As Filed with the Securities and Exchange Commission on April 25, 2001
Registration No. 333-51056
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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ADVANCED OPTICS ELECTRONICS INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 3827 88-0365136
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
8301 Washington NE, Suite 5
Albuquerque, NM 87113
(505) 797-7878
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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John J. Cousins
Vice President, Finance
Leslie S. Robins
Executive Vice President
Advanced Optics Electronics Inc.
8301 Washington NE, Suite 5
Albuquerque, NM 87113
(505) 797-7878
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to
-------------------------------------
Leib Orlanski, Esq.
Ted Weitzman, Esq.
Kirkpatrick & Lockhart LLP
10100 Santa Monica Blvd., 7th Floor
Los Angeles, California 90067
Telephone (310) 552-5000
Facsimile (310) 552-5001
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
======================================================================================================================
Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Price per Share Aggregate Offering Registration
(1) Price (1) Fee
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 8,688,818 (2) $0.12 $1,042,658 $ 275
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 5,681,818 (3) $0.12 $ 681,818 $3,667
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 571,000 (4) $0.12 $ 68,520 $ 392
- ----------------------------------------------------------------------------------------------------------------------
Total Registration Fee $1,757,728 $4,334*
======================================================================================================================
* $4,424 previously paid.
(1) Estimated pursuant to Rule 457(o) of the Securities Act of 1933 solely for
the purpose of computing the amount of the registration fee.
(2) Represents shares that have been or may be acquired by the selling
stockholders upon conversion of convertible notes that have been issued,
assuming a conversion price equal to the lesser of 77.5% of the average of
the five lowest closing bid prices of the common stock for the twenty days
immediately preceding the conversion date, as reported on the OTC Bulletin
Board, or $1.47.
(3) Represents shares that have been or may be acquired by the selling
stockholders upon conversion of convertible notes that have been issued,
assuming a conversion price equal to the lesser of 75% of the average of
the three lowest closing bid prices of the common stock for the thirty
trading days immediately preceding the issue date of the notes, as reported
on the OTC Bulletin Board, or 80% of the average of the three lowest
closing bid prices of the common stock for the ninety days immediately
preceding the conversion date, as reported on the OTC Bulletin Board.
(4) Represents shares which may be issued upon exercise of warrants issued to
the selling stockholders.
-------------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall hereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Exchange Commission is effective. This prospectus is not an offer to sell these
securities and we are not soliciting offers to buy these securities in any state
where the offer or sale is not permitted.
PROSPECTUS
Subject to Completion Dated April 25, 2001
14,941,636 Shares
Advanced Optics Electronics, Inc.
COMMON STOCK
This prospectus relates to 14,941,636 shares of common stock of
Advanced Optics Electronics, Inc. that may be sold from time to time by the
selling stockholders named in this prospectus. We will not receive any proceeds
from the sales by the selling stockholders.
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Our common stock is traded on the Over-The-Counter Bulletin Board
maintained by the National Association of Securities Dealers, Inc. under the
symbol "ADOT."
-------------------
Investing in our common stock involves risks. See "Risk Factors"
beginning on page 4.
--------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------
The date of this prospectus is ______________, 2001
INSIDE FRONT COVER
Table of Contents
Prospectus Summary................................................................................................2
Risk Factors......................................................................................................4
Forward Looking Statements.......................................................................................10
Use of Proceeds..................................................................................................10
Dividend Policy..................................................................................................11
Capitalization...................................................................................................11
Selected Financial Data..........................................................................................12
Management's Discussion and Analysis of Financial Condition and Results of Operations............................13
Business.........................................................................................................17
Management.......................................................................................................23
Section 16(a) Beneficial Ownership Reporting Compliance..........................................................28
Certain Transactions.............................................................................................28
Principal Stockholders...........................................................................................29
Description of Capital Stock.....................................................................................30
Shares Eligible for Future Sale..................................................................................32
The Selling Stockholders.........................................................................................33
Plan of Distribution.............................................................................................34
Legal Matters....................................................................................................36
Experts..........................................................................................................36
Change in Independent Accountants................................................................................36
Additional Information...........................................................................................36
Index to Financial Statements...................................................................................F-1
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Please read this prospectus carefully. It describes our business, our
products and services and our financial condition and results of operations. We
have prepared this prospectus so that you will have the information necessary to
make an informed investment decision.
You should rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell
shares of our common stock and seeking offers to buy shares of our common stock
only in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of the prospectus,
regardless of the time the prospectus is delivered or the common stock is sold.
Until _________, 2001 (40 days after the date of this prospectus), all
dealers effecting transactions in these securities may be required to deliver a
prospectus, even if they do not participate in this offering. This is in
addition to the obligations of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
1
PROSPECTUS SUMMARY
This summary highlights selected information in this prospectus, but it may
not contain all of the information that is important to you. To better
understand this offering, and for a more complete description of the offering,
you should read this entire prospectus carefully including the "Risk Factors"
section and the financial statements and notes thereto appearing elsewhere in
this prospectus.
Advanced Optics Electronics, Inc.
We are a developmental stage technology company focused on the development,
production and sales of large-scale flat panel displays. We maintain a research
and development facility and manufacturing plant, and we are engaged in building
large-scale flat panel displays utilizing our proprietary technology. Our flat
panel displays produce an image measuring approximately three meters by eight
meters, which is similar in size to traditional printed billboards, and have the
comparative advantages of providing dynamic, eye-catching advertisements and
rapid change of display images from a remote site. The primary initial product
will be marketed to users of outdoor advertising billboards. The development of
our electronic flat panel displays represents the first time that our
proprietary electro-optic array technology is available for outdoor advertising
billboards.
The Offering
Common stock offered by selling stockholders
(including shares underlying convertible notes and warrants).............. 14,941,636 shares
Common stock to be outstanding after the offering 76,869,811 shares
Use of proceeds........................................................... We will not receive any proceeds from the
sale of the common stock.
OTC Bulletin Board........................................................ ADOT
The above information is based on the number of shares of common stock
outstanding as of April 20, 2001 and assumes the subsequent conversion of all of
our issued convertible notes and warrants outstanding as of April 20, 2001 into
an aggregate of 14,941,636 shares of common stock upon the completion of this
offering, and excludes:
o 3,825,000 shares of common stock issuable upon exercise of outstanding
employee stock options with a weighted-average exercise price of $.29 per
share;
o 7,275,000 shares of common stock issuable upon exercise of outstanding
warrants granted to our directors and officers with a weighted-average
exercise price of $.25 per share; and
o 4,175,000 shares of common stock reserved for future awards under our stock
option plan.
Additional Information
Unless otherwise indicated, this prospectus assumes that all convertible
notes have been automatically converted into shares of common stock.
In this prospectus, the terms "Advanced Optics," "we," "us," and "our"
refer to Advanced Optics Electronics Inc., a Nevada corporation, and, unless the
context otherwise requires, "common stock" refers to the common stock, par value
$0.001 per share, of Advanced Optics Electronics Inc.
--------------------
We were incorporated in Nevada as Advanced Optics Electronics Inc. in May
1996. Our executive offices are located at 8301 Washington NE, Suite 5,
Albuquerque, New Mexico 87113. Our website address is www.adotsite.com and our
telephone number is (505) 797-7878. The information on our website is not
incorporated by reference into this prospectus.
2
Summary Financial Data
(in thousands, except per share data)
The following table sets forth summary financial data for Advanced Optics.
The information should be read in conjunction with the financial statements and
the notes to those financial statements appearing elsewhere in this prospectus.
The pro forma balance sheet data reflects the conversion of all outstanding
convertible notes into an aggregate of 14,370,636 shares of common stock being
registered in this offering, the exercise of the warrants for 571,000 shares of
common stock being registered in this offering, and the estimated offering
expenses of $165,000.
Year Ended December 31,
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1999 2000
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(in thousands, except share
and per share data)
Statement of Operations Data:
Revenues..................................................................... $ 310 $ 202
Operating expenses........................................................... 2,660 3,658
Loss from operations......................................................... (2,350) (3,456)
Other income (expenses), net................................................. (313) (387)
Net loss before cumulative effect of change in accounting principle.......... (2,663) (3,843)
Cumulative effect of change in accounting principle.......................... (63) --
Provision for income tax benefit............................................. -- 643
Net loss..................................................................... (2,726) (3,200)
Basis net loss per share (1)................................................. $ (.072) $ (.055)
Weighted average common shares outstanding (1)............................... 37,809,084 58,029,724
- --------------
(1) See note 1 of the notes to financial statements for a description of the
computation of net income (loss) per share and the number of shares used in
the per share calculation.
As of December 31, 2000
--------------------------
Actual Pro Forma
Balance Sheet Date ------- ---------
Cash and cash equivalents..................................................... $ 409 $ 695
Working capital............................................................... 831 952
Total current assets.......................................................... 1,189 1,475
Total assets.................................................................. 2,737 3,023
Total current liabilities..................................................... 358 523
Convertible debentures........................................................ 1,216 ----
Long-term obligations, excluding current portion.............................. 48 48
Total stockholders' equity.................................................... 1,114 2,616
3
Risk Factors
This offering and any investment in our common stock involve a high degree
of risk. You should carefully consider the risks described below and all of the
information contained in this prospectus before deciding whether to purchase our
common stock. If any of the following risks actually occur, our business,
financial condition and results of operations could be harmed. The trading price
of our common stock could decline, and you may lose all or part of your
investment in our common stock.
RISKS RELATED TO OUR FINANCIAL RESULTS
Because we have a limited operating history, it is difficult to evaluate an
investment in our common stock.
We were organized in May 1996 and we entered into our first agreement in
October 1998 to produce and install two of our flat panel displays. It is
difficult to evaluate our future prospects and an investment in our common stock
because we have a limited operating history and the market for our products is
rapidly evolving. Our prospects are uncertain and must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in the
early stage of development.
Our future performance will depend upon a number of factors, including our
ability to expand our customer base, develop and enhance products in response to
customer demand and competitive market conditions, expand our manufacturing,
research and development and sales and marketing capabilities, maintain adequate
control of our expenses, and attract, retain and motivate qualified personnel.
We expect our losses and negative cash flow to continue.
We have incurred losses and experienced negative operating cash flow since
our formation. For the year ended December 31, 2000, we had operating losses of
approximately $3,456,000, net losses of approximately $3,200,000 and negative
cash flow from operating activities of approximately $1,265,000. We expect to
incur substantial operating and net losses and negative operating cash flow for
the foreseeable future, and we cannot assure you that we will ever achieve
profitability or generate positive cash flow.
We expect our operating expenses will increase, particularly in areas of
operations, sales and marketing, as we develop and expand our business. As a
result, we will need to increase our revenue to become profitable, and if our
revenues do not grow as expected, or increases in our expenses appreciably
exceed our expectations, we may never achieve profitability or positive cash
flow. If we do achieve profitability and/or positive cash flow, we cannot assure
you that we will be able to sustain it or improve upon it on a quarterly or
annual basis for future periods.
RISKS RELATED TO OUR INVESTMENT IN BIO MODA
We have made a significant investment in another development stage company and
any harm to this company's business, financial condition or results of
operations may impair the success of our business.
We have an ownership interest of approximately 16% in Bio Moda, Inc., a
development stage company specializing in cancer diagnostic imaging and therapy
for different types of cancer including a diagnostic process for detecting the
onset of lung cancer several years prior to the actual appearance of the
invasive carcinoma. However, Bio Moda is subject to risks similar to us as a
development stage company, including risks associated with an accumulated
deficit, limited capital and significant capital requirements, dependence on
limited potential products, government regulation, competition, obtaining
patents and licenses, intellectual property and product liability claims, and
dependence on certain key personnel. If any of these risks occur, Bio Moda's
business, financial condition or results of operations may be harmed, which
could impair the future success of our business. See note 3 of the notes to the
financial statements for a more detailed description of our investment in Bio
Moda.
4
RISKS RELATED TO OUR BUSINESS
Our technology and product development is in its early stages and the outcome of
our development efforts is uncertain.
Our electro-optic array technology is an emerging technology that will
require significant additional development, engineering, testing and investment
prior to commercialization, which will require us to spend capital in excess of
our current capital. Our leading potential product that utilizes this technology
is the flat panel display intended for use as an outdoor electronic billboard.
If our flat panel display is successful, other similar products using our
technology are also a possibility. However, if we do not receive additional
financing in the future, and even if we do receive such financing, our flat
panel display and other outdoor electronic billboards may not be successfully
developed, which would impair our ability to successfully implement our business
model.
Our technology and product revenues have been limited and future revenue is
uncertain.
We currently have recognized revenue for partial completion of a contract
entered into to produce two flat panel displays utilizing our electro-optic
array technology. This is the first commercial contract application of this
technology. Our success will depend on our ability to complete this contract and
commercialize our technology on a larger scale. We may not be able to product
our products in significant quantities at prices that are competitive with other
similar products, and we may not be able to obtain additional commercial
contracts applying our technology to outdoor electronic billboards or receive
additional product revenues from our technology.
Our success is dependent on market acceptance of our principal products.
Since our inception, we have focused research and development efforts and
product development on technologies that we believe will be a significant
advancement over currently available technologies. Our electro-optic array
technology is an emerging technology. With any new technology, there is a risk
that the market may not appreciate the benefits or recognize the potential
application of the technology even if it is technically feasible. Our financial
condition and prospects are dependent upon market acceptance and sales of our
flat panel displays and other outdoor electronic billboards using our
technology. Additional research and development needs to be conducted on these
products before marketing and sales efforts can be fully commenced. Market
acceptance of our products will be dependent upon the perception within the
outdoor advertising, electronics and instrumentation industries of the quality,
reliability, performance, efficiency, breadth of application and
cost-effectiveness of our products as compared to competitive products. We may
not be able to gain commercial market acceptance for our products or develop
other products for commercial use.
We may not be able to manufacture, market and sell our products.
We have limited established commercial manufacturing facilities in the
areas in which we are conducting our principal research. We intend to establish
a larger manufacturing facility for assembly services related to our flat panel
displays, and we intend to establish and develop a sales organization to
promote, market, and sell our products. This may require significant additional
expenditures, management resources, and training time. However, we may not be
able to establish a successful manufacturing facility or sales organization.
We are dependent on the availability of materials and suppliers.
The materials used in producing our current and future products are
purchased from outside vendors. During volatile market conditions, we may be
required to bear the risk of material price fluctuations. We anticipate that the
majority of raw materials used in products to be developed by us will be readily
available. However, the current availability of these materials may not continue
in the future, or if available, be procurable at favorable prices.
5
If we cannot retain our key employees or hire other talented personnel as we
expand, our business might not succeed.
We believe our success depends on the continued services of our senior
management team, especially Leslie Robins, John Cousins and Michael Pete as well
as our senior engineering team: Dr. Garth Gobeli, Stephen Mills, Gary Fuehrer
and Michael Harmon. We do not carry life insurance on the lives of any of our
key personnel. We face intense competition for qualified personnel, particularly
in software development, network engineering and product management. Our plans
to expand our operations and achieve successful commercialization of our
products also depends on our continuing ability to identify, hire, train and
retain highly qualified technical, sales, marketing and customer service
personnel. If we cannot attract and retain the necessary personnel as we expand,
our business might not succeed.
Our success depends on our ability to effectively manage our growth.
We plan to significantly expand our operations during the current fiscal
year. The transition from a technology development stage company to a company in
the initial stages of market development and product commercialization will
continue to place a significant strain on our limited personnel, financial and
other resources. Although we have begun to prepare for larger scale operations,
we may not be able to successfully complete these efforts and operate on a
substantially larger scale. An inability to manage our growth and meet these
additional standards will impair the success of our business.
We are required to pay certain of our investors a monetary penalty correlated to
delays in the effective registration of the shares of our common stock being
offered by selling stockholders in this offering.
We have been advised by Triton Private Equities Fund, L.P. and by RFL Asset
Management, LLC that because we have not been able to procure an effective
registration with the Securities and Exchange Commission of the shares of our
common stock into which $740,667 of 7 1/2% convertible notes are convertible,
pursuant to securities purchase agreements dated as of November 7, 2000 that are
included as exhibits to the registration statement of which this prospectus
forms a part, we are required to pay to Triton Private Equities Fund, L.P. and
by RFL Asset Management, LLC a monetary penalty in the aggregate amount of
$14,813 for each thirty day period beyond March 7, 2001 that we fail to procure
such registration of the shares of our common stock with the Securities and
Exchange Commission.
We will need additional funds to operate our business that we may not be able to
obtain.
Our efforts to achieve commercialization of our flat panel displays and
other proposed products will require us to spend capital in excess of our
current capital for research and development, product testing, product sales and
marketing, and administrative overhead in the expansion and development of our
business and operations. Until we are able to generate positive cash flow and
become profitable, we plan to maintain operations primarily by raising funds
through revenues generated from the limited installation of our flat panel
displays and through additional debt and equity offerings.
We have the existing resources, including commitments from third parties,
to allow us to survive only for a period of approximately two years from the
date of this registration statement at our current spending levels. Our flat
panel displays are expected to be available September 2001. Some of our other
proposed products may not be available for commercial sale or routine use for a
period of up to two years. However, our goal of achieving profitable
commercialization of our products is based on current development plans, current
operating plans, the current regulatory environment, historical experience in
the development of electronic products and general economic conditions. If
unforeseen developments occur with regard to our plans, sales and leasing of our
products could be unexpectedly delayed, which would adversely affect the timing
and receipt of revenues from sales and leasing of our products. If our revenues
do not increase as rapidly as anticipated, or if product development, testing
and marketing require more capital than anticipated, we may be required to
eliminate, or reduce substantially, related expenditures and/or seek additional
funds through debt and equity offerings.
6
Either because of a downturn in general economic conditions and financial
markets or specifically with respect to our business, prospects, financial
condition and results of operations, our ability to secure additional debt or
equity financing in the future could be adversely affected. We may be unable to
obtain any future equity or debt financing on acceptable terms or at all to
allow us to continue with our plans. In the alternative, we may have to obtain
funds in the future through arrangements with other entities that could require
us to relinquish rights to our flat panel display products or related
technologies, or we may have to take other actions that could adversely affect
our ability to achieve profitable commercialization of our products.
RISKS RELATED TO OUR INDUSTRY
Many of our competitors have better name recognition and greater capabilities
than us. Rapid technological change could render our products obsolete, and we
may never be able to compete successfully in the electronic billboard industry.
The electronic billboard industry is highly competitive and is
characterized by rapid technological change. We compete with numerous companies
that have better name recognition and greater financial, technical, marketing
and research capabilities than us, such as Toshiba, Sharp, Hitachi and
Mitsubishi. These companies are making substantial investments in and are
conducting research to improve characteristics of liquid crystal displays, or
LCD technology. In addition, many companies, including Daktronics, Inc., SI
Diamond Technology, Inc. and Universal Display Corporation have, or are
developing, other technologies utilizing carbon field emissions, incandescent
lamps, inorganic electroluminescence, organic light emitting diodes, polymeric
light emitting diodes, gas plasma and vacuum fluorescent lamps. Our existing and
proposed products will compete with other existing products and may compete
against other developing technologies. If we cannot successfully differentiate
our products from our competitors' products, adapt to evolving markets and
technologies and develop new products, our competitors' products, processes or
technologies may render our products obsolete or less competitive.
Our competitors may succeed in developing technologies and products that
are more cost effective or have fewer display limitations than our display
technology. As a result, we will be required to devote substantial financial
resources to further research and development efforts to improve our
technologies and products. In order to effectively compete, we could be required
to increase the performance of our products or reduce our prices. In the event
of price reductions, we will not be able to maintain gross margins unless we
reduce our cost of sales, which could have a material adverse effect on our
ability to become profitable, and we may never be able to compete successfully
in the electronic billboard industry.
Our operations are impacted by the regulation of the outdoor billboard industry.
Our operations are significantly impacted by federal, state and local
government regulation of the outdoor billboard industry. The federal government
conditions federal highway assistance on states imposing location restrictions
on the placement of billboards on primary and interstate highways. Federal laws
also impose size, spacing and other limitations on billboards. Some states have
adopted standards more restrictive than the federal requirements. Local
governments generally control billboards as part of their zoning regulations.
Some local governments have enacted ordinances which require removal of
billboards by a future date. Others prohibit the construction of new billboards
and the reconstruction of significantly damaged billboards, or allow new
construction only to replace existing structures. The adoption of additional
federal or state laws or regulations applicable to the outdoor electronic
billboard industry, similar to the Highway Beautification Act, could decrease
the demand for our products, increase our costs of doing business or otherwise
have a material adverse effect on our ability to generate revenue and achieve
profitability.
7
RISKS RELATED TO THIS OFFERING
The market for shares of our common stock is volatile, which could result in
substantial losses to investments in our common stock.
The market price of the shares of our common stock, like that of many
emerging technology companies, has fluctuated significantly in recent years and
will likely continue to fluctuate due to many factors, some of which are:
o actual or anticipated fluctuations in our results of operations;
o changes in securities analysts' expectations or our failure to meet
those expectations;
o announcements of technological innovations by us or our competitors;
o introduction of new products by us or our competitors;
o additions or departures of key personnel;
o commencement of litigation;
o developments with respect to intellectual property rights;
o conditions and trends in technology industries;
o changes in the estimation of the future size and growth rate of our
markets; and
o general market conditions.
In addition, the stock market has experienced and continues to experience
extreme price and volume fluctuations that have affected the market price of the
equity securities of many technology companies and that have often been
unrelated to the operating performance of those companies. Such broad market and
industry fluctuations, as well as general economic and political conditions, may
adversely affect the market price of our common stock, regardless of our
financial condition and operating results.
We cannot assure you of an established public trading market.
Although our common stock trades on the OTC Bulletin Board maintained by
the National Association of Securities Dealers, a regular trading market for the
securities may not be sustained in the future. The National Association of
Securities Dealers has enacted recent changes that limit quotations on the OTC
Bulletin Board to securities of issuers that are current in their reports filed
with the Securities and Exchange Commission. The effect on the OTC Bulletin
Board of these rule changes and other proposed changes cannot be determined at
this time. The OTC Bulletin Board is an inter-dealer, over-the-counter market
which provides significantly less liquidity than the NASDAQ Stock Market. Quotes
for stocks included on the OTC Bulletin Board are not listed in the financial
sections of newspapers as are those for the NASDAQ Stock Market. Therefore,
prices for securities traded solely on the OTC Bulletin Board may be difficult
to obtain and holders of common stock may be unable to resell their securities
at or near their original offering price or at any price.
In the event that our common stock is not included on the OTC Bulletin
Board and does not qualify for the NASDAQ Stock Market, quotes for the
securities may be included in the "pink sheets" for the over-the-counter market,
which provides even less liquidity than the OTC Bulletin Board.
Securities and Exchange Commission "penny stock" regulations impose certain
restrictions on marketability of securities.
The Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that is not traded on a
national securities exchange or the NASDAQ Stock Market and that has a market
price of less than $5.00 per share or an exercise price of less than $5.00 per
share, although certain exceptions exist such as the ability of the issuer to
meet certain minimum financial requirements. As long as we do not meet these
financial requirements and our
8
common stock is trading at less than $5.00 per share on the OTC Bulletin Board,
our common stock is governed by rules that impose additional sales practice
requirements on broker-dealers who sell our securities to persons other than
established customers and accredited investors. For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase, resulting in restrictions on
the marketability of our common stock.
Additionally, the Securities and Exchange Commission's penny stock rules
include various disclosure requirements that may restrict the ability of
broker-dealers to sell our common stock and may affect the ability of our common
stockholders to sell their shares in the secondary market.
This offering, as well as the issuance of other publicly traded shares, could
drive our stock price down.
Following the effectiveness of this registration statement, the shares of
common stock offered by the selling stockholders will become freely salable in
the public market. Although the sale of these additional shares to the public
might increase the liquidity of our stockholders' investments, the increase in
the number of shares available for public sale could drive the price of our
common stock down, thus reducing the value of your investment and perhaps
hindering our ability to raise additional funds in the future. To the extent
other restricted shares become freely salable, whether through an effective
registration statement or under Rule 144 of the Securities Act of 1933, or we
issue additional shares that might be or become freely salable, our stock price
could decrease.
We have never paid dividends.
We have never paid cash dividends on our equity securities and do not
intend to pay cash dividends in the foreseeable future. To the extent we have
earnings in the future, we intend to reinvest such earnings in our business
operations.
9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling stockholders. If the 571,000 warrants are exercised, we
will receive estimated proceeds of $285,799 which will be used to offset the
approximately $165,000 of legal, accounting, printing and other expenses of this
offering.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock began trading on the OTC Bulletin Board under the symbol
"ADOT" during the first quarter of 1997. The following table sets forth the
range of reported high and low bid per share prices for the common stock since
it began trading for the periods indicated. The quotations reflect inter-dealer
prices, with retail mark-ups, mark-downs or commissions, and may not represent
actual transactions.
Fiscal 1997: High Low
------------ ---- ---
1st Quarter $2.50 $0.25
2nd Quarter 0.81 0.19
3rd Quarter 1.63 0.29
4th Quarter 0.88 0.19
Fiscal 1998:
1st Quarter 0.57 0.15
2nd Quarter 0.30 0.18
3rd Quarter 0.23 0.11
4th Quarter 0.12 0.04
Fiscal 1999:
1st Quarter 0.16 0.05
2nd Quarter 0.12 0.06
3rd Quarter 0.49 0.08
4th Quarter 0.87 0.25
Fiscal 2000:
1st Quarter 1.53 0.69
2nd Quarter 1.09 0.61
3rd Quarter 0.57 0.29
4th Quarter 0.42 0.21
Fiscal 2001:
1st Quarter 0.26 0.11
As of the date of this prospectus, we have approximately 240 holders of
record and in excess of 13,100 beneficial owners of our common stock.
10
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business, and we do not expect to pay any cash dividends in the foreseeable
future. The decision whether to pay cash dividends on our common stock will be
made by our board of directors, in their discretion, and will depend on our
financial condition, operating results, capital requirements and other factors
that the board of directors considers significant.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2000:
o on an actual basis including (1) the sale and issuance of $500,000 of
convertible notes pursuant to a convertible note purchase agreement
dated September 15, 2000 and (2) the sale and issuance of $740,667 of
convertible notes pursuant to securities purchase agreements dated
November 7, 2000;
o on a pro forma basis to reflect the conversion of all outstanding
convertible notes into an aggregate of 14,370,636 shares of common
stock being registered in this offering, the exercise of the warrants
for 571,000 shares of common stock being registered in this offering,
and the estimated offering expenses of $165,000.
You should read this table with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
the related notes.
As of December 31, 2000
------------------------------------
Actual Pro Forma
------------ -------------------
(in thousands, except share data)
Short-term debt......................................................................... $ 50 $ 50
Long-term debt, less current portion.................................................... 48 48
Convertible debentures.................................................................. 1,216 --
Stockholders' equity (deficit):
Preferred Series A, 7.5% cumulative, convertible into common stock at a rate
determined by dividing the purchase price of the preferred shares by the
conversion price of the common stock; $.001 par value; authorized
10,000,000 shares; no shares issued our outstanding (actual and pro forma)...... -- --
Common Stock, $0.001 par value; 150,000,000 shares authorized;
61,928,175 shares issued and outstanding (actual); 76,869,811
shares issued and outstanding (pro forma) (1)................................... 62 77
Additional paid-in capital.............................................................. 8,322 9,809
Deficit accumulated during the development stage........................................ (7,022) (7,022)
Treasury stock.......................................................................... (55) (55)
Notes receivable from officer for exercise of stock options............................. (193) (193)
------- -------
Total stockholders' equity.......................................................... 1,114 2,616
------- -------
Total capitalization................................................................ $ 2,737 $ 3,023
======= =======
- ---------
(1) Excludes shares issuable pursuant to outstanding stock options and warrants
granted to employees including officers and non-employee directors to
purchase an aggregate of 11,100,000 shares of common stock at a weighted
average exercise price of $.26 per share.
11
SELECTED FINANCIAL DATA
You should read the selected financial data set forth below with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus. The statement of operations data set forth below
for the year ended December 31, 1999 and 2000 and the balance sheet data as of
December 31, 1999 and 2000 have been derived from our audited financial
statements included elsewhere in this prospectus. The historical results are not
necessarily indicative of results to be expected for any future period. See note
1 of the notes to financial statements for a description of the computation of
net income (loss) per share and the number of shares used in the per share
calculation.
Year Ended December 31,
---------------------------
1999 2000
---------------------------
(in thousands, except share
Statement of Operations Data: and per share data)
Revenues............................................................... $310 $202
Operating expenses:
General and administrative.......................................... 1,953 2,340
Contract Costs...................................................... 468 586
Research and development............................................ 239 732
---------- ----------
Total operating expenses......................................... 2,660 3,658
---------- ----------
Loss from operations................................................... (2,350) (3,456)
Other income (expenses), net........................................... (313) (387)
---------- ----------
Net loss before cumulative effect of change in accounting principle.... (2,663) (3,843)
Cumulative effect of change in accounting principle.................... (63) --
Provisions for income tax benefit...................................... -- 643
Net loss............................................................... $(2,726) $(3,200)
========== ==========
Basic net loss per share............................................... (.070) (.055)
Diluted net loss per share.............................................
Weighted average common shares outstanding............................. 37,809,084 58,029,724
---------- ----------
Balance Sheet Data: As of December 31, 2000
-----------------------
Cash and cash equivalents.................................................. $409
Working capital............................................................ 831
Total current assets....................................................... 1,189
Total assets............................................................... 2,737
Total current liabilities.................................................. 358
Long-term obligations, excluding current portion........................... 48
Total stockholders' equity (deficit)....................................... 1,114
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations together with "Selected Financial Data" and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. The actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including, but not limited to, those presented
under "Risk Factors" and elsewhere in this prospectus.
Overview
We develop, produce and sell large-scale flat panel displays utilizing our
patented technology. Since inception in May 1996, we have operated as a
developmental stage technology company, and we are currently making the
transition to producing and selling our product to the outdoor advertising
billboard industry. Our flat panel displays have the advantages, in comparison
to traditional printed billboards, of providing dynamic, eye-catching
advertisements and rapid change of display images from a remote site.
Results Of Operations
For ease of reference, we refer to the fiscal year ended December 31, 1999
as fiscal 1999 and to the fiscal year ended December 31, 2000 as fiscal 2000.
Years Ended December 31, 1999 and 2000
Revenues
Contract Revenue. Contract revenue is comprised of costs incurred and
estimated earnings in excess of billings. Contract revenue decreased 35% to
$202,000 in 2000 from $310,000 in 1999, which was primarily due to conservative
estimates used to account for completion of our contract to produce and install
two electronic outdoor advertising billboards, which were used in connection
with the percentage of completion method of accounting for revenue recognition.
Contract Costs. Contract costs are comprised of all direct material and
labor, indirect labor, supplies, overhead and equipment depreciation. Contract
costs increased 25% to $586,000 in 2000 from $468,000 in 1999, which was
primarily due to our engineering staff's compensation, scientific and technical
consulting fees, equipment and materials purchased for product development and
costs involved in making the transition from development to production. Although
contract costs have exceeded contract revenue to date, we entered into the
contract to produce and install two of our flat panel displays to take advantage
of research and development benefits and input received from the customer early
in the product development stage.
Gross Profits. We incurred a loss due to the fact that we are in the
development stage and will not have recognized revenue until we bill our
customers on the contracts in progress.
Expenses
Research and Development. Research and development expenses consist
primarily of personnel expenses, consulting fees and depreciation of the
equipment associated with the development and enhancement of our flat panel
displays. We expense research and development costs as they are incurred.
Research and development expenses increased 206% to $732,000 in 2000 from
$239,000 in 1999. The increase in these expenses was primarily due to increases
in research and development efforts, technical costs, our engineering staff and
equipment. We believe that continued investment in research and development is
critical to attaining our strategic objectives and, as a result, we expect these
expenses to increase significantly in future periods.
13
General and Administrative. General and administrative expenses consist of
expenses for executive and administrative personnel, facilities, professional
services, travel, general corporate activities, and the depreciation and
amortization of office furniture and leasehold improvements. General and
administrative costs increased 20% to $2,340,000 in 2000 from $1,953,000 in 1999
due to increases in salary expense related to increased personnel and increases
in professional fees. Due to the growth of our business and continuing expansion
of our staff, we expect general and administrative costs to increase in the
future. The costs associated with being a publicly traded company and future
strategic acquisitions will also be a contributing factor to increases in this
expense.
Other Income (Expense). Other income (expense) consists of interest and
other income and expense. Interest income increased to $19,000 in 2000 from
$11,000 in 1999. The increase in interest income was due to an increase in our
average net cash and cash equivalents balance. Interest expense increased to
$459,000 in 2000 from $189,000 in 1999. The increase in interest expense is due
primarily to non-cash charges to interest expense from the accounting
calculation of the intrinsic value of the conversion feature of the convertible
debenture financings that were undertaken in 2000.
Deferred Tax Benefit
During 2000, we recognized an income tax benefit of $643,000 as income
based on our estimates that a portion of our net operating losses since
inception may be realized as a deduction against future earnings for the purpose
of reducing our tax liability in the future. We have not recognized such income
until now because of the uncertainty whether we would recognize any net income
in future periods with which to offset our net operating losses since inception.
See note 1 of the notes to the financial statements for a description of the
accounting treatment of this deferred tax benefit and the related valuation
allowance provided due to the uncertainty regarding the realizability of the
deferred tax asset in the future.
Fluctuations in Quarterly Operating Results
We are unaware of any seasonal aspects that may have a material effect on
our quarterly results of operations and financial condition, although there may
be currently unanticipated seasonal fluctuations related to marketing and sales
that we have not yet encountered. However, our operating results have fluctuated
in the past, and are expected to continue to fluctuate in the future, due to a
number of factors, many of which are outside our control. These factors include:
o demand for our products;
o the rate at which we add new customers and the ability to retain
existing customers;
o the availability and pricing of materials from suppliers;
o the prices paid for our products;
o the amount and timing of costs relating to expansion of our
operations, including expanding our product development, manufacturing
and sales and marketing functions;
o the announcement or introduction of new types of products by us or our
competitors;
o delays in revenue recognition at the end of a fiscal period as a
result of shipping, logistical or other problems; and
o general economic conditions and economic conditions specific to the
outdoor electronic billboard industry.
As a strategic response to changes in the competitive environment, we may
from time to time make certain product, marketing or supply decisions or
acquisitions that could have a material adverse effect on our quarterly results
of operations and financial condition. Due to all of the foregoing factors, in
some future quarter our operating results may not meet or exceed the
expectations of securities
14
analysts and investors. In such event, the trading price of our common stock
would likely be adversely affected.
Liquidity And Capital Resources
Since our inception in May 1996, we have financed our operations primarily
through private offerings of equity and debt securities. Net cash used in
operating activities was $1,265,000 in 2000 and $1,020,000 in 1999. The increase
in net cash used in operating activities in 2000 was primarily attributable to
increases in losses.
Net cash used in investing activities was $74,000 in 2000 and $288,000 in
1999. Net cash used in investing activities in 1999 was comprised of purchases
of property and equipment and investments in certificates of deposit, Bio Moda,
Inc. and Wizard Technologies. The decrease in net cash used in investing
activities in 2000 was primarily attributable to the sale of marketable
securities and the redemption of our investment in Wizard Technologies.
Net cash provided by financing activities was $1,557,000 in 2000 and
$1,294,000 in 1999. Net cash used in financing activities in 1999 was primarily
comprised of additions to notes payable and the issuance of capital stock. The
increase in net cash provided by financing activities in 2000 was primarily
attributable to the issuance of additional capital stock and the proceeds from
the issuance of convertible securities.
Cash and cash equivalents increased 115% to $409,000 as of December 31,
2000 from $190,000 as of December 31, 1999. This increase was primarily due to
$500,000 that we received in connection with the issuance of convertible notes
on September 15, 2000 and $710,000 that we received in connection with the
issuance of other convertible notes on November 7, 2000. Of the proceeds from
the notes issued in September 2000, $50,000 was used to pay for related
commissions and legal fees. The remaining proceeds from these debt issuances are
being used for research and development, prototype construction and working
capital.
As of December 31, 2000, our principal commitments consisted of obligations
of approximately $154,000, which included the costs of bank notes, leased
equipment and the lease of our executive offices, research and development
facilities and manufacturing plant. We expect to experience quarterly net losses
and negative cash flow through at least the second quarter of 2001, which is
when we plan to complete the manufacturing prototype and demonstration unit for
our first flat panel display. At that time, we anticipate that our sales revenue
will offset our operating expenses, although there are uncertainties as to how
our products will be accepted in the marketplace, which could delay or have a
material adverse effect on our net sales and cash flow from operations. However,
leading up to the second quarter of 2001, we plan to continue to increase our
operating expenses significantly in order to increase our research and
development efforts, expand our manufacturing, sales and marketing efforts,
increase the size of our staff including the hiring of a marketing director and
a production manager and support our growing infrastructure.
As of December 31, 2000, we had approximately $517,000 of cash, cash
equivalents and certificates of deposit. We believe that our current cash and
cash equivalents, with cash flows from operations, if any, will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least the next two years. However, we will need to raise at least $3 million
in order to pay for the costs of producing a minimum volume of our products for
sale. We have not yet secured a source for this funding requirement. We may seek
to sell additional equity or convertible debt securities. However, our ability
to raise capital by selling securities, and hence our liquidity, could be
materially adversely affected by the recent decline in the equities market and
the limited availability of venture capital financing sources. We cannot assure
you that financing will be available to us in amounts or on terms acceptable to
us in the future.
15
Recently Issued Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities." This statement of position requires that all start-up costs related
to new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when this statement of
position is adopted. Effective January 1, 1999, we adopted this statement of
position, and the impact of this change in accounting principle was to reduce
assets and increase the deficit accumulated during the development stage by
$63,000 as of December 31, 1999.
16
BUSINESS
Company Overview
We are a developmental stage technology company with our primary focus on
the development, production and sales of our large-scale flat panel displays,
which utilize our patented technology. We are currently continuing our research
and development of our product and the underlying technology, although we are in
the process of making the transition from a developmental stage company to
producing and selling our product. We plan to focus on producing and selling our
large-scale flat panel displays for the outdoor advertising billboard industry,
which represents the first time that our technology is available to this
industry.
Company Background
We were incorporated as a Nevada corporation on May 22, 1996. In November
1996, we acquired all the assets of PLZTech, Inc., including all of its patents
and research and development activities. The transaction was accounted for as a
purchase, and all assets acquired and liabilities assumed were recorded at their
book values, as determined in accordance with generally accepted accounting
principles. Intangible assets of PLZTech acquired in the purchase transaction
were carried at historical book values. Research and development costs of
PLZTech were expensed as incurred. PLZTech was incorporated in November 1992 in
the state of Colorado and was engaged in the business of research and
development of flat panel displays. Prior to our acquisition of the business and
patents of PLZTech, we had minimal business activities and had essentially just
started our own research and development activities.
Industry Background
Our flat panel displays fit into a growing niche that is part of the broad
visual communications market, which includes printing, photography, television,
billboard, etc. In particular, our flat panel displays fit within the billboard
sub-category of the broad visual communications market. Billboards include
various niches commonly identified as painted signs, architectural signage,
electric signs, programmable signs and large video displays. The Outdoor
Advertising Association of America has indicated that over 275,000 large
roadside billboards exist in the United States. We believe that the advantages
of our flat panel displays for the outdoor advertising billboard industry will
be significant. Our flat panel displays have the benefit in comparison to
traditional printed billboards of providing dynamic, eye-catching ads and rapid
change of display images from a remote site. Billboard companies could benefit
by increasing revenues per sign by being able to sell the same space to
different advertisers at different times during the day, with the ability to
immediately access and change each sign via the remote site. Advertisers could
benefit substantially because they would be able to reach their target audience
with greater precision.
Strategy
After conducting extensive research in various industries, including laptop
computers, high definition televisions and outdoor advertising billboards, to
determine which market would be best suited for producing and selling products
utilizing our technology, we decided to concentrate our complete attention and
efforts on marketing to the outdoor electronic advertising billboard industry.
The billboard segment of the outdoor advertising industry exceeds $4 billion per
year. Our goal is to create a line of products utilizing our technology that is
scalable both in terms of size and resolution to meet a wide range of
requirements related to potential customers' economics, billboard locations and
intended use.
We believe that, due to the Highway Beautification Act, the number of
billboards nationwide will not increase dramatically but should remain stable in
the future. We expect that advertisers will increase their focus on securing and
developing prime billboard locations. The customer base for
17
billboards is diversifying as more advertisers are attracted to this media. Our
market penetration analysis is based on capturing and converting existing sites
in a stable market and expanding the indoor market.
In September 2000, we received payment of $90,000 to produce and install
two large-scale flat panel displays, which is the first commercial application
of our electro-optic array technology. After the completion of these two flat
panel displays, we intend to target the outdoor advertising billboard industry
in phases.
The first phase will be targeting the prime billboard locations that
generate monthly advertising revenues of approximately $25,000 or more per
location. It is estimated that there are approximately 700 of these locations in
the United States and another 1,500 outside of the United States. We estimate
that we could begin supplying flat panel displays to meet the initial demand for
these locations within five to seven months of installing our first two flat
panel displays under our existing commitment and obtaining funding for ongoing
development and commercialization. Once demand in these prime locations has been
met and increased manufacturing volumes have lowered the production costs per
display, we will target the remaining outdoor advertising billboard market.
Approximately 65% of billboards were booked for 12-month periods in 1999.
Long-term contracts could potentially limit our access to the desired prime
location sites during our start-up period. However, we believe that the trend is
to use shorter-term contracts with significant turnover of advertisers, which
favors the use of our flat panel displays because of the ease and speed with
which images can be changed from a remote site. Revenues will be derived from a
combination of direct sales of flat panel displays, owned and operated flat
panel displays, leasing, licensing, and partnerships.
Our management team has extensive experience in finance, marketing and
research related to developing and rapidly growing technology businesses serving
business customers.
Products and Markets
Our primary initial product that will be marketed to users of the outdoor
advertising industry is the flat panel display. Our flat panel displays will
provide an image measuring approximately three meters by eight meters, which is
similar in size to existing printed billboards. We believe that the major
advantages of our flat panel displays include better viewing quality,
affordability, customer system integrity, and an almost immediate change of
display images from a remote site. Our flat panel displays are expected to be
inexpensive to produce relative to alternative electronic billboard systems,
none of which we believe can be scaled up or down as effectively and efficiently
as our products. We believe that our flat panel displays and underlying software
system represent an innovative approach to advertising that take advantage of
the recent technological convergence of billboard media, broadcast media and the
Internet.
Our principal product market consists of the outdoor advertising billboard
industry, which until now has primarily relied on printed billboards for outdoor
advertising. We believe that the user base for outdoor billboards is
diversifying and growing as more advertisers are attracted to this medium of
advertising, and this industry is experiencing rapid consolidation through
mergers and acquisitions driven by the larger billboard companies. Our product
and marketing strategy includes leveraging the underlying growth and excellent
fundamentals of the existing outdoor advertising market. We anticipate that this
strategy will also create a new segment of the outdoor advertising billboard
market for our flat panel displays. We have completed a film that is being
distributed as a marketing tool throughout the outdoor advertising billboard
industry to potential purchasers of our flat panel displays both in the United
States and internationally.
In addition, there are other markets and applications that represent
opportunities for additional sources of business, and we are beginning to
explore these markets and applications, such as e-cinema, lighting sources,
stadium and sports applications and systems, control and status monitoring.
18
Suppliers and Availability of Raw Materials
We have identified at least six suppliers of the basic components of our
systems. We anticipate this technology to develop and mature rapidly in the next
year, which will create more suppliers, lower prices and greater availability.
We are continually evaluating suppliers of subassemblies and components and
researching alternatives. We are sensitive not only to the quality and cost of
the parts and pieces supplied but also the strategic importance of multiple
supplier relationships.
Manufacturing, Distribution, Installation and Maintenance of Our Products
We have limited established commercial manufacturing facilities for the
production of our flat panel displays, although we intend to establish a larger
manufacturing facility for assembling our flat panel displays in preparation for
larger scale operations. Our flat panel displays will be shipped directly from
our manufacturing facilities to our customers, and we intend to sell our
products through direct sales channels.. Our plan is to install the first 10 to
20 flat panel displays that we sell. We also plan to maintain and repair our
products for a specific warranty period and offer maintenance contracts beyond
the warranty period. In addition, we intend to investigate the possibility of
contracting with United States and international third party service providers
for on-site installation, maintenance and repair of our flat panel displays.
Customers
Over the last ten years, there has been considerable consolidation amongst
the billboard owners in the outdoor advertising billboard industry. As of 1999,
it is estimated that the four leading billboard companies in this industry
account for approximately 48% of the outdoor advertising billboard market. Media
companies have been acquiring billboard companies in order to offer packages of
television, radio and newly acquired outdoor space to advertisers. We believe
that the concentration of ownership and the convergence of media are beneficial
trends for our product.
We intend to initiate customer contact through our own company by directly
communicating with potential customers, including the four leaders of the
outdoor advertising billboard industry, and providing them film that we have
produced about our flat panel displays. We are developing a marketing department
to initiate contact, process each transaction and coordinate with our
manufacturing department through production and delivery.
Competition
We will compete with the existing billboard techniques of hand painted or
printed and pasted signs. Recently, there has been a trend toward creating the
art digitally, but these images are still printed on large sheets and pasted up
in the same manner as before World War I. We believe these forms of billboard
presentations will only be viable in low density, low traffic areas. In
comparison, our flat panel displays include high brightness, full color,
superior image quality, wide viewing angle with excellent outdoor readability,
relatively low cost compared with competing electronic billboard technologies,
high reliability and rapid change of display images from a remote site.
We will compete against other established forms of electronic display
technology, and we believe that our products and technologies will continue to
face substantial competition as the market and technologies evolve. Existing and
potential competitors such as Toshiba, Sharp, Hitachi and Mitsubishi may possess
substantially greater product development capabilities and financial, technical,
marketing or human resources than we do. These companies manufacture electronic
displays that utilize liquid crystal displays, or passive LCD technology, and
cathode ray tubes, or CRT technology, which currently dominate the electronic
billboard market. However, we believe that the products based on these
technologies are limited and new technologies being developed, including ours,
will significantly improve the performance of electronic displays in the future
and displace existing products in the electronic billboard market. Many
companies, including Daktronics, Inc., SI Diamond Technology, Inc. and Universal
Display Corporation have, or are developing, other technologies utilizing carbon
field
19
emissions, incandescent lamps, inorganic electroluminescence, organic light
emitting diodes, polymeric light emitting diodes, gas plasma and vacuum
fluorescent lamps. Furthermore, although we believe our products will be
superior to established advertising billboard products, we cannot assure you
that business customers will prefer our technology sufficiently to be willing to
pay for it at the price at which it will be offered. We recently set the sales
prices of our flat panel displays measuring approximately three meters by two
meters and three meters by eight meters at $395,000 and $1,490,000,
respectively.
We believe that the technologies that we have developed are superior to
other existing technologies when combining the issues of brightness, image
quality and cost required for electronic billboards. Other existing technologies
that we compete with include:
o Low resolution devices which have a grainy picture and do not allow
certain colors to be viewed in direct sunlight and have a high initial
cost;
o Incandescent bulbs that are high maintenance and offer poor graphics;
o Electromechanical systems that have poor image qualities and limited
colors; and
o CRT's and passive LCD's that have a long useful life and an existing
manufacturing base, but are expensive to produce.
We believe that our flat panel displays utilizing our display technology
offers numerous advantages and features in comparison to the existing products
of our competitors currently available, including:
o The brightest electronic billboard display at 35,000 nits and the
widest viewing angle;
o The smallest dot pitch for outdoor large-scale displays at eight
millimeter dot pitch, providing high definition television picture
quality;
o 24-bit true color and full motion video at up to 120 frames per
second;
o Broadcast and simulcast applications including real-time live video
and streaming video feeds with operation from a remote site;
o Use of digital visual interface, or DVI, industry standard protocol
for high speed data linking and digital video interfacing;
o Satellite linkage for the ability to operate multiple flat panel
displays from a single remote site;
o Modular assembly in one meter increments for scaleable and shapeable
architectures and ease of transportability for mobile operations and
use; and
o Weather resistance for outdoor applications and a continual use life
of at least five years;
Intellectual Property and Other Proprietary Rights
Advanced Optics holds the following patents and patents pending:
o Patent #5,198,920 relating to a Transverse Pixel Formation for Spatial
Light Modulator.
o Patent pending that relates to an Electro-Optic Array. The
Electro-Optic Array describes a high-density, high-resolution array
that can be selectively activated by low induced voltages to alter a
light beam passing through the array of valves. This proprietary
technology that we developed also relates to a process for
manufacturing such a high-density array using semiconductor-type
processing equipment and techniques. This manufacturing process
constitutes a significant improvement over prior techniques by using
semiconductor processing technology to further increase pixel density
and reduce activation voltage.
o Patent pending for Light Emitting Diode Configuration for Large-Scale
Displays includes a pulse width modulation scheme for light emitting
diode, or LED, illumination, a data
20
distribution scheme that allows greater ease and economy in
manufacturing and assembly, and a current source circuit that allows
for a design with lower power requirements.
Our success will depend on our ability to protect our proprietary
technology and other intellectual property rights. We acquired the patent
relating to the transverse pixel format when we acquired all the assets of
PLZTech, Inc. in November 1996. The patent pending that relates to the
Electro-Optic Array was assigned to us by its inventor in February 2000, and the
patent pending that relates to the LED Configuration for Large-Scale Displays
was assigned to us by its inventors in February 2001. The inventors who assigned
each of these patents pending to us are employees of Advanced Optics. Although
we have been awarded the patent and have filed two applications for patents, the
degree of protection offered by these patents or the likelihood that pending
patents will be issued is uncertain. Any unauthorized use of our proprietary
technology could result in costly and time-consuming litigation to enforce our
proprietary rights.
We cannot assure you that our competitors in both the United States and
foreign countries, many of which have substantially greater resources and have
made substantial investments in competing technologies, will not independently
develop the same or similar technology to ours or otherwise obtain access to our
proprietary technology. These competitors may already have, or may apply for and
obtain, patents that will prevent, limit or interfere with our ability to make
and sell our products. To protect our proprietary rights in these areas, we
require employees, consultants, advisors and collaborators to enter into
confidentiality agreements providing that they will not disclose any of our
confidential or proprietary information or trade secrets to any third party or
use any such information or trade secrets for their own benefit or the benefit
of any third party. The confidentiality agreements may not provide meaningful
protection for our trade secrets or other proprietary information in the event
of any unauthorized use, misappropriation or disclosure of such trade secrets or
other proprietary information.
Research and Development
For the year ended December 31, 2000, $732,029 was spent on research and
development, and for the year ended December 31, 1999, $239,029 was spent on
research and development. These expenditures are primarily the result of costs
associated with our ongoing efforts in developing our proprietary flat panel
display and associated computer systems. Research and development costs will not
be directly borne by customers, but our gross profits on a go-forward basis will
be used to offset our deficit incurred during our development stage.
Employees
As of March 31, 2001, we employed 12 full-time employees and one part-time
employee. None of our employees are party to a collective bargaining agreement.
Management believes that its relations with its employees are satisfactory. We
also contract with other personnel and subcontractors for various projects on an
as-needed basis.
Properties
Our executive offices, research and development facility, and manufacturing
plant are presently located in Albuquerque, New Mexico, where we lease
approximately 7,500 square feet. The leases on the premises expire on February
28, 2002, and the current aggregate annual rent is approximately $50,000.
Investment in Bio Moda
We have an ownership interest of approximately 16% in Bio Moda, Inc., a
development stage company specializing in cancer diagnostic imaging and therapy
for different types of cancer including a diagnostic process for detecting the
onset of lung cancer several years prior to the actual appearance of the
invasive carcinoma. We believe that potential reciprocal benefits and synergies
exist between us and the biomedical technology company for the use of our
proprietary technology in producing the scanning devices that will be able to
detect cancer at an early stage of development. We have not entered into any
21
agreement with Bio Moda regarding any joint venture, strategic partnership or
other arrangements at this time. However, Bio Moda is subject to risks similar
to us as a development stage company, and if Bio Moda's business, financial
condition or results of operations is harmed, the future success of our business
could be harmed due to our significant interest in the company.
Leslie Robins, who is our executive vice president, secretary and chairman
of our Board of Directors, is also a member of Bio Moda's board of directors.
Harold Herman, who is a member of our Board of Directors, owns 66,000 shares of
Bio Moda's common stock, which is approximately a 1% interest in the company. We
are unaware of any other officers, directors or greater than 5% stockholders of
ours who own an interest in Bio Moda.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this prospectus, we are not a party to any legal proceedings.
22
MANAGEMENT
Executive Officers, Directors and Key Employees
The following table sets forth specific information regarding our executive
officers and directors as of March 31, 2001.
Executive Officers and Directors Age Position(s)
- -------------------------------- --- -----------
Michael H. Pete............................ 56 President and Director
Leslie S. Robins........................... 63 Chairman of the Board, Executive Vice President and
Secretary
John J. Cousins............................ 44 Vice President, Finance and Treasurer
Harold C. Herman........................... 75 Director
Richard A. Josephberg...................... 54 Director
Key Employees
- -------------
Garth W. Gobeli............................ 71 Chief Scientist
Michael Harmon............................. 47 Senior Digital Design Engineer
Stephen Mills.............................. 51 Senior Electronics Design Engineer
Gary Fuehrer............................... 32 Senior Software/Systems Architect
Executive Officers and Directors
Mr. Pete has been our president and a member of our Board of Directors
since May 1996, and he served as our treasurer from May 1996 to July 2000. From
July 1994 to May 1996, Mr. Pete served in the same capacities with our
predecessor, PLZTech. From 1990 to 1994, Mr. Pete was president of SEES New
Mexico Inc., working with federal research and development labs in Los Alamos
and Sandia to create and implement information management systems. From 1982 to
1990, Mr. Pete was president of Phoenix Filtration Systems, and from 1979 to
1981, he was a technical management consultant in the Office of the Secretary
for the United States Department of Energy. From 1977 to 1979, Mr. Pete was a
project manager for the consulting firm of Booz, Allen and Hamilton, and from
1975 to 1977, he was office director of the Low Income Weatherization Federal
Energy Administration in Washington, D.C. Mr. Pete has a B.A. from Williams
College and attended Stanford University Graduate School of Business and
Political Science.
Mr. Robins has been our executive vice president, secretary and chairman of
our Board of Directors since May 1996, and from November 1992 to May 1996, he
served in the same capacities with our predecessor, PLZTech. From November 1989
to November 1992, Mr. Robins was managing partner of Coronado Group, performing
analyses of small technology companies, and from May 1986 to June 1989, he was
executive vice president of Triton Productions Inc. From September 1978 to
October 1987, Mr. Robins was managing partner of Longview Management, serving as
investment manager for individuals in the entertainment industry. Mr. Robins has
a B.S. from the University of Miami and attended Harvard Business School.
Mr. Cousins joined us in June 1999 as vice president, finance, and he has
been our treasurer since July 2000. From 1996 to 1999, Mr. Cousins was president
of Terra Firm. From 1992 to 1996, Mr. Cousins was vice president of Lubarsky
Group Inc., and from 1991 to 1992, he was vice president of Cimmaron Business
Development Corporation. Mr. Cousins has a B.A. from Boston University, an
M.B.A. from the Wharton School and a certificate in electronics technology from
the Lowell Institute School at the Massachusetts Institute of Technology.
Mr. Herman has been a member of our Board of Directors since December 1998.
He is a member of the State Bar in New York and California. From 1980 to the
present, Mr. Herman has been general partner of numerous limited partnerships
owning commercial properties, including apartment complexes, shopping centers
and malls, in the northeastern area of the United States. From 1969 to
23
1980, Mr. Herman was a senior partner of the law firm of Herman, Mcginnis and
Kass, Esqs., located in New York City, handling business and legal matters
relating to real estate, corporations and securities law. Mr. Herman has a B.S.
in physics and B.E.E. in electrical engineering from City College of New York,
an M.S. in applied mathematics from New York University and an L.L.D. from
Brooklyn Law School.
Mr. Josephberg has been a member of our Board of Directors since April
2000. From 1986 to the present, Mr. Josephberg has been a principal in the
investment and merchant banking firm of Josephberg Grosz & Co., Inc. in New York
City. From 1980 to 1984, Mr. Josephberg was a member of the New York Stock
Exchange. He has a B.A. in business administration from the University of
Cincinnati and has completed all the coursework towards an M.B.A. from Bernard
Baruch College.
Key Employees
Dr. Gobeli joined us in November 1998 as chief scientist. From 1995 to
1998, he was employed by Complex Light Valve and TechMed. From 1993 to 1995, Dr.
Gobeli was head of research for our predecessor, PLZTech, and from 1990 to 1992,
he was a senior scientist at Foresight where he was responsible for the design,
fabrication and testing of optics and illumination components. From 1989 to
1991, Dr. Gobeli was a principal at Chromex, where he designed and supervised
the prototype manufacturing and marketing of imaging spectrographs. From 1987 to
1988, Dr. Gobeli was a scientist at CVI Laser, Inc., where he was responsible
for developing and bringing to market a double beam spectrometer. Dr. Gobeli
holds several patents and has secret clearance with the United States Department
of Defense. Dr. Gobeli has a B.S. in physics from Rice University, an M.S. in
physics from the University of Illinois, and a Ph.D. in physics from Purdue
University.
Mr. Harmon joined us in August 1998 as a senior digital design engineer.
From 1991 to 1998, he worked for the University of Texas as a computer systems
development specialist building equipment and systems for experimental and
research applications. He co-founded and worked for Chromex, Inc. from 1988 to
1991, where he developed digital control electronics for next generation
monochromator, FF-250, which was the core engine for one of the first Rhaman
scattering spectrographs ever marketed. From 1985 until 1988 he worked for CVI
Laser Corp where he developed an in-house monochromator optics instrument,
Digichrom 240, that was subsequently marketed as a research instrument and is
still selling well. Mr. Harmon graduated from the University of Texas at
Arlington with a B.S. in electrical engineering and a minor in computer science.
Mr. Mills joined us in August 1998 as a senior electronics design engineer.
From 1990 to 1998, he worked as a consulting engineer for Linear Solutions where
he designed and prototyped all of the electronic circuitry incorporated in a new
portable spectrophotometer. During his employment with Linear Solutions he
designed low noise preamplifiers, precision current source, synchronous
detector, and other signal processing circuitry. Mr. Mills graduated from the
University of New Mexico with a B.S. in electrical engineering in 1987.
Mr. Fuehrer joined us in February 2000 as a senior software developer to
provide the needed skills in computer hardware, operating systems, and
programming. From 1990 to 2000, he was the lead applications architect at
Science and Engineering Associates, Inc. where he was the principal consultant
on the design for software projects, including the development of the
administrator console for Microsoft's Systems Management Server. He is currently
nearing the completion of his Master's Degree in computer science at the
University of New Mexico where he previously graduated with a B.A. in
mathematics with a minor in physics.
Board of Directors
Our Board of Directors currently has four members, who are elected at each
annual meeting of stockholders to serve from the time of election and
qualification until the next annual meeting of stockholders or such time at
which their successors are elected and qualified.
24
Directors' Compensation
Our non-employee directors are paid annual compensation of $1,500 for their
services and a fee of $1,500 for each meeting attended. Our officers who are
directors are not paid any directors fees. Our non-employee directors are also
eligible to receive stock option grants under the 1999 Incentive Stock Option
Plan, pursuant to which all such grants are being treated as non-qualified stock
options because our stockholders did not approve such plan within twelve months
of its being adopted by our Board of Directors. Pursuant to the 1999 Incentive
Stock Option Plan, Mr. Herman received a grant of an option to purchase 150,000
shares of common stock in January 1999, which vested over a one-year period,
that he exercised in full in March 2000 at an exercise price of $0.09 per share.
Mr. Herman received a warrant to purchase 350,000 shares of common stock in June
1999 at an exercise price of $0.15 per share, which vested immediately. Mr.
Herman received an additional warrant for 250,000 shares of common stock in
August 2000 at an exercise price of $0.41 per share. Mr. Herman received a grant
of an option to purchase an additional 225,000 shares of common stock in October
2000 at an exercise price of $0.34 per share, which vested immediately. Mr.
Josephberg was entitled to receive, and upon his request, J.G. Capital, Inc.
received 75,000 shares of common stock in April 2000 and a warrant to purchase
125,000 shares of common stock at an exercise price of $0.37 in August 2000. Mr.
Josephberg is a partner with a 1% ownership interest in J.G Partners LP, which
owns a 100% interest in J.G. Capital, Inc. However, Mr. Josephberg disclaims
beneficial ownership of these securities issued to J.G. Capital, Inc.
Limitations on Directors' Liabilities and Indemnification
Our articles of incorporation provides that, except to the extent
prohibited by Nevada law, our directors shall not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty unless
the breach related to acts or omissions involving intentional misconduct, fraud,
or a knowing violation of law. Each of our directors will be liable under Nevada
law for breach of the director's duty of loyalty to us for acts or omissions
that are found by a court of competent jurisdiction to be not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
Nevada law. This limitation of liability also does not apply to our directors'
liabilities arising under federal securities laws and does not affect the
availability of equitable remedies such as injunctive relieve or rescission.
Our articles of incorporation provide that we may indemnify our directors
and officers to the fullest extent permitted by Nevada law. Such right of
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs and personal representatives
of such a person. The indemnification provided by our articles of incorporation
shall not be deemed exclusive of any other rights that may be provided now or in
the future under any provision currently in effect or hereafter adopted by our
articles of incorporation, by any agreement, by vote of our stockholders, by
resolution of our directors, by provision of law or otherwise. We have also
secured liability insurance on behalf of our directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
25
Executive Compensation
Summary Compensation Table
The following table sets forth information concerning compensation earned
by our chief executive officer and our other executive officers.
Annual Compensation Long Term Compensation
------------------------------ --------------------------------
Securities
Name and Principal Other Annual Restricted Stock Underlying
Position Year Salary($) Compensation($) Awards($) Options
---------------------------- ---- ---------- --------------- ---------------- ----------
Michael Pete................ 2000 38,700 -- -- 275,000
President, Treasurer and 1999 36,000 -- 7,350 800,000
Director 1998 30,000 -- -- --
Leslie S. Robins............ 2000 82,830 8,986(1) 4,850,000
Chairman of the Board, 1999 109,340 7,352(1) 131,915 5,000,000
Executive Vice President 1998 67,600 2,448(1) -- --
and Secretary
John J. Cousins(2).......... 2000 95,072 -- -- 400,000
Vice President Finance 1999 41,495 -- 3,375 300,000
-------------------
(1) Represents the amount of an automobile lease for the benefit of Mr. Robins.
(2) Mr. Cousins was not an employee of Advanced Optics prior to 1999.
Employment Agreements
Mr. Cousins entered into an employment agreement with us for an initial
period of employment with us for two years with a one-year renewal option. The
agreement provides that Mr. Cousins will receive an annual base salary, net of
federal and state taxes, of $60,000 in the first year, $75,000 in the second
year, and $94,000 in the option year.
Stock Options
1999 Incentive Stock Option Plan
In January 1999, our Board of Directors adopted the 1999 Incentive Stock
Option Plan, which provides for the grant of qualified incentive stock options
that meet the requirements of Section 422 of the Internal Revenue Code of 1986,
as amended, but such plan was not approved by our stockholders within twelve
months. Thus, incentive stock options granted to our officers and key employees
are being treated as non-qualified stock options. The 1999 Incentive Stock
Option Plan is administered by our Board of Directors. The purpose of the 1999
Incentive Stock Option Plan is to provide a means of performance-based
compensation in order to attract and retain qualified personnel and to provide
an incentive to those whose job performance affects us.
The 1999 Incentive Stock Option Plan authorizes the grant of stock options
to purchase, and awards of, an aggregate of up to 10,000,000 shares of our
Common Stock. The number of shares reserved for issuance under the 1999
Incentive Stock Option Plan is governed by anti-dilution provisions for stock
splits, stock dividends and similar events. If a stock option granted under the
1999 Incentive Stock Option Plan expires or terminates, or a grant is forfeited,
the shares subject to any unexercised portion of such stock option grant will
again become available for the issuance of further stock options under such
plan.
Options granted under the 1999 Incentive Stock Option Plan will become
exercisable according to the terms of the grant made by our Board of Directors.
Grants will be governed by the terms and restrictions of the award made by our
Board of Directors. Our Board of Directors has discretionary authority to select
participants from among eligible persons and to determine at the time a stock
option is granted when and in what increments shares covered by such stock
option may be purchased.
The exercise price of any stock option granted under the 1999 Incentive
Stock Option Plan is payable in full (1) in cash, (2) by surrender of shares of
our common stock already owned by the option holder having a market value equal
to the aggregate exercise price of all shares to be purchased, (3) by such other
consideration as our Board of Directors deems appropriate or (5) by any
combination of the foregoing.
26
Our Board of Directors may from time to time revise or amend the 1999
Incentive Stock Option Plan, and may suspend or discontinue it at any time.
However, no such revision or amendment may impair the rights of any participant
under any outstanding grant without such participant's consent or may, without
stockholder approval, increase the number of shares governed by the 1999
Incentive Stock Option Plan or decrease the exercise price of a stock option to
less than 100% of fair market value on the date of grant (with the exception of
adjustments resulting from changes in capitalization), materially modify the
class of participants eligible to receive options or grants under such plan,
materially increase the benefits accruing to participants under such plan or
extend the maximum option term under such plan.
As of April 20, 2001, non-qualified stock options to purchase 5,825,000
shares have been granted at exercise prices ranging from $.09 to $.34 per share
pursuant to the 1999 Incentive Stock Option Plan. Of these stock options, Harold
Herman exercised options for 150,000 shares at an exercise price of $.09 per
share in March 2000, and Leslie Robins exercised options for 1,000,000 shares,
450,000 shares and 400,000 shares, each at an exercise price of $.12 per share
in June 2000, August 2000 and September 2000, respectively, in exchange for
promissory notes for $120,000, $54,000 and $48,000, respectively, each with an
annual interest rate of 10% due quarterly and the principal due in three years.
None of the other options have been exercised. As of April 20, 2001, 4,175,000
shares remained available for future grants under the 1999 Incentive Stock
Option Plan. Unless previously terminated by the Board of Directors, no options
may be granted under the 1999 Incentive Stock Option Plan after January 3, 2009.
Option Grants
The following table provides summary information regarding stock options
and warrants granted to our chief executive officer and other executive officers
during the fiscal year ended 1999. We granted options for an aggregate of
5,025,000 shares to our officers and key employees under the 1999 Incentive
Stock Option Plan (not including 450,000 shares underlying options granted to
non-employee directors) during the fiscal year ended December 31, 2000 at an
exercise price equal to the fair market value of the common stock on the date of
grant. This includes options to purchase 2,475,000 shares that were granted in
exchange for the cancellation of options to purchase 2,475,000 shares with a
higher per share exercise price that had been previously granted during the
fiscal year ended December 31, 2000. We granted warrants for an aggregate of
3,050,000 shares (not including 375,000 shares underlying warrants granted to
non-employee directors) during the fiscal year ended December 31, 2000 at an
exercise price equal to the fair market value of the common stock on the date of
grant.
Options Granted in 2000
Individual Grants
-----------------------------------------------------------------------------------
Number of
Securities Percent of Total
Underlying Options Options Granted in Exercise Price
Name Granted Fiscal 2000 (%)(1) ($/Share) Expiration Date
- ------------------------ ------------------ ------------------ -------------- ---------------
Michael Pete........... 150,000(2) 1.9 0.70 1/26/04
Michael Pete........... 125,000(2) 1.5 0.74 6/6/04
Michael Pete........... 275,000 3.4 0.34 10/17/04
Leslie Robins.......... 1,000,000(2) 12.4 0.70 1/26/04
Leslie Robins.......... 900,000(2) 11.1 0.74 6/6/04
Leslie Robins.......... 2,000,000 24.8 0.37 8/8/05
Leslie Robins.......... 950,000 11.8 0.34 10/16/05
Leslie Robins.......... 1,900,000 23.5 0.34 10/17/04
John Cousins........... 150,000(2) 1.9 0.70 1/26/04
John Cousins........... 150,000(2) 1.9 0.74 6/6/04
John Cousins........... 100,000 1.2 0.34 10/16/05
John Cousins........... 300,000 3.7 0.34 10/17/04
- ----------------
(1) The percentage is calculated based on the combined total of options and
warrants granted to officers and key employees (including the options to
purchase 2,475,000 shares that were granted in October 2000 and the
previously granted options that these were intended to replace) during the
fiscal year ended December 31, 2000.
(2) Represents options that were granted and subsequently cancelled in exchange
for the grant of the same number of new options at a lower per share
exercise price during the fiscal year ended December 31, 2000.
27
Option Exercises and Holdings
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options and warrants held by our
chief executive officer and other executive officers as of December 31, 2000.
Except as noted, options vest periodically over the term of one year as follows:
35% vests 90 days after the grant date, 25% vests 180 days after the grant date,
20% vests 270 days after the grant date and the remaining 20% vests 360 days
after the grant date. Options, which were granted in October 2000 to purchase
2,475,000 shares of common stock, and warrants vested immediately in full on the
grant date.
Year-End Option Values
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired on Value December 31, 2000 December 31, 2000(1)
Name Exercise (#) Realized ($) Exercisable (#) Unexercisable (#) Exercisable($) Unexercisable($)
- ---- ------------ ------------ --------------- ----------------- -------------- ----------------
Michael Pete... -- -- 1,075,000 -- 66,000 --
Leslie Robins.. 1,850,000 166,500 8,000,000 -- 193,500 --
John Cousins... -- -- 700,000 -- 18,000 --
- -----------------
(1) The value of the unexercised "in-the-money" options and warrants is based
on the fair market value of $.21 per share as of December 31, 2000 minus
the exercise price, multiplied by the numbers of shares underlying the
option or warrant, as the case may be.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and persons who own more than 10% of a registered class of our
equity securities to file with the Securities and Exchange Commission reports
detailing their ownership of existing equity securities and changes in such
ownership. Officers, directors and greater than 10% stockholders are required by
the Securities and Exchange Commission's regulations to furnish us with copies
of all filed Section 16(a) forms.
Based solely on our review of the copies of such forms furnished to us, we
believe that all officers, directors and greater than 10% stockholders complied
with the filing requirements of Section 16(a), except that Mr. Pete filed two
reports late with respect to ten transactions, Mr. Robins filed two reports late
with respect to twenty-four transactions, Mr. Cousins filed two reports late
with respect to twenty-one transactions, Mr. Josephberg filed two reports late
with respect to three transactions, and a former director who resigned in
November 1998 and also was a 10% stockholder is no longer available and never
filed any reports.
CERTAIN TRANSACTIONS
In June 2000, we issued to Leslie Robins, our chairman of the board,
executive vice president and secretary, 1,000,000 shares of common stock as the
result of exercising options with an exercise price of $0.12 in exchange for a
promissory note in the principal amount of $120,000. The note bears interest at
10% per annum due quarterly and the principal is due in June 2003. In August
2000, we issued to Mr. Robins 450,000 shares of common stock as the result of
exercising options with an exercise price of $0.12 in exchange for a promissory
note in the principal amount of $54,000. The promissory note bears interest at
10.0% per annum due quarterly and the principal is due in August 2003. In
September 2000, we issued to Mr. Robins 400,000 shares of common stock as the
result of exercising options with an exercise price of $0.12 in exchange for a
promissory note in the principal amount of $48,000. The promissory note bears
interest at 10.0% per annum due quarterly and the principal is due in September
2003.
28
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock on April 20, 2001 by (i) each of
our directors, (ii) each of our executive officers, (iii) each person known to
us to beneficially own more than 5% of our common stock and (iv) all of our
directors and executive officers as a group. Each of such persons can be
contacted at 8301 Washington NE, Suite 5, Albuquerque, New Mexico 87113.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that person,
shares of common stock underlying options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days after the
effective date of this offering are deemed outstanding, while such shares are
not deemed outstanding for computing percentage ownership of any other person.
To our knowledge, except pursuant to applicable community property laws or as
indicated in the footnotes to this table, each stockholder identified in the
table possesses sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by such stockholder.
The percentage of total voting power is calculated assuming all issued
convertible notes and warrants outstanding were converted into 14,941,636 shares
of common stock (excluding warrants granted to our directors and officers to
purchase 7,275,000 shares of common stock) resulting in 76,869,811 shares of
common stock outstanding on April 20, 2001. 76,869,811 shares of common stock
will be outstanding immediately following the completion of this offering.
Percentage of Shares
Beneficially Owned
---------------------------
Number of Shares Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ---------------------------------------------------- ----------------------------- ------------ --------
Leslie Robins....................................... 14,614,395(1) 19.0% 19.0%
Michael Pete........................................ 1,289,524(2) 1.7 1.7
John Cousins........................................ 850,000(3) 1.1 1.1
Harold Herman....................................... 975,000(4) 1.3 1.3
Richard Josephberg.................................. --(5) -- --
Abraham Grin........................................ 5,681,818(6) 7.4 7.4
All directors and executive officers as a group (5 17,728,919(7) 23.1% 23.1%
persons)
- ------------------
(1) Includes 2,050,000 shares of common stock issuable upon exercise of options
that are currently exercisable and 5,950,000 shares of common stock
issuable upon exercise of warrants that are currently exercisable.
(2) Includes 575,000 shares of common stock issuable upon exercise of options
that are currently exercisable and 500,000 shares of common stock issuable
upon exercise of a warrant that is currently exercisable.
(3) Includes 600,000 shares of common stock issuable upon exercise of options
that are currently exercisable and 100,000 shares of common stock issuable
upon exercise of a warrant that is currently exercisable.
(4) Includes 225,000 shares of common stock issuable upon exercise of an option
that is currently exercisable and 600,000 shares of common stock issuable
upon exercise of a warrant that is currently exercisable.
(5) Mr. Josephberg was entitled to receive, and upon his request, J.G. Capital,
Inc. received 75,000 shares of common stock in April 2000 and a warrant to
purchase 125,000 shares of common stock at an exercise price of $0.37 in
August 2000. Mr. Josephberg is a partner with a 1% ownership interest in
J.G. Partners LP, which owns a 100% interest in J.G. Capital, Inc. Mr.
Josephberg disclaims beneficial ownership of those securities issued to
J.G. Capital, Inc.
(6) Includes beneficial ownership of the following numbers of shares that may
be acquired, which are underlying $500,000 of 8% convertible notes:
1,704,545 shares by Keshet Fund L.P., a limited partnership of which Keshet
Mangement, Inc. is the general partner; 1,988,636 shares by Keshet L.P., a
limited partnership of which Keshet Management, Inc. is the general
partner; 1,136,364 shares by Nesher Ltd., a corporation owned by Mr. Grin;
and 852,273 shares by Talbiya B. Investments Ltd., a corporation owned by
Mr. Grin.
(7) Includes 3,450,000 shares of common stock issuable upon exercise of options
that are currently exercisable and 7,150,000 shares of common stock
issuable upon exercise of warrants that are currently exercisable.
29
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will be authorized to issue
150,000,000 shares of common stock, $.001 par value per share. The following
description of our capital stock does not purport to be complete and is governed
by and qualified by our articles of incorporation and bylaws, which are included
as exhibits to the Registration Statement of which this prospectus forms a part,
and by the provisions of applicable Nevada law.
Common Stock
As of April 20, 2001, assuming the conversion of all outstanding
convertible notes and warrants (excluding warrants granted to our directors and
officers to purchase 7,275,000 shares of common stock), there were 76,869,811
shares of common stock outstanding, which were held of record by approximately
13,100 stockholders. In addition, as of April 20, 2001, there were 7,275,000
shares underlying outstanding warrants granted to our directors and officers and
3,825,000 shares of common stock underlying outstanding employee stock options.
Upon completion of this offering, there will be 76,869,811 shares of common
stock outstanding, assuming no exercise of outstanding warrants granted to our
directors and officers and employee stock options.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of common stock are
entitled to receive ratably dividends, if any, as may be declared from time to
time by the board of directors out of funds legally available for that purpose.
In the event of our liquidation, dissolution or winding up of Advanced Optics,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common stock
to be issued upon the closing of this offering will be fully paid and
nonassessable.
Convertible Notes
There are 8% convertible notes in the aggregate amount of $500,000, which
may be converted into shares of our common stock, that were sold and issued to
four investors who are selling stockholders. The issuance of the notes and the
sale of the shares of common stock by these four selling stockholders are
pursuant to a convertible note purchase agreement dated as of September 15, 2000
that we entered into with such selling stockholders, which is included as an
exhibit to the registration statement of which this prospectus forms a part. We
agreed to register the shares of common stock underlying these convertible
notes. We are required to pay the expenses of such registration and include in
the registration statement the shares underlying the warrants, as described
below, also issued to these selling stockholders. Certain terms and conditions
of the convertible note purchase agreement regarding additional obligations of
the four selling stockholders have been waived pursuant to an agreement dated as
of April 12, 2001, which is also included as an exhibit to the registration
statement of which this prospectus forms a part.
There are 7 1/2% convertible notes in the aggregate amount of $740,667,
which may be converted into shares of our common stock, that were sold and
issued to two investors who are selling stockholders. Of this amount, we have
received funds for a total of $710,000, and $30,667 represents accrued interest
on previous private fundings that were rolled into the aggregate amount of the
notes. The issuance of the notes and the sale of the shares of common stock by
these two selling stockholders are pursuant to securities purchase agreements
dated as of November 7, 2000 that we entered into with each such selling
stockholder, which are included as exhibits to the registration statement of
which this prospectus forms a part. We agreed to register the shares of common
stock underlying these convertible notes. We are required to pay the expenses of
such registration and include in the registration statement the shares
underlying the warrants, as described below, also issued to these selling
stockholders. The two selling stockholders have taken the position that due to
the fact that we did not file this registration statement by
30
a deadline specified in the securities purchase agreements, they are not
obligated to comply with certain terms and conditions of these agreements
regarding the purchase of additional convertible notes.
Warrants
As of April 20, 2001, there were outstanding warrants to purchase 571,000
shares of common stock that had been issued to the selling stockholders relating
to the sale of the convertible notes and 7,275,000 warrants with exercise prices
ranging from $.15 to $.41 per share to purchase shares of our common stock had
been issued to our officers and directors.
Pursuant to the sale and issuance of the convertible notes to the selling
stockholders, we issued to the selling stockholders warrants to purchase 500,000
shares of our common stock at an exercise price of $.38 per share, warrants to
purchase 55,000 shares of our common stock at an exercise price of $1.62 per
share and warrants to purchase 16,000 shares at an exercise price of $.43 per
share. The holders of the warrants are entitled to certain rights with respect
to the registration of the shares of common stock upon exercise of the warrants
under the Securities Act of 1933.
Anti-takeover Effects of Provisions of Nevada Law
Certain provisions of Nevada law could make it more difficult to acquire us
by means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors. These provisions, summarized below, are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
us to first negotiate with us. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent if an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals because, among
other things, negotiation of these proposals could result in an improvement of
their terms.
We are governed by Sections 78.411 -- 78.444 of the Nevada Revised
Statutes, which are anti-takeover laws. In general, Sections 78.411 -- 78.444
prohibit a publicly held Nevada corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless, with
exceptions, the business combination or the transaction in which the person
became an interested stockholder is approved in a prescribed manner. Generally,
a business combination includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an interested stockholder is a person who, together with affiliates
and associates, owns, or within three years prior to the determination of
interested stockholder status, did own, 15% or more of a corporation's voting
stock. The existence of this provision would be expected to have an
anti-takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Oxford Transfer &
Registrar.
31
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 76,869,811
shares of common stock that will be freely tradable without restriction or
further registration under the Securities Act of 1933, which assumes
o the conversion of all of our issued convertible notes and warrants
outstanding as of April 20, 2001 into an aggregate of 14,941,636
shares of common stock upon the completion of this offering;
o the issuance of 14,941,636 shares of common stock offered by the
selling stockholders; and
o no exercise of outstanding warrants granted to our directors and
officers or stock options granted to our employees and directors.
Rule 144
All of the 14,941,636 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act of 1933.
Upon completion of this offering, we will have outstanding an additional
51,921,392 shares of common stock held by existing stockholders that were issued
and sold by us in reliance on exemptions from the registration requirements of
the Securities Act of 1933. In addition, holders of stock options could exercise
such options and sell certain of the shares issued upon exercise as described
below. If shares are purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act of 1933, their sales of shares would be
governed by the limitations and restrictions that are described below.
In general, under Rule 144 as currently in effect, after the date of this
prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned shares of our common stock for at least one year, including
any person who may be deemed to be an "affiliate" (as the term "affiliate" is
defined under the Securities Act of 1933), would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
o 1% of the number of shares of common stock then outstanding, which
will equal approximately 768,698 shares immediately after this
offering; or
o the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with
respect to such sale.
Sales under Rule 144 are also governed by other requirements regarding the
manner of sale, notice filing and the availability of current public information
about us. Under Rule 144, however, a person who is not, and for the three months
prior to the sale of such shares has not been, an affiliate of the issuer is
free to sell shares which are "restricted securities" which have been held for
at least two years without regard to the limitations contained in Rule 144. None
of the selling stockholders will be governed by the foregoing restrictions when
selling their shares pursuant to this prospectus.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
Resale of Shares Underlying Stock Options and Warrants
As of April 20, 2001, there were a total of 3,825,000 shares of common
stock reserved for issuance and underlying outstanding options under our 1999
Incentive Stock Option Plan, of which
32
options were vested to purchase 1,095,000 shares of common stock. An additional
4,175,000 shares of common stock are reserved for issuance under our 1999
Incentive Stock Option Plan. We may file a registration statement on Form S-8
under the Securities Act of 1933 covering the shares that have been reserved for
issuance under our 1999 Incentive Stock Option Plan, permitting the resale of
such shares in the public market.
As of April 20, 2001, there were outstanding warrants to purchase 7,846,000
shares of common stock, including warrants issued to our officers and directors
to purchase 7,275,000 shares of common stock.
THE SELLING STOCKHOLDERS
The following table sets forth certain information regarding the selling
stockholders and the shares offered by them in this prospectus. None of the
selling stockholders within the past three years has had any material
relationship with us or any of our affiliates except as described below. The
term "selling shareholders" also includes any transferees, pledges, donees, or
other successors in interest to the selling shareholders named in the table
below. Because the selling shareholders may offer all or some of the shares
pursuant to this prospectus, and to our knowledge there are currently no
agreements, arrangements or understanding with respect to the sale of any of the
shares that may be held by the selling shareholders after completion of this
offering, we can give no estimate as to the amount of shares that will be held
by the selling shareholders after completion of this offering. The 14,941,636
shares offered in this prospectus include the following:
o 5,681,818 shares of common stock issued upon conversion of convertible
notes in the aggregate amount of $500,000 sold and issued to Keshet
Fund L.P., Keshet L.P., Nesher Ltd. and Talbiya B. Investments Ltd.;
o 500,000 shares of common stock issued upon exercise of warrants at
$0.38 per share which were issued to Alon Enterprises Ltd.;
o 8,688,818 shares of common stock issued upon conversion of convertible
notes in the aggregate amount of $740,667 sold and issued to RFL Asset
Management, LLC and Triton Private Equities Fund, L.P.;
o 55,000 shares of common stock issued upon exercise of warrants at
$1.62 per share which were issued to RFL Asset Management, LLC and
Triton Private Equities Fund, L.P.; and
o 16,000 shares of common stock issued upon exercise of warrants at
$0.43 per share which were issued to RFL Asset Management, LLC and
Triton Private Equities Fund, L.P.
Number of Percentage of
Number Shares Class of Shares
Shares Number of Beneficially Beneficially
Beneficially Shares Being Owned on Owned on
Owned Prior to Offered by the Completion of Completion of
Name of Selling Stockholder This Offering Stockholder this Offering this Offering
- ------------------------------------ -------------- -------------- ------------- ---------------
Keshet Fund L.P. (1)
Ragnall House 1,704,545 1,704,545 0 0%
18 Peel Road
Douglan, Isle of Man
Keshet L.P. (1)
Ragnall House 1,988,636 1,988,636 0 0%
18 Peel Road
Douglan, Isle of Man
33
Number of Percentage of
Number Shares Class of Shares
Shares Number of Beneficially Beneficially
Beneficially Shares Being Owned on Owned on
Owned Prior to Offered by the Completion of Completion of
Name of Selling Stockholder This Offering Stockholder this Offering this Offering
- ------------------------------------ -------------- -------------- ------------- ---------------
Nesher Ltd. (2)
Ragnall House 1,136,364 1,136,364 0 0%
18 Peel Road
Douglan, Isle of Man
Talbiya B. Investments Ltd. (2)
Ragnall House 852,273 852,273 0 0%
18 Peel Road
Douglan, Isle of Man
Alon Enterprises Ltd. (3)
Ragnall House 500,000 500,000 0 0%
18 Peel Road
Douglan, Isle of Man
Triton Private Equities Fund, L.P. (4)
225 North Market Street, Suite 220 5,531,423 5,531,423 0 0%
Wichita, Kansas 87202
RFL Asset Management, LLC (5)
c/o Levinson Capital Management, LLC 3,157,395 3,157,395 0 0%
2 World Trade Center, Suite 1820
New York, New York 10048
- ------------
(1) Limited partnership of which Keshet Management, Inc. is the general
partner, that is beneficially owned by Abraham Grin.
(2) Corporation that is beneficially owned by Abraham Grin.
(3) Corporation that is beneficially owned by Shmuel Elmaklas.
(4) Limited partnership that is beneficially owned by John Tousche.
(5) Limited liability corporation that is beneficially owned by Sam Levinson.
We will not receive any of the proceeds from the sale of the shares by the
selling stockholders. We will, however, receive $285,799 if the warrants are
exercised. We have agreed to bear certain expenses incurred with the
registration of the shares being offered and sold by the selling stockholders,
estimated to be $165,000.
PLAN OF DISTRIBUTION
The selling stockholders will act independently of us in making decisions
with respect to the timing, manner and size of each sale. Subject to the
agreements by the selling stockholders described above, the selling stockholders
may sell the shares from time to time at market prices prevailing on the OTC
Bulletin Board at the time of offer and sale, or at prices related to such
prevailing market prices; or in negotiated transactions; or a combination of
such methods of sale directly or through brokers.
The selling stockholders may effect such transactions by offering and
selling the shares directly to or through securities broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders and/or the purchasers of the shares
for whom such broker-dealers may act as agent or to whom the selling
stockholders may sell as principal,
34
or both, which compensation as to a particular broker-dealer might be in excess
of customary commissions.
The selling stockholders and any broker-dealers who act in connection with
the sale of their shares shall be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, and any discounts, concessions or commissions
received by them and profit on any resale of the shares as principal shall be
deemed to be underwriting discounts, concessions and commissions under the
Securities Act of 1933. We have agreed to indemnify the selling stockholders
against certain liabilities, including liabilities under the Securities Act of
1933, as underwriters or otherwise.
We have advised the selling stockholders that they and any securities
broker-dealers or others who may be deemed to be statutory underwriters will be
governed by the prospectus delivery requirements under the Securities Act of
1933. Under applicable rules and regulations under the Securities Exchange Act
of 1934 any person engaged in a distribution of any of the shares may not
simultaneously engage in market activities with respect to the common stock for
the applicable period under Regulation M prior to the commencement of such
distribution. In addition and without limiting the foregoing, the selling
stockholders will be governed by the applicable provisions of the Securities and
Exchange Act of 1934, and the rules and regulations thereunder, including
without limitation Rules 10b-5 and Regulation M, which provisions may limit the
timing of purchases and sales of any of the shares by the selling stockholders.
All of the foregoing may affect the marketability of the common stock.
We have advised the selling stockholders that the anti-manipulation rules
under the Securities Exchange Act of 1934 may apply to sales of shares in the
market and to the activities of the selling stockholders and any of their
affiliates. The selling stockholders have advised us that during the time the
selling stockholders may be engaged in the attempt to sell shares registered
under this prospectus, they will:
o not engage in any stabilization activity in connection with any of the
shares;
o not bid for or purchase any of the shares or any rights to acquire the
shares, or attempt to induce any person to purchase any of the shares or
rights to acquire the shares other than as permitted under the Securities
Exchange Act of 1934;
o not effect any sale or distribution of the shares until after the
prospectus shall have been appropriately amended or supplemented, if
required, to describe the terms of the sale or distribution; and
o effect all sales of shares in broker's transactions through broker-dealers
acting as agents, in transactions directly with market makers, or in
privately negotiated transactions where no broker or other third party,
other than the purchaser, is involved.
The selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act of 1933. Any commissions
paid or any discounts or concessions allowed to any broker-dealers, and any
profits received on the resale of shares, may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933 if the broker-dealers
purchase shares as principal.
In the absence of this registration statement, the selling stockholders
would be able to sell their shares only pursuant to the limitations of Rule 144
promulgated under the Securities Act of 1933 as described above.
Under Section 16 of the Securities Exchange Act of 1934, executive
officers, directors, and 10% or greater stockholders of Advanced Optics will be
liable to us for any profit realized from any purchase and sale, or any sale and
purchase, of common stock within a period of less than six months.
35
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Kirkpatrick & Lockhart LLP, Los Angeles, California.
EXPERTS
Atkinson & Co., Ltd., independent auditors, audited our consolidated
financial statements at December 31, 2000, and for the year ended December 31,
2000, as set forth in their report. We have included our financial statements in
the prospectus and elsewhere in the registration statement in reliance on their
report given upon their authority as experts in accounting and auditing.
CHANGE IN INDEPENDENT AUDITORS
In January 2001, we decided to replace Neff & Ricci LLP as our independent
auditors with Atkinson & Co., Ltd. Our board of directors approved the decision
to change independent auditors. We had no disagreements with Neff & Ricci LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures during our two most recent fiscal
years prior to our change in independent auditors which, if not resolved to the
satisfaction of Neff & Ricci LLP, would have caused them to make reference to
the matter in their report.
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act of 1933 for the shares of common
stock in this offering. This prospectus does not contain all of the information
in the registration statement and the exhibits and schedule that were filed with
the registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedule that were filed with the registration statement. Statements contained
in this prospectus about the contents of any contract or any other document that
is filed as an exhibit to the registration statement are not necessarily
complete, and we refer you to the full text of the contract or other document
filed as an exhibit to the registration statement. A copy of the registration
statement and the exhibits and schedules that were filed with the registration
statement may be inspected without charge at the Public Reference Room
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the Securities and Exchange Commission upon
payment of the prescribed fee. Information regarding the operation of the Public
Reference Room may be obtained by calling the Securities and Exchange Commission
at 1-800-SEC-0330. The Securities and Exchange Commission maintains a web site
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the SEC. The address of the
site is
We are subject to the information and periodic reporting requirements of
the Securities Exchange Act of 1934, and in accordance with the Securities
Exchange Act of 1934, we file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
These periodic reports, proxy statements and other information are available for
inspection and copying at the regional offices, public reference facilities and
web site of the Securities and Exchange Commission referred to above.
36
F-6
ADVANCED OPTICS ELECTRONICS INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants, dated February 23, 2001.............. F-2
Report of Independent Certified Public Accountants, dated February 18, 2000.............. F-3
Report of Independent Certified Public Accountants, dated March 12, 1999................. F-4
Report of Independent Certified Public Accountant, dated February 5, 1998................ F-5
Balance Sheet as of December 31, 2000.................................................... F-6
Statements of Operations for the Years Ended December 31, 2000 and 1999 and the
Period from May 22, 1996 (Inception) F-7 through December 31,
2000.....................................................................................
Statement of Changes in Stockholders' Equity for the Period from May 22, 1996
(Inception) through December 31, 2000 F-8
Statements of Cash Flows for the Years Ended December 31, 2000 and 1999 and the
Period from May 22, 1996 (Inception) F-9 through December 31,
2000.....................................................................................
Notes to Financial Statements............................................................ F-11
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Advanced Optics Electronics, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Advanced Optics Electronics,
Inc. (A Development Stage Company), as of December 31, 2000, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of Advanced
Optics Electronics, Inc. as of December 31, 1999, and for the year ended
December 31, 1999, and for the 1996, 1997, 1998 and 1999 portions of the period
from inception (May 22, 1996) through December 31, 1999, were audited by other
auditors whose reports dated February 18, 2000 and February 5, 1998 expressed
unqualified opinions on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Optics Electronics,
Inc. (A Development Stage Company) as of December 31, 2000, and the results of
its operations and its cash flows for the year ended December 31, 2000, and for
the 2000 portion of the period from Inception (May 22, 1996) through December
31, 2000, in conformity with generally accepted accounting principles.
Atkinson & Co., Ltd.
Albuquerque, New Mexico
February 23, 2001
F-2
NEFF & RICCI LLP
- ----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
7001 PROSPECT PLACE NE
ALBUQUERQUE, NM 87110
Independent Auditors' Report
Board of Directors
Advanced Optics Electronics, Inc.
We have audited the balance sheet of Advanced Optics Electronics, Inc. (a
development stage company) as of December 31, 1999, and the related statements
of income, retained earnings, and cash flows for the years ended December 31,
1999 and 1998, and for the 1999 and 1998 portion of the period from May 22, 1996
(inception) through December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements for the 1996 and 1997 portion of the period from May 22, 1996
(inception) through December 31, 1999, were audited by other auditors whose
report dated February 5, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Optics Electronics,
Inc. as of December 31, 1999, and the results of its operations and its cash
flows for the years ended December 31, 1999 and 1998, and for the 1999 and 1998
portion of the period from May 22, 1996 (inception) through December 31, 1999,
in conformity with generally accepted accounting principles.
Albuquerque, New Mexico
/s/ Neff & Ricci LLP
February 18, 2000
F-3
NEFF & RICCI LLP
- ----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
7001 PROSPECT PLACE NE
ALBUQUERQUE, NM 87110
NEFF & RICCI LLP
Independent Auditors' Report
Board of Directors
Advanced Optics Electronics, Inc.
We have audited the balance sheet of Advanced Optics Electronics, Inc. (a
development stage company) as of December 31, 1998, and the related statements
of income, retained earnings, and cash flows for the year then ended and for the
1998 portion of the period from May 22, 1996 (inception) through December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Advanced Optics
Electronics, Inc. for the year ended December 31, 1997, and for the 1996 and
1997 portion of the period from May 22, 1996 (inception) through December 31,
1998, were audited by other auditors whose report dated February 5, 1998,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Optics Electronics,
Inc. as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended and for the 1998 portion of the period from May
22, 1996 (inception) through December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Neff & Ricci LLP
Albuquerque, New Mexico
March 12, 1999
F-4
REPORT OF INDEPENDENT ACCOUNTANT
I have audited the accompanying balance sheet of Advanced Optics, Inc. (a Nevada
corporation) as of December 31, 1997 and 1996 and the related statements of
income, cash flow, and changes in shareholders equity for the year ended
December 31, 1997 and for the period from inception (May 22, 1996) through
December 31, 1996. These statements are the responsibility of Advanced Optics
Electronics, Inc.'s management. My responsibility is to express an opinion on
these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amount and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. I believer that my audit of the financial statements provide a
reasonable basis for my opinion.
In my opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of Advanced Optics Electronics, Inc.
as of December 31, 1997 and 1996 and the results of operations and cash flows
for the year ended December 31, 1997 and for the period from inception (May 22,
1996) through December 31, 1996 in conformity with generally accepted accounting
principles.
/S/ Athena L. McDevitt
- ------------------------
Athena L. McDevitt
Albuquerque, New Mexico
February 5, 1998
F-5
Advanced Optics Electronics, Inc.
(A Development Stage Company)
BALANCE SHEET
December 31, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 409,287
Certificates of deposit 107,426
Costs and estimated earnings in excess of
billings on uncompleted contract 672,872
------------------
Total current assets 1,189,585
------------------
PROPERTY AND EQUIPMENT, net 259,175
------------------
DEFERRED TAX ASSET 643,200
------------------
OTHER ASSETS
Intangible assets, net 318,727
Investment in Bio Moda, Inc. 207,335
Other assets 74,042
Note receivable from officer and shareholder 44,493
------------------
Total other assets 644,597
------------------
Total assets $ 2,736,557
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 198,186
Accrued liabilities 18,040
Current portion of long-term obligations 49,799
Allowance for loss on contract 92,382
-----------------
Total current liabilities 358,407
-----------------
LONG-TERM PORTION OF LONG-TERM
DEBT AND CAPITAL LEASE OBLIGATION 48,080
CONVERTIBLE DEBENTURES 1,215,677
STOCKHOLDERS' EQUITY
Capital stock - Preferred Series A, 7.5% cumulative, convertible into
common stock at a rate determined by dividing the purchase price of
the preferred shares by the conversion price of the common stock;
$.001 par value; authorized 10,000,000 shares, no shares
issued or outstanding --
Common stock - Authorized 150,000,000 shares, $.001
par value; 61,928,175 shares issued and 61,863,075
shares outstanding 61,928
Additional paid-in capital 8,322,586
Deficit accumulated during the development stage (7,022,120)
Treasury stock, at cost (54,574)
Notes receivable from officer for exercise of stock options (193,427)
-----------------
Total stockholders' equity 1,114,393
-----------------
Total liabilities and stockholders' equity $ 2,736,557
=================
The accompanying notes are an integral part of these financial statements.
F-6
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Years ended December 31, 2000 and 1999
and the Period from May 22, 1996 (Inception)
through December 31, 2000
May 22, 1996
(Inception)
Through
December 31,
2000 1999 2000
---------------- ----------------- ----------------
Revenues
Contract revenue $ 202,200 $ 310,345 $ 762,745
Costs and expenses
General and administrative 2,340,179 1,952,600 4,912,914
Contract costs 586,383 468,221 1,327,744
Research and development 732,029 239,029 1,160,176
---------------- ----------------- ----------------
Total costs and expenses 3,658,591 2,659,850 7,400,834
---------------- ----------------- ----------------
Operating loss (3,456,391) (2,349,505) (6,638,089)
---------------- ----------------- ----------------
Other income (expenses)
Interest income 18,614 10,865 30,330
Gain (loss) on marketable
equity securities 4,191 (26,684) (29,368)
Other investment gains 59,784 -- 59,784
Loss on Bio Moda, Inc. -- (108,086) (176,510)
Loss on disposal of assets (10,306) -- (10,306)
Interest expense (459,027) (189,374) (655,462)
---------------- ----------------- ----------------
Total other expenses (386,744) (313,279) (781,532)
---------------- ----------------- ----------------
Net loss before cumulative effect of
change in accounting principle (3,843,135) (2,662,784) (7,419,621)
---------------- ----------------- ----------------
Cumulative effect of change in
accounting principle - (63,020) (63,020)
Provision for income tax benefit 643,200 - 643,200
---------------- ----------------- ----------------
Net loss $ (3,199,935) $ (2,725,804) $ (6,839,441)
================ ================= ================
Net loss per share before cumulative effect
of change in accounting principle $ (.055) $ (.070) $ (.247)
Cumulative effect of change in
accounting principle -- (.002) (.002)
---------------- ----------------- ----------------
Net loss per share $ (.055) $ (0.072) $ (.249)
================ ================= ================
Weighted average shares outstanding 58,029,724 37,809,084 27,649,615
================ ================= ================
The accompanying notes are an integral part of these financial statements.
F-7
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from May 22, 1996 (Inception)
through December 31, 2000
Common Stock Preferred Stock Treasury Stock Equity
-------------------- ----------------- ----------------- (Deficit) Notes
Additional During the Receivable
Par Par Paid-In Development From
Shares Value Shares Value Shares Cost Capital Stage Officer
---------- ------- ------ ------ ------- -------- ---------- ----------- ---------
Balance, May 22, 1996 -- $ -- -- $ -- $ -- $ -- $ -- $ --
Stock issued to incorporators 500,000 500 -- -- -- -- 24,500 -- --
for cash
Stock issued for the net 4,500,000 4,500 -- -- -- -- 281,096 -- --
assets of PLZ Tech, Inc.
Net loss -- -- -- -- -- -- -- (76,902) --
---------- ------- ------ ------ ------- -------- ---------- ----------- ---------
Balance, December 31, 1996 5,000,000 5,000 -- -- -- -- 305,596 (76,902) --
Stock issued in public 2,281,212 2,281 -- -- -- -- 362,720 -- --
offering
Net loss -- -- -- -- -- -- -- (84,690) --
---------- ------- ------ ------ ------- -------- ---------- ----------- ---------
Balance, December 31, 1997 7,281,212 7,281 -- -- -- -- 668,316 (161,592) --
Stock issued for cash 10,979,275 10,979 -- -- -- -- 1,281,728 -- --
Stock issued for services 2,751,000 2,751 -- -- -- -- 293,719 -- --
Stock issued in exchange for 315,000 315 -- -- -- -- 28,685 -- --
note receivable
Purchase and retirement of (472,200) (472) -- -- -- -- (39,913) -- --
treasury stock
Net loss -- -- -- -- -- -- -- (752,111) --
---------- ------- ------ ------ ------- -------- ---------- ----------- ---------
Balance, December 31, 1998 20,854,287 20,854 -- -- -- -- 2,232,535 (913,703) --
Stock issued for cash 8,681,624 8,682 -- -- -- -- 855,101 -- --
Stock issued for services 17,094,313 17,094 -- -- -- -- 1,469,320 -- --
Intrinsic value of beneficial
conversion feature of notes -- -- -- -- -- -- 174,610 -- --
payable
Fair value of warrants -- -- -- -- -- -- 125,000 -- --
related to notes payable
Purchase and retirement of (489,251) (489) -- -- -- -- (10,643) -- --
treasury stock
Purchase of treasury stock -- -- -- -- (229,000) (41,760) -- -- --
Sale of treasury stock -- -- -- -- 85,000 11,130 24,334 -- --
Net loss -- -- -- -- -- -- -- (2,725,804) --
---------- ------- ------ ------ ------- -------- ---------- ----------- ---------
Balance, December 31, 1999 46,140,973 46,141 -- -- 144,000) (30,630) 4,870,257 (3,639,507) --
Stock issued for cash 782,000 782 710 1 -- -- 1,012,710 -- --
Stock issued for services 3,955,202 3,955 -- -- -- 1,726,197 -- --
Purchase of treasury stock -- -- -- -- (63,500) (46,486) -- -- --
Sale of treasury stock -- -- -- -- 142,400 22,542 54,771 -- --
Exercise of stock options for 1,850,000 1,850 -- -- -- -- 220,150 -- (193,427)
notes receivable
Amortization of discount on -- -- -- -- -- -- 159,677 -- --
convertible preferred stock
Exercise of preferred stock 9,200,000 9,200 -- -- -- -- 533,678 -- --
conversion feature
Issuance of convertible -- -- -- -- -- -- 263,830 -- --
debentures
Exchange of preferred stock -- -- (710) (1) -- -- (417,101) (224,678) --
for convertible debentures
-- -- -- -- -- -- (101,583) 42,000 --
Net loss -- -- -- -- -- -- -- (3,199,935) --
---------- ------- ------ ------ ------- -------- ---------- ----------- ---------
Balance, December 31, 2000 61,928,175 $61,928 -- $ -- (65,100) $ 54,574) $8,322,586 $(7,022,120) $(193,427)
========== ======= ====== ====== ======= ======== ========== =========== =========
Total
Stockholder
Equity
----------
Balance, May 22, 1996 $ --
Stock issued to incorporators 25,000
for cash
Stock issued for the net 285,596
assets of PLZ Tech, Inc.
Net loss (76,902)
----------
Balance, December 31, 1996 233,694
Stock issued in public 365,001
offering
Net loss (84,690)
----------
Balance, December 31, 1997 514,005
Stock issued for cash 1,292,707
Stock issued for services 296,470
Stock issued in exchange for 29,000
note receivable
Purchase and retirement of (40,385)
treasury stock
Net loss (752,111)
----------
Balance, December 31, 1998 1,339,686
Stock issued for cash 863,783
Stock issued for services 1,486,414
Intrinsic value of beneficial
conversion feature of notes 174,610
payable
Fair value of warrants 125,000
related to notes payable
Purchase and retirement of (11,132)
treasury stock
Purchase of treasury stock (41,760)
Sale of treasury stock 35,464
Net loss (2,725,804)
----------
Balance, December 31, 1999 1,246,261
Stock issued for cash 1,013,493
Stock issued for services 1,730,152
Purchase of treasury stock (46,486)
Sale of treasury stock 77,313
Exercise of stock options for 28,573
notes receivable
Amortization of discount on 159,677
convertible preferred stock
Exercise of preferred stock 542,878
conversion feature
Issuance of convertible 263,830
debentures
Exchange of preferred stock (641,780)
for convertible debentures
(59,583)
Net loss (3,199,935)
----------
Balance, December 31, 2000 $1,114,393
==========
The accompanying notes are an integral part of these financial statements.
F-8
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Years ended December 31, 2000 and 1999
and the Period from May 22, 1996 (Inception)
through December 31, 2000
May 22, 1996
(Inception)
Through
December 31,
2000 1999 2000
---------------- ----------------- ----------------
Cash flows from operating activities
Net loss $ (3,199,935) $ (2,725,804) $ (6,847,695)
Adjustments to reconcile net loss to net cash
provided by operating activities
Provision for deferred tax asset (643,200) -- (643,200)
Intrinsic value of conversion features 466,728 -- 466,728
Depreciation 80,572 87,755 275,098
Amortization 26,747 -- 26,747
Write-off of organization costs -- 63,020 63,020
Amortization of discounts on
convertible notes 159,677 135,532 295,209
(Gain) loss on marketable securities (4,191) 26,684 29,368
Loss on disposal of assets 10,306 -- 10,306
Loss on Bio Moda, Inc. -- 108,086 176,510
Issuance of common stock for services 1,730,152 1,486,414 3,513,036
Issuance of notes for services -- 50,000 50,000
Increase (decrease) in excess of costs and earnings
over billings on uncompleted contract (112,327) (310,345) (672,872)
Increase (decrease) in other receivables -- (22,477) (79,874)
Increase (decrease) in inventory -- (35,293) (35,293)
Increase (decrease) in allowance for loss
on contract 20,837 71,545 92,382
Increase (decrease) in accrued liabilities
and accounts payable 135,846 44,967 224,479
Other non-cash expenses 33,447 -- 33,447
Accrued interest 30,667 -- 30,667
---------------- ----------------- ----------------
Net cash provided by (used in)
operating activities (1,264,674) (1,019,916) (2,991,937)
---------------- ----------------- ----------------
Cash flows from investing activities
Purchase of equipment (39,903) (133,824) (352,243)
Investment in Bio Moda, Inc. -- (25,000) (383,845)
Sale of marketable securities 40,665 -- 40,665
Purchase of marketable securities -- -- (70,034)
Increase in certificate of deposits (2,844) (54,582) (107,426)
Purchase of other assets (136,705) (9,650) (233,132)
Redemption of (investment in) Wizard Technologies 65,000 (65,000) -
---------------- ----------------- ----------------
Net cash provided by (used in)
investing activities (73,787) (288,056) (1,106,015)
---------------- ----------------- ----------------
The accompanying notes are an integral part of these financial statements.
F-9
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 2000 and 1999
and the Period from May 22, 1996 (Inception)
through December 31, 2000
May 22, 1996
(Inception)
Through
December 31,
2000 1999 2000
---------------- ----------------- ----------------
Cash flows from financing activities
Additions to notes payable 50,000 478,050 622,776
Payments on notes payable and capital
lease obligations (50,532) (30,658) (172,108)
Issuance of capital stock 1,013,493 863,783 3,559,984
Collection of notes receivable from officer 28,573 - 28,573
Sale of treasury stock 77,313 35,464 112,777
Purchase of treasury stock (46,486) (52,892) (129,763)
Proceeds from issuance of convertible preferred stock 485,000 - 485,000
---------------- ----------------- ----------------
Net cash provided by financing activities 1,557,361 1,293,747 4,507,239
---------------- ----------------- ----------------
NET INCREASE (DECREASE) IN CASH 218,900 (14,225) 409,287
Cash and cash equivalents, beginning of period 190,387 204,612 -
---------------- ----------------- ----------------
Cash and cash equivalents, end of period $ 409,287 $ 190,387 $ 409,287
================ ================= ================
The accompanying notes are an integral part of these financial statements.
F-10
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows.
Description of Business
Advanced Optics Electronics, Inc. (the Company) is a developmental stage
technology company with its principal focus on the development and production of
large-scale flat panel displays. The Company is currently continuing its
research and development of this product. Upon substantial completion of the
research and development of the large flat panel display, the Company plans to
make the transition from a developmental stage company to selling and producing
this product. The market for the large-scale flat panel displays will include
advertising billboards, flat panel computer monitors, and cockpit displays. The
Company plans to focus on producing and selling the large-scale flat panel
displays for outdoor advertising billboards.
The Company has obtained a contract to produce two outdoor advertising
billboards using its flat panel display technology. This is the first commercial
application of the Company's technology. The success of the Company will depend
on its ability to commercialize its technology and complete this contract. As of
December 31, 2000, completion of this contract was behind schedule.
While management believes the contract will ultimately be completed, there can
be no certainty that this will be accomplished because the technology has not
yet been used in a commercial application. In addition, the Company may be
required to obtain additional capital in order to fund the completion of the
contract.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
instruments with original maturities of three months or less. The Company's cash
deposits are maintained in local branches of national financial institutions and
are insured by the Federal Deposit Insurance Corporation up to $100,000 at each
institution. Cash balances may from time to time exceed these insurance limits,
but management believes the Company is not exposed to any risk of loss from
these deposits.
F-11
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Revenue and Cost Recognition
The Company recognizes revenue on its contract in process using the
percentage-of-completion method of accounting, which is based on the proportion
of the contract cost incurred to the estimated total contract cost. Costs
incurred and estimated earnings in excess of billings represent the revenue
recognized that has not yet been billed.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies,
overhead, equipment depreciation, and interest.
The contract to produce two outdoor advertising billboards totals $1.7 million,
with $885,000 assigned to the first unit. An estimated loss of approximately
$565,000 from production of the first unit has been recognized through December
31, 2000. The Company's estimated cost to complete as of December 31, 2000 is
$122,255 which is expected to be funded with cash, billings on the contract and
contributed capital.
In accordance with the contract, the Company will bill the customer when certain
milestones are met. Billings and collections through December 31, 2000 have
totaled $89,873.
Adjustments to the original estimates of total contract revenues, total contract
costs, and the extent of progress toward completion are often required as work
progresses under the contract, and as experience is gained, even though the
scope of the work may not change. The nature of accounting for contracts is such
that refinements of the estimating process for continuously changing conditions
and new developments are a characteristic of the process. Accordingly,
provisions for losses on contracts are made in the period in which they become
evident under the percentage-of-completion method. It is at least reasonably
possible that the estimate of completion costs for this contract will be further
revised in the near-term.
Investment
As of December 31, 2000, the Company owned 16.4% of the outstanding common stock
of Bio Moda, Inc., an unconsolidated investment accounted for using the cost
method. Prior to December 31, 1999, the Company's ownership was sufficient for
the investment to be accounted for using the equity method.
F-12
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Investment-Continued
The carrying value of the investment as of December 31, 2000 is the original
investment cost adjusted by the Company's proportionate interest in losses
reported by the investee through December 31, 1999.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Repair and maintenance costs
are charged against income as incurred. Asset additions, renewals and
betterments are capitalized at cost and depreciated using the straight-line
method over estimated useful lives ranging from 3 to 15 years.
Other Assets
Intangible assets are carried at historical cost, net of accumulated
amortization. Patents are amortized on a straight-line basis over their
estimated useful lives of 17 years. Goodwill is amortized over 40 years. Debt
origination costs are amortized over 3 years.
Certain assets previously classified as inventory are no longer used in the
Company's on-going production processes, and are held for sale. Management
estimates that the net realizable value of these items exceeds their carrying
value as of December 31, 2000.
Research and Development Costs
Research and development costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes using the liability method, under which,
deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. The Company has recorded a deferred tax
benefit relating to its incurrance of operating losses since inception. A
valuation allowance has been provided due to uncertainty regarding realizability
of the tax asset.
F-13
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Loss Per Share
Loss per share is computed on the basis of the weighted average number of common
shares outstanding during the period and did not include the effect of potential
common stock as their inclusion would reduce loss per share. The numerator for
the computation is the net loss and the denominator is the weighted average
shares of common stock outstanding. Certain options and warrants outstanding
were not included in the computation of loss per share because their inclusion
would reduce loss per share.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The principal areas requiring
estimation are revenue recognition based on the percentage of completion method,
loss allowances and the valuation of common stock issued for services.
Stock-Based Compensation
The Company has elected to apply the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and to furnish the
proforma disclosures required by Statement on Financial Accounting Standards No.
123, Accounting for Stock Based Compensation. See note 10.
Reclassifications
Certain reclassifications have been made to 1999 information to conform to the
2000 presentation.
Comprehensive Income
In 2000 and 1999, the Company had no changes in equity which constituted
components of other comprehensive income.
F-14
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 2. NOTES RECEIVABLE
Notes receivable at December 31, 2000, consist of the following:
Due from officer $ 29,493
Note receivable from former shareholder,
interest at 8% and due on demand 15,000
---------
$ 44,493
The Company also has notes receivable from an officer totaling $193,427 which
bear interest at 10% per annum, and are due in 2003. These notes were received
as consideration upon exercise of stock options.
NOTE 3. INVESTMENTS
As of December 31, 2000, the Company owned 879,707 or 16.4% of the 5,373,858
outstanding shares of Bio Moda, Inc. The Company's interest in Bio Moda has
declined from 22% in 1998 to its present level, as Bio Moda has issued
additional shares in the course of its financing activities. As of December 31,
2000, the Company had options to purchase an additional 187,000 shares at .485
cents per share.
Bio Moda, Inc. is a development stage company involved primarily in the
development of technology for the early detection of lung cancer. As a
development stage company, Bio Moda, Inc. has not had any revenues and, as of
December 31, 2000, was in the process of conducting clinical trials.
There is currently no active market for the common stock of Bio Moda, Inc. The
ultimate value of the Company's investment in Bio Moda, Inc. will depend on its
ability to complete its research and either commercialize or sell its
proprietary technology.
F-15
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 3. INVESTMENTS - CONTINUED
The investment in Bio Moda, Inc. is accounted for using the cost method. A
summary of the investment is as follows:
Original cost $ 383,845
Share of net loss (134,010)
Amortization of excess of cost
over book value (42,500)
----------
Carrying value of investment in Bio Moda, Inc. $ 207,335
==========
In August 1999, the Company issued 200,000 shares of its common stock to Wizard
Technologies, Inc. for $88,580. The Company then purchased a 10 percent
ownership in Wizard for $65,000 with the proceeds. During the quarter ending
March 31, 2000, the Company sold all of its shares of Wizard's common stock to
Wizard for its original investment of $65,000.
NOTE 4. LONG-TERM OBLIGATIONS
As of December 31, 2000, the Company's long-term obligations were as follows:
Notes payable to a financial institution,
due in monthly payments aggregating $3,221
through October 2003, bearing interest at
bank prime rate plus 1.5%, collateralized
by operating equipment and a vehicle $ 80,276
Capital lease obligation 17,603
----------
97,879
Less: Current portion (49,799)
----------
$ 48,080
==========
F-16
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 4. LONG-TERM OBLIGATIONS - CONTINUED
The Company is obligated under a long-term capital lease which requires monthly
minimum lease payments of $2,810 through May 2001. As of December 31, 2000, the
leased equipment has a net book value of $50,850.
Future principle payments on long-term obligations for the years ending December
31, are as follows:
2001 $ 49,799
2002 31,496
2003 16,584
----------
$ 97,879
NOTE 5. CONVERTIBLE DEBENTURES
On June 3, 1999, the Company issued $500,000 in convertible notes which bear
interest at an annual rate of 8 percent and mature (principal and interest) on
May 31, 2001. Effective August 1, 1999, the notes were convertible into shares
of common stock at a 25 percent discount to the closing bid price of a share of
common stock at the time of conversion or the time of exercise. The notes were
issued in exchange for $430,000 in cash, $50,000 in legal services and $20,000
in commissions. The commissions have been capitalized as debt origination costs
and are being amortized over the life of the notes. The notes are unsecured.
The intrinsic value of the conversion feature of the principal and accrued
interest was estimated to be $174,610. This has been recorded as an increase in
paid-in capital and a discount to the convertible notes payable, with related
amortization being charged to interest expense. The discount is being amortized
over a one-year period, which is management's estimate of time before any
conversion will be exercised. The convertible notes also include detachable
warrants for the purchase of 12,500,000 shares of common stock at the lower of
75 percent of the closing bid price of a share of common stock at the time of
exercise or September 1, 1999. The warrants expire on June 3, 2002. Management
estimates that approximately half the warrants will be exercised prior to
expiration.
Management estimated the fair market value of these warrants at $125,000 and
recorded this amount as an increase in paid-in capital and a discount to the
convertible notes payable. The discount is being amortized over the two-year
life of the notes.
F-17
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 5. CONVERTIBLE DEBENTURES - CONTINUED
A significant contingency required by the aforementioned convertible note and
warrant agreements is the registration of the underlying shares with the
Securities and Exchange Commission. The Company is to use its best efforts to
register these shares and is in the process of preparing the registration
statement.
On June 12, 2000, the Company entered into an agreement that modified the
convertible notes agreement entered into on June 3, 1999. The result of the
modified agreement was the issuance of 9,200,000 shares of the Company's common
stock upon conversion of the convertible notes plus accrued interest through
June 12, 2000, which totaled $542,878. This transaction constituted a conversion
of the outstanding convertible notes, and as such, $40,058 of unamortized
intrinsic value of the conversion feature was charged to interest expense during
the quarter. In addition, the modified agreement voided the related 12,500,000
detachable warrants, and, as a result, the unamortized discount of $72,917 on
the estimated fair market value of $125,000 for the warrants was charged to
interest expense during the quarter.
On September 15, 2000, the Company entered into an agreement to issue a total of
$10,000,000 in convertible notes which bear interest at an annual rate of 8
percent. The Company has authorized the initial sale of $2,000,000 of the
convertible notes, and has entered into a structured facility with purchasers in
which the purchasers shall be obligated to purchase the remaining $8,000,000 of
convertible notes. The Company's right to require the Purchasers to purchase
notes commences on the actual effective date of the registration of the
Company's securities in an amount equal to the securities that would be
convertible upon issuance of the notes. The related agreement provides for a
limit on the amount of obligation notes that the Company may require the
Purchasers to purchase in a given month.
On September 15, 2000, the Company issued $500,000 of the initial $2,000,000 in
convertible notes which bear interest at an annual rate of 8 percent and mature
(principal and interest) on September 15, 2003. Effective as of the issuance
date, the notes are convertible into shares of common stock at the lesser of a
25 percent discount to the average of the three lowest closing bid prices during
the thirty trading days prior to the issue date of this note and a 20 percent
discount to the average of the three lowest closing bid prices for the ninety
trading days prior to the conversion date. The notes were issued in exchange for
$430,000 in cash, $20,000 in legal services and $50,000 in commissions. The
commissions have been capitalized as debt origination costs and are being
amortized over the life of the notes. The notes are unsecured.
F-18
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 5. CONVERTIBLE DEBENTURES - CONTINUED
The intrinsic value of the conversion feature of the principal and accrued
interest was estimated to be $238,830. This has been recorded as an increase in
paid-in capital and a discount to the convertible notes payable, with related
amortization being charged to interest expense. The discount is being amortized
over a one-year period, which is management's estimate of time before any
conversion will be exercised. The convertible notes also include detachable
warrants for the purchase of 500,000 shares of common stock. Management has
estimated the fair market value of these warrants at $25,000 and recorded this
amount as an increase in paid-in capital and a discount to the convertible notes
payable. The discount is being amortized over the three-year life of the notes.
A significant contingency required by the aforementioned convertible notes is
the registration of the underlying shares with the Securities and Exchange
Commission. The Company is to use its best efforts to register these shares and
the registration statement has been filed.
On November 7, 2000, the Company entered into an agreement that modified the
outstanding convertible preferred agreements entered into on March 8, 2000 and
August 2, 2000. The new agreement resulted in the exchange of outstanding
preferred stock plus additional consideration for the Company's 7.5 percent
convertible debentures due November 7, 2003. The total amount of the debentures
is $740,667, including accrued interest of $30,667. The debentures are
convertible into shares of common stock at the lessor of the stocks closing
price on March 8, 2000 and 77.5 percent of the average of the five lowest
closing bid prices for 20 days before November 2, 2000.
The intrinsic value of the conversion feature of the principal and accrued
interest was estimated to be $227,898. The convertible debentures also include
detachable warrants for the purchase of 71,000 shares of common stock.
Management has estimated the fair market value of these warrants at $3,550.
F-19
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's carrying values and methodologies for estimating the fair values
of its financial instruments are as follows:
Cash, cash equivalents, and certificates of deposit, costs and estimated
loss in excess of billings on uncompleted contract, and accounts payable.
The carrying amounts reported in the accompanying balance sheet approximate
fair values.
Notes receivable. Management estimates that the carrying amounts are
reasonable estimates of their fair values.
Long-term obligations. Notes payable to bank have variable rates that
reflect currently available terms for similar debt, and accordingly the
carrying values are reasonable estimates of their fair values. Due to the
short-term maturity of the capital lease, management estimates that the
carrying value approximates its fair value.
Convertible debentures. Management estimates the carrying values to
approximate their fair values.
Notes receivable from officer. Management estimates these notes to be fully
collectible, and that the carrying values are reasonable estimates of their
fair values.
The carrying amounts and fair values of the Company's financial instruments
as of December 31, 2000 are as follows:
Estimated
Carrying Fair
Amount Value
----------- -----------
Cash and cash equivalents $ 409,287 $ 409,287
Certificates of deposit 107,426 107,426
Costs and estimated loss in excess
of billings on uncompleted contract 672,872 672,872
Notes receivable 44,493 44,493
Accounts payable 198,186 198,186
Long-term obligations 97,879 97,879
Convertible debentures 1,215,677 1,215,677
Notes receivable from officer 193,427 193,427
F-20
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 7. INCOME TAXES
The Company has recorded a deferred tax asset in the amount of $643,200, net of
a valuation allowance on $2,316,800, reflecting the expected benefit of
approximately $7,400,000 in net operating loss carryforwards which expire in
varying amounts between 2016 through 2020. Realization of this asset is
dependent on generating sufficient taxable income prior to expiration of the
loss carryforwards. Although realization is not assured, management believes it
is more likely than not that the deferred tax asset will be realized. The amount
of the deferred tax asset considered realizable, however, could be reduced or
increased in the near term if estimates of future taxable income during the
carryforward period are revised.
NOTE 8. OPERATING LEASES
The Company occupies administrative, engineering, and manufacturing facilities
under operating leases which expire in February 2002. The leases call for
aggregate minimum monthly lease payments of $4,225. Lease expense totaled
$48,975 and $34,600 in 2000 and 1999, respectively, and $97,209 in the period
from May 22, 1996 (inception) through December 31, 2000.
Future minimum lease payments under the long-term operating lease are as
follows:
2001 $ 50,700
2002 8,450
---------
$ 59,150
NOTE 9. EQUITY TRANSACTIONS
The Company was initially capitalized through the issuance of 500,000 shares for
$25,000 in cash. In November 1996, the Company issued 4,500,000 shares in
exchange for the outstanding shares of PLZ Tech, Inc. The transaction was
accounted for as a purchase, and all assets acquired and liabilities assumed
were recorded at their book values, as determined in accordance with generally
accepted accounting principles. Intangible assets of PLZ Tech acquired in the
purchase transaction were carried at historical book values. Research and
development costs of PLZ Tech were expensed as incurred. In previous financial
statements, the Company did not present unclaimed shares resulting from the
merger with PLZ Tech as outstanding shares. In the accompanying 1997 and prior
financial statements the number of shares outstanding has been restated to
include these shares.
During 1997, the Company issued 2,281,212 shares of stock in a public offering,
primarily for cash.
During 1998, the Company repurchased 472,200 of its outstanding stock in
exchange for $10,000 in notes receivable and $20,385 in cash in various
transactions. This stock was subsequently retired.
F-21
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 9. EQUITY TRANSACTIONS - CONTINUED
The Company also issued 9,274,811 shares of common stock in exchange for
$1,292,707 in cash, net of sales commissions and other direct costs. Certain of
these sales included price maintenance agreements resulting in the issuance of
an additional 1,704,464 shares of stock in 1998.
In 1998, the Company issued 2,751,000 shares of common stock in exchange for
services from contractors, officers and others. These shares were valued at the
estimated fair market value for similar issuances of stock and amounted to
$296,470. The Company also issued 315,000 shares to an officer in exchange for a
note receivable of $29,000. The note bears interest at the rate of 7 percent
with interest due semiannually and the principal due July 2001.
In 1999, the Company repurchased 489,251 shares of its outstanding stock for
$11,132 in cash. These shares were retired. The Company also repurchased 229,000
shares for $41,760 and resold 85,000 of these shares for $35,464. The remaining
144,000 treasury shares have been recorded at cost.
The Company also sold 8,681,624 shares for $863,782 in cash, and issued
17,094,313 shares for services from contractors, officers and others, which were
valued at $1,486,414.
During the quarter ending March 31, 2000, the Company sold 782,000 shares of its
common stock for $368,495 in cash, and issued 1,791,733 shares of its common
stock for services from contractors, officers and others, which were valued at
$1,120,233. The value of the services is included in the costs and expenses on
the Statements of Operations.
Also during this quarter, the Company sold 25,000 shares of its treasury stock
for $49,770 and repurchased 6,500 shares for $7,683. The repurchased shares have
been recorded at cost.
On March 14, 2000, the Company issued 550 shares of its Series A convertible
preferred stock for $550,000. Related finders fees and attorney fees were
$65,000, and were netted against the proceeds for a net increase in cash and
equity of $485,000. Effective June 14, 2000, the shares were convertible into
shares of common stock at the lesser of 110 percent of the closing bid price of
a share of common stock on March 13, 2000 or 77.5 percent of the average of the
five lowest closing bid prices for the common stock for the twenty trading days
immediately preceding the conversion date.
F-22
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 9. EQUITY TRANSACTIONS - CONTINUED
Management estimated the intrinsic value of the conversion feature to be
$159,677. This has been recorded as an increase in paid-in capital and a
discount to the convertible preferred stock, with related amortization being
charged to retained earnings as constructive dividends. The discount is being
amortized over a 90-day period, which is the period from the date of issuance to
the point at which the preferred shares can be converted to common shares. The
convertible preferred stock also includes detachable warrants for the purchase
of 55,000 shares of common stock at a purchase price per share equal to 110
percent of the closing bid price for the common stock on the closing date (March
8, 2000). The warrants expire on March 8, 2005. The detachable warrants have not
been valued in the accompanying financial statements, as management estimates
their fair market value to be immaterial.
During the quarter ended June 30, 2000, the Company issued 1,247,970 shares of
its common stock for services from contractors, officers and others, which were
valued at $385,429. The value of the services is included in the costs and
expenses on the Statements of Operations. The Company also repurchased 44,000
shares of its outstanding common stock for $33,817 in cash. These shares
remained in treasury at June 30, 2000, and have been recorded at cost.
Also during this quarter, an officer of the Company exercised 1,000,000 stock
options at a price of $0.12 per share. The Company issued a note receivable to
the officer in the amount of $120,000 for the shares. Interest for the first
quarter was prepaid.
During the quarter ended September 30, 2000, the Company issued 300,000 shares
of its common stock for services from contractors, officers and others, which
were valued at $90,260. The value of the services is included in the costs and
expenses on the Statements of Operations. The Company also sold 45,000 shares of
its outstanding common stock for $27,543 in cash and repurchased 13,000 shares
of its outstanding common stock for $4,986. These shares remained in treasury at
September 30, 2000, and have been recorded at cost.
An officer of the Company exercised 850,000 stock options at a price of $0.12
per share. The Company issued notes receivable to the officer in the amount of
$102,000 for the shares.
Also, during the quarter the Company issued 160 shares of preferred stock for
$160,000 in cash.
During the quarter ended December 31, 2000, the Company issued 615,500 shares of
common stock for services from contractors, officers, and others, valued at
$130,275.
F-23
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 10. STOCK PLANS
On January 4, 1999, the Company established the Incentive Stock Option Plan.
Pursuant to the Plan, up to 10,000,000 shares of the Company's common stock may
be granted as options to key employees. The shares issued upon exercise of the
options may be authorized and unissued shares or shares held by the Company in
its treasury. The exercise date of the options is based on the related agreement
as approved by the Board of Directors. The Incentive Stock Option Plan expires
on January 4, 2009. Options awarded under the Plan have four-year terms and vest
ratably over one to two year periods. As of December 31, 2000, there were
6,175,000 shares available under the Plan for future awards.
The Company applies APB Opinion No. 25 in its accounting for the Plan, and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under Statement of
Financial Accounting Standards No. 123, the Company's net loss and loss per
share would have been increased to the proforma amounts indicated as follows:
2000 1999 1998
------------ ------------ ----------
Net loss, as reported $(3,199,935) $(2,725,804) $(752,111)
Proforma net loss (3,575,534) (2,940,633) (752,111)
Loss per share, as reported (0.055) (0.072) (0.055)
Proforma loss per share (0.061) (0.078) (0.055)
The fair value of each option grant for the above proforma disclosure is
estimated on the date of the grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: dividends of $0 per year;
expected volatility of 42.3 percent; risk-free interest rate of 6.0 percent; and
expected lives of four years.
During the year ended December 31, 2000, the Company granted 5,825,000 stock
options to certain key employees, cancelled and replaced 2,775,000 options, and
had 2,000,000 options exercised, resulting in total stock options granted and
unexercised of 3,825,000 as of December 31, 2000. The shares issued upon
exercise of the options may be authorized and unissued shares or shares held by
the Company in its treasury. The exercise date of options granted is based upon
the related agreement as approved by the Board of Directors.
F-24
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 10. STOCK PLANS - CONTINUED
The Company also issued Stock Purchase Warrants to key employees. The total
number of "warrant shares" issued under these agreements was 3,425,000 shares,
exercisable at any time until they expire on June 15, 2004. The price
established for the shares ranges from $0.15 to $0.41 per share.
A summary of the common stock option and warrant activity for employees,
directors and officers is as follows:
Weighted
Warrants Average
and Exercise
Options Prices Exercisable
----------- --------- -----------
Balance, December 31, 1997 153,954 $ 0.58 153,954
Balance, December 31, 1998 153,954 0.58 153,954
Granted 6,900,000 0.16
Expired (153,954) 0.58
-----------
Balance, December 31, 1999 6,900,000 0.16 6,185,000
=========
Cancelled (2,775,000) 0.72
Replacement 2,775,000 0.34
Granted 6,200,000 0.72
Exercised (2,000,000) 0.12
-----------
Balance, December 31, 2000 11,100,000 0.27 9,517,500
=========== =========
The option price established for the shares upon exercise ranges from $0.12 to
$0.34 per share, and expire through October 2004.
F-25
INSIDE BACK COVER
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24 Indemnification of Directors And Officers
Section 78.7502 of the Nevada Revised Statutes permits the Registrant to,
and Article X of the Registrant's Articles of Incorporation provides that the
Registrant may, indemnify each person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was, or has agreed to become, a director or
officer of the Registrant, or is or was serving, or has agreed to serve, at the
request of the Registrant, as a director, officer or trustee of, or in a similar
capacity with, another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan), or by reason of any action
alleged to have been taken or omitted in such capacity, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf relating to such
action, suit or proceeding and any appeal therefrom.
Item 25 Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, if any, payable by the Registrant
relating to the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
SEC registration fee................................................... $ 5,000
Printing and engraving expenses........................................ 5,000
Legal fees and expenses................................................ 100,000
Accounting fees and expenses........................................... 30,000
Transfer agent and registrar's fees and expenses....................... 5,000
Federal and state taxes................................................ --
Fees and expenses (including legal fees) for qualifications under
state securities laws................................................ 15,000
Miscellaneous expenses................................................. 5,000
--------
Total............................................................. $165,000
========
Item 26 Recent Sales of Unregistered Securities
During the last three years, we have issued unregistered securities to the
persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, except as specified below,
or any public offering, and we believe that each transaction was exempt from the
registration requirements of the Securities Act of 1933 by virtue of Section
4(2) thereof, Regulation D promulgated thereunder or Rule 701 pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under such Rule 701. All recipients had adequate access, through their
relationships with us, to information about us.
II-1
I. RFL/TRITON
(1) March 8, 2000
(a) Securities sold. Give the date of sale and title and amount of
securities sold.
(i) Date: March 3, 2000.
(ii) Title of securities: Series A Convertible Preferred Stock and
warrants to purchase Common Stock.
(iii) Amount: 550 shares of Series A Convertible Preferred Stock and
warrants to purchase 55,000 shares of Common Stock.
(b) Underwriters and other purchasers:
The purchasers were:
RFL Asset Management, LLC
Triton Private Equities Fund, L.P.
(c) Consideration. State the aggregate offering price and aggregate
underwriting commissions:
The aggregate offering price was $550,000.
The aggregate underwriting commission was $55,000 and $10,000 in
legal fees.
(d) Exemption from registration claimed. This transaction was exempt under
Section 4(2) of the Securities Act of 1933, as amended, and Rule 506
thereunder, as a sale to accredited investors not involving any
general solicitation. RFL Asset Management, LLC and Triton Private
Equities Fund, L.P., are institutions not formed for the specific
purpose of acquiring these securities and have total assets in excess
of $5,000,000.
(e) Terms of conversion and exercise. Each share of Series A Preferred
Stock was convertible into shares of common stock of Advanced Optics
calculated in accordance with the following formula:
The number of shares issuable upon conversion of one share of Series A
preferred stock shall be determined by dividing the purchase price of
the preferred stock by the conversion price, where the conversion
price equals the lesser of (x) one hundred ten percent (110%) of the
closing bid price for the common stock on the trading day prior to the
date of issuance of the Series A preferred stock being converted (the
"Fixed Price"), or (y) seventy seven and one half percent (77.5%) of
the average of the five (5) lowest closing bid prices for the common
stock for the twenty (20) trading days immediately preceding the
conversion date (the "Market Price"), provided, that if the shares
issuable upon conversion are to be sold pursuant to Rule 144 under the
Securities Act of 1933,
II-2
as amended, the conversion price shall equal the lesser of (A)
the Fixed Price, or (B) 50% of the Market Price.
(f) Use of proceeds: The proceeds were used for general corporate
purposes.
(2) August 7, 2000
(a) Securities sold. Give the date of sale and title and amount of
securities sold.
(i) Date: August 7, 2000.
(ii) Title of Securities: Series A Convertible Preferred
Stock and warrants to purchase Common Stock.
(iii) Amount: 160 shares of Series A Convertible Preferred
Stock and warrants to purchase 16,000 shares of Common
Stock.
(b) Underwriters and other purchasers:
The purchasers were:
RFL Asset Management, LLC
Triton Private Equities Fund, L.P.
(c) Consideration. State the aggregate offering price and
aggregate underwriting commissions:
The aggregate offering price was $160,000.
(d) Exemption from registrations claimed. This transaction was
exempt under Section 4(2) of the Securities Act of 1933, as
amended, and Rule 506 thereunder, as a sale to accredited
investors not involving a general solicitation.
(e) Terms of conversion and exercise. Each share of Series A
Preferred Stock was convertible into shares of Common Stock of
Advanced Optics calculated in accordance with the following
formula:
The number of shares issuable upon conversion of one share of
Series A preferred sock shall be determined by dividing the
purchase price by the conversion price, where the conversion
price equals the lesser of (x) one hundred ten percent (110%)
of the closing bid price for the common stock on the trading
day prior to the date of issuance of the Series A preferred
stock being converted (the "Fixed Price"), or (y) seventy
seven and one half percent (77.5%) of the average of the five
(5) lowest closing bid prices for the common stock for the
twenty (20) trading days immediately preceding the conversion
date (the "Market Price"), provided, that if the shares
issuable upon conversion are to be sold pursuant to Rule 144
under the Securities Act of 1933, as amended, the conversion
price shall equal the lesser of (A) the Fixed Price, or (B)
50% of the Market Price.
II-3
(f) Use of proceeds: The proceeds were used for general corporate
purposes.
(3) November 7, 2000
(a) Securities sold. Give the date of sale and title and amount of
securities sold.
(i) Date: November 7, 2000.
(ii) Title of the Securities: 7 1/2 % Convertible Debentures
(iii) Amount: Two Debentures
(b) Underwriters and other purchasers:
The purchasers were:
RFL Asset Management, LLC
Triton Private Equities Fund, L.P.
(c) Consideration. State the aggregate offering proceeds and
aggregate underwriting commissions:
The aggregate face amount of the Debentures was $740,667,
however the Debentures were not sold for cash, rather they
were exchanged for the 710 shares of Series A Convertible
Preferred Stock which were sold to these purchasers in the
March 8, 2000 and August 7, 2000 transactions for an aggregate
cash consideration of $710,000. No underwriting commissions
were paid in connection with the exchange transaction.
(d) Exemption from registration claimed.
This exchange transaction is exempt under Section 3(a)(9) of
the 1993 Act as an exchange by the issuer with its existing
security holders exclusively where no commission or other
remuneration is paid for soliciting the exchange. In addition,
the transaction is exempt under Section 4(2) of the Securities
Act of 1933, as amended, and Rule 506 thereunder, as a sale to
accredited investors not involving any general solicitation.
(e) Terms of conversion and exercise.
Each Debenture is convertible into Common Stock pursuant to
the same conversion formula that was applicable under the
Series A Convertible Preferred Stock for which the Debentures
were exchanged. Based on the foregoing we estimate that the
$740,667 of 7 1/2% Convertible Debentures are convertible into
8,688,818 shares of Common Stock.
(f) Use of proceeds: The proceeds were used for general corporate
purposes.
II-4
II. HIRSCH/LIEBENTHAL/ROTHMAN/HEIMLICH/ZELIKOVITZ
(a) Securities sold. Give the date of sale and title and amount of
securities sold.
(i) Date: June 3, 1999.
(ii) Title of securities: 8% Convertible Notes due June 3,
2001 and warrants to purchase 12,500,000 shares of
Common Stock.
(iii) Amount: $500,000 aggregate principal amount.
(b) Underwriters and other purchasers:
The purchasers were:
Y.L. Hirsch
Sholem Liebenthal
Avram Rothman
Joshua Heimlich
Zvi Y. Zelikovitz
(c) Consideration. State the aggregate offering price and
aggregate underwriting commissions:
The aggregate offering price was $500,000.
The placement agent received fees and reimbursement for
$50,000 in legal fees and a $20,000 placement fee.
(d) Exemption from registration claimed. This transaction was
exempt under Section 4(2) of the Securities Act of 1933, as
amended, and Rule 506 thereunder, as a sale to accredited
investors not involving any general solicitation. The
investors were all known to an executive officer of the
Company and each have a net worth or annual income to qualify
as accredited investors and in addition are experienced in
financial and business matters.
(e) Terms of conversion in exercise. The 8% Convertible Debentures
were convertible into 9,200,000 shares of Common Stock,
pursuant to a modification agreement of June 12, 2000 and the
warrants issued with the 8% Debentures were cancelled as part
of the modification agreement.
(f) Use of proceeds: The proceeds were used for general corporate
purposes.
III. KCM
(a) Securities sold. Give the date of sale and title and amount of
securities sold.
(i) Date: September 15, 2000.
II-5
(ii) Title of securities: 8% Convertible Notes and warrants
to purchase 500,000 shares of Common Stock.
(iii) Amount: Four 8% Convertible Notes and warrants to
purchase 500,000 shares of Common Stock.
(b) Underwriters and other purchasers:
The purchasers were:
Keshet Fund, L.P.
Keshet L.P.
Nesher Ltd.
Talbiya B. Investments Ltd.
(c) Consideration. State the aggregate offering price and
aggregate underwriting commissions:
The aggregate offering price was $500,000. The aggregate
underwriting commission paid was $50,000, reimbursement of
legal fees in the approximate amount of $30,000 and 10% of the
aggregate gross proceeds upon exercise of the warrants to
purchase 500,000 shares of Common Stock. The warrants were
issued to the selling agent at the direction of the Purchasers
and as such should be regarded as part of the underwriting
commissions.
(d) Exemption from registration claimed. This transaction was
exempt under Section 4(2) of the Securities Act of 1933, as
amended, and Rule 506 thereunder, as a sale to accredited
investors not involving any general solicitation. Keshet Fund
L.P., Keshet L.P., Nesher Ltd., and Talbiya B. Investments
Ltd. are institutional investors with total assets in excess
of $5,000,000.
(e) Terms of conversion in exercise. The $500,000 8% Convertible
Notes are convertible into 5,681,818 shares of Common Stock.
the warrants are exercisable for 500,000 shares of Common
Stock.
(f) Use of proceeds: The proceeds were used for general corporate
purposes.
IV. LIEBENTHAL, HIRSCH, ROTHMAN, HEIMLICH
(a) Securities sold. Give the date of sale and title and amount of
securities sold.
(i) Date: October 20, 1997 to May 7, 1999.
(ii) Title of securities: Series A, B, C, D, E and G, 8%
Convertible Debentures.
(iii) Amount: Nine 8% Convertible Debentures.
II-6
(b) Underwriters and other purchasers:
The purchasers were:
Sholem Liebenthal
Y.L. Hirsch
Amram Rothman
Joshua Heimlich
(c) Consideration. State the aggregate offering price and
aggregate underwriting commissions:
The aggregate offering price was $1,535,604 and the aggregate
underwriting commission to the selling agent including
expenses, was $113,284.
(d) Exemption from registration claimed. This transaction was
exempt under Section 4(2) of the Securities Act of 1933, as
amended. The purchasers were previously known to an executive
officer of the issuer, each had a net worth or income level to
qualify as accredited investors, were experienced in financial
and business matters, and no general solicitation was involved
in the transaction.
(e) Terms of conversion in exercise. The 8% Convertible
Debentures, A, B, C, D, E & G were converted into 19,922,621
shares of Common Stock.
(f) Use of proceeds: The proceeds were used for general corporate
purposes.
V. STOCK FOR SERVICES JUNE 1997 - JUNE 2000
(a) Securities sold. Give the date of sale and title and amount of
securities sold.
From June 1997 to June 2000. Common Stock. 16,723,771 shares.
See below.
(b) Underwriters and other purchasers: See below.
(c) Consideration. State aggregate offering price and aggregate
underwriting commissions: $3,257,740. See below (no
underwriting commissions paid).
(d) Exemption From Registration Claimed. These sales were exempt
under Section 4(2) of the Securities Act of 1933, as amended,
as transactions not involving a public offering. All the
purchasers were well known to an executive officer of Advanced
Optics, were experienced in business and finance and, as
indicated below, were otherwise accredited investors. No
general solicitation was involved. For more specific
information, see below.
(e) Terms of Conversion. Not applicable.
(f) Use of Proceeds: General corporate purposes.
II-7
The following table provides the information required as to these transactions:
Stock for Services June 1997 - June 2000
Common Stock Issued To:
1) Adam Frydman, is a son of Jack Frydman, who is a consultant to Advanced
Optics.
Mr. Jack Frydman requested that some of his shares be issued to his son. See
(24) below.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
4/8/1998 50,000 $0.23 $8,050 Investment Consulting
- -----------------------------------------------------------------------------------------------
Total 50,000 $8,050
2) Adele Williams is an administrative assistant with Advanced Optics.
Stock was issued as a bonus to employee in addition to employee's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
5/25/1999 50,000 $0.13 $4,550 Employed by Advanced Optics
- -----------------------------------------------------------------------------------------------
Total 50,000 $4,550
3) Alan Wishnefsky is an office equipment manufacturer and a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Mr. Wishnefsky since January
of 1998. He has a net worth in excess of $4 million and is an astute and
experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
11/9/1998 100,000 $0.06 $4,200 Investment Consulting
- -----------------------------------------------------------------------------------------------
Total 100,000 $4,200
4) Aline Brandt is a daughter of Harold Herman, who is a director of Advanced
Optics.
Mr. Herman requested that some of his shares be issued to his daughter. See (19)
below.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
10/25/1999 37,500 $0.28 $2,625 Directorship
- -----------------------------------------------------------------------------------------------
Total 37,500 $2,625
II-8
5) Ari Goldstein is a principal of Portfolio Investment Strategies, a company
that has assisted Advanced Optics in its capital raising.
An executive officer of Advanced Optics has known Mr. Goldstein since August of
1997. He has a net worth in excess of $1 million. He has been in the investment
business for 20 years and is very knowledgeable.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
8/16/1999 50,000 $0.25 $8,750 Investment Placement
- -----------------------------------------------------------------------------------------------
Total 50,000 $8,750
6) Ari Maa'Yan is the president of BioModa, a company in which Advanced Optics
has a strategic investment.
An executive officer of Advanced Optics has known Mr. Maa'Yan since December
1997. Mr. Maa'Yan received shares as a stock bonus related to Advanced Optics'
investment in BioModa.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
9/8/1999 32,000 $0.40 $8,960 Biotech consulting
- -----------------------------------------------------------------------------------------------
Total 32,000 $8,960
7) Atlantic Advisory is a management company and is a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Frank Tuffers, the principal
of the company, since July 1996. He is an individual with a net worth in excess
of $2 million. He is very knowledgeable of the technologies and risks involved
in Advanced Optics' business.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
2/11/2000 36,000 $0.78 $19,656 Private Placement Advice
- -----------------------------------------------------------------------------------------------
Total 36,000 $19,656
8) Brian Cox is a scientist and is a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Mr. Cox since June 1997. He
has a net worth in excess of $5 million and is an experienced investor. He has
an understanding of the technologies and risks associated with Advanced Optics.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
8/5/1997 2,500 $0.81 $ 1,417 Scientific Consulting
3/28/2000 75,000 $1.16 $60,900 Scientific Consulting
- -----------------------------------------------------------------------------------------------
Total 77,500 $62,317
II-9
9) Charterbridge Financial (formerly Compass Pointe)
An executive officer of Advanced Optics has known Bob Sullivan, the principal,
since September 1999 while he was the principal of the predecessor Compass
Pointe. See (11) below. He has an annual income that exceeds $200,000 for the
past two years. The stock was issued as a bonus in addition to cash.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
3/6/2000 200,000 $0.91 $45,400 Investor Relations
- -----------------------------------------------------------------------------------------------
Total 200,000 $45,500
10) Christopher Lehman is an employee of Advanced Optics.
Stock was issued as a bonus to employee in addition to employee's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
12/3/1999 50,000 $0.30 $10,500 Employed by Advanced Optics
- -----------------------------------------------------------------------------------------------
Total 50,000 $10,500
11) Compass Pointe Group is a company that has provided investor relations
services to Advanced Optics.
An executive officer of Advanced Optics has known Bob Sullivan, the principal,
since September 1999. He has an annual income that exceeds $200,000 for the past
two years. The stock was issued as a bonus in addition to cash for investor
relations services.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
11/18/1999 200,000 $0.25 $12,500 Investor Relations
- -----------------------------------------------------------------------------------------------
Total 200,000 $12,500
12) Corporate Network Inc. is a financial advisory firm and a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Jerome Wenger, the principal,
since February 1997. He is an individual with an annual income in excess of
$250,000 for the past two years and is an astute and experienced professional
investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
9/29/1998 213,000 $0.13 $19,383 Financial Marketing
- -----------------------------------------------------------------------------------------------
Total 213,000 $19,383
II-10
13) Corsair Mgmt is an investment company and a sophisticated, accredited
investor.
Corsair Mgmt is a Canadian investment firm. An executive officer of Advanced
Optics has known the principal, Arthur C. Devlin, since October 1997. He has an
annual income that exceeds $300K for the past two years. He is a sophisticated,
experienced professional investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
9/3/1997 85,000 $0.63 $37,485 Financial Consulting
10/15/1997 195,000 $0.50 $68,250 Financial Consulting
10/22/1997 195,000 $0.69 $94,185 Financial Consulting
1/20/1998 19,000 $0.26 $3,458 Financial Consulting
2/11/1998 85,000 $0.22 $13,090 Financial Consulting
8/16/1999 136,000 $0.25 $23,800 Financial Consulting
2/11/2000 44,000 $0.78 $24,024 Financial Consulting
- -----------------------------------------------------------------------------------------------
Total 759,000 $264,292
14) David Brown is an attorney who has provided legal counsel to Advanced
Optics.
An executive officer of Advanced Optics has known Mr. Brown since 1967. He has a
net worth in excess of $3 million. He is an attorney with 35 years of investment
experience.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
8/5/1997 9,500 $0.81 $5,386 Legal Counsel
- -----------------------------------------------------------------------------------------------
Total 9,500 $5,386
15) David Flynn is an investment professional and a sophisticated, accredited
investor.
An executive officer of Advanced Optics has known Mr. Flynn since March 1997. He
is an individual with an annual income in excess of $400,000 for the past two
years and is an astute and experienced professional investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
5/13/1999 475,000 $0.06 $19,950 Capital Raising
5/25/1999 475,000 $0.13 $43,225 Capital Raising
7/27/1999 500,000 $0.19 $23,750 Capital Raising
10/7/1999 143,833 $0.34 $34,232 Capital Raising
10/29/1999 350,000 $0.28 $68,600 Capital Raising
1/7/2000 250,000 $1.09 $190,750 Capital Raising
6/2/2000 60,000 $0.61 $25,620 Capital Raising
6/14/2000 50,000 $0.61 $21,350 Capital Raising
- -----------------------------------------------------------------------------------------------
Total 2,303,833 $427,477
II-11
16) Dr. Albert Goodman was a science advisor to Advanced Optics.
Stock was issued as a bonus to the advisor in addition to cash pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
12/2/1997 12,500 $0.38 $3,325 Scientific Consulting
6/25/1998 25,000 $0.22 $3,850 Scientific Consulting
- -----------------------------------------------------------------------------------------------
Total 37,500 $7,175
17) F. Glazier is a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Mr. Glazer since March 1998.
He is an individual with an annual income in excess of $400,000 for the past two
years and is an astute and experienced professional investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
5/13/1998 125,000 $0.25 $21,875 Market Research
5/13/1998 125,000 $0.25 $21,875 Market Research
6/4/1998 100,000 $0.19 $13,300 Market Research
6/25/1998 100,000 $0.22 $15,400 Market Research
6/25/1998 50,000 $0.22 $7,700 Market Research
6/25/1998 100,000 $0.22 $15,400 Market Research
6/25/1998 100,000 $0.22 $15,400 Market Research
- -----------------------------------------------------------------------------------------------
Total 700,000 $110,950
18) Garth Gobeli is Chief Scientist with Advanced Optics.
The stock was issued as a bonus to employee in addition to employee's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
6/25/1998 250,000 $0.22 $38,500 Scientific Consulting
1/5/1999 125,000 $0.06 $5,250 Scientific Consulting
5/13/1999 75,000 $0.06 $3,150 Scientific Consulting
12/3/1999 50,000 $0.30 $10,500 Scientific Consulting
6/9/2000 40,000 $0.57 $15,960 Scientific Consulting
- -----------------------------------------------------------------------------------------------
Total 540,000 $73,360
19) Harold Herman is a director of Advanced Optics.
He is a member of the State Bar of New York and California and has a net worth
in excess of $5 million. The stock was issued in addition to cash for director's
duties.
II-12
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/5/1999 75,000 $0.06 $3,150 Directorship
5/13/1999 50,000 $0.06 $2,100 Directorship
- -----------------------------------------------------------------------------------------------
Total 125,000 $5,250
20) Howard Stillman is an investment analyst and a sophisticated, accredited
investor.
An executive officer of Advanced Optics has known Mr. Stillman since June 1997.
He is an individual with an annual income in excess of $200,000 for the past two
years and is an astute and experienced professional investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
8/5/1997 5,000 $0.81 $2,835 Corporate Valuation
- -----------------------------------------------------------------------------------------------
Total 5,000 $0.81 $2,835
21) Hudson Consulting Group is an investment professional and a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Mr. Allen Wolfson, the
principal, since May 1999. He has a net worth that exceeds $3 million.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
7/8/1999 500,000 $0.09 $11,250 Market Research
10/7/1999 166,667 $0.34 $39,666 Market Research
1/13/2000 166,667 $1.16 $135,333 Market Research
3/24/2000 166,666 $1.25 $145,832 Market Research
- -----------------------------------------------------------------------------------------------
Total 1,000,000 $332,083
22) International Buying Power is an investment professional and a
sophisticated, accredited investor.
An executive officer of Advanced Optics has known Terry Ritchie, the principal,
since May 1998. He has a net income that exceeds $300,000 for the past two
years.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
9/29/1998 182,000 $0.13 $16,562 Market Research
- -----------------------------------------------------------------------------------------------
Total 182,000 $16,562
II-13
23) J. G. Capital, Inc. is an investment firm wholly owned by J.G. Partners LP,
of which Richard A. Josephberg, a director of Advanced Optics, is a partner
with a 1% ownership interest.
An executive officer of Advanced Optics has known Mr. Richard Josephberg, the
principal, since July 1999. He has since become a director of Advanced Optics.
He has a net worth that exceeds $5 million. He is a sophisticated professional
investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
10/5/1999 37,500 $0.44 $11,550 Director
4/18/2000 75,000 $0.97 $50,925 Director
- -----------------------------------------------------------------------------------------------
Total 112,500 $62,475
24) Jack Frydman is an investment consultant and a sophisticated, accredited
investor.
An executive officer of Advanced Optics has known Mr. Jack Frydman since October
1997. He has a net worth that exceeds $2 million. He is a sophisticated and
experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
12/8/1997 55,000 $0.35 $13,475 Investment Consulting
1/6/1998 50,000 $0.27 $9,450 Investment Consulting
1/20/1998 50,000 $0.26 $9,100 Investment Consulting
1/20/1998 50,000 $0.26 $9,100 Investment Consulting
2/11/1998 35,000 $0.22 $5,390 Investment Consulting
2/18/1998 50,000 $0.33 $11,550 Investment Consulting
2/26/1998 35,000 $0.33 $8,085 Investment Consulting
4/1/1998 100,000 $0.22 $15,400 Investment Consulting
- -----------------------------------------------------------------------------------------------
Total 425,000 $81,550
25) Janson Capital, Inc. is an investment consultant and a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Tracy Bush, a principal, since
September 1999. He has an annual income in excess of $400,000 for the past two
years and is an astute and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/25/2000 70,000 $1.19 $58,310 Investment Consulting
2/8/2000 50,000 $0.78 $27,300 Investment Consulting
2/29/2000 80,000 $0.91 $50,960 Investment Consulting
- -----------------------------------------------------------------------------------------------
Total 200,000 $136,570
II-14
26) Jerome Wenger is a host of a radio program for investors and a
sophisticated, accredited investor.
An executive officer of Advanced Optics has known Mr. Wenger since February
1997. He is an individual with an annual income in excess of $250,000 for the
past two years and is an astute and experienced professional investor.
- -----------------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------------
8/26/1997 50,000 $0.81 $28,350 Radio Exposure for Advanced Optics
8/26/1997 50,000 $0.81 $28,350 Radio Exposure for Advanced Optics
3/12/1999 275,000 $0.08 $15,400 Radio Exposure for Advanced Optics
- -----------------------------------------------------------------------------------------------------
Total 375,000 $72,100
27) Jia Yun Int'l is an international investment firm and a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Charles Spooner, the
principal, since August 1997. He is an individual with a net worth in excess of
$2 million and is an astute and experienced professional investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
9/10/1998 625,000 $0.13 $56,875 Market Support
- -----------------------------------------------------------------------------------------------
Total 625,000 $56,875
28) John Cousins is Vice President of Finance for Advanced Optics.
Stock was issued as a bonus to employee in addition to officer's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
7/8/1999 150,000 $0.09 $3,375 Executive Officer
- -----------------------------------------------------------------------------------------------
Total 150,000 $3,375
29) John W. Kearns is a private investor who makes contacts for marketing
displays.
An executive officer of Advanced Optics has known Mr. Kearns since 1972. He has
an annual income in excess of $400,000 for the past two years and is an astute
and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/25/2000 9,000 $1.19 $7,497 Marketing Consulting
1/31/2000 48,500 $0.69 $23,425 Marketing Consulting
2/4/2000 28,000 $0.97 $19,012 Marketing Consulting
- -----------------------------------------------------------------------------------------------
Total 85,500 $49,934
II-15
30) Keith Cottrell is a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Keith Cottrell since June
1997. He has an annual income in excess of $200,000 for the past two years and
is an astute and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
8/18/1997 20,000 $0.69 $9,660 Public Relations
8/18/1997 20,000 $0.69 $9,660 Public Relations
8/18/1997 20,000 $0.69 $9,660 Public Relations
8/18/1997 50,000 $0.69 $24,150 Public Relations
8/18/1997 20,000 $0.69 $9,660 Public Relations
8/18/1997 20,000 $0.69 $9,660 Public Relations
- -----------------------------------------------------------------------------------------------
Total 150,000 $72,450
31) Leslie Robins is Executive Vice President and Chairman of the Board of
Advanced Optics.
Stock was issued as a bonus to employee in addition to officer's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
4/1/1998 5,000 $0.22 $770 Executive Officer & Director
11/9/1998 300,000 $0.06 $12,600 Executive Officer & Director
1/5/1999 440,000 $0.06 $18,480 Executive Officer & Director
3/12/1999 420,000 $0.08 $23,520 Executive Officer & Director
3/12/1999 700,000 $0.08 $39,200 Executive Officer & Director
5/25/1999 945,000 $0.13 $85,995 Executive Officer & Director
7/8/1999 490,000 $0.09 $30,870 Executive Officer & Director
- -----------------------------------------------------------------------------------------------
Total 3,300,000 $211,435
32) Lillian C. Fontan provides financial advisory services and is a
sophisticated, accredited investor.
An executive officer of Advanced Optics has known Ms. Fontan since October 1999.
She has an annual income in excess of $200,000 for the past two years and is an
astute and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/25/2000 3,000 $1.19 $2,499 Capital Market Consulting
1/31/2000 2,900 $0.69 $1,400 Capital Market Consulting
- -----------------------------------------------------------------------------------------------
Total 5,900 $3,899
II-16
33) Medallion is a company that provides financial advisory services and is a
sophisticated, accredited investor.
An executive officer of Advanced Optics has known Stafford Kelly, the principal,
since November 1997. He has an annual income in excess of $500,000 for the past
two years and is an astute and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
2/18/1998 39,000 $0.22 $6,006 Investor Relations
- -----------------------------------------------------------------------------------------------
Total 39,000 $6,006
34) Melissa Allen is assistant controller of Advanced Optics.
Stock was issued as a bonus to employee in addition to employee's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
12/31/1999 50,000 $0.30 $10,500 Employed by Advanced Optics
- -----------------------------------------------------------------------------------------------
Total 50,000 $10,500
35) Michael Harmon is an engineer with Advanced Optics.
Stock was issued as a bonus to employee in addition to employee's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
4/28/1999 75,000 $0.06 $3,150 Employed by Advanced Optics
5/10/2000 35,000 $0.87 $21,315 Employed by Advanced Optics
6/9/2000 40,000 $0.57 $15,960 Employed by Advanced Optics
- -----------------------------------------------------------------------------------------------
Total 150,000 $40,425
36) Michael Pete is President of Advanced Optics.
Stock was issued as a bonus to employee in addition to officer's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/5/1999 100,000 $0.06 $4,200 Executive Officer & Direct
5/13/1999 75,000 $0.06 $3,150 Executive Officer & Direct
- -----------------------------------------------------------------------------------------------
Total 175,000 $7,350
II-17
37) Morey Frydman, who is a son of Jack Frydman, is an investment consultant
and a sophisticated, accredited investor.
Mr. Jack Frydman requested that some of his shares be issued to his son. See
(24) above.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
4/8/1998 50,000 $0.23 $8,050 Capital Marketing Consulting
- -----------------------------------------------------------------------------------------------
Total 50,000 $8,050
38) OTC Financial is a company that provides financial advisory services and is
a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Jeffrey Eitan, the principal,
since January 1997. He has an annual income in excess of $300,000 for the past
two years and is an astute and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
12/2/1997 25,000 $0.38 $6,650 Capital Marketing Consulting
- -----------------------------------------------------------------------------------------------
Total 25,000 $6,650
39) Patrick Rost provides financial advisory services and is a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Patrick Rost since October
1998. He is an attorney and has an annual income in excess of $300,000 for the
past two years and is an astute and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/27/1999 50,000 $0.10 $3,500 Capital Marketing Consulting
- -----------------------------------------------------------------------------------------------
Total 50,000 $3,500
40) Peter Ticktin is a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Peter Ticktin since October
1999. He is an attorney and has an annual income in excess of $300,000 for the
past two years and is an astute and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/25/200 3,000 $01.19 $2,499 Market Research
- -----------------------------------------------------------------------------------------------
Total 3,000 $2,499
II-18
41) Robert Amsel is a sophisticated, accredited investor.
An executive officer of the company has known Robert Amsel since September 1999.
He is an attorney and has an annual income in excess of $400,000 for the past
two years and is an astute and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
11/9/1999 15,000 $0.27 $1,012 Market Research
11/9/1999 15,000 $0.27 $2,835 Market Research
1/25/2000 49,000 $1.19 $40,817 Market Research
1/25/2000 8,000 $1.19 $6,664 Market Research
- -----------------------------------------------------------------------------------------------
Total 87,000 $51,328
42) Robert Granoff is a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Robert Granoff since 1978. He
is a wholesaler/retailer of home products and has an annual income in excess of
$300,000 for the past two years and is an astute and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
10/12/1999 94,000 $0.31 $20,825 Market Support
1/25/2000 25,000 $1.19 $20,398 Market Support
- -----------------------------------------------------------------------------------------------
Total 119,000 $41,223
43) Roger Boggs was a senior scientist with Advanced Optics.
Stock was issued as a bonus to employee in addition to employee's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/5/1999 50,000 $0.06 $2,100 Research & Development
- -----------------------------------------------------------------------------------------------
Total 50,000 $2,100
44) Rose Maniquiz is a sophisticated, accredited investor
An executive officer of Advanced Optics has known Rose Maniquiz since July 1996.
She is a property owner and has an annual income in excess of $200,000 for the
past two years and is an astute and experienced investor.
II-19
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
8/3/1999 203,705 $0.22 $31,370 Market Research
10/18/1999 94,000 $0.29 $19,082 Market Research
- -----------------------------------------------------------------------------------------------
Total 297,705 $50,452
45) Ruben Oliva is a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Ruben Oliva since October
1999. Ruben has an annual income in excess of $200,000 for the past two years
and is an astute and experienced investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/25/2000 3,000 $1.19 $2,499 Market Research
1/25/2000 6,000 $1.19 $4,998 Market Research
- -----------------------------------------------------------------------------------------------
Total 9,000 $7,497
46) Shelly Herman is a daughter of Harold Herman, who is a director of Advanced
Optics.
Mr. Herman requested that some of his shares be issued to his daughter. See (19)
above.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
10/25/1999 37,500 $0.28 $2,625 Directorship
- -----------------------------------------------------------------------------------------------
Total 37,500 $2,625
47) Sonrae Corp. is a Canadian company of investment professionals and is a
sophisticated, accredited investor.
An executive officer of Advanced Optics has known Charles Spooner, the
principal, since August 1997. He is an individual with a net worth in excess of
$2 million and is an astute and experienced professional investor.
- -------------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -------------------------------------------------------------------------------------------------
10/15/1997 150,000 $0.50 $52,500 Canadian Investment Consulting
10/22/1997 150,000 $0.69 $72,450 Canadian Investment Consulting
2/11/1998 50,000 $0.22 $7,700 Canadian Investment Consulting
3/19/1998 100,000 $0.27 $18,900 Canadian Investment Consulting
3/25/1998 100,000 $0.29 $20,300 Canadian Investment Consulting
8/4/1998 100,000 $0.18 $12,600 Canadian Investment Consulting
8/4/1998 100,000 $0.18 $12,600 Canadian Investment Consulting
- -------------------------------------------------------------------------------------------------
Total 750,000 $197,050
II-20
48) Stephen Mills is a senior engineer with Advanced Optics.
Stock was issued as a bonus to employee in addition to employee's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/5/1999 75,000 $0.06 $3,150 Employed by Advanced Optics
5/10/2000 35,000 $0.87 $21,315 Employed by Advanced Optics
6/9/2000 40,000 $0.57 $15,960 Employed by Advanced Optics
- -----------------------------------------------------------------------------------------------
Total 150,000 $40,425
49) The Equitable Group is a company that provides financial advisory services
and is a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Barry Friedman, the principal,
since October 1999. He is an individual with a net income in excess of $400,000
and is an astute and experienced professional investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
12/10/1999 100,000 $0.27 $18,900 Investor Relations
12/15/1999 100,000 $0.28 $19,600 Investor Relations
1/13/2000 100,000 $0.16 $81,200 Investor Relations
- -----------------------------------------------------------------------------------------------
Total 300,000 $119,700
50) Tite Belt Productions is the producer of Advanced Optics' video and is a
sophisticated, accredited investor.
An executive officer of Advanced Optics has known William Norris, the principal,
since November 1996. He is an individual with a net income in excess of $225,000
and is an astute and experienced professional investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
1/6/1998 45,000 $0.27 $8,505 Produced Corporate Video
2/18/1998 38,000 $0.22 $5,852 Produced Corporate Video
1/27/1999 47,000 $0.10 $3.290 Produced Corporate Video
5/7/1999 98,000 $0.06 $4,116 Produced Corporate Video
8/12/1999 130,000 $0.26 $23,660 Produced Corporate Video
2/11/2000 18,000 $0.78 $9,828 Produced Corporate Video
- -----------------------------------------------------------------------------------------------
Total 376,000 $55,251
II-21
51) Verrity Gershin is an administrative assistant with Advanced Optics.
Stock was issued as a bonus to employee in addition to employee's pay.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
Total 50,000 $2,100
52) Weston Partners is a company that has provided financial services to
Advanced Optics.
An executive officer of Advanced Optics has known Eric Landis, the principal,
since December 1998. He is an individual with income in excess of $400,000 and
is an astute and experienced professional investor.
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
5/13/1999 475,000 $0.06 $19,950 Investor Relations
7/27/1999 500,000 $0.19 $66,500 Investor Relations
10/7/1999 143,833 $0.34 $34,232 Investor Relations
10/29/1999 350,000 $0.28 $68,600 Investor Relations
1/7/2000 250,000 $1.09 $190,750 Investor Relations
6/9/2000 50,000 $0.57 $19,950 Investor Relations
- -----------------------------------------------------------------------------------------------
Total 1,768,833 $399,982
Total Shares and Total Value of Services
- -----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- -----------------------------------------------------------------------------------------------
Total 16,723,771 $3,257,740
VI. AVALON, AZ, FRYDMAN, ROST, PROF. MODEL/1999
(a) Securities sold. Give the date of sale, title and amount of securities
sold.
(i) Date: February 18, 1999 to December 15, 1999.
(ii) Title of securities: Common Stock.
(iii) Amount: 3,498,000 shares.
(b) Underwriters and other purchasers: See below.
II-22
(c) Consideration, state the aggregate offering price and aggregate
underwriting commissions.
The aggregate offering price was $563,606.
(d) Exemption from registration claimed. The stock was sold to five
accredited investors, as itemized below, known to an executive
officer, with no general solicitation. The transaction was exempt
under Section 4(2) of the Securities Act of 1933, as amended.
(e) Use of proceeds: General corporate purposes.
The following table provides more detailed information on this
transition.
Common Stock Issued To:
1) Avalon Financial Services is an investment management firm and is a
sophisticated, accredited investor.
Hunter Adams is the principal. An executive officer of Advanced Optics has known
him since August 1999. He has a net worth in excess of $2 million and is an
astute and experienced investor.
- -------------------------------------------------------------------
Date Shares Investment $
- -------------------------------------------------------------------
10/5/1999 220,000 $61,217
10/7/1999 33,000 $ 9,182
10/12/1999 220,000 $49,436
11/15/1999 200,000 $36,000
11/15/1999 200,000 $36,000
11/15/1999 200,000 $38,880
- -------------------------------------------------------------------
Total $1,073,000 $230,716
2) AZ Professional Consultants is a brokerage firm and a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Alan Wolf the principal since
June 1999. He is an individual with a net worth in excess of $2 million and is
an astute and experienced professional investor.
II-23
- -------------------------------------------------------------------
Date Shares Investment $
- -------------------------------------------------------------------
8/5/1999 500,000 $43,750
8/30/1999 125,000 $26,812
8/30/1999 125,000 $26,812
8/30/1999 125,000 $26,812
8/30/1999 125,000 $26,812
- -------------------------------------------------------------------
Total $1,000,000 $151,000
3) Jack Frydman is an investment consultant and a sophisticated, accredited
investor.
An executive officer of Advanced Optics has known Mr. Jack Frydman since October
1997. He has a net worth that exceeds $2 million. He is a sophisticated and
experienced investor.
- -------------------------------------------------------------------
Date Shares Investment $
- -------------------------------------------------------------------
3/29/1999 475,000 $23,750
- -------------------------------------------------------------------
Total 475,000 $23,750
4) Patrick Rost provides financial advisory services and is a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Patrick Rost since October
1998. He is an attorney and has an annual income in excess of $300K for the past
two years and is an astute and experienced investor.
- -------------------------------------------------------------------
Date Shares Investment $
- -------------------------------------------------------------------
2/18/1999 250,000 $20,000
- -------------------------------------------------------------------
Total 250,000 $20,000
5) Professional Model Assoc Strategies is a sophisticated, accredited
investor.
An executive officer of Advanced Optics has known Joseph Maenza, the principal
since September 1999. He has an net worth in excess of $3 million and is an
astute and experienced investor.
II-24
- -------------------------------------------------------------------
Date Shares Investment $
- -------------------------------------------------------------------
12/1/1999 200,000 $ 44,000
12/8/1999 200,000 $ 37,440
12/15/1999 300,000 $ 56,700
- -------------------------------------------------------------------
Total 700,000 $ 138,140
Total Shares and Total Investment
- -------------------------------------------------------------------
Date Shares Investment $
- -------------------------------------------------------------------
Total 3,498,000 $563,606
VII. HERMAN, HI TEL, PORTFOLIO, PROF MOD
(a) Securities sold. Give the date of sale, title and amount of
securities sold.
(i) Date: January 3, 2000 to March 24, 2000.
(ii) Title of securities: Common Stock.
(iii) Amount: 782,000 shares.
(b) Underwriters and other purchasers:
The purchasers were:
Harold Herman
Hi Tel Group, Inc.
Portfolio Investment Strategies
Professional Model Associates
(c) Consideration. State the aggregate offering price and aggregate
underwriting commissions: $368,495.
(d) Exemption claimed. The purchasers, all of whom are accredited
investors, were known to an executive officer for several years.
No general solicitation was involved. The transaction was exempt
under Section 4(2) of the Securities Act of 1933, as amended. See
below for further detail.
(e) Use of proceeds: General corporate purposes.
The following table provides additional information:
II-25
Common Stock Issued To:
Harold Herman is a director of Advanced Optics
An executive officer of Advanced Optics has known Mr. Herman since November
1999. He is a member of the State Bar of New York and California and has a net
worth in excess of $5 million. Stock was issued in addition to cash for
director's duties.
- --------------------------------------------------------------------------------
Date Shares Investment $ Comments
- --------------------------------------------------------------------------------
3/24/2000 150,000 $13,500 exercised options
- --------------------------------------------------------------------------------
Total 150,000 $13,500
Hi Tel Group Inc is a brokerage firm and a sophisticated, accredited investor
An executive officer of Advanced Optics has known Mr. Titlebaun, the principal
since September 1999. He has a net worth that exceeds $2 million.
- -------------------------------------------------------------------
Date Shares Investment $
- -------------------------------------------------------------------
1/25/2000 150,000 $84,375
2/11/2000 162,000 $82,620
- -------------------------------------------------------------------
Total 312,000 $166,995
Portfolio Investment Assoc. Strategies is a company that has provided investment
placement for Advanced Optics.
Ari Goldstein is the principal. An executive officer of Advanced Optics has
known Mr. Goldstein since August of 1997. He has a net worth in excess of $1
million. He has been in the investment business for eight years and is very
knowledgeable in investments.
- --------------------------------------------------------------------------------
Date Shares Investment $ Comments
- --------------------------------------------------------------------------------
2/2/2000 100,000 $12,000 exercised options
- --------------------------------------------------------------------------------
Total 100,000 $12,000
Professional Model Strategies is a sophisticated, accredited investor.
An executive officer of Advanced Optics has Joseph Maenza, the principal since
September 1999. He has an net worth in excess of $3 million and is an astute and
experienced investor.
II-26
- -------------------------------------------------------------------
Date Shares Investment $
- -------------------------------------------------------------------
1/3/2000 200,000 $176,000
- -------------------------------------------------------------------
Total 220,000 $ 176,000
Total Shares and Total Investment
- -------------------------------------------------------------------
Date Shares Investment $
- -------------------------------------------------------------------
Total 782,000 $ 368,495
VIII. SEVEN INVESTORS
(a) Securities sold. Give the date of sale and title and amount of
securities sold.
(i) Date: July 24, 1997 to August 26, 1997.
(ii) Title of securities: Common Stock.
(iii) Amount: 155,000 shares.
(b) Underwriters and other purchasers:
The purchasers and other relevant information follows:
- ----------------------------------------------------------------------------------------------------------------------------
Name Net Worth/Income Sophistication/Prior Relationship with Issuer
- ----------------------------------------------------------------------------------------------------------------------------
Stourbridge, Inc. Mr. Steven Schnipper is an An executive officer of Advanced Optics has known Mr.
individual with a net Schnipper, a principal of Stourbridge, Inc., since May
income in excess of $200K. 1997 and he is an astute and experienced professional
investor.
Alex & Maria Sonkin Mr. Sonkin is an An executive officer of Advanced Optics has known Mr.
individual with a net and Mrs. Sonkin since December 1996 and Mr. Sonkin is
income in excess of $300K. an astute and experienced investor.
Robert W. Lukas These are all members of a An executive officer of Advanced Optics has known the
Peter Spark IT Anastasi Lukas & large net worth family. Lukas family and its various members for many years
Victoria Spark and they are astute and experienced investors.
Victoria Sparks ITF Kirk K Lukas
Anastasia L. Lukas
John P. Lukas
- ----------------------------------------------------------------------------------------------------------------------------
II-27
(c) Consideration. State the aggregate offering price and aggregate
underwriting commissions:
The aggregate offering price was $48,000. No commissions were
paid.
(d) Exemption from registration claimed. This transaction was exempt
under Section 4(2) of the Securities Act of 1933, as amended. The
investors were all accredited investors, experienced in financial
and business matters, with a prior relationship to the issuer and
no general solicitation was involved. Four of the seven investors
are all part of the same, large net worth family.
(e) Use of proceeds: The proceeds were used for general corporate
purposes.
IX. FIVE INVESTORS
(a) Securities sold. Give the date of sale and title and amount of
securities sold.
(i) Date: April 1, 1998 to November 19, 1998.
(ii) Title of securities: Common Stock.
(iii) Amount: 1,640,000 shares.
(b) Underwriters and other purchasers:
The purchasers and their backgrounds follow:
- ----------------------------------------------------------------------------------------------------------------------------
Name Net Worth/Income Sophistication/Prior Relationship with Issuer
- ----------------------------------------------------------------------------------------------------------------------------
Alan Wishnefsky Mr. Wishnefsky has a net An executive officer of Advanced Optics has known Mr.
worth in excess of $4 Wishnefsky since January of 1998. He is an office
million and is an astute equipment manufacturer and a sophisticated, accredited
and experienced investor. investor.
F. Glazier Mr. Glazier is an An executive officer of Advanced Optics has known Mr.
individual with an annual Glazier since March 1998 and he is a sophisticated,
income in excess of $400K accredited investor.
for the past two years and
is an astute and
experienced professional
investor.
Leslie Robins Mr. Robins is Executive Vice President and Chairman of
the Board of Advanced Optics.
Sonrae Corp. Mr. Spooner is an An executive officer of Advanced Optics has known
individual with a net worth Charles Spooner, the principal, since August 1997.
in excess of $2 million and Sonrae Corp. are Canadian investment professionals and
is an astute and sophisticated, accredited investors.
experienced professional
investor.
Mark Saltzman Mr. Saltzman is an An executive officer of Advanced Optics has known Mr.
individual with a net worth Glazer since July 1997 and he is a sophisticated,
in excess of $3 million and accredited investor.
is an astute and
experienced professional
investor.
- ----------------------------------------------------------------------------------------------------------------------------
II-28
(c) Consideration. State the aggregate offering price and aggregate
underwriting commissions:
The aggregate offering price was $127,500. No commissions were paid, one of
the investors, an executive officer paid for his stock with a note in the amount
of $29,000.
(d) Exemption from registration claimed. This transaction was exempt
under Section 4(2) of the Securities Act of 1933, as amended. The
investors were all accredited, including three members of one
family and one executive officer of the issuer. No general
solicitation was involved. The investors were also experienced in
business and finance.
(e) Use of proceeds. The proceeds were used for general corporate
purposes.
II-29
Item 27 Exhibits and Financial Statement Schedules
(A) Exhibits
3.1++ Articles of Incorporation of the Registrant filed May 22, 1996.
3.1(a)+ Certificate of Amendment of Articles of Incorporation of the
Registrant filed December 6, 1998.
3.1(b) Deleted.
3.1(c)+ Certificate of Amendment of Articles of incorporation of the
Registrant filed June 22, 2000.
3.2++ Bylaws of the Registrant.
4.1+ Specimen Common Stock Certificate.
4.2+ Convertible Note Purchase Agreement dated September 15, 2000 by and
among Registrant, Keshet Fund L.P., Keshet L.P., Nesher Ltd. and
Talbiya B. Investments L.P. with exhibits attached thereto.
4.2(a) Waiver dated April 12, 2001 by and among Registrant, Keshet Fund L.P.,
Keshet L.P., Nesher Ltd. and Talbiya B. Investments L.P. with exhibits
attached thereto.
4.3+ Securities Purchase Agreement dated November 7, 2000 by and between
Registrant and RFL Asset Management, LLC with exhibits attached
thereto.
4.4+ Securities Purchase Agreement dated November 7, 2000 by and between
Registrant and Triton Private Equities Fund, L.P. with exhibits
attached thereto.
5.1* Opinion of Kirkpatrick & Lockhart LLP.
10.1+++ 1999 Incentive Stock Option Plan.
10.2+ Securities Purchase Agreement dated June 3, 1999 by and among
Registrant and investors listed on Schedule I attached thereto.
10.2(a)+ Modification and Settlement Agreement dated June 12, 2000 by and among
Registrant and investors listed on Schedule I attached thereto.
10.3+ Securities Purchase Agreement dated March 8, 2000 by and between
Registrant and Triton Private Equities Fund, L.P. with exhibits
attached thereto.
10.4+ Securities Purchase Agreement dated March 8, 2000 by and between
Registrant and RFL Asset Management, LLC with exhibits attached
thereto.
10.5+ Supplemental Agreement dated August 7, 2000 by and between Registrant
and Triton Private Equities Fund, L.P. with exhibits attached thereto.
10.6+ Supplemental Agreement dated August 7, 2000 by and between Registrant
and RFL Asset Management, LLC with exhibits attached thereto.
10.7+ Warrant to Purchase Shares of Common Stock dated June 15, 1999 by and
between Registrant and Leslie Robins.
10.7(a)+ Warrant to Purchase Shares of Common Stock dated August 9, 2000 by and
between Registrant and Leslie Robins.
10.7(b)+ Warrant to Purchase Shares of Common Stock dated October 17, 2000 by
and between Registrant and Leslie Robins.
10.8+ Warrant to Purchase Shares of Common Stock dated June 15, 1999 by and
between Registrant and Michael Pete.
10.9+ Warrant to Purchase Shares of Common Stock dated June 15, 1999 by and
between Registrant and Harold Herman.
10.9(a)+ Warrant to Purchase Shares of Common Stock dated August 23, 2000 by
and between Registrant and Harold Herman.
10.10+ Warrant to Purchase Shares of Common Stock dated August 9, 2000 by and
between Registrant and J.G. Capital, Inc.
II-30
10.10(a)+ Warrant to Purchase Shares of Common Stock dated October 17, 2000 by
and between Registrant and John Cousins.
10.11+ Promissory Note dated June 21, 2000 held by Leslie Robins.
10.12+ Promissory Note dated August 3, 2000 held by Leslie Robins.
10.13+ Promissory Note dated September 7, 2000 held by Leslie Robins.
10.14++ Lease Agreement dated May 27, 1998 by and between Registrant and JMP
Company, Inc., regarding 8301 Washington NE, Suite 4, Albuquerque, NM
87113. (1)
10.14(a)+ Renewal of Lease Agreement dated March 9, 2000 by and between
Registrant and JMP Company, Inc., regarding 8301 Washington NE, Suite
4, Albuquerque, NM 87113.
10.15+ Lease Agreement dated December 22, 1998 by and between Registrant and
JMP Company, Inc., regarding 8301 Washington NE, Suite 5, Albuquerque,
NM 87113.
10.15(a)+ Renewal of Lease Agreement dated March 9, 2000 by and between
Registrant and JMP Company, Inc., regarding 8301 Washington NE, Suite
5, Albuquerque, NM 87113.
10.16+ Lease Agreement dated February 10, 2000 by and between Registrant and
JMP Company, Inc., regarding 8301 Washington NE, Suite 6, Albuquerque,
NM 87113.
10.17+ Employment Agreement dated June 28, 1999 by and between Registrant and
John Cousins.
10.18 Stock Purchase Agreement dated December 31, 1997 by and between
Registrant and Bio Moda, Inc.
10.19 Stock-For-Stock Agreement dated November 6, 1996 by and between
Registrant and shareholders of PLZTech, Inc. listed on Schedule I
attached hereto.
10.20** Assignment of Invention and Patent Rights dated January 25, 2000 by
and between Registrant and Garth W. Gobeli.
10.21** Assignment of Invention and Patent Rights dated December 15, 2000 by
and between Registrant and Michael G. Harmon.
10.22** Purchase Agreement dated October 22, 1998 by and between Registrant
and Wang.
10.23** Amended Purchase Agreement dated January 15, 2001 by and between
Registrant and Wang.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Atkinson & Co., Ltd.
23.2 Consent of Neff & Ricci LLP.
23.3* Consent of Kirkpatrick & Lockhart LLP (contained in exhibit 5.1).
24.1 Power of attorney (included on signature page of Registration
Statement).
- -----------------
* To be filed by amendment.
** The Registrant has applied with the Secretary of the Securities and
Exchange Commission for confidential treatment of certain information
pursuant to Rule 406 under the Securities Act of 1933. The Registrant has
filed separately with its application a copy of the exhibit including all
confidential portions, which may be made available for public inspection,
pending the Security and Exchange Commission's review of the application,
in accordance with Rule 406.
+ Previously filed.
++ Incorporated by reference to the Registrant's Registration Statement on
Form 10-SB (No. 1000-24511) filed with the Securities and Exchange
Commission on June 23, 1998.
+++ Incorporated by reference to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission on March 21, 2000.
II-31
(B) Financial Statement Schedules
All such schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
Item 28 Undertakings
The undersigned Registrant hereby undertakes to:
(1) For determining any liability under the Securities Act, treat the
information omitted from this form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act of 1933 as part of this registration statement as of the time
the Securities and Exchange Commission declared it effective.
(2) For determining any liability under the Securities Act of 1933, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in this registration
statement, and that offering of the securities at that time as the initial bona
fide offering of those securities.
The undersigned Registrant hereby undertakes with respect to the securities
being offered and sold in this offering:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(a) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in this
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement; and
(c) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat each
post- effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by director, officer or controlling
person relating to the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent,
II-32
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-33
II-34
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused Amendment No. 1 to this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Albuquerque, State
of New Mexico, on the 24th day of April, 2001.
ADVANCED OPTICS ELECTRONICS, INC.
By: /S/ LESLIE S. ROBINS
-------------------------------------
Leslie S. Robins
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended
Amendment No. 1 to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
*
- ----------------------------------
Michael H. Pete President and Director April 24, 2001
/S/ LESLIE S. ROBINS
- ----------------------------------
Leslie S. Robins Chairman of the Board, Executive Vice April 24, 2001
President and Secretary
*
- ----------------------------------
John J. Cousins Vice President, Finance and Treasurer April 24, 2001
(Principal Financial and Accounting Officer)
*
- ----------------------------------
Harold C. Herman Director April 24, 2001
*
- ----------------------------------
Richard A. Josephberg Director April 24, 2001
* By: /S/ LESLIE S. ROBINS Attorney-in-fact
----------------------------
Leslie S. Robins April 24, 2001
II-34