As Filed with the Securities and Exchange Commission on July 13, 2001
Registration No. 333-63672
================================================================================
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)
--------------------------------------
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
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Common Stock, $.001 par value 17,188,837 (2) $0.07 $1,203,219 $301
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Common Stock, $.001 par value 11,645,971 (3) $0.07 $ 815,218 $204
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Common Stock, $.001 par value 571,000 (4) $0.07 $39,970 $10
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Total Registration Fee $2,058,407 $515*
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* $540 previously paid.
(1) Estimated pursuant to Rule 457(c) 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 110% of the closing bid
price of the common stock as reported on the OTC Bulletin Board on March 8,
2000, which is $1.617 per share, or 77.5% of the average of the five lowest
closing bid prices of the common stock as reported on the OTC Bulletin
Board for the twenty trading days immediately preceding the conversion
date, which is $0.04309 per share assuming the conversion date is July 13,
2001.
(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 as reported on the
OTC Bulletin Board for the thirty trading days immediately preceding the
issue date of the notes, which is $0.22375 per share, or 80% of the average
of the three lowest closing bid prices of the common stock as reported on
the OTC Bulletin Board for the ninety trading days immediately preceding
the conversion date, which is $0.042933 per share assuming the conversion
date is July 13, 2001.
(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
Securities and 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 July 13, 2001
29,405,808 Shares
Advanced Optics Electronics, Inc.
COMMON STOCK
This prospectus relates to 29,405,808 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.
-------------------
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
Special Note Regarding Forward-Looking Statements..............................7
Use of Proceeds................................................................8
Dividend Policy................................................................8
Capitalization.................................................................9
Selected Financial Data.......................................................10
Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................11
Business......................................................................15
Management....................................................................21
Section 16(a) Beneficial Ownership Reporting Compliance.......................26
Certain Transactions..........................................................27
Principal Stockholders........................................................29
Description of Capital Stock..................................................31
Shares Eligible for Future Sale...............................................34
The Selling Stockholders......................................................35
Plan of Distribution..........................................................36
Legal Matters.................................................................38
Experts.......................................................................38
Change in Independent Auditors................................................38
Additional Information........................................................38
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
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PROSPECTUS SUMMARY
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).............. 29,405,808 shares
Common stock to be outstanding after the offering 93,420,894 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 June 30, 2001 and assumes the subsequent conversion of all of
our issued convertible notes and warrants outstanding as of June 30, 2001 into
an aggregate of 29,405,808 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 and J.G. Capital, Inc. 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.org and our
telephone number is (505) 797-7878. The information on our website is not
incorporated by reference into this prospectus.
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2
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Summary Financial Data
(in thousands, except share and 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.
Year Ended Three Months Ended
December 31, March 31,
-------------------- ---------------------
1999 2000 2000 2001
---- ---- ---- ----
Statement of Operations Data:
Revenues ................................................. $ -- $ -- $ -- $ --
Operating expenses ....................................... 2,192 3,072 1,341 392
Estimated loss on contract ............................... 158 384 78 125
Loss from operations ..................................... (2,350) (3,456) (1,418) (517)
Other income (expenses), net ............................. (313) (387) (83) 11
Net loss before cumulative effect of change in
accounting principle ..................................... (2,663) (3,843) (1,501) (506)
Cumulative effect of change in accounting principle ...... (63) -- -- --
Net loss ................................................. (2,726) (3,843) (1,501) (506)
Net income (loss) per share (1) .......................... $ (.072) $ (.066) $ (.031) $ (.008)
Weighted average common shares outstanding (1) ........... 37,809,084 58,029,724 48,153,762 62,665,675
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(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 March 31, 2001
--------------------
Balance Sheet Data
Cash and cash equivalents................................ $225
Working capital.......................................... 596
Total current assets..................................... 1,522
Total assets............................................. 2,392
Total current liabilities................................ 925
Convertible debentures................................... 1,291
Long-term obligations, excluding current portion......... 38
Total stockholders' equity............................... 138
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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.
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.
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 three months ended March 31, 2001, we had operating
losses of approximately $517,000, net losses of approximately $506,000 and
negative cash flow from operating activities of approximately $288,000. 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. Bio Moda had no revenue and net losses of approximately
$220,000 for the year ended December 31, 2000 and an accumulated deficit of
approximately $90,000 as of December 31,
4
2000. 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 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.
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. 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.
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 depends in large part on our ability to recruit and retain qualified
personnel.
As a technology company, our success is in large part dependent on our
ability to recruit and retain qualified personnel as we expand. We face intense
competition for qualified personnel, particularly in software development,
network engineering and product management. If we fail to recruit and retain
required technical personnel, we will face substantial delays in developing our
products which would affect our revenues and may cause the price of our common
stock to decline.
We are required to pay two 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.
5
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.
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.
Competition within the electronic billboard industry is intense and poses an
ongoing threat to the success of our business.
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, and other lesser known companies, including Daktronics, Inc., SI
Diamond Technology, Inc. and Universal Display Corporation. 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.
RISKS RELATED TO THIS OFFERING
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.
6
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.
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.
7
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 $160,000 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.
High Low
---- ---
Fiscal 1997:
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
2nd Quarter 0.16 0.05
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.
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.
8
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2001, on
an actual basis including the sale and issuance of $500,000 of convertible notes
pursuant to a convertible note purchase agreement dated September 15, 2000 and
the sale and issuance of $740,667 of convertible notes pursuant to securities
purchase agreements dated November 7, 2000. 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 March 31, 2001
--------------------
(in thousands, except share
and per share data)
Short-term debt................................................................. $ 36
Long-term debt, less current portion............................................ 38
Convertible debentures.......................................................... 1,291
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................................................. --
Common Stock, $0.001 par value; 150,000,000 shares
authorized; 63,403,175 shares issued and 61,863,075
shares outstanding (1)...................................................... 63
Additional paid-in capital...................................................... 8,315
Deficit accumulated during the development stage................................ (7,989)
Treasury stock.................................................................. (58)
Notes receivable from officer for exercise of stock options..................... (193)
-------
Total stockholders' equity.................................................. 138
-------
Total capitalization........................................................ $ 2,392
=======
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(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.
9
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, 2000 have been derived from our audited financial statements
included elsewhere in this prospectus. The statement of operations data set
forth below for the three months ended March 31, 2000 and 2001, and the balance
sheet data as of March 31, 2001, have been derived from our unaudited financial
statements included elsewhere in this prospectus, and in our opinion, include
all necessary adjustments, consisting only of normal recurring adjustments, to
present fairly the unaudited results when read in conjunction with the audited
financial statements and the related notes appearing 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, Three Months Ended March 31,
-------------------------- ----------------------------
1999 2000 2000 2001
----------- ----------- ----------- -----------
(in thousands, except share and per share data)
Revenues ................................................. $ 310 $ 202 $ -- $ --
Operating expenses:
General and administrative ............................ 1,953 2,340 1,207 314
Research and development .............................. 239 732 134 78
----------- ----------- ----------- -----------
Total operating expenses ........................... 2,192 3,072 1,341 392
----------- ----------- ----------- -----------
Estimated loss on contract ............................... 158 384 748 125
----------- ----------- ----------- -----------
Loss from operations ..................................... (2,350) (3,456) (1,418) (517)
Other income (expenses), net ............................. (313) (387) (83) 11
----------- ----------- ----------- -----------
Net loss before cumulative effect of change in
accounting principle ..................................... (2,663) (3,843) (1,501) (506)
Cumulative effect of change in accounting principle ...... (63) -- -- --
----------- ----------- ----------- -----------
Net loss ................................................. $ (2,726) $ (3,843) $ (1,501) $ (506)
----------- ----------- ----------- -----------
Net loss per share ....................................... $ (.072) $ (.066) $ (.031) $ (.008)
Weighted average common shares outstanding ............... 37,809,084 58,029,724 48,153,762 62,665,675
=========== =========== =========== ===========
As of As of
December 31, March 31
Balance Sheet Data: 2000 2001
------------ --------
(in thousands)
Cash and cash equivalents .......................... $ 409 $ 225
Working capital .................................... 831 596
Total current assets ............................... 1,662 1,522
Total assets ....................................... 2,566 2,392
Total current liabilities .......................... 831 925
Convertible debentures ............................. 1,216 1,291
Long-term obligations, excluding current portion ... 48 38
Total stockholders' equity (deficit) ............... 471 138
10
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. No contract revenue has been recognized in connection
with our contract to produce and install two electronic outdoor advertising
billboards, which is being accounted for using the completion of contract method
of accounting.
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.
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 income
and expense, 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 was 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.
11
Three Months Ended March 31, 2000 and 2001
Revenues
Contract Revenue. No contract revenue has been recognized in connection
with out contract to produce and install two electronic outdoor advertising
billboards, which is being accounted for using the completion of contract method
of accounting.
Expenses
Research and Development. Research and development expenses decreased to
$78,000 for the three months ended March 31, 2001 from $134,000 for the three
months ended March 31, 2000, which reflects our transition from development to
production and the completion of primary research and development on our initial
product. We believe that continued investment in additional product development
is critical to attaining our strategic objectives and, as a result, expect
research and development costs to increase significantly in future periods.
General and Administrative. General and administrative expenses decreased
to $314,000 for the three months ended March 31, 2001 from $1.2 million for the
three months ended March 31, 2000. The decrease in general and administrative
expenses was primarily due to increased duties being handled by in-house
personnel and a reduction in professional services fees and expenses.
Other Income (Expense). Other income (expense) increased to $11,000 for the
three months ended March 31, 2001 from $(83,000) for the three months ended
March 31, 2000. The change in other income (expense) was primarily due to
interest expense decreasing to $2,000 for the three months ended March 31, 2001
from $77,000 for the three months ended March 31, 2000 after giving effect to
the charge to interest expense of the intrinsic value of the conversion feature
of the convertible debt financings that were undertaken in 2000.
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 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
12
future quarter our operating results may not meet or exceed the expectations of
securities 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 March 31, 2001, our principal commitments consisted of obligations of
approximately $148,000, 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 March 31, 2001, we had approximately $278,000 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.
13
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.
14
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. According to the
Outdoor Advertising Association of America, outdoor advertising was a $5.2
billion industry in 2000, which was 8.3% higher than the previous year. The
billboard segment of the outdoor advertising market represents 60% of total
outdoor expenditures and topped $3.1 billion in 2000. 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.
According to the Outdoor Advertising Association of America, advertising space
was sold on approximately 400,000 billboards in 1998. 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
15
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.
16
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 promote, market
and 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. It is
estimated that the four leaders in this industry account for approximately half
of the outdoor advertising billboard market and the top ten billboard owners
represent 61% of this market. The 39% that constitutes the balance of the
outdoor advertising billboard market is composed of smaller individual companies
that nevertheless control prime high-traffic billboard locations and, as such,
represent a significant component of our target market. Media companies have
been acquiring billboard owners 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.
Our potential customers are the companies that own billboards and are
interested in upgrading their displays in order to attract higher revenue
generating advertisers who are their customers. Other potential customers are
companies that are looking at new potential outdoor advertising venues in
locations such as Times Square in New York City. We do not believe that any of
our potential customers own billboards or electronic displays. We intend to
initiate customer contact by directly communicating with potential customers,
including the four leaders of the outdoor advertising billboard industry, and
providing them a marketing 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
17
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 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
18
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 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 three months ended March 31, 2001 and for the years ended December
31, 2000 and 1999, we spent $78,000, $732,000 and $239,000, respectively, 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 June 30, 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
Bio Moda, Inc. is 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 made four separate
19
investments in Bio Moda in 1998, and we currently have an ownership interest of
approximately 16% in the biomedical technology company. We believe that
potential reciprocal benefits and synergies exist between us and Bio Moda 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 agreements 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.
20
MANAGEMENT
Executive Officers, Directors and Key Employees
The following table sets forth specific information regarding our executive
officers and directors as of June 30, 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................... 45 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
21
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.
22
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.
23
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
--------------------------- -------------------------
Restricted Securities
Other Annual Stock Underlying
Name and Principal 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
24
such other consideration as our Board of Directors deems appropriate or (5) by
any combination of the foregoing.
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 June 30, 2001, non-qualified stock options to purchase 5,825,000
shares have been granted at exercise prices ranging from $0.09 to $0.34 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 $0.09
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 $0.12
per share in June 2000, August 2000 and September 2000, respectively, in
exchange for promissory notes for $120,000, $54,000 and $48,000, respectively,
each with an annual interest rate of 10% due quarterly and the principal due in
three years. None of the other options have been exercised. As of June 30, 2001,
4,175,000 shares remained available for future grants under the 1999 Incentive
Stock Option Plan. Unless previously terminated by the Board of Directors, no
options may be granted under the 1999 Incentive Stock Option Plan after January
3, 2009.
Option Grants
The following table provides summary information regarding stock options
and warrants granted to our chief executive officer and other executive officers
during the fiscal year ended 1999. We granted options for an aggregate of
5,025,000 shares to our officers and key employees under the 1999 Incentive
Stock Option Plan (not including 450,000 shares underlying options granted to
non-employee directors) during the fiscal year ended December 31, 2000 at an
exercise price equal to the fair market value of the common stock on the date of
grant. This includes options to purchase 2,475,000 shares that were granted in
exchange for the cancellation of options to purchase 2,475,000 shares with a
higher per share exercise price that had been previously granted during the
fiscal year ended December 31, 2000. We granted warrants for an aggregate of
3,050,000 shares (not including 375,000 shares underlying warrants granted to
non-employee directors) during the fiscal year ended December 31, 2000 at an
exercise price equal to the fair market value of the common stock on the date of
grant.
Options Granted in 2000
Individual Grants
-------------------------------------------------------------------------
Number of
Securities Percent of Total
Underlying Options Granted
Options in Fiscal 2000 Exercise Price
Name Granted (%)(1) ($/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
25
- ----------
(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.
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
Shares Unexercised Options Value of Unexercised
Shares December 31, 2000 In-the-Money Options
Acquired on Value ---------------------------------- 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 four reports
late with respect to one hundred thirty-three 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.
26
CERTAIN TRANSACTIONS
The following table lists stock options and warrants that have been granted
or issued to, or exercised by, Leslie Robins, our chairman of the board,
executive vice president and secretary, and a promoter of PLZTech, Inc., the
company that we acquired the assets of in November 1996. No other stock options
or warrants have been granted or issued to, or exercised by, our promoters or
the promoters of PLZTech.
Transaction and Exercise Price Number of Shares of Common Stock Underlying
Date of Transaction Exercisable Security per Share Exercisable Security
- ------------------- --------------------- -------------- -------------------------------------------
2/6/99 Grant of Option $0.12 2,000,000
6/15/99 Issuance of Warrant $0.15 3,000,000
1/27/00 Grant of Option $0.70 1,000,000(1)
6/7/00 Grant of Option $0.74 900,000(1)
6/21/00 Exercise of Option $0.12 1,000,000
8/2/00 Exercise of Option $0.12 450,000
8/9/00 Issuance of Warrant $0.37 2,000,000
9/7/00 Exercise of Option $0.12 400,000
10/17/00 Issuance of Warrant $0.34 950,000
10/18/00 Grant of Option $0.34 1,900,000
- ----------
(1) 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 on October 18, 2000.
The following table lists shares of our common stock beneficially owned by
our promoters or the promoters of PLZTech that were issued to them. Based solely
on our review of copies of all forms filed with the Securities and Exchange
Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934 that
were furnished to us, we are not aware of any sales of shares of our common
stock that were beneficially owned by our promoters or the promoters of PLZTech.
No other securities of Advanced Optics have been issued to or sold by our
promoters or the promoters of PLZTech.
Date of Transaction Promoter Number of Shares Consideration
------------------- ------------------------ ---------------- ----------------------------------------------
7/16/96 Ronald Drake(1) 2,500 Cash at $0.10 per share
7/16/96 Ronald Drake 2,500 One-for-one stock dividend
11/7/96 Francisco Urrea, Jr.(2) 452,810 882,500 shares of PLZTech(5)
11/7/96 Grupo Nueve Ltd.(3) 1,539,000 3,000,000 shares of PLZTech(5)
11/7/96 Leslie Robins(4) 1,200,646(4) 2,340,000 shares of PLZTech(5)
4/2/97 Leslie Robins 29,500 Services rendered at $0.50 per share
4/8/97 Leslie Robins 18,000 Services rendered at $0.75 per share
4/15/97 Leslie Robins 9,000 Services rendered at $0.75 per share
4/1/98 Leslie Robins 5,000 Services rendered at $0.22 per share
11/9/98 Leslie Robins 300,000 Services rendered at $0.055 per share
11/19/98 Leslie Robins 315,000 7% promissory note at $0.092 per share(6)
1/5/99 Leslie Robins 440,000 Services rendered at $0.06 per share
3/12/99 Leslie Robins 420,000 Services rendered at $0.08 per share
3/12/99 Leslie Robins 700,000 Services rendered at $0.08 per share
3/25/99 Leslie Robins 945,000 Services rendered at $0.105 per share
7/8/99 Leslie Robins 490,000 Services rendered at $0.09 per share
6/22/00 Leslie Robins 1,000,000 10% promissory note at $0.12 per share(7)
8/31/00 Leslie Robins 450,000 10% promissory note at $0.12 per share(8)
9/7/00 Leslie Robins 400,000 10% promissory note at $0.12 per share(9)
11/24/00 - Leslie Robins 63,500 Cash on open market at between $0.04 and $0.29
5/15/01 per share(10)
27
- ----------
(1) Ronald Drake was our promoter.
(2) Francisco Urrea, Jr. was a promoter of PLZTech.
(3) Grupo Nueve Ltd. was a limited partnership of which Francisco Urrea, Jr.
was the general partner, and he, his wife and seven children each held an
equal ownership interest.
(4) Leslie Robins is our chairman of the board, executive vice president and
secretary, and he was a promoter of PLZTech. Includes 107,751 shares of our
common stock owned by Mr. Robins' wife, Marcia Robins.
(5) Each share of common stock of PLZTech was exchanged for 0.5131 shares of
common stock of Advanced Optics pursuant to the stock-for-stock agreement
dated as of November 6, 1996 by and among Advanced Optics and a majority of
the shareholders of PLZTech.
(6) Shares of common stock of Advanced Optics were issued in exchange for a 7%
promissory note in the principal amount of $29,000 that was paid with
accrued interest in the aggregate amount of $31,500 by Leslie Robins on
March 30, 2000.
(7) Shares of common stock of Advanced Optics were issued upon exercise of
stock options in exchange for a 10% promissory note in the principal amount
of $120,000 due four years from the date of issuance.
(8) Shares of common stock of Advanced Optics were issued upon exercise of
stock options in exchange for a 10% promissory note in the principal amount
of $54,000 due four years from the date of issuance.
(9) Shares of common stock of Advanced Optics were issued upon exercise of
stock options in exchange for a 10% promissory note in the principal amount
of $48,000 due four years from the date of issuance.
(10) Leslie Robins purchased 63,500 shares of our common stock in 108 separate
transactions on the open market in the aggregate amount of $14,533, with
stock purchase prices ranging between $0.04 and $0.29 per share for the
period from 11/24/00 to 5/15/01, as reported by Mr. Robins on the reports
detailing his ownership and changes in ownership of our equity securities
for the noted period pursuant to Section 16(a) of the Securities Exchange
Act of 1934.
Richard Josephberg, who has served as a member of our Board of Directors
since April 2000, was entitled to receive, and upon his request, J.G. Capital,
Inc. received 75,000 shared of our common stock valued at $0.96 per share in
April 2000 and a warrant to purchase 125,000 shares of our common stock at an
exercise price of $0.37 per share in August 2000 in exchange for services to be
rendered as a director. Prior to his appointment as one of our directors, J.G.
Capital, Inc. received 37,500 shares of our common stock valued at $0.44 per
share in October 1999 in exchange for financial consulting services rendered.
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.
28
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock on June 30, 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 29,405,808 shares
of common stock (excluding warrants granted to our directors and officers and
J.G. Capital, Inc. to purchase 7,275,000 shares of common stock) resulting in
93,420,894 shares of common stock outstanding on June 30, 2001. 93,420,894
shares of common stock will be outstanding immediately following the completion
of this offering.
Percentage of Shares
Beneficially Owned
---------------------
Number of Shares Before After
Name of Beneficial Owner Beneficially Owned Offering Offering
- ---------------------------------------------------- ------------------ -------- --------
Leslie Robins....................................... 14,785,646(1) 14.6% 14.6%
Michael Pete........................................ 1,289,524(2) 1.4 1.4
John Cousins........................................ 850,000(3) * *
Harold Herman....................................... 975,000(4) 1.0 1.0
Richard Josephberg.................................. --- (5) --- ---
Abraham Grin........................................ 11,645,971(6) 12.5 12.5
Samir A. Halim...................................... 10,987,953(7) 11.8 11.8
John C. Tausche..................................... 10,987,953(7) 11.8 11.8
Sam Levinson........................................ 6,271,884(8) 6.7 6.7
All directors and executive officers as a group
(5 persons) ........................................ 17,900,170(9) 17.2% 17.2%
- ----------
* Less than 1%.
(1) Includes beneficial ownership of 107,751 shares of common stock held by Mr.
Robins' wife, Marcia Robins, 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 per
share in August 2000. Mr. Josephberg is a partner with a 1% ownership
29
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) Represents the following numbers of shares of common stock issuable upon
conversion of 8% convertible notes that are currently convertible, which
were issued to the following security holders: 3,493,791 shares held by
Keshet Fund L.P., a limited partnership of which Keshet Management, Inc. is
the general partner that is beneficially owned by Mr. Grin; 4,076,090
shares held by Keshet L.P., a limited partnership of which Keshet
Management, Inc. is the general partner that is beneficially owned by Mr.
Grin; 2,329,194 shares held by Nesher Ltd., a corporation owned by Mr.
Grin; and 1,746,896 shares held by Talbiya B. Investments Ltd., a
corporation owned by Mr. Grin.
(7) Represents 10,942,753 shares of common stock issuable upon conversion of 7
1/2 % convertible notes that are currently convertible and 45,200 shares of
common stock issuable upon exercise of a warrant that is currently
exercisable, which were issued to Triton Private Equities Fund, L.P., a
limited partnership of which Triton Capital Management, L.L.C. is the
general partner, which is beneficially owned by Samir A. Halim and John C.
Tausche.
(8) Represents 6,246,084 shares of common stock issuable upon conversion of 7
1/2% convertible notes that are currently convertible, and 25,800 shares of
common stock issuable upon exercise of a warrant that is currently
exercisable, which were issued to RFL Asset Management, LLC, a limited
liability corporation that is beneficially owned by Sam Levinson.
(9) 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.
30
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 June 30, 2001, assuming the conversion of all outstanding convertible
notes and warrants (excluding warrants granted to our directors and officers and
J.G. Capital, Inc. to purchase 7,275,000 shares of common stock), there were
93,920,894 shares of common stock outstanding, which were held of record by
approximately 13,100 stockholders. In addition, as of June 30, 2001, there were
7,275,000 shares underlying outstanding warrants granted to our directors and
officers and J.G. Capital, Inc. and 3,825,000 shares of common stock underlying
outstanding employee stock options. Upon completion of this offering, there will
be 93,920,894 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.
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. A security of an issuer, generally, that has net tangible assets in
excess of $2 million or $5 million, respectively, depending upon whether the
issuer has been continuously operating for less or more than three years, or
"average revenue" of at least $6 million for the last three years, would also be
excluded from the definition of "penny stock." As long as we do not meet these
financial requirements and our 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.
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 notes are convertible into
shares of our common stock at a conversion price equal to the lesser of 75% of
the average of the three lowest closing bid prices of our common stock as
reported on the OTC Bulletin Board for the thirty trading days immediately
preceding the issue date of the notes, which is $0.22375 per share, or 80% of
the average of the three lowest closing bid prices of our common stock as
reported on the OTC Bulletin Board for the ninety trading days immediately
preceding the conversion date, which is $0.042933 per share assuming the
conversion date is July 13, 2001. The
31
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, but not the convertible notes under the
Securities Act of 1933. 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 the sale and
issuance of additional 8% convertible notes in the aggregate amount of $9.5
million to the four selling stockholders and the registration of the shares of
our common stock underlying those additional convertible notes under the
Securities Act of 1933 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 notes are convertible into shares of our common stock at a conversion
price equal to the lesser of 110% of the closing bid price of our common stock
as reported on the OTC Bulletin Board on March 8, 2000, which is $1.617 per
share, or 77.5% of the average of the five lowest closing bid prices of our
common stock as reported on the OTC Bulletin Board for the twenty trading days
immediately preceding the conversion date, which is $0.04309 per share assuming
the conversion date is July 13, 2001. 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, but not
the convertible notes under the Securities Act of 1933. 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 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 in the aggregate amount of $315,000.
Warrants
As of June 30, 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 and J.G. Capital, Inc.
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,
but we are not required to register these 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 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
32
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.
33
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 93,420,894
shares of common stock, which assumes
o the conversion of all of our convertible notes and warrants issued to
the selling stockholders, which are outstanding as of June 30, 2001,
into an aggregate of 29,405,808 shares of common stock upon the
completion of this offering;
o the issuance of 29,405,808 shares of common stock offered by the
selling stockholders; and
o no exercise of outstanding warrants granted to our directors and
officers and J.G. Capital, Inc. or stock options granted to our
employees and directors.
Rule 144
All of the 29,405,808 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
55,014,852 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 some or all 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 934,209 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 June 30, 2001, there were a total of 3,825,000 shares of common stock
reserved for issuance and subject to outstanding options under our 1999
Incentive Stock Option Plan, all of which have vested. 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
34
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 June 30, 2001, there were outstanding warrants to purchase 7,846,000
shares of common stock, including warrants issued to our officers and directors
to purchase 7,150,000 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 29,405,808
shares offered in this prospectus include the following:
o 11,645,971 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 17,188,837 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
Shares Class of Shares
Number of 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 3,493,791 3,493,791 0 0%
18 Peel Road
Douglan, Isle of Man
Keshet L.P. (1)
Ragnall House 4,076,090 4,076,090 0 0%
18 Peel Road
Douglan, Isle of Man
35
Number of Percentage of
Shares Class of Shares
Number of 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 2,329,194 2,329,194 0 0%
18 Peel Road
Douglan, Isle of Man
Talbiya B. Investments Ltd. (2)
Ragnall House 1,746,896 1,746,896 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 10,942,753 10,942,753 0 0%
Wichita, Kansas 87202
RFL Asset Management, LLC (5)
c/o Levinson Capital Management, LLC 6,246,084 6,246,084 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 of which Triton Capital Management, L.L.C. is the
general partner. Triton Capital Management, L.L.C. is beneficially owned by
Samir A. Halim and John C. Tausche.
(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 expenses incurred, which are estimated to be
$160,000, that relate to the registration of the shares being offered and sold
by the selling stockholders, including the Securities and Exchange Commission
registration fee and legal, accounting, printing and other expenses of this
offering.
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
36
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, 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.
37
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.
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. Neff & Ricci LLP, independent auditors,
audited our consolidated financial statements at December 31, 1998 and 1999, and
for the years ended December 31, 1998 and 1999, as set forth in their reports.
We have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on their respective reports 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.
38
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
Financial Statements
Balance Sheet as of December 31, 2000.............................................................................. F-5
Statements of Operations for the Years Ended December 31, 2000 and 1999 and the Period from
May 22, 1996 (Inception) through December 31, 2000................................................................. F-6
Statement of Changes in Stockholders' Equity for the Period from May 22, 1996 (Inception)
through December 31, 2000.......................................................................................... F-7
Statements of Cash Flows for the Years Ended December 31, 2000 and 1999 and the Period from F-8
May 22, 1996 (Inception) through December 31, 2000................................................................. F-8
Notes to Financial Statements...................................................................................... F-10
Unaudited Financial Statements
Unaudited Balance Sheet as of March 31, 2001....................................................................... F-25
Unaudited Statements of Operations for the Three Months Ended March 31, 2000 and 2001.............................. F-26
Unaudited Statements of Changes in Stockholders' Equity for the Period from May 22,
1996 (Inception) through March 31, 2001............................................................................ F-27
Unaudited Statements of Cash Flows for the Three Months Ended March 31, 2000 and 2001.............................. F-28
Notes to Unaudited Financial Statements............................................................................ F-30
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, and for the period from May 22, 1996 (inception) through
December 31, 1997. 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 the 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 expressed unqualified opinions on those
statements, before restatement. We also audited the adjustment described in Note
1 that was applied to restate the 1999 financial statements. In our opinion,
such adjustment is appropriate and has been properly applied.
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 1996, 1997, and 2000 portions of the period from May 22, 1996 (inception)
through December 31, 2000, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of recognizing revenue and costs on its long-term contract in 2000.
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.
/s/ NEFF & RICCI LLP
Albuquerque, New Mexico
February 18, 2000
F-3
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, 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
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 in excess of billings on uncompleted contract 1,145,489
------------
Total current assets 1,662,202
------------
PROPERTY AND EQUIPMENT, net 259,175
------------
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 $ 2,565,974
============
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 565,000
------------
Total current liabilities 831,025
------------
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 8,139,907
Deficit accumulated during the development stage (7,482,642)
Treasury stock, at cost (54,574)
Notes receivable from officer for exercise of stock options (193,427)
-----------
Total stockholders' equity 471,192
-----------
Total liabilities and stockholders' equity $ 2,565,974
===========
The accompanying notes are an integral part of these financial statements.
F-5
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
1999 December 31,
2000 (Restated) 2000
------------ ------------ ------------
Revenues
Contract revenue $ -- $ -- $ --
Costs and expenses
General and administrative 2,340,179 1,952,600 4,912,914
Research and development 732,029 239,029 1,160,176
------------ ------------ ------------
Total costs and expenses 3,072,208 2,191,629 6,073,090
Estimated loss on contract (384,183) (157,876) (565,000)
------------ ------------ ------------
Operating loss (3,456,391) (2,349,505) (6,638,090)
------------ ------------ ------------
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) (7,419,622)
------------ ------------ ------------
Cumulative effect of change in
accounting principle -- (63,020) (63,020)
------------ ------------ ------------
Net loss $ (3,843,135) $ (2,725,804) $ (7,482,642)
============ ============ =============
Net loss per share before cumulative effect
of change in accounting principle $ (.066) $ (.070) $ (.269)
Cumulative effect of change in
accounting principle -- (.002) (.002)
------------ ------------ ------------
Net loss per share $ (.066) $ (.072) $ (.271)
============ ============ ============
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-6
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
----------------------------- ----------------------------- -----------------------------
Par Par
Shares Value Shares Value Shares Cost
------------ ------------ ------------ ------------ ------------ ------------
Balance, May 22, 1996 -- $ -- -- $ -- -- $ --
Stock issued to
incorporators for cash 500,000 500 -- -- -- --
Stock issued for the net
assets of PLZ Tech, Inc. 4,500,000 4,500 -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 5,000,000 5,000 -- -- -- --
Stock issued in public
offering 2,281,212 2,281 -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 7,281,212 7,281 -- -- -- --
Stock issued for cash 10,979,275 10,979 -- -- -- --
Stock issued for services 2,751,000 2,751 -- -- -- --
Stock issued in exchange for
note receivable 315,000 315 -- -- -- --
Purchase and retirement of
treasury stock (472,200) (472) -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 20,854,287 20,854 -- -- -- --
Stock issued for cash 8,681,624 8,682 -- -- -- --
Stock issued for services 17,094,313 17,094 -- -- -- --
Intrinsic value of beneficial
conversion feature of notes
payable -- -- -- -- -- --
Fair value of warrants -- -- -- -- -- --
related to notes payable
Purchase and retirement of
treasury stock (489,251) (489) -- -- -- --
Purchase of treasury stock -- -- -- -- (229,000) (41,760)
Sale of treasury stock -- -- -- -- 85,000 11,130
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 46,140,973 46,141 -- -- (144,000) (30,630)
Stock issued for cash 782,000 782 710 1 -- --
Stock issued for services 3,955,202 3,955 -- -- -- --
Purchase of treasury stock -- -- -- -- (63,500) (46,486)
Sale of treasury stock -- -- -- -- 142,400 22,542
Exercise of stock options for
notes receivable 1,850,000 1,850 -- -- -- --
Amortization of discount on
convertible preferred stock -- -- -- -- -- --
Exercise of preferred stock
conversion feature 9,200,000 9,200 -- -- -- --
Issuance of convertible
debentures -- -- -- -- -- --
Exchange of preferred stock
for convertible debentures -- -- (710) (1) -- --
-- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2000 61,928,175 $ 61,928 -- $ -- (65,100) $ (54,574)
============ ============ ============ ============ ============ ============
Equity
(Deficit) Notes
Additional During the Receivable Total
Paid-In Development From Stockholder
Capital Stage Officer Equity
------------ ------------ ------------ ------------
Balance, May 22, 1996 $ -- $ -- $ -- $ --
Stock issued to
incorporators for cash 24,500 -- -- 25,000
Stock issued for the net
assets of PLZ Tech, Inc. 281,096 -- -- 285,596
Net loss -- (76,902) -- (76,902)
------------ ------------ ------------ ------------
Balance, December 31, 1996 305,596 (76,902) -- 233,694
Stock issued in public
offering 362,720 -- -- 365,001
Net loss -- (84,690) -- (84,690)
------------ ------------ ------------ ------------
Balance, December 31, 1997 668,316 (161,592) -- 514,005
Stock issued for cash 1,281,728 -- -- 1,292,707
Stock issued for services 293,719 -- -- 296,470
Stock issued in exchange for
note receivable 28,685 -- -- 29,000
Purchase and retirement of
treasury stock (39,913) -- -- (40,385)
Net loss -- (752,111) -- (752,111)
------------ ------------ ------------ ------------
Balance, December 31, 1998 2,232,535 (913,703) -- 1,339,686
Stock issued for cash 855,101 -- -- 863,783
Stock issued for services 1,469,320 -- -- 1,486,414
Intrinsic value of beneficial
conversion feature of notes
payable 174,610 -- -- 174,610
Fair value of warrants 125,000 -- -- 125,000
related to notes payable
Purchase and retirement of
treasury stock (10,643) -- -- (11,132)
Purchase of treasury stock -- -- -- (41,760)
Sale of treasury stock 24,334 -- -- 35,464
Net loss -- (2,725,804) -- (2,725,804)
------------ ------------ ------------ ------------
Balance, December 31, 1999 4,870,257 (3,639,507) -- 1,246,261
Stock issued for cash 1,012,710 -- -- 1,013,493
Stock issued for services 1,726,197 -- -- 1,730,152
Purchase of treasury stock -- -- -- (46,486)
Sale of treasury stock 54,771 -- -- 77,313
Exercise of stock options for
notes receivable 220,150 -- (193,427) 28,573
Amortization of discount on
convertible preferred stock 159,677 -- -- 159,677
Exercise of preferred stock
conversion feature 533,678 -- -- 542,878
Issuance of convertible
debentures 263,830 -- -- 263,830
Exchange of preferred stock
for convertible debentures (641,780) -- -- (641,780)
(59,583) -- -- (59,583)
Net loss -- (3,843,135) -- (3,843,135)
------------ ------------ ------------ ------------
Balance, December 31, 2000 $ 8,139,907 $ (7,482,642) $ (193,427) $ 471,192
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-7
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-8
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-9
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-10
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
During 2000, the Company accounted for revenue and costs related to its
long-term contract in process by the completed-contract method, whereas in
all prior years, and during the period from May 22, 1996 (inception) to
December 31, 1999, revenue and costs were determined by the
percentage-of-completion method. The completed-contract method of
accounting was adopted in 2000 due to the Company's uncertainty regarding
contract cost estimates. The financial statements of all prior years, and
of the period from May 22, 1996 (inception) to December 31, 1999, have been
restated to apply the completed contract method retroactively. The effect
of the accounting change had no effect on net loss or loss per share
previously reported for 1999 or for the period from May 22, 1996
(inception) to December 31, 1999.
Under the completed contract method of accounting, contract revenues and
costs are recognized when the contract is completed, with estimated losses
recognized when it becomes evident that contract costs will exceed contract
revenues. 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 Company's 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 is entitled to 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 and total
contract costs 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. It is at least reasonably possible that the estimate of completion
costs for this contract will be further revised in the near-term.
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
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
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 8 years. Goodwill is amortized over 10 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.
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
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 estimated loss on
contract under the completed contract method 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-13
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-14
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-15
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-16
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-17
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 charge to interest expense. 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 lesser 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-18
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 in excess of billings on
uncompleted contract 1,145,489 1,145,489
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-19
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
NOTE 7. INCOME TAXES
As of December 31, 2000, the Company had a net operating loss carryforwards
of approximately $7,400,000 which expire in varying amounts between 2016
and 2020. Realization of this potential future tax benefit is dependent on
generating sufficient taxable income prior to expiration of the loss
carryforward. The deferred tax asset related to this potential future tax
benefit has been offset by a valuation allowance in the same amount. The
amount of the deferred tax asset ultimately realizable could be 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 net assets of $285,596,
consisting primarily of patents and equipment, were recorded. In previous
financial statements, the Company did not present unclaimed shares
resulting from the merger with PLZ Tech, Inc. 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 for cash and services.
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-20
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-21
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-22
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-23
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-24
Advanced Optics Electronics, Inc.
(A Development Stage Company)
BALANCE SHEET
(Unaudited)
March 31, 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 225,018
Certificates of deposit 52,935
Costs and estimated earnings in excess of
billings on uncompleted contract 1,243,557
------------
Total current assets 1,521,510
------------
PROPERTY AND EQUIPMENT, net 244,508
------------
OTHER ASSETS
Intangible assets, net 309,997
Investment in Bio Moda, Inc. 207,335
Other assets 64,292
Note receivable from officer and shareholder 44,493
------------
Total other assets 626,117
------------
Total assets $ 2,392,135
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 166,762
Accrued liabilities 32,487
Current portion of long-term obligations 36,205
Allowance for loss on contract 690,000
-----------
Total current liabilities 925,454
-----------
LONG-TERM PORTION OF LONG-TERM
DEBT AND CAPITAL LEASE OBLIGATION 37,842
CONVERTIBLE DEBENTURES 1,290,677
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; 63,403,175 shares issued and 63,320,775
shares outstanding 63,403
Additional paid-in capital 8,314,680
Deficit accumulated during the development stage (7,988,713)
Treasury stock, at cost (57,781)
Notes receivable from officer for exercise of
stock options (193,427)
-----------
Total stockholders' equity 138,162
-----------
Total liabilities and stockholders' equity $ 2,392,135
===========
The accompanying notes are an integral part of these financial statements.
F-25
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months ended March 31, 2001 and 2000
and the period from May 22, 1996 (Inception)
through March 31, 2001
For the Three Months Ended March 31, May 22, 1996
------------------------------------ (Inception)
2001 Through
2001 Restated March 31, 2001
------------ ------------ --------------
Revenues
Contract revenue $ -- $ -- $ --
------------ ------------ ------------
Costs and expenses
General and administrative 313,859 1,206,669 5,226,773
Research and development 78,202 133,967 1,238,378
------------ ------------ ------------
Total costs and expenses 392,061 1,340,636 6,465,151
------------ ------------ ------------
Estimated loss on contract
(125,000) (77,847) (690,000)
------------ ------------ ------------
Operating loss (517,061) (1,418,483) (7,155,151)
------------ ------------ ------------
Other income (expenses)
Interest income 7,195 2,293 37,525
Unrealized gain (loss) on marketable equity securities -- 7,655 (29,368)
Other investment gains -- -- 59,784
Loss on Bio Moda, Inc. -- (16,222) (176,510)
Gain (loss) on disposal of assets 6,000 -- (4,306)
Interest expense (2,205) (76,581) (657,667
------------ ------------ ------------
Total other income (expenses) 10,990 (82,855) (770,542)
------------ ------------ ------------
Net loss before cumulative effect of
Change in accounting principle (506,071) (1,501,338) (7,925,693)
Cumulative effect of change in
accounting principle -- -- (63,020)
Net loss $ (506,071) $ (1,501,338) $ (7,988,713)
============ ============ ============
Net loss per share before cumulative effect
of change in accounting principle $ (.008) $ (.031) $ (.268)
Cumulative effect of change in accounting principle -- -- (.002)
------------ ------------ ------------
Net loss per share $ (.008) $ (.031) $ (0.270)
============ ============ ============
Weighted average shares outstanding 62,665,675 48,153,762 29,492,566
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-26
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
For the Period from May 22, 1996 (Inception)
through March 31, 2001
Common Stock Preferred Stock Treasury Stock
-------------------------- -------------------------- ----------------------------
Par Par
Shares Value Shares Value Shares Cost
----------- ----------- ----------- ----------- ----------- -----------
Balance, May 22, 1996 -- $ -- -- $ -- -- $ --
Stock issued to
incorporators for cash 500,000 500 -- -- -- --
Stock issued for the net
assets of PLZ Tech, Inc. 4,500,000 4,500 -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 5,000,000 5,000 -- -- -- --
Stock issued in public
offering 2,281,212 2,281 -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 7,281,212 7,281 -- -- -- --
Stock issued for cash 10,979,275 10,979 -- -- -- --
Stock issued for services 2,751,000 2,751 -- -- -- --
Stock issued in exchange for
note receivable 315,000 315 -- -- -- --
Purchase and retirement of
treasury stock (472,200) (472) -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 20,854,287 20,854 -- -- -- --
Stock issued for cash 8,681,624 8,682 -- -- -- --
Stock issued for services 17,094,313 17,094 -- -- -- --
Intrinsic value of beneficial
conversion feature of notes
payable -- -- -- -- -- --
Fair value of warrants
related to notes payable -- -- -- -- -- --
Purchase and retirement of
treasury stock (489,251) (489) -- -- -- --
Purchase of treasury stock -- -- -- -- (229,000) (41,760)
Sale of treasury stock -- -- -- -- 85,000 11,130
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 46,140,973 46,141 -- -- (144,000) (30,630)
Stock issued for cash 782,000 782 710 1 -- --
Stock issued for services 3,955,202 3,955 -- -- -- --
Purchase of treasury stock -- -- -- -- (63,500) (46,486)
Sale of treasury stock -- -- -- -- 142,400 22,542
Exercise of stock options for
notes receivable 1,850,000 1,850 -- -- -- --
Amortization of discount on
convertible preferred stock -- -- -- -- -- --
Exercise of preferred stock
conversion feature 9,200,000 9,200 -- -- -- --
Issuance of convertible
debentures -- -- -- -- -- --
Exchange of preferred stock -- -- (710) (1) -- --
for convertible debentures -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 61,928,175 61,928 -- -- (65,100) (54,574)
Stock issued for services 1,475,000 1,475 -- -- -- --
Purchase of treasury stock -- -- -- -- (17,300) --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2001 63,403,175 $ 63,403 -- $ -- (82,400) $ (57,781)
=========== =========== =========== =========== =========== ===========
Equity
(Deficit) Notes
Additional During the Receivable Total
Paid-In Development From Stockholder
Capital Stage Officer Equity
----------- ----------- ----------- -----------
Balance, May 22, 1996 $ -- $ -- $ -- $ --
Stock issued to
incorporators for cash 24,500 -- -- 25,000
Stock issued for the net
assets of PLZ Tech, Inc. 281,096 -- -- 285,596
Net loss -- (76,902) -- (76,902)
----------- ----------- ----------- -----------
Balance, December 31, 1996 305,596 (76,902) -- 233,694
Stock issued in public
offering 362,720 -- -- 365,001
Net loss -- (84,690) -- (84,690)
----------- ----------- ----------- -----------
Balance, December 31, 1997 668,316 (161,592) -- 514,005
Stock issued for cash 1,281,728 -- -- 1,292,707
Stock issued for services 293,719 -- -- 296,470
Stock issued in exchange for
note receivable 28,685 -- -- 29,000
Purchase and retirement of
treasury stock (39,913) -- -- (40,385)
Net loss -- (752,111) -- (752,111)
----------- ----------- ----------- -----------
Balance, December 31, 1998 2,232,535 (913,703) -- 1,339,686
Stock issued for cash 855,101 -- -- 863,783
Stock issued for services 1,469,320 -- -- 1,486,414
Intrinsic value of beneficial
conversion feature of notes
payable 174,610 -- -- 174,610
Fair value of warrants
related to notes payable 125,000 -- -- 125,000
Purchase and retirement of
treasury stock (10,643) -- -- (11,132)
Purchase of treasury stock -- -- -- (41,760)
Sale of treasury stock 24,334 -- -- 35,464
Net loss -- (2,725,804) -- (2,725,804)
----------- ----------- ----------- -----------
Balance, December 31, 1999 4,870,257 (3,639,507) -- 1,246,261
Stock issued for cash 1,012,710 -- -- 1,013,493
Stock issued for services 1,726,197 -- -- 1,730,152
Purchase of treasury stock -- -- -- (46,486)
Sale of treasury stock 54,771 -- -- 77,313
Exercise of stock options for
notes receivable 220,150 -- (193,427) 28,573
Amortization of discount on
convertible preferred stock 159,677 -- -- 159,677
Exercise of preferred stock
conversion feature 533,678 -- -- 542,878
Issuance of convertible
debentures 263,830 -- -- 263,830
Exchange of preferred stock (641,780) -- -- (641,780)
for convertible debentures (59,583) -- -- (59,583)
Net loss -- (3,843,135) -- (3,843,135)
----------- ----------- ----------- -----------
Balance, December 31, 2000 8,139,907 (7,482,642) (193,427) 471,192
Stock issued for services 174,773 -- -- 176,248
Purchase of treasury stock -- -- (3,207)
Net loss -- (506,071) -- (506,071)
----------- ----------- ----------- -----------
Balance, March 31, 2001 $ 8,314,680 $(7,998,713) $ (193,427) $ 138,162
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-27
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months ended March 31, 2001 and 2000
and the Period from May 22, 1996 (Inception)
through March 31, 2001
For the Three Months Ended May 22, 1996
March 31, (Inception)
----------------------------- Through
2001 2000 March 31, 2001
--------- ----------- --------------
Cash flows from operating activities
Net loss $(506,071) $(1,501,338) $(7,988,713)
Adjustments to reconcile net loss to net cash
provided by operating activities
Intrinsic value of conversion features -- -- 466,728
Amortization and depreciation expense 28,373 27,630 330,218
Write off of organization costs -- -- 63,020
Amortization of discounts on convertible
notes -- 70,691 295,209
Unrealized (gain) loss on marketable securities -- (7,655) 29,368
Gain (loss) on disposal of assets (6,000) -- 4,306
Loss on Bio Moda, Inc. -- 16,222 176,510
Issuance of common stock for services 176,248 1,120,233 3,689,284
Issuance of notes for services -- -- 50,000
Increase in costs in excess of
billings on uncompleted contract (98,068) (34,039) (1,243,557)
(Increase) decrease in other assets 9,750 (131) (70,124)
Increase (decrease) in inventory -- 6,000 (35,293)
Increase in allowance for loss on contract 125,000 18,039 690,000
Increase (decrease) in accrued liabilities
and accounts payable (16,977) (50,751) 199,248
Other non-cash expenses -- 31,030 33,447
Accrued interest -- -- 30,667
--------- ----------- -----------
Net cash provided by used in
operating activities (287,745) (304,069) (3,279,682)
--------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-28
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
For the Three Months ended March 31, 2001 and 2000
and the Period from May 22, 1996 (Inception)
through March 31, 2001
For the Three Months Ended May 22, 1996
March 31, (Inception)
---------------------------- Through
2001 2000 March 31, 2001
--------- --------- --------------
Cash flows from investing activities
Purchase of equipment (22,126) (31,886) (374,369)
Investment in Bio Moda, Inc. -- -- (383,845)
Sale of marketable securities -- -- 40,665
Purchase of marketable securities -- (28,883) (70,034)
(Increase) decrease in certificate of deposits 54,491 (51,655) (52,935)
Proceeds from sale of equipment 23,800 -- 23,800
Purchase of other assets (650) -- (233,782)
Redemption of sale of Wizard Technologies, Inc. -- 65,000 --
--------- --------- -----------
Net cash provided by (used in)
investing activities 55,515 (47,424) (1,050,500)
--------- --------- -----------
Cash flows from financing activities
Additions to notes payable -- -- 622,776
Payments on notes payable and capital
lease obligations (23,832) (15,097) (195,940)
Issuance of capital stock -- 853,493 3,559,984
Collection of officer notes -- -- 28,573
Sale of treasury stock -- 49,770 112,777
Purchase of treasury stock (3,207) (7,683) (132,970)
Proceeds from issuance of convertible
Debenture 75,000 -- 560,000
--------- --------- -----------
Net cash provided by financing activities 47,961 880,483 4,555,200
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH (184,269) 528,990 225,018
Cash and cash equivalents, beginning of period 409,287 190,387 --
--------- --------- -----------
Cash and cash equivalents, end of period $ 225,018 $ 719,377 $ 225,018
--------- --------- -----------
The accompanying notes are an integral part of these financial statements.
F-29
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 2001
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.
Notes to Interim Financial Statements
The interim financial data is unaudited, however in the opinion of
management, the interim data includes all adjustments, consisting of normal
recurring adjustments, necessary for a fair statement of the results for
the interim period. The financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. The organization and business of the
Company, accounting policies followed by the Company and other information
are contained in the notes to the Company's financial statements filed as
part of the Company's March 31, 2001 Form 10-QSB. This quarterly report
should be read in conjunction with such annual report.
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 March 31, 2001, 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.
F-30
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
Revenue and Cost Recognition
The Company recognizes revenue on its contract in process using the
completed contract method, under which contract revenues and costs are
recognized when the contract is completed, with estimated losses recognized
when it becomes evident that contract costs will exceed contract revenues.
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 $690,000 from production of the first unit has been
recognized through March 31, 2001. The Company's estimated cost to complete
as of March 31, 2001 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 March 31, 2001
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. It is at
least reasonably possible that the estimate of completion costs for this
contract will be further revised in the near-term.
F-31
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Investment
As of March 31, 2001, 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.
The carrying value of the investment as of March 31, 2001 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 8 years. Goodwill is amortized over 10 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 March 31, 2001.
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.
F-32
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
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-33
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
NOTE 2. NOTES RECEIVABLE
Notes receivable at March 31, 2001, 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 March 31, 2001, 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 March
31, 2001, 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 March 31, 2001, 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.
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
===========
F-34
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
NOTE 4. LONG-TERM OBLIGATIONS
As of March 31, 2001, 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 $ 71,056
Capital lease obligation 2,991
--------
74,047
Less: Current portion 36,205)
--------
$ 37,842
========
The Company is obligated under a long-term capital lease which requires
monthly minimum lease payments of $2,810 through May 2001. As of March 31,
2001, the leased equipment has a net book value of $29,762.
Future principal payments on long-term obligations for the years ending
March 31, are as follows:
2002 $ 36,205
2003 28,056
2004 9,786
--------
$ 74,047
========
F-35
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
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.
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.
F-36
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
NOTE 5. CONVERTIBLE DEBENTURES - CONTINUED
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.
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 charge to interest expense. 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.
F-37
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
NOTE 5. CONVERTIBLE DEBENTURES - CONTINUED
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 lesser 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.
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 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.
F-38
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
The carrying amounts and fair values of the Company's financial instruments
as of March 31, 2001 are as follows:
Estimated
Carrying Fair
Amount Value
------------ -------------
Cash and cash equivalents $ 225,018 $ 225,018
Certificates of deposit 52,935 52,935
Costs in excess of billings on
uncompleted contract 1,243,557 1,243,557
Notes receivable 44,493 44,493
Accounts payable 166,762 166,762
Long-term obligations 74,047 74,047
Convertible debentures 1,290,677 1,290,677
Notes receivable from officer 193,427 193,427
NOTE 7. INCOME TAXES
As of March 31, 2001, the Company had a net operating loss carryforwards of
approximately $8,000,000 which expire in varying amounts between 2016
through 2020. Realization of this potential future tax benefit is dependent
on generating sufficient taxable income prior to expiration of the loss
carryforward. The deferred tax asset related to this potential future tax
benefit has been offset by a valuation allowance in the same amount. The
amount of the deferred tax asset ultimately realizable could be 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 $12,675 and $11,200 for the quarter ended March 31, 2001 and 2000,
respectively, and $109,884 in the period from May 22, 1996 (inception)
through March 31, 2001.
Future minimum lease payments under the long-term operating lease are
$46,475 through February 2002.
F-39
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
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 accounting for as a purchase, with assets acquired and
liabilities assumed recorded at their book values, 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, Inc. 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 for cash and
services.
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.
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.
F-40
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
NOTE 9. EQUITY TRANSACTIONS - CONTINUED
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.
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.
F-41
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
NOTE 9. EQUITY TRANSACTIONS - CONTINUED
Also, during the quarter the Company issued 160 shares of preferred stock
for $160,000 in cash.
During the quarter ended December 31, 2001, the Company issued 615,500
shares of common stock for services from contractors, officers, and others,
valued at $130,275.
During the quarter ended March 31, 2001, the Company issued 1,475,000
shares of common stock for services from contractors, officers, and others,
valued at $176,248.
Also, during the quarter the Company repurchased 17,300 shares of its
outstanding stock for $3,207 in cash.
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 March 31, 2001, there were 6,175,000 shares available under
the Plan for future awards. No stock options were issued during the
three-month period ended March 31, 2001.
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:
Years ended December 31,
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)
F-42
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
March 31, 2001
NOTE 10. STOCK PLANS - CONTINUED
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.
Total stock options granted and unexercised were 3,825,000 as of March 31,
2001. 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.
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 , 2000 11,100,000 0.27 9,517,500
==========
Balance, March 31, 2001 11,100,000 0.27 10,361,250
========== ==========
The option price established for the shares upon exercise ranges from $0.12
to $0.34 per share, and expire through October 2004.
F-43
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.
SEC registration fee................................................ $ 1,000
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.............................................. 4,000
--------
Total.......................................................... $160,000
========
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 and/or Regulation D promulgated thereunder. 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 - MARCH 2001
(a) Securities sold. Give the date of sale and title and amount of
securities sold.
From June 1997 to March 2001. Common Stock. 19,817,231 shares. See
below.
(b) Underwriters and other purchasers: See below.
(c) Consideration. State aggregate offering price and aggregate
underwriting commissions: $4,010,300. 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 - March 2001
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 $45,400
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
10/16/2000 50,000 $0.34 $11,900 Financial Marketing
- ------------------------------------------------------------------------------------------------------
Total 263,000 $31,283
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
II-11
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
7/18/2000 60,000 $0.44 $18,480 Capital Raising
9/19/2000 70,000 $0.54 $26,460 Capital Raising
10/24/2000 70,000 $0.46 $22,540 Capital Raising
2/20/2001 180,000 $0.19 $23,310 Capital Raising
2/20/2001 100,000 $0.19 $12,950 Capital Raising
- ------------------------------------------------------------------------------------------------------
Total 2,783,833 $531,217
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
II-12
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.
- ------------------------------------------------------------------------------------------------------
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
II-13
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 an annual 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-14
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
II-15
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
4/4/2000 80,000 $0.93 $52,080 Investment Consulting
9/1/2000 70,000 $0.46 $22,540 Investment Consulting
10/2/2000 70,000 $0.45 $22,050 Investment Consulting
- ------------------------------------------------------------------------------------------------------
Total 200,000 $233,240
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
II-16
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
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
II-17
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
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
II-18
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
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
II-19
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
- ------------------------------------------------------------------------------------------------------
1/25/2000 3,000 $1.19 $2,499 Market Research
- ------------------------------------------------------------------------------------------------------
Total 3,000 $2,499
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
II-20
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.
- ------------------------------------------------------------------------------------------------------
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
II-21
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
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
9/1/2000 40,000 $0.46 $4,600 Employed by Advanced Optics
- ------------------------------------------------------------------------------------------------------
Total 190,000 $45,025
II-22
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 an annual 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 an annual 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
3/22/2001 65,000 $0.13 $5,688 Produced Corporate Video
- ------------------------------------------------------------------------------------------------------
Total 441,000 $60,939
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
- ------------------------------------------------------------------------------------------------------
1/15/1999 50,000 $0.06 $2,100 Employed by Advanced Optics
- ------------------------------------------------------------------------------------------------------
Total 50,000 $2,100
II-23
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 an annual 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
53) Bio Moda, Inc. is biomedical technology company and is a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Ari Maa'Yan, the president of
the company, since December 1997. He is an individual with a net worth in excess
of $1 million and is an astute and experienced investor.
- ----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ----------------------------------------------------------------------------------------------
1/25/2000 100,000 $1.19 $83,090 Biotech Consulting
4/26/2000 50,000 $1.09 $38,150 Biotech Consulting
- ---------------------------------------------------------------------------- -----------------
Total 150,000 $121,240
54) Jo Doboeck is a principal of Trade-Wins, Inc., a company that has provided
investor relations services to Advanced Optics.
An executive officer of Advanced Optics has known Mr. Doboeck since July 1998.
He has a net worth in excess of $1 million and is an astute and experienced
investor.
- ----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ----------------------------------------------------------------------------------------------
4/17/2000 66,000 $0.66 $30,492 Public Relations
- ----------------------------------------------------------------------------------------------
Total 66,000 $30,492
II-24
55) Trade-Wins, Inc. is a company that has provided investor relations services
to Advanced Optics.
An executive officer of Advanced Optics has known Jo Doboeck, the principal,
since July 1998. He has a net worth in excess of $1 million and is an astute and
experienced investor.
- ----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ----------------------------------------------------------------------------------------------
4/17/2000 9,000 $0.66 $4,158 Public Relations
- ----------------------------------------------------------------------------------------------
Total 9,000 $4,158
56) Market Voice is a company that has provided investor consulting services to
Advanced Optics.
An executive officer of Advanced Optics has known Barry Friedman, the principal,
for more than two years. He has a net worth in excess of $1 million and is an
astute and experienced investor.
- ----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ----------------------------------------------------------------------------------------------
5/3/2000 50,000 $0.96 $33,600 Financial Consulting
11/12/2000 50,000 $0.26 $9,100 Financial Consulting
- ----------------------------------------------------------------------------------------------
Total 100,000 $42,700
57) Internet Opportunities is a company that has provided investor relations
services to Advanced Optics.
An executive officer of Advanced Optics has known Brian Kos, the principal of
the company, for more than two years, who has a net worth in excess of $1
million and is an astute and experienced investor.
- ----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ----------------------------------------------------------------------------------------------
5/15/2000 300,000 $0.81 $60,750 Public Relations
- ----------------------------------------------------------------------------------------------
Total 300,000 $60,750
58) Irwin Friedman is an investment professional and a sophisticated,
accredited investor.
An executive officer of Advanced Optics has known Mr. Friedman since 1972. He is
an individual who has a net worth in excess of $1 million and is an astute and
experienced professional investor.
- ----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ----------------------------------------------------------------------------------------------
5/17/2000 7,960 $0.75 $4,184 Investment Consulting
- ----------------------------------------------------------------------------------------------
Total 7,960 $4,184
II-25
59) Tuck International Holdings 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 a net worth in excess of $1
million and is an astute and experienced professional investor.
- ----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ----------------------------------------------------------------------------------------------
6/9/2000 60,000 $0.56 $23,520 Financial Consulting
7/18/2000 60,000 $0.44 $18,480 Financial Consulting
12/18/2000 240,000 $0.26 $43,680 Financial Consulting
- ----------------------------------------------------------------------------------------------
Total 360,000 $85,680
60) The Stock Advisor is a company that has provided financial services to
Advanced Optics.
An executive officer of Advanced Optics has known Lee Mogul, the principal of
the company, for more than two years, who has a net worth in excess of $1
million and is an astute and experienced investor.
- ----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ----------------------------------------------------------------------------------------------
6/26/2000 200,000 $0.44 $21,900 Financial Consulting
- ----------------------------------------------------------------------------------------------
Total 200,000 $21,900
61) Public Idea Capital is a company that has provided market consulting
services to Advanced Optics.
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
- ----------------------------------------------------------------------------------------------
1/29/2001 40,000 $0.23 $6,300 Financial Consulting
1/29/2001 40,000 $0.23 $6,300 Financial Consulting
1/29/2001 300,000 $0.23 $47,250 Financial Consulting
2/9/2001 300,000 $0.21 $43,050 Financial Consulting
- ----------------------------------------------------------------------------------------------
Total 680,000 $102,900
II-26
62) Tribe Communications is a company that has provided investor relations
services to Advanced Optics.
An executive officer of Advanced Optics has known Robert, Sullivan, the
principal, for more than three years. He is an individual who has a net worth in
excess of $1 million and is an astute and experienced investor.
- ----------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ----------------------------------------------------------------------------------------------
11/21/2000 135,500 $0.26 $24,661 Investor Relations
- ----------------------------------------------------------------------------------------------
Total 135,500 $24,661
63) A.J. Remedios is a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Mr. Remedios for more than two
years. He is an individual who has a net worth in excess of $1 million and is an
astute and experienced professional investor.
- ------------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ------------------------------------------------------------------------------------------------
1/10/2001 200,000 $0.23 $11,500 Professional Consulting
1/10/2001 200,000 $0.23 $11,500 Professional Consulting
- ------------------------------------------------------------------------------------------------
Total 400,000 $23,000
64) David Gaal is a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Mr. Gaal for more than two
years. He is an individual who has an annual income in excess of $400,000 and is
an astute and experienced professional investor.
- ------------------------------------------------------------------------------------------------
Date Shares Price/Share Value of Services Description of Services
- ------------------------------------------------------------------------------------------------
1/11/2001 50,000 $0.24 $8,400 Professional Consulting
- ------------------------------------------------------------------------------------------------
Total 50,000 $8,400
Total Shares and Total Value of Services
- --------------------------------------------------------------------------------
Shares Value of Services
- --------------------------------------------------------------------------------
Total 19,817,231 $4,010,300
II-27
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.
(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
II-28
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.
- ---------------------------------------------------------------
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
II-29
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 a net worth in excess of $3 million and is an
astute and experienced investor.
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
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.
II-30
The following table provides additional information:
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
II-31
Professional Model Strategies is a sophisticated, accredited investor.
An executive officer of Advanced Optics has known Joseph Maenza, the principal
since September 1999. He has a net worth in excess of $3 million and is an
astute and experienced investor.
- ---------------------------------------------------------
Date Shares Investment $
- ---------------------------------------------------------
1/3/2000 200,000 $176,000
- ---------------------------------------------------------
Total 220,000 $176,000
Total Shares and Total Investment
- ---------------------------------------------------------
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 ITF Anastasia large net worth family. Lukas family and its various members for many years
Lukas & Victoria Spark and they are astute and experienced investors.
Victoria Sparks ITF Kirk K
Lukas
Anastasia L. Lukas
John P. Lukas
- -------------------------------------------------------------------------------------------------------------------------
II-32
(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 pro-fessional
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 pro-fessional
investor.
- --------------------------------------------------------------------------------------------------------------------------
II-33
(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-34
Item 27 Exhibits and Financial Statement Schedules
(A) Exhibits
3.1 Articles of Incorporation of the Registrant filed May 22, 1996
(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).
3.1(a) Certificate of Amendment of Articles of Incorporation of the
Registrant filed December 6, 1998 (incorporated by reference to
exhibit 3.1(a) of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
3.1(b) Deleted.
3.1(c) Certificate of Amendment of Articles of incorporation of the
Registrant filed June 22, 2000 (incorporated by reference to exhibit
3.1(c) of the Registrant's Registration Statement on Form SB-2, as
amended (File No. 333-51056), filed with the Securities and Exchange
Commission on December 1, 2000).
3.2 Bylaws of the Registrant (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).
4.1 Specimen Common Stock Certificate (incorporated by reference to
exhibit 4.1 of the Registrant's Registration Statement on Form SB-2,
as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
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 Ltd. with exhibits attached thereto
(incorporated by reference to exhibit 4.2 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
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 Ltd. with exhibits
attached thereto incorporated by reference to exhibit 4.2(a) of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on April
25, 2001).
4.3 Securities Purchase Agreement dated November 7, 2000 by and between
Registrant and RFL Asset Management, LLC with exhibits attached
thereto (incorporated by reference to exhibit 4.3 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
4.4 Securities Purchase Agreement dated November 7, 2000 by and between
Registrant and Triton Private Equities Fund, L.P. with exhibits
attached thereto (incorporated by reference to exhibit 4.4 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on
December 1, 2000).
5.1* Opinion of Kirkpatrick & Lockhart LLP.
10.1 1999 Incentive Stock Option Plan (incorporated by reference to the
Registrant's Form 10-KSB filed with the Securities and Exchange
Commission on March 21, 2000).
10.2 Securities Purchase Agreement dated June 3, 1999 by and among
Registrant and investors listed on Schedule I attached thereto
(incorporated by reference to exhibit 10.2 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
II-35
10.2(a) Modification and Settlement Agreement dated June 12, 2000 by and among
Registrant and investors listed on Schedule I attached thereto
(incorporated by reference to exhibit 10.2(a) of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.3 Securities Purchase Agreement dated March 8, 2000 by and between
Registrant and Triton Private Equities Fund, L.P. with exhibits
attached thereto (incorporated by reference to exhibit 10.3 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on
December 1, 2000) .
10.4 Securities Purchase Agreement dated March 8, 2000 by and between
Registrant and RFL Asset Management, LLC with exhibits attached
thereto (incorporated by reference to exhibit 10.4 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.5 Supplemental Agreement dated August 7, 2000 by and between Registrant
and Triton Private Equities Fund, L.P. with exhibits attached thereto
(incorporated by reference to exhibit 10.5 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.6 Supplemental Agreement dated August 7, 2000 by and between Registrant
and RFL Asset Management, LLC with exhibits attached thereto
(incorporated by reference to exhibit 10.6 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.7 Warrant to Purchase Shares of Common Stock dated June 15, 1999 by and
between Registrant and Leslie Robins (incorporated by reference to
exhibit 10.7 of the Registrant's Registration Statement on Form SB-2,
as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.7(a) Warrant to Purchase Shares of Common Stock dated August 9, 2000 by and
between Registrant and Leslie Robins (incorporated by reference to
exhibit 10.7(a) of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.7(b) Warrant to Purchase Shares of Common Stock dated October 17, 2000 by
and between Registrant and Leslie Robins (incorporated by reference to
exhibit 10.7(b) of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.8 Warrant to Purchase Shares of Common Stock dated June 15, 1999 by and
between Registrant and Michael Pete (incorporated by reference to
exhibit 10.8 of the Registrant's Registration Statement on Form SB-2,
as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.9 Warrant to Purchase Shares of Common Stock dated June 15, 1999 by and
between Registrant and Harold Herman (incorporated by reference to
exhibit 10.9 of the Registrant's Registration Statement on Form SB-2,
as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.9(a) Warrant to Purchase Shares of Common Stock dated August 23, 2000 by
and between Registrant and Harold Herman (incorporated by reference to
exhibit 10.9(a) of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.10 Warrant to Purchase Shares of Common Stock dated August 9, 2000 by and
between Registrant and J.G. Capital, Inc (incorporated by reference to
exhibit 10.10 of the Registrant's Registration Statement on Form SB-2,
as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
II-36
10.10(a) Warrant to Purchase Shares of Common Stock dated October 17, 2000 by
and between Registrant and John Cousins (incorporated by reference to
exhibit 10.10(a) of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.11 Promissory Note dated June 21, 2000 held by Leslie Robins
(incorporated by reference to exhibit 10.11 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.12 Promissory Note dated August 3, 2000 held by Leslie Robins
(incorporated by reference to exhibit 10.12 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.13 Promissory Note dated September 7, 2000 held by Leslie Robins
(incorporated by reference to exhibit 10.13 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
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 (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).
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 (incorporated by reference to exhibit
10.14(a) of the Registrant's Registration Statement on Form SB-2, as
amended (File No. 333-51056), filed with the Securities and Exchange
Commission on December 1, 2000).
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 (incorporated by reference to exhibit 10.15 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on
December 1, 2000).
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 (incorporated by reference to exhibit
10.15(a) of the Registrant's Registration Statement on Form SB-2, as
amended (File No. 333-51056), filed with the Securities and Exchange
Commission on December 1, 2000).
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 (incorporated by reference to exhibit 10.16 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on
December 1, 2000).
10.17 Employment Agreement dated June 28, 1999 by and between Registrant and
John Cousins (incorporated by reference to exhibit 10.17 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on
December 1, 2000).
10.18 Stock Purchase Agreement dated December 31, 1997 by and between
Registrant and Bio Moda, Inc (incorporated by reference to exhibit
10.18 of the Registrant's Registration Statement on Form SB-2, as
amended (File No. 333-51056), filed with the Securities and Exchange
Commission on April 25, 2001).
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 (incorporated by reference to exhibit 10.19 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on April
25, 2001).
II-37
10.20** Assignment of Invention and Patent Rights dated January 25, 2000 by
and between Registrant and Garth W. Gobeli (incorporated by reference
to exhibit 10.20 of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on April 25, 2001).
10.21** Assignment of Invention and Patent Rights dated December 15, 2000 by
and between Registrant and Michael G. Harmon (incorporated by
reference to exhibit 10.21 of the Registrant's Registration Statement
on Form SB-2, as amended (File No. 333-51056), filed with the
Securities and Exchange Commission on April 25, 2001).
10.22** Purchase Agreement dated October 22, 1998 by and between Registrant
and Wang (incorporated by reference to exhibit 10.22 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on April
25, 2001).
10.23** Amended Purchase Agreement dated January 15, 2001 by and between
Registrant and Wang (incorporated by reference to exhibit 10.23 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on April
25, 2001).
21.1 Subsidiaries of the Registrant (incorporated by reference to exhibit
21.1 of the Registrant's Registration Statement on Form SB-2, as
amended (File No. 333-51056), filed with the Securities and Exchange
Commission on December 1, 2000).
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.
(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.
II-38
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, 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-39
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to 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 12th day of July, 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,
this Amendment No. 1 to 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 July 12, 2001
/S/ LESLIE S. ROBINS
- ----------------------------------
Leslie S. Robins Chairman of the Board, Executive July 12, 2001
Vice President and Secretary
(Principal Executive Officer)
*
- ----------------------------------
John J. Cousins Vice President, Finance and Treasurer July 12, 2001
(Principal Financial and Accounting
Officer)
*
- ----------------------------------
Harold C. Herman Director July 12, 2001
*
- ----------------------------------
Richard A. Josephberg Director July 12, 2001
*By: /S/ LESLIE S. ROBINS
-----------------------
Leslie S. Robins,
Attorney-in-fact
II-40
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Articles of Incorporation of the Registrant filed May 22, 1996
(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).
3.1(a) Certificate of Amendment of Articles of Incorporation of the
Registrant filed December 6, 1998 (incorporated by reference to
exhibit 3.1(a) of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
3.1(b) Deleted.
3.1(c) Certificate of Amendment of Articles of incorporation of the
Registrant filed June 22, 2000 (incorporated by reference to exhibit
3.1(c) of the Registrant's Registration Statement on Form SB-2, as
amended (File No. 333-51056), filed with the Securities and Exchange
Commission on December 1, 2000).
3.2 Bylaws of the Registrant (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).
4.1 Specimen Common Stock Certificate (incorporated by reference to
exhibit 4.1 of the Registrant's Registration Statement on Form SB-2,
as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
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 Ltd. with exhibits attached thereto
(incorporated by reference to exhibit 4.2 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
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 Ltd. with exhibits
attached thereto incorporated by reference to exhibit 4.2(a) of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on April
25, 2001).
4.3 Securities Purchase Agreement dated November 7, 2000 by and between
Registrant and RFL Asset Management, LLC with exhibits attached
thereto (incorporated by reference to exhibit 4.3 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
4.4 Securities Purchase Agreement dated November 7, 2000 by and between
Registrant and Triton Private Equities Fund, L.P. with exhibits
attached thereto (incorporated by reference to exhibit 4.4 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on
December 1, 2000).
5.1* Opinion of Kirkpatrick & Lockhart LLP.
10.1 1999 Incentive Stock Option Plan (incorporated by reference to the
Registrant's Form 10-KSB filed with the Securities and Exchange
Commission on March 21, 2000).
10.2 Securities Purchase Agreement dated June 3, 1999 by and among
Registrant and investors listed on Schedule I attached thereto
(incorporated by reference to exhibit 10.2 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.2(a) Modification and Settlement Agreement dated June 12, 2000 by and among
Registrant and investors listed on Schedule I attached thereto
(incorporated by reference to exhibit 10.2(a) of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.3 Securities Purchase Agreement dated March 8, 2000 by and between
Registrant and Triton Private Equities Fund, L.P. with exhibits
attached thereto (incorporated by reference to exhibit 10.3 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on
December 1, 2000) .
10.4 Securities Purchase Agreement dated March 8, 2000 by and between
Registrant and RFL Asset Management, LLC with exhibits attached
thereto (incorporated by reference to exhibit 10.4 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.5 Supplemental Agreement dated August 7, 2000 by and between Registrant
and Triton Private Equities Fund, L.P. with exhibits attached thereto
(incorporated by reference to exhibit 10.5 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.6 Supplemental Agreement dated August 7, 2000 by and between Registrant
and RFL Asset Management, LLC with exhibits attached thereto
(incorporated by reference to exhibit 10.6 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.7 Warrant to Purchase Shares of Common Stock dated June 15, 1999 by and
between Registrant and Leslie Robins (incorporated by reference to
exhibit 10.7 of the Registrant's Registration Statement on Form SB-2,
as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.7(a) Warrant to Purchase Shares of Common Stock dated August 9, 2000 by and
between Registrant and Leslie Robins (incorporated by reference to
exhibit 10.7(a) of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.7(b) Warrant to Purchase Shares of Common Stock dated October 17, 2000 by
and between Registrant and Leslie Robins (incorporated by reference to
exhibit 10.7(b) of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.8 Warrant to Purchase Shares of Common Stock dated June 15, 1999 by and
between Registrant and Michael Pete (incorporated by reference to
exhibit 10.8 of the Registrant's Registration Statement on Form SB-2,
as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.9 Warrant to Purchase Shares of Common Stock dated June 15, 1999 by and
between Registrant and Harold Herman (incorporated by reference to
exhibit 10.9 of the Registrant's Registration Statement on Form SB-2,
as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.9(a) Warrant to Purchase Shares of Common Stock dated August 23, 2000 by
and between Registrant and Harold Herman (incorporated by reference to
exhibit 10.9(a) of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.10 Warrant to Purchase Shares of Common Stock dated August 9, 2000 by and
between Registrant and J.G. Capital, Inc (incorporated by reference to
exhibit 10.10 of the Registrant's Registration Statement on Form SB-2,
as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.10(a) Warrant to Purchase Shares of Common Stock dated October 17, 2000 by
and between Registrant and John Cousins (incorporated by reference to
exhibit 10.10(a) of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on December 1, 2000).
10.11 Promissory Note dated June 21, 2000 held by Leslie Robins
(incorporated by reference to exhibit 10.11 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.12 Promissory Note dated August 3, 2000 held by Leslie Robins
(incorporated by reference to exhibit 10.12 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
10.13 Promissory Note dated September 7, 2000 held by Leslie Robins
(incorporated by reference to exhibit 10.13 of the Registrant's
Registration Statement on Form SB-2, as amended (File No. 333-51056),
filed with the Securities and Exchange Commission on December 1,
2000).
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 (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).
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 (incorporated by reference to exhibit
10.14(a) of the Registrant's Registration Statement on Form SB-2, as
amended (File No. 333-51056), filed with the Securities and Exchange
Commission on December 1, 2000).
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 (incorporated by reference to exhibit 10.15 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on
December 1, 2000).
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 (incorporated by reference to exhibit
10.15(a) of the Registrant's Registration Statement on Form SB-2, as
amended (File No. 333-51056), filed with the Securities and Exchange
Commission on December 1, 2000).
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 (incorporated by reference to exhibit 10.16 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on
December 1, 2000).
10.17 Employment Agreement dated June 28, 1999 by and between Registrant and
John Cousins (incorporated by reference to exhibit 10.17 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on
December 1, 2000).
10.18 Stock Purchase Agreement dated December 31, 1997 by and between
Registrant and Bio Moda, Inc (incorporated by reference to exhibit
10.18 of the Registrant's Registration Statement on Form SB-2, as
amended (File No. 333-51056), filed with the Securities and Exchange
Commission on April 25, 2001).
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 (incorporated by reference to exhibit 10.19 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on April
25, 2001).
10.20** Assignment of Invention and Patent Rights dated January 25, 2000 by
and between Registrant and Garth W. Gobeli (incorporated by reference
to exhibit 10.20 of the Registrant's Registration Statement on Form
SB-2, as amended (File No. 333-51056), filed with the Securities and
Exchange Commission on April 25, 2001).
10.21** Assignment of Invention and Patent Rights dated December 15, 2000 by
and between Registrant and Michael G. Harmon (incorporated by
reference to exhibit 10.21 of the Registrant's Registration Statement
on Form SB-2, as amended (File No. 333-51056), filed with the
Securities and Exchange Commission on April 25, 2001).
10.22** Purchase Agreement dated October 22, 1998 by and between Registrant
and Wang (incorporated by reference to exhibit 10.22 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on April
25, 2001).
10.23** Amended Purchase Agreement dated January 15, 2001 by and between
Registrant and Wang (incorporated by reference to exhibit 10.23 of the
Registrant's Registration Statement on Form SB-2, as amended (File No.
333-51056), filed with the Securities and Exchange Commission on April
25, 2001).
21.1 Subsidiaries of the Registrant (incorporated by reference to exhibit
21.1 of the Registrant's Registration Statement on Form SB-2, as
amended (File No. 333-51056), filed with the Securities and Exchange
Commission on December 1, 2000).
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.