Imagis $1.75-million (U.S.) financing in limbo
2002-10-09 12:50 PT - Street Wire
THE PAPER CHASE
by Lee M. Webb
Imagis Technologies Inc., a Vancouver-based biometric player, has not yet received final TSX Venture Exchange (TSX) approval of a $1.75-million (U.S.) brokered private placement announced three months ago. While some regulatory filings and other public disclosures treat the $1.75-million (U.S.) financing as a done deal, with the cheque cut and the shares issued, the TSX is still awaiting further documentation from Imagis before applying the rubber stamp to the private placement.
On July 9, Imagis announced that it had entered into the brokered private placement comprising 1,166,667 shares priced at $1.50 (U.S.) per share and 291,667 warrants exercisable at $1.50 (U.S.) per share for two years with OSI Systems Inc. On the same day, Imagis reported that OSI's chairman and chief executive officer, Deepak Chopra, had joined the company's board of directors.
"Imagis has received preliminary acceptance to the private placement from the TSX Venture Exchange," the company reported in its July 9 news release. Three months later, there has been no official acknowledgement from the TSX that Imagis has obtained anything other than preliminary acceptance for the private placement.
"The preliminary acceptance would sort of be the first stage of acceptance," TSX spokesman Steve Kee explained when asked what "preliminary acceptance" entailed. "They may have some things that they need to complete. Just what they are I guess would depend on the company."
Asked whether there might be any exception to obtaining TSX acceptance of a private placement for a company that was a reporting issuer in the U.S. and had entered into a private placement with a U.S. entity, Mr. Kee said he would have to check.
"No, there wouldn't be any exceptions on this," Mr. Kee informed Stockwatch in a subsequent telephone call. "They would file it and it may be going through the process as we speak. You know, we've given them the preliminary acceptance and they're getting additional material to us; and usually we get this final material within 15 to 20 days from closing. So, they may very well be in the process as we speak."
When it was pointed out that other regulatory filings indicated that the shares from the July private placement had been paid for and issued three months ago, Mr. Kee first checked to see whether the TSX had issued a bulletin with respect to the financing. After discovering that no bulletin had been issued, the TSX spokesman said he would check further with the analyst responsible for the file and call Stockwatch back.
The first indication that Imagis had already issued the shares in the private placement came in the form of a statement of beneficial ownership that OSI filed with the U.S. Securities and Exchange Commission (SEC) on July 18. OSI reported that it had acquired the more than 1.16 million Imagis shares, representing 6.45 per cent of the company's common stock, on July 8.
On July 25, Mr. Chopra filed an insider report with the BCSC disclosing his indirect ownership of the 1.16 million shares and 291,667 warrants. The BCSC filing, which drew a letter from the regulator pointing out that the insider report was late, also disclosed that the shares and warrants were acquired on July 8.
On Aug. 13, Imagis filed its financial results for the quarter ending June 30, 2002, and also provided a disclosure regarding the July private placement. Reporting on events subsequent to the end of the quarter, Imagis disclosed that it had received $1.75-million (U.S.) from OSI and had issued 1.16 million shares and 291,667 warrants in return. The date of the transaction was given as July 8.
Considerably more detail regarding the $1.75-million (U.S.) financing came to light in September. While Imagis's July 9 news release disclosing the financing reported that the securities offered in the private placement would not be registered under the U.S. Securities Act, the company filed a 74-page registration statement with the SEC on Sept. 23. That SEC filing also disclosed that the shares and warrants were issued on July 8.
In addition to providing another confirmation that the shares and warrants had been issued on July 8, the SEC registration statement, covering the sale of the Imagis shares owned by OSI, fleshed out the details of the financing. Among other things, the subscription agreement provides OSI with some protection against a possibly dilutive financing by Imagis prior to July 9, 2003.
In the event Imagis has to go back to the well to raise more money before next July at a price less that $1.50 (U.S.) per share, an adjustment to the purchase price paid by OSI for its 1.16 million shares would be made by the issuance of more shares. The 291,667 warrants issued to OSI provide for a similar adjustment.
The Sept. 23 SEC filing also discloses that Imagis entered into a number of other agreements with OSI in connection with the July 8 private placement. Three of those agreements call for an aggregate minimum of $750,000 (U.S.) to make its way back to OSI. A fourth agreement setting out Imagis and OSI's rights with respect to each other relating to unspecified investment rights in Zixsys Inc., a Japanese venture, does not carry a price tag.
The SEC registration statement reveals that the July 8 financing, still awaiting final acceptance from the TSX, was considerably more complex than could be gleaned from Imagis's July 9 news release. That complexity might explain the apparent delay in receiving final TSX acceptance of the private placement.
"I checked with our people in Vancouver and in Calgary," Mr. Kee informed Stockwatch in a subsequent telephone call on Oct. 8. "They said there was no problem, but there was a delay in the paperwork and they've been in contact with the lawyers--and there are lawyers on both sides of the border--so that's apparently coming to us. And then once we get that paperwork we will be putting out another bulletin."
Notwithstanding the fact that the exchange usually receives any outstanding documentation within 15 to 20 days of the closing of a private placement, the TSX is evidently not very concerned that Imagis has not yet provided certain paperwork relating to the private placement that reportedly closed three months ago. "We've been in contact with them and it is coming, so we've accepted that," Mr. Kee told Stockwatch.
It is not clear exactly what paperwork has yet to be provided to the TSX or even why that paperwork requires the attention of lawyers on both sides of the border, but it seems unlikely that the well-lawyered documents will not meet with TSX acceptance. At this late date, withholding acceptance of the financing might entail even more complexity than the July private placement subscription and related agreements between Imagis and OSI.
While none of the shares reportedly issued to OSI on July 8 have yet been sold, there is no way of telling whether Imagis has yet dipped into the gross proceeds of $1.75-million (U.S.) it received in the private placement. Through the first six months of the year, Imagis reported revenue of $2.05-million and expenses of more than $4.8-million. As of June 30, Imagis reported cash and short-term investments of approximately $1.2-million. The company's third-quarter results will not be reported until the middle of November, but it is quite possible that those results will reveal that Imagis is in dire need of the cash provided by OSI, if it has not already been drawing on it.
Meanwhile, the value of the shares for which OSI paid $1.50 (U.S.) apiece on July 8 has dwindled substantially. Late in the afternoon, Imagis was changing hands in OTC Bulletin Board trading for 61 U.S. cents on Oct. 9. With a few minutes left in the session and the bid standing at $1.01 and the ask at $1.06, no Imagis transactions at all were reported on the TSX.
Comments regarding this article may be sent to lwebb@stockwatch.com.
(More information regarding Imagis Technologies is available in Canada Stockwatch articles published on March 7, 11, 15, 25, 27 and 28; April 2, 9 and 16; May 17, 23 and 30; June 4, 11, 18, 26 and 28; July 3, 12 and 18; Sept. 12, 13, 16, 20, 23, 24 and 27; and Oct. 2, 2002.) |
