stock option within three months of the date of termination, the option will not qualify for ISO treatment under the Code. (e) DEATH. Under the 1995 Option Plan, if an optionee should die while employed or retained by the Company or during the thirty day period following termination of the optionee's employment or consulting relationship, options may be exercised within six months after the date of death to the extent the options would have been exercisable (i) on the date of death, in the case of an optionee who 29 dies while employed or retained by the Company, or (ii) on the date of termination of employment or consulting relationship, in the case of an optionee who dies within thirty days after termination of employment or consulting relationship. (f) TERMINATION OF OPTIONS. The 1995 Option Plan provides that options granted under the 1995 Option Plan have the term provided in the option agreement. In general, these agreements currently provide for a term of ten years. Incentive stock options granted to an optionee who, immediately before the grant of such option, owned more than ten percent of the total combined voting power of all classes of stock of the Company or any of its subsidiaries, may not in any case have a term of more than five years. No option may be exercised by any person after its expiration. (g) OPTION NOT TRANSFERABLE. An option is nontransferable by the optionee other than by will or the laws of descent and distribution, and is exercisable only by the optionee during his or her lifetime or, in the event of the optionee's death, by a person who acquires the right to exercise the option by bequest or inheritance or by reason of the death. (h) MERGER OR SALE OF ASSETS. In the event of a proposed merger or sale of substantially all of the assets of the Company in which the Company is not the surviving entity, the Board of Directors is obligated to attempt to accomplish a substitution or assumption of outstanding options. If the successor corporation does not agree to assume the option or to substitute an equivalent option, the option shall terminate upon the consummation of the merger or sale of assets. (i) BUYOUT PROVISIONS. The Board of Directors or its committee may at any time offer to buy out for a payment in cash or shares of the Company's Common Stock, an option previously granted, based on such terms and conditions as the Board or committee, as the case may be, shall establish and communicate to the optionee at the time that such offer is made. (j) OTHER PROVISIONS. The option agreement may contain such other terms, provisions and conditions not inconsistent with the 1995 Option Plan as may be determined by the Board of Directors or its committee. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION In the event any change, such as a stock split or dividend, is made in the Company's capitalization that results in an increase or decrease in the number of outstanding shares of Common Stock without receipt of consideration by the Company, appropriate adjustment shall be made in the exercise price of each outstanding option, the number of shares subject to each option, the annual limitation on grants to employees, as well as the number of shares available for issuance under the 1995 Option Plan. In the event of the proposed dissolution or liquidation of the Company, each option will terminate unless otherwise provided by the Board of Directors or its committee. AMENDMENT AND TERMINATION The Board of Directors may amend the 1995 Option Plan at any time or from time to time or may terminate it without approval of the shareholders; provided, however, that shareholder approval is required for any amendment to the 1995 Option Plan that increases the number of shares that may be issued under the 1995 Option Plan, modifies the standards of eligibility, modifies the limitation on grants to employees described in the 1995 Option Plan or results in other changes which would require shareholder approval to qualify options granted under the 1995 Option Plan as performance-based compensation under Section 162(m) of the Code, or, if and so long as the Company has a class of equity securities registered under Section 12 of the Exchange Act (which as of the date hereof, it does not), materially increases the benefits to participants that may accrue under the 1995 Option Plan. However, no action by the Board of Directors or shareholders may alter or impair any option previously granted under the 1995 Option Plan. The 1995 Option Plan shall terminate in February 2005, provided that any options then outstanding under the 1995 Option Plan shall remain outstanding until they expire by their terms. 30 FEDERAL INCOME TAX ASPECTS OF THE 1995 OPTION PLAN Options granted under the 1995 Option Plan may be either "incentive stock options," as defined in Section 422 of the Code, or nonstatutory options. If an option granted under the 1995 Option Plan is an incentive stock option, under Federal tax laws the optionee will recognize no income upon grant of the incentive stock option and incur no tax liability due to the exercise unless the optionee is subject to the alternative minimum tax. The Company will not be allowed a deduction for Federal income tax purposes as a result of the exercise of an incentive stock option regardless of the applicability of the alternative minimum tax. Upon the sale or exchange of the shares at least two years after grant of the option and one year after receipt of the shares by the optionee, any gain will be treated as long-term capital gain under Federal tax laws. If these holding periods are not satisfied, the optionee will recognize ordinary income under Federal tax laws equal to the difference between the exercise price and the lower of the fair market value of the stock at the date of the option exercise or the sale price of the stock. A different rule for measuring ordinary income upon such a premature disposition may apply if the optionee is also an officer, director, or ten percent shareholder of the Company. The Company will be entitled to a deduction in the same amount as the ordinary income recognized by the optionee. Any gain recognized on such a premature disposition of the shares in excess of the amount treated as ordinary income will be characterized under Federal tax laws as long-term capital gain if the sale occurs more than one year after exercise of the option or as short-term capital gain if the sale is made earlier. The current Federal tax rate on long-term capital gains is capped at 28 percent. Capital losses are allowed under Federal tax laws in full against capital gains plus $3,000 of other income. All other options which do not qualify as incentive stock options are referred to as nonstatutory options. An optionee will not recognize any taxable income under Federal tax laws at the time he or she is granted a nonstatutory option. However, upon its exercise, under Federal tax laws the optionee will recognize ordinary income for tax purposes measured by the excess of the then fair market value of the shares over the exercise price. In certain circumstances, where the shares are subject to a substantial risk of forfeiture when acquired or where the optionee is an officer, director or ten percent shareholder of the Company, the date of taxation under Federal tax laws may be deferred unless the optionee files an election with the Internal Revenue Service under Section 83(b) of the Code. The income recognized by an optionee who is also an employee of the Company will be subject to tax withholding by the Company by payment in cash or out of the current earnings paid to the optionee. Upon resale of such shares by the optionee, any difference between the sale price and the optionee's tax basis (exercise price plus the income recognized upon exercise) will be treated under Federal tax laws as capital gain or loss, and will qualify for long-term capital gain or loss treatment if the shares have been held for more than one year. 31 PRINCIPAL SHAREHOLDERS The following table sets forth certain information as of May 20, 1996, with respect to the beneficial ownership of Common Stock by the Named Executive Officer, each director, each shareholder owning 5% or more of the Common Stock and by all executive officers and directors as a group.
SHARES BENEFICIALLY OWNED(1) ----------------------------- DIRECTORS AND 5% STOCKHOLDERS NUMBER PERCENT - ---------------------------------------------------------------- --------------- ------------ Pratap Kesav Kondamoori ........................................ 1,205,029(2) 11.7 2235 Qume Drive San Jose, California 95131 Ram Kedlaya .................................................... 1,207,423(3) 11.7 2235 Qume Drive San Jose, California 95131 Bob K. Pryt .................................................... 1,120,000(7) 10.9 One Sansome Street San Francisco, California 94104 Anders O. Field, Jr............................................. 466,173(4) 4.5 Marc Dumont..................................................... 33,400(5) (6) All Executive Officers and Directors as a Group (10 persons).... 4,327,683(8) 40.7
- ------------------------ (1) Beneficial ownership of directors, officers and 5% or more shareholders includes both outstanding Common Stock and shares issuable upon exercise of warrants or options that are currently exercisable or will become exercisable within 60 days after the date of this table. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (2) Includes 55,458 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. (3) Includes 55,359 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. (4) Includes 78,801 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. (5) Includes 33,400 shares issuable upon exercise of currently exercisable Common Stock Purchase Warrants. (6) Less than 1% ownership percentage. (7) Includes 50,000 shares issued to Bob K. Pryt, Trustee, BKP Capital Management, Inc. 401(k) Profit Sharing Plan and Money Purchase Plan, dated 01/01/92, FBO Bob K. Pryt and 1,043,333 shares issued to BKP Partners, L.P. (8) Includes 391,089 shares issuable upon exercise of warrants or options that are currently exercisable or will become exercisable within 60 days after the date of this table. 32 SELLING STOCKHOLDERS The following table sets forth certain information regarding the Common Stock held by each of the Selling Stockholders as of May 20, 1996. Material relationships between certain of the Selling Stockholders and the Company are set forth in the footnotes to the table. Except as indicted in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws, where applicable. The following information has been furnished to the Company by the person named:
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO OFFERING FOLLOWING OFFERING ---------------------------- SHARES -------------------------- NUMBER OF PERCENT TO BE NUMBER OF PERCENT NAME SHARES OWNED SOLD SHARES OWNED - --------------------------------------------------- --------------- ----------- --------- ------------- ----------- Pratap Kesav Kondamoori............................ 1,205,029(1) 11.7 126,129 1,078,900 10.5 Ram Kedlaya........................................ 1,207,423(2) 11.7 126,030 1,081,393 10.5 Anders O. Field, Jr................................ 466,173(3) 4.5 198,862 267,311 3.7 John Glass......................................... 26,043(4) * 50,000 0 0 Chadalavada Rao.................................... 54,565(5) * 75,000 15,500 * Neil Mammen........................................ 58,098(6) * 106,011 50,000 * Davinder (Paul) Gulati............................. 54,865(7) * 80,800 10,000 *
- ------------------------ (1) Includes 55,458 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. Mr. Kondamoori is the Company's President, Chief Executive Officer and Chairman of the Board. (2) Includes 55,359 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. Mr. Kedlaya is a Director and Vice President, Strategic Planning. (3) Includes 78,801 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. Mr. Field is a Director of the Company. (4) Includes 26,043 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. Mr. Glass is the Company's Vice President, Business Development. (5) Includes 39,065 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. Mr. Rao is the Company's Vice President, Engineering. (6) Includes 58,098 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. Mr. Mammen is the Company's Chief Technical Officer. (7) Includes 44,865 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. Mr. Gulati is the Company's Vice President, Sales. 33 PLAN OF DISTRIBUTION The shares of Common Stock offered hereby will be issued by the Company upon exercise of Options granted under the Company's 1995 Stock Option Plan. The Company does not intend to employ the services of any underwriters, dealers or other agents in connection with these issuances. Such issued Option Shares may thereafter be sold by the holders thereof from time to time in brokerage transactions (which may include block transactions) in the over-the-counter market or, in negotiated transactions, at prices and on terms prevailing at the time of such sales. The holders of the Option Shares may effect such transactions by selling their Common Stock directly to purchasers, through broker-dealers acting as agents for the holders or to broker-dealers acting as agents for the holders or to broker-dealers who may purchase the Option Shares as principals and thereafter sell the Common Stock from time to time in the over-the-counter market, in negotiated transactions or otherwise, or a combination of such methods. The holders of Option Shares may individually pay customary brokerage commissions and expenses. The Company will amend or supplement this Prospectus in the following circumstances and to the following extent: (i) if the Option Shares are to be sold at a price other than the prevailing market price, to disclose such price; (ii) if the Option Shares are to be sold in block, transactions and the purchaser intends to resell, to disclose the nature and extent of such arrangements; or (iii) if the compensation to be paid to broker-dealers is other than usual and customary discounts, concessions or commissions, to disclose the terms of such broker-dealer compensation. In the above circumstances, no offers or sales may be made by the holders of Option Shares until an effective amendment or prospectus supplement is available. The holders of Option Shares and broker-dealers, if any, acting in connection with such sales, might be deemed to be "underwriters" within the meaning of section 2(11) of the Act and any commission received by them and any profit on the resale of such Option Shares may be deemed to be underwriting discounts and commissions under the Act. Although the Company will receive the option exercise price when the holders elect to exercise their Options, the Company will not receive any part of the proceeds from the resale of the Option Shares by holders thereof. 34 DESCRIPTION OF SECURITIES The Company is authorized to issue up to 20,000,000 shares of Common Stock, $0.001 par value and up to 5,000,000 shares of Preferred Stock, $0.001 par value. As of May 20, 1996, 10,250,918 shares of Common Stock and no shares of Preferred Stock were issued and outstanding. COMMON STOCK The holders of Common Stock are entitled to one vote for each share held of record on all matters to be voted by shareholders. Because the Company is subject to the provisions of Section 2115 of the California Corporations Code (the "nominal foreign corporation statute"), cumulative voting is permitted in the election of directors upon giving notice by the shareholder as required in the California Corporations Code. However, no shareholder will be entitled to cumulate votes unless the name of the candidate or candidates for whom such votes would be cast has been placed in nomination prior to the voting and any shareholder has given notice, at the Annual Meeting and prior to the commencement of voting, of such shareholder's intention to cumulate his votes. The holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor, subject to the preferences of the holders of Preferred Stock, if any. In the event of the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of all debts and other liabilities, subject to prior distribution rights of holders of Preferred Stock, if any, then outstanding. Holders of shares of Common Stock, as such, have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the Common Stock. The outstanding shares of Common Stock are, and the shares offered by the Company in this offering will be, when issued and paid for, fully paid and non-assessable. PREFERRED STOCK The Company is authorized to issue up to 5,000,000 shares of Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. Although the Company currently does not have any plans to issue shares of Preferred Stock or to designate any series of Preferred Stock, there can be no assurance that the Company will not do so in the future. As a result, the Company could authorize the issuance of a series of Preferred Stock that would grant to holders preferred rights to the assets of the Company upon liquidation, the right to receive dividends before dividends would be declared to common shareholders and the right to the redemption of such shares, together with a premium, prior to the redemption of Common Stock. In addition, the Board could issue large blocks of voting Preferred Stock to fend off unwanted tender offers or hostile takeovers without further shareholder approval. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Company's Common Stock is First Interstate Bank of California, 345 California Street, San Francisco, California 94104. LEGAL MATTERS The validity of the Securities offered hereunder will be passed upon for the Company by the law firm of Grover Wickersham, P.C., 430 Cambridge Avenue, Suite 100, Palo Alto, California 94306. Grover Wickersham, a member of this firm, has options to purchase 25,000 shares of the Company's Common Stock at an exercise price of $2.375, which options expire on May 25, 2000 and options to purchase 25,000 shares at an exercise price of $6.875, which expire on March 9, 2001. 35 EXPERTS The consolidated financial statements of the Company as of December 31, 1995, and for the eight months ended December 31, 1995, and for each of the two years in the period ended April 30, 1995, have been included herein in reliance on the report of Grant Thornton LLP, independent certified public accountants, appearing elsewhere herein, given on the authority of said firm as experts in auditing and accounting. 36 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors NUKO Information Systems, Inc. We have audited the accompanying consolidated balance sheet of NUKO Information Systems, Inc. and Subsidiary as of December 31, 1995, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the eight months ended December 31, 1995 and for each of the two years in the period ended April 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of NUKO Information Systems, Inc. and Subsidiary as of December 31, 1995, the consolidated results of their operations and their consolidated cash flows for the eight months ended December 31, 1995 and for each of the two years in the period ended April 30, 1995, in conformity with generally accepted accounting principles. Grant Thornton LLP San Jose, California February 14, 1996 F-1 NUKO INFORMATION SYSTEMS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995 ASSETS CURRENT ASSETS Cash and cash equivalents................................................... $11,255,820 Accounts receivable......................................................... 120,000 Receivables from officers................................................... 27,931 Share subscriptions receivable, including interest of $30,567............... 341,967 Inventories................................................................. 758,552 Prepaid expenses............................................................ 110,762 ----------- Total current assets.................................................... 12,615,032 PROPERTY AND EQUIPMENT -- AT COST Leased assets............................................................... 211,417 Computer hardware and software.............................................. 312,059 Office furniture and other equipment........................................ 23,203 Leasehold improvements...................................................... 11,033 ----------- 557,712 Less accumulated depreciation and amortization.......................... (98,215) ----------- 459,497 OTHER ASSETS.................................................................. 253,340 ----------- $13,327,869 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable............................................................ $ 1,319,959 Accrued liabilities......................................................... 108,719 Lease obligations........................................................... 95,273 ----------- Total current liabilities............................................... 1,523,951 SENIOR NOTES.................................................................. 325,000 CAPITAL LEASE OBLIGATIONS..................................................... 101,686 COMMITMENTS AND CONTINGENCIES................................................. -- STOCKHOLDERS' EQUITY Preferred stock -- $.001 par value; 5,000,000 shares authorized; none issued and outstanding............................................................ -- Common stock -- $.001 par value; 20,000,000 shares authorized; 9,128,418 issued and outstanding..................................................... 9,128 Additional paid-in capital.................................................. 15,741,718 Accumulated deficit......................................................... (4,373,614) ----------- Total stockholders' equity.............................................. 11,377,232 ----------- $13,327,869 ----------- -----------
The accompanying notes are an integral part of this statement. F-2 NUKO INFORMATION SYSTEMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
EIGHT MONTHS ENDED YEAR ENDED APRIL 30, DECEMBER 31, --------------------------- 1995 1995 1994 -------------- -------------- ----------- Revenues Product sales, net of returns..................................... $ 174,690 $ 17,600 $ 188,586 Contract development fees......................................... 120,000 -- -- Consulting revenues............................................... -- -- 157,560 Royalties......................................................... -- 70,000 -- Other revenues.................................................... 1,640 699 -- -------------- -------------- ----------- 296,330 88,299 346,146 Costs and expenses Cost of product sales............................................. 89,296 6,688 72,080 Research and development expenses................................. 1,268,515 803,449 449,366 Selling, general and administrative expenses...................... 792,497 913,913 492,882 -------------- -------------- ----------- 2,150,308 1,724,050 1,014,328 -------------- -------------- ----------- Operating loss................................................ (1,853,978) (1,635,751) (668,182) Other income (expense) Interest expense.................................................. (84,467) (65,780) (3,542) Interest income................................................... 38,556 -- -- Equity in losses of unconsolidated affiliate...................... (82,259) (48,346) (45,565) Other, net........................................................ 25,303 6,815 -- -------------- -------------- ----------- (102,867) (107,311) (49,107) -------------- -------------- ----------- Loss before income taxes...................................... (1,956,845) (1,743,062) (717,289) Income tax (expense) benefit........................................ (800) (800) 14,064 -------------- -------------- ----------- NET LOSS...................................................... $ (1,957,645) $ (1,743,862) $ (703,225) -------------- -------------- ----------- -------------- -------------- ----------- Loss per common share............................................... $ (0.70) $ (0.81) $ (0.38) -------------- -------------- ----------- -------------- -------------- ----------- Weighted average common shares outstanding.......................... 2,782,381 2,158,141 1,874,666 -------------- -------------- ----------- -------------- -------------- -----------
The accompanying notes are an integral part of these statements. F-3 NUKO INFORMATION SYSTEMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) TWO YEARS ENDED APRIL 30, 1995 AND EIGHT MONTHS ENDED DECEMBER 31, 1995
ADDITIONAL SHARE COMMON COMMON PAID-IN SUBSCRIPTIONS ACCUMULATED SHARES STOCK CAPITAL RECEIVABLE DEFICIT TOTAL ----------- ----------- -------------- ------------ -------------- -------------- Balance, May 1, 1993........ 1,895,541 $ 1,895 $ 16,261 $ -- $ 31,118 $ 49,274 Sales of common stock..... 67,911 68 48,808 -- -- 48,876 Stock options exercised... 46,040 46 5,954 -- -- 6,000 Shares issued for services................. 28,775 29 9,846 -- -- 9,875 Share subscriptions....... 3,014,347 3,014 308,386 (311,400) -- -- Shares retired for note... (303,173) (303) (65,547) -- -- (65,850) Net loss.................. -- -- -- -- (703,225) (703,225) ----------- ----------- -------------- ------------ -------------- -------------- Balance, April 30, 1994..... 4,749,441 4,749 323,708 (311,400) (672,107) (655,050) Sales of common stock..... 684,500 685 723,315 -- -- 724,000 Shares issued for services................. 69,795 69 28,318 -- -- 28,387 Conversion of debt to equity................... 37,737 38 54,962 -- -- 55,000 Net loss.................. -- -- -- -- (1,743,862) (1,743,862) ----------- ----------- -------------- ------------ -------------- -------------- Balance, April 30, 1995..... 5,541,473 5,541 1,130,303 (311,400) (2,415,969) (1,591,525) Sales of common stock, net of offering costs of $119,693................. 3,049,833 3,050 13,403,757 -- -- 13,406,807 Shares issued for services................. 70,000 70 174,930 -- -- 175,000 Conversion of debt and accrued interest to equity, net of unamortized debt issuance costs of $47,250......... 467,112 467 1,032,728 -- -- 1,033,195 Interest on share subscriptions............ -- -- -- (30,567) -- (30,567) Reclassifications......... -- -- -- 341,967 -- 341,967 Net loss.................. -- -- -- -- (1,957,645) (1,957,645) ----------- ----------- -------------- ------------ -------------- -------------- Balance, December 31, 1995....................... 9,128,418 $ 9,128 $ 15,741,718 $ -- $ (4,373,614) $ 11,377,232 ----------- ----------- -------------- ------------ -------------- -------------- ----------- ----------- -------------- ------------ -------------- --------------
The accompanying notes are an integral part of this statement. F-4 NUKO INFORMATION SYSTEMS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
EIGHT MONTHS ENDED YEAR ENDED APRIL 30, DECEMBER 31, ---------------------------- 1995 1995 1994 -------------- -------------- ------------ Increase (decrease) in cash and cash equivalents Cash flows from operating activities: Net loss.......................................................... $ (1,957,645) $ (1,743,862) $ (703,225) Adjustments to reconcile net loss to net cash used in operating activities: Shares issued for services...................................... 175,000 28,387 9,875 Interest converted to equity.................................... 30,445 -- -- Loss on disposals of fixed assets............................... -- -- 1,438 Depreciation and amortization................................... 73,216 23,460 18,116 Changes in assets and liabilities: Receivables................................................... (122,182) 1,680 (8,474) Interest on stock subscriptions............................... (30,567) -- -- Inventories................................................... (754,330) -- (4,222) Prepaid expenses.............................................. (103,302) (7,460) -- Other assets.................................................. (9,449) (10,164) -- Accounts payable.............................................. 479,684 261,338 401,516 Accrued liabilities........................................... (461,007) 488,977 41,821 -------------- -------------- ------------ Net cash used in operating activities....................... (2,680,137) (957,644) (243,155) Cash flows from investing activities: Purchases of property and equipment............................... (451,264) (50,234) (15,301) Cash flows from financing activities: Debt issuance costs............................................... (55,500) -- -- Proceeds from issuance of senior notes............................ -- 325,000 -- Proceeds from borrowings.......................................... 1,050,000 25,000 180,000 Payments on capital lease obligations............................. (14,458) -- -- Repayments of borrowings.......................................... -- (65,850) -- Proceeds from issuance of common stock............................ 13,406,807 724,000 54,876 -------------- -------------- ------------ Net cash provided by financing activities....................... 14,386,849 1,008,150 234,876 -------------- -------------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 11,255,448 272 (23,580) Cash and cash equivalents at beginning of year...................... 372 100 23,680 -------------- -------------- ------------ Cash and cash equivalents at end of year............................ $ 11,255,820 $ 372 $ 100 -------------- -------------- ------------ -------------- -------------- ------------ Supplemental disclosures of cash flow information: Cash paid during the year for Interest........................................................ $ 76,143 $ 45,319 $ 3,606 Income taxes.................................................... -- -- --
The accompanying notes are an integral part of these statements. F-5 NUKO INFORMATION SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, APRIL 30, 1995 AND APRIL 30, 1994 NOTE A -- PRESENTATION AND OPERATIONS On May 27, 1994, Growers Express Incorporated ("Growers") acquired all of the outstanding common stock of NUKO Technologies, Inc. (the "Merger"). For accounting purposes the acquisition has been treated as a recapitalization of NUKO Technologies, Inc. with NUKO Technologies, Inc. as the acquirer (a reverse acquisition). Prior to May 27, 1994, the historical financial statements presented are those of NUKO Technologies, Inc. Concurrent with the Merger, Growers changed its name to NUKO Information Systems, Inc. Subsequent to the Merger, the consolidated financial statements include the accounts of NUKO Information Systems, Inc. and its wholly-owned subsidiary NUKO Technologies, Inc. (collectively the "Company"). The Company designs, manufactures and services multimedia video hardware and software products (the "Highlander") primarily to telephone service providers located throughout the world. The Company has also developed and sold other software products; however, as of December 31, 1995, the Company is focusing its efforts on multimedia applications. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION All significant intercompany accounts and transactions have been eliminated. The investment in unconsolidated affiliate is accounted for under the equity method of accounting. REVENUE RECOGNITION Generally, the Company recognizes revenue when products are shipped. Deferred revenue results from prepayment of software licensing fees and revenue is recognized in accordance with Statement of Position 91-1. Revenue resulting from specific contractual terms, including certain product development agreements, is recognized in accordance with the terms of the related contract. SOFTWARE DEVELOPMENT COSTS Software development costs are capitalized once technological feasibility has been established and all research and development activities for other components of the product have been completed. There were no software development costs capitalized at December 31, 1995. RESEARCH AND DEVELOPMENT Research and development costs are charged to operations as incurred. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. PROPERTY AND EQUIPMENT Depreciation is provided by using straight-line and accelerated methods. Leasehold improvements are amortized over the shorter of the lease term or the useful life of the asset. Other property and equipment are generally depreciated over the following useful lives: Computer hardware and software........... 5 years Office furniture and other equipment..... 5 to 7 years
OTHER ASSETS Debt issuance costs and organization costs are being amortized over three and five years, respectively. F-6 NUKO INFORMATION SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, APRIL 30, 1995 AND APRIL 30, 1994 NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company maintains its cash balances, which at times may exceed federally insured limits, in primarily two financial institutions. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. INCOME TAXES The Company provides a deferred tax expense or benefit equal to the net change in the deferred tax asset or liability during the period. Deferred income taxes represent tax credit carryforwards and future net tax effects resulting from temporary differences between financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to reverse. Deferred tax assets are recognized for future deductible temporary differences and tax loss and credit carryforwards if their realization is "more likely than not." The principal types of temporary differences between assets and liabilities for financial statement and tax return purposes are certain accrued liabilities and tax loss carryforwards. USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results could differ from those estimates. LOSS PER SHARE Loss per common share is calculated by dividing net loss by the weighted average number of common shares, and common share equivalents when dilutive, outstanding during the year. NOTE C -- CONTRACT DEVELOPMENT The Company has entered into a development agreement whereby the Company is developing certain products to be purchased by the customer. Under the terms of the agreement, the Company will receive non-refundable payments totaling $360,000, payable in installments upon achieving certain milestones identified in the agreement. As of December 31, 1995, the Company had achieved the first milestone and recorded revenue amounting to $120,000. All costs associated with this contract are reported as research and development. NOTE D -- OTHER ASSETS Other assets consist of the following at December 31, 1995: Debt issuance costs...................................................... $ 83,000 Organization costs....................................................... 3,398 --------- 86,398 --------- Accumulated amortization................................................. (74,091) --------- 12,307 --------- Deposits................................................................. 241,033 --------- $ 253,340 --------- ---------
F-7 NUKO INFORMATION SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, APRIL 30, 1995 AND APRIL 30, 1994 NOTE E -- ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31, 1995: Payroll and related accruals............................................. $ 14,669 Income taxes............................................................. 8,463 Interest................................................................. 28,785 Debt issuance costs payable.............................................. 27,500 Customer returns......................................................... 16,162 Other.................................................................... 13,140 --------- $ 108,719 --------- ---------
NOTE F -- INCOME TAXES Income tax benefit (expense) consists of the following:
EIGHT MONTHS YEAR ENDED APRIL 30, ENDED DECEMBER 31, -------------------- 1995 1995 1994 ------------- --------- --------- Current Federal........................................................... $ -- $ -- $ 14,997 State............................................................. (800) (800) (800) ------ --------- --------- (800) (800) 14,197 Deferred Federal........................................................... -- -- -- State............................................................. -- -- (133) ------ --------- --------- $ (800) $ (800) $ 14,064 ------ --------- --------- ------ --------- ---------
Deferred tax assets consist of the following at December 31, 1995: Assets Accrued liabilities.................................................. $ 13,000 Tax loss carryforwards............................................... 1,471,000 ----------- Total deferred tax assets.......................................... 1,484,000 ----------- Valuation allowance.................................................... (1,484,000) ----------- Net deferred tax asset............................................. $ -- ----------- -----------
As of December 31, 1995, management does not believe, based upon available evidence, that it is more likely than not that the Company will be able to realize the net deferred tax assets. The valuation allowance increased by $598,000, $637,000 and $250,000 for the periods ended December 31, 1995, April 30, 1995 and April 30, 1994, respectively. The Company has available tax loss carryforwards of $3,800,000 and $1,900,000 available to offset future federal and state taxable income, respectively. These losses expire at various dates from 1997 to 2011. F-8 NUKO INFORMATION SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, APRIL 30, 1995 AND APRIL 30, 1994 NOTE F -- INCOME TAXES (CONTINUED) The reconciliation of the income tax benefit (expense) at the federal statutory income tax rate to the Company's income taxes is as follows:
EIGHT MONTHS ENDED YEAR ENDED APRIL 30, DECEMBER 31, -------------------------- 1995 1995 1994 ------------- ------------ ------------ Expected tax benefit (at 34%)................................ $ 665,000 $ 593,000 $ 243,878 Operating losses not utilized................................ (665,000) (593,000) (228,881) State taxes.................................................. (800) (800) (933) ------------- ------------ ------------ $ (800) $ (800) $ 14,064 ------------- ------------ ------------ ------------- ------------ ------------
NOTE G -- LONG-TERM DEBT The Company has issued $325,000 of senior notes (the "Senior Notes") due June 30, 1997. The Senior Notes are collateralized by substantially all of the assets of the Company. Annual interest at 10% is due in January and June each year. The Senior Notes must be prepaid upon the closing of a public offering of the Company's registered common shares which results in gross proceeds in excess of $5,000,000. The Senior Notes may otherwise be prepaid only with the consent of the holders. Attached to each Senior Note were 10,000 "A" Warrants and 10,000 "B" Warrants to purchase common shares of the Company as described in Note I. NOTE H -- CAPITALIZED LEASES In October 1995, the Company acquired assets under capital leases. Future minimum lease payments for the years ending December 31, are as follows: 1996..................................................................... $ 120,000 1997..................................................................... 110,000 --------- 230,000 Less amount representing interest........................................ (33,041) Total capital lease obligation........................................... 196,959 Less current portion..................................................... (95,273) --------- $ 101,686 --------- ---------
The cost basis of the assets held under capital lease is $211,417. At December 31, 1995, accumulated amortization for these assets amounted to $15,661. NOTE I -- STOCKHOLDERS' EQUITY SHARES FOR SERVICES In October 1995, the Company issued 20,000 shares of the Company's stock to a marketing consultant upon the issuance of a purchase order by a customer of the Company. Additionally, in October 1995, the Company issued 50,000 shares of its common stock in exchange for engineering consulting services performed under several previously negotiated contracts. The Company recognized $175,000 of expense upon issuing these shares. In the year ended April 30, 1995, the Company issued 69,795 common shares in exchange for various administrative and engineering services. The Company recognized $28,387 of expense in connection with this issuance. In the year ended April 30, 1994, $9,875 was recognized as expense upon the issuance of 28,775 common shares for services. F-9 NUKO INFORMATION SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, APRIL 30, 1995 AND APRIL 30, 1994 STOCK WARRANTS Each Senior Note includes 10,000 "A" Warrants and 10,000 "B" Warrants to purchase common shares of the Company. Warrants may be exercised at any time by the holders at $2.50 per share for "A" Warrants and $10.00 per share for "B" Warrants. The "A" Warrants expire at the earlier of a public offering of the Company's registered common shares in which a minimum of $5,000,000 is raised or June 30, 1997. The "B" Warrants expire on June 30, 1999. There were 130,000 "A" Warrants and 130,000 "B" Warrants issued in connection with the sale of the Senior Notes, the value of which was considered immaterial. At December 31, 1995, all "A" and "B" warrants remain outstanding. SHARE SUBSCRIPTIONS Prior to the Merger, certain employees, shareholders and consultants subscribed to purchase shares in NUKO Technologies, Inc. The subscription price was determined based on an independent valuation of NUKO Technologies, Inc. at the subscription date. The subscriptions bear interest at the applicable federal rate. In February 1996, all amounts including interest due under the subscriptions were paid. SHARE CANCELLATIONS In June 1995, the Company settled a dispute with certain former shareholders of Growers. Under the terms of the settlement agreement, 191,334 common shares of Company stock were returned to the Company. Additionally, $111,000 of debt issuance costs payable to these shareholders were forgiven. The effects of this settlement have been recorded as of the Merger date. CONVERTIBLE NOTES In June 1995, the Company received $550,000 from the issuance of 8% convertible notes. These notes and all accrued interest were converted into 286,112 common shares of the Company in December 1995. In connection with the notes, warrants have been granted to purchase 333,400 common shares of the Company at prices ranging from $1.80 to $2.30 per common share. These warrants have an expiration date of July 27, 2000. Additionally, in October 1995, the Company issued $500,000 in 8% convertible notes payable. These notes and all accrued interest were converted into 181,000 shares of common stock in December 1995. NOTE J -- COMMITMENTS AND CONTINGENCIES The Company leases its office facilities under a sublease which expires in April 1999. Under terms of the lease, the Company is obligated to pay property taxes, insurance and maintenance. The Company also leases equipment used in its operations. Rent expense was approximately $98,837, $119,984, and $22,722 for the periods ended December 31, 1995, April 30, 1995 and April 30, 1994, respectively. Non-cancelable commitments under operating leases are as follows:
YEAR ENDING DECEMBER 31, - ------------------------------------------------------------------------------------------- 1997..................................................................................... $ 135,600 1998..................................................................................... 135,600 1999..................................................................................... 45,200 ----------- $ 316,400 ----------- -----------
F-10 NUKO INFORMATION SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, APRIL 30, 1995 AND APRIL 30, 1994 NOTE K -- UNCONSOLIDATED AFFILIATE The Company owns 48% of NUKO Information Systems (India) Private Limited ("NUKO India"). NUKO India performs certain development on behalf of the Company. During the periods ended December 31, 1995, April 30, 1995 and April 30, 1994, the Company advanced $82,259, $48,346 and $45,565, respectively, to NUKO India. The carrying value of the Company's investment in NUKO India is zero at December 31, 1995. NOTE L -- STOCK OPTION PLANS The Company has a stock option plan which is, and will continue to be accounted for under APB Opinion 25 and related Interpretations. The plan allows the Company to grant options to employees, consultants and others for up to 1,400,000 shares of common stock. Options, which have a term of five years when issued, were granted in May 1995 and vest ratably over three years. The exercise price of each option equaled the fair value of the Company's stock on the date of grant. Accordingly, no compensation cost was recognized. The disclosure requirements of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, are required for fiscal years beginning after December 15, 1995. The pro forma effect of the initial application of SFAS 123 has not been determined by the Company. A summary of the status of the Company's stock option plan as of December 31, 1995, and changes during the period then ended is presented below.
WEIGHTED AVERAGE EXERCISE SHARES PRICE ----------- ----------- Outstanding at May 1, 1995...................................................... -- $ -- Granted....................................................................... 1,069,000 2.375 Exercised..................................................................... -- -- Forfeited..................................................................... -- -- ----------- ----------- Outstanding at December 31, 1995................................................ 1,069,000 $ 2.375 ----------- ----------- ----------- ----------- Options exercisable at December 31, 1995........................................ 482,000 $ 2.375 ----------- ----------- ----------- -----------
NOTE M -- DEPENDENCE ON SUPPLIERS The Company purchases certain of the chips and chip-sets needed in its products from single source suppliers. The Company uses five such single source suppliers. The Company is dependent upon such suppliers to deliver parts and components as needed for the manufacture of the Company's products, but there can be no assurance that such suppliers will continue to be able to serve the Company's needs. While there are alternative sources of supply for each of the components outsourced by the Company, the Company could incur delays if required to switch to another supplier. Any disruption of the Company's relationships with any of its key single source suppliers or manufacturers or other limitations on the availability of these products provided by such suppliers could have an adverse effect on the Company's business and operating results. NOTE N -- SUBSEQUENT EVENTS In connection with a private placement of the Company's common shares, subsequent to December 31, 1995, the Company issued 822,500 common shares for gross proceeds of $4,112,500. Additionally, in February 1996, options were granted to two directors of the Company allowing these directors to purchase up to 331,000 common shares at $6.50 per share. F-11 NUKO INFORMATION SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, APRIL 30, 1995 AND APRIL 30, 1994 NOTE O -- CHANGE IN FISCAL YEAR END In December 1995, the Company changed its fiscal year end to December 31. In accordance with Rule 13a-10 of the Securities Exchange Act of 1934, the following table provides unaudited information with respect to the eight months ended December 31, 1994.
(UNAUDITED) Revenues................................................................................ $ 100,740 Costs and expenses...................................................................... (1,069,128) -------------- Operating loss.......................................................................... (968,388) Other expense, net...................................................................... (32,712) Income taxes............................................................................ (533) -------------- Net loss................................................................................ $ (1,001,633) -------------- -------------- Loss per share.......................................................................... $ (0.50) -------------- --------------
F-12 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OFFERED BY THIS PROSPECTUS OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAVE BEEN NO CHANGES IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THIS DATE. ------------------------ TABLE OF CONTENTS
PAGE ----- Additional Information......................... 2 Prospectus Summary............................. 3 Risk Factors................................... 5 Dividend Policy................................ 8 Use of Proceeds................................ 8 Price Range of Common Stock.................... 9 Capitalization................................. 10 Selected Financial Data........................ 11 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 12 Business....................................... 16 Management..................................... 23 1995 Stock Option Plan......................... 28 Principal Shareholders......................... 32 Selling Stockholders........................... 33 Plan of Distribution........................... 34 Description of Securities...................... 35 Legal Matters.................................. 35 Experts........................................ 36 Financial Statements........................... F-1
------------------------ UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 1,400,000 SHARES NUKO INFORMATION SYSTEMS, INC. COMMON STOCK --------------------- PROSPECTUS --------------------- , 1996 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. [ALTERNATE] Subject to completion, dated May 21, 1996 5,154,445 SHARES NUKO INFORMATION SYSTEMS, INC. COMMON STOCK ------------------ This Prospectus covers 5,154,445 shares (the "Shares") of the Common Stock, par value $0.001 per share (the "Common Stock") of NUKO Information Systems, Inc. (the "Company") for reoffer or resale by certain selling stockholders of the Company's securities (the "Selling Stockholders") purchased by the Selling Stockholders in various private transactions. See "Selling Stockholders." Concurrently with this offering, the Company is registering on the registration statement of which this Prospectus is a part but pursuant to a separate prospectus, up to 1,400,000 incentive and non-qualified stock options ("Options") and the reoffer and resale of 862,832 shares of Common Stock issuable upon exercise of the Options by affiliates of the Company. The Shares may be offered by the Selling Stockholders in brokerage transactions (which may include block transactions), in the over-the-counter market or negotiated transactions at prices and terms prevailing at the times of such sales, at prices related to such market prices or at negotiated prices. Such shares may be sold directly to purchasers, through broker-dealers acting as agents for the Selling Stockholders or to broker-dealers who may purchase the Selling Stockholders' Shares as principals and thereafter sell the Shares from time to time in the over-the-counter market, in negotiated transactions or otherwise, or by a combination of these methods. Broker-dealers who effect these transactions may receive compensation in the form of discounts or commissions from the Selling Stockholders or from the purchasers of the Shares for whom the broker-dealers may act as an agent or to whom them may sell as a principal, or both. See "Plan of Distribution." The Company will not receive any part of the proceeds from the resale of the Shares by the Selling Stockholders. The Selling Stockholders and broker-dealers, if any, acting in connection with such sales, might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commission received by them and any profit on the resale of such securities might be deemed to be underwriting discounts and commissions under the Securities Act. The Company's Common Stock is currently traded on the over-the-counter market and quoted on The Electronic Bulletin Board under the symbol "NUKO." On May 17, 1996, the closing bid price of the Common Stock was $17.25 per share. See "Price Range of Common Stock." ------------------------ The securities offered hereby are speculative, involve a high degree of risk and should not be purchased by any investors who cannot afford the loss of their entire investment. See "Risk Factors." ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ THE DATE OF THIS PROSPECTUS IS , 1996. THE OFFERING Common Stock Offered by the Selling Stockholders.......................... 5,154,445 Shares. Common Stock Outstanding............... 10,250,918 shares as of May 20, 1996.(1) Use of Proceeds........................ The Company will receive no proceeds from the sale of the Shares offered by the Selling Stockholders. OTC Electronic Bulletin Board Symbol... NUKO
- ------------------------ (1) Does not include (i) 398,400 shares issuable upon exercise of outstanding warrants; and (ii) 2,800,000 shares issuable upon exercise of options under the Company's stock option plans. See "Management -- Stock Options." SUMMARY FINANCIAL INFORMATION
THREE MONTHS ENDED EIGHT MONTHS FISCAL YEAR ENDED APRIL 30,* MARCH 31, ENDED, DECEMBER ---------------------------- ---------------------------- 31, 1995 1995 1994 1996 1995 ----------------- -------------- ------------ -------------- ------------ CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues........................ $ 296,330 $ 88,299 $ 346,146 $ 474,413 $ 1,261 Cost of revenues................ 89,296 6,688 72,080 142,321 -- Net loss........................ (1,957,645) (1,743,862) (703,225) (3,064,775) (440,987) Loss per common share........... $ (0.70) $ (0.81) $ (0.38) $ (0.37) $ (0.18)
DECEMBER 31, 1995 MARCH 31, 1996 ----------------- -------------- CONSOLIDATED BALANCE SHEET DATA: Working capital............................................................. $ 11,091,081 $ 12,139,566 Total assets................................................................ 13,327,869 15,270,311 Total current liabilities................................................... 1,523,951 2,173,466 Senior notes................................................................ 325,000 325,000 Accumulated deficit......................................................... (4,373,614) (7,438,389) Total shareholders' equity.................................................. 11,377,232 12,696,439
- ------------------------ * In December 1995, the Company changed its fiscal year end from April 30 to December 31. DIVIDEND POLICY The Company has never paid any cash dividends on its capital stock. At present, the Company intends to retain all of its earnings for use in the expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. Any payment of cash dividends on the Common Stock in the future will be dependent upon the Company's financial condition, results of operations, current and anticipated cash requirements, plans for expansion, as well as other factors that the Board of Directors deems relevant. USE OF PROCEEDS The Company will receive no part of the proceeds of any sales or transactions made by the Selling Stockholders and/or their respective pledgees, donees, transferees or other successors in interest hereunder. The Company will pay substantially all of the expenses incident to the offering of the Shares, other than any discounts, concessions or commissions payable to any underwriters, dealers or agents, which expenses will be borne by the respective Selling Stockholders. SELLING STOCKHOLDERS The following table sets forth certain information regarding the Common Stock held by each of the Selling Stockholders as of May 20, 1996. Material relationships between certain of the Selling Stockholders and the Company are set forth in the footnotes to the table. Except as indicted in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws, where applicable. The following information has been furnished to the Company by the person named:
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO OFFERING FOLLOWING OFFERING ------------------------ SHARES ------------------------ NUMBER OF PERCENT TO BE NUMBER OF PERCENT NAME SHARES OWNED SOLD SHARES OWNED - ----------------------------------------------------------- ----------- ----------- --------- ----------- ----------- Bob K. Pryt (1)............................................ 1,120,000 10.9 26,667 0 0 Bob K. Pryt, Trustee, BKP Capital Management, Inc. 401(k) Profit Sharing Plan and Money Purchase Plan, dated 01/01/92, FBO Bob K. Pryt (2)............................ 50,000 * 50,000 0 0 Common Sense Partners, L.P................................. 12,500 * 12,500 0 0 BKP Partners, L.P. (2)..................................... 1,043,333 10.2 1,043,333 0 0 Peter A. Bessette IRA Rollover............................. 13,333 * 13,333 0 0 Michael Klein.............................................. 50,000 ** 50,000 0 0 Dana M. Galante............................................ 10,000 * 10,000 0 0 B-Squared Partners, L.P.................................... 15,000 * 15,000 0 0 Peninsula Fund, L.P........................................ 22,500 * 22,500 0 0 Gary J. Shemano............................................ 13,333 * 13,333 0 0 Continental Arbitrage Company.............................. 50,000 * 50,000 0 0 Stuart Zimmerman........................................... 26,667 * 26,667 0 0 Pequot International Fund, Inc............................. 382,100 3.7 382,100 0 0 Pequot Partners Fund, L.P.................................. 417,900 4.1 417,900 0 0 Nob Hill Capital Partners, L.P............................. 100,000 * 100,000 0 0 Irvine Capital Partners, L.P............................... 25,000 * 25,000 0 0 Willow Creek Capital Partners, L.P......................... 15,000 * 15,000 0 0 First Trust & Co. F/B/O Ralph E. Blair FTC IRA Rollover.... 10,000 * 10,000 0 0 Robert A. Naify............................................ 65,000 * 65,000 0 0 Marshall Naify............................................. 65,000 * 65,000 0 0 Prism Partners I........................................... 300,000 2.9 300,000 0 0 Alan Baer.................................................. 30,000 * 30,000 0 0 Richard S. Crawford........................................ 50,000 * 50,000 0 0 Salah M. Hassanein......................................... 20,000 * 20,000 0 0 Earl G. Kershner........................................... 5,500 * 1,500 4,000 * OSO Partners............................................... 200,000 1.9 200,000 0 0 Larry L. Pierce............................................ 1,000 * 1,000 0 0 Sausalito Equity Interests, Inc............................ 2,000 * 2,000 0 0 Xavier Roland.............................................. 40,000 * 40,000 0 0 Serge and Noelle Dubois.................................... 40,000 * 40,000 0 0 Banque de Gestion Edmond de Rothschild Luxembourg SA....... 16,400 * 16,400 0 0 Banque Privee Edmond de Rothschild SA, Luxembourg Branch... 133,600 1.3 133,600 0 0 Banque Financiere de la Cite............................... 65,000 * 65,000 0 0 Paul Dutrieux.............................................. 100,500 * 100,500 0 0 Rauche & Co. (Custodian for Terivian Enterprises).......... 50,000 * 50,000 0 0 Brian Fudge................................................ 3,000 * 3,000 0 0 Claude Eyraud.............................................. 10,000 * 10,000 0 0 Credit Suisse London Nominees Ltd.......................... 232,000 2.3 232,000 0 0 Union Bancaire Privee...................................... 10,000 * 10,000 0 0 Robinson & Co. (Bank of Bermuda)........................... 20,000 * 20,000 0 0 Sanctus Spiritus Antilles, NV.............................. 20,000 * 20,000 0 0 Lawrence R. and Lori R. Turel.............................. 10,000 * 10,000 0 0 Legong Investments, NV..................................... 60,000 * 60,000 0 0 John F. Knutson Trust dated January 30, 1987............... 5,000 * 5,000 0 0
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO OFFERING FOLLOWING OFFERING ------------------------ SHARES ------------------------ NUMBER OF PERCENT TO BE NUMBER OF PERCENT NAME SHARES OWNED SOLD SHARES OWNED - ----------------------------------------------------------- ----------- ----------- --------- ----------- ----------- Thomas R. and Sylvia C. Tuttle............................. 2,000 * 2,000 0 0 A. Lawrence Groo........................................... 5,000 * 5,000 0 0 Pratap Kesav Kondamoori (3)................................ 1,205,029 11.7 100,000 1,105,029 10.7 Anders O. Field, Jr. (4)................................... 466,173 4.5 100,000 366,173 3.6 H.R. (Ram) Kedlaya (5)..................................... 1,207,423 11.7 100,000 1,107,423 10.7 Timothy C. McGuire (6)..................................... 230,204 2.0 100,000 130,204 1.3 Richard McGuire............................................ 2,000 * 2,000 0 0 William McGuire............................................ 2,000 * 2,000 0 0 Monica Palmer.............................................. 3,500 * 3,500 0 0 Doris Corrado.............................................. 1,500 * 1,500 0 0 John and Natalie McGuire................................... 2,000 * 2,000 0 0 Jonnie McGuire............................................. 2,000 * 2,000 0 0 Nutley Investments, S.A.................................... 220,051 2.1 130,051 90,000 * PIRCO, S.A................................................. 247,061 2.4 156,061 91,000 * Alidad Farmanfarma......................................... 330,250 3.2 300,000 30,250 * Oxcal Venture Fund, L.P.................................... 25,000 * 25,000 0 0 Willcocks Investments Limited.............................. 250,000 2.4 250,000 0 0 --------- TOTAL.................................................. 5,154,445 --------- ---------
- ------------------------ * Less than 1%. (1) Includes 50,000 shares issued to Bob K. Pryt, Trustee, BKP Capital Management, Inc. 401(k) Profit Sharing Plan and Money Purchase Plan, dated 01/01/92, FBO Bob K. Pryt and 1,043,333 shares issued to BKP Partners, L.P. (2) The beneficial owner is Bob K. Pryt. (3) Includes 55,458 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. Mr. Kondamoori serves as the Company's President, Chief Executive Officer and Chairman of the Board. (4) Includes 78,801 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. Mr. Field is a Director and consultant of the Company. (5) Includes 55,359 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days after the date of this table. Mr. Kedlaya serves as the Company's Vice President, Business Development, Assistant Secretary and Director. (6) Includes 44,877 shares issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days of the date of this table. Mr. McGuire is a consultant to the Company. CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1996. The table should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Prospectus. Senior Notes.................................................................. $ 325,000 Stockholders' equity: Common stock, $0.001 par value per share; 20,000,000 shares authorized, 10,250,918 shares issued and outstanding (1)............................... 10,250 Preferred stock, $0.001 par value per share; 5,000,000 shares authorized, none outstanding........................................................... -- Additional paid-in capital.................................................. 20,124,578 Accumulated deficit......................................................... (7,438,389) ----------- Total stockholders equity................................................. 12,696,439 ----------- Total capitalization...................................................... $13,021,439 ----------- -----------
- ------------------------ (1) Does not include (i) up to 2,800,000 shares issuable upon exercise of options under the Company's option plans and (ii) 398,400 shares issuable upon exercise of outstanding warrants. PLAN OF DISTRIBUTION The Selling Stockholders may sell all or a portion of the Common Stock offered hereby from time to time in brokerage transactions (which may include block transactions) in the over-the-counter market or, in negotiated transactions, at prices and on terms prevailing at the times of such sales. The Selling Stockholders may effect such transactions by selling their Common Stock directly to purchasers, through broker-dealers acting as agents for the Selling Stockholders or to broker-dealers who may purchase the Selling Stockholders' Common Stock as principals and thereafter sell the Common Stock from time to time in the over-the-counter market, in negotiated transactions or otherwise, or a combination of such methods. The Selling Stockholders may individually pay customary brokerage commissions and expenses. The Company will amend or supplement this Prospectus in the following circumstances and to the following extent: (i) if the securities are to be sold at a price other than the prevailing market price, to disclose such price; (ii) if the securities are to be sold in block, transactions and the purchaser intends to resell, to disclose the nature and extent of such arrangements; or (iii) if the compensation to be paid to broker-deals is other than usual and customary discounts, concessions or commissions, to disclose the terms of such broker-dealer compensation. In the above circumstances, no offers or sales may be made by the Selling Stockholders until an effective amendment or prospectus supplement is available. The Selling Stockholders and broker-dealers, if any, acting in connection with such sales, might be deemed to be "underwriters" within the meaning of section 2(11) of the Act and any commission received by them and any profit on the resale of such securities may be deemed to be underwriting discounts and commissions under the Act. The Company will not receive any part of the proceeds from the sale of the Shares by the Selling Stockholders. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OFFERED BY THIS PROSPECTUS OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAVE BEEN NO CHANGES IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THIS DATE. ------------------------ TABLE OF CONTENTS
PAGE ----- Additional Information......................... 2 Prospectus Summary............................. 3 Risk Factors................................... 5 Dividend Policy................................ 8 Use of Proceeds................................ 8 Price Range of Common Stock.................... 9 Capitalization................................. 10 Selected Financial Data........................ 11 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 12 Business....................................... 16 Management..................................... 23 Principal Shareholders......................... 32 Selling Stockholders........................... 33 Plan of Distribution........................... 34 Description of Securities...................... 35 Legal Matters.................................. 35 Experts........................................ 36 Financial Statements........................... F-1
------------------------ UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 5,154,445 SHARES NUKO INFORMATION SYSTEMS, INC. COMMON STOCK --------------------- PROSPECTUS --------------------- , 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS ]The New York Business Corporations Law (the "Corporations Law"), permits a corporation, through a provision in its certificate of incorporation, to eliminate the personal liability of a director to the Company for monetary damages in an action brought by or in the right of the Company for breach of a director's duties to the Company and its shareholders. Under current New York law, liability is not eliminated for the liability of any director if a judgment or other final adjudication adverse to him establishes that his acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled or that his acts violated section 719 of the Corporations Law. Such provision does not eliminate the liability of any director for any act or omissions prior to the adoption of the provision. The Corporations Law provides a detailed statutory framework covering indemnification of any officer or director of the corporation who is made or threatened to be made a party to any legal proceeding by reason of his or her service on behalf of the corporation. Such law provides that indemnification against expenses actually and reasonably incurred in connection with any such proceeding shall be made to any such person who has been successful "on the merits or otherwise" in the defense of any such proceeding. The law provides that a corporation may indemnify directors and officers against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in a third party proceeding against such person by reason of his or her service on behalf of the corporation, provided the person acted in good faith, in a manner he or she reasonably believed to be in the best interests of the corporation and had no reasonable cause to believe that his or her conduct was unlawful. This determination may be made by a majority vote of a disinterested quorum of the directors, independent legal counsel (if a quorum of independent directors is not obtainable), a majority vote of a quorum of the shareholders (excluding shares owned by the indemnified party), or the court handling the action. The law further provides that in derivative suits, the corporation may indemnify such person against expenses incurred in such a proceeding, provided such person acted in good faith and in a manner he or she reasonably believed to be in the best interests of the corporation and its shareholders. Indemnification is not available in derivative actions (i) for amounts paid or expenses incurred in connection with a matter that is settled or otherwise disposed of without court approval or (ii) with respect to matters for which the officer or director shall have been adjudged to be liable to the corporation, unless the court shall determine that such person is entitled to indemnification. The law permits the advancing of expenses incurred in defending any proceeding against a corporate agent by reason of his or her service on behalf of the corporation upon the giving of a promise to repay any such sums in the event it is later determined that such person is not entitled to be indemnified. The Corporation law further provides that the indemnification provided by the statute is not exclusive of other rights to which those seeking indemnification may be entitled, by law, agreement or otherwise, to the extent additional rights are authorized in the corporation's Certificate of Incorporation. Finally, the law further permits the corporation to procure insurance on behalf of its directors, officers and agents against any liability incurred by any such individual. II-1 ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered are estimated to be as follows:
SEC registration fee............................................................. $ 24,524 Accounting fees and expenses..................................................... 50,000* Legal fees and expenses.......................................................... 150,000* Blue sky legal fees and expenses................................................. 1,000* Printing and engraving expenses.................................................. 3,000* Transfer agent fees and expenses................................................. 2,000* Miscellaneous expenses........................................................... 5,000* ---------- Total...................................................................... $ 236,524* ---------- ----------
- -------------------------- * Estimated expenses ITEM 26.RECENT SALES OF UNREGISTERED SECURITIES The Registrant sold and issued the following unregistered securities during the past three years: 1. From June 1994 to November 1995, the Registrant sold an aggregate of 774,032 shares of Common Stock for aggregate gross proceeds of $911,388. The shares were issued to the following accredited investors pursuant to an exemption provided by Section 4(2) of the Act and Regulation D promulgated thereunder:
NO. OF SHARES AMOUNT NAME OF INVESTOR PURCHASED INVESTED - ------------------------------------------------------------------------ ------------ ----------- Barbara Young 75,000 $ 75,000 David Smith 50,000 50,000 Maimon Leavitt 37,500 50,000 Harold Ellison 3,000 3,000 Myron Goodstein 11,000 11,000 LMC Investments 11,000 11,000 Elliot Smith 15,000 15,000 Peter Markle 25,000 25,000 David and Katherine Phillips 12,500 12,500 Frog Hollow Partners 10,000 10,000 E.T. Packaging, Inc. 32,500 32,500 David Weinstein 25,000 25,000 John Eufinger 50,000 100,000 Mark Levine 10,000 20,000 David and Karla Burnett 60,000 120,000 Merrill Ganson 4,000 8,000 Tim Phillips 10,000 20,000 Tom Dipuma 10,000 20,000 Martin Goldman 8,000 16,000 David Beardsley 15,700 31,400 Beardsley Family Trust 6,800 13,600 Robert Walden 2,500 5,000 Pentagon Systems, Inc. 22,250 44,456 Earl Kershner Family Trust 2,000 4,000 Richard and Evelyn St. Clair 32,737 31,932 Icube Information Int'l 1,308 3,597 Linus Chung 1,237 3,403 David Smith 200,000 50,000 Malcolm Powell 30,000 100,000
II-2 2. In October 1995, the Registrant issued a total of 70,000 shares of Common Stock having an aggregate value of $175,000 to the following individuals: 20,000 shares to Stanley Sitko; 25,000 shares to Kishore Kumar; 15,500 shares to Chadalavada Rao and 9,500 shares to N. S. Rao. The shares were issued in exchange for services rendered pursuant to an exemption provided by Section 4(2) of the Act. 3. On November 22, 1995, the Registrant sold an aggregate of 1,333,333 shares of Common Stock for aggregate gross proceeds of $5,000,000. The shares were issued to the following accredited investors pursuant to an exemption provided by Section 4(2) of the Act and Regulation D promulgated thereunder:
NO. OF SHARES AMOUNT NAME OF INVESTOR PURCHASED INVESTED - ---------------------------------------------------------------------- ------------ ------------- Bob K. Pryt 26,667 $ 100,000 Bob K. Pryt, Trustee, BKP Capital Management, Inc. 401(k) Profit Sharing Plan and Money Purchase Plan, dated 01/01/92, FBO Bob K. Pryt 50,000 187,500 Common Sense Partners, L.P. 12,500 46,875 BKP Partners, L.P. 1,043,333 3,912,500 Peter A. Bessette IRA Rollover 13,333 50,000 Michael Klein 50,000 187,500 Dana M. Galante 10,000 37,500 B-Squared Partners, L.P. 15,000 56,250 Peninsula Fund, L.P. 22,500 84,375 Gary J. Shemano 13,333 50,000 Continental Arbitrage Company 50,000 187,500 Stuart Zimmerman 26,667 100,000
4. On December 29, 1995, the Registrant sold an aggregate of 1,684,500 shares of Common Stock for aggregate gross proceeds of $8,422,500. The shares were issued to the following accredited investors pursuant to an exemption provided by Section 4(2) of the Act and Regulation D promulgated thereunder:
NO. OF SHARES AMOUNT NAME OF INVESTOR PURCHASED INVESTED - ---------------------------------------------------------------------- ------------ ------------- Pequot International Fund, Inc. 382,100 $ 1,910,500 Pequot Partners Fund, L.P. 417,900 2,089,500 Nob Hill Capital Partners, L.P. 100,000 500,000 Irvine Capital Partners, L.P. 25,000 125,000 Willow Creek Capital Partners, L.P. 15,000 75,000 First Trust & Co. F/B/O Ralph E. Blair FTC IRA Rollover 10,000 50,000 Robert A. Naify 65,000 325,000 Marshall Naify 65,000 325,000 Prism Partners I 300,000 1,500,000 Alan Baer 30,000 150,000 Richard S. Crawford 50,000 250,000 Salah M. Hassanein 20,000 100,000 Earl G. Kershner 1,500 7,500 OSO Partners 200,000 1,000,000 Larry L. Pierce 1,000 5,000 Sausalito Equity Interests, Inc. 2,000 10,000
II-3 5. On February 12, 1996, the Registrant sold an aggregate of 822,500 shares of Common Stock for aggregate gross proceeds of $4,112,500. The shares were issued to the following accredited investors pursuant to an exemption provided by Section 4(2) of the Act and Regulation D promulgated thereunder:
NO. OF SHARES AMOUNT NAME OF INVESTOR PURCHASED INVESTED - ---------------------------------------------------------------------- ------------ ------------- Xavier Roland 40,000 $ 200,000 Serge and Noelle Dubois 40,000 200,000 Banque de Gestion Edmond de Rothschild Luxembourg SA 16,400 82,000 Banque Privee Edmond de Rothschild SA, Luxembourg Branch 133,600 668,000 Banque Financiere de la Cite 65,000 325,000 Paul Dutrieux 100,500 502,500 Rauche & Co. (Custodian for Terivian Enterprises) 50,000 250,000 Brian Fudge 3,000 15,000 Claude Eyraud 10,000 50,000 Credit Suisse London Nominees Ltd 232,000 1,160,000 Union Bancaire Privee 10,000 50,000 Robinson & Co. (Bank of Bermuda) 20,000 100,000 Sanctus Spiritus Antilles, NV 20,000 100,000 Lawrence R. and Lori R. Turel 10,000 50,000 Legong Investments, NV 60,000 300,000 John F. Knutson Trust dated January 30, 1987 5,000 25,000 Thomas R. and Sylvia C. Tuttle 2,000 10,000 A. Lawrence Groo 5,000 25,000
Offers and sales were made in each of the private offerings referred to in paragraphs 1, 2, 3 and 4, above, in reliance upon the exemption provided by Section 4(2) of the Act and/or regulations promulgated thereunder. Each investor was furnished with information on the offering and the Registrant and each had the opportunity to verify the information supplied. Additionally, the Registrant obtained a representation from each investor of such investor's intent to acquire the securities for the purpose of investment only, and not with a view toward the subsequent distribution thereof. The securities bear appropriate restrictive legends. All of the foregoing offers and sales were made to individuals or entities that had access to information enabling them to evaluate the merits of the investment by virtue of their relationship to the Company or their economic bargaining power. The share certificates representing all shares issued in non-public offerings were stamped with a legend restricting transfers of the Common Stock represented thereby, and the Registrant issued stop transfer instructions to its transfer agent. 6. From time to time during the past two years, the Company has granted options and issued warrants to officers, directors, employees and consultants of the Company. These grants have been made at exercise prices ranging from $1.80 to $8.50. At January 31, 1996 no options or warrants have been exercised. 7. In June 1995, the Company received $550,000 from the issuance of 8% convertible notes payable to PIRCO, S.A. ("PIRCO") and to Nutley Investments, S.A. ("Nutley"), both of whom are non-U.S. Persons. The notes, plus accrued interest, were converted into 286,112 common shares of the Company at December 31, 1995. In connection with the notes, warrants were granted to purchase 333,400 common shares of the Company at prices ranging from $1.80 to $2.30 per common share. These warrants have an expiration date of July 27, 2000. At April 15, 1996, 33,400 warrants remain outstanding. In addition, in October 1995, the Company issued two $250,000 convertible notes to II-4 PIRCO and Nutley, which were converted into 91,000 and 90,000 shares of the Company's Common Stock, respectively. As these securities were issued to non-U.S. Persons, the registration provisions of the Act do not apply. 8. The Company has issued $325,000 of senior notes (the "Senior Notes") due June 30, 1997 to the following investors in reliance upon the exemption provided by Section 4(2) of the Act: - Maimon Leavitt & Peggy B Leavitt Intervivos Trust - Eugene B. Davis & Charlotte C. Davis TTEES, F.O.B. Davis Family Trust, U/A/D 3/16/90 - Mark C. Branigan - Lenny Taragon - Maurice Rapkin, Ph.D. - Thelma Rotonde - Seymour Bird - Vijay Sajja - Norman & Helga Zheutlin - Loren Davis - Fred Schepisi Each Senior Note issued in 1994 included 10,000 "A" Warrants and 10,000 "B" Warrants to purchase common shares of the Company. Warrants may be exercised at any time by the holders at $2.50 per share for "A" Warrants and $10.00 per share for "B" Warrants. The "A" Warrants expire at the earlier of a the closing of a public offering of the Company's stock in which a minimum of $5,000,000 is raised or June 30, 1997. The "B" Warrants expire on June 30, 1999. There were 130,000 "A" Warrants and 130,000 "B" Warrants issued in connection with the sale of the Senior Notes. At April 15, 1996, all "A" and "B" Warrants remain outstanding. II-5 ITEM 27. EXHIBITS 2.1(1) Agreement and Plan of Reorganization, effective May 27, 1994 between Growers Express Incorporated and NUKO Technologies, Inc. 3.1(2) Restated Certificate of Incorporation of the Registrant 3.2(1) Bylaws of the Registrant 4.1(1) Form of 10% senior notes due June 30, 1997 4.2(1) Form of specimen Common Stock certificate 4.3(1) Common Stock Purchase Warrants issued to Alidada Farmanfarma 4.4(1) Common Stock Purchase Warrants issued to Marc Dumont 4.5(1) Form of "A" Common Stock Purchase Warrants issued in connection with the senior notes (Exhibit 4.1, above) 4.6(1) Form of "B" Common Stock Purchase Warrants issued in connection with the senior notes (Exhibit 4.1, above) 5.1(3) Opinion of Grover T. Wickersham, P.C. as to the legality of the securities being registered 10.1(1) Registration Rights Agreement among the Registrant, PIRCO Investment, S.A. and Nutley Investments, S.A. dated as of July 27, 1995. 10.2(1) Consulting Agreement between the Registrant and Alidada Farmanfarma, dated as of July 27, 1995 10.3(1) Sub-lease Agreement effective as of July 1994 10.4(1) 1995 Stock Option Plan (4) 10.5(2) Development and OEM Purchase Agreement between the Registrant and Northern Telecom, Inc., dated as of December 12, 1995 10.6(2) Agreement between the Registrant and Southwestern Bell Video Services, Inc., dated December 12, 1995 10.7(2)(4) Form of Indemnification Agreement 10.8(5) Source Code Purchase Agreement between Registrant and Digi International, Inc., dated March 26, 1996 10.9(2)(4) 1996 Stock Option Plan 10.10(4)(6) 1996 Director Stock Option Plan 11.1(1)(2)(6) Statement regarding Computation of per share loss 11.2(2) Statement regarding Computation of per share loss for the eight months ended December 31, 1995 24.1 Consent of Grant Thornton LLP, independent certified public accountants (see Page II-11 of the Registration Statement.) 24.2(3) Consent of Grover T. Wickersham, P.C. (contained in their opinion; see Exhibit 5.1)
- -------------------------- (1) Incorporated by reference from Registrant's Annual Report on Form 10-KSB for the fiscal year ended April 30, 1995. (2) Incorporated by reference from Registrant's Registration Statement on Form SB-2 filed February 26, 1996, with amendments thereto. (3) To be filed by amendment. (4) Managerial contract or compensatory plan or arrangement in which the Company's directors or officers participate. (5) Incorporated by reference from Registrant's Annual Report on Form 10-KSB for the fiscal period ended December 31, 1995. (6) Incorporated by reference from Registrant's Quarterly Report on Form 10-QSB for the three months ended March 31, 1996. II-6 ITEM 28. UNDERTAKINGS (a) The 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 to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act"); (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (b) Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-7 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Amendment No. 3 to Registration Statement to be signed on its behalf by the undersigned, in the City of San Jose, State of California, on May 20, 1996. NUKO INFORMATION SYSTEMS, INC. By: /s/ PRATAP KESAV KONDAMOORI ----------------------------------- Pratap Kesav Kondamoori CHIEF EXECUTIVE OFFICER In accordance with the requirements of the Securities Act of 1933, this Amendment No. 3 to the Registration Statement has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------------------------ --------------------------------------------- ---------------- /s/ PRATAP KESAV KONDAMOORI -------------------------------------- President, Chief Executive Officer and May 20, 1996 Pratap Kesav Kondamoori Chairman of the Board /s/ JOHN GORMAN Vice President, Finance and Chief Financial -------------------------------------- Officer (PRINCIPAL FINANCIAL AND ACCOUNTING May 20, 1996 John Gorman OFFICER) /s/ H.R. (RAM) KEDLAYA -------------------------------------- Vice President & Director May 20, 1996 H. R. (Ram) Kedlaya /s/ MARC DUMONT -------------------------------------- Director May 20, 1996 Marc Dumont /s/ ANDERS O. FIELD, JR. -------------------------------------- Director May 20, 1996 Anders O. Field, Jr.
II-8 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated February 14, 1996, accompanying the consolidated financial statements of NUKO Information Systems, Inc. contained in this Registration Statement and Prospectus. We consent to the use of the aforementioned report in this Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts" and "Selected Financial Data." Grant Thornton LLP San Jose, California May 20, 1996 II-9 -----END PRIVACY-ENHANCED MESSAGE-----