<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1997
REGISTRATION NO. 33-2356-LA
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DIRECTIONAL ROBOTICS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3695 77-0407137
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
5610 N. PALM AVENUE
FRESNO, CALIFORNIA 93704
(209) 435-8211
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. GERALD R. RODDER
5610 N. PALM AVENUE
FRESNO, CALIFORNIA 93704
(209) 435-8211
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JOHN W. MARTIN, ESQ.
5777 WEST CENTURY BOULEVARD, SUITE 1540
LOS ANGELES, CALIFORNIA 90045
(310) 342-6800
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
================================================================================
<PAGE> 2
DIRECTIONAL ROBOTICS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION PROSPECTUS HEADING
------------------------------------------------- -------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus.............................. Forepart of Registration Statement
and Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information and Risk Factors............. Prospectus Summary and Risk Factors
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Risk Factors and Plan of Distribution
6. Dilution......................................... Dilution
7. Selling Security Holders......................... Not Applicable
8. Plan of Distribution............................. Plan of Distribution
9. Legal Proceedings................................ Not Applicable
10. Directors, Executive Officers, Promoters and
Control Persons.................................. Management and Principal Stockholders
11. Security Ownership of Certain Beneficial Owners
and Management................................... Management and Principal Stockholders
12. Description of Securities to be Registered....... Description of Capital Stock
13. Interest of Named Experts and Counsel............ Management and Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
15. Organization Within Last Five Years.............. Plan of Operation and Certain
Relationships and Related
Transactions
16. Description of Business.......................... Business
17. Management's Discussion and Analysis or Plan of
Operation........................................ Plan of Operation
18. Description of Property.......................... Business
19. Certain Relationships and Related Transactions... Certain Relationships and Related
Transactions
20. Market for Common Equity and Related Stockholder
Matters.......................................... Not Applicable
21. Executive Compensation........................... Management
22. Financial Statements............................. Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.............. Not Applicable
</TABLE>
<PAGE> 3
UP TO 1,666,670 SHARES
LOGO
DIRECTIONAL ROBOTICS, INC.
Common Stock
------------------------
Directional Robotics, Inc. (the "Company"), a high technology,
development-stage company which owns and has developed five U.S. Patents and
three U.S. Patents Pending in its proprietary Precision Vectoring Technology(TM)
(PVT(TM)), and which has no revenues from product sales, is offering for sale up
to 1,666,670 shares of its common stock, no par value (the "Shares"). The
minimum offering by the Company will be 334,000 Shares ($1,002,000) and the
maximum offering will be 1,666,670 Shares ($5,000,010). See "Description of
Capital Stock" and "Plan of Distribution."
The Shares are offered on a "best efforts, all or none" basis with respect
to the minimum number of Shares offered hereby, and on a "best efforts" basis
with respect to sales of Shares thereafter up to the maximum number of Shares
being offered. Pending the payment for not less than 334,000 Shares, all
proceeds of this offering will be deposited in a non-interest bearing escrow
account at Union Bank of California (the "Escrow Agent").
There has been no public market for the Company's common stock ("Common
Stock") prior to this offering, and the Company does not currently have any
arrangements, commitments or understandings with any persons with respect to the
creation of a public market for the Common Stock. Therefore, there can be no
assurance that a public market will develop by reason of this offering. If such
a market should develop, there is no assurance that it will be sustained, or
that it will develop into a market greater than a limited market. The initial
public offering price for the Shares has been determined solely by the Company,
and does not necessarily bear any direct relationship to the Company's assets,
operations, book or other established criteria of value. See "Risk Factors,"
"Dilution" and "Plan of Distribution."
Immediately upon completion of the sale of the maximum number of Shares
offered hereby, the Company intends to apply for inclusion of its Common Stock
on the Nasdaq SmallCap Market under the symbol "ROBO ." The Company does not
expect to become eligible for inclusion on the Nasdaq SmallCap Market unless and
until the maximum number of Shares offered hereby are sold. In the event that
the Company does not apply for inclusion of its Common Stock on the Nasdaq
SmallCap Market, or in the event the Company's Common Stock is not accepted for
inclusion on the Nasdaq SmallCap Market, an investor would likely find it
difficult to dispose of the Shares, or to obtain current quotations as to the
value of the Shares.
------------------------
AN ELECTRONIC FORMAT OF THIS PROSPECTUS IS AVAILABLE ON THE COMPANY'S
INTERNET WORLD WIDE WEB SITE AT HTTP://WWW.DIRECTIONAL.COM.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION FROM THE OFFERING PRICE. SEE "RISK FACTORS" AND "DILUTION."
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) COMPANY(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $3.00 $ -- $3.00
Total Minimum.......................... $1,002,000 $ -- $1,002,000
Total Maximum.......................... $5,000,010 $ -- $5,000,010
</TABLE>
================================================================================
(See Footnotes on Page 3)
The offering of the Shares hereunder will terminate not later than July 7,
1997 (the "Termination Date"). The Company has entered into an escrow agreement
with Union Bank of California to hold any proceeds from this offering in an
interest bearing escrow account subject to certain terms and conditions. If
subscriptions for the minimum number of Shares offered hereby have not been
received and accepted by the Company by the Termination Date, no Shares will be
sold, and all funds held in escrow will be returned promptly to investors along
with any interest accrued thereon. See "Plan of Distribution."
THE DATE OF THIS PROSPECTUS IS JANUARY 8, 1997, AS AMENDED ON APRIL 7, 1997.
<PAGE> 4
[GRAPH]
2
<PAGE> 5
(1) Shares are being offered for sale at $3.00 per Share. A minimum investment
of 100 Shares ($300) is required of each investor, provided that the
Company, in its discretion, may reduce the size of the minimum investment.
Payment in full is due upon subscription. Stock purchase funds will
initially be held in an interest bearing escrow account at Union Bank of
California. This offering will terminate on or before July 7, 1997 unless
the maximum amount of Shares offered hereby is sold prior to such date. When
subscriptions for the minimum amount of Shares offered hereby have been
received and accepted by the Company, such funds will be released from
escrow to the Company, and investors whose subscriptions for Shares have
been accepted by the Company will be issued Common Stock certificates
evidencing the number of Shares acquired, and the initial escrow will close.
See "Stock Purchase Information" and "Plan of Distribution."
(2) The Shares are being offered by the Company on a "best efforts all or none"
basis with respect to the minimum number of Shares being offered hereby, and
a "best efforts" basis with respect to sales of Shares up to the maximum
number of Shares being offered hereby. There is no underwriter or
independent broker-dealer involved in the distribution of the Shares. The
offering of the Shares will be made by the Company's officers and directors
without the use of an underwriter or any independent broker-dealer. No
underwriting discounts or commissions will be paid to such officers and
directors. It is the intention of the Company to offer and sell the Shares
by contacting prospective investors through appropriate newspaper and
magazine advertisements as well as through the use of the Internet to
electronically deliver copies of this Prospectus to prospective investors.
See "Stock Purchase Information" and "Plan of Distribution."
(3) This amount is before deduction of offering and related expenses incurred by
the Company in this offering which are estimated to be approximately
$110,000 if the minimum number of Shares offered hereby are sold, and
$150,000 if the maximum number of Shares offered hereby are sold, and
include filing, printing, legal, electronic delivery and other miscellaneous
fees.
3
<PAGE> 6
The Company is not currently a reporting company under the Securities
Exchange Act of 1934, as amended. Upon completion of the offering of the Shares,
the Company intends to deliver annual reports to the holders of its securities.
The annual reports will contain financial information that has been examined and
reported upon by an independent certified public accountant.
Homer(TM) is a trademark of the Company. This Prospectus also includes
product names and other trade names and trademarks of the Company, as well as
the names and product names of companies other than the Company.
------------------------
STOCK PURCHASE INFORMATION
Shares are being offered for sale at $3.00 per Share. A minimum investment
of 100 Shares ($300) is required of each investor, provided that the Company, in
its discretion, may reduce the size of the minimum investment. Payment in full
is due upon subscription. Payment may be made through check, money order,
electronic check, credit card (Mastercard and Visa only) and wire transfer.
Stock purchase funds will initially be held in an interest bearing escrow
account at Union Bank of California. Those persons purchasing Shares should make
all payments to "Union Bank/DRI Escrow Account." Purchasers should also complete
a Stock Purchase Agreement in the form included as Appendix A to this
Prospectus. Residents of Arizona, Arkansas, California, Idaho, Iowa, Maine,
Massachusetts, Missouri, Nebraska, New Mexico, New Hampshire, North Dakota,
Oregon, South Dakota, Tennessee and Texas must also complete a Suitability
Questionnaire, the form of which is also attached as part of Appendix A to this
Prospectus. For convenience, an actual Stock Purchase Agreement and Suitability
Questionnaire have also been included with this Prospectus. Additional copies of
the Stock Purchase Agreement and/or Suitability Questionnaire may be obtained by
writing or calling or faxing the Company at its executive office, 5610 N. Palm
Avenue, Fresno, California 93704, toll free telephone 1-800-99ROBOT, facsimile
(209) 435-0178; or through e-mail communication directed to the Company's
President at [email protected]. All payments and Stock Purchase Agreements
and, where applicable, Suitability Questionnaires should be forwarded to the
Company at its Fresno, California office.
------------------------
ELECTRONIC FORMAT OF PROSPECTUS
An electronic version of this Prospectus is available on the Company's
Internet World Wide Web Site at http://www.directional.com. The paper format of
this Prospectus contains descriptions and/or transcripts of material graphic,
image and audio information which is included in the electronic format of this
Prospectus.
------------------------
FOR CALIFORNIA, IOWA, MAINE, NORTH DAKOTA AND OREGON RESIDENTS ONLY
Shares may only be offered and sold to California, Iowa, Maine, North
Dakota and Oregon residents who (i)(A) have a minimum net worth of at least
$75,000 and had minimum gross income of $50,000 during the last tax year and
will have (based on a good faith estimate) minimum gross income of $50,000
during the current tax year or (B) in the alternative, have a minimum net worth
of $150,000, provided that in either case the investment shall not exceed ten
percent (10%) of the net worth of the investor; or (ii) to a "small investor"
who, including the proposed purchase, has not (A) purchased more than $2,500 of
securities issued or proposed to be issued by the Company in the 12 months
preceding the proposed offering of Shares, or (B) in the case of a small
investor that is an individual retirement account of an individual, such small
investor shall not have purchased more than $2,500 of securities issued by the
Company or any affiliate of the Company during the 12 months preceding the
proposed sale; or (iii) to both (i) and (ii) above. For purposes herein, the
term "small investor" means either an individual (which includes both a husband
and wife counted as a single individual) or a self-employed individual
retirement plan of an individual or an individual retirement account of an
individual.
The Shares offered hereby have been registered by a limited qualification
in the State of California and therefore cannot be offered for resale or resold
in the State of California unless registered for sale or unless an exemption
from such registration requirements exists. The exemption afforded by Section
25104(h) of the California Corporate Securities Law shall be withheld by the
California Commissioner of Corporations and the Company is not permitted to
apply for the exemption afforded by Section 25101(b) until 90 days after the
4
<PAGE> 7
date the Securities and Exchange Commission ("Commission") declares the
Registration Statement of which this Prospectus is a part effective.
------------------------
FOR ARIZONA, ARKANSAS, MASSACHUSETTS, MISSOURI, NEBRASKA, NEW MEXICO,
SOUTH DAKOTA, TENNESSEE AND TEXAS RESIDENTS ONLY
Shares may only be offered and sold to Arizona, Arkansas, Massachusetts,
Missouri, Nebraska, New Mexico, South Dakota, Tennessee and Texas residents who
(i) have a minimum net worth (excluding home, home furnishings and automobiles)
of at least $250,000 and had minimum gross income of $65,000 during the last tax
year and will have (based on a good faith estimate) minimum gross income of
$65,000 during the current tax year; or (ii) have a minimum net worth (excluding
home, home furnishings and automobiles)of at least $500,000; or (iii) purchase
$100,000 or more of the Shares; or (iv) had a minimum gross income of $200,000
during the last tax year and will have (based on a good faith estimate) minimum
gross income of $200,000 during the current tax year; or (v) have a minimum net
worth (including home, home furnishings and automobiles) of $1,000,000.
FOR IDAHO RESIDENTS ONLY
Shares may only be offered and sold to Idaho residents who fall into any
one of the following categories:
(i) Any bank as defined in section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined in section
3(a)(5)(A) of the Securities Act whether acting in its individual or
fiduciary capacity, any broker or dealer registered pursuant to section 15
of the Exchange Act; any insurance company as defined in section 2(13) of
the Securities Act; any investment company registered under the Investment
Company Act of 1940 or a business development company as defined in section
2(a)(48) of that act; any Small Business Investment Company licensed by the
United States Small Business Administration under section 301(c) or (d) of
the Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions or any agency or
instrumentality of a state or its political subdivisions, for the benefit
of its employees, if such plan has total assets in excess of $5,000,000;
any employee benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974 if the investment decision is made by a plan
fiduciary, as defined in section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors; (ii) Any private business
development company as defined in section 202(a)(22) of the Investment
Advisers Act of 1940; (iii) Any organization described in section 501(c)(3)
of the Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000; (iv) Any director, executive officer, or general partner of the
issuer of the securities being offered or sold, or any director, executive
officer, or general partner of a general partner of that issuer; (v) Any
natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeds $1,000,000; (vi) Any
natural person who had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation
of reaching the same income level in the current year; (vii) Any trust,
with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the securities offered, whose purchase is directed by
a sophisticated person who has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks
of the prospective investment; and (viii) Any entity in which all of the
equity owners are accredited investors under (i)-(vii) of this paragraph.
FOR NEW HAMPSHIRE RESIDENTS ONLY
Shares may only be offered and sold to New Hampshire residents who (i) have
a minimum net worth (excluding home, home furnishings and automobiles) of at
least $250,000 or (ii) have a minimum net worth (excluding home, home
furnishings and automobiles) of at least $125,000 and had a minimum gross income
of $50,000 during the current tax year.
5
<PAGE> 8
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following information is selective and qualified in its entirety by the
detailed information (including financial information and notes thereto)
appearing elsewhere in this Prospectus. This summary of certain provisions of
the Prospectus is intended only for convenient reference and does not purport to
be complete. The entire Prospectus should be read and carefully considered by
prospective investors before making a decision to purchase Shares.
THE COMPANY
Directional Robotics, Inc., a high technology company, is developing
computer-aided navigation and orientation products which will utilize Company
owned patents and proprietary technology. The computer-aided navigation products
will electronically read a magnetic compass, store information and display the
data on demand allowing the user to easily retrace a previous path. The
Company's anticipated first product, the Homer(TM) computer-aided magnetic (CAM)
Compass, will, for example, operate like an electronic trail marker which
follows the user into the woods and at the touch of a button, provides a return
path back out safely. For orientation applications, the Company's shaft encoder
device will use the Company's patented technology to allow the precise rotation
of a shaft back to a previous position. The Company's proprietary technology
lends itself to the development of a wide range of products for consumer,
business, and military applications.
The Company has developed certain proprietary methodology and has been
awarded five U.S. Patents and three U.S. Patents Pending. The technology covered
by the Company's patents and patents pending and its proprietary methodology is
collectively referred to by the Company as "Precision Vectoring Technology(TM)"
or "PVT(TM)". Currently, the Company believes its "PVT(TM)" can be applied to
two groups of products; navigation devices such as compasses and orientation
devices such as rotating shaft encoders.
The Company believes that the Homer(TM) CAM Compass will be relatively easy
to use and will be marketed to consumers involved in a variety of outdoor
activities. A 1993 National Sporting Goods Association survey indicates there
are over 71 million people in the United States who camp, hike, and backpack,
endeavors which the Company believes typically require the use of a compass or
similar types of navigation devices.
The Company believes its Precision Vectoring Technology(TM) embodied in the
Homer(TM) CAM compass can be used to create a family of products which can
significantly enhance productivity and safety in a wide range of end-user
applications. In this regard, the Company anticipates developing future products
for navigation applications in the automobile, marine, aviation, and military
markets, and for orientation products applications in engine timing, azimuth
indications, drill or laser determination, antenna positioning, and robotic
movements. The Company plans to sell its products through a variety of channels,
including direct sales and a network of dealers, distributors, and authorized
representatives.
The Company has not yet completely developed any products for manufacture
or sale, and has not yet developed a working prototype of any of its planned
products. The Company expects that a commercial version of the Homer(TM) CAM
Compass will not be completed until at least approximately 14 to 20 months after
completion of the offering of the Shares hereby. The Company believes that in
order for the Company to fully develop its products for manufacture and sale,
the Company will be required to expend additional time and capital.
The Company was formed on July 10, 1995. On June 25, 1996, the Company
merged (the "Merger") with Directional Robotics Research, Inc., an affiliated
Florida corporation ("DRR"). Prior to the Merger, the Company licensed its
Precision Vectoring Technology(TM) on an exclusive basis from DRR.
The Company's EXECUTIVE OFFICE is located at 5610 N. Palm Avenue, Fresno,
California 93704 and its telephone number is (209) 435-8211. ENGINEERING AND
DESIGN FACILITIES are maintained at 5205 Avenida
6
<PAGE> 9
Encinas, Suite C, Carlsbad, California 92008. The Company's home page on the
Internet is located on the World Wide Web at http://www.directional.com. [NOTE:
INTERNET READERS OF THIS PROSPECTUS USING A WORLD WIDE WEB BROWSER MAY CLICK ON
THE BOLDFACE WORDS "executive office" AND "Engineering and Design facilities".
THESE ARE HYPERLINKS TO PHOTOGRAPHS OF THE COMPANY'S EXECUTIVE OFFICE IN FRESNO,
CALIFORNIA, AND ENGINEERING AND DESIGN FACILITIES IN CARLSBAD, CALIFORNIA.]
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk.
The Company is a development-stage company which has not completed development
of any products for manufacture or sale and has not yet developed a working
prototype of any of its planned products. There can be no assurance that the
Company will be able to complete the development of any products for manufacture
or sale. Other risk factors include the Company's need for substantial time,
research and development and capital investment for the development of its
planned products, highly competitive markets and newly developed technology, of
which there can be no assurance of market acceptance. See "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company:
Minimum Offering..................... 334,000 Shares
Maximum Offering..................... 1,666,670 Shares
Common Stock to be Outstanding after
the
Minimum Offering..................... 5,593,468 Shares(1)
Maximum Offering..................... 6,926,138 Shares(1)
Use of Proceeds........................ For general corporate purposes, including product
development, purchase of inventory, manufacturing,
advertising and marketing of product payment of
officers' salaries and working capital.
</TABLE>
- ---------------
(1) Based on shares of Common Stock outstanding at June 30, 1996. Excludes
1,000,000 shares of Common Stock reserved for issuance under the Company's
Stock Option Plans. See "Capitalization," "Management -- Stock Option Plans"
and Notes to Financial Statements.
7
<PAGE> 10
SUMMARY FINANCIAL AND OPERATING INFORMATION
<TABLE>
<CAPTION>
DRR
-------------------- DEVELOPMENT
APRIL 14, 1993 STAGE ENDED
THE COMPANY
DRR DRR AND -----------------
--------- THE COMPANY
COMBINED(2)
-----------
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
TO ----------------------- DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, 1993(1) 1994 1995 1995(3) 1996
-------------------- --------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $ 0 $ 0 $ 0 $ 0 $ 0
Net income (loss)...... 0 (118,149) (228,681) (346,830) (227,959)
Net income (loss) per
share............... .00 (.875) (.05) (.07) (.043)
Shares used in
calculation of net
income (loss) per
share(4)............ 0 135,000 4,950,027 4,950,027 5,020,745
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY, SEPTEMBER 30, 1996
-------------------------------------------------
AS ADJUSTED AS ADJUSTED
ACTUAL MINIMUM MAXIMUM
(UNAUDITED) (UNAUDITED)(5) (UNAUDITED)(6)
----------- -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 904 $ 892,904 $4,850,914
Working capital (deficit)....................... (1,096) 890,904 4,848,914
Total assets.................................... 79,157 971,157 4,929,167
Total shareholders' equity...................... 77,157 969,157 4,927,167
</TABLE>
- ---------------
(1) The periods prior to and including December 31, 1994 reflect data of
Directional Robotics Research, Inc., a Florida corporation ("DRR"), the
predecessor and a former affiliate of the Company, engaged in the
development of high resolution navigation and orientation products. On June
25, 1996, DRR merged into the Company, with the Company being the surviving
corporation. See "The Company" and "Certain Relationships and Related
Transactions."
(2) Includes the results of operations for the Company and DRR. On June 25,
1996, DRR merged into the Company, with the Company being the surviving
corporation. The merger was accounted for as a combination of entities under
common control, and thus in a manner similar to a pooling of interests. As a
result thereof, the results of operations for DRR for the year ended
December 31, 1995 and for the Company for the period July 10, 1995 (date of
inception) to December 31, 1995 have been determined based upon the
historical cost bases of DRR and the Company, and have been combined to
facilitate presentation of the results of operations. See "Financial
Statements."
(3) Combined cumulative totals for development stage operations of DRR and the
Company from April 14, 1993 (date of inception of DRR) to December 31, 1995.
(4) See Note 1 to the Financial Statements of DRR and the Company for an
explanation of the method used to determine the number of shares used in
computing net loss per share.
(5) As adjusted amounts give effect to the sale of 334,000 Shares by the Company
in this offering, the minimum number of Shares offered hereby, and the use
of the net proceeds of $892,000 therefrom as if this offering had occurred
at the balance sheet date. See "Use of Proceeds" and "Capitalization."
(6) As adjusted amounts give effect to the sale of 1,666,670 Shares by the
Company in this offering, the maximum number of Shares offered hereby, and
the use of the net proceeds of $4,850,010 therefrom as if this offering had
occurred at the balance sheet date. See "Use of Proceeds" and
"Capitalization."
8
<PAGE> 11
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk
and is not an appropriate investment for persons who cannot afford the loss of
their entire investment. Prospective investors should carefully consider the
following risk factors, in addition to the other information contained in this
Prospectus, before purchasing any of the Shares. The following is not intended
as, and should not be considered, an exhaustive list of relevant factors.
Lack of Operating History and Expectation of Future Losses. The Company is
a development-stage company and has no prior operating history upon which
investors may evaluate the Company's performance. To date, the Company has
engaged primarily in organizational, research and product development efforts.
The Company has incurred net losses since its inception and, as of September 30,
1996, had an accumulated deficit of $574,789. Further, the Company anticipates
that losses will continue for the foreseeable future as the Company continues
research, product development and initial product marketing activities. The
likelihood of the success of the Company must be considered in light of the
expenses, complications and delays frequently encountered in connection with the
establishment and expansion of new businesses and the competitive environment in
which the Company will operate. There can be no assurance that future revenues
from sales of the Company's products and services will occur or be significant,
or that the Company will be able to sell its products and services at a profit.
Future revenues and profits, if any, will depend on various factors, including,
but not limited to, initial and continued market acceptance of the Company's
products and services, and the successful implementation of its planned
marketing strategies. See "Plan of Operation."
No Assurance of Successful Product Development. Substantial additional
research and development will be necessary in order for the Company to develop
products based on the Company's Precision Vectoring Technology(TM), and there
can be no assurance that the Company's additional development efforts will lead
to development of products that are commercially viable. In addition to further
research and development, the Company's proposed products will require
substantial additional investment prior to commercialization. There can be no
assurance that such products will be successfully developed, be capable of being
produced in commercial quantities at acceptable costs, be successfully marketed
or achieve market acceptance. The Company may find, at any stage of development,
that products that appeared promising in their development stage do not
demonstrate efficacy in large scale production. Accordingly, any product
development program undertaken by the Company may be curtailed, redirected or
eliminated at any time. In addition, there may be delays in the Company's
testing and development schedules and there can be no assurance that the Company
will meet expected testing and development schedules, which could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business."
Significant Product Concentration; Limited Production Capabilities. The
Company has not yet developed a working prototype of any of its planned
products. The Company will use a substantial portion of the proceeds of this
offering to develop a working prototype of its planned Homer(TM) CAM Compass,
and if successful in developing a working prototype of its Homer(TM) CAM
Compass, to begin commercial production and marketing of the Homer(TM) CAM
Compass. In this regard, the Company has not yet manufactured this product on a
commercial scale and the Company anticipates that a commercial version of the
Homer(TM) CAM Compass will not be completed until at least approximately 14 to
20 months after the completion of the offering of the Shares hereby. There can
be no assurance that the Company will successfully implement large-scale
production operations or otherwise satisfy customer demands. The Homer(TM) CAM
Compass is the only product that the Company anticipates will be initially
available for commercial sale. Therefore, the operating results of the Company
in the short term, and the future development of additional products in the
longer-term, will depend substantially upon the successful sale of the Homer(TM)
CAM Compass, as to which there can be no assurance. See "Plan of Operation" and
"Business."
Future Capital Needs; Uncertainty of Additional Funding. The Company's
research and development programs currently require, and its manufacturing and
marketing activities are expected to require, substantial capital expenditures.
The Company's capital requirements are dependent upon a number of factors,
including, but not limited to, the progress and magnitude of its research and
development programs, the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights, competing
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<PAGE> 12
technological and market developments, the cost and timing of commercialization
activities and arrangements, and the purchase of additional facilities and
capital equipment. The Company believes that the net proceeds from the sale of
the minimum number of Shares offered hereby will be adequate to meet the
Company's capital requirements for at least the next 29 months, and that the net
proceeds from the sale of the maximum number of Shares offered hereby will be
adequate to meet the Company's capital requirements for at least 36 months. The
Company's cash requirements may increase significantly in the future, and there
can be no assurance that such requirements will be met on satisfactory terms or
at all. If additional funds are raised by issuing equity securities, further
dilution to then-existing shareholders may result. If adequate funds are not
available, the Company will be required to either curtail significantly its
business activities, or cease operations, or seek funds through arrangements
with collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products. The
Company's inability to fund its capital requirements would have a material
effect on the Company's business, financial condition and results of operations.
See "Use of Proceeds" and "Plan of Operation."
New Technology; No Proof of Market Acceptance. The Company's planned
products are expected to be based in part on new technology. There can be no
assurance that the Company's planned introduction of products will either
realize market acceptance or meet technical demands of potential customers. The
Company's limited marketing efforts to date have involved identification of
specific market segments for products and devices utilizing the Company's
Precision Vectoring Technology(TM). There can be no assurance that these efforts
have been successful. Further, there can be no assurance that the Company's
current technologies will be suitable for specific applications or that design
modifications, beyond anticipated changes to accommodate different markets, will
not be necessary. The Company intends initially to market its planned products
primarily through independent dealers and distributors, if and when its planned
products become commercially available. The Company must compete with other
companies for the attention of such distributors. The Company also intends to
establish a direct sales force to target certain accounts. Such marketing
efforts will require substantial expenditures and efforts. There can be no
assurance that the Company will be able to implement such a marketing and
distribution program or that any marketing efforts undertaken by or on behalf of
the Company will be successful. See "Business."
Rapidly Evolving Market and Possible Technological Obsolescence. The
Company believes that the market for its planned products will be characterized
by rapidly changing technology, evolving industry standards and frequent new
product introductions. The introduction of products embodying new technologies
or the emergence of new industry standards can render existing products obsolete
or unmarketable. The Company's success will depend upon its ability to develop
and introduce, on a timely and cost-effective basis, new products that keep pace
with technological developments and emerging industry standards and that address
increasingly sophisticated customer requirements. There can be no assurance that
the Company will be successful in identifying, developing, manufacturing and
marketing product enhancements or new products that respond to technological
change or evolving industry standards. Also, there can be no assurance that the
Company will not experience difficulties which could delay or prevent the
successful development, introduction and marketing of these products; or that
its new products and product enhancements will adequately meet the requirements
of the marketplace and achieve market acceptance. The Company's business,
operating results and financial condition would be materially and adversely
affected if the Company were to incur delays in developing new products or
product enhancements or if such products or enhancements did not gain market
acceptance. See "Business."
Significant Competition. The Company expects to encounter significant
competition in its markets and expects such competition to intensify as
acceptance and awareness of its PVT(TM) methodology increase. Within each of its
planned markets, the Company expects to encounter direct competition from other
suppliers of navigation and orientation devices. This can include competition
from larger domestic and international competitors and new market entrants, many
of which may be more established, more experienced and better financed than the
Company. A number of competitors, including Precision Navigation, Inc.,
Autohelm, Silva US Marine Inc. and KVH Industries, Inc. are currently marketing
a variety of compasses. Increasing competition is likely to result in future
price reductions and loss of market share. This could adversely affect the
Company's results of operations. A number of markets may also be served
primarily by non-PVT(TM)
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<PAGE> 13
methodologies, many of which may be more widely accepted and/or less expensive
than Precision Vectoring Technology(TM). The success of the Company's PVT(TM)
methodology against possible competing technology depends in part upon whether
PVT(TM) systems can offer significant improvements in productivity, accuracy and
reliability in a cost-effective manner. The Company believes that its ability to
compete successfully in the future against existing and additional competitors
will depend largely on its ability to execute its strategy for providing
products with significantly differentiated features and benefits . There can be
no assurance that the Company will be able to implement this strategy
successfully, or that the Company's current or future competitors, many of whom
have substantially greater resources than the Company, will not apply their
resources to compete successfully against the Company on the basis of product
features. See "Business -- Competition."
Early State of Development; No Assurance of Ability to Manage Growth. The
Company believes that, if successfully developed, the Company's products could
address a large potential market. Given the fact that the Company has not yet
developed a working prototype of any of its planned products, there can be no
assurance that the Company's development and marketing efforts will result in
commercially available products to address this market, or that demand for the
Company's products, once they are available, will grow. Even if demand for the
Company's products does grow, there can be no assurance that the Company will be
able to develop the necessary manufacturing capability; build and train the
necessary manufacturing, sales and marketing teams; attract, retain and
integrate the required key personnel; or implement the financial and management
systems to meet growing demand for its products. Failure of the Company to
successfully manage its growth would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business."
Dependence on Key Suppliers. The Company believes there are a number of
qualified vendors for most of the parts and components which are to be used in
its planned products, and therefore expects to place substantial reliance on
outside vendors to manufacture most of the parts and components of its planned
products. While the Company believes that it will receive substantial benefits
from using third-party vendors, there can be no assurance of their on-going
continued availability or that such vendors' quality or production volumes will
be sufficient to meet the Company's requirements. Such problems with vendors
could adversely affect the Company's business. See "Business -- Manufacturing."
Dependence on Proprietary Technology. The Company regards its technology as
proprietary and will rely primarily on a combination of copyright, trademark and
trade secret laws, employee and third-party nondisclosure agreements, and other
intellectual property protection methods to protect its products and technology.
There can be no assurance that these steps will be adequate to prevent
misappropriation of the Company's technology or that its competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology. In addition, the laws of some foreign countries
will not protect the Company's proprietary rights to the same extent as do the
laws of the United States. The Company may be subject to the risk of adverse
claims and litigation alleging infringement of intellectual property rights.
There can be no assurance that third parties will not assert infringement claims
with respect to the Company's planned products or that any such claims will not
require the Company to enter into royalty arrangements or result in costly
litigation. No assurance can be given that any necessary licenses can be
obtained or that, if obtainable, such licenses can be acquired on commercially
reasonable terms. See "Business -- Patents and Proprietary Rights."
No Manufacturing Capabilities; Reliance on Third Party Relationships. The
Company has not invested, and does not, in the foreseeable future, intend to
invest, in manufacturing capabilities. As such, the Company expects to rely on
third party relationships to provide manufacturing resources. If the Company is
unable to contract for manufacturing capabilities on acceptable terms, the
Company's ability to develop and manufacture its planned products will be
adversely affected, resulting in delays in the development and commercialization
of its planned products, which in turn could materially impair the Company's
competitive position and the possibility of achieving profitability. There can
be no assurance that the Company will be able to acquire or establish
satisfactory third-party relationships to provide manufacturing resources. See
"Business -- Manufacturing."
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<PAGE> 14
Arbitrary Determination of Offering Price. The offering price of the Shares
was arbitrarily determined by the Company, and may not be indicative of the
market price of the Shares after this offering. Among the factors considered in
establishing the offering price were the proceeds to be raised by the Company,
the percentage of ownership to be held by investors in this offering, the
experience of Company management and the current market conditions in the
over-the-counter securities market. Accordingly, there is no relationship
whatsoever between the offering price and the assets, earnings or book value of
the Company, or any other recognized criteria of value. See "Plan of
Distribution."
No Dividends Anticipated. The Company has not paid any dividends upon its
Common Stock since its inception and, by reason of its present financial status
and its contemplated financial requirements, does not contemplate or anticipate
paying any dividends upon its Common Stock in the foreseeable future. Therefore,
any person whose decision to invest in the Shares is based upon an expectation
of dividend payments should refrain from purchasing Shares. See "Dividend
Policy."
Dilution. The current shareholders of the Company acquired their shares of
Common Stock of the Company in exchange for consideration which is substantially
less than the amount of consideration the purchasers of this offering will pay
for their shares of Common Stock. The Company's net tangible book value as of
September 30, 1996, was $77,157 or approximately $.01 per share and will
increase to approximately $969,157, or $.17 per share, if the minimum number of
Shares offered hereby is sold, and $4,927,167, or $.71 per share, if the maximum
number of Shares offered hereby is sold. The result will be an immediate and
substantial dilution of the net tangible book value of the shares of Common
Stock acquired by the public investor of $2.83 (95%) per share if the minimum
number of Shares offered hereby is sold; and $2.29 (76%) per share if the
maximum number of Shares offered hereby is sold. See "Dilution" and "Certain
Relationships and Related Transactions."
Issuance of Additional Shares. The Articles of Incorporation of the Company
currently authorize the Board of Directors to issue up to 50,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock. The power of the Board of
Directors to issue shares of Common Stock, Preferred Stock or options or
warrants is subject to shareholder approval in only limited instances.
Shareholders have no preemptive rights. Following completion of the offering,
any additional issuances of any of the Company's securities may have the effect
of further diluting the equity interest of shareholders. See
"Management -- Stock Option Plans" and "Description of Capital Stock."
Control by Existing Management and Stockholders. Following completion of
this offering, the directors, officers and existing stockholders of the Company
will beneficially own approximately 94% of the Company's issued and outstanding
Common Stock if the minimum number of Shares offered hereby is sold and
approximately 76% of the Company's issued and outstanding Common Stock if the
maximum number of Shares offered hereby is sold. Accordingly, these persons will
be able to elect the entire Board of Directors of the Company and to direct the
affairs of the Company. See "Management," "Principal Stockholders" and
"Description of Capital Stock."
Escrow of Investors' Funds Pending Sale of Minimum Number of Shares
Offered. Under the terms of this offering, the Company is offering the Shares on
a "334,000 Shares or none, best efforts" basis. If the minimum number of Shares
is sold, the remaining 1,332,670 Shares will be offered on a "best efforts"
basis until all of the Shares are sold or the offering period ends, whichever
occurs first, unless the offering is terminated earlier by the Company.
Therefore, no commitment exists by anyone to purchase all or any part of the
Shares offered hereby. Consequently, as there is no assurance that the minimum
number of Shares being offered will be sold, subscribers' funds may be escrowed
until July 7, 1997. Investors, therefore, will not have the use of any funds
paid for the purchase of Shares during the offering period. In the event that
the minimum number of Shares offered hereby are not sold within the offering
period, subscribers' fund will then be promptly returned without interest, and
the offering will be withdrawn. See "Plan of Distribution."
Discretion of Management and the Board of Directors in Use of
Proceeds. Although the Company intends to apply the net proceeds of this
offering in the manner described under "Use of Proceeds," the Company's
management and the Board of Directors have broad discretion within such proposed
uses as to the precise allocation of the net proceeds, the timing of
expenditures and all other aspects of the use thereof. The
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<PAGE> 15
Company reserves the right to reallocate the net proceeds of this offering among
the various categories set forth under "Use of Proceeds" as it, in its sole
discretion, deems necessary or advisable based upon prevailing business
conditions and circumstances. Such reallocation would occur if the Company found
it necessary to increase the amount of proceeds necessary to perform research
and development, to manufacture the Company's products and to advertise and
market the Company's products. The primary source of proceeds needed for such
increases would be general working capital. See "Use of Proceeds."
Directors' and Officers' Liability Limited. The Company's Articles of
Incorporation provide that directors and officers of the Company will not be
held liable to the Company or its stockholders for monetary damages upon breach
of a director's or officer's fiduciary duty. Additionally, the Company has
entered or intends to enter, into Director's Indemnification Agreements with
each of its directors. Pursuant to the terms of the Director's Indemnification
Agreements, the Company has agreed or will agree, to indemnify and hold harmless
its directors from, against, and with respect to certain losses, damages,
deficiencies, expenses or costs which may be incurred or suffered by such
directors as a result of their serving as a member of the Company's board of
directors. See "Management -- Limitation on the Liability of Directors."
Lack of Independent Directors. Upon completion of the offering of the
Shares, and for a foreseeable period of time thereafter, the Company's board of
directors will have only one independent director. As such, upon completion of
the offering of the Shares, the majority of the Company's directors will be
either officers of the Company, persons related to officers of the Company, or
persons who provide consulting or advisory services to the Company in exchange
for remuneration. See "Management."
Experience of Management. Potential purchasers of Shares should be aware
that except for Mr. Harold J. Gallagher, the Company's President and Chief
Executive Officer, management of the Company does not have any experience
operating a technology related company. Accordingly, management is required to
retain knowledgeable and experienced employees and consultants in the operations
of the Company's business. There can be no assurance that the Company will be
able to retain its current employees and/or consultants, or that it will be able
to recruit knowledgeable and experienced employees and consultants in the future
should it be necessary to do so. See "Risk Factors -- Dependence Upon Key
Personnel" and "Risk Factors -- Dependence Upon Consultants."
Conflicts of Interests. On June 12, 1996, the Company entered into an
agreement with Mr. W. Stan Lewis, the Company's Chief Scientist, pursuant to
which Mr. Lewis transferred all of his rights, title and interests in and to
certain intellectual property to the Company. In consideration of the transfer
of said intellectual property to the Company by Mr. Lewis, the Company has
agreed to pay Mr. Lewis a royalty of one percent (1%) of the gross sales of all
units manufactured by the Company through the use of said intellectual property,
provided, however, that in no event will the royalty payable to Mr. Lewis be
less than $3,000 per month, regardless of whether any of the Company's planned
products are ever developed, marketed or sold. Due to the relationship between
Mr. Lewis and the Company, and as a result of Mr. Lewis' position with the
Company, conflicts of interest exist. Because of Mr. Lewis' interest in the
Company, he would have an inherent conflict of interest in negotiating the terms
of any contractual arrangements between himself and the Company, including those
relating to the transfer of all of his rights, title and interests in and to
certain intellectual property to the Company. All agreements between Mr. Lewis
and the Company have been approved by a majority of disinterested members of the
Company's board of directors. With respect to future material transactions
between the Company and its officers, directors and principal stockholders and
their affiliates, the Company has established procedures for the review and
approval of such transactions by a committee of disinterested and independent
members of the Company's board of directors. See "Certain Relationships and
Related Transactions."
Dependence Upon Key Personnel. The Company's success depends to a
significant extent upon certain key management personnel; primarily, Mr. Harold
J. Gallagher, the Company's President and Chief Executive Officer. The loss of
Mr. Gallagher could be detrimental to the Company. The Company does not have a
key-man life insurance policy on Mr. Gallagher or any of its executive officers.
Although the Company has entered into an employment agreement with Mr.
Gallagher, there can be no assurance that Mr. Gallagher will continue in the
employ of the Company for the full term of his employment agreement. The
Company's success will also depend in large part upon its ability to attract and
retain highly-skilled technical personnel to
13
<PAGE> 16
provide technological depth and support, to enhance its existing products and to
develop new products. The Company's success will also depend upon its ability to
attract and retain qualified managerial, sales and marketing personnel. If the
Company is unable to hire the necessary personnel, the development of new
products and enhancements would likely be delayed or prevented. Competition for
highly-skilled technical, managerial, sales and marketing personnel is intense.
There can be no assurance that the Company will be successful in attracting and
retaining the personnel it requires for expansion. See "Management."
Dependence Upon Consultants. The Company has established a team of
consultants which include persons with substantial technical expertise who the
Company believes have been instrumental in addressing certain technical matters
involving the Company's Precision Vectoring Technology(TM) and its proposed
Homer(TM) CAM Compass. Various members of the Company's team of consultants
consult with the Company regarding research and development efforts at the
Company, but are employed elsewhere on a full-time basis. As a result, they can
only spend a limited amount of time on the Company's affairs. There can be no
assurance that the Company will be able to continue to retain the consulting
services of any of its consultants, the loss of which may be detrimental to the
Company. There is intense competition for qualified technical consultants of the
type currently retained by the Company, and there can be no assurance that the
Company will be able to continue to attract and retain qualified consultants
necessary for the development of its business. The failure to recruit additional
scientific and technical consultants in a timely manner, would be detrimental to
the Company's research and development programs and to its business. See
"Business -- Consultants."
Shares Available for Resale. Sales of substantial numbers of shares of
Common Stock in the public market following this offering could adversely affect
the market price of the Common Stock prevailing from time to time. Upon
completion of this offering, and assuming that the maximum number of shares
offered hereby have been sold, the Company will have 6,926,138 shares of Common
Stock outstanding. Of these outstanding shares, the 1,666,670 shares sold in
this offering will be freely transferable without restriction of further
registration under the Securities Act, unless they are held by "affiliates" of
the Company within the meaning of Rule 144 promulgated under the Securities Act
as currently in effect. All of the remaining 5,259,468 shares held by existing
stockholders are "restricted" shares within the meaning of Rule 144 and may not
be sold in the absence of registration under the Securities Act or an exemption
therefrom under Rule 144. The Company believes that 4,950,000 of the 5,259,468
shares held by existing stockholders will be eligible for sale in the public
market pursuant to Rule 144 in September 1997, subject to the volume and other
applicable restrictions of Rule 144. However, in addition to the limitations
placed on the sale of restricted securities pursuant to Rule 144, certain of the
Company's shareholders have entered into an agreement with the Company and the
Escrow Agent to place an aggregate of 4,647,078 shares of Common Stock
beneficially owned by such shareholders into an escrow account maintained by the
Escrow Agent, so as to among other matters, prevent the sale or disposition of
such 4,647,078 shares of Common Stock without the occurrence of certain events
and without approval of the administrators of certain state securities laws.
The Company is unable to estimate when or the number of foregoing shares
that may be sold by existing shareholders because such sales will depend upon
the market price for the Common Stock, the personal circumstances of the sellers
and other factors. The future sales of Common Stock or the availability of such
shares of Common Stock for sale may have an adverse effect on the market price
of the Common Stock prevailing from time to time. If such future sales did
adversely affect the market price of the Common Stock, the Company's ability to
raise additional funds through an equity offering at such time could be
adversely affected. See "Risk Factors -- Absence of Public Market; Possible
Volatility of Stock Price," "Principal Stockholders" and "Shares Eligible for
Future Sale."
Absence of Public Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that a public trading market will develop. If
developed, there can be no assurance that it will become more than a limited
market. In addition, future announcements about the Company or its competitors
with respect to such events as technological innovations, new product
introductions, litigation, or earnings estimates and opinions published by
financial analysts may cause the market price of the Company's Common Stock to
fluctuate substantially. Stock prices for many technology companies fluctuate
widely for reasons that may be unrelated to those companies' operating results.
These fluctuations, as well as general economic, political and market conditions
such as recessions, may adversely affect the market price of the Common Stock.
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<PAGE> 17
No Underwriter or Independent Broker-Dealer. The Company has not retained
an underwriter or any independent broker-dealer to assist in offering the
Shares. The officers and directors of the Company have limited experience in the
offer and sale of securities on behalf of an issuer, and, consequently, they may
be unable to effect the sale of the maximum or minimum number of Shares being
offered hereby. In the event an underwriter or independent broker-dealer is
retained by the Company, the offering of the Shares would be suspended until
such time as the Registration Statement of which this Prospectus is a part of,
was amended to reflect such retention. The Registration Statement would then
require additional review and clearance by the Securities and Exchange
Commission ("Commission"), the National Association of Securities Dealers, Inc.,
and if necessary, state securities authorities. In the event an underwriter or
independent broker-dealer is retained by the Company, the Company would be
expected to incur significant additional expense in the form of selling
commissions, legal fees and printing costs. See "Plan of Distribution."
Possible Delisting of Securities. Immediately upon completion of the sale
of the maximum number of Shares offered hereby, the Company intends to apply for
inclusion of its Common Stock on the Nasdaq SmallCap Market; however, there can
be no assurance that the Company will complete the sale of the maximum number of
Shares offered hereby, or if the sale of the maximum number of Shares offered
hereby is completed, that the Company will be able to obtain listing on the
Nasdaq SmallCap Market. If the listing is granted, there can be no assurance
that the Company will meet the criteria for continued listing of its Common
Stock on the Nasdaq SmallCap Market. If the Company becomes unable to meet such
criteria and is delisted therefrom, trading, if any, in its Common Stock would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or on the OTC Bulletin Board. As a result, an investor would likely find
it more difficult to dispose of, or to obtain accurate quotations as to the
value of, the Company's securities.
Risks of Low-Priced Stocks; Possible Effect of "Penny Stock" Rules on
Liquidity of the Company's Securities. There can be no assurance that the
Company's Common Stock will not become subject to certain rules and regulations
promulgated by the Commission pursuant to the Securities Enforcement Remedies
and Penny Stock Reform Act of 1990 (the "Penny Stock Rules"). Such rules and
regulations impose strict sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and certain
"accredited investors." For transactions covered by the Penny Stock Rules, a
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent for the transaction prior
to sale. Consequently, such rule may affect the ability of broker-dealers to
sell the Company's securities and may affect the ability of purchasers in this
offering to sell any of the Shares acquired hereby in the secondary market.
The Penny Stock Rules generally define a "penny stock" to be any security
not listed on an exchange or not authorized for quotation on the Nasdaq Stock
Market and has a market price (as therein defined) less than $5.00 per share or
an exercise price of less than $5.00 per share, subject to certain exceptions.
For any transactions by broker-dealers involving a penny stock (unless exempt),
the rules require delivery, prior to a transaction in a penny stock, of a risk
disclosure document relating to the market for penny stocks. Disclosure is also
required to be made about compensation payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stocks.
The foregoing penny stock restrictions will not apply to the Company's
securities if such securities are listed on an exchange or quoted on the Nasdaq
Stock Market and have certain price and volume information provided on a current
and continuing basis or if the Company meets certain minimum net tangible asset
or average revenue criteria. There can be no assurance that the Company's
securities will qualify for exemption from the Penny Stock Rules. In any event,
even if the Company's securities were exempt from the Penny Stock Rules, they
would remain subject to Section 15(b)(6) of the Exchange Act, which gives the
Commission the authority to prohibit any person that is engaged in unlawful
conduct while participating in a distribution of a penny stock from associating
with a broker-dealer or participating in a distribution of a penny stock, if the
Commission finds that such a restriction would be in the public interest. If the
Company's Shares were subject to the rules on penny stocks, the market liquidity
for the Company's Shares could be severely adversely affected.
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<PAGE> 18
THE COMPANY
Directional Robotics, Inc. is a high technology development stage
California corporation which has developed and owns five U.S. Patents and three
U.S. Patents Pending in its proprietary Precision Vectoring Technology(TM)
(PVT(TM)). The Company intends to design, manufacture and market high
resolution, computer-aided, navigation and orientation devices.
Precision Vectoring Technology(TM) can be used in the construction of
unique, low cost, computer-aided devices which provide positional information to
the user. For example, the computer-aided navigation products will
electronically read a magnetic compass, store the information, and digitally
display the data provided on demand, allowing a user to easily retrace a
previous path taken. The Company's anticipated first product will be the
Homer(TM) CAM Compass because of its relatively simple application of PVT(TM).
The Homer(TM) CAM Compass will operate as an electronic trail marker which, for
example, will allow a user to travel into a densely wooded area, and at the
touch of a button, display for the user a safe return path which can be followed
out of the densely wooded area. The Company's proprietary technology lends
itself to the development of a wide range of product applications.
The planned Homer(TM) CAM Compass will be designed as a hand-held compass
with a digital display screen. The design of the planned Homer(TM) CAM Compass
does not use fluxgate technology, which is commonly used in digital compasses.
Instead, the Homer(TM) CAM Compass will employ a combination of magnetic compass
technology and the Company's patented PVT(TM)technology, while using light
emitters and sensors to determine the position of a magnetized needle.
The planned Homer(TM) CAM Compass design will allow it to be used in
conjunction with available Global Positioning Systems (GPS) recently employed in
sophisticated instruments for point-to-point navigation. The design goal of the
Homer(TM) CAM Compass is to provide an accurate navigation device which can be
used to reduce the approximately 25 to 100 meter error tolerance of GPS
navigation receivers. See "Business -- Markets and Products."
Although originally conceived for orienting hikers and soldiers, the
technology embodied in the Homer(TM) CAM Compass can be used in many outdoor
activities including boating, canoeing, bicycling, scuba diving and spelunking.
The Company expects that additional enhancements to its Homer(TM) technology
will be developed to create and market navigation sensors for reliable use in
surveying equipment, farming equipment, automobiles, ships and airplanes.
In addition to its Homer(TM) product line, the Company expects to develop,
manufacture and distribute a family of orientation products in shaft encoding.
The goal of these products will be to measure and provide information on very
small movements of a rotating object, which measurements and information might
then be used to calculate distances traveled by objects attached to the rotating
object. These small movements might also be used to reposition the rotating
shaft back to its original position.
The Company believes its shaft encoder technology will have numerous
applications in both private industry and national defense. Applications might
include engine timing, virtual reality systems, azimuth indications, earthquake
magnitude sensing, drill or laser position determination, medical or surveying,
weapons platform positioning, antenna positioning, and robotic movement
determination. The Homer(TM) CAM Compass and the Company's planned shaft encoder
sensor devices are expected to utilize the same electro-optical sensor.
Therefore, the Company believes that it may be able to concurrently engineer the
development of both products. See "Business -- Products for the Orientation
Market."
The Company was formed on July 10, 1995. From its inception until June 3,
1996, the Company licensed its Precision Vectoring Technology(TM) from
Directional Robotics Research, Inc. ("DRR") for the purpose of designing,
manufacturing and marketing high resolution navigation and orientation devices.
DRR was an affiliated corporation organized under the laws of the State of
Florida in April 1993. DRR was controlled by Mr. Gerald R. Rodder, the Company's
Chairman of the Board, Mr. Gerald F. Norman, the Company's Secretary and Mr. W.
Stan Lewis, the Company's Chief Scientist. From the time of its organization,
DRR was primarily engaged in the research and development of high resolution
electro-optical navigation and
16
<PAGE> 19
orientation products. On June 25, 1996, DRR merged with the Company, with the
Company being the surviving entity. See "Certain Relationships and Related
Transactions."
The Company's EXECUTIVE OFFICE is located at 5610 N. Palm Avenue, Fresno,
California 93704, and its telephone number is (209) 435-8211. The Company's home
page on the Internet is located on the World Wide Web at
http://www.directional.com. ENGINEERING AND DESIGN FACILITIES are maintained at
5205 Avenida Encinas, Suite C, Carlsbad, California 92008. [NOTE: INTERNET
READERS OF THIS PROSPECTUS USING A WORLD WIDE WEB BROWSER MAY CLICK ON THE
BOLDFACE WORDS "executive office" AND "Engineering and Design facilities". THESE
ARE HYPERLINKS TO PHOTOGRAPHS OF THE COMPANY'S EXECUTIVE OFFICE IN FRESNO,
CALIFORNIA AND ITS ENGINEERING AND DESIGN FACILITIES IN CARLSBAD, CALIFORNIA.]
USE OF PROCEEDS
The net proceeds to the Company from the sale of Shares (after deducting
estimated potential commissions and offering expenses) are estimated to be
approximately $892,000 if the minimum number of 334,000 Shares is sold and
$4,850,010 if the maximum number of 1,666,670 Shares is sold. The following
table sets forth the estimated application by the Company of the net proceeds to
be derived from the sale of Shares offered hereby.
<TABLE>
<CAPTION>
MAXIMUM OFFERING
MINIMUM OFFERING AMOUNT,
AMOUNT, 334,000 PERCENTAGE OF 1,666,670 PERCENTAGE OF
USE OF PROCEEDS SHARES NET PROCEEDS SHARES NET PROCEEDS
- -------------------------------------- ---------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
To perform research and
development(1)...................... $315,000 36% $1,180,501 24%
To manufacture(2)..................... 120,000 13% 1,044,000 22%
To advertise and market(3)............ 150,000 17% 1,522,500 31%
To pay officers' salaries(4).......... 200,000 22% 320,000 7%
To provide general working
capital(5).......................... 107,000 12% 783,009 16%
-------- --- ---------- ---
Total Net Proceeds............... $892,000 100% $4,850,010 100%
======== === ========== ===
</TABLE>
- ---------------
(1) The Company's first product is expected to be the Homer(TM) CAM Compass.
Prior to the initial manufacture and sale of the Homer(TM) CAM Compass, the
Company will use certain proceeds of the offering to complete the
engineering of a commercial version of the Homer(TM) CAM Compass, including
the building and testing of several pre-production prototypes. If the
maximum number of Shares offered hereby is sold, the Company plans to
concurrently begin the development and engineering of its planned shaft
encoder sensor devices, as both the Homer(TM) CAM Compass and shaft encoder
product lines are expected to utilize the same electro-optical sensor.
Proceeds allocated to research and development are expected to be paid to
engineering firms, outside consultants and the Company's engineering staff
for design engineering and the construction of pre-production prototypes.
The Company also expects that it will use some of these proceeds to develop
additional patented technology, technological data documentation, and
scientific papers and publications in support of its Homer(TM) CAM Compass
and Precision Vectoring Technology(TM). See "Plan of Operation."
(2) Represents funds required to begin manufacturing the Homer(TM) CAM Compass.
It consists primarily of fees to be paid to third party contract
manufacturing sources and for the purchase of components, parts and other
inventory. See "Risk Factors -- No Manufacturing Capabilities; Reliance on
Third Party Relationships" and "Plan of Operation."
(3) Represents funds required to implement the Company's sales and marketing
program. This program will include the hiring of additional personnel, the
retention of authorized representatives, attendance at trade shows, and the
preparation of promotional materials. See "Plan of Operation" and
"Business -- Marketing."
(4) Includes salaries expected to be paid to certain of the Company's officers
prior to the initial manufacture and sale of the Homer(TM) CAM Compass.
Payments are expected to occur over an approximate 20-month period and are
anticipated to be as follows: $130,000 to Mr. Harold J. Gallagher, the
Company's President and Chief Executive Officer and $70,000 to Mr. W. Stan
Lewis, the Company's Chief
17
<PAGE> 20
Scientist, should the minimum number of Shares offered hereby be sold, and
$156,000 to Mr. Gallagher, $72,000 to Mr. Lewis, $56,000 to Mr. Gerald R.
Rodder, the Company's Chairman of the Board and $36,000 to Mr. Gerald F.
Norman, the Company's Secretary, should the maximum number of Shares offered
hereby be sold. See "Management -- Executive Compensation and Employment
Agreements."
(5) Represents primarily funds which will support the basic operations of the
Company, including but not limited to funds for the purchase of inventory,
office rent, utilities and miscellaneous expenses. See "Plan of Operation"
and "Management -- Executive Compensation and Employment Agreements."
Pending the expenditure of the proceeds of this offering, the Company may
make temporary investments in certificates of deposit, short term
interest-bearing deposits, United States Government obligations or money market
certificates.
If the minimum number of Shares offered hereby is sold, the Company plans
to focus its efforts on the development of the Homer(TM) CAM Compass. The
Company will utilize the proceeds from the sale of the minimum number of Shares
offered hereby to complete a commercial version of the Homer(TM) CAM Compass,
and to effectuate national distribution of the Homer(TM) CAM Compass. The
Company anticipates that the first commercial production of the Homer(TM) CAM
Compass will occur in approximately 20 months after the Company's receipt of the
proceeds from the sale of the minimum number of Shares offered hereby. Further,
the Company expects to expend approximately $600,000 of its capital to achieve
the first commercial production of the Homer(TM) CAM Compass. However, no
assurance can be given that the first commercial production of the Homer(TM) CAM
Compass will occur in approximately 20 months after the Company's receipt of the
proceeds from the sale of the minimum number of Shares offered hereby or that
the Company will expend approximately $600,000 of its capital to achieve the
first commercial production of the Homer(TM) CAM Compass. See "Risk
Factors -- No Assurance of Successful Product Development."
The Company believes that the net proceeds from the minimum offering of
334,000 Shares will provide it with sufficient working capital for approximately
29 months after completion of the minimum offering of 334,000 Shares. However,
unless the Company can internally generate sufficient funds 29 months after
completion of the minimum offering of 334,000 shares, additional financing will
be required to enable the Company to expand its activities. If such financing is
required it may not be available on terms favorable to the Company. See "Risk
Factors -- Future Capital Needs; Uncertainty of Additional Funding" and "Plan of
Operation."
If the maximum number of Shares offered hereby is sold, the Company intends
to focus its efforts on creating a commercial version of the Homer(TM) CAM
Compass within a period of 14 months after the Company's receipt of the proceeds
from the sale of the maximum number of Shares offered hereby. In order to
achieve the first commercial production of the Homer(TM) CAM Compass within said
14-month period, the Company anticipates expending approximately $1,700,000 of
its capital. See "Plan of Operation."
In addition to the foregoing, should the Company be successful in selling
the maximum number of Shares offered hereby, the Company will endeavor to expand
its Homer(TM) CAM Compass product line by creating different applications of the
Homer(TM) CAM Compass model such as the Homer(TM) Golfer, the Homer(TM)Angler,
the Homer(TM) Auto and the Homer(TM) Assistant. The Company believes that it
will take approximately eight months after the first commercial production of
the basic Homer(TM) CAM Compass model to develop for commercial production all
of the planned additional Homer(TM) CAM Compass models, at a cost to the Company
of approximately $960,000. Thereafter, the Company expects to direct its
development efforts towards creating commercial versions of its planned shaft
encoder sensor devices for the orientation market. See "Business -- Products for
the Consumer Navigation Market" and "Business -- Products for the Orientation
Market."
No assurance can be given that the first commercial production of the
Homer(TM) CAM Compass will occur within 14 months after the Company's receipt of
the proceeds from the sale of the maximum number of Shares offered hereby or
that the Company will expend approximately $1,700,000 of its capital to achieve
the first commercial production of the Homer(TM) CAM Compass within a 14-month
period. Additionally, no assurance can be given that the Company will be able to
create different applications of the Homer(TM) CAM
18
<PAGE> 21
Compass within eight months after the first commercial production of the basic
Homer(TM) CAM Compass or that the Company will expend approximately $960,000 of
its capital to develop additional Homer(TM) CAM Compass models, or that the
Company will be successful in creating commercial versions of its planned shaft
encoder sensor devices. See "Risk Factors -- No Assurance of Successful Product
Development."
The Company believes that the net proceeds from the maximum offering of
1,666,670 Shares will provide it with sufficient working capital for
approximately 36 months after completion of the maximum offering of 1,666,670
Shares. However, unless the Company can internally generate sufficient funds 36
months after completion of the maximum offering of 1,666,670 Shares, additional
financing will be required to enable the Company to expand its activities. If
such financing is required, it may not be available on terms favorable to the
Company. See "Risk Factors -- Future Capital Needs; Uncertainty of Additional
Funding" and "Plan of Operation."
19
<PAGE> 22
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on its Common
Stock and does not intend to pay dividends on its Common Stock in the
foreseeable future. The Company presently expects to retain its earnings to
finance the development and expansion of its business. The payment by the
Company of dividends, if any, on its Common Stock in the future is subject to
the discretion of the Board of Directors and will depend on the Company's
earnings, financial condition, capital requirements and other relevant factors.
See "Description of Capital Stock."
DILUTION
As of September 30, 1996, there were 5,259,468 shares of the Company's
Common Stock outstanding having a net tangible book value of $77,157 or
approximately $.01 per share. Net tangible book value per share is the net
tangible assets of the Company (total assets less total liabilities and
intangible assets) divided by the number of shares of Common Stock outstanding.
Upon completion of this offering, there will be 5,593,468 shares of the
Company's Common Stock outstanding having a net tangible book value of
approximately $969,157 or approximately $.17 per share if the minimum number of
Shares is sold; and 6,926,138 shares of the Company's Common Stock outstanding
having a net tangible book value of approximately $4,927,167 or approximately
$.71 per share if the maximum number of Shares is sold. The net tangible book
value of each share will have increased by approximately $.16 per share to
present stockholders, and decreased by approximately $2.83 per share (a dilution
of 95%) to public investors if the minimum number of Shares is sold, and the net
tangible book value of each share will have increased by approximately $.70 per
share to the present stockholders and decreased by approximately $2.29 per share
(a dilution of 76%) to public investors if the maximum number of Shares is sold.
Dilution represents the difference between the public offering price and
the net tangible book value per share immediately after the completion of the
public offering. Dilution arises mainly from the arbitrary decision by the
Company as to the offering price per share. Dilution of the value of the Shares
purchased by the public in this offering will also be due, in part, to the lower
book value of the shares presently outstanding; and in part to expenses which
are, or may be, incurred in connection with the offering of the Shares. The
following table illustrates this dilution:
ASSUMING MINIMUM NUMBER OF SHARES SOLD
<TABLE>
<S> <C> <C>
Public Offering Price Per Share............................... $3.00
Net Tangible Book Value Per Share, Before Offering.......... $.01
Increase Per Share Attributable to Payment by Public Investors .. $.16
Net Tangible Book Value Per Share, After Offering........... $ .17
Dilution to Public Investors Per Share........................ $2.83
=====
ASSUMING MAXIMUM NUMBER OF SHARES SOLD
Public Offering Price Per Share............................... $3.00
Net Tangible Book Value Per Share, Before Offering.......... $.01
Increase Per Share Attributable to Payment by Public Investors .. $.70
Net Tangible Book Value Per Share, After Offering........... $ .71
Dilution to Public Investors Per Share........................ $2.29
=====
</TABLE>
20
<PAGE> 23
The following tables set forth the percentage of equity to be purchased by
public investors in this offering compared to the percentage of equity to be
owned by the present stockholders, and the comparative amounts paid for the
Shares by public investors as compared to the total cash consideration paid by
the present stockholders of the Company.
ASSUMING MINIMUM NUMBER OF SHARES SOLD
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
PERCENTAGE TOTAL OF TOTAL AVERAGE PRICE
SHARES OF TOTAL CASH CASH PAID PER
PURCHASED SHARES CONSIDERATION CONSIDERATION SHARE(1)
--------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Public Stockholders........ 334,000 6% $ 1,002,000 77% $3.00
Present Stockholders....... 5,259,468 94% 303,172(2) 23%(2) $ .06(2)
TOTAL.................... 5,593,468 100% 1,305,172 100%
</TABLE>
- ---------------
(1) Based on the average value per share paid by existing stockholders to the
Company and a public offering price of $3.00 per share paid by new
investors.
(2) On June 25, 1996, the Company merged with DRR, the predecessor and a former
affiliate of the Company, with the Company being the surviving corporation.
The foregoing table does not reflect the total cash consideration paid by
certain present stockholders of the Company in connection with their
capitalization of DRR, but, among other things, reflects only the
shareholders' equity position of DRR at the time of the merger. Total cash
consideration paid by certain present stockholders of the Company in
connection with their capitalization of DRR was $352,759. Taking into
account the cash consideration paid by certain present stockholders of the
Company in connection with the capitalization of DRR, total cash
consideration paid by the Company's present stockholders with respect to
shares of the Company's Common Stock and shares of the common stock of the
Company's predecessor and former affiliate, DRR, is $655,931, constituting
approximately 50% of the total cash consideration paid in connection with
the capitalization of the Company and DRR should the minimum number of
Shares offered hereby be sold, and effectively resulting in an average price
per share paid by the present stockholders of the Company of $.12. For
information on the capitalization of DRR, see the Financial Statements of
DRR included elsewhere in this Prospectus.
ASSUMING MAXIMUM NUMBER OF SHARES SOLD
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
PERCENTAGE TOTAL OF TOTAL AVERAGE PRICE
SHARES OF TOTAL CASH CASH PAID PER
PURCHASED SHARES CONSIDERATION CONSIDERATION SHARE(1)
--------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Public Stockholders........ 1,666,670 24% $ 5,000,010 94% $3.00
Present Stockholders....... 5,259,468 76% $ 303,172(2) 6%(2) $ .06(2)
TOTAL.................... 6,926,138 100% $ 5,303,182 100%
</TABLE>
- ---------------
(1) Based on the average value per share paid by existing stockholders to the
Company and a public offering price of $3.00 per share paid by new
investors.
(2) On June 25, 1996, the Company merged with DRR, the predecessor and a former
affiliate of the Company, with the Company being the surviving corporation.
The foregoing table does not reflect the total cash consideration paid by
certain present stockholders of the Company in connection with their
capitalization of DRR, but, among other things, reflects only the
shareholders' equity position of DRR at the time of the merger. Total cash
consideration paid by certain present stockholders of the Company in
connection with their capitalization of DRR was $352,759. Taking into
account the cash consideration paid by certain present stockholders of the
Company in connection with the capitalization of DRR, total cash
consideration paid by the Company's present stockholders with respect to
shares of the Company's Common Stock and shares of the common stock of the
Company's predecessor and former affiliate, DRR, is $655,931, constituting
approximately 12% of the total cash consideration paid in connection with
21
<PAGE> 24
the capitalization of the Company and DRR should the maximum number of
shares offered hereby be sold, and effectively resulting in an average price
per share paid by the present stockholders of the Company of $.12. For
information on the capitalization of DRR, see the Financial Statements of
DRR included elsewhere in this Prospectus.
The Company has reserved an aggregate of 1,000,000 shares of its Common
Stock for its officers, directors, employees, and consultants to purchase
pursuant to its Stock Option Plans. As of the date of this Prospectus, there are
265,000 shares of Common Stock issuable upon the exercise of options granted to
an officer of the Company pursuant to the terms of its Stock Option Plans. The
above paragraph does not give effect to the possible issuance of up to 1,000,000
additional shares of the Company's Common Stock upon exercise of any options
which have been, or may yet be, granted under the Stock Option Plans. The
issuance of shares of the Company's Common Stock upon the exercise of options
which may be granted under the Stock Option Plans would result in further
dilution in the interests of stockholders if at the time of exercise, the
Company's net tangible book value per share is greater than the exercise price
of any such options. See "Management -- Stock Option Plans."
22
<PAGE> 25
CAPITALIZATION
The following tables set forth at September 30, 1996 (i) the actual
capitalization of the Company and (ii) the as adjusted capitalization to reflect
the sale of the minimum and the maximum number of Shares offered hereby (based
upon an initial public offering price of $3.00 per share and the application of
the net proceeds therefrom). The table should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this Prospectus.
ASSUMES MINIMUM NUMBER OF SHARES SOLD
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
(UNAUDITED)
----------------------------
ACTUAL(1) AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
Shareholders' equity (deficit):
Common stock, no par value, 50,000,000 shares authorized;
5,259,468 shares outstanding; 5,593,468 outstanding, as
adjusted(3).................................................. $ 305,116 $1,197,116
Preferred stock, no par value, 10,000,000 shares authorized,
none outstanding............................................. -- --
Accumulated deficit in development stage.......................... (227,959) (227,959)
Total shareholders' equity................................... 75,157 967,157
Total capitalization......................................... $ 75,157 $ 967,157
====== ==========
</TABLE>
- ---------------
(1) Derived from the Financial Statements of the Company included elsewhere in
this Prospectus.
(2) As adjusted to reflect the sale of the minimum number of Shares offered
hereby and the application of the net proceeds set forth in "Use of
Proceeds".
(3) Does not include 265,000 shares of Common Stock reserved for issuance upon
the exercise of certain stock options granted pursuant to the Company's
Stock Option Plans. See "Management -- Stock Option Plans."
23
<PAGE> 26
ASSUMES MAXIMUM NUMBER OF SHARES SOLD
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
(UNAUDITED)
----------------------------
ACTUAL(1) AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
Shareholders' equity (deficit):
Common stock, no par value, 50,000,000 shares authorized;
5,259,468 shares outstanding; 6,926,138 outstanding, as
adjusted(3)................................................... $ 305,116 $5,155,126
Preferred stock, no par value, 10,000,000 shares authorized; none
outstanding................................................... -- --
Accumulated deficit in development stage........................... (227,959) (227,959)
Total shareholders' equity.................................... 75,157 4,925,167
Total capitalization.......................................... $ 75,157 $4,925,167
====== ==========
</TABLE>
- ---------------
(1) Derived from the Financial Statements of the Company included elsewhere in
this Prospectus.
(2) As adjusted to reflect the sale of the maximum number of Shares offered
hereby and the application of the net proceeds set forth in "Use of
Proceeds".
(3) Does not include 265,000 shares of Common Stock reserved for issuance upon
the exercise of certain stock options issued pursuant to the Company's Stock
Option Plans. See "Management -- Stock Option Plans."
24
<PAGE> 27
SELECTED FINANCIAL DATA
The following table summarizes certain financial data for the Company and
Directional Robotics Research, Inc., the predecessor to the Company (DRR). The
selected financial data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" are derived from the financial
statements of DRR and the Company, which financial statements have been audited
by Joel S. Baum, P.A., independent certified public accountant, to the extent
indicated in his reports included elsewhere herein. On June 25, 1996, DRR merged
into the Company. The merger was accounted for as a combination of entities
under common control, and thus in a manner similar to a pooling of interests. As
a result thereof, the results of operations of DRR for the year ended December
31, 1995 and of the Company for the period July 10, 1995 (date of inception) to
December 31, 1995 have been determined based upon the historical bases of DRR
and the Company, and have been combined to facilitate presentation of the
results of operations. Financial data as of September 30, 1996 and for the
nine-month period ended September 30, 1996 is derived from unaudited financial
statements of the Company and, in the opinion of management, contains all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation. The selected financial data should be read in conjunction with
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
The Company's historical operating results are not necessarily indicative of the
results for any future period.
<TABLE>
<CAPTION>
DRR
--------------------
APRIL 14, 1993
DRR(1) DRR AND THE COMPANY
------------ THE COMPANY -------------
COMBINED(2)
----------------
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO --------------------------------- -------------
DECEMBER 31, 1993(1) 1994 1995 1996
-------------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 0 $ 0 $ 0 $ 0
Operating expenses............ 0 (118,149) (228,681) (227,959)
Operating income (loss)....... 0 (118,149) (228,681) (227,959)
Weighted average number of
shares of common stock and
common stock equivalents
outstanding................ 0 135,000 5,259,468 5,020,745
BALANCE SHEET DATA:
Cash and cash equivalents..... 0 994 1,858 904
Working capital (deficit)..... 0 (19,430) (6,717) (1,096)
Total assets.................. 0 2,800 15,739 79,157
Shareholders equity
(deficit).................. 0 (17,624) 7,164 77,157
</TABLE>
- ---------------
(1) The periods prior to and including December 31, 1994 reflect data of DRR. On
June 25, 1996, DRR merged into the Company. See "The Company" and "Certain
Relationships and Related Transactions."
(2) Includes the results of operations for the Company for the period July 10,
1995 (date of inception) to December 31, 1995, and for DRR for the year
ended December 31, 1995.
25
<PAGE> 28
PLAN OF OPERATION
During the 20 month period beginning immediately after completion of the
offering of the minimum number of Shares offered hereby, the Company intends to
carry out three principal objectives:
(1) complete the engineering of a commercial version of the Homer(TM)
CAM Compass, including building and testing a pre-production
prototype, and commence the first commercial production of the
Homer(TM) CAM Compass;
(2) continue to collect and synthesize data on additional usage of the
Company's Precision Vectoring Technology(TM); and
(3) prepare and develop plans for marketing and selling the Homer(TM)
CAM Compass as well as additional products which may be created from
the Company's Precision Vectoring Technology(TM).
Completion of the engineering of a commercial version of the Homer(TM) CAM
Compass will include the construction and field testing of several
pre-production prototypes of the Homer(TM) CAM Compass. The goal of the
engineering process will be the implementation of significant improvements over
the current laboratory prototype of the Homer(TM) CAM Compass. The Company
believes these improvements are necessary to create a commercial product that
would satisfy the demands of potential customers. Areas of potential improvement
include shape, size, user interface, extent of automation, component cost and
ability to withstand hostile environments. The Company anticipates that
completion of the engineering of a commercial version of the Homer(TM) CAM
Compass, including the building and testing of pre-production prototypes will
cost the Company approximately $510,000. Thereafter, the Company expects to
expend approximately $90,000 over an approximate three month period to achieve
the first commercial production of the Homer(TM) CAM Compass.
If the maximum number of Shares offered hereby is sold, the Company intends
to focus its efforts on completing a commercial version of the Homer(TM) CAM
Compass within a period of 14 months after completion of the sale of the maximum
number of Shares offered hereby. In order to achieve the first commercial
production of the Homer(TM) CAM Compass within a period of 14 months after
completion of the sale of the maximum number of Shares offered hereby, the
Company believes that it will be required to expend approximately $1,700,000 of
its capital. See "Use of Proceeds."
In addition to the foregoing, and should the Company be successful in
selling the maximum number of Shares offered hereby, the Company also plans to
expand its Homer(TM) CAM Compass product line by creating different applications
of the Homer(TM) CAM Compass model such as the Homer(TM) Golfer, the Homer(TM)
Angler and the Homer(TM) Assistant. The Company believes that it will take
approximately eight months after the first commercial production of the basic
Homer(TM) CAM Compass model to develop for commercial production all of the
planned additional Homer(TM) CAM Compass models, at a cost to the Company of
approximately $960,000. Thereafter, the Company expects to direct its
development efforts towards creating commercial versions of its planned shaft
encoder sensor devices for the orientation market. See "Use of Proceeds."
The Company anticipates that approximately $315,000 of the net proceeds
raised from the minimum offering of Shares hereunder, and $1,000,500 of the net
proceeds raised from the maximum offering of Shares hereby will be allocated for
further research and development by the Company. Of the net proceeds allocated
for research and development, the Company anticipates that approximately
sixty-five percent (65%) of said proceeds will be used to meet certain expenses
expected to be incurred by the Company in connection with the retaining of
independent engineering firms and outside consultants for design engineering and
construction of pre-production prototypes. The Company expects to use the
remaining thirty-five percent (35%) of said proceeds to fund the efforts of the
Company's internal engineering staff in the management and technical support of
commercial product design.
Funds devoted to manufacturing will be used to pay third party contract
manufacturing sources involved in the manufacturing of the Homer(TM) CAM Compass
and to purchase product components, parts and other inventory for the Homer(TM)
CAM Compass. Funds devoted to marketing and advertising will support the efforts
26
<PAGE> 29
of the Company to prepare the Homer(TM) CAM Compass for commercial sale. In this
regard, the Company expects to hire a marketing manager. Funds devoted to
working capital of the Company will be used to support the basic operation of
the Company. This is expected to include finished goods inventories, salaries
and wages for administrative personnel, rent for corporate offices, utilities
and miscellaneous expenses.
The Company believes that the net proceeds from the minimum offering of
334,000 Shares will provide it with sufficient working capital for approximately
29 months after completion of the minimum offering of 334,000 Shares, and that
the net proceeds from the maximum offering of 1,666,670 Shares will provide it
with sufficient working capital for approximately 36 months after completion of
the maximum offering of 1,666,670 Shares.
The foregoing represents the Company's estimate of its plan of operations.
Future events, including the problems, delays, expenses and complications
frequently encountered by development-stage companies, as well as changes in the
economy, competition or the Company's research and development activities, may
require a change or alteration in the Company's plan of operation.
27
<PAGE> 30
BUSINESS
BACKGROUND OF THE NAVIGATION AND ORIENTATION INDUSTRY
Precise determination by humans and machines of locations both on and above
the Earth's surface is a fundamental requirement for many endeavors by man. For
example, position data are used for navigation on land and sea and in the air,
and to conduct surveys and draw maps.
The simplest and most widely used navigation device is the compass which
allows the user to determine geographical direction. Most compasses in use today
are magnetized needles or discs that line up with magnetic north pole. Other
compasses, called fluxgates, sense a change in flux due to their motion in the
earth's magnetic field. There are certain inherent problems with both types of
compasses, making their application limited. For example, fluxgate compasses are
susceptible to weak magnetic or electric influences which can serve to adversely
affect their accuracy.
In addition to the compass, Earth-orbiting Global Positioning Systems (GPS)
and related ground-based transmitters and portable receivers now provide
significant navigation assistance, but not without error or certain limitations.
See "Business -- Markets and Products."
The orientation industry uses certain techniques to determine and position
turning shafts in products such as automobile engine timers, drills and lasers.
The Company believes that such techniques have traditionally not been able to
achieve high levels of accuracy.
CORPORATE PROFILE
The Company was formed to engage in the design, manufacture and marketing
of very high resolution, electro-optical navigation and orientation devices. The
Company has developed proprietary technology and owns five U.S. Patents and
three U.S. Patents Pending. The existence of these patents in conjunction with
associated proprietary methodology owned by the Company is referred to by the
Company as "Precision Vectoring Technology(TM)" or "PVT(TM)".
The Company believes there are two applications of PVT(TM) which will
generate two distinct families of products: navigation devices and orientation
devices. Because many of the Company's navigation products will provide a
retraceable path from a known location or "home", and a path for return to the
starting point, the Company's initial navigational product line is called
"HOMER(TM)" [NOTE: INTERNET READERS OF THIS PROSPECTUS USING A WORLD WIDE WEB
BROWSER MAY CLICK ON THE BOLDFACE WORD "Homer(TM)." THIS IS A HYPERLINK TO A
GRAPHIC WHICH IS AN ARTIST ANIMATION OF THE HOMER(TM) PRINCIPLE. A BLACK DASHED
LINE IS SUPER-IMPOSED ON A MAP. THE BLACK DASHED LINE IS ANIMATED TO GIVE THE
APPEARANCE OF MOVING FROM A STARTING POINT (LABELED "HOME") TO AN ENDING POINT
(LABELED "DESTINATION"). WHEN THE BLACK DASHED LINE REACHES THE "DESTINATION", A
BLACK DOT MOVES FROM "DESTINATION" BACK TO "HOME." THE SUCCESSIVE BEARINGS TAKEN
AT POINTS ALONG THE PATH CHANGE AS THE ANIMATION PROCEEDS.]
The anticipated first product in the Homer(TM) line is called the
"HOMER(TM) CAM COMPASS." It is expected to be a digital, hand-held compass for
navigation applications. Management of the Company believes that current
experimental models of this compass demonstrate that it can achieve uniquely
different resolutions than similar compasses now on the market. [NOTE: INTERNET
READERS OF THIS PROSPECTUS USING A WORLD WIDE WEB BROWSER MAY CLICK ON THE
BOLDFACE WORDING "Homer(TM) CAM Compass." THIS IS A HYPERLINK TO A GRAPHIC WHICH
IS AN ARTIST'S RENDITION OF THE PLANNED HOMER(TM) CAM COMPASS SHOWN FROM THREE
DIFFERENT ANGLES. THERE IS ALSO AN ARTIST'S RENDITION OF THE HOMER(TM) CAM
COMPASS PLANNED DISPLAY ELEMENTS WITH CORRESPONDING EXPLANATIONS OF EACH ELEMENT
OF THE DISPLAY.]
The Company's anticipated second product is expected to allow the precise
determination of a rotating shaft. The Company calls such a sensing device a
shaft encoder. The goal of the Company's shaft encoder sensor device will be to
measure tiny movements of a rotating shaft with high precision. This device is
expected to be applied to numerous applications in industry, robotics and
military defense.
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BUSINESS STRATEGY
The Company's strategy is to fully develop and promote its PVT(TM)-based
products and devices. To exploit the wide range of applications made possible by
Precision Vectoring Technology(TM), the Company expects to implement the
following strategies:
Identification and Penetration of Target Markets. The Company has
identified specific target markets based upon end-user applications. The Company
believes these markets represent significant economic opportunities due to the
broad range of potential applications for accurate and cost-effective position
information. The Company believes that by adding application-specific features
and functionality to its PVT(TM) technology, it can deliver value-added products
to these targeted markets. The Company will also continuously seek to identify
new markets into which PVT(TM) products and devices can be introduced. The
Company believes that its growth will depend in large part on its ability to
continuously identify and penetrate new markets for PVT(TM) applications.
Establishment of Technology Leadership and Continuous Product
Improvement. The Company will seek to offer the most advanced systems for
PVT(TM) applications and to maintain its technological leadership through
continuous investment in research and development. The Company's research and
development efforts will be dedicated to meeting customer needs by increasing
the performance, reliability and serviceability of the Company's products. See
"Business -- Research and Development."
Achievement of Differentiated Product Solutions. The Company will seek to
establish and sustain leadership in its targeted markets by offering products
that are differentiated and which offer superior features and benefits through
hardware and customer user interfaces. The Company will emphasize application-
specific products and devices which solve specific sets of problems, where
feasible, in its various markets.
Concurrent Engineering. Technological commonalities shared by the Company's
planned first two product lines (Homer(TM) CAM Compass and shaft encoder sensor
device) will enable concurrent engineering which can result in overall operating
economy and shorter time-to-market.
Establishment of Domestic and International Distribution Channels. The
Company will seek to develop and build a worldwide sales organization of Company
employees and independent distributors and dealers for each market that it
addresses. The Company intends to develop alliances and original equipment
manufacturer (OEM) relationships with established foreign and domestic companies
as part of its strategy to penetrate certain targeted markets.
MARKETS AND PRODUCTS
The Company's PVT(TM)-based products are expected to sell in two major
markets, each having several different segments. First is the navigation market
which comprises segments such as retail public, military, automobile navigation
and handicap assistance. Second is the orientation market with robotics,
manufacturing and precision sensors being the prime segments. Although the
Company believes that these markets have potential for sales of future
PVT(TM)-based products, no assurance can be given that such markets will develop
for the Company's products. If such markets do develop for the Company's
products, there is no assurance that the Company will be successful in creating
commercially viable products to serve such markets, particularly because
PVT(TM)-based methodologies are still in an early stage of adoption. The
Company's future growth will depend upon the timely development of the markets
in which the Company expects to compete and upon the Company's ability to
identify and exploit markets for its products.
PRODUCTS FOR THE CONSUMER NAVIGATION MARKET
The navigation family of products planned by the Company is based on
well-known dead reckoning methods. Dead reckoning can be thought of as a
"deduced" positioning method where one uses previous course and distance
information, current bearing and travel velocity to determine the present
location of a vehicle or vessel. Numerical techniques for dead reckoning have
been used for centuries. Errors are known to accumulate, and periodic additional
navigational fixes are required for accurate navigation during travel over long
distances.
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The first navigation product anticipated to be completely developed by the
Company will be the Homer(TM) CAM Compass. The Homer(TM) CAM Compass will be a
computer-aided device which will electronically read a magnetic compass
contained inside of it, and digitally display the data provided by the magnetic
compass on demand, allowing the user of the Homer(TM) CAM Compass to easily
retrace a previous path taken. In many endeavors involving navigation, a compass
is required. Traditional compasses require skill and practice, and it is easy
for novice users to misread a compass. The Homer(TM) CAM Compass will be
designed to minimize errors in navigation by any user, whether a novice or an
expert.
The Homer(TM) CAM Compass is selected as the first product to be
manufactured and marketed by the Company because of its relatively simple
application of PVT(TM). The planned Homer(TM) CAM Compass design will allow it
to be used in conjunction with available Global Positioning Systems (GPS)
recently employed in sophisticated instruments for point-to-point navigation.
The design goal is to provide an accurate navigation device which can be used
within the approximately 25 to 100 meter error tolerance of GPS navigation
receivers. Further, the Homer(TM) CAM Compass will be designed to allow on-board
integration with available GPS receiver chips.
GPS is a system of 24 orbiting Navstar satellites established and funded by
the U.S. Government. The U.S. Government intends for GPS to complement or
replace many other forms of electronic navigation and position data systems. GPS
offers major advantages in precision and accuracy with worldwide coverage in
three dimensions while enabling users to measure latitude, longitude, altitude,
time and velocity with one instrument.
GPS positioning is based on a triangulation technique that precisely
measures distances from Earth to four or more Navstar satellites. The satellites
continuously transmit precisely timed radio signals using extremely accurate
atomic clocks. A GPS receiver calculates distances to the satellites in view by
determining the travel time of the satellites' signals. The receiver then
triangulates its position using its known distance from various satellites and
calculates latitude, longitude and altitude. Under normal circumstances, a
stand-alone GPS receiver is able to calculate its position at any point on
Earth, in Earth's atmosphere, or in low Earth orbit, to within 100 meters, 95%
of the time, 24 hours a day.
Regardless of its precision, GPS is not without error. The largest source
of error for civilian users comes from the fact that the accuracy of GPS may be
limited by distortion of GPS signals from ionospheric and other atmospheric
conditions, or by intentional or inadvertent signal interference, or SELECTIVE
AVAILABILITY (SA) [NOTE: INTERNET READERS OF THIS PROSPECTUS USING A WORLD WIDE
WEB BROWSER MAY CLICK ON THE BOLDFACE PHRASE "Selective Availability (SA)". THIS
IS A HYPERLINK TO AN ARTIST'S RENDITION SHOWING A CYLINDRICAL SHAPED BEAM COMING
OUT OF THE SKY WHICH REPRESENTS THE CURRENT ERROR TOLERANCE OF THE GPS SIGNAL.
THERE IS AN ANIMATED BLUE DOT INSIDE THE CYLINDRICAL BEAM WHICH REPRESENTS THE
HOMER(TM) CAM COMPASS BEING USED INSIDE THE GPS ERROR TOLERANCE. THE BEAM AND
THE BLUE DOT ARE SUPERIMPOSED ON AN ARTIST'S RENDITION OF A LANDSCAPE.]
The largest component of GPS distortion is Selective Availability (SA). It
is controlled by the Department of Defense and is a currently activated,
intentional system-wide degradation of stand-alone GPS accuracy from
approximately 25 meters to approximately 100 meters. SA may be implemented by
the Department of Defense in order to deny hostile forces the highly accurate
position, time and velocity information supplied by GPS. Other factors known to
perturb the utility of a GPS receiver are canopy effects from buildings,
overpasses, underpasses or mountains; absorption effects from electrolytes
present in trees or shrubs; and the type of antenna used for the receiver.
Available hand-held GPS units have a limited battery life due to fairly high
power consumption during the intensive numerical processing which is required to
determine an absolute latitude and longitude position from received GPS signals.
It is important to note that the difference between GPS technology and
compass technology is that GPS determines a location or point on the Earth's
surface, and a compass provides a bearing between two points. In this regard,
the objective of the Homer(TM) CAM Compass is to expand the benefits of GPS
technology by determining bearings within the GPS error tolerance either
independently or in conjunction with GPS signals. Therefore, the Company
believes that its Homer(TM) CAM Compass will provide a unique and new design of
digital compasses in the consumer navigation market.
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Since the Homer(TM) CAM Compass will be an analog compass fitted for a
digital response, it will be less susceptible than a fluxgate compass to
magnetic and electric field interferences. Further, the Company currently
expects that its Homer(TM) CAM Compass, will incorporate more navigation
features than other competitive compass products. Overall, the Company
anticipates that the Homer(TM) family of patented compass devices will be:
- Waterproof and submersible
- Impact resistant
- Lightweight
- Capable of being hand-held
- Pocketsized
and they will feature:
- Automatic stopwatch
- Continuous real-time clock
- Digital display
- Reporting of estimated bearing errors
- Sight to assist in taking bearings
- Memory to store multiple bearings
- Solar panel to maintain batteries
- Lanyard for neck wear
In the long term, the Company plans to develop a variety of navigation
products using the basic Homer(TM) CAM Compass design and methodology. These
products are expected to include the following:
HOMER(TM) GOLFER. According to Lanier Golf Guide Online, there are over 28
million golfers, with a million or more joining the ranks annually. The
Homer(TM) Golfer will be used for measuring paths traveled by golfers. The
Homer(TM) Golfer will be designed to calculate distance traveled from a golf tee
to a stopping point near a golf ball, even when the path traveled is not a
straight line. When the distance and bearing from a golf tee to a pin is known
and the distance to a golf ball's stopping point determined, the distance from a
tee to a golf ball and distance from a golf ball to a pin can be easily
determined. [NOTE: INTERNET READERS OF THIS PROSPECTUS USING A WORLD WIDE WEB
BROWSER MAY CLICK ON THE ITALICIZED, BOLDFACE PHRASE "Homer(TM) Golfer." THIS IS
A HYPERLINK TO AN ARTIST'S RENDITION OF THE HOMER(TM) GOLFER. THERE IS ALSO AN
ARTIST'S RENDITION OF PROPOSED USES OF THE HOMER(TM) GOLFER ON A PUSH CART AND
ON A POWERED CART. THERE IS ALSO AN ARTIST'S RENDITION OF THE HOMER(TM) GOLFER
PLANNED DISPLAY ELEMENTS WITH CORRESPONDING EXPLANATIONS OF EACH ELEMENT OF THE
DISPLAY WHICH IS AN ANIMATION/LIVE VIDEO OF A GOLFER USING THE PLANNED HOMER(TM)
GOLFER WHICH IS MOUNTED TO A WHEELED GOLF CADDIE PUSH CART.].
HOMER(TM) ANGLER. Recreational boating, fishing and sailing are seen as
distinct market opportunities for the Company. According to the National Marine
Manufacturers Association, there are 16.5 million recreational boats owned in
the U.S., including 2.4 million canoes. The Homer(TM) Angler will be a recording
compass with a graphic display which will provide a record of bearings relative
to either a time or distance parameter. Time of travel along a path can be
measured by an internal clock which is started by the user at launch. The goal
of the Homer(TM) Angler will be to provide navigation assistance over short
distances traveled by boaters on lakes, bayous and rivers. The Company believes
most boaters recognize that the bearing taken by a compass does not represent
the actual direction of travel of a waterborne vehicle. The intent of the
Homer(TM) Angler is to provide a magnetic course traveled which will assist the
user in returning to a launch point or to another arbitrary point which has been
previously visited. [NOTE: INTERNET READERS OF THIS PROSPECTUS USING A WORLD
WIDE WEB BROWSER MAY CLICK ON THE ITALICIZED, BOLDFACE WORDING "Homer(TM)
Angler". THIS IS A HYPERLINK TO A GRAPHIC WHICH IS AN ANIMATION OF A BOATER
USING THE HOMER(TM) ANGLER TO RECORD REAL-TIME BEARINGS AND THE SUPER-POSITION
OF RECORDED BEARINGS ON AN ILLUSTRATION OF A LAKE.]
HOMER(TM) ASSISTANT. The Homer(TM) Assistant will be designed to assist
the blind or visually impaired with establishing and retracing a path.
Positional information is to be audible and reported to the user at intervals or
on demand. The ability for the blind to establish and retrace a specific path
will provide the user with greater mobility and freedom. [NOTE: INTERNET READERS
OF THIS PROSPECTUS USING A WORLD WIDE WEB BROWSER MAY
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CLICK ON THE ITALICIZED, BOLDFACE WORDING "Homer(TM) Assistant". THIS IS A
HYPERLINK TO AN ARTIST'S RENDITION OF A BLIND PERSON STANDING AT THE CORNER OF A
CITY STREET. THE BLIND PERSON IS WEARING AN EARPHONE. THE EARPHONE IS ATTACHED
TO THE HOMER(TM) ASSISTANT WHICH THE BLIND PERSON IS WEARING ON HIS/HER BELT.
THE HOMER(TM) ASSISTANT IS DIRECTING THE BLIND PERSON TO "TURN LEFT HERE."].
HOMER(TM) AUTO. The Company believes that land vehicle navigation is an
important future market. Currently, there are several GPS-based vehicle
navigation systems on the market. These devices incorporate dead reckoning
methods when the GPS signal is unavailable. The Company believes that a very low
cost, real-time dead reckoning sensor can be developed from the Company's
patented technology and that it can be integrated with existing active
automobile navigation techniques such as GPS and the U.S. Department of
Transportation's planned "smart" highway systems. The planned Homer(TM) Auto
navigation system will accommodate cumulative dead reckoning errors with
proprietary software which forces the currently determined position to "fit" on
a numerical map of the area being traveled. [NOTE: INTERNET READERS OF THIS
PROSPECTUS USING A WORLD WIDE WEB BROWSER MAY CLICK ON THE ITALICIZED, BOLDFACE
WORDING "Homer(TM) Auto." THIS IS A HYPERLINK TO AN ANIMATION SHOWING AN
AUTOMOBILE DRIVING THROUGH A CITY. SUPERIMPOSED UPON THIS IS AN ARTIST'S
RENDITION OF THE PROPOSED HOMER(TM) AUTO WHICH HAS A MOVING RED DOT ON THE
DISPLAY. THE MOVING RED DOT REPRESENTS THE MOVEMENT OF THE AUTOMOBILE. A MAP AND
THE PHRASE "TURN RIGHT" IS ALSO SHOWN ON THE DISPLAY.]
HOMER(TM) ROBOT SENSOR. The Homer(TM) Robot Sensor will be designed to
provide the basis for a precise passive guidance system for mobile and
industrial robots. An application for such a system would be the creation of a
military sacrificial robot on a servo-platform which would follow a path through
a mine field and send orientation information back to a portable home station.
When a safe path is successfully defined through a mine field, troops can follow
the path with their own Homer(TM) device. [NOTE: INTERNET READERS OF THIS
PROSPECTUS USING A WORLD WIDE WEB BROWSER MAY CLICK ON THE ITALICIZED, BOLDFACE
WORDING "Homer(TM) Robot Sensor." THIS IS A HYPERLINK TO AN ARTIST'S ANIMATION
SHOWING A PROPOSED WHEELED ROBOTIC PLATFORM MANEUVERING THROUGH A MINE FIELD AND
TRANSMITTING THE PATH TRAVELED TO A STATIONARY PERSONAL DIGITAL ASSISTANT.]
PRODUCTS FOR THE ORIENTATION MARKET
The Company plans to introduce a line of shaft encoders and a number of
products based on the Company's patented shaft encoder technology. A shaft
encoder is a device which determines the angle of rotation of a shaft. Measuring
the angle of rotation from a starting point to a stopping point provides the
rotational position of a shaft relative to the starting point.
The Company's shaft encoder technology is the subject of two U.S. Patents
Pending. The shaft encoder patents pending show configurations for attachment to
an existing shaft or constructed as a gimbal. The absolute resolution of the
shaft encoders is a function of the type of detector employed in the device.
The Company believes that its shaft encoder technology will find
applications in a variety of areas including the following:
MEASURING PITCH, YAW AND ROLL. [NOTE: INTERNET READERS OF THIS
PROSPECTUS USING A WORLD WIDE WEB BROWSER MAY CLICK ON THE BOLDFACE WORDING
"MEASURING PITCH, YAW AND ROLL." THIS IS A HYPERLINK TO A GRAPHIC WHICH IS
AN ANIMATION OF AN AIRPLANE PITCHING, YAWING, AND ROLLING. AT THE BOTTOM OF
THE ANIMATION THE PITCH, YAW AND ROLL ANGLES ARE DISPLAYED NUMERICALLY,
CORRESPONDING TO THE CURRENT PITCH, YAW AND ROLL ANGLES DISPLAYED IN THE
ANIMATION. THE ANGLES CHANGE AS THE ANIMATION PROCEEDS AND THE AIRPLANE
MOVES. THE AIRPLANE IS SUPERIMPOSED ON A CARTESIAN COORDINATE WHICH
ILLUSTRATES THE THREE DIMENSIONAL X-Y-Z DEGREES OF FREEDOM. MOTION IN THE
X-Y PLANE IS YAW, MOTION IN THE X-Z PLANE IS PITCH AND MOTION IN THE Y-Z
PLANE IS ROLL. THE PITCH, YAW AND ROLL DISPLAY IS COLOR CODED TO CORRESPOND
TO THE COLORS USED TO ILLUSTRATE THE THREE PLANES IN THE COORDINATE SYSTEM
ILLUSTRATED.]
ENGINE TIMING SENSORS. [NOTE: INTERNET READERS OF THIS PROSPECTUS
USING A WORLD WIDE WEB BROWSER MAY CLICK ON THE BOLDFACE WORDING "ENGINE
TIMING SENSORS." THIS IS A HYPERLINK TO A GRAPHIC WHICH IS AN ANIMATION OF
A PISTON ENGINE SHOWING ITS PISTONS MOVING UP AND DOWN.]
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MEDICAL. [NOTE: INTERNET READERS OF THIS PROSPECTUS USING A WORLD WIDE
WEB BROWSER MAY CLICK ON THE BOLDFACE WORD "MEDICAL." THIS IS A HYPERLINK
TO AN ANIMATION OF A METERING PUMP DELIVERING PRECISELY MEASURED VOLUMES OF
A FLUID. AT THE BOTTOM OF THE ANIMATION IS A DISPLAY WHICH INDICATES THE
VOLUME OF FLUID DISPENSED. THE VOLUME DISPLAY CHANGES AS THE ANIMATION
PROCEEDS.]
MILITARY. [NOTE: INTERNET READERS OF THIS PROSPECTUS USING A WORLD
WIDE WEB BROWSER MAY CLICK ON THE BOLDFACE WORD "MILITARY." THIS IS A
HYPERLINK TO AN ARTIST'S ANIMATION SHOWING A WEAPONS PLATFORM MOUNTED TO A
MILITARY VEHICLE. THE WEAPONS PLATFORM IS ROTATING AND TILTING UP AND
DOWN.]
MANUFACTURING
The Company's manufacturing operations are expected to consist primarily of
assembly, integration and final testing of parts and subassemblies supplied by
third party suppliers. For the foreseeable future, actual manufacturing of the
Company's products and devices is expected to be performed by third party
contract manufacturers. This will enable the Company to focus on its innovation
and design strengths, minimize fixed costs and capital expenditures, and take
advantage of diverse manufacturing technologies without bearing the full risk of
obsolescence.
The Company may decide to obtain certain components and subassemblies from
a single source or a limited group of suppliers and subcontractors in order to
assure overall quality and timeliness of delivery. The Company's reliance on
such suppliers could involve several risks, including a potential inability to
obtain adequate supplies of certain components and reduced control over pricing
and timely delivery of components. There can be no assurance that supplies will
be available on an acceptable basis. Inability to obtain adequate supplies of
components or to manufacture such components internally could delay the
Company's ability to ship its products, which could result in the loss of
customers who may seek alternatives to the Company's proposed products.
COMPETITION
The Company expects to encounter significant competition in its markets and
expects such competition to intensify as acceptance and awareness of its PVT(TM)
methodology increase. Within each of these markets, the Company expects to
encounter direct competition from various larger domestic and international
competitors, as well as new market entrants. The success of the Company's
PVT(TM)-based systems against competing technologies will depend in part upon
whether PVT(TM) systems can offer significant improvements in productivity,
accuracy and reliability in a cost-effective manner.
The principal competitive factors in the markets which the Company
addresses include ease of use, physical characteristics, product features,
product reliability, price, vendor reputation and financial resources. The
Company believes that its products will compete favorably with other products on
most of the foregoing factors, although absolutely no assurance to this effect
can be given.
Principal competitors of the Company will be current and future
manufacturers of sophisticated compasses. Among these are Precision Navigation,
Inc. (manufacturer of the WayFinder Numeric compass) and Autohelm (manufacturer
of the Autohelm Personal Compass), who utilize fluxgate technology in their
compasses, and Silva US Marine Inc. (manufacturer of the Silva 70 UN compass)
and KVH Industries, Inc. (manufacturer of the DataScope and Easy Nav compasses),
who manufacture mostly non-digital magnetic compasses.
The Company believes that its ability to compete successfully against its
competitors will depend largely on its ability to provide systems and products
with significantly differentiated features compared to currently available
products. There can be no assurances that the Company will be able to implement
this strategy successfully, or that the Company's competitors, many of whom have
substantially greater resources than the Company, will not apply those resources
to compete successfully against the Company on the basis of systems and product
features. The Company also believes that in certain markets its success will
depend on its ability to form and maintain strategic alliances with established
product providers and industry leaders. The Company's failure to form and
maintain such alliances, or the preemption of such alliances by the actions of
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the Company's competitors, will adversely affect the Company's ability to
penetrate emerging markets for its products.
RESEARCH AND DEVELOPMENT
To date, the Company has retained consultants, scientists and engineers at
its Carlsbad, California facility to perfect a laboratory working model of the
electro-optical sensor required for both its Homer(TM) CAM Compass and its shaft
encoder sensor device.
The Company believes that its first planned product, the Homer(TM) CAM
Compass, will require additional development efforts before it is ready for
consumer sales. These additional development efforts include the refinement of
battery power required, programming the electronics for various applications,
and improvement in the display viewed by the user. No assurance can be given
that the Company will succeed in these additional development efforts.
In the future, continued and timely development of new products, and
enhancements to existing products, will be necessary for the Company to maintain
its competitive position. Accordingly, the Company expects to devote a
significant portion of its resources in the future to sustaining and upgrading
its PVT(TM)-based products and devices. The objectives will be to improve
serviceability or add new capabilities and features; to decrease the cost of
owning and operating such products; and to develop new products with improved
capabilities. The Company anticipates that from time to time, it may enter into
joint development efforts with other organizations.
MARKETING
The Company's marketing activities to date have involved identification of
specific market segments for its PVT(TM)-based products currently under
development; and the development of sales and marketing literature.
The Company expects that it will use a portion of the proceeds from this
offering to continue market research of other areas of product application and
to commence public relations and name recognition campaigns, including
participation in industry trade shows.
Once development of the Homer(TM) CAM Compass is complete, the Company
expects to use some of the proceeds of this offering to build a product
distribution network. Any distribution network established by the Company is
initially expected to be conducted through third party distribution channels
such as independent regional resellers and/or original equipment manufacturers
(OEMs) and/or through a direct sales force that will target major reseller
accounts. Additionally, the Company may seek to enter into contractual
arrangements such as licensing or similar collaborative agreements with other
companies having pre-established marketing and distribution networks.
The Company believes that its success in marketing its products will be
substantially dependent on educating its targeted markets as to the distinctive
characteristics, benefits and perceived value of the Company's products. There
can be no assurance that the Company's marketing efforts or the marketing
efforts of others entering into collaborative agreements with the Company will
be successful; that any of the Company's proposed products will be favorably
accepted among the target markets; or that the Company's products will ever
achieve the level of sales necessary for the Company to operate profitably.
EMPLOYEES
As of the date of this Prospectus, the Company had no employees other than
its executive officers and Mr. W. Stan Lewis, the Company's Chief Scientist,
whom the Company does not deem to be an executive officer. However, the Company
expects to begin hiring additional employees at the completion of this offering.
It is anticipated that employees will be hired in the areas of sales and
marketing, research and development, quality assurance and administration.
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CONSULTANTS
GENERAL
The Company has formed a team of consultants with which it may consult on
various matters relating to the business of the Company. Consultants may not be
officers or directors of the Company although they may be shareholders. The
establishment of a consulting team is not intended to be a delegation by the
Company's officers and directors of their power of management and control of the
Company, as management and control of the Company shall at all times be retained
by the Company's officers and directors. As of the date of this Prospectus, the
following persons have agreed to provide consulting services to the Company
[NOTE: INTERNET READERS OF THIS PROSPECTUS USING A WORLD WIDE WEB BROWSER MAY
CLICK ON THE BOLDFACE NAMES OF EACH OF THE FOLLOWING LISTED CONSULTANTS. THE
BOLDFACE NAMES ARE HYPERLINKS TO THE PHOTOGRAPHS OF THE PERSONS NAMED.]:
PAUL WOLLAM is an electrical engineer, who is collaborating with the
Company in the design of electronic circuits and the integration of electronic
and mechanical subassemblies for the Company's electro-optical sensors. He has
30 years' experience as a electronic systems and design engineer. He has been
employed by or consulted with General Dynamics Space Systems Division, NASA's
Jet Propulsion Laboratory, Cubic Defense Systems, Hughes Aircraft, TRW Systems
Group, TACAN, Inc., and other well known space and defense organizations. His
many achievements include design elements of solid state electro-optical sensors
for the Galileo and Mariner space probes; fiber optic steering systems for
ships; underwater camera electronic systems; laser communication systems;
digital voice data systems; and very high frequency satellite communications and
control systems. Mr. Wollam has a BS degree in Engineering and an MS degree in
Communication Engineering from Loyola Marymount University.
GEORGE FRANCO is a mechanical engineer and proprietor of Franco Industries.
Franco Industries is an engineering design and drafting firm which performs high
tech fabrication of precision specialty parts, the construction of prototypes;
and jig/fixture fabrication. Franco Industries has assisted the Company in the
design and fabrication of the mechanical subassembly for laboratory models and
prototypes of the Homer(TM) CAM Compass and will assist in the selection of
manufacturing sub-contractors and facilities. Mr. Franco is also currently
employed as a mechanical engineer for the Department of Defense in the Contracts
Management Division Engineering Group. He was Senior Mechanical Design Engineer
for General Dynamics on the Cruise Missile program. He was also employed by
Teledyne Ryan for design of the Firebrand Target Drone, and he was Senior
Aerospace Engineer for the Naval Air Rework Facility in San Diego where he was
responsible for engineering technical support for Naval Aircraft. Mr. Franco has
a BS degree in Mechanical Engineering from California State Polytechnic
University, Pomona.
GEORGE E. POWELL is a manufacturing consultant, and is President of Omega
Business Services, Inc., a consulting firm specializing in the design of
manufacturing processes. Prior to his affiliation with Omega Business Services,
Inc., Mr. Powell was President of MVP Hydratech, Inc., a manufacturer of special
application hydraulic cylinders. Mr. Powell was also employed by Ingersoll
Rand's Air Compressor Division, where he had turnkey responsibility for the
manufacturing systems design and plant construction of a newly designed air
compressor line. Mr. Powell has a BS degree in Aerospace Engineering from
Virginia Polytechnic Institute and an MBA from New York University.
JOHN HARRISON is a marketing consultant and manufacturers' representative.
Mr. Harrison will assist the Company in the identification of manufacturers,
component suppliers, technical support firms, personnel and marketing. He has a
BS degree in Chemistry from California State University at Los Angeles.
NANCY E. DAY is a certified Professional of Human Resources. Ms. Day will
provide human resources consulting advice to the Company in connection with the
preparation and implementation of the Company's expanding organizational plan.
Ms. Day's expertise covers both Human Resource management and organizational
development. Ms. Day is currently a Human Resources Consultant employed by the
Aetna Health Plans division of Aetna Life & Casualty. Ms. Day holds a BA degree
from Queens College, Charlotte, North Carolina, and a MA degree in Organization
Development and Human Resources from the University of San Francisco.
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<PAGE> 38
MARK BURGESS is President of Link sandiego.com, an Internet service
provider specializing in the design of business web sites. Previously he was
President of Knowledge Works, Inc., a software development company specializing
in business productivity applications. He is a Contributing Editor to Internet
Advisor and Database Advisor magazines and has written "Using Clarion
Professional Developer" and "Advanced Visual Basic" for Addison-Wesley. Mr.
Burgess earned a BA degree from the University of Arizona and an MBA from the
University of San Diego. He is also certified as a Project Management
Professional by the Project Management Institute.
CHESTER GOINS is a software consultant and proprietor of Goins &
Associates, a systems consulting group, which he founded in 1985. He will
consult with the Company in software development and hardware integration for
the Company's navigation and orientation products. Mr. Goins has been engaged in
computer systems, engineering and mathematical software development since 1967.
He has worked with International Business Machines (IBM) as a Systems Engineer
and was a member of the general faculty of the Georgia Institute of Technology.
Mr. Goins has extensive experience in on-chip ASIC programming; in expert
systems and artificial intelligence design for autonomous devices; in real-time
operating systems for mechanical and process control; in real-time coordination
of both synchronous and asynchronous events; and in real-time multi-computer
coordination. He has a BS degree in Mathematics and Chemistry and an MS degree
in Computer and Information Sciences from the Georgia Institute of Technology.
HOWARD J. PEARLSTEIN is Vice President of Lee & Associates, a Los Angeles
based public relations firm. Mr. Pearlstein will serve the Company as a
consultant for public and media relations. He has been engaged in the public
relations business for both print and broadcast media for more than 25 years.
His accounts have included the Los Angeles Airport Hilton & Towers, Lederle
Laboratories, Interstate Bakeries (Webers Bread and Dolly Madison products) and
numerous other local and national accounts. He is a member of the Greater Los
Angeles Press Club, The Public Relations Society of America, and numerous other
professional organizations. Mr. Pearlstein has a BA degree in Public Relations
from the School of Journalism of the University of Southern California.
TOM HAMILL is a mechanical engineer and a registered patent agent. He will
consult with the Company in retaining engineering assistance regarding its
patent matters and in tracking new technology and patents of interest to the
Company. Mr. Hamill has experience in the design of robot sentries and
electro-optical recognition systems for robot vision. He has a BS degree in
Mechanical Engineering from the University of Maryland.
COMPENSATION
It is anticipated by the Company that compensation for the services to be
rendered by consultants of the Company will be paid on an hourly basis, as
determined by the nature of the task. Consultants will be reimbursed for any
out-of-pocket expenses incurred on behalf of the Company. Consultants are
eligible to participate in the Company's 1996 Incentive Stock Option Plan. See
"Management -- Stock Option Plans."
FACILITIES
The Company's EXECUTIVE OFFICE is located at 5610 N. Palm Avenue, Fresno,
California 93704. The Company considers its current executive office facilities
adequate for the Company's planned level of operations. The Company also
maintains ENGINEERING AND DESIGN FACILITIES at 5205 Avenida Encinas, Suite C,
Carlsbad, California 92008; and a government affairs office at 2101 Crystal
Plaza Arcade, Suite #308, Arlington, Virginia 22202, telephone number (703)
931-1070. [NOTE: INTERNET READERS OF THIS PROSPECTUS USING A WORLD WIDE WEB
BROWSER MAY CLICK ON THE BOLDFACE WORDS "executive office" AND "Engineering and
Design facilities." THESE ARE HYPERLINKS TO PHOTOGRAPHS OF THE COMPANY'S
EXECUTIVE OFFICE IN FRESNO, CALIFORNIA AND ITS ENGINEERING AND DESIGN FACILITIES
IN CARLSBAD, CALIFORNIA.]
PATENTS AND PROPRIETARY RIGHTS
The Company's ability to compete effectively will depend, in part, on its
ability to maintain the proprietary nature of its technology. The Company
expects to rely on patents, trade secrets and know-how to
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<PAGE> 39
maintain its competitive position. To date, the Company owns five issued patents
and three patents pending in the United States. The five issued patents expire
at various times between 2012 and 2014.
The Company expects to rely on a variety of types of intellectual property
protection to protect its proprietary technology. This will include patent,
copyright, trademark and trade secret laws, non-disclosure agreements and other
intellectual property protection methods. Although the Company believes that its
patents and trademarks may have value, the Company believes that its future
success will also depend on the innovation, technical expertise and marketing
abilities of its personnel.
There can be no assurance that competitors will not be able to legitimately
ascertain proprietary information embedded in the Company's products which is
not covered by patent or copyright. In such case, the Company may be precluded
from preventing the competitor from making use of such information. In addition,
should the Company wish to assert its patent rights against a particular
competitor's product, there can be no assurance that any claim in a Company
patent will be sufficiently broad nor, if sufficiently broad, any assurance that
the Company patent will not be challenged, invalidated or circumvented, or that
the Company will have sufficient resources to prosecute its rights. The
Company's policy is to vigorously protect and defend its patents, trademarks and
trade secrets.
There are no pending lawsuits against the Company regarding infringement of
any existing patents or other intellectual property rights or any unresolved
claim where the Company has received notice that it is infringing intellectual
property rights of others. There can be no assurance, however, that such
infringement claims will not be asserted in the future nor can there be any
assurance, if such claims were made, that the Company would be able to defend
against such claims successfully or, if necessary, obtain licenses on reasonable
terms.
The Company's involvement in any patent dispute or other intellectual
property dispute or in any action to protect trade secrets and know-how, even if
successful, could have a material adverse effect on the Company and its
business. Adverse determinations in any such action could subject the Company to
significant liabilities, require the Company to seek licenses from third
parties, which might not be available, and possibly prevent the Company from
manufacturing and selling its products, any of which could have a material
adverse effect on the Company and its business.
LEGAL PROCEEDINGS
The Company is not a party to any litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages as of
the date of this Prospectus are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- --------------------------------------
<S> <C> <C>
Harold J. Gallagher 60 President, Chief Executive Officer and
Director
Gerald F. Norman 67 Secretary and Director
W. Stan Lewis(1) 49 Chief Scientist
Gerald R. Rodder 62 Chairman of the Board and Director
Stan Unruh 53 Chief Financial Officer
Sherry N. Stinehart 37 Director
William Lord 70 Director
</TABLE>
- ---------------
(1) Mr. Lewis is not an executive officer of the Company, but is listed above by
reason of his status as Chief Scientist of the Company.
NOTE: INTERNET READERS OF THIS PROSPECTUS USING A WORLD WIDE WEB BROWSER MAY
CLICK ON THE BOLDFACE NAMES OF EACH OF THE FOLLOWING LISTED OFFICERS AND
DIRECTORS. THE BOLDFACE NAMES ARE HYPERLINKS TO PHOTOGRAPHS OF THE PERSONS
NAMED.
HAROLD J. GALLAGHER has been President, Chief Executive Officer and a
director of the Company since June 15, 1996. Prior to joining the Company, Mr.
Gallagher was an independent business consultant specializing in financial and
operational management of manufacturing companies. From February 1991 to March
1993, Mr. Gallagher was President and Chief Executive Officer of Collaborative
Technologies Corporation, a software development company located in Austin,
Texas. Mr. Gallagher was also Founder, President and Chief Executive Officer of
Computer Logistics Corporation, a wholly-owned subsidiary of Western Union
Corporation's Teleprocessing Industries, Inc. Mr. Gallagher completed residency
and coursework for a Doctorate in Business at the University of Missouri. He
holds an MBA degree in Finance and Marketing and a BS degree in Electrical
Engineering from the University of Illinois at Champaign, and a BA degree in
Mathematics and Physics from St. Joseph's College in Indiana.
GERALD F. NORMAN has been the Company's Secretary and a director of the
Company since the Company's inception. Mr. Norman has also been the owner of
JNJN Associates, an investment firm located in Los Angeles, California since
1986. From 1970 to 1985, Mr. Norman was a founding partner of Financial
Management Group, a Los Angeles-based investment advisory firm. Mr. Norman holds
a BA degree and an MS degree from the University of California at Los Angeles.
Mr. Norman is the father of Ms. Sherry N. Stinehart, a director of the Company.
W. STAN LEWIS is the Company's Chief Scientist. Mr. Lewis' responsibilities
include product development, identifying, selecting and overseeing technical and
engineering consultants, and indicating future product development directions
for the Company. Mr. Lewis has been granted six U.S. patents, and prior to their
assignment to the Company, he had four U.S. patents and one foreign patent
pending, and four U.S. patents applied for. Four of Mr. Lewis' assigned patents
and all of his assigned patent applications constitute the core technical basis
for the Company's proposed navigation and orientation products. Since 1990, Mr.
Lewis has acted as a technical consultant to a variety of companies and
government agencies. He is a former member of the general faculty of the Georgia
Institute of Technology. Mr. Lewis is an author and co-author of 30 technical
publications. He has a BS degree in Chemistry from the University of Georgia and
has performed graduate studies in nuclear physics and chemistry at the Georgia
Institute of Technology.
GERALD R. RODDER has been Chairman of the Board and a director of the
Company since the Company's inception. Mr. Rodder is also President of Gerald R.
Rodder Investments, Inc., a venture capital investment firm located in Fresno,
California. Mr. Rodder's investments have been in a broad spectrum of
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<PAGE> 41
businesses including real estate, oil and gas, environmental purification
equipment, cash flow methodologies, and high technology equipment. Mr. Rodder
has been investing in start-ups, bridge financing and mature financing since
1972. Mr. Rodder holds a BS degree in Business from the University of California
at Berkeley.
STAN UNRUH has been Chief Financial Officer of the Company since its
inception. Mr. Unruh is also a director of Pacific Business Services, Inc., an
accounting services firm; and a director of Sports Pennants International, Inc.,
a sports pennant manufacturer and distributor. Mr. Unruh has held his positions
with Pacific Business Services, Inc., and Sports Pennants International, Inc.
since 1976 and 1980 respectively. Mr. Unruh holds a BA degree in accounting from
California Western University.
SHERRY N. STINEHART has been a director of the Company since June 15, 1996.
Since 1987, Ms. Stinehart has been a managing partner of Trey Partners, an
investment partnership located in Corona del Mar, California. From 1984 to 1987,
Ms. Stinehart was a marketing associate and Vice President of Pacific Century
Advisers, an investment management subsidiary of Security Pacific Corporation.
Ms. Stinehart holds a BA degree from Stanford University and received her
Certified Financial Planner certification from the College for Financial
Planning. Ms. Stinehart is the daughter of Mr. Gerald R. Norman, Secretary of
the Company and a director of the Company.
WILLIAM LORD has been a director of the Company since October 10, 1996. Mr.
Lord holds a Doctorate in Communications from the University of Illinois, and is
the Texas Commerce Bancshares Centennial Professor Emeritus in Business
Communications at the University of Texas at Austin. Mr. Lord is a former
Chairman in the University of Texas' Department of Management Science and
Information Systems, and he has also served as a member of the faculties of both
the University of Illinois (Champaign-Urbana) and the University of Texas
Executive Development Program. Mr. Lord has been the recipient of numerous
Excellence in Teaching Awards in his over 45 years of teaching in higher
education, and he has also served as a consultant to a large number of business
organizations such as Texas Commerce Bancshares, Inc., Data Resources, Inc. and
Franklin Life Insurance Company.
The Bylaws of the Company currently provide for six (6) directors. There is
currently one vacancy on the Board of Directors. All directors hold office until
the next annual meeting of stockholders and until their successors have been
duly elected and qualified. The Company's officers are appointed by the Board of
Directors and serve at the discretion of the Board of Directors. Mr. Gerald R.
Norman is the father of Ms. Sherry N. Stinehart. There are no other family
relationships among the directors and executive officers of the Company.
DIRECTOR COMPENSATION
Directors currently receive no cash fees for services provided in that
capacity, although directors may be reimbursed for certain expenses in
connection with attendance at Board of Directors and committee meetings. The
Board of Directors has adopted the 1996 Director's Stock Option Plan under which
current and future nonemployee directors will be eligible to receive stock
options in consideration for their services.
Under the 1996 Director's Stock Option Plan, each director who is not an
employee of the Company (an "Outside Director") will automatically receive an
option to purchase 1,000 shares of Common Stock upon joining the Board of
Directors. Thereafter, each Outside Director who has served on the Board of
Directors for at least six months shall receive an option to acquire 5,000
shares of Common Stock on January 1 of each year commencing January 1, 1997. See
"Stock Option Plans."
LIMITATION ON THE LIABILITY OF DIRECTORS
The Company's Articles of Incorporation provide that directors of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director. This provision, however,
does not eliminate a director's liability (a) for any breach of the director's
duty of loyalty to the Company or its stockholders; (b) for acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law; or
(c) in respect of certain unlawful dividend payments or stock redemptions or
repurchases. In addition, this provision does not limit directors' liability
under federal securities laws.
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The Company has also entered into indemnification agreements with its
directors and executive officers (the "Indemnification Agreements"). The
Indemnification Agreements provide that the directors and executive officers of
the Company will be indemnified to the fullest extent permitted by applicable
law against all expenses (including attorneys' fees), judgments, fines and
amounts reasonably paid or incurred by them for settlement in any threatened,
pending or completed action, suit or proceeding, including any derivative
action, on account of their services as a director or officer of the Company or
of any subsidiary of the Company or of any other company or enterprise in which
they are serving at the request of the Company. The Indemnification Agreements
further provide that no indemnification will be provided to any director or
executive officer on account of knowingly fraudulent, deliberately dishonest or
willful misconduct. To the extent the provisions of the Indemnification
Agreements exceed the indemnification permitted by applicable law, such
provisions may be unenforceable or may be limited to the extent they are found
by a court of competent jurisdiction to be contrary to public policy.
The foregoing is a brief summary of the provisions of the Indemnification
Agreements referred to above and does not purport to be a complete statement of
their terms and conditions. Copies of such agreements have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. See
"Available Information."
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<PAGE> 43
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The following summary compensation table sets forth the aggregate cash
compensation paid or accrued by the Company to each of the Company's executive
officers for services rendered to the Company during the Company's fiscal year
ended 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------------------
--------------------------------- SECURITIES ALL OTHER
BONUS OTHER ANNUAL UNDERLYING COMP.
NAME AND PRINCIPAL POSITION SALARY($) $ COMPENSATION OPTIONS(#) $
- -------------------------------------------- --------- ----- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Gerald R. Rodder............................ $ 0 0 0 0 0
Chairman of the Board
Gerald F. Norman............................ $ 0 0 0 0 0
Secretary
Stan Unruh.................................. $ 0 0 0 0 0
Chief Financial Officer
</TABLE>
The Company has entered into an employment agreement dated as of June 15,
1996 with Mr. Harold J. Gallagher, its President and Chief Executive Officer.
The employment agreement has a term of five years and provides that Mr.
Gallagher shall devote his full business efforts and time to the Company and
shall not engage in any other business or professional activity without the
prior approval of the Board of Directors. In exchange, Mr. Gallagher is entitled
to receive a base salary (initially $78,000 per year) and is eligible to receive
cash bonuses based on achievement of certain milestones and performance. If the
employment agreement is terminated by the Company other than for cause, the
Company will remain liable for the compensation and benefits provided in
accordance with the terms of the employment agreement. The employment agreement
contains a nondisclosure of confidential information provision and a three-year
nonsolicitation of employees and customers provision.
The Company has entered into an employment agreement dated as of April 1,
1996 with Mr. W. Stan Lewis, the Company's Chief Scientist. The employment
agreement has a term of three years and provides that Mr. Lewis shall devote his
entire time, attention and energies to the business of the Company during the
term of the employment agreement. In exchange, Mr. Lewis is entitled to receive
a base salary of $36,000 per annum, with such base salary being automatically
increased annually at the rate of seven percent (7%) per annum, and 33,076
shares of Common Stock as compensation for certain past services rendered to the
Company by Mr. Lewis. In addition, the employment agreement provides that Mr.
Lewis is entitled to receive employee benefits such as medical, dental and
optical insurance, term life insurance in a policy amount of $100,000, an
automobile allowance and two and one-half weeks of paid vacation per annum. The
employment agreement contains a nondisclosure of confidential information
provision, a covenant not to compete provision and a provision which requires
that Mr. Lewis shall sell, transfer and assign to the Company all of his entire
right, title and interest in and to all inventions, ideas and improvements which
relate to methods, apparatus, designs, products, processes or devices sold,
leased, used or under construction or development by the Company.
Other than the employment agreements with Mr. Gallagher and Mr. Lewis,
there are no other employment agreements between the Company and any of its
executive officers or employees. However, notwithstanding the foregoing, upon
consummation of the offering of the maximum number of Shares offered hereby, the
Company expects to provide Gerald R. Rodder, Chairman of the Board of the
Company, and Gerald F. Norman, Secretary of the Company, with annual base
compensation of $28,000 and $18,000, respectively. In addition, the Company
expects that Messrs. Rodder and Norman will be entitled to participate in
employee benefit plans or programs of the Company such as medical and dental
insurance and qualified pension and profit sharing plans.
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<PAGE> 44
STOCK OPTION PLANS
1996 Incentive Stock Option Plan. The Company's 1996 Incentive Stock
Option Plan (the "1996 Option Plan") was adopted by the Board of Directors in
February 1996. The 1996 Option Plan was approved by a majority of the
shareholders of the Company on May 31, 1996. A total of 750,000 shares of Common
Stock are reserved for issuance under the 1996 Option Plan. The 1996 Option Plan
provides for the granting to employees (including officers and employee
directors) of "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986 (the "Code"), and for the granting to employees
and consultants of nonstatutory stock options. The 1996 Option Plan may be
administered by the Board of Directors or a committee of the Board of Directors
(the "Administrator"), which committee shall satisfy the applicable requirements
of Section 16 of the Exchange Act and the Code. The Administrator determines the
terms of options granted under the 1996 Option Plan, including the number of
shares subject to the option, exercise price, term and the rate at which the
options become exercisable. The exercise price of all incentive stock options
granted under the 1996 Option Plan must be at least equal to the fair market
value of the Common Stock of the Company on the date of grant. The exercise
price of all nonstatutory stock options must equal at least 85% of the fair
market value of the Common Stock on the date of grant other than those granted
to certain executive officers of the Company which must have an exercise price
equal to 100% of the fair market value of the Common Stock on the date of grant.
The exercise price of any stock option granted to an optionee who owns stock
representing more than 10% of the voting power of all classes of stock of the
Company must equal at least 110% of the fair market value of the Common Stock on
the date of grant. The exercise price may be paid in such consideration as
determined by the Administrator, including cash and promissory notes. With
respect to any participant who owns stock representing more than 10% of the
voting power of all classes of stock of the Company, the term of the option is
limited to five years or less. The term of all other options may not exceed ten
years. If not terminated earlier, the 1996 Option Plan will terminate in 2006.
The Administrator has the authority to amend or terminate the 1996 Option Plan
as long as such action does not adversely affect any outstanding options. In the
event of a proposed sale of all or substantially all of the Company's assets, or
a merger of the Company with or into another corporation, each option will be
assumed or an equivalent option substituted by the successor corporation, unless
the Administrator determines, in the exercise of its sole discretion, that the
optionee will have the right to exercise the option as to some or all of the
shares of stock covered by the option, including shares as to which the option
would not otherwise be exercisable, in which case each option will be
exercisable for 30 days from the date of notice of such determination.
Pursuant to the 1996 Option Plan, the Board of Directors, on June 15, 1996,
granted to Mr. Harold J. Gallagher, the Company's President, a stock option to
purchase 265,000 shares of Common Stock. The stock option granted to Mr.
Gallagher has an exercise price of $.01 per share. The shares of Common Stock
subject to the stock option will vest in accordance with the following schedule:
(i) 20,000 of the shares subject to the stock option shall vest upon completion
of a working model of the Company's first product, (ii) 10,000 of the shares
subject to the stock option shall vest upon completion of a pre-production model
of the Company's first product, (iii) 10,000 of the shares subject to the stock
option shall vest upon the first product being manufactured/assembled in a form
capable of being marketed and sold to a consumer, (iv) 5,000 of the shares
subject to the stock option shall vest upon the first consumer sale of the
Company's first product; (v) 25,000 of the shares subject to the stock option
shall vest when cumulative net sales for the Company reach $100,000, (vi) 20,000
of the shares subject to the stock option shall vest when cumulative net sales
for the Company reach $1,000,000, (vii) 20,000 of the shares subject to the
stock option shall vest when net sales for the Company in a single calendar
month reach $100,000, (viii) 25,000 of the shares subject to the stock option
shall vest when net sales for the Company in a single fiscal year reach
$1,000,000, (ix) 30,000 of the shares subject to the stock option shall vest
when net sales for the Company in a single calendar month reach $1,000,000, (x)
25,000 of the shares subject to the stock option shall vest when the first
independent dealer or distributor for the Company's products is retained, (xi)
10,000 of the shares subject to the stock option shall vest when the Company's
products are placed in a major retail chain store, (xii) 10,000 of the shares
subject to the stock option shall vest when the first independent international
distributor for the Company's products is retained, (xiii) 10,000 of the shares
subject to the stock option shall vest when the Company enters into a license
agreement for the licensing of its technology to another party, (xiv) 15,000 of
the shares subject to the
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<PAGE> 45
stock option shall vest when the Company has its first profitable calendar month
and (xv) 30,000 of the shares subject to the stock option shall vest when the
Company has its first profitable fiscal year.
1996 Directors' Stock Option Plan. The 1996 Directors' Stock Option Plan
(the "Directors' Plan") was adopted by the Board of Directors in February 1996.
The Director's Plan was approved by a majority of the shareholders of the
Company on May 31, 1996. A total of 250,000 shares of Common Stock has been
reserved for issuance under the Directors' Plan. The Directors' Plan provides
for the grant of nonstatutory stock options to nonemployee directors of the
Company. The Directors' Plan is designed to work automatically without
administration; however, to the extent administration is necessary, it will be
performed by the Board of Directors. The Directors' Plan provides that each
person who is a nonemployee director of the Company upon joining the Board of
Directors, shall be granted a nonstatutory stock option to purchase 1,000 shares
of Common Stock (the "First Option"). Thereafter, on January 1 of each year,
commencing January 1, 1997, each nonemployee director shall be automatically
granted an additional option to purchase 5,000 shares of Common Stock (a
"Subsequent Option") if, on such date, he or she shall have served on the
Company's Board of Directors for at least six months. The Directors' Plan
provides that the First Option shall become exercisable in installments as to
25% of the total number of shares subject to the First Option on each
anniversary of the date of grant of the First Option; each Subsequent Option
shall become exercisable in full on the first anniversary of the date of grant
of that Subsequent Option. The exercise price of all stock options granted under
the Directors' Plan shall be equal to the fair market value of a share of the
Company's Common Stock on the date of grant of the option. Options granted under
the Directors' Plan have a term of ten years. In the event of the dissolution or
liquidation of the Company, a sale of all or substantially all of the assets of
the Company, the merger of the Company with or into another corporation in which
the Company is not the surviving corporation or any other capital reorganization
in which more than 50% of the shares of the Company entitled to vote are
exchanged, each nonemployee director shall have either (i) a reasonable time
within which to exercise the option, including any part of the option that would
not otherwise be exercisable, prior to the effectiveness of such dissolution,
liquidation, sale, merger or reorganization, at the end of which time the option
shall terminate or (ii) the right to exercise the option, including any part of
the option that would not otherwise be exercisable, or receive a substitute
option with comparable terms, as to an equivalent number of shares of stock of
the corporation succeeding the Company or acquiring its business by reason of
such dissolution, liquidation, sale, merger or reorganization. The Board of
Directors may amend or terminate the Directors' Plan; provided, however, that no
such action may adversely affect any outstanding option, and the provisions
regarding the grant of options under the plan may be amended only once in any
six-month period, other than to comport with changes in the Employee Retirement
Income Security Act of 1974, as amended or the Code. If not terminated earlier,
the Directors' Plan will have a term of ten years.
During the period in which the Registration Statement of which this
Prospectus is a part is effective, the total amount of shares of Common Stock
issuable pursuant to outstanding options of the Company granted under the 1996
Option Plan and the Directors' Plan shall not exceed 10% of the shares of Common
Stock to be outstanding upon completion of the offering of the Shares hereby.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was formed on July 10, 1995. On or about October 10, 1995, the
Company issued 4,950,000 shares of its Common Stock to 26 persons for an
aggregate cash purchase price of $1,100.00.
On January 31, 1996, the Company entered into an Exclusive License
Agreement with DRR (the "Exclusive License Agreement"), pursuant to which the
Company obtained from DRR the exclusive license to utilize all of DRR's
inventions, patent rights, copyrights and other intellectual property necessary
for developing and manufacturing high resolution electro-optical navigation and
orientation products which utilize proprietary methodology to analyze and
display position data in forms optimized for specific end-user applications (the
"Intellectual Property").
On June 6, 1996, in contemplation of a merger between the Company and DRR,
the Exclusive License Agreement was terminated by mutual agreement of the
Company and DRR. On June 7, 1996, DRR caused
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<PAGE> 46
the sale, assignment and transfer of all of its rights, title and interest in
the Intellectual Property to Mr. W. Stan Lewis, the original owner of the
Intellectual Property, and the Company's Chief Scientist.
On June 12, 1996, Mr. Lewis assigned all his rights, title and interests in
the Intellectual Property to the Company pursuant to the terms of an
Intellectual Property Assignment Agreement (the "IP Agreement") by and between
Mr. Lewis and the Company. In consideration of the assignment of the
Intellectual Property to the Company by Mr. Lewis, the Company has agreed to pay
Mr. Lewis a royalty of one percent (1%) of the gross sales of all units
manufactured by the Company through the use of the Intellectual Property;
provided, however, that in no event shall the unit royalty payable to Mr. Lewis
under the terms of the IP Agreement be less than $3,000 per month, nor shall the
unit royalty payable to Mr. Lewis under the IP Agreement exceed the sum of
$300,000 during any calendar annual period. In addition, should the Company
license or sell the patents comprising the Intellectual Property to another
person, then the Company shall be required to pay to Mr. Lewis three percent
(3%) of all consideration received by the Company as a result of the licensing
or sale of such patents. The IP Agreement shall terminate on the latter of 15
years after the date of the IP Agreement or the date of expiration of the last
to expire of any of the patents comprising the Intellectual Property.
On June 25, 1996, the Company acquired DRR through a merger of DRR with and
into the Company. In the merger, the shareholders of DRR (consisting of Mr.
Gerald R. Rodder, Mr. Gerald F. Norman and Mr. W. Stan Lewis) received, for each
share of DRR common stock owned by them, .0002 shares of the Company's Common
Stock (an aggregate of 27 shares of the Company's Common Stock).
On June 15, 1996, the Company issued 115,000 shares of the Company's common
stock to Mr. Harold J. Gallagher, the Company's President, Chief Executive
Officer, and a director of the Company, for an aggregate consideration of
$1,150.00.
On June 1, 1996, pursuant to the terms of an employment agreement by and
between the Company and Mr. Lewis, the Company issued to Mr. Lewis 33,076 shares
of its Common Stock.
The Law Offices of John W. Martin, of which John W. Martin is the sole
proprietor, is presently retained and has been retained by the Company as its
outside general counsel since its inception. On June 1, 1996, the Company issued
150,000 shares of its Common Stock to Mr. Martin in consideration for certain
legal services rendered to the Company by the Law Offices of John W. Martin. See
"Legal Matters."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors and principal shareholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested directors of the Board of
Directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
44
<PAGE> 47
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus, regarding ownership of the Company's Common Stock (i) by each person
known by the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock, (ii) by each director of the Company, (iii) by certain
related stockholders, and (iv) by all executive officers and directors of the
Company as a group. All persons named have sole voting and investment power with
respect to such shares, subject to community property laws, and except as
otherwise noted.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
NUMBER OF ------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OR SHARES BEFORE AFTER
IDENTITY OF GROUP(1) OWNED OFFERING OFFERING(2)
-------------------------------------------- --------- -------- -----------
<S> <C> <C> <C>
Gerald R. Rodder(3)......................... 2,146,403 41% 31%
5416 N. Kavenagh
Fresno, CA 93711
Gerald F. Norman(4)......................... 504,651 10% 7%
900 N. Bundy Drive
Brentwood, CA 90049
Sherry N. Stinehart(5)...................... 1,641,752 31% 24%
307 Poinsettia
Corona Del Mar, CA 92625
Harold J. Gallagher......................... 115,000 2% 1.7%
10691 N. Lighthouse Drive
Fresno, CA 93720
John W. Martin.............................. 150,000 3% 2%
5777 West Century Boulevard
Suite 1540
Los Angeles, CA 90045
W. Stan Lewis............................... 83,085 1.5% 1%
709 Mar Vista Drive
Vista, CA 92083
All officers and directors as a group (8
persons).................................. 4,640,891 88% 67%
</TABLE>
- ---------------
(1) See table under "Management" for offices and directorships held by the
persons listed above.
(2) Assumes all Shares offered hereby are sold.
(3) Includes 1,429,268 shares held by the Rodder Family Trust, of which Mr.
Rodder is a trustee. Also includes 717,126 shares held by the Scott Eric
Rodder Trust, of which Mr. Rodder is a trustee.
(4) Includes 504,642 shares held by the G.F. & J.H. Norman 1974 Trust, of which
Mr. Norman is a trustee.
(5) Includes all 1,641,752 shares owned by Trey Partners, a California general
partnership comprised of Ms. Sherry N. Stinehart, a director of the Company,
Ms. Melissa Norman and Mr. Chris Norman, all of whom are the children of Mr.
Gerald F. Norman, Secretary and a director of the Company.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, no par value and 10,000,000 shares of Preferred Stock, no par
value. Giving effect to the sale of all of the shares of Common Stock offered
hereby, there will be outstanding 6,926,147 shares of Common Stock.
The following description is a summary and is qualified in its entirety by
the provisions of the Company's Articles of Incorporation and Bylaws, copies of
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
45
<PAGE> 48
COMMON STOCK
The holders of the issued and outstanding shares of Common Stock are
entitled to receive dividends when, as and if declared by the Company's Board of
Directors out of any funds lawfully available therefore. The Board of Directors
intends to retain future earnings to finance the development and expansion of
the Company's business and does not expect to declare any dividends in the
foreseeable future. The holders of the Common Stock have the right in the event
of liquidation to receive pro rata all assets remaining after payment of debts
and expenses. The Common Stock does not have any preemptive rights. The issued
and outstanding shares of Common Stock are fully paid and nonassessable.
Holders of shares of Common Stock are entitled to vote at all meetings of
such shareholders for the election of directors and for other purposes. Such
holders have one vote for each share of Common Stock held by them.
PREFERRED STOCK
The Company's Preferred Stock may be issued from time to time in one or
more series. The Company's Board of Directors is authorized to determine or
alter any or all of the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, and to fix,
alter or reduce (but not below the number then outstanding) the number of shares
comprising any such series and the designation thereof, or any of them, and to
provide for the rights and terms of redemption or conversion of the shares of
any such series.
TRANSFER AGENT
U.S. Stock Transfer Corporation, Glendale, California, has been appointed
the transfer agent of the Company's Common Stock and Preferred Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
5,593,468 shares of Common Stock if the minimum number of Shares offered hereby
are sold, and 6,926,138 shares of Common Stock if the maximum number of Shares
offered hereby are sold. All of the shares sold in this offering will be freely
tradeable without restrictions under the Securities Act, except for any shares
held by an "affiliate" of the Company, which will be subject to the resale
limitations of Rule 144 of the Securities Act.
All of the 5,259,468 shares of Common Stock currently outstanding are
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act, and may not be sold except in compliance with the registration
requirements of the Securities Act or an applicable exemption under the
Securities Act, including an exemption pursuant to Rule 144 thereunder.
In general, under Rule 144 as currently in effect, any affiliate of the
Company and any person (or persons whose sales are aggregated) who has
beneficially owned his or her restricted shares for at least two years, is
entitled to sell in the open market within any three-month period a number of
shares of Common Stock that does not exceed the greater of (i) 1% of the then
outstanding shares of the Company's common stock, or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain limitations on manner of
sale, notice requirements, and availability of current public information about
the Company. Non-affiliates of the Company who have held their restricted shares
for three years are entitled to sell their shares under Rule 144 without regard
to any of the above limitations, provided they have not been affiliates for the
three months preceding such sale.
In addition, Rule 144A as currently in effect, in general, permits
unlimited resales of certain restricted securities of any issuer provided that
the purchaser is an institution that owns and invests on a discretionary basis
at least $100 million in securities or is a registered broker-dealer that owns
and invests $10 million in securities. Rule 144A allows the existing
stockholders of the Company to sell their shares of Common Stock to such
institutions and registered broker-dealers without regard to any volume or other
restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A
to nonaffiliates do not lose their status as restricted securities.
46
<PAGE> 49
In addition to the foregoing restrictions on the resale of restricted
securities, certain of the Company's shareholders, including all of the
Company's officers and directors who are shareholders of the Company, have,
pursuant to the terms of an escrow agreement by and among such shareholders, the
Company and Union Bank of California (the "Promotional Share Escrow Agreement"),
placed into escrow with Union Bank of California an aggregate of 4,647,078
shares of Common Stock beneficially owned by such shareholders (such 4,647,078
shares of Common Stock are hereinafter referred to as the "Promotional Shares").
Pursuant to the terms of the Promotional Share Escrow Agreement, while the
Promotional Shares are held in escrow by Union Bank of California, none of the
holders of the Promotional Shares are entitled to any dividends paid on the
Promotional Shares, and all of the holders of the Promotional Shares have agreed
that in the event of dissolution, liquidation, merger, consolidation, sale of
assets, exchange, or any transaction or proceeding that results in the
distribution of the assets of the Company, they will waive all of their rights,
titles and interests and participation in the assets of the Company until the
holders of all non-Promotional Shares of Common Stock have been paid.
The Promotional Shares may only be released from escrow under the following
circumstances: (i) twenty-five percent (25%) of the Promotional Shares may be
released from escrow on the sixth, seventh, eighth and ninth anniversary dates
of this Prospectus; or (ii) one hundred percent (100%) of the Promotional Shares
may be released from escrow after the Company has had annual net earnings per
share equal to, or greater than, five percent (5%) of the offering price of the
Shares, according to generally accepted accounting principles ("GAAP"), after
taxes and excluding extraordinary items, for any two consecutive fiscal years
after the date of this Prospectus; or (iii) one hundred percent (100%) of the
Promotional Shares may be released from escrow after the Company's Common Stock
has traded in a reliable public market at a price of at least one hundred
seventy-five percent (175%) of the offering price of the Shares for at least 90
consecutive trading days after at least one year from the date of this
Prospectus.
Notwithstanding the foregoing, none of the Promotional Shares shall be
released from escrow without the prior written order or consent of the state
securities law administrators of the states of Alabama, Arkansas, California,
Idaho, Iowa, Indiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri,
Montana, Nebraska, Nevada, New Hampshire, New Mexico, Ohio, Oklahoma,
Pennsylvania, South Dakota, Tennessee, Texas, Washington and Wisconsin.
Prior to this offering, no public market for the Company's securities has
existed. Following this offering, no predictions can be made of the effect, if
any, of future public sales of restricted securities or the availability of
restricted securities for sale in the public market. Moreover, the Company
cannot predict the number of shares of Common Stock that may be sold in the
future pursuant to Rule 144 because such sales will depend on, among other
factors, the market price of the Common Stock and the individual circumstances
of the holders thereof. The availability for sale of substantial amounts of
Common Stock under Rule 144 could adversely affect prevailing market prices for
the Company's securities.
PLAN OF DISTRIBUTION
The Company is offering up to 1,666,670 Shares at a purchase price of $3.00
per share. The Shares will be sold on a "best efforts, all or none" basis with
respect to the first 334,000 Shares, and on a "best efforts" basis as to the
remaining 1,266,670 Shares. The minimum number of Shares offered hereby must be
sold, if any are to be sold, on or before July 7, 1997. The Company may allocate
among or reject any subscriptions, in whole or in part.
The Shares will be offered and sold by the Company's officers, directors
and employees without compensation. The officers, directors and employees of the
Company who are expected to offer and sell Shares on behalf of the Company are
Mr. Gerald R. Rodder, Mr. Gerald F. Norman, Mr. Harold J. Gallagher and Mr.
Scott E. Rodder. Neither the Company nor any of its officers, directors or
employees is registered as a broker or dealer under Section 15 of the Exchange
Act.
The Company has not retained an underwriter or any independent
broker-dealer to assist in offering the Shares. It is the intention of the
Company to offer and sell the Shares by contacting prospective investors
47
<PAGE> 50
through appropriate newspaper and magazine advertisements as well as through the
use of the Internet to electronically deliver copies of this Prospectus to
prospective investors.
Those subscribing to purchase Shares must complete a Stock Purchase
Agreement, a form of which is included as an appendix to this Prospectus.
Residents of Arkansas, California, Idaho, Iowa, Massachusetts, Missouri,
Nebraska, New Hampshire, New Mexico, North Dakota, Oregon, South Dakota,
Tennessee and Texas must also complete a Suitability Questionnaire, a form of
which is also attached as an appendix to this Prospectus. All funds received by
the Company with respect to the minimum number of Shares that may be sold will,
promptly following receipt by the Company, be deposited in an escrow account
with the Escrow Agent pursuant to the terms of an escrow agreement entered into
between the Company and the Escrow Agent (the "Escrow Agreement"). In the event
that the minimum number of Shares offered hereby is not sold within the
permitted time period, then all funds received by the Company will be promptly
refunded to the subscribers, in full, without interest or deduction therefrom.
The Company reserves the right to reject any subscription for Shares in its
entirety or to allocate Shares among prospective purchasers. If any subscription
is rejected, funds received by the Company for such subscription will be
returned to the applicable prospective purchaser without interest or deduction.
Certificates representing Shares purchased will be issued to purchasers
only if the proceeds from the sale of at least 334,000 shares are released from
escrow. Until the certificates are delivered to the purchasers thereof, such
purchasers, if any, will be deemed subscribers only, and not shareholders. The
funds in escrow will be held for the benefit of those subscribers until released
to the Company. All funds received by the Company after the minimum number of
Shares offered hereby is sold will not be placed in escrow, but placed directly
into the Company's operating account for immediate use by the Company.
Although it is the Company's intention to develop a public market for its
Common Stock by soliciting broker-dealers who are members of the NASD to make a
market in the Company's Common Stock, to date the Company has not entered into
any arrangements, commitments or understandings with any persons with respect to
the creation of a public market for its Common Stock.
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by the Law Offices of John W. Martin, Los Angeles,
California. John W. Martin, the sole proprietor of the Law Offices of John W.
Martin is the beneficial owner of 150,000 shares of Common Stock. See
"Management" and "Principal Stockholders".
EXPERTS
The Financial Statements of the Company for the period July 10, 1995 (date
of inception) to December 31, 1995 and for the period ended therein, have been
included in this Prospectus in reliance upon the report appearing elsewhere
herein, of Joel S. Baum, P.A., independent certified public accountant, and upon
the authority of said independent certified public accountant as an expert in
accounting and auditing.
The Financial Statements of DRR for the years ended December 31, 1994 and
1995 and for the periods ended therein, have been included in this Prospectus in
reliance upon the report appearing elsewhere herein, of Joel S. Baum, P.A.,
independent certified public accountant, and upon the authority of said
independent certified public accountant as an expert in accounting and auditing.
AVAILABLE INFORMATION
Directional Robotics, Inc., a California corporation (the "Company") has
filed with the Commission a Registration Statement on Form SB-2 (Registration
No. 33-2356-LA) under the Securities Act, for the registration of the securities
offered hereby. This Prospectus omits certain of the information contained in
the Registration Statement, and reference is hereby made to the Registration
Statement and exhibits and schedules thereto for further information with
respect to the Company and the securities to which this
48
<PAGE> 51
Prospectus relates. Statements made herein concerning the provisions of any
document are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference. Items of
information omitted from this Prospectus but contained in the Registration
Statement may be inspected without charge at the Public Reference Room of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, at
prescribed rates.
Upon consummation of the offering of the Shares, the Company will become
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith will file reports and other
information with the Commission. Such reports and other information can be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
New York Regional Office, 26 Federal Plaza, New York, New York 10007, and its
Chicago Regional Office, Everett McKinley Dirksen Building, 219 South Dearborn
Street, Room 1204, Chicago, Illinois 60604. Copies of such material can be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549, at prescribed rates. The Commission also maintains a site on the World
Wide Web that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
49
<PAGE> 52
DIRECTIONAL ROBOTICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DIRECTIONAL ROBOTICS, INC. FINANCIAL STATEMENTS
Independent Auditor's Report.......................................................... F-2
Balance Sheet as of December 31, 1995................................................. F-3
Statement of Operations for the period from July 10, 1995 (date of inception) to
December 31, 1995................................................................... F-4
Statement of Shareholders' Equity for the period from July 10, 1995 (date of
inception) to December 31, 1995..................................................... F-5
Statement of Cash Flows for the period from July 10, 1995 (date of inception) to
December 31, 1995................................................................... F-6
Notes to Financial Statements......................................................... F-7
Interim Financial Statements:
Interim Balance Sheet as of September 30, 1996...................................... F-8
Interim Statement of Operations for the nine-month period ended September 30, 1996
and cumulative totals for development stage operations from April 14, 1993 (date
of inception) to September 30, 1996 (unaudited).................................. F-9
Interim Statement of Shareholders' Equity for the nine-month period ended September
30, 1996 and cumulative totals for development stage operations from April 14,
1993 (date of inception) to September 30, 1996 (unaudited)....................... F-10
Interim Statement of Cash Flows for the nine-month period ended September 30, 1996
and cumulative totals for development stage operations from April 14, 1993 (date
of inception) to September 30, 1996 (unaudited).................................. F-11
Notes to Interim Financial Statements for the nine-month period ended September 30,
1996 (unaudited)................................................................. F-12
DIRECTIONAL ROBOTICS RESEARCH, INC. FINANCIAL STATEMENTS
Independent Auditor's Report.......................................................... F-16
Balance Sheets as of December 31, 1995 and 1994....................................... F-17
Statements of Operations for the two years ended December 31, 1995 and 1994 and
cumulative totals for development stage operations from April 14, 1993 (date of
inception) to December 31, 1995..................................................... F-18
Statements of Shareholders' Equity for the two years ended December 31, 1995 and 1994
and cumulative totals for development stage operations from April 14, 1993 (date of
inception) to December 31, 1995..................................................... F-19
Statements of Cash Flows for the two years ended December 31, 1995 and 1994 and
cumulative totals for development stage operations from April 14, 1993 (date of
inception) to December 31, 1995..................................................... F-20
Notes to Financial Statements......................................................... F-21
DIRECTIONAL ROBOTICS, INC. COMBINED FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheet as of December 31, 1995............................................... F-24
Statement of Operations for the year ended December 31, 1995........................ F-25
Notes to Combined Financial Statements.............................................. F-26
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Directional Robotics, Inc.
We have audited the accompanying balance sheet of Directional Robotics,
Inc. (a development stage company) as of December 31, 1995 and the related
statements of operations, stockholders' equity and cash flows from July 10, 1995
(date of inception) through December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
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 financial statements referred to above present fairly,
in all material respects, the financial condition of Directional Robotics, Inc.
(a development stage company), as of December 31, 1995 and the results of
operations, stockholders' equity and cash flows from July 10, 1995 (date of
inception) through December 31, 1995 in conformity with generally accepted
accounting principles.
JOEL S. BAUM, P.A.
January 12, 1996
Coral Springs, Florida
F-2
<PAGE> 54
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C>
ASSETS
Cash.............................................................................. $1,100
------
TOTAL ASSETS......................................................... $1,100
======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES......................................................................... $ -0-
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
authorized 10,000,000 shares,
no shares issued or outstanding................................................ -0-
Common stock, no par value;
authorized 50,000,000 shares,
issued and outstanding 4,950,000 shares........................................ 1,100
------
Total shareholders' equity................................................ 1,100
------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................ $1,100
======
</TABLE>
See Accompanying Auditor's Report and Notes.
F-3
<PAGE> 55
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
JULY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUES:
Sales............................................................................. $ -0-
OPERATING EXPENSES:
General and administrative expenses............................................... -0-
------
NET INCOME.......................................................................... $ -0-
======
</TABLE>
See Accompanying Auditor's Report and Notes.
F-4
<PAGE> 56
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
JULY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL (DEFICIT)
---------- ------- ------- -----------
<S> <C> <C> <C> <C>
Net proceeds from issuance of stock........... 4,950,000 $1,100 -0- -0-
Net income.................................... -0-
--------- ------ ---- ----
BALANCE AT DECEMBER 31, 1995.................... 4,950,000 $1,100 -0- -0-
========= ====== ==== ====
</TABLE>
See Accompanying Auditor's Report and Notes.
F-5
<PAGE> 57
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
JULY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995
-------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $ -0-
CASH FLOWS FROM INVESTING ACTIVITIES:
Issuance of common stock.......................................................... 1,100
------
NET INCREASE IN CASH................................................................ 1,100
CASH -- BEGINNING OF YEAR........................................................... -0-
------
CASH -- END OF YEAR................................................................. $ 1,100
======
</TABLE>
See Accompanying Auditor's Report and Notes.
F-6
<PAGE> 58
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 10, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
NOTE 1 -- ORGANIZATION AND OPERATIONS
Directional Robotics, Inc. (the "Company") was organized under the laws of
the State of California on July 10, 1995. The Company is developing high
resolution electro-optical navigation and orientation products which utilize
patented and proprietary methodology to analyze and display position data in
forms optimized for specific end-user applications.
The Company is in the development stage and requires substantial capital
for research, product development and market development activities. The Company
has not yet initiated marketing of a commercial product. The Company's proposed
products will require additional research and development and substantial
additional investment prior to commercialization. The future success of the
Company is dependent on its ability to obtain additional working capital to
develop, manufacture and market its products and ultimately, upon its ability to
attain future profitable operations. There can be no assurance that the Company
will be able to obtain necessary financing or regulatory approvals to be able to
successfully develop, manufacture and market its products, or attain successful
future operations.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company's policy is to prepare its financial statements using the
accrual basis of accounting in accordance with generally accepted accounting
principles.
NOTE 3 -- SUBSEQUENT EVENTS
On March 13, 1996, the Company filed a Registration Statement with the
Securities and Exchange Commission to publicly offer on a best efforts minimum
334,000 shares, maximum 1,666,670 shares, basis up to 1,666,670 shares of its
common stock at a price of $3.00 per share. Also, on June 25, 1996, the Company
merged with Directional Robotics Research, Inc., an affiliated Florida
corporation, with the Company being the surviving corporation. The merger will
be accounted for under the pooling of interest method as a reorganization of
entities under common control.
F-7
<PAGE> 59
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash........................................................................... $ 904
---------
PROPERTY, PLANT AND EQUIPMENT
(Net of $4,844 accumulated depreciation)....................................... 22,367
---------
OTHER ASSETS
Organization expense (net of $570 accumulated amortization).................... 533
Deferred offering costs........................................................ 55,353
---------
Total other assets........................................................ 55,886
TOTAL ASSETS........................................................... $ 79,157
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable................................................................... $ 2,000
---------
SHAREHOLDERS' EQUITY
Common stock, no par value, 50,000,000 shares authorized, 5,259,468 shares
issued and outstanding...................................................... 1,444,296
Preferred stock, no par value, 10,000,000 shares authorized, none issued and
outstanding................................................................ -0-
Accumulated deficit......................................................... (574,789)
Deferred compensation....................................................... (792,350)
---------
Total shareholders' equity................................................ 77,157
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 79,157
=========
</TABLE>
See Accompanying Notes to Interim Financial Statements.
F-8
<PAGE> 60
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OPERATIONS
FROM APRIL 14, 1993 (DATE OF INCEPTION) TO SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
DEVELOPMENT
STAGE
4/14/93 TO
1996 9/30/96
---------- -----------
<S> <C> <C>
REVENUES............................................................ $ -0- -0-
OPERATING EXPENSES
General and administrative expenses............................... 88,340 160,998
Research and development costs.................................... 139,619 413,466
--------- ---------
NET INCOME (LOSS) FROM OPERATIONS................................... (227,959) (574,464)
INTEREST EXPENSE.................................................... -0- 325
--------- ---------
NET LOSS............................................................ $ (227,959) (574,789)
========= =========
LOSS PER COMMON SHARE............................................... (.043) (.11)
========= =========
SHARES USED IN PER SHARE CALCULATION................................ 5,020,745 5,020,745
========= =========
</TABLE>
See Accompanying Notes to Interim Financial Statements
F-9
<PAGE> 61
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OPERATIONS
FROM APRIL 14, 1993 (DATE OF INCEPTION) TO SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK PREFERRED STOCK DURING
---------------------- --------------------- ACCUMULATED DEFERRED DEVELOPMENT
# SHARES AMOUNT # SHARES AMOUNT DEFICIT COMPENSATION STAGE
--------- ---------- ---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995......... 4,950,000 $ 1,100 10,000,000 $ -0- $ -0- $ -0- $ -0-
Shareholder
contribution......... -0- 287,446 -0- -0- -0- -0- -0-
Net proceeds from
issuance of common
stock................ 115,000 1,150 -0- -0- -0- -0- -0-
Common stock issued for
services............. 194,441 1,944 -0- -0- -0- -0- -0-
Deferred compensation
related to stock
options.............. -0- 792,350 -0- -0- -0- (792,350) -0-
Acquisition of
Directional Robotics
Research, Inc........ 27 360,305 -0- -0- -0- -0- -0-
Accumulated deficit of
Directional Robotics
Research, Inc........ -0- -0- -0- -0- (346,830) -0- -0-
Net loss for the nine
months ended
September 30, 1996... -0- -0- -0- -0- (227,959) -0- (574,789)
--------- ---------- ---------- -------- ---------
BALANCE AT SEPTEMBER 30,
1996.................... 5,259,468 $1,444,296 10,000,000 $ -0- $(574,789) $ (792,350) $(574,789)
========= ========== ========== ======== =========
</TABLE>
See Accompanying Notes to Interim Financial Statements
F-10
<PAGE> 62
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OPERATIONS
FROM APRIL 14, 1993 (DATE OF INCEPTION) TO SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
DEVELOPMENT
STAGE
4/14/93 TO
1996 9/30/96
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $(227,959) (574,789)
Adjustments to reconcile net loss to net cash used in operating
activities:
Issuance of common stock for services.......................... 1,944 1,944
Depreciation................................................... 3,782 4,660
Amortization................................................... 165 754
Changes in assets and liabilities
Increase in accounts payable................................... -- 8,575
(Increase) in organization costs............................... (699) (1,803)
(Increase) in deferred offering costs.......................... (55,352) (55,352)
--------- ---------
Net cash used in operating activities............................. (278,119) (616,011)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets....................................... (26,148) (40,392)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable......................................... 2,000 2,000
Issuance of common stock as a result of merger.................... 13,475 13,475
Contributed capital............................................... 287,446 640,547
Issuance of common stock.......................................... 1,150 1,285
--------- ---------
Net cash provided from financing activities....................... 304,071 657,307
NET INCREASE (DECREASE) IN CASH..................................... (196) 904
CASH -- BEGINNING................................................... 1,100 -0-
--------- ---------
CASH -- ENDING...................................................... $ 904 $ 904
========= =========
</TABLE>
See Accompanying Notes to Interim Financial Statements
F-11
<PAGE> 63
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
Directional Robotics, Inc. (the "Company") was organized under the laws of
the State of California on July 10, 1995. On June 25, 1996 the Company merged
with Directional Robotics Research, Inc., an affiliated Florida corporation
incorporated on April 14, 1993, with the Company being the surviving
corporation. The merger was accounted for under the pooling of interest method
as a combination of entities under common control. The Company is engaged in the
research and development of high resolution electro-optical navigation and
orientation products which utilize patented and proprietary methodology to
analyze specific end-user applications.
The Company is in the development stage and requires substantial capital
for research, product development and market development activities. The
Company's proposed products will require additional research and development and
substantial additional investment prior to commercialization. The future success
of the Company is dependent on its ability to obtain additional working capital
to develop, manufacture and market its products and ultimately, upon its ability
to attain future profitable operations. There can be no assurance that the
Company will be able to obtain necessary financing to be able to successfully
develop, manufacture and market its products, or attain successful future
operations.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included.
Fixed Assets
Fixed assets are stated at cost and depreciated over their estimated
allowable useful lives (5 to 10 years), using the straight-line method.
Expenditures for major renewals and betterments that extend the useful lives of
fixed assets are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
on Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, deferred assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective bases.
Deferred assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
F-12
<PAGE> 64
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
Research and Development Costs
Research and development costs are expensed in the period incurred. The
major portion of research and development costs relate to the development of
certain patents owned by the Company which protect the processes and products
being developed by the Company.
Deferred Offering Costs
Deferred offering costs include the costs associated with the proposed
initial public offering. The costs related to the initial public offering will
be capitalized and netted against the amount received from the public offering.
All deferred offering costs will be expensed in the event the offering is not
consummated.
Net Loss per Common Share
Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. For the
nine-month period ended September 30, 1996, the Company's common stock
equivalent's consist of all options granted at prices below the expected
offering price in the previous twelve months which are considered to be
outstanding for all periods presented.
NOTE 2 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Equipment.......................................................... $27,211
Less: Accumulated Depreciation................................... (4,844)
Net Fixed Assets................................................. $22,367
=======
</TABLE>
NOTE 3 -- COMMITMENTS
Operating Lease
The Company has assumed the lease obligation of a lease entered into by a
related party under a two year lease ending July, 1997. The lease calls for
monthly rent payments starting in July, 1995 of $625 per month through January
31, 1996 increasing to $640 for the duration of the lease term. The Company also
assumed the lease obligation of a lease entered into by a related party expiring
February, 1997 with monthly payments of $179. In addition to the foregoing, the
Company has entered into a two year lease for operation facilities calling for
monthly rental payments of $1,300 for 12 months and $1,340 for the remaining 12
months.
Rent expense amounted to $12,765 for the nine months ended September 30,
1996.
Future Minimum Lease Payments
Future minimum lease payments for operating leases at September 30, 1996
are:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------------------
<S> <C>
1996....................................... $12,714
1997....................................... 20,678
1998....................................... 8,040
-------
Total Minimum Payments..................... $41,432
=======
</TABLE>
F-13
<PAGE> 65
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 4 -- SUPPLEMENTAL CASH FLOW INFORMATION
During the nine-month period ended September 30, 1996 the Company issued
194,441 shares of its common stock to certain individuals for past services
rendered to the Company.
NOTE 5 -- DEFERRED INCOME TAXES
As discussed in Note 1, the Company applied the provision of SFAS No. 109.
The significant components of deferred income tax expense (benefit) for the
nine months ended September 30, 1996 are as follows:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Current Loss.............................. $(59,852)
Valuation Allowance....................... 59,852
--------
-0-
</TABLE>
The valuation allowance has been estimated at 100% due to the Company being
in the development stage.
NOTE 6 -- ACQUISITION
On June 25, 1996, the Company acquired Directional Robotics Research, Inc.,
an affiliated Florida corporation, in a merger transaction classified as a
reorganization under Internal Revenue Code Section 368(a)(1)(A). In the merger,
the Company was the surviving entity. The merger was accounted for as a
combination of entities under common control, and thus in a manner similar to a
pooling of interests.
NOTE 7 -- SHAREHOLDERS' EQUITY
Preferred Stock
Pursuant to the Company's Articles of Incorporation, the board of directors
of the Company is authorized to issue up to 10,000,000 shares of Preferred
Stock, no par value, in one or more series and to fix the rights, preferences,
privileges and restrictions, including the dividend rights, conversion rights,
voting rights, redemption price or prices, liquidation preferences, and the
number of shares constituting any series or the designations of such series,
without further vote or action by the stockholders.
Stock Option Plan
The Company has approved two stock option plans, a 1996 Incentive Stock
Option Plan (the "Incentive Stock Option Plan") and the 1996 Directors' Stock
Option Plan (the "Directors' Stock Option Plan). The Incentive Stock Option Plan
is available to all employees of the Company (including officers and employee
directors) and allows for the purchase of up to 750,000 shares of common stock.
The Directors' Stock Option Plan is available for all nonemployee directors of
the Company and allows for the purchase of up to 250,000 shares of common stock.
On June 15, 1996, the Company granted Mr. Harold J. Gallagher, the
Company's President and Chief Executive Officer, a stock option to purchase
265,000 shares of common stock. The shares of common stock subject to the stock
option will vest in accordance with a schedule which is primarily based upon the
Company's progress toward the creation and ultimate commercial sale of its
planned products. The stock
F-14
<PAGE> 66
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
option granted to Mr. Gallagher has an exercise price of $.01 per share. At the
time of the granting of the stock option, the fair market value of the Company's
common stock was $3.00 per share. As a result, the Company recorded deferred
compensation of $792,350, equal to the difference between the estimated fair
market value of the common stock at the date of the granting of the stock
option, and the option price of $.01 per share. The amount will be amortized in
accordance with the vesting schedule for the stock options. At September 30,
1996, none of the requirements of the vesting schedule were met in order to
recognize the deferred compensation as an expense.
NOTE 8 -- RELATED PARTY TRANSACTIONS
On June 12, 1996, Mr. W. Stan Lewis, the Company's Chief Scientist,
assigned all of his rights, titles and interests in certain inventions, patent
rights, copyrights and other intellectual property necessary for developing and
manufacturing high resolution electro-optical navigation and orientation
products (the "Intellectual Property") to the Company pursuant to the terms of
an Intellectual Property Agreement (the "IP Agreement") by and between Mr. Lewis
and the Company. In consideration of the assignment of the Intellectual Property
to the Company by Mr. Lewis, the Company agreed to pay Mr. Lewis a royalty of
one percent (1%) of the gross sales of all units manufactured by the Company
through the use of the Intellectual Property; provided, however, that in no
event shall the unit royalty payable to Mr. Lewis under the terms of the IP
Agreement be less than $3,000 per month, nor shall the unit royalty payable to
Mr. Lewis under the IP Agreement exceed the sum of $300,000 during any calendar
annual period. In addition, should the Company license or sell the patents, the
Company shall be required to pay Mr. Lewis three percent (3%) of all
consideration received. The IP Agreement shall terminate on the latter of 15
years after the date of the IP Agreement or the date of expiration of the last
to expire of any of the patents comprising the Intellectual Property.
F-15
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Directional Robotics Research, Inc.
We have audited the accompanying balance sheets of Directional Robotics
Research, Inc. (a development stage company) as of December 31, 1995 and 1994
and the related statements of operations, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Directional Robotics
Research, Inc. (a development stage company) as of December 31, 1995 and 1994,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
JOEL S. BAUM, P.A.
Coral Springs, Florida
June 22, 1996
F-16
<PAGE> 68
DIRECTIONAL ROBOTICS RESEARCH, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
CURRENT ASSETS
Cash................................................................ $ 758 $ 994
--------- --------
PROPERTY, PLANT AND EQUIPMENT (Net of $870 and $8 of accumulated
depreciation for 1995 and 1994, respectively) (Note 2).............. 13,182 886
OTHER ASSETS
Organizational costs (net of $405 and $184 accumulated amortization
for 1995 and 1994 respectively).................................. 699 920
--------- --------
TOTAL ASSETS................................................ $ 14,639 $ 2,800
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 4).............................................. $ -0- $ 14,250
Accounts payable.................................................... 8,575 6,174
--------- --------
Total liabilities........................................... 8,575 20,424
COMMITMENT (Note 3)
SHAREHOLDERS' EQUITY
Common stock, par value $.001;
7,500,000 shares authorized,
135,000 issued and outstanding................................... 135 135
Additional paid-in capital.......................................... 352,759 100,390
Accumulated deficit................................................. (346,830) (118,149)
--------- --------
Total shareholders' equity (deficit)............................. 6,064 (17,624)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 14,639 $ 2,800
========= ========
</TABLE>
See Accompanying Auditor's Report and Notes.
F-17
<PAGE> 69
DIRECTIONAL ROBOTICS RESEARCH, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OPERATIONS
FROM APRIL 14, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
DEVELOPMENT
STAGE
4/93-
1995 1994 12/31/95
--------- --------- -----------
<S> <C> <C> <C>
REVENUES.................................................. $ -0- $ -0- $ -0-
OPERATING EXPENSES
General and administrative expenses..................... 50,771 21,887 72,658
Research and development expenses....................... 177,910 95,937 273,847
-------- -------- ---------
NET LOSS DURING DEVELOPMENT STAGE......................... (228,681) (117,824) (346,505)
INTEREST EXPENSE.......................................... -0- 325 325
-------- -------- ---------
NET INCOME (LOSS)......................................... $(228,681) $(118,149) $(346,830)
======== ======== =========
LOSS PER COMMON SHARE (Note 1)............................ (1.70) (.875) (2.57)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................ 135,000 135,000 135,000
</TABLE>
See Accompanying Auditor's Report and Notes.
F-18
<PAGE> 70
DIRECTIONAL ROBOTICS RESEARCH, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND CUMULATIVE TOTALS FOR DEVELOPMENT STAGE ACCUMULATED LOSSES
FROM APRIL 14, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK DURING THE
---------------- PAID-IN ACCUMULATED DEVELOPMENT
SHARES AMOUNT CAPITAL (DEFICIT) STAGE
------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993............................ 135,000 $135 $100,390 $ -0- $ -0-
Net Loss................................... -0- -0- -0- (118,149) (118,149)
------- ---- -------- --------- ---------
BALANCE, DECEMBER 31, 1994................... 135,000 135 100,390 (118,149) (118,149)
Additional Contributed Capital............. -0- -0- 252,369 -0- -0-
Net Loss................................... -0- -0- -0- (228,681) (228,681)
------- ---- -------- --------- ---------
BALANCE, DECEMBER 31, 1995................... 135,000 $135 $352,759 $(346,830) $(346,830)
======= ==== ======== ========= =========
</TABLE>
See Accompanying Auditor's Report and Notes.
F-19
<PAGE> 71
DIRECTIONAL ROBOTICS RESEARCH, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND CUMULATIVE TOTALS FOR DEVELOPMENT STAGE OPERATIONS
FROM APRIL 14, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
DEVELOPMENT
STAGE
ENDED
1995 1994 12/31/95
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $(228,681) $(118,149) $(346,830)
Adjustments to reconcile net income to net cash used
for operating activities:
Depreciation....................................... 870 8 878
Amortization....................................... 405 184 589
--------- --------- ---------
Changes in assets and liabilities:
(Increase) in organizational costs................. -0- (1,104) (1,104)
Increase (decrease) in notes payable............... (14,250) 14,250 -0-
Increase in accounts payable....................... 2,401 6,174 8,575
--------- --------- ---------
Net cash used in operating activities................. (239,255) (98,637) (337,892)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets........................... (13,350) (894) (14,244)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.............................. -0- 135 135
Contributed capital................................... 252,369 100,390 352,759
--------- --------- ---------
Net cash provided by financing activities............. 252,369 100,525 352,894
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH......................... (236) 994 758
CASH -- BEGINNING....................................... 994 -0- -0-
--------- --------- ---------
CASH -- ENDING.......................................... $ 758 $ 994 $ 758
========= ========= =========
</TABLE>
See Accompanying Auditor's Report and Notes.
F-20
<PAGE> 72
DIRECTIONAL ROBOTICS RESEARCH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
Directional Robotics Research, Inc. (formerly I.R.T. Financial Services and
Directional Robotics, Inc.) was organized under the laws of the State of Florida
on April 14, 1993. The nature of the development stage activities in which the
Company is engaged includes research and development for development,
manufacture and sale of high resolution electro-optical navigation and
orientation products which utilize patented and proprietary methodology to
analyze and display position data in forms optimized for specific end-user
applications.
The Company is in the development stage and requires substantial capital
for research, product development and market development activities. The
Company's proposed products will require additional research and development and
substantial additional investment prior to commercialization. The future success
of the Company is dependent on its ability to obtain additional working capital
to develop, manufacture and market its products and ultimately, upon its ability
to attain future profitable operations. There can be no assurance that the
Company will be able to obtain necessary financing to be able to successfully
develop, manufacture and market its products, or attain successful future
operations.
Fixed Assets
Fixed Assets are stated at cost and depreciated over their estimated
allowable useful lives (5 to 10 years), using the straight-line method.
Expenditures for major renewals and betterments that extend the useful lives of
fixed assets are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
on Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, deferred assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
Deferred assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred assets and
liabilities of a change in tax rates is recognized in income in the period that
incudes the enactment date.
Earnings/Loss Per Share
Primary earnings per common share are computed by dividing the net income
(loss) by the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. The number of shares used for the year
ended December 31, 1995 was 135,000, the same number as for the year ended
December 31, 1994.
Research and Development Costs
Research and development costs are expensed in the period incurred. The
major portion of research and development costs relate to the development of
certain patents owned by the Company which protect the processes and products
being developed by the Company.
F-21
<PAGE> 73
DIRECTIONAL ROBOTICS RESEARCH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 2 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1995 1994
------- ----
<S> <C> <C>
Equipment.......................................... $14,244 $894
Less: Accumulated Depreciation..................... (1,062) (8)
------- ----
Net Fixed Asset.................................... $13,182 $886
======= ====
</TABLE>
NOTE 3 -- COMMITMENTS
Operating Lease
The Company has assumed the lease obligation of a lease entered into by a
related party under a two year lease ending July, 1997. The lease calls for
monthly rent payments starting in July, 1995 of $625 per month through January
31, 1996, increasing to $640 for the duration of the lease term. The Company
also assumed the lease obligation of a lease entered into by a related party
expiring February, 1997 with monthly payments of $179.
Rent expense amounted to $4,265 for the year ended December 31, 1995.
NOTE 4 -- NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Notes Payable
Various unsecured notes payable, due on demand,
non-interest bearing........................ $ -0- $14,250
</TABLE>
NOTE 5 -- SUBSEQUENT EVENT
On June 25, 1996, the Company merged with Directional Robotics, Inc., an
affiliated California Corporation ("DRI"), with DRI being the surviving
corporation. The merger was accounted for as a combination of entities under
common control, and thus in a manner similar to a pooling of interests. DRI is
engaged in the research and development of high resolution electro-optical
navigation and orientation products which utilize patented and proprietary
methodology to analyze and display position data in forms optimized for specific
end-user applications.
NOTE 6 -- RELATED PARTY TRANSACTIONS
During the year ended December 31, 1994, the Company had unsecured notes
payable to certain of its shareholders in the amount of $14,250. The notes did
not bear interest and were due on demand. The notes were paid in full by the
Company during the year ended December 31, 1995.
NOTE 7 -- SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Interest Paid.................................. $ -0- $ 326
</TABLE>
F-22
<PAGE> 74
DIRECTIONAL ROBOTICS RESEARCH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 8 -- DEFERRED INCOME TAXES
As discussed in Note 1, the Company has applied the provision of SFAS No.
109.
The significant components of deferred income tax expense (benefit) for the
year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current Losses................................. $(89,990) $(62,162)
Valuation Allowance............................ 89,990 62,162
-------- --------
$ -0- $ -0-
======== ========
</TABLE>
The valuation allowance has been estimated at 100% due to the Company being
in the development stage.
F-23
<PAGE> 75
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
COMBINED BALANCE SHEET (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------
DIRECTIONAL DIRECTIONAL ROBOTICS COMBINED
ROBOTICS, INC. RESEARCH, INC. REFLECTING MERGER
-------------- ---------------------- -----------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash.......................................... $1,100 $ 758 $ 1,858
------ ------- -------
PROPERTY, PLANT AND EQUIPMENT (Net of $1,062 of
accumulated depreciation)..................... -- 13,182 13,182
OTHER ASSETS
Organizational costs (net of $405 of
accumulated amortization).................. -- 699 699
------ ------- -------
TOTAL ASSETS.......................... $1,100 $ 14,639 $ 15,739
------ ------- -------
CURRENT LIABILITIES
Accounts payable.............................. -- $ 8,575 $ 8,575
------ ------- -------
TOTAL LIABILITIES............................... -- 8,575 8,575
------ ------- -------
SHAREHOLDERS' EQUITY
Common Stock, no par value, 50,000,000 shares
authorized, 4,950,027 shares issued and
outstanding................................... 1,100 352,894 353,994
------ ------- -------
Preferred stock, no par value, 10,000,000 shares
authorized, none issued and outstanding....... -- -- --
Accumulated deficit............................. -- (346,830) (346,830)
------ ------- -------
Total shareholder's equity............ 1,100 6,064 7,164
------ ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $1,100 $ 14,639 $ 15,739
====== ======= =======
</TABLE>
See Accompanying Notes to Combined Financial Statements
F-24
<PAGE> 76
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------
DIRECTIONAL DIRECTIONAL ROBOTICS COMBINED
ROBOTICS, INC. RESEARCH, INC. ADJUSTMENTS
-------------- ---------------------- -----------------
<S> <C> <C> <C>
REVENUES........................................ $ 0 $ 0 $ 0
OPERATING EXPENSES
General and administrative expenses........... $ 0 $ 50,771 $ 50,771
Research and development expenses............. $ 0 $ 177,910 $ 177,910
NET LOSS........................................ $ 0 $ (228,681) $(228,681)
LOSS PER COMMON SHARE........................... $ -- $ (.046) $ (.046)
SHARES USED IN PER SHARE CALCULATION............ -- 4,950,027 4,950,027
</TABLE>
See Accompanying Notes to Combined Financial Statements
F-25
<PAGE> 77
DIRECTIONAL ROBOTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995
NOTE 1 -- BASIS OF PRESENTATION OF COMBINED FINANCIAL STATEMENTS
The accompanying combined financial statements for the year ended December
31, 1995 gives effect to the merger of Directional Robotics Research, Inc. into
Directional Robotics, Inc. as if the combination of the two entities occurred on
January 1, 1995.
The combined financial statements are based on historical financial
statements of Directional Robotics, Inc. and Directional Robotics Research,
Inc., giving effect to the acquisition applying the pooling of interest method
of accounting. The combined financial statements have been prepared by the
management of Directional Robotics, Inc. based upon the audited financial
statements of Directional Robotics, Inc., as of December 31, 1995 and for the
year then ended, and the audited financial statements of Directional Robotics
Research, Inc. as of December 31, 1995 and for the year then ended. The
unaudited combined financial statements should be read in conjunction with the
historical financial statements and notes thereto and narrative sections
included elsewhere herein. The combined financial statements are not necessarily
indicative of what actual results of operations would have been for the periods
had the transactions occurred on the date indicated and do not purport to
indicate the results of future operations.
F-26
<PAGE> 78
INSTRUCTIONS TO PURCHASERS
Whether it's your first stock purchase or your fiftieth, the Company would
like you to know a few things about the procedure for buying its common stock.
There are some unique characteristics about the Company's Web site and its
initial public offering. The Company's offering is self-underwritten, which
means the Company's securities are being sold directly by the Company and not by
or through any underwriter or broker-dealer. The Company is also making its
common stock available to a broader segment of the public than most other
initial public offerings and it is making the minimum purchase low enough to
allow more first time stock purchasers. Before you make any investment decision
remember: THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION FROM THE OFFERING PRICE. SEE "RISK FACTORS" AND
"DILUTION" IN THE PROSPECTUS AVAILABLE ON THIS WEB SITE OR BY CALLING
1-800-99ROBOT FOR A PRINTED COPY OF THE PROSPECTUS.
In keeping with this policy of stock democratization, the Company has set
up several methods of payment. These include Mailed Check, Money Order,
Electronic Check, Credit Card and Wire Transfer. The Company's Web site will
provide electronic forms to accomplish whichever of these methods you choose. If
you do not have access to the Internet, you may purchase the Company's common
stock by mail or by phone. Call (800) 99ROBOT and the Company will send you a
prospectus containing the directions and the forms necessary for mail or phone
orders.
STOCK PURCHASE AGREEMENT FORM
All stock purchasers must fill out AND SIGN the Stock Purchase Agreement
included with the Prospectus or available to print from the Web site. The
Company cannot process your payment nor can it issue your stock certificate
unless and until it receives this completed and signed Stock Purchase Agreement.
If you do not have a printer or cannot download the Stock Purchase Agreement
form from the Company's Web site, call 1-800-99ROBOT and the Company will send
you a Prospectus containing the Stock Purchase Agreement. If you have a hard
copy of the Prospectus, use the Stock Purchase Agreement form included as page
A-2 in the Prospectus. To speed the process, it is suggested that you fax a copy
of the signed Stock Purchase Agreement to the Company at (209) 435-0178 prior to
mailing. This is especially true if you choose an electronic method of payment
which can be accomplished in minutes. Once the payment and signature are
received, your stock purchase will be processed promptly.
SUITABILITY QUESTIONNAIRE FOR ARIZONA, ARKANSAS, CALIFORNIA, IDAHO, IOWA, MAINE,
MASSACHUSETTS, MISSOURI, NEBRASKA, NEW HAMPSHIRE, NEW MEXICO, NORTH DAKOTA,
OREGON, SOUTH DAKOTA, TENNESSEE AND TEXAS RESIDENTS.
These States require the Company to obtain a completed Suitability
Questionnaire from the residents of these States who intend to purchase the
Company's common stock. The completed form is maintained in the Company's
offices. If you are a legal resident of one of the foregoing referenced States,
please fill out the Suitability Questionnaire either on-line on your Web site or
on the hard copy sent to you as pages A-4 and A-5 of the hard copy of the
Prospectus. The Suitability Questionnaire must be returned to the Company along
with the completed and signed Stock Purchase Agreement. To speed the process, it
is suggested that you fax a copy of the signed and completed Suitability
Questionnaire to (209) 435-0178 prior to mailing. This is especially true if you
choose an electronic method of payment which can be accomplished in minutes.
Once the payment and signed documents are received, your stock purchase will be
processed promptly. If you do not have a printer or cannot download from the
Company's Web site, then call the Company at (800) 99ROBOT and you will be sent
a hard copy of the Prospectus containing the Suitability Questionnaire.
A-1
<PAGE> 79
- --------------------------------------------------------------------------------
DIRECTIONAL ROBOTICS, INC.
5610 N. PALM AVENUE
FRESNO, CALIFORNIA 93704
STOCK PURCHASE AGREEMENT AND SIGNATURE PAGE
(ALL INVESTORS MUST SIGN THIS STOCK PURCHASE AGREEMENT)
NO. OF SHARES BEING PURCHASED: X $3.00 PER SHARE = TOTAL PURCHASE PRICE
FOR SHARES $
------------------
================================================================================
PURCHASER DATA: (MUST BE COMPLETED IN FULL)
================================================================================
<TABLE>
<S> <C> <C>
Full Name of Purchaser. (Do not use initials):
-------------------------------------- ------------- --------------------------------------
Middle
First Full Name (Do not use initials) Initial Last Name
Residence Address, including Zip Code: (Do not use P.O. box)
-------------------------------------------------------------------------------------------------
Residence Telephone Number: -- or -- Business Telephone Number:
-------------------------------------- --------------------------------------
Social Security Number (Individual): -- or -- Tax I.D. Number
-------------------------------------- --------------------------------------
</TABLE>
================================================================================
SIGNIFICANT DISCLOSURE
================================================================================
THIS STOCK PURCHASE IS MADE PURSUANT TO, AND IS SUBJECT TO, THE TERMS
AND CONDITIONS OF THE QUALIFICATION APPROVED BY THE SECURITIES COMMISSIONS
OF THE STATES IN WHICH THE SHARES ARE BEING OFFERED.
SIGNATURE MUST BE IDENTICAL TO NAME OF REGISTERED OWNER
<TABLE>
<S> <C>
----------------------------------------------------------------
Printed Name of Purchaser
---------------------------------------------------------------- -------------------------
Signature of Purchaser Date
----------------------------------------------------------------
Printed Name of Purchaser (if more than one)
---------------------------------------------------------------- -------------------------
Signature of Purchaser (if more than one) Date
</TABLE>
================================================================================
STOCK CERTIFICATE INFORMATION
================================================================================
The name you wish to appear on the Stock Certificate
The address where you would like the Stock Certificate sent: (If same as
address above, enter "SAME").
Address:
City:
State:
Zip:
- --------------------------------------------------------------------------------
A-2
<PAGE> 80
FOR COMPLETION AND EXECUTION BY ARIZONA, ARKANSAS, CALIFORNIA, IDAHO, IOWA,
MAINE, MASSACHUSETTS, MISSOURI, NEBRASKA, NEW HAMPSHIRE, NEW MEXICO, NORTH
DAKOTA, OREGON, SOUTH DAKOTA, TENNESSEE AND TEXAS RESIDENTS ONLY
SUITABILITY QUESTIONNAIRE
Directional Robotics, Inc.
5610 N. Palm Avenue, Suite 107
Fresno, California 93704
Re: Offering of Common Stock
Gentlemen:
The following information is furnished to you in order for you to determine
whether the undersigned is qualified to purchase any of the securities being
offered and sold by Directional Robotics, Inc., a California corporation (the
"Company") in connection with the Company's public offering of up to 1,666,670
shares of its Common Stock (the "Shares"), as more fully described in the
Company's Prospectus dated January 8, 1997. I understand that you will rely upon
the information for purposes of such determination. I also understand that I
may, in your sole discretion, be required to supply such appropriate
documentation to you in order to permit you, as may be necessary, to verify and
substantiate my status as a resident of the states of Arizona, Arkansas,
California, Idaho, Iowa, Maine, Massachusetts, Missouri, Nebraska, New
Hampshire, New Mexico, North Dakota, Oregon, South Dakota, Tennessee or Texas
who is qualified to participate in the proposed public offering of the Shares.
ALL INFORMATION CONTAINED HEREIN WILL BE TREATED CONFIDENTIALLY. However, I
agree that you may present this questionnaire to such parties as you deem
appropriate if called upon to establish your belief that the proposed offer and
sale of Shares to me was appropriate.
I hereby provide you with the following representations and information:
1. Financial Information:
(a) My net worth or joint net worth with my spouse (exclusive of home, home
furnishings and personal automobiles) is $________________ .
(b) My net worth or joint net worth with my spouse including home, home
furnishings and personal automobiles is $________________ .
(c) During the last tax year, my gross income or joint gross income with my
spouse was $________________ .
(d) I estimate that during the current tax year I will have gross income or
joint gross income with my spouse of at least $________________ .
2. Based upon the information provided in Section 1 above, and based upon other
personal information concerning me, I am qualified to participate in the
proposed public offering of the Shares because I fall within one of the
following categories:
FOR CALIFORNIA, IOWA, MAINE, NORTH DAKOTA AND OREGON RESIDENTS ONLY
____ I, either alone or with my spouse, have a minimum net worth (excluding
home, home furnishings and automobiles) of at least $75,000 and had a minimum
gross income of $50,000 during the last tax year and will have (based on a good
faith estimate) minimum gross income of $50,000 during the current tax year, and
an investment in the Shares will not exceed ten percent (10%) of my net worth.
____ I, either alone or with my spouse, have a minimum net worth (excluding
home, home furnishings and automobiles) of $150,000, and an investment in the
Shares will not exceed ten percent (10%) of my net worth.
____ I, either alone or with my spouse, have not previously purchased any
securities issued by the Company, and I, either alone or with my spouse, will
not purchase more than $2,500 of the Shares.
FOR ARIZONA, ARKANSAS, MASSACHUSETTS, MISSOURI, NEBRASKA, NEW MEXICO, SOUTH
DAKOTA,
TENNESSEE AND TEXAS RESIDENTS ONLY
____ I, either alone or with my spouse, have a minimum net worth (excluding
home, home furnishings and automobiles) of at least $250,000 and had minimum
gross income of $65,000 during the last tax year and will have (based on a good
faith estimate) minimum gross income of $65,000 during the current tax year.
____ I, either alone or with my spouse, have a minimum net worth (excluding
home, home furnishings and automobiles) of at least $500,000.
____ I, either alone or with my spouse, will purchase $100,000 or more of
the Shares.
____ I, either alone or with my spouse, had a minimum gross income of
$200,000 during the last tax year and will have (based on a good faith estimate)
minimum gross income of $200,000 during the current tax year.
____ I, either alone or with my spouse, have a minimum net worth (excluding
home, home furnishings and automobiles) of $1,000,000.
A-3
<PAGE> 81
FOR IDAHO RESIDENTS ONLY
I am an "Accredited Investor" because I fall within one of the following
categories:
____ A bank as defined in section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity, any broker or dealer registered pursuant to section 15 of the Exchange
Act; any insurance company as defined in section 2(13) of the Securities Act;
any investment company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of that act; any
Small Business Investment Company licensed by the United States Small Business
Administration under section 301(C) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 if the investment decision is
made by a plan fiduciary, as defined in section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made sole
by persons that are accredited investors.
____ A private business development company as defined in section 202(a)(22)
of the Investment Advisers Act of 1940.
____ An organization described in section 501(C)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000.
____ A director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or general
partner of a general partner of that issuer.
____ A natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of this purchase exceeds $1,000,000.
____ A natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year.
____ A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is directed
by a sophisticated person who has knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of the
prospective investment.
____ An entity in which all of the equity owners are any of the persons
referenced above.
FOR NEW HAMPSHIRE RESIDENTS ONLY
____ I, either alone or with my spouse, have a minimum net worth (excluding
home, home furnishings and automobiles) of at least $250,000.
____ I, either alone or with my spouse, have a minimum net worth (excluding
home, home furnishings and automobiles) of at least $125,000 and had minimum
gross income of $50,000 during the last tax year and will have (based on a good
faith estimate) minimum gross income of $50,000 during the current tax year.
3. I represent to you that the information contained herein is complete and
accurate and may be relied upon by you and that I will notify you immediately of
any material change in any of such information occurring prior to the closing of
the purchase of the Shares, if any, by me.
IN WITNESS WHEREOF, the undersigned has executed this Suitability
Questionnaire as of the date hereinbelow stated.
<TABLE>
<S> <C>
- ------------------------------------------ --------------------------------------------------------------------------------
Date Signature
--------------------------------------------------------------------------------
Name
(Please Print)
</TABLE>
NOTE: THIS DOCUMENT MUST BE EXECUTED BY THE INVESTOR AND MUST BE RETURNED ALONG
WITH THE SUBSCRIPTION AGREEMENT AND SIGNATURE PAGE. THIS DOCUMENT CANNOT BE
EXECUTED BY ANOTHER PERSON ON BEHALF OF THE INVESTOR.
A-4
<PAGE> 82
PAYMENT ALTERNATIVES
- Mailed Check
- Money Order
- Electronic Check
- Credit Card
- Wire Transfer
1. MAILED CHECK
Make your check payable to "Union Bank/DRI Escrow Account", and along with
the completed Stock Purchase Agreement, and if necessary, the Suitability
Questionnaire, mail to: DIRECTIONAL ROBOTICS, INC., 5610 N. PALM AVENUE, SUITE
107, FRESNO, CA 93704.
2. MONEY ORDER
Make your money order payable to "Union Bank/DRI Escrow Account", and mail
to: DIRECTIONAL ROBOTICS, INC., 5610 N. PALM AVENUE, SUITE 107, FRESNO, CA
93704. You must also complete the Stock Purchase Agreement, and if necessary,
the Suitability Questionnaire. To speed up your purchase, fax a copy of the
Stock Purchase Agreement and if necessary, the Suitability Questionnaire, to
(209) 435-0178. Your signature will allow the Company to process your purchase
immediately.
3. ELECTRONIC CHECK
You may fill out the payment information on-line and when completed it will
be transferred immediately to the Company's corporate offices. You also may
either fill out the information on the form supplied with the hard copy of the
Prospectus and mail it to the Company or fax to the Company a copy of your blank
check. You will need to provide the Company with the important numbers found at
the bottom of your check from the account you designate for payment. With this
information, we will produce a hard copy check and deposit it in the escrow
account just as if you had mailed the check to the Company. You must also
complete the Stock Purchase Agreement, and if necessary, the Suitability
Questionnaire. To speed up your purchase, prior to mailing, fax a copy of the
Stock Purchase Agreement and if necessary, the Suitability Questionnaire to
(209) 435-0178. Your faxed signature will allow the Company to process your
purchase immediately.
4. CREDIT CARD
You may use your Visa or Master Card credit card to purchase stock. Fill
out the electronic form presented on your monitor. Follow the instructions
carefully and when completed, the information will be transferred through a
secured process immediately to the Company's offices. With this information, the
Company will reserve funds in your credit card account electronically from its
offices and then charge your credit card only after the Company receives your
authorizing signature on the completed Stock Purchase Agreement, and if
necessary, the Suitability Questionnaire. To speed up your purchase, fax a copy
of the Stock Purchase Agreement and, if required, the Suitability Questionnaire
to (209) 435-0178. Your faxed signature will allow the Company to process your
purchase promptly.
5. WIRE TRANSFER
You may have your local financial institution wire the funds to Union Bank
of California with the appropriate wire transfer instructions. You must first
complete the Stock Purchase Agreement, and if necessary, the Suitability
Questionnaire. To speed up your purchase, fax a copy of the Stock Purchase
Agreement and if necessary, the Suitability Questionnaire to (209) 435-0178.
Your signature will allow us to process your purchase immediately. Once we have
received the necessary forms we will contact you and provide the wire transfer
instructions.
A-5
<PAGE> 83
STOCK PAYMENT INFORMATION
1. CREDIT CARD PAYMENT DATA
[ ] Master Card [ ] Visa
Card Number (usually 15 or 16 digits)
Expiration Date: Month Year ________
Name on the Card
2. ELECTRONIC CHECK PAYMENT DATA (FAX TO THE COMPANY A COPY OF YOUR BLANK CHECK
OR FILL OUT THE INFORMATION BELOW):
NAME ON THE BANK ACCOUNT
BANK ROUTING NUMBER (nine digits at the bottom left of your check enclosed by
OCR marks I: and I:)
ACCOUNT NUMBER (digits at the bottom of your check to the right of the Bank
Routing Number. Include spaces and special characters where appropriate)
CHECK NUMBER (usually found at the upper right corner of your check)
TRANSIT/ROUTING NUMBER (usually appears as a fraction at the upper right or
separated by a slash. Example: 90-3300/1211)
BANK INFORMATION: (printed on your check)
Name of Bank
Address
City
State
Zip
Branch Number
Phone Number
3. WIRE TRANSFER PAYMENT DATA
Fill out the Stock Purchase Agreement and if necessary, the Suitability
Questionnaire, and fax them, if possible, to (209) 435-0178. As soon as the
Company receives these documents, it will contact you with the appropriate wire
transfer instructions. You may also mail these documents to the Company, and
upon receipt, an authorized officer of the Company will contact you with the
wire transfer instructions.
4. CHECK OR MONEY ORDER PAYMENT DATA
Make your check or money order payable to "Union Bank/DRI Escrow Account."
Complete, sign and submit the Stock Purchase Agreement and if necessary, the
Suitability Questionnaire, and mail to: DIRECTIONAL ROBOTICS, INC., 5610 N. PALM
AVENUE, SUITE 107, FRESNO, CA 93704.
A-6
<PAGE> 84
NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION
A CONSUMER'S GUIDE TO SMALL BUSINESS INVESTMENTS
State laws have been relaxed to make it easier for small businesses to
raise start-up and growth financing from the public. Many investors view this as
an opportunity to "get in on the ground floor" of emerging businesses and to
"hit it big" as these small businesses grow into large ones.
Statistically, most small businesses fail within a few years. Small
business investments are among the most risky that investors can make. This
guide suggests items to consider for determining whether you should make a small
business investment.
RISKS AND INVESTMENT STRATEGY
A basic principle of investing in a small business is: NEVER MAKE A SMALL
BUSINESS INVESTMENT THAT YOU CANNOT AFFORD TO LOSE ENTIRELY. Never use funds
that might be needed for other purposes, such as college education, retirement,
loan repayment or medical expenses. Instead, use funds that would otherwise be
used for a consumer purchase, such as a vacation or a down payment on a boat or
RV.
Above all, never let a commissioned securities salesperson or an officer or
director of a company convince you that the investment is not risky. Any such
assurance is almost always inaccurate. Small business investments are generally
highly illiquid even though the securities may technically be freely
transferable. Thus, you will usually be unable to sell your securities if the
company takes a turn for the worse.
Also, just because the state has registered the offering does not mean the
particular investment will be successful. The state does not evaluate or endorse
the investment. (If anyone suggest otherwise to you, it is unlawful.)
If you plan to invest a large amount of money in a small business, you
should consider investing smaller amounts in several small businesses. A few
highly successful investments can offset the unsuccessful ones. Even when using
this strategy, DO NOT INVEST FUNDS YOU CANNOT AFFORD TO LOSE ENTIRELY.
ANALYZING THE INVESTMENT
Although there is no magic formula for making successful investment
decisions, certain factors are often considered particularly important by
professional venture investors. Some questions to consider are as follows:
1. How long has the company been in business? If it is a start up or
has only a brief operating history, are you being asked to pay more than
the shares are worth?
2. Consider whether management is dealing unfairly with investors by
taking salaries or other benefits that are too large in view of the
company's stage of development or by retaining an inordinate amount of the
equity of the company compared with the amount investors will receive. For
example, is the public putting up 80% of the money but only receiving 10%
of the company shares?
3. How much experience does management have in the industry and in a
small business? How successful were the managers in previous businesses?
4. Do you know enough about the industry to be able to evaluate the
company and make a wise investment?
5. Does the company have a realistic marketing plan and do they have
the resources to market the product or service successfully?
There are many other questions to be answered, but you should be able to
answer these before you consider investing.
B-1
<PAGE> 85
MAKING MONEY ON YOUR INVESTMENT
The two classic methods for making money on an investment in a small
business are resale in the public securities markets following a public offering
and receiving cash or marketable securities in a merger or other acquisition of
the company.
If the company is the type that is not likely to go public or be sold out
within a reasonable time (i.e., a family owned or closely held corporation), it
may not be a good investment for you irrespective of its prospects for success
because of the lack of opportunity to cash in on the investment. Management of a
successful private company may receive a good return indefinitely through
salaries and bonuses but it is unlikely that there will be profits sufficient to
pay dividends commensurate with the risk of the investment.
OTHER SUGGESTIONS
The Disclosure Document usually used in public venture offering is the
"Form U-7," which has a question and answer format. The questions are designed
to bring out particular factors that may be crucial to the proper assessment of
the offering. Read each question and answer carefully. If an answer does not
adequately address the issues raised by the question, reflect on the importance
of the issue in the context of the particular company.
Even the best venture offerings are highly risky. If you have a nagging
sense of doubt, there is probably a good reason for it. Good investments are
based on sound business criteria and not emotions. If you are not entirely
comfortable, the best approach is usually not to invest. There will be many
other opportunities. Do not let a securities salesperson pressure you into
making a premature decision.
It is generally a good idea to see management of the company face-to-face
to size them up. Focus on experience and track record rather than a smooth sales
presentation. If at all possible, take a sophisticated business person with you
to help in your analysis.
Beware of information that is different from that in the Disclosure
Document or not contained in the Disclosure Document. If it is significant, it
must be in the Disclosure Document or the offering will be illegal.
CONCLUSION
Greater numbers of public investors are "getting in on the ground floor" by
investing in small businesses. When successful, these enterprises enhance the
economy and provide jobs for its citizens. They can also provide new investment
opportunities, but that must be balanced against the inherently risky nature of
small business investments.
In considering a small business investment, you should proceed with
caution, and above all, never invest more than you can lose.
B-2
<PAGE> 86
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, OR AN
OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY BY ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Stock Purchase Information............ 4
Electronic Format of Prospectus....... 4
For California, Iowa, Maine, North
Dakota and Oregon Residents Only.... 4
For Arizona, Arkansas, Massachusetts,
Missouri, Nebraska, South Dakota,
Tennessee and Texas Residents
Only................................ 5
For Idaho Residents Only.............. 5
Prospectus Summary.................... 6
Risk Factors.......................... 9
The Company........................... 16
Use of Proceeds....................... 17
Dividend Policy....................... 20
Dilution.............................. 20
Capitalization........................ 23
Selected Financial Data............... 25
Plan of Operation..................... 26
Business.............................. 28
Management............................ 38
Certain Relationships and Related
Transactions........................ 43
Principal Stockholders................ 45
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 46
Plan of Distribution.................. 47
Legal Matters......................... 48
Experts............................... 48
Available Information................. 48
Index to Financial Statements......... F-1
Instructions to Purchasers (Appendix
A).................................. A-1
Stock Purchase Agreement (Appendix A)
and Signature Page.................. A-2
Suitability Questionnaire (Appendix
A).................................. A-3
Payment Alternatives.................. A-5
Stock Payment Information (Appendix
A).................................. A-6
NASAA Consumer Guide to Small Business
Investments (Appendix B)............ B-1
------------------
UNTIL JULY 7, 1997 (90 DAYS AFTER THE DATE
OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS.
============================================
</TABLE>
======================================================
[LOGO]
1,666,670 SHARES
COMMON STOCK
PROSPECTUS
January 8, 1997 as amended
on April 7, 1997
======================================================
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation and the Bylaws of the Registrant contain
substantially identical provisions providing for the indemnification by the
Registrant of all past and present directors, officers, employees or agents of
the Registrant. Such indemnification applies only to the extent that any such
person by reason of acting in such capacity is, or is threatened to be made, a
witness in, or party to, any action, suit, arbitration, alternative dispute
resolution mechanism, investigation, administrative hearing or other proceeding.
In that event, such person (1) shall be indemnified, with respect to any
proceeding other than a proceeding brought by or in the right of the Registrant,
against all judgments, penalties, fines and amounts paid in settlement, and all
reasonable expenses incurred, in connection therewith, if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Registrant, and if, with respect to any criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful, (2) shall be
indemnified, to the extent permitted by applicable law, with respect to any
proceeding brought by or in the right of the Registrant to procure a judgment in
its favor, for his reasonable expenses in connection therewith if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Registrant, (3) shall be indemnified for reasonable
expenses incurred in connection with any proceeding in which he is wholly or
partly successful on the merits, and (4) shall be indemnified for reasonable
expenses incurred in connection with being, or being threatened to be made, a
witness in any proceeding.
The specific provisions of the Articles of Incorporation of the Registrant
with respect to the indemnification of directors and officers are as follows:
ARTICLE VIII. DIRECTORS' AND OFFICERS' LIABILITY: A director or officer of
the corporation shall not be personally liable to this corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer,
but this Article shall not eliminate or limit the liability of a director or
officer for (i) acts or omissions which involve intentional misconduct, fraud or
a knowing violation of law or (ii) the unlawful payment of dividends. Any repeal
or modification of this Article by the stockholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director or officer of the corporation for acts or omissions
prior to such repeal or modification.
ARTICLE IX: Every person who was or is a party to, or is threatened to be
made a party to, or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he,
or a person of whom he is the legal representative, is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the laws of the State of Nevada from time to time against all expenses,
liability and loss (including attorneys' fees, judgments, fines and amounts paid
or to be paid in settlement) reasonably incurred or suffered by him in
connection therewith. Such right of indemnification shall be a contract right
which may be enforced in any manner desired by such person. The expenses of
officers and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. Such right of indemnification
shall not be exclusive of any other right which such directors, officers or
representatives may have or hereafter acquire, and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaw, agreement, vote of stockholders, provision
of law, or otherwise, as well as their rights under this Article.
Without limiting the application of the foregoing, the Board of Directors
may adopt Bylaws from time to time without respect to indemnification, to
provide at all times the fullest indemnification permitted by the laws of the
State of Nevada, and may cause the corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the
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<PAGE> 88
corporation as director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprises
against any liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not the corporation would
have the power to indemnify such person.
The indemnification provided in this Article shall continue as to a person
who has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors and administrators of such person.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of this offering are estimated as follows:*
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 1,933
Blue Sky fees and expenses................................................ 30,000
Transfer Agent and Registrar fees......................................... 5,000
Printing and engraving expenses........................................... 20,000
Legal fees and expenses................................................... 20,000
Accounting fees and expenses.............................................. 10,000
Miscellaneous............................................................. 13,067
-------
Total........................................................... $100,000
=======
</TABLE>
- ---------------
* All amounts other than the SEC registration fee are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Registrant sold securities without
registration under the Securities Act of 1933, as amended (the "Act") as
follows:
<TABLE>
<CAPTION>
NAMES OF CONSIDERATION EXEMPTION FROM
SECURITIES SOLD INVESTORS RECEIVED REGISTRATION
- ----------------------------------- -------------- ------------- ---------------------------
<S> <C> <C> <C>
4,950,000 Shares of Common Stock... 26 Persons(1) $2,500.00 Section 4(2) of the Act and
Rule 506 of Regulation D
promulgated thereunder.
115,000 Shares of Common Stock.... 1 Person(2) $1,100.00 Section 4(2) of the Act.
194,441 Shares of Common Stock.... 8 Persons(3) Past1,944.00 Section 4(2) of the Act.
Services
valued at
$
27 Shares of Common Stock... 3 Persons(4) $ 360,305 Section 4(2) of the Act.
</TABLE>
- ---------------
(1) The 26 persons who purchased the 4,950,000 shares of Common Stock are Gerald
R. Rodder (1,429,268 shares), G.F. & J.H. Norman 1974 Trust (504,642
shares), Trey Partners (1,641,752 shares), Scott E. Rodder (717,126 shares),
Speed S. Fry (49,500 shares), Eleanor Phillips (49,500 shares), The George I
Danly and Dorothy C. Danly Trust (33,000 shares), Richard Danly (33,000
shares), Seniel Lucien (33,000 shares), Lipman Family Trust (85,338 shares),
Robert Lipman (13,662 shares), David Pearlstein (16,500 shares), Howard
Pearlstein (16,500 shares), Frank Pearlstein (16,500 shares), Peter C.
Dendrinos (99,000 shares), Kristen O'Neill (49,500 shares), UT Thompson III
and Judy Lynn Thompson Revocable Trust (14,850 shares), John Szymkowicz
(12,375 shares), Todd Blum (9,900 shares), Stan Unruh (6,187 shares), Alvin
Zinn (9,900 shares), D.C. Roane (19,700 shares), Donald T. Roane (19,700
shares), Donna R. Babington (9,800 shares), David C. Roane (9,800 shares)
and Stan Lewis (50,000 shares).
(2) The person who purchased the 115,000 shares of Common Stock is Harold J.
Gallagher.
(3) The persons who purchased the 194,441 shares of Common Stock are John W.
Martin (150,000 shares), W. Stan Lewis (33,076 shares), Blane Bizzaro (5,250
shares), Lee Murphy (1,800 shares), George
II-2
<PAGE> 89
Franco (468 shares), Paul Wollam (1,650 shares), Rod Chan (2,017 shares) and
James Clevenger (180 shares).
(4) The persons who purchased the 27 shares of Common Stock are Gerald R. Rodder
(9 shares), Gerald F. Norman (9 shares) and W. Stan Lewis (9 shares).
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
1.1 Participating Dealer Agreement
1.2 Escrow Agreement by and between Directional Robotics, Inc. and Union Bank of
California
3.0 Articles of Incorporation of Directional Robotics, Inc.
3.1 Bylaws of Directional Robotics, Inc.
3.2 Articles of Incorporation of Directional Robotics Research, Inc.
4.0 Specimen Stock Certificate
5.0 Opinion of Law Offices of John W. Martin as to legality
10.0 License Agreement by and between Directional Robotics, Inc. and Directional
Robotics Research, Inc.
10.1 Directional Robotics, Inc. 1996 Incentive Stock Option Plan
10.2 Directional Robotics, Inc. 1996 Directors' Stock Option Plan
10.3 Director's Indemnification Agreement by and between Directional Robotics, Inc.
and Gerald R. Rodder
10.4 Director's Indemnification Agreement by and between Directional Robotics, Inc.
and Gerald F. Norman
10.5 Director's Indemnification Agreement by and between Directional Robotics, Inc.
and John W. Martin
10.6 Employment Agreement dated as of June 15, 1996 by and between Directional
Robotics, Inc. and Harold J. Gallagher.
10.7 Employment Agreement dated as of April 1, 1996 by and between Directional
Robotics, Inc. and W. Stan Lewis.
10.8 Stock Option Agreement dated as of June 15, 1996 by and between Directional
Robotics, Inc. and Harold J. Gallagher.
10.9 Intellectual Property Assignment Agreement dated as of June 12, 1996 by and
between W. Stan Lewis and Directional Robotics, Inc.
10.10 Merger Agreement dated as of June 14, 1996 by and between Directional Robotics,
Inc. and Directional Robotics Research, Inc.
10.11 Promotional Share Escrow Agreement among Directional Robotics, Inc., Union Bank
of California, certain state securities law administrators and certain
shareholders of Directional Robotics, Inc.
24.0 Consent of Joel S. Baum, P.A., independent certified public accountant
24.1 Consent of Law Offices of John W. Martin (included in Exhibit 5.0)
</TABLE>
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<PAGE> 90
ITEM 28. UNDERTAKINGS
A. Undertaking pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof), which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment will be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration, by means of a post-effective amendment,
any of the securities being registered that remain unsold at the termination of
the offering.
B. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and other agents of the Company, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities, 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 and will be
governed by the final adjudication of such issue.
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<PAGE> 91
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF FRESNO,
STATE OF CALIFORNIA, ON THE 30TH DAY OF MARCH, 1997.
DIRECTIONAL ROBOTICS, INC.
By: /s/ HAROLD J. GALLAGHER
Harold J. Gallagher
President and Chief Executive Officer
By: /s/ STAN UNRUH
Stan Unruh
Chief Financial Officer
(Principal Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ----------------------------- ---------------
<S> <C> <C>
/s/ GERALD R. RODDER Chairman of the Board March 30, 1997
Gerald R. Rodder and Director
/s/ GERALD F. NORMAN Director March 30, 1997
Gerald F. Norman
/s/ SHERRY N. STINEHART Director March 30, 1997
Sherry N. Stinehart
/s/ HAROLD J. GALLAGHER Director March 30, 1997
Harold J. Gallagher
Director
William Lord
</TABLE>
II-5
<PAGE> 92
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------- ------------------------------------------------------------------------- ----------
<C> <S> <C>
1.1 Participating Dealer Agreement*..........................................
1.2 Escrow Agreement by and between Directional Robotics, Inc. and Union
Bank*....................................................................
3.0 Articles of Incorporation of Directional Robotics, Inc.*.................
3.1 Bylaws of Directional Robotics, Inc.*....................................
3.2 Articles of Incorporation of Directional Robotics Research, Inc.*........
4.0 Specimen Stock Certificate*..............................................
5.0 Opinion of Law Offices of John W. Martin as to legality*.................
10.0 License Agreement by and between Directional Robotics, Inc. and
Directional Robotics Research, Inc.*.....................................
10.1 Directional Robotics, Inc. 1996 Incentive Stock Option Plan*.............
10.2 Directional Robotics, Inc. 1996 Directors' Stock Option Plan*............
10.3 Director's Indemnification Agreement by and between Directional Robotics,
Inc. and Gerald R. Rodder*...............................................
10.4 Director's Indemnification Agreement by and between Directional Robotics,
Inc. and Gerald F. Norman*...............................................
10.5 Director's Indemnification Agreement by and between Directional Robotics,
Inc. and John W. Martin*.................................................
10.6 Employment Agreement dated as of June 15, 1996 by and between Directional
Robotics, Inc. and Harold J. Gallagher*..................................
10.7 Employment Agreement dated as of April 1, 1996 by and between Directional
Robotics, Inc. and W. Stan Lewis*........................................
10.8 Stock Option Agreement dated as of June 15, 1996 by and between
Directional Robotics, Inc. and Harold J. Gallagher*......................
10.9 Intellectual Property Assignment Agreement dated as of June 12, 1996 by
and between W. Stan Lewis and Directional Robotics, Inc.*................
10.10 Merger Agreement dated as of June 14, 1996 by and between Directional
Robotics, Inc. and Directional Robotics Research, Inc.*..................
10.11 Promotional Share Escrow Agreement among Directional Robotics, Inc.,
Union Bank of California, certain state securities law administrators and
certain shareholders of Directional Robotics, Inc.*......................
24.0 Consent of Joel S. Baum, P.A., independent certified public
accountant*..............................................................
24.1 Consent of Law Offices of John W. Martin (included in Exhibit 5.0)*......
</TABLE>
- ---------------
* Previously filed.
<PAGE> 93
DIRECTIONAL ROBOTICS, INC.
SUPPLEMENT NUMBER 1, DATED APRIL 7, 1997 TO
PROSPECTUS, DATED JANUARY 8, 1997
This Supplement ("Supplement Number 1") updates certain information in the
Prospectus dated January 8, 1997 (the "Prospectus"). Capitalized terms used but
not defined in Supplement Number 1 have the meanings set forth in the
Prospectus.
EXTENSION OF OFFERING
The Company has extended the offering of Shares to July 7, 1997 (the
"Termination Date") to enable the Company to expand its self-underwriting
activities.
SUBSCRIPTIONS
As of March 30, 1997, the Company has accepted subscriptions for 63,701
Shares, aggregating $191,103, from 45 subscribers. All subscription funds have
been deposited into the Company's escrow account with Union Bank of California.
STOCK PURCHASE INFORMATION
Shares are being offered for sale at $3.00 per Share. A minimum investment
of 100 Shares ($300) is required of each investor, provided that the Company, in
its discretion, may reduce the size of the minimum investment. Payment in full
is due upon subscription. Payment may be made through check, money order,
electronic check, credit card (MasterCard or Visa only) and wire transfer. Stock
purchase funds will initially be held in an interest bearing escrow account at
Union Bank of California. Those persons purchasing Shares should make all
payments to "Union Bank/DRI Escrow Account." Purchasers should also complete a
Stock Purchase Agreement in the form included as Appendix A to this Prospectus.
Residents of Arizona, Arkansas, California, Idaho, Iowa, Maine, Massachusetts,
Missouri, Nebraska, New Mexico, New Hampshire, North Dakota, Oregon, South
Dakota, Tennessee and Texas must also complete a Suitability Questionnaire, the
form of which is also attached as part of Appendix A to this Prospectus. For
convenience, an actual Stock Purchase Agreement and Suitability Questionnaire
have also been included with this Prospectus. Additional copies of the Stock
Purchase Agreement and/or Suitability Questionnaire may be obtained by writing
or calling or faxing the Company at its executive office, 5610 N. Palm Avenue,
Fresno, California 93704, toll free telephone 1-800-99ROBOT, facsimile (209)
435-0178; or through e-mail communication directed to the Company's President at
[email protected]. All payments and Stock Purchase Agreements and, where
applicable, Suitability Questionnaires should be forwarded to the Company at its
Fresno, California office.
FOR ARIZONA, ARKANSAS, MASSACHUSETTS, MISSOURI, NEBRASKA,
NEW MEXICO, SOUTH DAKOTA, TENNESSEE AND TEXAS RESIDENTS ONLY
Shares may only be offered and sold to Arizona, Arkansas, Massachusetts,
Missouri, Nebraska, New Mexico, South Dakota, Tennessee and Texas residents who
(i) have a minimum net worth (excluding home, home furnishings and automobiles)
of at least $250,000 and had minimum gross income of $65,000 during the last tax
year and will have (based on a good faith estimate) minimum gross income of
$65,000 during the current tax year; or (ii) have a minimum net worth (excluding
home, home furnishings and automobiles) of at least $500,000; or (iii) purchase
$100,000 or more of the Shares; or (iv) had a minimum gross income of $200,000
during the last tax year and will have (based on a good faith estimate) minimum
gross income of $200,000 during the current tax year; or (v) have a minimum net
worth (including home, home furnishings and automobiles) of $1,000,000.
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<PAGE> 94
FOR NEW HAMPSHIRE RESIDENTS ONLY
Shares may only be offered and sold to New Hampshire residents who (i) have
a minimum net worth (excluding home, home furnishings and automobiles) of at
least $250,000 or (ii) have a minimum net worth (excluding home, home
furnishings and automobiles) of at least $125,000 and had a minimum gross income
of $50,000 during the current tax year.
RISK FACTORS
Escrow of Investors' Funds Pending Sale of Minimum Number of Shares
Offered. Under the terms of this offering, the Company is offering the Shares on
a "334,000 Shares or none, best efforts" basis. If the minimum number of Shares
is sold, the remaining 1,332,670 Shares will be offered on a "best efforts"
basis until all of the Shares are sold or the offering period ends, whichever
occurs first, unless the offering is terminated earlier by the Company.
Therefore, no commitment exists by anyone to purchase all or any part of the
Shares offered hereby. Consequently, as there is no assurance that the minimum
number of Shares being offered will be sold, subscribers funds may be escrowed
until July 7, 1997. Investors, therefore will not have the use of any funds paid
for the purchase of Shares during the offering period. In the event that the
minimum number of Shares offered hereby are not sold within the offering period,
subscribers' funds will then be promptly returned without interest, and the
offering will be withdrawn. See "Plan of Distribution."
Discretion of Management and the Board of Directors in Use of
Proceeds. Although the Company intends to apply the net proceeds of this
offering in the manner described under "Use of Proceeds," the Company's
management and the Board of Directors have broad discretion within such proposed
uses as to the precise allocation of the net proceeds, the timing of
expenditures and all other aspects of the use thereof. The Company reserves the
right to reallocate the net proceeds of this offering among the various
categories set forth under "Use of Proceeds" as it, in its sole discretion,
deems necessary or advisable based upon prevailing business conditions and
circumstances. Such reallocation would occur if the Company found it necessary
to increase the amount of proceeds necessary to perform research and development
to manufacture the Company's products and to advertise and market the Company's
products. The primary source of proceeds needed for such increases would be
general working capital. See "Use of Proceeds."
Conflicts of Interests. On June 12, 1996, the Company entered into an
agreement with Mr. W. Stan Lewis, the Company's Chief Scientist, pursuant to
which Mr. Lewis transferred all of his rights, title and interests in and to
certain intellectual property to the Company. In consideration of the transfer
of said intellectual property to the Company by Mr. Lewis, the Company has
agreed to pay Mr. Lewis a royalty of one percent (1%) of the gross sales of all
units manufactured by the Company through the use of said intellectual property,
provided, however, that in no event will the royalty payable to Mr. Lewis be
less than $3,000 per month, regardless of whether any of the Company's planned
products are ever developed, marketed or sold. Due to the relationship between
Mr. Lewis and the Company, and as a result of Mr. Lewis' position with the
Company, conflicts of interest exist. Because of Mr. Lewis' interest in the
Company, he would have an inherent conflict of interest in negotiating the terms
of any contractual arrangements between himself and the Company, including those
relating to the transfer of all of his rights, title and interests in and to
certain intellectual property to the Company. All agreements between Mr. Lewis
and the Company have been approved by a majority of disinterested members of the
Company's board of directors. With respect to future material transactions
between the Company and its officers, directors, principal stockholders and
their affiliates, the Company has established procedures for the review and
approval of such transactions by a committee of disinterested and independent
members of the Company's board of directors. See "Certain Relationships and
Related Transactions."
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<PAGE> 95
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages as of
the date of this Prospectus are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- ------------------------------------------------
<S> <C> <C>
Harold J. Gallagher 60 President, Chief Executive Officer and Director
Gerald F. Norman 67 Secretary and Director
W. Stan Lewis(1) 49 Chief Scientist
Gerald R. Rodder 62 Chairman of the Board and Director
Stan Unruh 53 Chief Financial Officer
Sherry N. Stinehart 37 Director
William Lord 70 Director
</TABLE>
- ---------------
(1) Mr. Lewis is not an executive officer of the Company, but is listed above by
reason of his status as Chief Scientist of the Company.
NOTE: INTERNET READERS OF THIS PROSPECTUS USING A WORLD WIDE WEB BROWSER MAY
CLICK ON THE BOLDFACE NAMES OF EACH OF THE FOLLOWING LISTED OFFICERS AND
DIRECTORS. THE BOLDFACE NAMES ARE HYPERLINKS TO PHOTOGRAPHS OF THE PERSONS
NAMED.
HAROLD J. GALLAGHER has been President, Chief Executive Officer and a
director of the Company since June 15, 1996. Prior to joining the Company, Mr.
Gallagher was an independent business consultant specializing in financial and
operational management of manufacturing companies. From February 1991 to March
1993, Mr. Gallagher was President and Chief Executive Officer of Collaborative
Technologies Corporation, a software development company located in Austin,
Texas. Mr. Gallagher was also Founder, President and Chief Executive Officer of
Computer Logistics Corporation, a wholly-owned subsidiary of Western Union
Corporation's Teleprocessing Industries, Inc. Mr. Gallagher completed residency
and course work for a Doctorate in Business at the University of Missouri. He
holds an MBA degree in Finance and Marketing and a BS degree in Electrical
Engineering from the University of Illinois at Champaign, and a BA degree in
Mathematics and Physics from St. Joseph's College in Indiana.
GERALD F. NORMAN has been the Company's Secretary, and a director of the
Company since the Company's inception. Mr. Norman has also been the owner of
JNJN Associates, an investment firm located in Los Angeles, California since
1986. From 1970 to 1985, Mr. Norman was a founding partner of Financial
Management Group, a Los Angeles-based investment advisory firm. Mr. Norman holds
a BS degree and an MS degree from the University of California at Los Angeles.
Mr. Norman is the father of Ms. Sherry N. Stinehart, a director of the Company.
W. STAN LEWIS is the Company's Chief Scientist. Mr. Lewis' responsibilities
include product development, identifying, selecting and overseeing technical and
engineering consultants, and indicating future product development directions
for the Company. Mr. Lewis has been granted six U.S. patents, and prior to their
assignment to the Company, he had four U.S. patents and one foreign patent
pending, and four U.S. patents applied for. Four of Mr. Lewis' assigned patents
and all of his assigned patent applications constitute the core technical basis
for the Company's proposed orientation and navigation products. Since 1990, Mr.
Lewis has acted as a technical consultant to a variety of companies and
government agencies He is a former member of the general faculty of the Georgia
Institute of Technology. Mr. Lewis is an author and co-author of 30 technical
publications. He has a BS degree in Chemistry from the University of Georgia and
has performed graduate studies in nuclear physics and chemistry at the Georgia
Institute of Technology.
GERALD R. RODDER has been Chairman of the Board and a director of the
Company since the Company's inception. Mr. Rodder is also President of Gerald R.
Rodder Investments, Inc., a venture capital investment firm located in Fresno,
California. Mr. Rodder's investments have been in a broad spectrum of businesses
including real estate, oil and gas, environmental purification equipment, cash
flow methodologies,
-3-
<PAGE> 96
and high technology equipment. Mr. Rodder has been investing in start-ups,
bridge financing and mature financing since 1972. Mr. Rodder holds a BS degree
in Business from the University of California at Berkeley.
STAN UNRUH has been Chief Financial Officer of the Company since its
inception. Mr. Unruh is also a director of Pacific Business Services, Inc., an
accounting services firm; and a director of Sports Pennants International, Inc.,
a sport's pennant manufacturer and distributor. Mr. Unruh has held his positions
with Pacific Business Services, Inc., and Sports Pennants International, Inc.
since 1976 and 1980 respectively. Mr. Unruh holds a BA degree in accounting from
California Western University.
SHERRY N. STINEHART has been a director of the Company since June 15, 1996.
Since 1987, Ms. Stinehart has been a managing partner of Trey Partners, an
investment partnership located in Corona Del Mar, California. From 1984 to 1987,
Ms. Stinehart was a marketing associate and Vice President of Pacific Century
Advisers, an investment management subsidiary of Security Pacific Corporation.
Ms. Stinehart holds a BA degree from Stanford University and received her
Certified Financial Planner Certification from the College for Financial
Planning. Ms. Stinehart is the daughter of Mr. Gerald F. Norman, Secretary of
the Company and a director of the Company.
WILLIAM LORD has been a director of the Company since October 10, 1996. Mr.
Lord holds a Doctorate in Communications from the University of Illinois, and is
the Texas Commerce Bancshares Centennial Professor Emeritus in Business
Communications at the University of Texas at Austin. Mr. Lord is a former
Chairman in the University of Texas' Department of Management Science and
Information Systems, and he has also served as a member of the faculties of both
the University of Illinois (Champaign-Urbana) and the University of Texas
Executive Development Program. Mr. Lord has been the recipient of numerous
Excellence in Teaching Awards in his over 45 years of teaching in higher
education, and he has also served as a consultant to a large number of business
organizations such as Texas Commerce Bancshares, Inc., Data Resources, Inc. and
Franklin Life Insurance Company.
The Bylaws of the Company currently provide for six (6) directors. There is
currently one vacancy on the Board of Directors. All directors hold office until
the next annual meeting of stockholders and until their successors have been
duly elected and qualified. The Company's officers are appointed by the Board of
Directors and serve at the discretion of the Board of Directors. Mr. Gerald F.
Norman is the father of Ms. Sherry N. Stinehart. There are no other family
relationships among the directors and executive officers of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
5,593,468 shares of Common Stock if the minimum number of Shares offered hereby
are sold, and 6,926,138 shares of Common Stock if the maximum number of Shares
offered hereby are sold. All of the shares sold in this offering will be freely
tradeable without restrictions under the Securities Act, except for any shares
held by an "affiliate" of the Company, which will be subject to the resale
limitations of Rule 144 of the Securities Act.
All of the 5,259,468 shares of Common Stock currently outstanding are
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act, and may not be sold except in compliance with the registration
requirements of the Securities Act or an applicable exemption under the
Securities Act, including an exemption pursuant to Rule 144 thereunder.
In general, under Rule 144 as currently in effect, any affiliate of the
Company and any person (or persons whose sales are aggregated) who has
beneficially owned his or her restricted shares for at least two years, is
entitled to sell in the open market within any three-month period a number of
shares of Common Stock that does not exceed the greater of (i) 1% of the then
outstanding shares of the Company's common stock, or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain limitations on manner of
sale, notice requirements, and availability of current public information about
the Company. Non-affiliates of the Company who have held their restricted shares
for three years are entitled to sell their shares under Rule 144 without regard
to any of the above limitations, provided they have not been affiliates for the
three months preceding such sale.
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In addition, Rule 144A as currently in effect, in general, permits
unlimited resales of certain restricted securities of any issuer provided that
the purchaser is an institution that owns and invests on a discretionary basis
at least $100 million in securities or is a registered broker-dealer that owns
and invests $10 million in securities. Rule 144A allows the existing
stockholders of the Company to sell their shares of Common Stock to such
institutions and registered broker-dealers without regard to any volume or other
restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A
to nonaffiliates do not lose their status as restricted securities.
In addition to the foregoing restrictions on the resale of restricted
securities, certain of the Company's shareholders, including all of the
Company's officers and directors who are shareholders of the Company have,
pursuant to the terms of an escrow agreement by and among such shareholders, the
Company and Union Bank of California (the "Promotional Share Escrow Agreement"),
placed into escrow with Union Bank of California an aggregate of 4,647,078
shares of Common Stock beneficially owned by such shareholders (such 4,647,078
shares of Common Stock are hereinafter referred to as the "Promotional Shares").
Pursuant to the terms of the Promotional Share Escrow Agreement, while the
Promotional Shares are held in escrow by Union Bank of California, none of the
holders of the Promotional Shares are entitled to any dividends paid on the
Promotional Shares, and all of the holders of the Promotional Shares have agreed
that in the event of dissolution, liquidation, merger, consolidation, sale of
assets, exchange, or any transaction or proceeding that results in the
distribution of the assets of the Company, they will waive all of their rights,
titles and interests and participation in the assets of the Company until the
holders of all non-Promotional Shares of Common Stock have been paid.
The Promotional Shares may only be released from escrow under the following
circumstances: (i) twenty-five percent (25%) of the Promotional Shares may be
released from escrow on the sixth, seventh, eighth and ninth anniversary dates
of this Prospectus; or (ii) one hundred percent (100%) of the Promotional Shares
may be released from escrow after the Company has had annual net earnings per
share equal to, or greater than, five percent (5%) of the offering price of the
Shares, according to generally accepted accounting principles ("GAAP"), after
taxes and excluding extraordinary items, for any two consecutive fiscal years
after the date of this Prospectus; or (iii) one hundred percent (100%) of the
Promotional Shares may be released from escrow after the Company's Common Stock
has traded in a reliable public market at a price of at least one hundred
seventy-five percent (175%) of the offering price of the Shares for at least 90
consecutive trading days after at least one year from the date of this
Prospectus.
Notwithstanding the foregoing, none of the Promotional Shares shall be
released from escrow without the prior written order or consent of the state
securities law administrators of the states of Alabama, Arkansas, California,
Idaho, Iowa, Indiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri,
Montana, Nebraska, Nevada, New Hampshire, New Mexico, Ohio, Oklahoma,
Pennsylvania, South Dakota, Tennessee, Texas, Washington and Wisconsin.
Prior to this offering, no public market for the Company's securities has
existed. Following this offering, no predictions can be made of the effect, if
any, of future public sales of restricted securities or the availability of
restricted securities for sale in the public market. Moreover, the Company
cannot predict the number of shares of Common Stock that may be sold in the
future pursuant to Rule 144 because such sales will depend on, among other
factors, the market price of the Common Stock and the individual circumstances
of the holders thereof. The availability for sale of substantial amounts of
Common Stock under Rule 144 could adversely affect prevailing market prices for
the Company's securities.
PLAN OF DISTRIBUTION
The Company is offering up to 1,666,670 Shares at a purchase price of $3.00
per share. The Shares will be sold on a "best efforts, all or none" basis with
respect to the first 334,000 Shares, and on a "best efforts" basis as to the
remaining 1,266,670 Shares. The minimum number of Shares offered hereby must be
sold, if any are to be sold, on or before July 7, 1997. The Company may allocate
among or reject any subscriptions, in whole or in part.
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The Shares will be offered and sold by the Company's officers, directors
and employees, without compensation. The officers, directors and employees of
the Company who are expected to offer and sell Shares on behalf of the Company
are Mr. Gerald R. Rodder, Mr. Gerald F. Norman, Mr. Harold J. Gallagher and Mr.
Scott E. Rodder. Neither the Company nor any of its officers or directors or
employees is registered as a broker or dealer under Section 15 of the Exchange
Act.
The Company has not retained any underwriter or any independent
broker-dealer to assist in offering the Shares. It is the intention of the
Company to offer and sell the Shares by contacting prospective investors through
appropriate newspaper and magazine advertisements as well as through the use of
the Internet to electronically deliver copies of this Prospectus to prospective
investors.
Those subscribing to purchase Shares must complete a Stock Purchase
Agreement, a form of which is included as an appendix to this Prospectus.
Residents of Arkansas, California, Idaho, Iowa, Massachusetts, Missouri,
Nebraska, New Hampshire, New Mexico, North Dakota, Oregon, South Dakota,
Tennessee and Texas must also complete a Suitability Questionnaire, a form of
which is also attached as an appendix to this Prospectus. All funds received by
the Company with respect to the minimum number of Shares that may be sold will,
promptly following receipt by the Company, be deposited in an escrow account
with the Escrow Agent pursuant to the terms of an escrow agreement entered into
between the Company and the Escrow Agent (the "Escrow Agreement"). In the event
that the minimum number of Shares offered hereby is not sold within the
permitted time period, then all funds received by the Company will be promptly
refunded to the subscribers, in full, without interest or deduction therefrom.
The Company reserves the right to reject any subscription for Shares in its
entirety or to allocate Shares among prospective purchasers. If any subscription
is rejected, funds received by the Company for such subscription will be
returned to the applicable prospective purchaser without interest or deduction.
Certificates representing Shares purchased will be issued to purchasers
only if the proceeds from the sale of at least 334,000 shares are released from
escrow. Until the certificates are delivered to the purchasers thereof, such
purchasers, if any, will be deemed subscribers only, and not shareholders. The
funds in escrow will be held for the benefit of those subscribers until released
to the Company. All funds received by the Company after the minimum number of
Shares offered hereby is sold will not be placed in escrow, but placed directly
into the Company's operating account for immediate use by the Company.
Although it is the Company's intention to develop a public market for its
Common Stock by soliciting brokerdealers who are members of the NASD to make a
market in the Company's Common Stock, to date the Company has not entered into
any arrangements, commitments or understandings with any persons with respect to
the creation of a public market for its Common Stock.
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by the Law Offices of John W. Martin, Los Angeles,
California. John W. Martin, the sole proprietor of the Law Offices of John W.
Martin is the beneficial owner of 150,000 shares of Common Stock. See "Principal
Stockholders".
AVAILABLE INFORMATION
Directional Robotics, Inc., a California corporation (the "Company") has
filed with the Commission a Registration Statement on Form SB-2 (Registration
No. 33-2356-LA) under the Securities Act, for the registration of the securities
offered hereby. This Prospectus omits certain of the information contained in
the Registration Statement, and reference is hereby made to the Registration
Statement and exhibits and schedules thereto for further information with
respect to the Company and the securities to which this Prospectus relates.
Statements made herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference. Items of
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information omitted from this Prospectus but contained in the Registration
Statement may be inspected without charge at the Public Reference Room of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, at
prescribed rates.
Upon consummation of the offering of the Shares, the Company will become
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith will file reports and other
information with the Commission. Such reports and other information can be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
New York Regional Office, 26 Federal Plaza, New York, New York 10007, and its
Chicago Regional Office, Everett McKinley Dirksen Building, 219 South Dearborn
Street, Room 1204, Chicago, Illinois 60604. Copies of such material can be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549, at prescribed rates. The Commission also maintains a site on the World
Wide Web that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
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