Form 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): May 14, 2010
ImaRx Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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001-33043
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86-0974730 |
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(State or other jurisdiction
of incorporation)
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(Commission File Number)
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(IRS Employer Identification No.) |
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6860 Lexington Avenue, Suite 120
Hollywood, CA
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90038 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (323) 790-1717
C/O Stoel Rives LLP,
201 S. Main Street, Suite 1100
Salt Lake City, UT 84111
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
CURRENT REPORT ON FORM 8-K
IMARX THERAPEUTICS, INC.
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements relate to, among other things, the expected
timetable for development of our product candidates, our growth strategy, and our future financial
performance, including our operations, economic performance, financial condition, prospects, and
other future events. We have attempted to identify forward-looking statements by using such words
as anticipates, believes, can, continue, could, estimates, expects, intends, may,
plans, potential, should, will, or other similar expressions. These forward-looking
statements are only predictions and are largely based on our current expectations. These
forward-looking statements appear in a number of places in this Current Report.
In addition, a number of known and unknown risks, uncertainties, and other factors could
affect the accuracy of these statements, including the risks outlined under Risk Factors and
elsewhere in this Current Report. Some of the more significant known risks that we face are the
risks and uncertainties inherent in the process of discovering, developing, and commercializing
oncology drugs that are safe and effective for treating cancer, including the uncertainty regarding
market acceptance of our product candidates and our ability to generate revenues. These risks may
cause our actual results, levels of activity, performance, or achievements to differ materially
from any future results, levels of activity, performance, or achievements expressed or implied by
these forward-looking statements.
Other important factors to consider in evaluating our forward-looking statements include:
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the possibility of delays in, adverse results of, and excessive costs of the development
process; |
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changes in external market factors; |
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changes in our industrys overall performance; |
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changes in our business strategy; |
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our ability to protect our intellectual property portfolio; |
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our possible inability to realize commercially valuable discoveries in our
collaborations with pharmaceutical and other biotechnology companies; |
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our possible inability to execute our strategy due to changes in our industry or the
economy generally; |
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changes in productivity and reliability of suppliers; and |
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the success of our competitors and the emergence of new competitors. |
Although we currently believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, levels of activity or
performance. We do not expect to update any of the forward-looking statements after the date of
this Current Report or to conform these statements to actual results, except as may be required by
law. You should not place undue reliance on forward-looking statements contained in this report.
INDUSTRY AND MARKET DATA
Information about market and industry statistics contained in this report are included based
on information available to us that we believe is accurate in all material respects. It is
generally based on academic and other publications that are not produced for purposes of securities
offerings or economic analysis. We have not reviewed or included data from all sources, and we
cannot assure potential investors of the accuracy or completeness of the data included in this
report. Forecasts and other forward-looking information obtained from these sources, including
estimates of future market size, revenue and market acceptance of products and services, are
subject to the same qualifications and the additional uncertainties accompanying any
forward-looking statements.
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EXPLANATORY NOTE
Unless otherwise indicated or the context otherwise requires, all references below in this
current Report to we, us or the Company are to ImaRx Therapeutics, Inc., a Delaware
corporation,.
Item 1.01. Entry into a Material Definitive Agreement
The disclosures set forth under Item 2.01 hereof are hereby incorporated by reference in this
Item 1.01.
Item 2.01 Completion of Acquisition or Disposition of Assets.
On May 14 , 2010 (the Closing Date), pursuant to an Agreement for the Purchase and Sale of
Stock dated March 17, 2010 (the Stock Purchase Agreement) by and among ImaRx Therapeutics, Inc.
(we, us, ImaRx or the Company), Sycamore Films, Inc. (Sycamore Films) and its
stockholders (the Sycamore Films Stockholders), we issued 79,376,735 shares of our common stock
to the Sycamore Films Stockholders in exchange for all of the outstanding shares of common stock of
Sycamore Films, resulting in a change in control of the Company (the Stock Purchase Transaction).
As a result, Sycamore Films became a wholly-owned subsidiary of ImaRx and the Sycamore Films
Stockholders now hold in the aggregate approximately eighty-seven percent (87%) of our outstanding
shares of commons stock.
Immediately prior to the closing of the Stock Purchase Transaction, pursuant to the terms of
an Agreement and Plan of Merger dated March 17, 2010 (the Merger Agreement) by and among ImaRx,
Sycamore Films, Sweet Spot, Inc. (Sweet Spot) and Sweet Spots stockholders and principals (the
Sweet Spot Stockholders) Sweet Spot merged with and into Sycamore Films and the Sweet Spot
Stockholders became shareholders of Sycamore Films (the Merger Transaction). The Merger
Transaction was effective as of May 14, 2010, upon the filing of a certificate of merger with the
Nevada Secretary of State, at which time Sweet Spot ceased to exist. The Stock Purchase
Transaction and the Merger Transaction are collectively referred to herein as the Transaction.
Sycamore Films was formed for the primary purpose of effectuating the Merger Transaction and
had no formal business operations prior to closing the Merger Transaction. Prior to the Merger
Transaction Sweet Spot was a distribution and marketing company specializing in the acquisition,
distribution and development of marketing campaigns for feature films.
As a result of the Transaction, the Company became a holding company whose primary asset is
its ownership of 100% of the outstanding shares of Sycamore Films. As a result of the Merger
Transaction, Sycamore Films primary business is that of a full-service distribution and marketing
company specializing in acquisition, distribution and the development of marketing campaigns for
feature films.
In connection with the closing of the Stock Purchase Agreement we experienced a change in
control of our ownership, management and Board of Directors. As of the Closing Date, all of the
members of the Board of Directors of ImaRx resigned and a new slate of directors and officers
were appointed for both ImaRx and Sycamore Films.
We expect to seek stockholder approval to amend our Certificate of Incorporation to change our
name from ImaRx Therapeutics, Inc. to Sycamore Entertainment, Inc., to increase the authorized
number of shares of common stock, par value $.0001 from 100,000,000 to 200,000,000, to effectuate a
reverse stock split of one for two of the issued and outstanding shares of our $.0001 par value
common stock, and to change our situs of incorporation from Delaware to Nevada.
We believe that the issuance of our Common Stock in connection with the Stock Purchase
Agreement was exempt from registration under Section 4(2), Regulation D and Regulation S of the
Securities Act.
Copies of the Stock Purchase Agreement and the Merger Agreement were filed as Exhibits 10.1
and 10.2, respectively, to our Current Report on Form 8-K filed with the SEC on March 23, 2010.
The foregoing description of the Stock Purchase Agreement and the Merger Agreement and the
transactions contemplated thereby do not purport to be complete and are qualified in their
entireties by reference to the Stock Purchase Agreement and the Merger Agreement, respectively.
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Item 2.01(f) of Form 8-K provides that if ImaRx is a shell company immediately before a
transaction disclosed under Item 2.01, then ImaRx must disclose the information that would be
required if ImaRx were filing a
general form for registration of securities on Form 10. ImaRx was a shell company immediately
before the Transaction. Accordingly, we are providing below the information that would be included
in a Form 10 if we were to file a Form 10. Please note that, unless otherwise specifically provided
for, the information provided below relates to the business conducted by Sweet Spot prior to the
Transaction and to be conducted by Sycamore films post-closing of the Transaction, except that
information relating to periods prior to the date of the Transaction only relates to the party
specifically indicated.
DESCRIPTION OF BUSINESS
Overview
ImaRx Therapeutics, Inc. was initially organized as an Arizona limited liability company in
October 1999, was subsequently converted to an Arizona corporation in January 2000 and then
reincorporated as a Delaware corporation in June 2000. The Company was initially engaged in the
development and commercialization of therapies for human vascular disorders. In September 2008 and
September 2009 the Company completed two assets sales which resulted in the sale of all of its
operating assets and intellectual property. On May 14, 2010, the Company closed on the acquisition
of Sycamore Films, Inc. (Sycamore Films) which resulted in Sycamore Films becoming a wholly-owned
subsidiary of the Company.
The business of the Company is now carried out by and through its wholly owned subsidiary,
Sycamore Films. By reason of the acquisition of Sweet Spot Productions, Inc. (Sweet Spot) by
Sycamore Films immediately prior to the completion of the acquisition of Sycamore Films by the
Company, the principal business activities of Sycamore Films are those historically engaged in by
Sweet Spot as well as the additional lines of business that Sycamore Films intends to engage in as
its full business plan is rolled out. Accordingly, while the business activities described herein
relate primarily to the historical business of Sweet Spot, the anticipated activities of Sycamore
Films on a go forward basis are also described.
Sweet Spot
Sweet Spot was formed in September 2006 as a California corporation as a full-service
marketing agency specializing in conceiving, developing and producing consumer and trade campaigns
promoting feature films. As such, Sweet Spot has participated in marketing and advertising
campaigns over the past several years for motion pictures, video games, and other business
promotion programs. Sweet Spot generally becomes involved in a marketing and advertising campaign
for a motion picture or video game that is about to be released when the producer of the motion
picture or video game engages Sweet Spot. Sweet Spot confers with the producer, its client, to
determine its anticipated target audience. Through screenings, followed by question and answer
periods, and its reliance on the experience of Sweet Spots executives, Mr. Scotti and Mr. Takats,
the ideal target audience of the motion picture or video game becomes evident. Through a series of
meetings and discussions with the producer, Sweet Spot arrives at what it believes the direction
and style of a theatrical trailer, television campaign or Internet/online viral marketing program
will be most effective to promote the motion picture or video game.
Once the direction and style of a campaign have been established, Sweet Spot works with
writers with established experience in movie and video game marketing and begin to formulate the
trailer, television advertisements and other promotional materials needed to attract the attention
of the target audience to the product. Utilizing the latest technology, including animatics (a
representation or dramatization utilizing actual footage, stock footage, photography stills, or
animation materials available to Sweet Spot to demonstrate our conceptual point), power point
presentations or doing sets of storyboards, Sweet Spot will provide materials to the producer
reflecting several approaches to reaching the target audience. These materials, along with budget,
concepts and draft scripts are supplied to the producer or the account executive in charge of the
project. Once a conceptual direction is taken, and the corresponding budget for that concept is
approved, Sweet Spot begins the production work on the marketing and advertising campaign.
The production work of Sweet Spot begins when it receives material from the producer. That
material may include a completed project or materials from a project yet to be completed. From
those materials, Sweet Spots creative team designs the graphics style (for titles and onscreen
effects), auditions voice-over narrators that may suit the style of the piece, and create the sound
(audio) design bed for the trailer or other advertising spot (a mix of narration, sound effects,
dialogue and music). A rough first edit is presented to the producer or advertising agency. After
a series of meetings, conferences and exchanges of notes, the trailer or other advertising
materials are revised and put into final form and approved by the client.
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After the final form of a trailer or other advertising piece is approved, Sweet Spot engages
service providers to complete the actual production of the trailer or other pieces. It is the task
of Sweet Spot to work with the Motion Picture Association of America to ensure that its approval of
the trailer has been secured. In addition, all television advertisements must pass standards and
practices of the FCC as well as each individual television and cable network that will be
broadcasting the advertisement. Sweet Spot works with these networks to secure approval for the
content of the advertisements. With respect to video game marketing content, Sweet Spot abides by
and adheres to the approval of content standards set forth for all video game audio visual
advertising by the Entertainment Software Rating Board. Finally, Sweet Spot ensures that the
appropriate codes are placed on all masters for broadcast to identify the exact television
advertisement (the name of the advertisement and whether it is a 15, 30 or 60 second
advertisement). The master of all work done by Sweet Spot is provided to the producer and the
media buyers engaged by the producer.
Sweet Spot has completed marketing and advertising campaigns for the following motion
pictures:
Beyond a Reasonable Doubt for Anchor Bay Entertainment
Yohan: The Child Wanderer for Penelope Films
Echelon Conspiracy for Autonomous Films
Armored for SONY International
Horrorfest I, II, III and IV for After Dark Films
An American Haunting for After Dark Films
Frontiers for After Dark Films
Captivity for After Dark Films
Weapons for After Dark Films / Weapons DVD for Lionsgate
Fierce People for After Dark Films & Lionsgate
Wristcutters: A Love Story for After Dark Films
Surviving Crooked Lake for NeoClassics Films
Moscow Belgium for NeoClassics Films
Black Balloon for NeoClassics Films
The Abandoned, Skinwalkers, The Tripper all for After Dark Films
Crazy 8s and Mulberry Street for After Dark Films
No Love in the City, 2 for Marius Balchunas,
and for the following video games:
Iron Man for SEGA
Mario & Sonic at the Olympic Games for SEGA
The Golden Compass for SEGA
Viking: Battle for Asgaard for SEGA
Sonic Unleashed for SEGA
Nights: Journey into Dreams for SEGA
SEGA Superstars Tennis for SEGA
Sonic Riders: Zero Gravity for SEGA
Sonic Chronicles: The Dark Brotherhood for SEGA
Dinosaur King for SEGA
Bleach: Shattered Blade for SEGA
Highlander for Eidos
The production work done by Sweet Spot in connection with the marketing and advertising of
businesses or other productions is essentially the same as described above. Sweet Spot has
provided such services for business purposes or to create limited promotional materials short of a
full advertising campaign for the following:
80 Best Picture Winner Montage: for the Academy of Motion Picture Arts & Sciences
(2008 Oscars telecast)
After Dark Films corporate logo
Pi Pictures corporate logo
Autonomous Films corporate logo
Husk for After Dark Films
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You & I: Finding Tatu for RAMCO Productions
Universal Soldier: New Beginnings for Signature Films
After Dark Originals for After Dark Films
Searching for MeShell for Sonic Pool / Patrick Newall Films
Welcome to Hollywood, Pt 2 for Zachary Matz
The Hustle for Deon taylor Enterprises
Nite Tales for Deon Taylor Enterprises
Chain Letter for Deon Taylor Enterprises
7eventy 5ive for Deon Taylor Enterprises
Since its founding, Sweet Spots efforts have been recognized with many Key Art and Golden
Trailer Award nominations. Sweet Spot was also awarded the Golden Trailer Award first place for
Horrorfest II trailer.
Sycamore Films
Sycamore Films was organized as a Nevada corporation in July 2008. Sycamore Films will
continue to conduct the historical operations of Sweet Spot as described above including the
utilization of the marketing and advertising skills and experience of Sweet Spot. Additionally,
Sycamore Films intends to expand its overall corporate capabilities to include: film acquisitions,
publicity, print advertising, billboard advertising, as well as film distribution in addition to
these marketing strategy capabilities. The niche that has made itself evident at this time to
Sycamore Films, is the lack of distribution outlets for independent, art films and well-produced
foreign films all worthy of being marketed and distributed so that these films become available to
a large segment of the movie going audience. As major studios have increasingly focused their
efforts and attention toward large tent pole blockbuster films, many filmmakers are finding it
increasingly difficult to get past the festival stage of their exhibition process. Sycamore Films
intends to fill this niche by making the best possible deals to market these films, make smart
distribution choices to get these films onto screens. The audience for such films is believed to
be receptive, provided such films are available for viewing. The increasing number of cable
networks and stations also is a source of outlet for such productions. Sycamore Films intends to
provide product that is both entertaining and informative. The collective experience of Sycamore
Films executives in marketing and distribution in the industry for the past 25 years is an asset
that will be utilized in every aspect of the marketing and distribution of all films with which
Sycamore Films decides to become involved. Some competitors that still remain today vary in their
acquisition selections and deal structures. Sycamore Films will utilize the marketing and
distribution skills, strategies and techniques of the principal executive officers of Sycamore
Films with the expectation that Sycamore Films will be able to acquire a sufficient share of such
films such that its early success will lead to follow on business as its reputation expands in the
motion picture and video game industries.
Sycamore Films also intends to expand its potential base of clients by helping develop,
nurture and groom young, up-and-coming talented film makers and producers passionate about the
industry, by assisting them in the realization of their projects and the development of their
motion pictures at all stages of the creative process. Many skilled and talented young filmmakers
are making films today (from film schools to festivals, etc.). It is Sycamore Films intention to
recognize the talented and most promising among them. Sycamore Films will provide encouragement
and support, with the expectation that the development of these relationships will ultimately
result in these filmmakers approaching Sycamore Films for their marketing and distribution needs
when their projects reach that stage of development. Sycamore Films anticipates that it will
foster these relationships by engaging in one or more of the following activities: reading scripts,
critiquing pitches for film ideas, having scripts and film pitches submitted, showcasing new
filmmakers in competitions conducted online resulting in the top contenders having the opportunity
to assist in the direction of their film projects, and by reviewing short films directed or
produced by up and-coming young film makers. Relationships that the executives of Sycamore Films
have with talent agencies and online networking services will be of valuable assistance in seeking
introductions to such talent.
With respect to Sycamore Films intended film acquisition and distribution plans, films will
be acquired through all means available, including festivals, Internet/online sources, foreign
representation, negative pick-up deals, filmmaker deals, with the potential of participation of
profits depending upon each individual scenario. A negative pick-up transaction involves the
commitment by Sycamore Films to purchase the film from the producer at a later date when the film
is completed including the acquisition of all rights to a completed film for cash, for a gross
income percentage, or for putting up print and advertising (P&A) funds. Distribution rights may
be acquired in exchange for P&A funding. Sycamore Films may also seek to engage in a multi-project
deal on a first look basis with a producer or a motion picture or video game production company for
all of their product, over an agreed-to duration. Such a slate type transaction may be
established based upon a pre-determined gross receipts percentage
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split in exchange for Sycamore Films supplying P&A funds. If Sycamore Films agrees to provide
P&A funds, it would put up a sum of money to cover prints (i.e., copies of the movie per number of
movie theatre screens the film is to be exhibited on), and advertising costs needed for all
marketing and distribution of a movie. A first look transaction is generally one where in
consideration of funding from Sycamore Films, usually in the form of a secured loan, Sycamore Films
will have the first right to determine if it desires to acquire the completed project or the right
to distribute the film.
Sycamore Films intends to expand upon the relationships already established via Sweet Spot
with talent agencies, international film commissions, production companies, financial institutions
which provide production and P&A funds, foreign distributors and independent producers in order to
source films with commercial potential.
In order to execute on its business strategies the Company and Sycamore Films will need to raise
additional capital to fund operations. No assurance can be given that such funds will be raised or
that the Company and Sycamore Films will have sufficient funds to expand its business activities as
vigorously or as broadly as discussed above. The existing business activities of Sweet Spot, to be
now conducted by Sycamore Films, will serve to provide a stable basis of operations for Sycamore
Films as it expands its activities. Such expansion will be tied primarily to the rate and amount
of funds the Company will raise in the next 12 to 24 months.
Employees
As of May 17, 2010, we had a total of
2 employees of which 2 were full-time.
Description of Property
Legal Proceedings
We are not currently subject to any legal proceedings and are also not aware of any pending
legal, arbitration or governmental proceedings against us that may have material effects on our
financial position or results of operations.
Available Information
We file reports with, or furnish reports to, the United States Securities and Exchange
Commission, or SEC, including, but not limited to, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports. The public
may read and copy any materials we file with the SEC at the SECs Public Reference Room at 100 F
Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 am to 3:00 pm
Eastern Time. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov.
RISK FACTORS
Any investment in our stock involves a high degree of risk. You should consider carefully the
risks and uncertainties described below and all information contained in this prospectus before you
decide whether to purchase our common stock. Our business, financial condition or results of
operation could be materially harmed by any of these risks. The trading price of our common stock
could decline due to any of these risks or uncertainties, and you may lose part or all of your
investment.
Risks Related to the Operation of our Business and Industry
Unless we are able to generate sufficient revenue, we will continue to incur losses from operations
and may never achieve or maintain profitability.
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We have a history of net losses and negative cash flow from operations since inception. As of
December 31, 2009, we had an accumulated deficit of $91.9 million. We have incurred losses in each
year since our inception. Our net losses applicable to common stockholders for the fiscal years
ended December 31, 2009 and 2008 were $0.6 million and $10.1 million, respectively. Although we
currently do not have sufficient cash resources to further product development activities, we will
no longer engage in the business activities in which we engaged prior to the Stock Purchase
Transaction. At this time we are not certain of our ability to generate income in excess of our
anticipated expenses as we seek to expand the business lines in which we intend to engage following
the Stock Purchase Transaction.
Our independent registered public accounting firm has expressed substantial doubt about our ability
to continue as a going concern.
We have received an audit report from our independent registered accounting firm containing an
explanatory paragraph stating that our historical recurring losses from operations which has
resulted in an accumulated deficit of $91.9 million at December 31, 2009 raises substantial doubt
about our ability to continue as a going concern. However, we will no longer engage in the
business activities in which we engaged prior to the Stock Purchase Transaction. At this time we
are not certain of our ability to generate income in excess of our anticipated expenses as we seek
to expand the business lines in which we intend to engage following the Stock Purchase Transaction.
Our
wholly-owned subsidiary Sycamore Films has limited operating history and there is no assurance
that it will be successful in implementing their business strategy.
There can be no assurance that Sycamore Films will be successful in executing its business
strategy and that the value of the Companys shares of common stock will increase. Sycamore Films
will need to raise additional working capital to fund its operations which will likely result in
substantial dilution to the existing ImaRx stockholders.
We will continue to incur the expenses of complying with public company reporting requirements,
which may be economically burdensome.
While we are pursuing the successful transition of our business following the closing of the
Stock Purchase Transaction with Sycamore Films we have an obligation to continue to comply with the
applicable reporting requirements of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, even though compliance with such reporting requirements may be economically
burdensome and of minimal value to our stockholders. We will be obligated to continue complying
with the applicable reporting requirements of the Exchange Act and, as a result, will be required
to continue to incur the expenses associated with these reporting requirements, which will reduce
the cash available for future activities.
We may default on the terms of the promissory notes with Red Cat Productions and JRT Productions
which could result in ImaRx losing ownership of its primary asset, Sycamore Films.
In addition to the issuance of shares of ImaRx common stock by ImaRx under the terms of the Stock
Purchase Agreement to each of Red Cat Productions, Inc. and JRT Productions, Inc. in exchange for
all the shares of Sycamore Films common stock held by each of them, as additional consideration
ImaRx also executed and delivered to each of Red Cat and JRT a promissory note in the principal
amount of $200,000. Each $200,000 promissory note is secured by a first priority perfected
pledge of 50% of the shares of stock of Sycamore Films owned by ImaRx. As a result, all of the
shares of Sycamore Films held by ImaRx are pledged to secure the obligations represented by both of
the $200,000 promissory notes. In the event ImaRx defaults on the payment of either or both of the
$200,000 promissory notes, and such default is not cured within the applicable cure period, Red Cat
and/or JRT may exercise in respect of the Sycamore Films shares pledged as security for the notes,
in addition to other rights and remedies they may have, all of the rights and remedies of a secured
party on default under the Uniform Commercial Code and also may sell the Sycamore Films shares or
any part thereof at public or private sale. In the event that the proceeds of any such sale is
insufficient to pay all outstanding indebtedness remaining on the notes, ImaRx may be liable for
the deficiency, together with interest. In the event of such a default ImaRx would be left with no
assets or operating business.
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Failure of our internal control over financial reporting could harm our business and financial
results.
The new management of the Company has no experience operating or managing a SEC reporting
company. They will need to hire staff with experience in public company financial reporting. The
Companys previous principal executive officer and principal financial officer concluded that based
on an evaluation of the effectiveness of our disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, our
disclosure controls and procedures were ineffective as of the end of the end of December 31, 2009.
If we are not able to maintain an effective system of internal control over financial
reporting limits our ability to report financial results accurately and timely or to detect and
prevent fraud will be limited. A significant financial reporting failure could cause an immediate
loss of investor confidence in our management and a sharp decline in the market price of our common
stock.
If the scope of Sycamore Films present business and customer base is not expanded, Sycamore Films
business will be dependent upon a few major customers.
Initially the business of Sycamore Films will be that previously conducted by Sweet Spot. During
2008 and 2009, three customers accounted for over 75% of the total revenues of Sweet Spot in both years.
The loss of any one of these customers could have a significant negative impact upon the revenues
of Sycamore Films.
Risks Related to Our Finances and Capital Requirements
We expect our net operating losses to continue for an uncertain duration and we are unable to
predict the extent of future losses.
As a result of the closing of the Stock Purchase Transaction, we expect our business
activities will shift markedly from those conducted historically. While financing to support the
expansion of our business activities as described under the caption Business is being secured, we
are not able to predict when the activities we will conduct as therein described will result in
positive cash flow and operating profits for the Company. We cannot provide any assurance that the
Company will attain profitability.
We will need substantial additional funding and may be unable to raise capital when needed, which
would force us to delay, reduce or eliminate the expansion of our business to be conducted through
our subsidiary, Sycamore Films.
Although we expect to secure a line of credit of up to $8 million to finance our expanded
business activities following closing of the Stock Purchase Transaction, we will require
substantial additional financing through debt or equity investments in order to fully reach the
potential scope of business activities we seek. The Company will be engaging investment bankers to
assist in that regard, but no assurance can be given that a suitable arrange can be made or that
financing in the range needed will be secured.
The costs of producing and marketing feature films have steadily increased and may further increase
in the future, which may make it more difficult for a film to generate a profit or compete against
other films.
The costs of marketing feature films have generally increased in recent years. These costs may
continue to increase in the future, which may make it more difficult for our films to generate a
profit or compete against other films. It may also result in clients of Sycamore Films being less
willing to spend substantial amounts on our services to market their films. Historically,
marketing costs have risen at a higher rate than increases in either the number of domestic
admissions to movie theaters or admission ticket prices. A continuation of this trend would leave
us more dependent on other media, such as home video, television, international markets and new
media for revenue.
Our success depends on external factors in the motion picture and television industry.
Our success in expanding the business of Sycamore Films depends in part upon the commercial
success of motion pictures, which is unpredictable. Operating in the motion picture industry
involves a substantial degree of risk. Each motion picture is an individual artistic work, and
inherently unpredictable audience reactions primarily determine commercial success. Generally, the
popularity of motion pictures with which we may be involved
depends on many factors, including the critical acclaim they receive, the format of their
initial release, for example, theatrical or direct-to-video, the actors and other key talent, their
genre and their specific subject matter. The commercial success of the motion pictures with which
we are involved also depends upon the quality and acceptance of motion pictures that others release
into the marketplace at or near the same time, critical reviews, the availability of alternative
forms of entertainment and leisure activities, general economic conditions and other tangible and
intangible factors, many of which we do not control and all of which may change. We cannot predict
the future effects of these factors with certainty, any of which factors could have a material
adverse effect on our business.
10
In addition, because a motion pictures performance in ancillary markets, such as home video and
pay and free television, is often directly related to its box office performance, poor box office
results may negatively affect future revenue streams. Our success will depend on the experience and
judgment of our management to select and develop new investment and production opportunities. We
cannot provide any assurance that the motion pictures with which we are involved will obtain
favorable reviews or ratings, or that they will perform well at the box office, or in ancillary
markets.
We face substantial competition in all aspects of our business.
We are smaller and less diversified than many of our competitors. As an independent
distributor, we will constantly compete with major U.S. and international studios. Most of the
major U.S. studios are part of large diversified corporate groups with a variety of other
operations, including television networks and cable channels that can provide both the means of
distributing their products and stable sources of earnings that may allow them better to offset
fluctuations in the financial performance of their motion picture operations. In addition, the
major studios have more resources with which to compete for ideas, storylines and scripts created
by third parties as well as for actors, directors and other personnel required for production. The
resources of the major studios may also give them an advantage in acquiring other businesses or
assets, including film libraries, that we might also be interested in acquiring.
The motion picture industry is highly competitive and at times may create an oversupply of
motion pictures in the market. The number of motion pictures released by our competitors,
particularly the major studios, may create an oversupply of product in the market, reduce our share
of box office receipts and make it more difficult for the films with which we are involved to
succeed commercially. Oversupply may become most pronounced during peak release times, such as
school holidays and national holidays, when theater attendance is expected to be highest. This
oversupply may make it more difficult for us to market films for our clients as well as more
difficult for us to market films as to which we are acting as distributor. Such difficulty could
limit or reduce anticipated revenues across the lines of business in which we intend to engage.
We must successfully respond to rapid technological changes and alternative forms of delivery or
storage to remain competitive.
The entertainment industry in general and the motion picture industry in particular continue
to undergo significant technological developments. Advances in technologies or alternative methods
of product delivery or storage or certain changes in consumer behavior driven by these or other
technologies and methods of delivery and storage could have a negative effect on our business.
Examples of such advances in technologies include video-on-demand, new video formats, including
release of titles in high-definition Blu-Ray format, and downloading and streaming from the
Internet. An increase in video-on-demand could decrease home video rentals. In addition,
technologies that enable users to fast-forward or skip advertisements, such as digital video
recorders, may cause changes in consumer behavior that could affect the attractiveness of our
products to advertisers, and could therefore adversely affect our revenues. Similarly, further
increases in the use of portable digital devices that allow users to view content of their own
choosing while avoiding traditional commercial advertisements could adversely affect our revenues.
Other larger entertainment distribution companies will have larger budgets to exploit these growing
trends. We cannot predict how we will financially participate in the exploitation of motion
pictures with which we are involved through these emerging technologies. If we cannot successfully
exploit these and other emerging technologies, it could have a material adverse effect on our
business, results of operations and financial condition.
We face risks from doing business internationally as we seek to expand the scope of our business
activities.
As we expand our business activities, particularly with respect to film acquisitions and
distribution, we expect to engage in more business outside the United States. As a result, our
business will become increasingly subject to certain risks inherent in international business, many
of which are beyond our control. These risks include:
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laws and policies affecting trade, investment and taxes, including laws and policies
relating to the repatriation of funds and withholding taxes, and changes in these laws; |
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changes in local regulatory requirements, including restrictions on content; |
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differing cultural tastes and attitudes; |
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differing degrees of protection for intellectual property; |
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financial instability and increased market concentration of buyers in foreign television
markets, including in European pay television markets; |
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the instability of foreign economies and governments; |
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fluctuating foreign exchange rates; |
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the spread of communicable diseases in such jurisdictions, which may impact business in such
jurisdictions; and |
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war and acts of terrorism. |
Events or developments related to these and other risks associated with international trade could
adversely affect our revenues from non-U.S. sources, which could have a material adverse effect on
our business, financial condition and results of operations.
Protecting and defending against intellectual property claims may have a material adverse effect on
our business.
Our ability to compete will depend, in part, upon successful protection of our intellectual
property. We do not have the financial resources to protect our rights to the same extent as major
studios. We will attempt to protect proprietary and intellectual property rights to our productions
across all areas of our business through available copyright and trademark laws and licensing and
distribution arrangements with reputable international companies in specific territories and media
for limited durations. Despite these precautions, existing copyright and trademark laws afford only
limited practical protection in certain countries. We also intend to distribute our products in
other countries in which there is no copyright or trademark protection. As a result, it may be
possible for unauthorized third parties to copy and distribute our productions or certain portions
or applications of our intended productions, which could have a material adverse effect on our
business, results of operations and financial condition. Litigation may also be necessary in the
future to enforce our intellectual property rights, to protect our trade secrets, or to determine
the validity and scope of the proprietary rights of others or to defend against claims of
infringement or invalidity. Any such litigation could result in substantial costs and the diversion
of resources and could have a material adverse effect on our business, results of operations and
financial condition. We cannot provide any assurance that infringement or invalidity claims will
not materially adversely affect our business, results of operations and financial condition.
Regardless of the validity or the success of the assertion of these claims, we could incur
significant costs and diversion of resources in enforcing our intellectual property rights or in
defending against such claims, which could have a material adverse effect on our business, results
of operations and financial condition.
Others may assert intellectual property infringement claims against us.
One of the risks of the film production business is the possibility that others may claim that our
productions and production techniques misappropriate or infringe the intellectual property rights
of third parties with respect to their previously developed films, stories, characters, other
entertainment or intellectual property. To the extent we acquire completed films, we will seek to
be indemnified by the seller if any such claims are made after we acquire the film. However, the
seller may be unable to effectively provide meaningful indemnification to us. If any future claims
of infringement or misappropriation of other parties proprietary rights are made and not fully
covered by meaningful indemnification agreements, the assertion of such claims may materially
adversely affect our business, financial condition or results of operations. Irrespective of the
validity or the successful assertion of such claims, we could incur significant costs and diversion
of resources in defending against them, which could have a material adverse effect on our business,
financial condition or results of operations. If any claims or actions are asserted against us, we
may seek to settle such claim by obtaining a license from the plaintiff covering the disputed
intellectual property rights. We cannot provide any assurances, however, that under such
circumstances a license, or any other form of
settlement, would be available on reasonable terms or at all.
12
Our business involves risks of liability claims for media content, which could adversely affect our
business, results of operations and financial condition.
As a creator and distributor of media content, we may face potential liability for:
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defamation; |
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invasion of privacy; |
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negligence; |
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copyright or trademark infringement (as discussed above); and |
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other claims based on the nature and content of the materials distributed.
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These types of claims have been brought, sometimes successfully, against producers and distributors
of media content. Any imposition of liability that is not covered by insurance or is in excess of
insurance coverage could have a material adverse effect on our business, results of operations and
financial condition.
Piracy of motion pictures, including digital and Internet piracy, may reduce the gross receipts
from the exploitation of our films.
Motion picture piracy is extensive in many parts of the world, including South America, Asia, and
former Eastern bloc countries, and is made easier by technological advances and the conversion of
motion pictures into digital formats. This trend facilitates the creation, transmission and sharing
of high quality unauthorized copies of motion pictures in theatrical release on DVDs, Blu-Ray
discs, from pay-per-view through set top boxes and other devices and through unlicensed broadcasts
on free television and the internet. The proliferation of unauthorized copies of these products is
expected to have an adverse effect on our business to the extent we are successful in expanding our
business into film distribution, whether for clients or for our own account. Additionally, in
order to contain this problem, we may have to implement elaborate and costly security and
anti-piracy measures, which could result in significant expenses and losses of revenue. We cannot
provide any assurance that even the highest levels of security and anti-piracy measures will
prevent piracy. In particular, unauthorized copying and piracy are prevalent in countries outside
of the U.S., Canada and Western Europe, whose legal systems may make it difficult for us to enforce
our intellectual property rights. While the U.S. government has publicly considered implementing
trade sanctions against specific countries that, in its opinion, do not make appropriate efforts to
prevent copyright infringements of U.S. produced motion pictures, there can be no assurance that
any such sanctions will be enacted or, if enacted, will be effective. In addition, if enacted, such
sanctions could impact the amount of revenue that we realize from the international exploitation of
motion pictures. If no embargoes or sanctions are enacted, or if other measures are not taken, we
may lose revenue as a result of motion picture piracy.
Our success depends on certain key employees.
Our success depends to a significant extent on the performance of a number of senior management
personnel, including in particular Mr. Scotti and Mr. Takats. As our business expands it will also
depend upon other key employees, including production and creative personnel. We do not currently
have significant key person life insurance policies for any of our employees. We have entered
into employment agreements with Mr. Scotti and Mr. Takats. However, although it is standard in the
motion picture industry to rely on employment agreements as a method of retaining the services of
key employees, these agreements cannot assure us of the continued services of such employees. In
addition, competition for the limited number of business, production and creative personnel
necessary to create and distribute our entertainment content as we expand our business is intense
and may grow in the future. Our inability to retain or successfully replace where necessary members
of our senior management and other key employees could have a material adverse effect on our
business, results of operations and financial condition.
To be successful, we need to attract and retain qualified personnel.
Our success in our effort to expand our business will depend to a significant extent on our ability
to identify, attract, hire, train and retain qualified professional, creative, technical and
managerial personnel. Competition for the caliber of talent required to market and distribute our
motion pictures continues to increase. We cannot provide assurance that we will be successful in
identifying, attracting, hiring, training and retaining such personnel in the future. If we are
unable to hire, assimilate and retain qualified personnel in the future, such inability would have
a material adverse effect on our business, results of operations and financial condition.
13
Risks Related to Our Common Stock
Our Common Stock may be considered a penny stock and may be difficult to sell.
The SEC has adopted regulations which generally define penny stock to be an equity security
that has a market or exercise price of less than $5.00 per share, subject to specific exemptions.
The market price of our Common Stock is below $5.00 per share and therefore is a penny stock
according to SEC rules. This designation requires any broker or dealer selling these securities to
disclose certain information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These
rules may restrict the ability of brokers or dealers to sell our Common Stock and may affect the
ability of our stockholders to sell their shares. In addition, since our Common Stock is trading on
the OTC Bulletin Board, our stockholders may find it difficult to obtain accurate quotations of our
Common Stock and may experience a lack of buyers to purchase such stock or a lack of market makers
to support the stock price.
We cannot assure you that following the strategic transaction with Sycamore Films, our common stock
will be listed on NASDAQ or any other securities exchange.
Following the strategic transaction with Sycamore Films we may seek to qualify our common stock for
listing on NASDAQ or the American Stock Exchange. However, we cannot assure you that following such
a transaction, we will be able to meet the initial listing standards of either of those or any
other stock exchange, or that we will be able to maintain a listing of our common stock on either
of those or any other stock exchange. After completing a business combination, until our common
stock is listed on the NASDAQ or another stock exchange, we expect that our common stock will
continue to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the
pink sheets, where our stockholders may find it more difficult to dispose of shares or obtain
accurate quotations as to the market value of our common stock. In addition, we would be subject to
an SEC rule that, if it failed to meet the criteria set forth in such rule, imposes various
practice requirements on broker-dealers who sell securities governed by the rule to persons other
than established customers and accredited investors. Consequently, such rule may deter
broker-dealers from recommending or selling our common stock, which may further affect its
liquidity. This would also make it more difficult for us to raise additional capital following a
business combination.
Our principal stockholders and management own a significant percentage of our stock and will be
able to exercise significant influence over our affairs.
Our executive officer, current directors and holders of five percent or more of our common
stock own a significant portion of our common stock. These stockholders significantly influence the
composition of our Board of Directors, retain the voting power to approve some matters requiring
stockholder approval and continue to have significant influence over our operations. The interests
of these stockholders may be different than the interests of other stockholders on these matters.
This concentration of ownership could also have the effect of delaying or preventing a change in
our control or otherwise discouraging a potential acquirer from attempting to obtain control of us,
which in turn could reduce the price of our common stock.
If our stock price is volatile, purchasers of our common stock could incur substantial losses.
Our stock price is likely to be volatile. The stock market in general and the market for small
healthcare companies in particular have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies.
We are at risk of securities class action litigation due to our stock price volatility.
We are at risk of being subject to securities class action lawsuits because our stock price
has declined substantially since our July 2007 initial public offering. Securities class action
litigation has often been brought against other companies following a decline in the market price
of its securities. While no securities class action claims have been brought against us, it is
possible that lawsuits will be filed based on such stock price declines naming our company,
directors, and officers. Securities litigation could result in substantial costs, divert
managements attention and resources, and seriously harm our business, financial condition and
results of operations.
If there are substantial sales of common stock, our stock price could decline.
If our existing stockholders sell a large number of shares of common stock or the public
market perceives that existing stockholders might sell shares of common stock, the market price of
our common stock could decline significantly.
14
The financial reporting obligations of being a public company and other laws and regulations
relating to corporate governance matters place significant demands on our management and cause
increased costs.
The laws and regulations affecting public companies, including the provisions of the
Sarbanes-Oxley Act of 2002 and new rules adopted or proposed by the Securities and Exchange
Commission, will result in ongoing costs to us as we comply with new and existing rules and
regulations and respond to requirements under such rules and regulations. We are required to comply
with many of these rules and regulations, and will be required to comply with additional rules and
regulations in the future. With limited capital and human resources, managements time and
attention will be diverted from our business in order to ensure compliance with these regulatory
requirements. This diversion of managements time and attention as well as ongoing legal and
compliance costs may have a material adverse effect on our business, financial condition and
results of operations.
Anti-takeover defenses that we have in place could prevent or frustrate attempts to change our
direction or management.
Provisions of our amended and restated certificate of incorporation and bylaws and applicable
provisions of Delaware law may make it more difficult or impossible for a third party to acquire
control of us without the approval of our Board of Directors. These provisions:
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limit who may call a special meeting of stockholders; |
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establish advance notice requirements for nominations for election to our Board of
Directors or for proposing matters that can be acted on at stockholder meetings; |
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prohibit cumulative voting in the election of our directors, which would otherwise
permit holders of less than a majority of our outstanding shares to elect directors; |
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prohibit stockholder action by written consent, thereby requiring all stockholder
actions to be taken at a meeting of our stockholders; and |
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provide our Board of Directors the ability to designate the terms of and issue new
series of preferred stock without stockholder approval. |
In addition, Section 203 of the Delaware General Corporation Law generally prohibits us from
engaging in any business combination with certain persons who own 15% or more of our outstanding
voting stock or any of our associates or affiliates who at any time in the past three years have
owned 15% or more of our outstanding voting stock. These provisions may have the effect of
entrenching our management team and may deprive stockholders of the opportunity to sell their
shares to potential acquirers at a premium over prevailing prices. This potential inability to
obtain a control premium could reduce the price of our common stock.
We do not intend to pay cash dividends on our common stock in the foreseeable future.
We have never declared or paid any cash dividends on our common stock or other securities, and
we do not anticipate paying any cash dividends in the foreseeable future. Accordingly, our
stockholders will not realize a return on their investment unless the trading price of our common
stock appreciates. Our common stock price has depreciated significantly since our initial public
offering and may continue to depreciate in value. The price of our common stock may never
appreciate and our stockholders may never realize gain on their purchase of shares of our common
stock.
Substantial future issuances of the Common Stock could depress our stock price.
The market price for the Common Stock could decline, perhaps significantly, as a result of
issuances of a large number of shares of our Common Stock in the public market or even the
perception that such issuances could occur. Under an existing registration rights agreement,
certain holders of shares of Common Stock and other securities will have demand and piggy-back
registration rights. Sales of a substantial number of these shares of our Common Stock, or the
perception that holders of a large number of shares intend to sell their shares, could depress the
market price of our Common Stock. The existence of such registration rights could also make it
more difficult for us to raise funds through future offerings of our equity securities.
15
Our stockholders may experience additional dilution upon the exercise of warrants and options.
Pursuant to the promissory notes issued to Mr. Scotti and Mr. Takats, each has the option at
any time over the six month period prior to the maturity of those notes to elect to convert the
principal balance of their respective note into shares of our common stock at a conversion ratio
based upon the current market price of our common stock immediately prior to the date of exercise
of the conversion right. If either or both of Mr. Scotti and Mr. Takats were to exercise that
conversion right, based upon the current market value of our stock of $0.008 per share, each would
be entitled to receive 25,000,000 additional shares of our common stock, substantially diluting all
other shareholders.
Insiders have substantial control over us and could delay or prevent a change in corporate control.
After the Merger, our directors, executive officers and principal stockholders, together with
their affiliates, are expected to beneficially own, in the aggregate, a majority of our outstanding
common stock. As a result, these stockholders, if acting together, may have the ability to
determine the outcome of matters submitted to our stockholders for approval, including the election
and removal of directors and any merger, consolidation or sale of all or substantially all of our
assets. In addition, these persons, if acting together, will have the ability to control the
management and affairs of our company. Accordingly, this concentration of ownership may harm the
market price of our common stock by:
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delaying, deferring or preventing a change in control of our Company; |
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impeding a merger, consolidation, takeover or other business combination involving our
Company; or |
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discouraging a potential acquirer from making a tender offer or otherwise attempting to
obtain control of our Company. |
16
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with Sweet Spots audited
financial statements and notes thereto for years ending 2008 and 2009, and interim unaudited
financial statements for the quarters ended January 31, 2009 and 2010, which appear elsewhere in
this report. This discussion contains forward-looking statements reflecting our current
expectations that involve risks and uncertainties. Actual results may differ materially from those
discussed in these forward-looking statements due to a number of factors, including those set forth
in the section entitled Risk Factors and elsewhere in this report.
The statements contained in this section titled Managements Discussion and Analysis of
Financial Condition and Results of Operations (MD&A), include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding
our or our managements expectations, hopes, beliefs, intentions or strategies regarding the
future. The words believe, may, will, estimate, continue, anticipate, intend,
expect, plan, and similar expressions may identify forward-looking statements, but the absence
of these words does not mean that a statement is not forward-looking. The forward-looking
statements contained in this MD&A are based on our current expectations and beliefs concerning
future developments and their potential effects on the Company and Sycamore Films. There can be no
assurance that future developments affecting us will be those that we have anticipated. These
forward-looking statements involve a number of risks, uncertainties or other assumptions that may
cause actual results or performance to be materially different from those expressed or implied by
these forward-looking statements. These risks and uncertainties include those factors described in
greater detail in Item IA of Part I, Risk Factors. Should one or more of these risks or
uncertainties materialize, or should any of our assumptions prove incorrect, actual results may
vary in material respects from those anticipated in these forward-looking statements. We undertake
no obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required under applicable securities
laws.
Overview
The business of the Company will be accomplished through its wholly owned subsidiary, Sycamore
Films, as described in greater detail in Item I, Business Description. Sycamore Films was
created primarily for the purposes of acquiring Sweet Spot. As such, prior to the acquisition of
Sweet Spot pursuant to the Merger Agreement dated March 17, 2010, Sycamore Films had no separate
business operations and maintained no significant financial statements. Accordingly, the
statements in this MD&A relating to historical financial
information pertain to financial statements of Sweet Spot, while forward-looking statements relate
to the projected expanded operations of Sycamore Films.
Prior to its acquisition by Sycamore Films, Sweet Spot has been operating primarily as an
outside vendor for motion picture studios and video games producers that engaged Sweet Spot to
develop and produce promotional campaigns for their films and video games. Sweet Spot derived its
revenue from professional fees charged to customers for the production of trailers and television
spots for the motion picture and video gaming industries (see Note 2 to Sweet Spots audited
financial statements). Services of outside vendors similar to Sweet Spot are generally included in
a motion picture or video game distribution/P&A budget. As such, the revenues of Sweet Spot have
been dependent on the amount of projects produced by Sweet Spots customers, and the amount of
distribution/P&A budget. Sweet Spots customers ability and willingness to produce and distribute
new projects, in turn, depended on the availability and costs of financial capital for new projects
and the general economic climate in the entertainment industry.
The general economic downturn in the national economy at the end of 2008, with significantly
reduced sources of financing being its major consequence, set in motion a chain of events that had
adverse impact on the entertainment industry in general, and on Sweet Spots financial condition in
particular. Without financial capital readily available for production and distribution of new
motion pictures and video games, Sweet Spots customers have significantly reduced both the number
of new projects and the sizes of the distribution/P&As budget. Decline in consumer confidence and
consumer spending was another factor in scaling down their operations and budgets. To minimize
costs, many video game producers and movie studios began producing their P&As in-house, rather than
engaging outside vendors like Sweet Spot. As a result, companies like Sweet Spot have sustained
downturn in their operations. Sweet Spots results of operations in 2008 and 2009 discussed in
this MD&A section should be viewed in the context of these economic conditions and developments in
the entertainment industry.
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Results of Operations for the year ended October 31, 2008 and 2009
Revenues
Sweet Spots revenues declined from $1,108,435 in 2008 to $413,793 in 2009, causing the
company to sustain net losses in both years. The decline in Sweet Spots revenues and operations
is primarily attributable to the general conditions in the entertainment industry outlined above.
Sweet Spot was particularly prone to industry changes due to Sweet Spots dependence on a few major
clients (see Note 2 to Sweet Spot financial statements). Sweet Spot sustained a significant plunge
in revenues when its major client (SEGA), as a cost-cutting measure, decided to produce their P&As
in-house rather than retaining Sweet Spot. Sweet Spot sustained another drop in revenues when its
major client, After Dark Films, in addition to reducing their general P&A budgets, made a corporate
decision in 2009 to acquire fewer films, and produce more of their own movies. That second revenue
drop is temporary, while After Dark Films projects are in the production stage. It is anticipated
that Sweet Spots marketing and advertising services will be called upon once production on these
films is completed. There have been no material failures in Sweet Spots particular products or
services that may have accounted for any part of Sweet Spots revenue reduction.
Costs and Operating Expenses
Despite the decrease in revenues in 2009, Sweet Spot was able to minimize its net losses in
2009 in comparison to 2008 by adjusting to the shrinking demand for P&As through the process of
cost optimization. Sweet Spots costs of revenue primarily consist of expenses relating to service
providers used in the production process including personnel, licensing fees, and other costs
allocable to the Sweet Spots projects. Sweet Spots operating expenses consist of selling and
marketing (promotional) expenses and general and administrative expenses. Sweet Spots general and
administrative expenses relate primarily to the compensation and associated costs for general and
administrative personnel, professional fees, and other general overhead and facility costs.
In 2009, Sweet Spots costs and expenses have been reduced in all categories. Renegotiation of
terms and conditions with Sweet Spots service providers resulted in reduction of cost of revenue
ratio: in 2008, costs constituted 84% of revenues, whereas in 2009 this ratio was reduced to 73%.
The resulting reduction of costs of revenue from $926,191 in 2008 to $304,009 in 2009 was
largely due to a drastic reduction in compensation payments to Sweet Spots co-founders, Donald
Scotti and Joseph Takats, who were compensated for their services primarily through their
respective corporations, Red Cat Productions, Inc. and JRT Productions, Inc. Additionally, Sweet Spots
promotional and marketing budget was reduced from $102,331 in 2008 to $44,248 in 2009, as Sweet
Spot ceased to engage its public relationship consultant and enter in award shows or promotional
catalogues. Finally, the general and administrative expenses have been cut almost in half,
primarily through reduction in general overhead and supplies.
Sweet Spots financial statements do not account for legal and accounting costs that Sycamore
Films and Sweet Spot has incurred as a result of the acquisition and merger transaction and the
related preparation of audited statements and SEC filings, and will be incurring on an ongoing
basis as part of compliance with public companys obligations. Sycamore Films and Sweet Spot have
incurred an estimated total of over $300,000 in legal fees and $45,000 in accounting fees to
complete the merger of Sweet Spot in Sycamore Films and Sycamore Films subsequent acquisition by
ImaRx. The Companys compliance with a public companys reporting obligations have been considered
in creating Sycamore Films twelve months operating budget.
Results of
Operations for the three months ended January 31, 2009 and 2010
The accompanying balance sheet of Sweet Spot as of January 31, 2010, the statements of
operations and cash flows for the quarters ended January 31, 2009 and 2010, and the statement of
stockholders deficit for the quarter ended January 31, 2010 are unaudited. Sweet Spots unaudited
interim financial statements have been prepared on the same basis as the annual financial
statements and, in the opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly Sweet Spots financial position, results of
operations and cash flows for the quarters ended January 31, 2009 and 2010.
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Sweet Spots unaudited
statement of operations for the quarter ending on January 31, 2010 reflects a decrease in revenues
compared to the quarter ending on January 31, 2009: from $230,014 to $128,986. However, the cost
of revenue ratio has been significantly improved: for 2009, costs constituted approximately 78% of the
revenues, whereas for 2010 this ration has been reduced to approximately 45%. This improvement can be
explained by Sweet Spots further efforts to optimize their costs. As a result, despite a slight
increase in Sweet Spots operating expenses (from $56,798 for 2009 to $71,230 for 2010), Sweet Spot s
net loss has been reduced from $9,593 for the quarter ending on January 31, 2009, to $3,438 for
the quarter ending on January 31, 2010. These unaudited results, however, may not reflect all accounts
payable or receivable and are not necessarily indicative of the results to be expected for the year ending
October 31, 2010 or for any other future year.
Liquidity and Capital Resources
Sweet Spot
Sweet Spot had no substantial cash or cash equivalents or other financial assets at the end of
2008 and 2009 and no significant working capital as of January 31, 2010. Sweet Spots unaudited
interim financial statements for the period ending January 31, 2010 reflect $62,641 in cash and
cash equivalents. Cash equivalents, according to Sweet Spots accounting practices, include all
highly liquid investments purchased with a maturity of three months or less. Sweet Spot places its
cash and cash equivalents with high credit quality financial institutions, but at times, maintains
cash balances in excess of amounts insured by the United States government or its agencies. Sweet
Spots financial statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of liabilities that might
result should Sycamore Films be unable to continue as a going concern.
Sycamore Films
As successor of Sweet Spot, Sycamore Films presently has no material unused sources of liquid
assets and Sycamore Films liquidity and capital resources are expected to derive primarily from
completion of a line of credit transaction with a financier that is also an investor. It is
anticipated that this line of credit will provide Sycamore Films with working capital of up to $8
million over the next twelve (12) months. The Company intends to engage an investment banker to
assist with additional capital raising activities to occur in 2011. No assurance can be given that
such funds will be raised or that the Company and Sycamore will have sufficient funds to expand its
business activities as vigorously or as broadly as discussed above. The existing business
activities of Sweet Spot, to be now conducted by Sycamore Films, will serve to provide a stable
basis of operations for Sycamore Films as it expands its activities. Such expansion will be tied
primarily to the rate and amount of funds the Company will raise in the next 12 to 24 months. The
Companys and Sycamore Films ability to continue as a going concern is dependent upon obtaining
additional capital and generating positive cash flows from operations. We have received an audit
report from our independent registered accounting firm containing an explanatory paragraph stating
that our historical recurring losses from operations raises substantial doubt about our ability to
continue as a going concern.
Off-Balance Sheet Arrangements
As of October 31, 2008 and 2009 and January 31, 2010, Sweet Spot did not have any
relationships with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have been established
for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. Sycamore Films similarly has no plans for engaging in off-balance sheet
arrangements.
Critical Accounting Policies and Management Estimates
This managements discussion and analysis of the Companys, Sycamore Films and Sweet Spots
financial condition and results of operations are based on Sweet Spots financial statements, which
have been prepared in accordance with the standards of the Public Company Accounting Oversight
Board (United States). The preparation of these financial statements required us to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts
of contingent assets and liabilities and our reported revenue and expenses. Sweet Spots audits
included consideration of internal control over financial reporting as a basis for designing audit
procedures that were appropriate in the circumstances, but not for the purpose of expressing
auditors opinion on the effectiveness of Sweet Spots internal control over financial reporting,
nor have the auditors provided such an opinion. The audits also included examining, on a test
basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation.
19
We believe that the following accounting policies are critical to a full understanding of our
reported financial results. Sweet Spots significant accounting policies are more fully described
in Note 2 of Sweet Spots audited financial statements.
Revenue Recognition
Sweet Spot derives its revenue from professional fees charged to customers for the production
of trailers and television spots for the motion picture and video gaming industries. Sweet Spot
enters into fixed-price arrangements with its customers. To date, there have been no time and
materials contracts. Sweet Spot recognizes revenue in accordance with Accounting Standards
Codification 605-35, Revenue Recognition, Construction-Type and Production-Type Contracts (formerly
Statement of Position No. 81-1). Accordingly, Sweet Spot records its revenue using the
percentage-of-completion method of accounting. Under the percentage-of-completion method, revenues
are recorded based on actual costs incurred to the total costs expected to be incurred at the
completion of the contract.
If, in the future, Sycamore Films enters into time and materials contracts, Sycamore Films
will recognize revenue as the services are performed based on the contractual billing rates.
Sweet Spot defers revenue when cash has been received from the customer and the arrangement
does not qualify for revenue recognition under Sweet Spots policy. These amounts are reflected as
deferred revenue on the accompanying balance sheets. Sweet Spot records accounts receivable when
the arrangement qualifies for revenue recognition or Sweet Spot has a contractual billing right.
Revenue is recognized net of estimated sales returns and allowances. If actual sales returns
and allowances are greater than estimated by management, additional expense may be incurred. In
determining the estimate for sales allowances, Sweet Spot relies upon historical experience and
other factors, which may produce results that vary from estimates. To date, the estimated sales
returns and allowances have varied within ranges consistent with managements expectations and have
not been significant.
Accounts Receivable, Allowance for Doubtful Accounts and Concentrations
Sweet Spot provides credit to customers throughout the United States. In these instances,
Sweet Spot performs limited credit evaluations of its customers and does not obtain collateral with
which to secure its accounts receivable. Accounts receivable, if any, are reported net of an
allowance for doubtful accounts, which is managements best estimate of potential credit losses.
Sweet Spots allowance for doubtful accounts is based on historical experience, but management also
takes into consideration customer concentrations, creditworthiness, and current economic trends
when evaluating the adequacy of the allowance for doubtful accounts. As of October 31, 2008, 2009,
and January 31, 2010, the allowance for doubtful accounts was $10,000, $14,300, and $14,300,
respectively.
20
Stock-Based Compensation
To date, Sweet Spot has not recorded any stock-based compensation as it has not issued any
stock-based awards. Sycamore Films will recognize stock-based compensation expense related to
employee option and restricted stock grants in accordance with Accounting Standards Codification
718 Compensation Stock Compensation (ASC 718). This standard requires Sycamore Films to
record compensation expense equal to the fair value of awards granted to employees.
Income Taxes
Deferred income tax assets and liabilities are computed for temporary and permanent
differences between the financial statements and income tax bases of assets and liabilities. Such
deferred income tax asset and liability computations are based on enacted tax laws and rates
applicable to years in which the differences are expected to reverse. Income tax expense is the
tax payable or refundable for the year plus or minus the change during the year in deferred income
tax assets and liabilities. A valuation allowance is established, when necessary, to reduce
deferred income tax assets to the amount that is more likely than not to be realized.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, which has been codified into Accounting Standards Codification 740. This pronouncement
clarifies the accounting for uncertainty in income taxes recognized in the financial statements.
This pronouncement also provides a recognition threshold and measurement process for recording in
the financial statements uncertain tax positions taken or expected to be taken in Sweet Spots tax
return. This standard further provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods and disclosure requirements for uncertain tax positions.
Sweet Spot retroactively adopted the provision of this accounting standard on November 1, 2007 as
financial statements had not been previously issued for Sweet Spot. The adoption did have a
significant impact on Sweet Spots results of operations, cash flows, or financial position.
Derivative Financial Instruments
Derivative financial instruments, as defined in SFAS No. 133, Accounting for Derivative
Financial Instruments and Hedging Activities (FAS 133), codified into ASC 815, consist of
financial instruments or other contracts that contain a notional amount and one or more underlying
features (e.g. interest rate, security price or other variable), require no initial net investment and
permit net settlement. Derivative financial instruments may be free-standing or embedded in other
financial instruments. Further, derivative financial instruments are initially, and subsequently,
measured at fair value and recorded as liabilities or, in rare instances, assets.
The Company does not use derivative financial instruments to hedge exposures to cash-flow,
market or foreign-currency risks. However, the Company recently issued convertible promissory notes
to the former shareholders of Sweet Spot with features that initially appear to be either (i)
not afforded equity classification, (ii) embody risks not clearly and closely related to host
contracts, or (iii) may be net-cash settled by the counterparty. As required by FAS 133, in certain
instances, these instruments are required to be carried as derivative liabilities, at fair value,
in our financial statements.
The
Company is currently determining the impact of the promissory note
issuances totaling $400,000 and will adopt
the appropriate accounting policy upon final determination. If ultimately determined that an
embedded conversion feature is present the Company will also determine the appropriate valuation
technique (and combinations thereof) that are considered to be consistent with objectively
measuring fair values. In selecting the appropriate technique, consideration will be given to,
among other factors, the nature of the instrument, the market risks that it embodies and the
expected means of settlement. Estimating fair values of derivative financial instruments requires
the development of significant and subjective estimates that may, and are likely to, change over
the duration of the instrument with related changes in internal and external market factors. In
addition, option-based techniques are highly volatile and sensitive to changes in the trading
market price of our common stock, which has a high-historical volatility. Since derivative
financial instruments are initially and subsequently carried at fair values, the Companys
operating results will reflect the volatility in these estimate and assumption changes.
Recent Accounting Pronouncements
In
May 2009, the FASB issued SFAS No. 165, Subsequent Events, which has been codified into Accounting Standards Codification 855.
The guidance includes new terminology for considering subsequent
events and has required disclosure on the date through which an entity has evaluated subsequent events.
The standard is effective for interim or annual periods ending after June 15, 2009. The adoption did not have a significant impact on Sweet Spot's results of operations, cash flows,
or financial position.
In January 2010, the FASB amended authoritative guidance for improving disclosures about fair-value
measurements. The updated guidance requires new disclosures about recurring or nonrecurring fair-value measurements including
significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances,
and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. The guidance also clarified existing fair-value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques. The guidance became effective for interim and annual reporting periods beginning on or after December 15, 2009, with an exception for the disclosures of purchases, sales, issuances and settlements on the roll-forward of activity in Level 3 fair-value measurements. Those disclosures will be effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company does not expect that the adoption of this guidance will have a material impact on the financial statements.
21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of our common stock
as of (or options and warrants exercisable within 60 days of) April 30, 2010, by: (a) all those
known by us to be beneficial owners of more than five percent of our common stock; (b) each current
director; (c) each of the named executive officers; and (d) all of our executive officers and
directors as a group. This table lists applicable percentage ownership based on 91,042,468 shares
of common stock outstanding as of April 30, 2010.
Beneficial ownership is determined according to the rules of the SEC. Beneficial ownership
means that a person has or shares voting or investment power of a security, and includes shares
underlying options and warrants that are currently exercisable or exercisable within 60 days after
the measurement date. This table is based on information supplied by officers, directors and
principal stockholders. Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below, based on the information each of them has given to us or that is
otherwise publicly available, have sole investment and voting power with respect to their shares,
except where community property laws may apply.
Options and warrants to purchase shares of our common stock that are exercisable within 60
days after April 30, 2010 are deemed to be beneficially owned by the persons holding these options
and warrants and outstanding for the purpose of computing percentage ownership of that person, but
are not treated as outstanding for the purpose of computing any other persons ownership
percentage.
Except as otherwise indicated, the address of the security and stockholders listed below is
6860 Lexington Avenue, Los Angeles, CA 90038.
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Percentage |
|
|
|
Beneficially |
|
|
of Common Stock |
|
Name of Beneficial Owner |
|
Owned |
|
|
Beneficially Owned |
|
Edward Sylvan, CEO and Director |
|
|
48,419,808 |
|
|
|
53 |
% |
Terry Sylvan, Vice President, Corporate Communications and Director |
|
|
14,767,765 |
|
|
|
16 |
% |
Joseph Takats, Director, Senior Executive Vice President (1) |
|
|
2,307,463 |
|
|
|
2.5 |
% |
Donald Scotti, Director, President (2) |
|
|
2,307,463 |
|
|
|
2.5 |
% |
Michael Doban, Chief Operating Officer and Director |
|
|
922,985 |
|
|
|
1.0 |
% |
All directors and executive officers as a group
(5 persons)(3) |
|
|
68,725,484 |
|
|
|
75.50 |
% |
|
|
|
(1) |
|
Includes 2,307,463 shares of common stock held by JRT Productions, Inc. Mr. Takats
is the sole stockholder of JRT Productions and as such has sole voting,
dispositive and investment control over such securities. |
|
(2) |
|
Includes 2,307,463 shares of common stock held by Red Cat Productions, Inc. Mr.
Scotti is the sole stockholder of Red Cat Productions and as such has sole voting,
dispositive and investment control over such securities. |
|
(3) |
|
Includes shares described in footnotes (1) (2) |
Changes in Control
There are no change of control agreements in effect with respect to the outstanding shares of
common stock of ImaRx. However, as part of the Transaction, ImaRx entered into a pledge and
security agreement with respect to all of the shares of Sycamore Films acquired by ImaRx in the
transaction. Because these shares represent the primary asset of ImaRx a description of the pledge
transaction is provided below.
In addition to the issuance of shares of ImaRx common stock under the terms of the Stock
Purchase Agreement to each of Red Cat Productions, Inc. and JRT Productions, Inc. in exchange for
all the shares of Sycamore Films common stock held by each of them, ImaRx also executed and
delivered to each of Red Cat and JRT a promissory note in the principal amount of $200,000.
Each $200,000 promissory note is secured by a first priority perfected pledge of 50% of the
shares of stock of Sycamore Films owned by ImaRx. As a result, all of the shares of Sycamore Films
held by ImaRx are pledged to secure the obligations represented by both $200,000 promissory notes.
Pursuant to the terms of the pledge and security agreement ImaRx may not, among other things,
without the prior written consent of JRT and Red Cat, sell, gift, pledge, exchange or otherwise
dispose of any of the Sycamore Films shares, cause or permit Sycamore Films to make any change in
its capital structure or issue or create any stock or other equity interest, or take or fail to
take any action which would in any manner impair the
22
value of the Sycamore Films shares. In the event ImaRx defaults on the payment of either or
both of the $200,000 promissory notes, and such default is not cured within the applicable cure
period, Red Cat and/or JRT may exercise in respect of the Sycamore Films shares pledged as security
for the notes, in addition to other rights and remedies they may have, all of the rights and
remedies of a secured party on default under the Uniform Commercial Code and also may sell the
Sycamore Films shares or any part thereof at public or private sale. In the event that the
proceeds of any such sale is insufficient to pay all outstanding indebtedness remaining on the
notes, ImaRx may be liable for the deficiency, together with interest. The pledge agreement will
terminate upon the earliest of ImaRxs receipt of notice expressly stating that neither JRT or Red
Cat any longer claims any security interest in the Sycamore Films shares, or the transfer of the
proceeds of the sale of the Sycamore Films shares subsequent to the liquidation sale of such shares
and payment of any outstanding deficiency, or the payment in full of each of the promissory notes.
In the event of such an event, ImaRx could lose all or a portion of its ownership interest in
Sycamore Films.
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors is responsible for the overall management of the Company and elects
executive officers who are responsible for administering the Companys day-to-day operations.
In connection with the Transaction, the following persons were elected to serve as executive
officers and directors of ImaRx Therapeutics:
|
|
|
|
|
|
|
Name |
|
Position |
|
Age |
|
Director Since |
Donald J. Scotti |
|
Director and President |
|
61 |
|
2010 |
Joseph R. Takats |
|
Director and Senior Executive Vice President, Treasurer |
|
45 |
|
2010 |
Edward Sylvan |
|
Chairman, Director and Chief Executive Officer |
|
41 |
|
2010 |
Terry Sylvan |
|
Director and Senior Executive Vice President, |
|
|
|
|
|
|
Corporate Communications |
|
43 |
|
2010 |
Michael Doban |
|
Director and Chief Operating Officer |
|
57 |
|
2010 |
Donald J. Scotti. Mr. Scotti, age 61, has served as President and a director of our company since
May 2010. From 2006 through 2010, Mr. Scotti served as Chief Executive Officer and President of
Sweet Spot Productions, Inc., a motion picture marketing company of which Mr. Scotti was a
significant shareholder. He was Senior Producer of Alkemi Entertainment in 2006. From 1998
through 2005, Mr. Scotti served in various positions at Kaleidoscope Films Group, including
Producer and Vice President. We believe that Mr. Scottis extensive management experience in the
motion picture marketing industry, as well as his leadership skills and creative ability, support
the conclusion that he should serve as one of our directors.
Joseph R. Takats. Mr. Takats, age 45, has served as Senior Executive Vice President, Treasurer and
a director of our company since May 2010. From September 2007 through April 2010, Mr. Takats
served as Creative Director of Sweet Spot Productions, Inc., a motion picture marketing company of
which Mr. Takats was a significant shareholder. He was Executive Vice President of Marketing for
After Dark Films and Autonomous Films from January 2007 through September 2007. Mr. Takats also
served as Creative Director for Alkemi Entertainment from June 2003 through December 2006 and
Creative Director of Miramax Films from 1993 through 1998. Mr. Takats has received several awards
and nominations in the motion picture marketing industry, including Hollywood Reporter Key Arts
Awards and a Golden Trailer award. We believe that Mr. Takats significant experience within the
motion picture marketing industry, as well as his management skills and creative ability, support
the conclusion that he should serve as one of our directors.
Edward Sylvan. Mr. Sylvan, age 41, has served as Chairman & CEO of our company since May 2010.
From 2002 up to the present Mr. Sylvan has been providing consulting services to small cap startup
companies in the areas of corporate structure and finance through his privately held company Silau
II Holdings Ltd. From 2000 to 2002 he was a company director with responsibilities in finance and
corporate development at Beco International, a corporate finance and investor relations firm.
While at Beco, he also served on the board of directors for the junior mining companies Solitaire
Minerals and First Narrows Resources where he was responsible for raising capital and sourcing
strategic acquisitions and partnerships. Mr. Sylvan is an active manager and lead investor with
more than 20 years experience in the securities industry. Mr. Sylvans has worked as an equity
trader for Marathon
Brokerage, one of Canadas leading junior mining investment bank and one of the most active trading
firms in North America. He was one of the youngest equities traders and retail stockbroker for
Scotia McLeod, a leading financial institution in Canada. We believe that Mr. Sylvans extensive
experience in the financial industry and capital markets, as well as his leadership skills and
creative ability, support the conclusion that he should serve as one of our directors.
23
Terry Sylvan. Mr. Sylvan, age 43, has served as Executive Vice President Corporate Communication
of our company since May 2010. From 2007 up to the present Mr. Sylvan has been a partner in the
Vancouver based advertising agency SterlingKlor Communications where he co-manages client
development, business strategy and account management of marketing programs for a diverse list of
B2B sector clients. From 1996 to 2007 Mr. Sylvan served as a Senior Strategic Planner and Account
Director where he developed and managed traditional mass marketing, brand strategy and new media
campaigns at various communications agencies including BBDO, DDB and McCann Terry. We believe
that Mr. Sylvans extensive experience in the communications industry and capital markets, as well
as his leadership skills and creative ability, support the conclusion that he should serve as one
of our directors.
Michael Doban. Mr. Doban, age 57, has served as Director and Chief Operating Officer of our
company since May 2010. From 1995 to present Mr. Doban has worked as an international cinema and
film consultant specializing in all aspects of motion picture marketing and distribution. From
2003 to 2006, Mr. Doban was a co-founder of Freestyle Releasing a United States domestic theatrical
distribution company. From 1992 to 1995 Mr. Doban also served as a Senior vice President for
United Artist Theatres International and from 1982 to 1992 he served as Senior Vice President Film
Programming for United Artist Theatres. We believe that Mr. Dobans significant experience within
the motion picture marketing industry, as well as his management skills and creative ability,
support the conclusion that he should serve as one of our directors.
Arrangements Regarding Appointment as a Director
Pursuant to the terms of the Stock Purchase Agreement, ImaRx has agreed that during the time
that JRT Productions and Red Cat Productions own not less than 250,000 shares of ImaRxs common
stock, to the extent permissible by applicable law and listing regulations, each of Mr. Scotti and
Mr. Takats shall be nominated annually as members of the Board of Directors of ImaRx and that
during that time the size of the Board of Directors shall not be more than seven (7) members.
Additionally, in accordance with the terms of the Merger Agreement each of Mr. Scotti and Mr.
Takats were appointed to the Board of Directors of Sycamore Films.
Family Relationships
Edward Sylvan and Terry Sylvan are brothers.
Shareholders Agreement
On May 14, 2010, the Companys shareholders collectively holding approximately 75% of the
Companys voting stock, specifically, Edward Sylvan, Terry Sylvan, Michael Doban , JRT Productions,
Inc., and Red Cat Productions, Inc., (the Shareholders), have agreed that, as long as Red Cat
and JRT each own at least 250,000 shares of the Companys common stock prior to the reverse 2:1
stock split, the Shareholders shall take all actions as are reasonably necessary to elect Don
Scotti and Joe Takats to the Board of Directors of the Company and Sycamore Films. The
Shareholders further agreed that, so long as Don Scotti and Joseph Takats remain directors on the
Companys Board of Directors, the Shareholders will vote all their shares of the Companys common
stock against any resolution or amendment of the Companys Certificate of Incorporation or Bylaws,
or any other transaction, that would cause the membership of the Companys Board to exceed seven
(7) directors, unless Don Scotti and Joe Takats approve a different vote as to any such action. As
of the date of the Agreement, Edward Sylvan held approximately 53% of the Companys voting stock,
Terry Sylvan 16%, Michael Doban 1%, and JRT and Red Cat each held 2.5%.
EXECUTIVE COMPENSATION
The Executive Compensation information provided herein with respect to Mr. Scotti and Mr.
Takats represents compensation paid to them by Sweet Spot Productions up to the closing of the
Transaction. The Executive Compensation information provided herein with respect to Mr. Edward
Sylvan and Mr. Terry Sylvan
represents compensation paid to them by Sycamore Films up to the closing of the Transaction.
Compensation earned by former executive officers of ImaRx is not included as it is not relevant to
an understanding of the current operations of the Company.
24
Summary Compensation Table
The following table summarizes the compensation that was earned by, or paid or awarded to, the
named executive officers of the Company and Sycamore Films and includes compensation paid to them
prior to the Transaction.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
Name and Principal Position |
|
Fiscal Year |
|
|
Salary ($) |
|
|
Compensation ($) (1) |
|
|
Total ($) |
|
Donald J.
Scotti, President and Director |
|
|
2009 |
|
|
$ |
|
|
|
$ |
62,000 |
(2) |
|
$ |
62,000 |
|
|
|
|
2008 |
|
|
$ |
|
|
|
$ |
250,000 |
(3) |
|
$ |
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph R. Takats, Senior Executive Vice
President and Director |
|
|
2009 |
|
|
$ |
|
|
|
$ |
79,137 |
|
|
$ |
79,137 |
|
|
|
|
2008 |
|
|
$ |
|
|
|
$ |
250,000 |
(4) |
|
$ |
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Sylvan, CEO and Director (5) |
|
|
2009 |
|
|
$ |
|
|
|
|
|
|
|
$ |
0 |
|
|
|
|
2008 |
|
|
$ |
|
|
|
|
|
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry Sylvan, Vice President and
Director (5) |
|
|
2009 |
|
|
$ |
|
|
|
|
|
|
|
$ |
0 |
|
|
|
|
2008 |
|
|
$ |
|
|
|
|
|
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Doban, Chief Operating Officer and
Director |
|
|
2009 |
|
|
$ |
|
|
|
|
|
|
|
$ |
0 |
|
|
|
|
2008 |
|
|
$ |
|
|
|
|
|
|
|
$ |
0 |
|
|
|
|
(1) |
|
Includes all other compensation not reported in the preceding columns, including perquisites and
other personal benefits, or property, unless the aggregate amount of such compensation is less than
$10,000. |
|
(2) |
|
Includes $62,000 received by Mr. Scotti from Red Cat Productions, Inc. in 2009 for services
rendered to the Company by Red Cat Productions through its sole shareholder, Mr. Scotti. Red Cat
Productions was a 50% shareholder of the Company prior to the Transaction. |
|
(3) |
|
Includes $250,000 received by Mr. Scotti from Red Cat Productions, Inc. in 2008 for services
rendered to the Company by Red Cat Productions through its sole shareholder, Mr. Scotti. Red Cat
Productions was a 50% shareholder of the Company prior to the Transaction. |
|
(4) |
|
Includes $162,500 received by Mr. Takats from ShineOla Films, LLC in 2008 for services rendered
to the Company by ShineOla Films through its sole shareholder, Mr. Takats. ShineOla Films is a
predecessor of JRT Productions, Inc which was a 50% shareholder of the Company prior to the
Transaction. |
|
(5) |
|
Neither Edward Sylvan or Terry Sylvan received any remuneration for their services rendered to
Sycamore Films prior to the Transaction. |
Employment Contracts
Agreements with our Named Executive Officers
The following is a description of selected terms of the agreements that we have entered into
with our named executive officers, as such terms relate to the compensation reported and described
in this report.
Employment Agreement with Donald J. Scotti, President
Base Compensation. The agreement provides for an annual salary of $200,000 from inception of
this agreement on May 14, 2010 through the term of the agreement ending
May 14, 2013, unless the agreement is earlier
terminated according to the terms of the agreement. The agreement also provides for annual
compensation reviews.
Bonus. The agreement provides that Mr. Scotti is entitled to an annual bonus payment equal to
four percent (4%) of the consolidated net profits of the Company and its subsidiaries in excess of
$5,000,000, payable at the end of each calendar year.
25
Gross Up Payments. The agreement provides that Mr. Scotti is entitled to gross-up payments in
the event any amount we pay him would be subject to the excise tax imposed by the Internal Revenue
Service.
Stock Option Plans. The agreement provides that Mr. Scotti is entitled to participate in all
of the stock option plans available to our employees in effect from time to time.
Perquisites. The agreement provides that during the period of employment, that Mr. Scotti is
entitled to six (6) weeks of paid vacation per year, and any unused vacation time may be carried
over from year to year. Mr. Takats [Scotti] is also entitled to an automobile allowance in the
amount of $750.00 a month during the first six months of employment, and $1,500.00 per month
thereafter, which allowance includes the cost of insurance, maintenance and repair.
Term and Termination. The initial term of the agreement is for a period of three years
commencing on the Closing of the Transaction. Thereafter, Mr. Scotti shall be an employee-at-will.
During the term of the agreement the Company may only terminate the employment agreement for
cause.
Noncompetition. Mr. Scotti has agreed that during the term of employment he will not directly
compete with us or our business. However, if we breach any covenant owed to Mr. Scotti, or certain
other individuals and entities, without curing such breach within 60 days, Mr. Scottis
noncompetition obligations will be null and void.
Employment Agreement with Joseph R. Takats, Senior Executive Vice President, Treasurer
Base Compensation. The agreement provides for an annual salary of $200,000.00 from inception
of this agreement on May 14, 2010 through the term of the agreement ending
May 14, 2013, unless the agreement is earlier
terminated according to the terms of the agreement. The agreement also provides for annual
compensation reviews.
Bonus. The agreement provides that Mr. Takats is entitled to an annual bonus payment equal to
four percent (4%) of the consolidated net profits of the Company and its subsidiaries in excess of
$5,000,000, payable at the end of each calendar year.
Gross Up Payments. The agreement provides that Mr. Takats is entitled to gross-up payments in
the event any amount we pay him would be subject to the excise tax imposed by the Internal Revenue
Service.
Stock Option Plans. The agreement provides that Mr. Takats is entitled to participate in all
of the stock option plans available to our employees in effect from time to time.
Perquisites. The agreement provides that during the period of employment, that Mr. Takats is
entitled to six (6) weeks of paid vacation per year, and any unused vacation time may be carried
over from year to year. Mr. Takats [Scotti] is also entitled to an automobile allowance in the
amount of $750.00 a month during the first six months of employment, and $1,500.00 per month
thereafter, which allowance includes the cost of insurance, maintenance and repair.
Term and Termination. The initial term of the agreement is for a period of three years
commencing on the Closing of the Transaction. Thereafter, Mr. Takats shall be an employee-at-will.
During the term of the agreement the Company may only terminate the employment agreement for
cause.
Noncompetition. Mr. Takats has agreed that during the term of employment he will not directly
compete with us or our business. However, if we breach any covenant owed to Mr. Takats, or certain
other individuals and entities, without curing such breach within 60 days, Mr. Takats
noncompetition obligations will be null and void.
26
Director Compensation
Currently, our directors do not receive compensation for attending meetings of the Board or
committee meetings, Following the Merger, it is anticipated that each non-employee director will
receive a reasonable amount to be determined for each Board or committee meetings attended in
person or by electronic means. Directors are also reimbursed for out-of pocket travel and other
expenses incurred in attending Board and/or committee meetings. In addition, non-employee directors
may be engaged by the Company to perform consulting services from time to time and receive
compensation for such services as negotiated with the Company.
The table below provides additional information with respect to compensation paid to the
Companys directors during fiscal 2009: The Director Compensation information provided herein with
respect to Mr. Scotti and Mr. Takats represents compensation paid to them by Sweet Spot Productions
up to the closing of the Transaction. The Director Compensation information provided herein with
respect to Mr. Edward Sylvan, Mr. Terry Sylvan and
Mr. Michael Doban represents compensation paid to them
by Sycamore Films up to the closing of the Transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee Earned or |
|
|
Stock |
|
|
Option |
|
|
Other |
|
|
|
|
|
|
Paid in Cash |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Total |
|
Name(1) |
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Donald J. Scotti |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.00 |
|
Joseph R. Takats |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.00 |
|
Edward Sylvan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.00 |
|
Terry Sylvan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.00 |
|
Michael Doban |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.00 |
|
Incentive Plans
Upon the close of the Merger, it is anticipated that ImaRxs existing stock option plan will
be terminated and no further options will be granted under the plan. The Companys Board of
Directors may approve a long term incentive plan subsequent to the close of the Transaction, which
may authorize the Board, or a committee thereof, to provide equity-based compensation in the form
of stock options, restricted stock and other stock-based awards, which will be used to attract and
retain qualified employees, directors and consultants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Since January 1, 2008, neither ImaRx nor Sycamore Films have engaged in any transactions with
our executive officers, directors and holders of 5% or more of our stock in which the amount
involved exceeded the lesser of $120,000 or one percent of the average of our total assets at year
end for the last two completed fiscal years except as set forth below.
During 2008, the Company paid $250,000 to Red Cat Productions, Inc. for services rendered to
the Company by Red Cat Productions Inc., through its sole shareholder, Mr. Scotti, a director and
executive officer of the Company.
During
2008 the Company paid $162,500 to ShineOla Films, LLC for services rendered to the
Company by ShineOla Films through its sole shareholder, Mr. Takats. ShineOla Films is a
predecessor of JRT Productions, Inc which was a 50% shareholder of the Company prior to the
Transaction. The Company directly paid Mr. Takats an additional $87,500 during fiscal 2008.
In addition to the issuance of shares of ImaRx common stock under the terms of the Stock
Purchase Agreement to each of Red Cat Productions, Inc. and JRT Productions, Inc. in exchange for
all the shares of Sycamore Films common stock held by each of them, ImaRx also executed and
delivered to each of Red Cat and JRT a promissory note in the principal amount of $200,000. Mr.
Scotti, a member of the Board of Directors and an executive officer of each of ImaRx and Sycamore
Films owns all of the outstanding ownership interest of Red Cat and Mr. Takats, a member of the
Board of Directors and an executive officer of each of ImaRx and Sycamore Films owns all of the
outstanding ownership interest of JRT. The terms of each promissory note provide for the payment
by ImaRx to each of Red Cat and JRT of $200,000 plus interest at an annual rate of 7% within six
(6) months from the date of closing the Transaction. The outstanding balance of the notes may be
converted at any time into shares of ImaRx common stock at the election of the Red Cat and JRT.
The payment of each of the promissory notes is secured by a pledge of all of the shares of Sycamore
Films held by ImaRx. As of the date of this report the entire principal amount of $200,000
remains outstanding on each promissory note.
27
Director Independence
Presently, we are not required to comply with the director independence requirements of any
securities exchange. After closing the Transaction, our Board of Directors will review at least
annually the independence of each director. During these reviews, our Board of Directors will
consider transactions and relationships between each director (and his or her immediate family and
affiliates) and our Company and its management to determine whether any such transactions or
relationships are inconsistent with a determination that the director was independent. Our Board
of Directors will conduct its annual review of director independence to determine if any
transactions or relationships exist that would disqualify any of the individuals who then served as
a director under the rules of a national securities exchange, or require disclosure under SEC
rules. We anticipate that in determining whether our directors are independent, we intend to
comply with the rules of The NASDAQ Stock Market. Although the Board of ImaRx has not made any
formal determinations with respect to the independence of the directors, it is anticipated that
none of the members of the ImaRx Board of directors will qualify as independent directors.
The Company does not have an audit, compensation or nominating committee at this time. The
Company has not designated an Audit Committee Financial Expert.
MARKET PRICE AND DIVIDENDS ON IMARXS COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The ImaRx common stock is currently quoted on the Over the Counter Bulletin Board under the
symbol IMRX.OB. From July 2007 to October 2008, ImaRxs common stock was traded on the NASDAQ
Capital Market under the symbol IMRX. Prior to that time, there was no public market for its
common stock. The following table sets forth, for the periods indicated, the quarterly high and low
sales prices per share of ImaRxs common stock as reported by NASDAQ through October 22, 2008 and
the Over the Counter Bulletin Board after October 22, 2008.
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
Low |
|
2010 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
0.051 |
|
|
$ |
0.008 |
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
0.03 |
|
|
$ |
0.006 |
|
Third Quarter |
|
|
0.04 |
|
|
|
0.012 |
|
Second Quarter |
|
|
0.03 |
|
|
|
0.01 |
|
First Quarter |
|
|
0.035 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
0.10 |
|
|
$ |
0.04 |
|
Third Quarter |
|
|
0.33 |
|
|
|
0.04 |
|
Second Quarter |
|
|
0.84 |
|
|
|
0.16 |
|
First Quarter |
|
|
2.17 |
|
|
|
0.36 |
|
Holders
As of May 17, 2010, there were 91,042,468 shares of Common Stock issued and outstanding held
by approximately 313 holders of record of our Common Stock after the Closing of the Transaction.
Dividends
We have not declared or paid any cash dividends on Common Stock since our inception, and our
Board of Directors currently intends to retain all earnings for use in the business for the
foreseeable future. Any future payment of dividends will depend upon our results of operations,
financial condition, cash requirements, and other factors deemed relevant by our Board of
Directors.
28
Rule 144 Shares
SEC regulations regarding the sales of securities without registration pursuant to the
exemption from registration are provided in SEC Rule 144 under the Securities Act. Under rule 144,
stockholders who are non-affiliates of a publicly-reporting company that never was a shell
company under SEC rules may be able to sell their shares of Common Stock under Rule 144 within six
months after acquiring such shares, without any restrictions, other than such company continuing to
remain current in the filing of its periodic reports with the SEC for an additional six months.
Affiliates of that company also would be able to sell their shares under Rule 144, but would be
subject to volume and trading limitations as under the prior Rule 144. Stockholders who purchase
securities in a company that is or ever was a shell company or received their shares of Common
Stock in a reverse merger with a shell company, which would apply to stockholders of the Company
who acquired shares in the Transaction are subject to a modified holding period. In this case, the
holding period continues until the longer of (i) six months from the date of acquiring the
securities and (ii) the date which is one year following the date that the Company ceases to be a
shell company and releases the information contained in this Form 8-K. In addition, if a company
ever was a shell company, in order to utilize Rule 144 to effect a sale, the Company must have
completed all its periodic report filings with the SEC during the 12-month period preceding such
proposed sale. Therefore, all shares of Common Stock issued in connection with the Transaction, if
not registered with the SEC, will not be transferable pursuant to Rule 144 until 12 months after
the filing of this Form 8-K, provided that we remain current in the filing of our periodic reports
during that period. Shares held by affiliates of the Company still will be subject to the volume
and trading limitations of Rule 144, which will generally limit their sale to one percent of the
number of shares of the Companys Common Stock then outstanding, during any three-month period.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information regarding outstanding awards and shares reserved
for future issuance under ImaRxs equity compensation plans as of December 31, 2009. All of the
outstanding awards are held by former executive officers and directors of ImaRx.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of securities |
|
|
|
securities to be |
|
|
|
|
|
|
remaining available for |
|
|
|
issued upon |
|
|
Weighted-average |
|
|
future issuance under equity |
|
|
|
exercise of |
|
|
exercise price of |
|
|
compensation plans |
|
|
|
outstanding awards |
|
|
outstanding awards |
|
|
(excluding securities reflected |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
in column (a)) (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders |
|
|
340,685 |
|
|
$ |
7.05 |
|
|
|
1,276,994 |
|
Equity compensation
plans not approved
by security holders |
|
None |
|
|
None |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
340,685 |
|
|
$ |
7.05 |
|
|
|
1,276,994 |
|
RECENT SALES OF UNREGISTERED SECURITIES [ITEM 701]
On May 14 , 2010 pursuant to an Agreement for the Purchase and Sale of Stock dated March 17,
2010 ImaRx issued 79,376,735 shares of its common stock to the Sycamore Films Stockholders in
exchange for all of the outstanding shares of common stock of Sycamore Films. ImaRx believes that
the issuance of its Common Stock in connection with the Stock Purchase Agreement was exempt from
registration under Section 4(2) and Regulation D and Regulation S of the Securities Act.
DESCRIPTION OF COMPANYS SECURITIES
Description of ImaRx Capital Stock
The ImaRx authorized capital stock consists of 100,000,000 shares of common stock, $0.0001 par
value per share, and 5,000,000 shares of preferred stock, $0.0001 par value per share. The ImaRx
common stock is currently quoted on the Over the Counter Bulletin Board under the symbol IMRX.OB.
Common Stock
As of May 17, 2010, 91,042,468 shares of our common stock were outstanding and held of record
by 313 stockholders. In addition, as of December 31, 2009, 340,685 shares of our common stock were
subject to outstanding options, and 873,913 shares of our common stock were subject to outstanding
warrants.
29
Each share of our common stock entitles its holder to one vote on all matters to be voted on
by our stockholders. Subject to preferences that may apply to any of outstanding preferred stock
which may be issued in the future, holders of our common stock will participate equally in all
dividends payable with respect to our common stock, if and when declared by our board of directors.
If we liquidate, dissolve or wind up, the holders of common stock are entitled to share ratably in
all distributions of assets subject to any liquidation rights and preferences of any of our
outstanding preferred stock. Our common stock has no preemptive rights, conversion rights or other
subscription rights or redemption or sinking fund provisions.
Preferred Stock
The ImaRx board of directors has the authority, without further action by our stockholders, to
issue up to 5,000,000 shares of our preferred stock in one or more series. Our board of directors
may designate the rights, preferences, privileges and restrictions of our preferred stock,
including any qualifications, limitations or restrictions thereon. The issuance of our preferred
stock could have the effect of restricting dividends on our common stock, diluting the voting power
of our common stock, impairing the liquidation rights of our common stock, or delaying or
preventing a change in control. Even the ability to issue preferred stock could delay or impede a
change in control. No shares of our preferred stock are currently outstanding, and we currently
have no plan to issue any shares of our preferred stock.
Warrants and Options
As of April 30, 2010 the following warrants were outstanding:
|
|
|
Warrant to purchase 2,281 shares of our common stock, at an exercise price of $13.75
per share. This warrant may be exercised at any time prior to the later of either January
16, 2011 or five years after our initial public offering. |
|
|
|
|
Warrant to purchase an aggregate of 614 shares of our common stock at an exercise price
of $35.00 per share. This warrant may be exercised at any time prior to March 6, 2011. |
|
|
|
|
Warrant to purchase an aggregate of 1,000 shares of our common stock at an exercise
price of $10.00 per share. This warrant may be exercised at any time prior to October 10,
2013. |
|
|
|
|
Warrants to purchase an aggregate of 37,769 shares of our common stock at an exercise
price of $10.00 per share issued pursuant to our March 2003 bridge financing. These
warrants may be exercised from time to time prior to January 28, 2011. |
|
|
|
|
Warrants to purchase an aggregate of 20,000 shares of our common stock at an exercise
price of $20.00 per share. These warrants may be exercised at any time prior to September
27, 2015. |
|
|
|
|
Warrants to purchase an aggregate of 74,996 shares of our common stock at an exercise
price of $21.25 per share. These warrants may be exercised at any time prior to October 6,
2012. |
|
|
|
|
Warrants to purchase an aggregate of 15,000 shares of our common stock at an exercise
price of $20.00 per shares. These warrants may be exercised at any time prior to January
13, 2013. |
|
|
|
|
Warrants to purchase an aggregate of 175,000 shares of our common stock at an exercise
price of $5.75. These warrants may be exercised at any time prior to July 31, 2012 |
|
|
|
|
Warrants to purchase an aggregate of 496,589 shares of our common stock at an exercise
price of $5.75. These warrants may be exercised at any time prior to July 31, 2012. |
|
|
|
|
Options to purchase an aggregate of 340,685 shares of our common stock pursuant to our
2000 Stock Plan, with a weighted average exercise price of $7.05. |
All of our outstanding warrants and options contain provisions for the adjustment of the
exercise price and the number of shares issuable upon the exercise of the warrant or option in the
event of stock dividends, stock splits, reorganizations, reclassifications and consolidations. In
addition, certain of the warrants and options contain a net exercise provision.
30
Registration Rights
Red Cat Productions and JRT Productions, each the holder of 2,307,463 shares of ImaRx common
stock are entitled to require us to register for resale under the Securities Act subject to certain
limitations and restrictions, these shares and those shares received upon the conversion of the
Promissory Notes into shares of the Companys common stock. If during the first 365 days following
the closing of the Transaction ImaRx proposes to register any of its stock pursuant to Section 5 of
the Securities Act or other securities under the Securities Act in connection with the public
offering of such securities, then each of Red Cat Productions and JRT Productions have a one-time
piggyback registration right to have ImaRx include all or any of their shares of common stock in
such registration. If ImaRx does not commence such a registration transaction during the first 365
days following the closing of the Transaction each of Red Cat Productions and JRT Productions shall
have a one-time right to request that ImaRx register their shares of ImaRx common stock. These
rights terminate with respect to Red Cat Productions and JRT Productions at such time as they may
sell any of their shares of common stock freely, without registration and without restrictions
regarding the quantity or manner of sale.
Option to Put ImaRxs Common Stock.
Beginning on November 14, 2010, and continuing for a two year period immediately thereafter,
the Put Period, JRT Productions and Red Cat Productions, and each of them have the right to
require that, during any 90-day period following the first day of the Put Period, the Company
purchase from each of them up to 25% of their shares of the total 2,307,463 shares of ImaRx common
stock received by each of them under the Stock Purchase Agreement. They may exercise this put
right, in whole or in part, at any time or from time to time during the two year period. If during
any 90-day period either or both of JRT and Red Cat elect not to exercise the put right with
respect to any of 25% of the shares which they are entitled to put, such shares may be put during
the following 90-day period in addition to 25% of the shares that the they are entitled to put
during such 90-day period. The price at which ImaRx shall be required to purchase the shares put
to the Company shall be equal to $0.16 per share, subject to adjustment in the event of a stock
split. The Company has the right to suspend the ability of either JRT or Red Cat to exercise their
put rights during any period in which the Company is engaged in a capital raising transaction. In
that event the term of the Put Period will be extended for an additional period equal to the period
of the suspension.
Anti-Takeover Provisions
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law, which regulates,
subject to some exceptions, acquisitions of publicly held Delaware corporations. In general,
Section 203 prohibits us from engaging in a business combination with an interested stockholder
for a period of three years following the date the person becomes an interested stockholder,
unless:
|
|
|
our board of directors approved the business combination or the transaction in which
the person became an interested stockholder prior to the date the person attained this
status; |
|
|
|
|
upon consummation of the transaction that resulted in the person becoming an interested
stockholder, the person owned at least 85% of our voting stock outstanding at the time the
transaction commenced, excluding shares owned by persons who are directors and also
officers and issued under employee stock plans under which employee participants do not
have the right to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or |
|
|
|
|
on or subsequent to the date the person became an interested stockholder, our board of
directors approved the business combination and the stockholders other than the interested
stockholder authorized the transaction at an annual or special meeting of stockholders by
the affirmative vote of at least two-thirds of the outstanding stock not owned by the
interested stockholder. |
Section 203 defines a business combination to include:
|
|
|
any merger or consolidation involving us and the interested stockholder; |
|
|
|
|
any sale, transfer, pledge or other disposition involving the interested stockholder of
10% or more of our assets; |
31
|
|
|
in general, any transaction that results in the issuance or transfer by us of any of
our stock to the interested stockholder; |
|
|
|
|
any transaction involving us that has the effect of increasing the proportionate share
of our stock owned by the interested stockholders; and |
|
|
|
|
the receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges, or other financial benefits provided by or through us. |
In general, Section 203 defines an interested stockholder as any person who, together with
the persons affiliates and associates, owns, or within three years prior to the time of
determination of interested stockholder status did own, 15% or more of a corporations voting
stock.
Certificate of Incorporation and Bylaw Provisions
Our amended and restated certificate of incorporation and bylaws include a number of
provisions that may have the effect of deterring hostile takeovers or delaying or preventing
changes in control or our management. These provisions include the following:
|
|
|
our board of directors can issue up to 5,000,000 shares of preferred stock, with any
rights or preferences, including the right to approve or not approve an acquisition or
other change in control; |
|
|
|
|
our bylaws provide that our board of directors may be removed with or without cause by
the affirmative vote of a majority of our stockholders; |
|
|
|
|
our bylaws limit who may call a special meeting of stockholders to our board of
directors, chairman of the board, president and one or more stockholders holding not less
than 25% of all shares entitled to be cast on any issue proposed to be considered at that
meeting; |
|
|
|
|
our bylaws provide that stockholders seeking to present proposals before a meeting of
stockholders or to nominate candidates for election as directors at a meeting of
stockholders must provide timely advance written notice to us in writing; |
|
|
|
|
our bylaws specify requirements as to the form and content of a stockholders notice; |
|
|
|
|
our bylaws provides that, subject to the rights of the holders of any outstanding
series of our preferred stock, all vacancies, including newly created directorships, may,
except as otherwise required by law, be filled by the affirmative vote of a majority of our
directors then in office, even if less than a quorum; |
|
|
|
|
our bylaws provide that our board of directors may fix the number of directors by
resolution; |
|
|
|
|
our amended and restated certificate of incorporation provides that all stockholder
actions must be effected at a duly called meeting of stockholders and not by written
consent; and |
|
|
|
|
our amended and restated certificate of incorporation does not provide for cumulative
voting for our directors. The absence of cumulative voting may make it more difficult for
stockholders owning less than a majority of our stock to elect any directors to our board. |
Transfer Agent and Registrar
Registrar and Transfer Company has been appointed as the transfer agent and registrar for our
common stock.
Lock-up Provisions
ImaRxs former directors are subject to lock-up provisions relating to a total of 1,816,566
shares of Common Stock that they own, from the date of the closing of the Transaction until six
months (6) after the date of the closing of the Transaction.
32
INDEMNIFICATION OF DIRECTORS AND OFFICERS
ImaRx is a Delaware corporation. Section 145 of the Delaware General Corporation Law, or the
DGCL, provides that a corporation may indemnify any person who is or was a director, officer,
employee or agent of a corporation of an enterprise, against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of being or having been in any such capacity,
if he acted in good faith in a manner reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, except that with respect to an action brought
by or in the right of the corporation, such indemnification is limited to expenses (including
attorneys fees). Under the DGCL, Section 145 is not exclusive of other rights to which those
seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
In addition, Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate
of incorporation that a director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for any breach of the directors duty of loyalty to the corporation or its
stockholders, for acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions, or for any transaction from which the director derived an
improper personal benefit.
ImaRxs amended and restated certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach of fiduciary duty as a
director to the fullest extent permitted by the DGCL. ImaRxs amended and restated certificate of
incorporation requires indemnification of its directors and officers to the fullest extent
permissible under the DGCL and the ImaRxs amended and restated bylaws provide for indemnification
of officers and directors to the fullest extent authorized by the DGCL.
ImaRx has entered into indemnification agreements with each of its pre-Transaction directors
and officers and intends to enter into indemnification agreements with any new directors and
officers in the future. The indemnification agreements set forth certain procedures that will apply
in the event of a claim for indemnification thereunder. At present, no litigation or proceeding is
pending that involves a director or officer of ImaRx regarding which indemnification is sought,
nor is ImaRx aware of any threatened litigation that may result in claims for indemnification.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The disclosures required by this section are hereby incorporated by reference to Item 4.01
contained in ImaRxs Current Report on Form 8-K filed with the SEC on December 23, 2008 and to Item
4.01 contained in ImaRxs Current Report on Form 8-K filed with the SEC on May 11, 2009.
FINANCIAL STATEMENTS AND EXHIBITS
Item 9.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 3.02 Unregistered Sales of Equity Securities
Items 1.01 and 2.01 of this Current Report on Form 8-K are incorporated herein by reference.
Item 5.01 Changes in Control of ImaRx
Items 1.01 and 2.01 of this Current Report on Form 8-K are incorporated herein by reference.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers
Item 1.01 and 2.01 of this Current Report on Form 8-K is incorporated herein by reference.
33
Item 5.06 Change in Shell Company Status
See Item 2.01 of this Current Report on Form 8-K, which is incorporated herein by reference.
As a result of the Transaction described under Item 2.01 of this Current Report on form 8-K, the
Company is no longer a shell company as the term is defined in Rule 12b-2 of the Exchange Act.
Section 9. Financial Statements and Exhibits
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
In
accordance with Item 9.01(a), Sweet Spot audited financial statements for the fiscal years
ended December 31, 2009 and 2008 are filed with this Current Report as Exhibit 99.1.
(b) Pro Forma Financial Information.
In accordance with Item 9.01(b), filed herewith as Exhibit 99.2 are the pro forma consolidated
financial statements of Sycamore Films, Sweet Spot and ImaRx for the requisite periods.
(d) Exhibits
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Incorporated by Reference |
Exhibit |
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Filed |
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Exhibit |
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No |
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Exhibit Title |
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Herewith |
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Form |
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No. |
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File No. |
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Filing Date |
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3.7
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Amended and Restated Bylaws of the
registrant
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S-1
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3.6 |
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333-142646
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5/4/2007 |
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4.1
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Specimen certificate evidencing shares
of common stock
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S-1
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4.1 |
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333-142646
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5/4/2007 |
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10.1*
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Form of Indemnification Agreement
entered into between the registrant
and each of its directors and officers
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S-1
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10.1 |
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333-142646
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5/4/2007 |
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10.2*
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2000 Stock Plan and related agreements
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S-1
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10.3 |
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333-142646
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5/4/2007 |
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10.3*
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2007 Performance Incentive Plan and
related agreements
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S-1
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10.4 |
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333-142646
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5/4/2007 |
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10.08
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Agreement for the Purchase and Sale of Stock dated
March 17, 2010.
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8-K
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10.1 |
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333-142646
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3/23/2010 |
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10.09
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Agreement and Plan of Merger dated March 17, 2010.
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8-K
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10.2 |
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333-142646
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3/23/2010 |
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10.10
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Form of $200,000.00 Promissory Note between registrant
and each of JRT Productions, Inc. and Red Cat
Productions, Inc.
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X |
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10.11
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Form of Pledge and Security Agreement between the
registrant and each of JRT Productions, Inc. and Red
Cat Productions, Inc.
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X |
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10.12*
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Employment Agreement between Registrant and Donald
Scotti
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X |
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10.13*
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Employment Agreement between Registrant and Joseph
Takats
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X |
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10.14
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Registration Rights Agreement between registrant and
each of JRT Productions, Inc. and Red Cat Productions,
Inc.
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X |
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34
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Incorporated by Reference |
Exhibit |
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Filed |
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Exhibit |
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No |
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Exhibit Title |
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Herewith |
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Form |
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No. |
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File No. |
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Filing Date |
10.15
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Shareholders Agreement between registrant and certain
stockholders of registrant
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X |
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10.16
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SubLease Agreement Dated January 1, 2010
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X |
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99.1
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Audited Financial Statements of Sweet Spot
Productions, Inc. and Reviewed Financials Statements
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X |
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99.2
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Proforma Financial Statements for ImaRx Therapeutics,
Inc., Sycamore Films, Inc., and Sweet Spot Productions
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X |
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* |
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Denotes a management contract or compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the ImaRx has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
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IMARX THERAPEUTICS, INC.
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Dated: May 20, 2010 |
By: |
/s/ Edward Sylvan
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Edward Sylvan |
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Chief Executive Officer |
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35
IMARX THERAPEUTICS, INC. EXHIBIT INDEX
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Incorporated by Reference |
Exhibit |
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Filed |
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Exhibit |
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No |
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Exhibit Title |
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Herewith |
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Form |
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No. |
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File No. |
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Filing Date |
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3.7
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Amended and Restated Bylaws of the
registrant
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S-1
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3.6 |
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333-142646
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5/4/2007 |
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4.1
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Specimen certificate evidencing shares
of common stock
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S-1
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4.1 |
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333-142646
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5/4/2007 |
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10.1*
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Form of Indemnification Agreement
entered into between the registrant
and each of its directors and officers
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S-1
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10.1 |
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333-142646
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5/4/2007 |
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10.2*
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2000 Stock Plan and related agreements
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S-1
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10.3 |
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333-142646
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5/4/2007 |
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10.3*
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2007 Performance Incentive Plan and
related agreements
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S-1
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10.4 |
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333-142646
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5/4/2007 |
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10.08
|
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Agreement for the Purchase and Sale of Stock dated
March 17, 2010.
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8-K
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10.1 |
|
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333-142646
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3/23/2010 |
|
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10.09
|
|
Agreement and Plan of Merger dated March 17, 2010.
|
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8-K
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|
10.2 |
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333-142646
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3/23/2010 |
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10.10
|
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Form of $200,000.00 Promissory Note between registrant
and each of JRT Productions, Inc. and Red Cat
Productions, Inc.
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X |
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10.11
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Form of Pledge and Security Agreement between the
registrant and each of JRT Productions, Inc. and Red
Cat Productions, Inc.
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X |
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10.12*
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Employment Agreement between Registrant and Donald
Scotti
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X |
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10.13*
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Employment Agreement between Registrant and Joseph
Takats
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X |
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10.14
|
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Registration Rights Agreement between registrant and
each of JRT Productions, Inc. and Red Cat Productions,
Inc.
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X |
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10.15
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Shareholders Agreement between registrant and certain
stockholders of registrant
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X |
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10.16
|
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Lease Agreement
|
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X |
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99.1
|
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Audited Financial Statements of Sweet Spot
Productions, Inc. and Reviewed Financial Statements
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X |
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99.2
|
|
Proforma Financial Statements for ImaRx Therapeutics,
Inc., Sycamore Films, Inc., and Sweet Spot Productions
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
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|
* |
|
Denotes a management contract or compensatory plan or arrangement. |
36