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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 2000
REGISTRATION NO. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ADVANCED OPTICS ELECTRONICS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEVADA 3827 88-03651356
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
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8301 WASHINGTON NE, SUITE 5
ALBUQUERQUE, NM 87113
(505) 797-7878
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JOHN J. COUSINS
VICE PRESIDENT, FINANCE
LESLIE S. ROBINS
EXECUTIVE VICE PRESIDENT
ADVANCED OPTICS ELECTRONICS INC.
8301 WASHINGTON NE, SUITE 5
ALBUQUERQUE, NM 87113
(505) 797-7878
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO
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LEIB ORLANSKI, ESQ.
TED WEITZMAN, ESQ.
KIRKPATRICK & LOCKHART LLP
9100 WILSHIRE BLVD., 8TH FLOOR EAST
BEVERLY HILLS, CALIFORNIA 90212
TELEPHONE (310) 273-1870
FACSIMILE (310) 274-8357
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE AGGREGATE OFFERING REGISTRATION
(1) PRICE (1) FEE
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Common Stock, $.001 par value 5,531,340(2) $0.25 $ 1,382,835 $ 365
Common Stock, $.001 par value 55,555,556(3) $0.25 $13,888,889 $3,667
Common Stock, $.001 par value 5,942,500(4) $0.25 $ 1,485,625 $ 392
Total Registration Fee $16,757,349 $4,424
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(1) Estimated pursuant to Rule 457(o) of the Securities Act of 1933 solely for
the purpose of computing the amount of the registration fee.
(2) Represents shares that have been or may be acquired by the selling
stockholders upon conversion of convertible notes that have been issued,
assuming a conversion price equal to the lesser of 77.5% of the average of
the five lowest closing bid prices of the common stock for the twenty days
immediately preceding the conversion date, as reported on the OTC Bulletin
Board, or $1.47.
(3) Represents shares that have been or may be acquired by the selling
stockholders upon conversion of convertible notes that have been issued,
assuming a conversion price equal to the lesser of 75% of the average of
the three lowest closing bid prices of the common stock for the thirty
trading days immediately preceding the issue date of the notes, as
reported on the OTC Bulletin Board, or 80% of the average of the three
lowest closing bid prices of the common stock for the ninety days
immediately preceding the conversion date, as reported on the OTC Bulletin
Board.
(4) Represents shares which may be issued upon exercise of warrants issued to
the selling stockholders.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
(SUBJECT TO COMPLETION)
Issued __________, 2000
67,029,396 Shares
[GRAPHIC]
COMMON STOCK
This prospectus relates to 63,189,396 shares of common stock of
Advanced Optics Electronics, Inc. that may be sold from time to time by the
selling stockholders named in this prospectus. We will not receive any proceeds
from the sales by the selling stockholders.
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Our common stock is traded on the electronic bulletin board maintained
by the National Association of Securities Dealers under the symbol "ADOT."
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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_________, 2000
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INSIDE FRONT COVER
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ADVANCED OPTICS ELECTRONICS PROSPECTUS
ABOUT ADVANCED OPTICS ELECTRONICS
We were incorporated as Advanced Optics Electronics Inc. in May 1996. Our
executive offices are located at 8301 Washington NE, Suite 5, Albuquerque, New
Mexico 87113. Our website address is www.adot.org and our telephone number is
(505) 797-7878. The information on our website is not incorporated by reference
into this prospectus.
INTRODUCTION
Please read this prospectus carefully. It describes our business, our
products and services and our financial condition and results of operations. We
have prepared this prospectus so that you will have the information necessary to
make an informed investment decision.
You should rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The information contained in this prospectus is
accurate only as of the date of the prospectus, regardless of the time the
prospectus is delivered or the common stock is sold.
PROSPECTUS DELIVERY OBLIGATIONS
Until _________, 2000 (25 days after the date of this prospectus), all
dealers effecting transactions in these securities may be required to deliver a
prospectus, even if they do not participate in this offering. This is in
addition to the obligations of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
TABLE OF CONTENTS
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Prospectus Summary.................................................2
Risk Factors.......................................................4
Forward Looking Statements........................................10
Use of Proceeds...................................................10
Dividend Policy...................................................11
Capitalization....................................................12
Selected Combined Financial Data..................................13
Management's Discussion and Analysis of
Financial Condition and Results of Operations..................14
Business..........................................................18
Management........................................................22
Certain Transactions..............................................28
Principal Stockholders............................................29
Description of Capital Stock......................................30
Shares Eligible for Future Sale...................................32
The Selling Stockholders..........................................33
Plan of Distribution..............................................34
Legal Matters.....................................................35
Experts...........................................................36
Additional Information............................................36
Index to Financial Statements....................................F-1
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PROSPECTUS SUMMARY
This summary highlights selected information in this prospectus, but it
may not contain all of the information that is important to you. To better
understand this offering, and for a more complete description of the offering,
you should read this entire prospectus carefully including the "Risk Factors"
section and the financial statements and notes thereto appearing elsewhere in
this prospectus.
Advanced Optics Electronics Inc. (ADOT-OTC Bulletin Board) is a
technology company based in Albuquerque, New Mexico. Our principal offices are
located at 8301 Washington NE, Suite 5, Albuquerque, New Mexico 87113, and our
telephone number is (505) 797-7878. We were organized as a Nevada corporation on
May 22, 1996. On November 7, 1996, we acquired the business and patents of
PLZTech, a company involved in the development of flat panel displays.
Our primary focus is the development, production and sales of
large-scale flat panel displays. Our flat panel displays produce an image
measuring 12 feet by 33 feet, which is the same size as traditional printed
billboards, and have the comparative advantages of providing dynamic,
eye-catching advertisements and rapid change of display images from a remote
site. We maintain a research and development facility and manufacturing plant,
and we are engaged in building large-scale flat panel displays utilizing our
proprietary Electro-Optic Array technology. The primary initial product will be
marketed to users of outdoor advertising billboards. The development of our
electronic flat panel displays represents the first time that our proprietary
technology is available for outdoor advertising billboards.
THE OFFERING
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Common stock offered by selling stockholders
(including shares underlying convertible notes and warrants)........ 67,029,396 shares
Common stock to be outstanding after the offering 128,342,072 shares
Use of proceeds..................................................... We will not receive any proceeds from
the sale of the common stock.
OTC Bulletin Board.................................................. ADOT
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The above information is based on the number of shares of common stock
outstanding as of November 20, 2000 and assumes the subsequent conversion of all
of our issued convertible notes and warrants outstanding as of November 20, 2000
into an aggregate of 67,029,396 shares of common stock upon the completion of
this offering. It excludes 3,825,000 shares of common stock issuable upon
exercise of outstanding employee stock options with a weighted-average exercise
price of $.29 per share, 7,275,000 shares of common stock issuable upon exercise
of outstanding warrants granted to our directors and officers with a
weighted-average exercise price of $.25 per share and 4,175,000 shares of common
stock reserved for future awards under our stock option plan.
Unless otherwise indicated, this prospectus assumes that all
convertible notes have been automatically converted into shares of common stock.
In this prospectus, the terms "company," "ADOT, "we," "us," and "our"
refer to Advanced Optics Electronics Inc., a Nevada corporation, and, unless the
context otherwise requires, "common stock" refers to the common stock, par value
$0.001 per share, of Advanced Optics Electronics Inc.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
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1998 1999 1999 2000
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STATEMENT OF OPERATIONS DATA:
Revenues .......................................... 178,200 310,345 261,375 118,117
Gross profit (loss) ............................... (37,272) (157,876) (22,195) (269,847)
Operating expenses ................................ 853,891 2,659,850 1,142,245 2,903,303
Loss from operations .............................. (675,691) (2,349,505) (880,870) (2,785,186)
Other income (expenses), net ...................... (76,420) (313,279) (277,820) (228,998)
Net loss (1) ...................................... (752,111) (2,725,804) (1,221,710) (3,014,184)
Basis net loss per share (2) ...................... (.055) (.072) (.04) (.06)
Weighted average common shares outstanding (2) .... 13,723,302 37,809,084 32,149,015 53,921,575
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AS OF DECEMBER 31, 1999 AS OF SEPTEMBER 30, 2000
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BALANCE SHEET DATA:
Cash and cash equivalents.......................... 190,387 778,220
Working capital.................................... 331,443 884,904
Total current assets............................... 994,775 1,547,479
Total assets....................................... 1,855,807 2,480,481
Total current liabilities 200,756 316,768
Long-term obligations, excluding current portion... 408,790 334,549
Total stockholders' equity (deficit)............... 1,246,261 1,829,164
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(1) Includes loss of $63,020 representing cumulative effect of change in
accounting principle in 1999.
(2) See Note 1 of Notes to Financial Statements for a description of the
computation of net income (loss) per share and the number of shares used
in the per share calculation.
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RISK FACTORS
This offering and any investment in our common stock involve a high
degree of risk. You should carefully consider the risks described below and all
of the information contained in this prospectus before deciding whether to
purchase our common stock. If any of the following risks actually occur, our
business, financial condition and results of operations could be harmed. The
trading price of our common stock could decline, and you may lose all or part of
your investment in our common stock.
WE HAVE A LIMITED OPERATING HISTORY WITH WHICH TO JUDGE OUR PERFORMANCE.
We were incorporated in May 1996, and we have a relatively short operating
history for you to review in evaluating our business. Before you decide to
purchase our common stock, you should consider the risks, expenses and
difficulties we may encounter, including those frequently encountered by early
stage companies in new and rapidly evolving markets. We cannot assure you that
our business strategy will be successful or that we will successfully address
these risks. Our failure to do so could materially adversely affect our
business, financial condition and operating results.
WE EXPECT OUR LOSSES AND NEGATIVE CASH FLOW TO CONTINUE.
We have incurred losses and experienced negative operating cash flow since
our formation. For the year ended December 31, 1999, we had operating losses of
approximately $2,350,000, net losses of $2,726,000 and negative cash flow from
operating activities of $1,020,000. We expect to incur substantial operating and
net losses and negative operating cash flow for the foreseeable future, and
cannot assure you that we will ever achieve profitability or generate positive
cash flow.
We expect our operating expenses will increase, particularly in areas of
operations, sales and marketing, as we develop and expand our business. As a
result, we will need to increase our revenue to become profitable. If our
revenues do not grow as expected, or increases in our expenses appreciably
exceed our expectations, we could experience a material adverse effect on our
business, prospects and financial condition. If we do achieve profitability, we
cannot assure you that we will be able to sustain it or improve upon it on a
quarterly or annual basis for future periods.
WE WILL NEED SIGNIFICANT ADDITIONAL FUNDS TO OPERATE OUR BUSINESS, AND WE MAY
NOT BE ABLE TO FIND THEM.
We expect to continue to incur substantial expenses for research and
development, product testing, product sales and marketing, and administrative
overhead in the expansion and development of our business. The majority of
research and development expenditures are for the development of our flat panel
displays, which utilize our Electro-Optic Array technology. Our business model
is based on sales and leasing of our product to the outdoor advertising
industry. This will require a significant capital investment on our part. Our
flat panel displays are expected to be available fourth quarter 2000. Some of
our other proposed products may not be available for commercial sale or routine
use for a period of up to two years.
Commercialization of our existing and proposed products will require
additional capital in excess of our current capital. A shortage of capital may
prevent us from achieving profitability for an extended period of time. Because
the timing and receipt of revenues from the sale of products will be tied to the
achievement of certain product development, testing, sales and marketing
objectives, which cannot be predicted with certainty, there may be substantial
fluctuations in our results of operations. If revenues do not increase as
rapidly as anticipated, or if product development and testing and marketing
require more funding than anticipated, we may be required to curtail
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our expansion and/or seek additional financing from other sources. We may seek
additional financing through the offer of debt or equity or any combination of
the two at any time.
We have developed a plan to allow us to maintain operations until we are
able to sustain ourselves on our own revenue. Our plan is primarily dependent on
raising funds through revenue generated from the installation of our flat panel
displays, and through debt and equity offerings. However, we only have the
existing resources, including commitments, to allow us to survive for a period
of approximately 11 months from the date of this report at our current spending
levels. We have been operating in this manner for an extended period of time and
we believe that we have the ability to continue to raise short term funding, if
necessary, to enable us to continue operations until our plan can be completed.
There can, however, be no assurance that we will be able to raise any additional
funds.
Our plan is based on current development plans, current operating plans,
the current regulatory environment, historical experience in the development of
electronic products and general economic conditions. However, changes could
occur which would cause certain assumptions on which our plan is based to be no
longer valid. We may be unable to obtain any future equity or debt financing on
acceptable terms or at all. A downturn in the financial markets or general
market uncertainty may adversely affect our ability to secure additional
financing. If adequate funds are not available from operations or additional
sources of financing, we may have to eliminate, or reduce substantially,
expenditures for research and development, testing and production of our
products. We may have to obtain funds through arrangements with other entities
that may require us to relinquish rights to certain of our technologies or
products or take other actions that could adversely affect our business,
prospects, financial condition and results of operations.
OUR TECHNOLOGY AND PRODUCT DEVELOPMENT IS IN ITS EARLY STAGES, AND THE OUTCOME
IS UNCERTAIN.
Our Electro-Optic Array technology is an emerging technology that will
require significant additional development, engineering, testing and investment
prior to commercialization. Our leading potential product, which utilizes this
technology, is the flat panel display intended for use as an outdoor electronic
billboard. If the flat panel display is successful, other similar products using
our technology is also a possibility. The flat panel display and other outdoor
electronic billboards may not be successfully developed. If any of these
products are developed, it may not be possible to produce these products in
significant quantities at prices that are competitive with other similar
products.
OUR TECHNOLOGY AND PRODUCT REVENUES HAVE BEEN LIMITED.
We currently have recognized revenue for partial completion of a contract
entered into to produce two flat panel displays utilizing our Electro-Optic
Array technology. This is the first commercial contract application of this
technology. Our success will depend on our ability to complete this contract and
commercialize our technology on a larger scale. There can be no assurance that
we will be able to obtain additional commercial contracts applying our
technology to outdoor electronic billboards or that we will receive additional
product revenues from this technology.
OUR SUCCESS IS DEPENDENT ON MARKET ACCEPTANCE OF OUR PRINCIPAL PRODUCTS.
Since our inception, we have focused research and development efforts and
product development on technologies that we believe will be a significant
advancement over currently available technologies. Our Electro-Optic Array
technology is an emerging technology. With any new technology, there is a risk
that the market may not appreciate the benefits or recognize the potential
application of the technology. Our financial condition and prospects are
dependent upon market acceptance
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and sales of our flat panel displays and other outdoor electronic billboards
using our technology. Additional research and development needs to be conducted
on these products before marketing and sales efforts can be commenced. Market
acceptance of our products will be dependent upon the perception within the
outdoor advertising, electronics and instrumentation industries of the quality,
reliability, performance, efficiency, breadth of application and
cost-effectiveness of our products as compared to competitive products. There
can be no assurance that we will be able to gain commercial market acceptance
for our products or develop other products for commercial use.
THE ELECTRONIC DISPLAY MARKET IS COMPETITIVE, AND RAPID TECHNOLOGICAL CHANGE
COULD RENDER OUR PRODUCTS OBSOLETE AND WE MAY NOT REMAIN COMPETITIVE.
The electronic display industry is highly competitive and is characterized
by rapid technological change. Our existing and proposed products will compete
with other existing products and may compete against other developing
technologies. Our competitors may succeed in developing products that outperform
our products or that are more cost effective. In order to effectively compete,
we could be required to increase the performance of our products or reduce our
prices. In the event of price reductions, we will not be able to maintain gross
margins unless we reduce our cost of sales. In addition, if our competitors
develop products that offer significant advantages over our products and we are
unable to improve our technology, or develop or acquire alternative technology
that is more competitive, we would be adversely affected. Development by others
of new or improved products, processes or technologies may reduce the size of
potential markets for our products. There is no assurance that other products,
processes or technologies will not render our proposed products obsolete or less
competitive.
Many of our competitors have greater financial, managerial, distribution,
and technical resources than we do. We will be required to devote substantial
financial resources and effort to further research and development. There can be
no assurance that we will successfully differentiate our products from our
competitors' products, or that we will adapt to evolving markets and
technologies, develop new products, or achieve and maintain technological
advantages.
RISK OF PLANNED RAPID GROWTH.
We plan to significantly expand our operations during the current fiscal
year. The transition from a technology development stage company to a company in
the initial stages of market development and product commercialization will
continue to place a significant strain on our limited personnel, financial and
other resources. Although we have begun to prepare for larger scale operations,
there can be no assurance that these efforts will be successfully completed or
that we can operate on a substantially larger scale.
WE MAY NOT BE ABLE TO MANUFACTURE, MARKET AND SELL OUR PRODUCTS.
We have limited established commercial manufacturing facilities in the
areas in which we are conducting our principal research. We intend to establish
a larger manufacturing facility for assembly services related to our flat panel
displays and other proposed electronic billboard products, and we intend to
establish and develop a sales organization to promote, market, and sell our
products. This may require significant additional expenditures, management
resources, and training time. There can be no assurance that we will be able to
establish a successful manufacturing facility or sales organization.
WE ARE DEPENDENT ON THE AVAILABILITY OF MATERIALS AND SUPPLIERS.
The materials used in producing our current and future products are
purchased from outside vendors. In certain circumstances, we may be required to
bear the risk of material price fluctuations. We anticipate that the majority of
raw materials used in products to be developed by us will be readily available.
However, there is no assurance that the current availability of
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these materials will continue in the future, or if available, will be
procurable at favorable prices.
THE OUTDOOR ELECTRONIC BILLBOARD MARKET IS SUBJECT TO GOVERNMENT REGULATIONS
The adoption of additional federal or state laws or regulations applicable
to the outdoor electronic billboard industry, similar to the Highway
Beautification Act, could decrease the demand for our products and increase our
costs of doing business or otherwise have a material adverse effect on our
business prospects, financial condition and results of operations.
WE RELY ON CERTAIN KEY PERSONNEL TO OPERATE OUR BUSINESS.
We believe our success depends on the continued services of our senior
management team, especially Leslie Robins, John Cousins and Michael Pete as well
as our senior engineering team: Dr. Garth Gobeli, Stephen Mills, Gary Fuehrer
and Michael Harmon. We do not carry life insurance on the lives of any of our
key personnel. We face intense competition for qualified personnel, particularly
in software development, network engineering and product management. Our future
success also depends on our continuing ability to identify, hire, train and
retain highly qualified technical, sales, marketing and customer service
personnel. Our failure to effectively hire and retain qualified personnel could
have a material adverse effect on our business, financial condition and
operating results.
WE MAY BE UNABLE TO ENFORCE OR DEFEND OUR OWNERSHIP AND USE OF PROPRIETARY
TECHNOLOGY.
Our ability to compete effectively with other companies will depend on our
ability to maintain the proprietary nature of our Electro-Optic Array technology
and any other technology that we develop or acquire. Although we have been
awarded a patent, have filed applications for patents, the degree of protection
offered by these patents or the likelihood that pending patents will be issued
is uncertain. Competitors in both the United States and foreign countries, many
of which have substantially greater resources and have made substantial
investment in competing technologies, may already have, or may apply for and
obtain patents that will prevent, limit or interfere with our ability to make
and sell our products. Competitors may also intentionally infringe on our
patents.
The defense and prosecution of patent suits is both costly and
time-consuming, even if the outcome is favorable to us. In foreign countries,
the expenses associated with such proceedings can be prohibitive. In addition,
there is an inherent unpredictability in obtaining and enforcing patents in
foreign countries. An adverse outcome in the defense of a patent suit could
subject us to significant liabilities to third parties. Although third parties
have not asserted infringement claims against us, there is no assurance that
third parties will not assert such claims in the future.
We also rely on unpatented proprietary technology, and there is no
assurance that others will not independently develop the same or similar
technology, or otherwise obtain access to our proprietary technology. To protect
our rights in these areas, we require employees, consultants, advisors and
collaborators to enter into confidentiality agreements. These agreements may not
provide meaningful protection for our trade secrets, know-how, or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such trade secrets, know-how, or other proprietary information.
While we have attempted to protect proprietary technology, including our
Electro-Optic Array technology, that we develop or acquire and will continue to
attempt to protect future proprietary technology through patents, copyrights and
trade secrets, we believe that our success will depend upon further innovation
and technological expertise.
THE MARKET FOR SHARES OF OUR COMMON STOCK IS VOLATILE.
The market price of the shares of our common stock, like that of the common
stock of many emerging technology companies, has fluctuated significantly in
recent years and will likely continue to fluctuate in the future. The prices of
such securities currently rise and are expected to continue to rise rapidly in
response
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to certain events, such as announcements concerning product developments,
licenses and patents, although the outcome of such events may not be fully
determined. Similarly, prices of such securities may fall rapidly if unfavorable
results are encountered in product development or market acceptance. In the
event that we achieve earnings from the sale of products, securities analysts
may begin predicting quarterly earnings. The failure of our earnings to meet
analysts' expectations could result in a significant rapid decline in the market
price of our common stock. In addition, the stock market has experienced and
continues to experience extreme price and volume fluctuations which have
affected the market price of the equity securities of many technology companies
and which have often been unrelated to the operating performance of those
companies. Such broad market fluctuations, as well as general economic and
political conditions, may adversely affect the market price of the common stock.
THERE IS NO ASSURANCE OF AN ESTABLISHED PUBLIC TRADING MARKET.
Although the common stock of our Company trades on the electronic bulletin
board maintained by the National Association of Securities Dealers, or the OTC
Bulletin Board, there can be no assurance that a regular trading market for the
securities will be sustained. The OTC Bulletin Board is an inter-dealer,
over-the-counter market which provides significantly less liquidity than the
Nasdaq Stock Market. Quotes for stocks included on the OTC Bulletin Board are
not listed in the financial sections of newspapers as are those for the Nasdaq
Stock Market. Therefore, prices for securities traded solely on the OTC Bulletin
Board may be difficult to obtain and holders of common stock may be unable to
resell their securities at or near their original offering price or at any
price.
The National Association of Securities Dealers has enacted recent changes
that limit quotations on the OTC Bulletin Board to securities of issuers that
are current in their reports filed with the Securities and Exchange Commission.
The intent of the change is to make reliable and current financial and other
information about issuers available to the investing public. Additional changes
to the OTC Bulletin Board have been proposed, which if and when implemented will
require broker-dealers and market makers to review current information about an
issuer before making recommendations to a customer in the security, and to
provide certain disclosure information on the trade confirmation for all
customer transactions. The effect on the OTC Bulletin Board of these rule
changes cannot be determined at this time. In the event that our securities are
not included on the OTC Bulletin Board and do not qualify for the Nasdaq Stock
Market, quotes for the securities may be included in the "pink sheets" for the
over-the-counter market.
SECURITIES AND EXCHANGE COMMISSION "PENNY STOCK" REGULATIONS IMPOSE CERTAIN
RESTRICTIONS ON MARKETABILITY OF SECURITIES
The Securities and Exchange Commission has adopted regulations which generally
define "penny stock" to be any equity security that is not traded on a national
securities exchange or the Nasdaq Stock Market and that has a market price of
less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. A security of an issuer that meets certain
minimum financial requirements would also be excluded from the definition of
"penny stock" (generally, with net tangible assets in excess of $2 million or $5
million, respectively, depending upon whether the issuer has been continuously
operating for less or more than three years, or "average revenue" of at least $6
million for the last three years.)
As long as our Company does not meet the financial requirements, and our
common stock is trading at less than $5.00 per share on the OTC Bulletin Board,
our securities are subject to rules that impose additional sales practice
requirements on broker-dealers who sell these securities to persons other than
established customers and accredited investors (generally, investors with a net
worth in excess of $1,000,000 or an individual annual income
8
<PAGE> 12
exceeding $200,000, or, together with the investor's spouse, a joint income of
$300,000). For transactions covered by these rules, the broker-dealer must make
a special suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the
purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require, among other things, the delivery, prior to the transaction, of a
risk disclosure document mandated by the Securities and Exchange Commission
relating to the penny stock market and the risks associated therewith. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the penny stock rules may restrict
the ability of broker-dealers to sell our securities and may affect the ability
of stockholders of the Company to sell their securities in the secondary market.
WE HAVE NEVER PAID DIVIDENDS.
We have never paid cash dividends on our equity securities and do not intend to
pay cash dividends in the foreseeable future. To the extent we have earnings in
the future, we intend to reinvest such earnings in our business operations.
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<PAGE> 13
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform these statements to actual results.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling stockholders. If the 5,942,500 warrants are exercised, the
Company will receive estimated proceeds of $_______ which will be used to offset
the approximately $150,000 of legal, accounting, printing and other expenses of
this offering.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock began trading on the OTC Bulletin Board under the
symbol "ADOT" during the first quarter of 1997. The following table sets forth
the high and low bid prices for the common stock since it began trading as
reported by Nasdaq. The quotations reflect inter-dealer prices, with retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
Fiscal 1997:
1st Quarter $2.50 $0.25
2nd Quarter 0.81 0.19
3rd Quarter 1.63 0.29
4th Quarter 0.88 0.19
Fiscal 1998:
1st Quarter 0.57 0.15
2nd Quarter 0.30 0.18
3rd Quarter 0.23 0.11
4th Quarter 0.12 0.04
Fiscal 1999:
1st Quarter 0.16 0.05
2nd Quarter 0.12 0.06
3rd Quarter 0.49 0.08
4th Quarter 0.87 0.25
Fiscal 2000:
1st Quarter 1.53 0.69
2nd Quarter 1.09 0.61
3rd Quarter 0.57 0.29
</TABLE>
As of the date of this prospectus, we have approximately 240 holders of
record and in excess of 12,550 beneficial owners of our common stock.
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<PAGE> 14
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain future earnings, if any, to finance the expansion
of our business, and we do not expect to pay any cash dividends in the
foreseeable future. The decision whether to pay cash dividends on our common
stock will be made by our board of directors, in their discretion, and will
depend on our financial condition, operating results, capital requirements and
other factors that the board of directors considers significant.
11
<PAGE> 15
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
2000:
o on an actual basis including the sale and issuance of $1,240,667
of convertible notes;
o on a pro forma basis to reflect: (1) the sale and issuance of
$740,667 of convertible notes pursuant to securities purchase
agreements dated November 7, 2000 as if that had occurred on
September 30, 2000, (2) the sale and issuance of $1,815,000 of
convertible notes contingent upon effectiveness of the
registration statement, (3) the sale and issuance of an additional
$8,000,000 of convertible notes that we have the right to require
upon effectiveness of the registration statement and (4) the
conversion of all outstanding convertible notes into an aggregate
of 61,086,896 shares of common stock in connection with this
offering and the exercise of the warrants for 5,942,500 shares of
common stock; and
o on a pro forma as adjusted basis to reflect the estimated offering
expenses of $150,000.
You should read this table with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and the related notes.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
--------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt ...................................................... $ 40 $ 40 $ 40
Long-term debt, less current portion ................................. 335 -- --
Stockholders' equity (deficit):
Preferred Series A, 7.5% cumulative, convertible into
common stock at a rate determined by dividing the
purchase price of the preferred shares by the conversion
price of the common stock; $.001 par value; authorized
10,000,000 shares, issued 550 shares in first quarter of
2000 and 160 shares in the third quarter of 2000 (1) ......... 1 -- --
Common Stock, $0.001 par value; 150,000,000 shares
authorized; 61,312,676 shares issued and outstanding
(actual); 128,342,072 shares issued and outstanding (pro
forma); 128,342,072 shares issued and outstanding (pro
forma as adjusted) (2) ....................................... 61 128 128
Additional paid-in capital ........................................... 8,636 18,787 18,787
Accumulated deficit .................................................. (6,813) (6,813) (6,813)
Treasury stock ....................................................... (55) (55) (55)
------------ ------------ ------------
Total stockholders' equity (deficit) ............................. 1,829 12,047 12,047
------------ ------------ ------------
Total capitalization ............................................. $ 2,480 $ 12,364 $ 12,364
============ ============ ============
</TABLE>
----------
(1) On November 7, 2000, we entered into securities purchase agreements with
two investors that modified agreements dated as of March 8, 2000 and August
7, 2000 regarding the sale and issuance of shares of Series A preferred
stock. As a result, previously issued shares of Series A preferred stock
plus additional consideration were exchanged for 7.5% convertible notes in
the aggregate amount of $1,055,667 that may be converted into shares of our
common stock and the issuance of warrants to purchase 102,500 shares of our
common stock.
(2) Excludes shares issuable pursuant to outstanding stock options and warrants
granted to employees including officers and non-employee directors to
purchase an aggregate of 11,100,000 shares of common stock at a weighted
average exercise price of $.26 per share.
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<PAGE> 16
SELECTED FINANCIAL DATA
You should read the selected financial data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and the related notes
included elsewhere in this prospectus. The statement of operations data set
forth below for the year ended December 31, 1998 and 1999, and the balance sheet
data as of December 31, 1998 and 1999, have been derived from our audited
financial statements included elsewhere in this prospectus. The state of
operations data set forth below for the nine months ended September 30, 1999 and
2000, and the balance sheet data as of September 30, 1999 and 2000, have been
derived from our unaudited financial statements included elsewhere in this
prospectus, and in our opinion, include all necessary adjustments, consisting
only of normal recurring adjustments, to present fairly the unaudited results
when read in conjunction with the audited financial statements and the related
notes appearing elsewhere in this prospectus. The historical results are not
necessarily indicative of results to be expected for any future period. See Note
1 of Notes to Financial Statements for a description of the computation of net
income (loss) per share and the number of shares used in the per share
calculation.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues .............................................. $ 178,200 $ 310,345 $ 261,375 $ 118,117
Cost of revenues ...................................... 215,472 468,221 283,570 387,964
------------ ------------ ------------ ------------
Gross profit (loss) ................................... (37,272) (157,876) (22,195) (269,847)
Operating expenses:
General and administrative ......................... 490,296 1,952,600 721,624 2,067,891
Research and development ........................... 148,123 239,029 137,051 447,448
------------ ------------ ------------ ------------
Total operating expenses ........................ 638,419 2,191,629 858,675 2,515,339
------------ ------------ ------------ ------------
Loss from operations .................................. (675,691) (2,349,505) (880,870) (2,785,186)
Other income (expenses), net .......................... (76,420) (313,279) (277,820) (228,998)
------------ ------------ ------------ ------------
Net loss before cumulative effect of change in
accounting principle .................................. (752,111) (2,662,784) (1,158,690) (3,014,184)
Cumulative effect of change in accounting principle ... -- (63,020) (63,020) --
------------ ------------ ------------
Net loss .............................................. $ (752,111) $ (2,725,804) $ (1,221,710) $ (3,014,184)
============ ============ ============ ============
Basic net loss per share .............................. (.055) (.070) (.04) (.06)
Diluted net loss per share
Weighted average common shares outstanding ............ 13,273,302 37,809,084 32,149,015 53,921,575
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999 AS OF SEPTEMBER 30, 2000
----------------------- ------------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................. 190,387 778,220
Working capital ....................................... 331,443 884,904
Total current assets .................................. 994,775 1,547,479
Total assets .......................................... 1,855,807 2,480,481
Total current liabilities ............................. 200,756 316,768
Long-term obligations, excluding current portion ...... 408,790 334,549
Total stockholders' equity (deficit) .................. 1,246,261 1,829,164
</TABLE>
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<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations together with "Selected Financial Data" and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. The actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including, but not limited to, those presented
under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Advanced Optics Electronics Inc. is a developmental stage technology
company with its primary focus on the development, production and sales of our
large-scale flat panel displays, which utilize our patented technology. We are
currently continuing our research and development of our product and the
underlying technology, although we are in the process of making the transition
from a developmental stage company to producing and selling our product. We plan
to focus on producing and selling our large-scale flat panel displays for the
outdoor advertising billboard industry, which represents the first time that our
technology is available to this industry.
RESULTS OF OPERATIONS
For ease of reference, we refer to the fiscal year ended December 31,
1998 as fiscal 1998 and to the fiscal year ended December 31, 1999 as fiscal
1999.
YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUES
Contract Revenue. Contract revenue is comprised of costs incurred and
estimated earnings in excess of billings. Contract revenue increased 74% to
$310,345 in 1999 from $178,200 in 1998, which was primarily due to revenues from
the contract in place.
Contract Costs. Contract costs is comprised of all direct material and
labor, indirect labor, supplies, overhead and equipment depreciation. Contract
costs increased 117% to $468,221 in 1999 from $215,472 in 1998, which was
primarily due to continued research and development and costs involved in making
the transition from development to production.
Gross Profits. We incurred a loss due to the fact that we are in the
development stage and will not have recognized revenue until we bill our
customers on the contracts in progress.
EXPENSES
Research and Development. Research and development expenses are
comprised of all labor, materials, and technological costs incurred in the
development of our product. Research and development expenses increased to
$239,029 in 1999 from $148,123 in 1998, which was primarily due to additional
technical and professional employees, purchase of equipment necessary in the
research and development of our product, and costs incurred for current
technology.
General and Administrative. General and administrative expenses is
comprised of expenses for executive and administrative personnel, facilities,
professional services, general corporate activities and
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<PAGE> 18
depreciation. General and administrative costs increased to $1,952,600 in 1999
from $490,296 in 1998, which was primarily due to increased personnel,
professional service fees and increases in our facility expenses necessary in
supporting our growth.
Other Income (Expense). Other expense increased to ($313,279) in 1999
from ($76,420) in 1998, which was primarily due to the increase in interest
expense due to additional equipment leases and loans. Depreciation increased to
($102,691) in 1999 from ($35,133) in 1998 due primarily to depreciation expense
for equipment acquired under capital leases.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
REVENUES
Contract Revenue. Contract revenue decreased 45% to $118,117 for the
nine months ended September 30, 2000 from $261,375 for the nine months ended
September 30, 1999, which was primarily due to the fact that we are still in the
development stage.
Contract Costs. Contract costs increased 73% to $387,964 for the nine
months ended September 30, 2000 from $283,570 for the nine months ended
September 30, 1999, which was primarily due to personnel expenses, consulting
fees, materials and equipment for product development, and technical costs.
Gross Profits. Gross profits is comprised of billings on contracts in
place less contract costs. The company has billed and received approximately
$90,000 on a contract to produce two outdoor advertising billboards.
EXPENSES
Research and Development. Research and development expenses increased
to $447,448 for the nine months ended September 30, 2000 from $137,051 for the
nine months ended September 30, 1999, which was primarily due to increases in
research development, technical costs, engineering staff and equipment.
General and Administrative. General and administrative costs increased
to $2,067,891 for the nine months ended September 30, 2000 from $721,624 for the
nine months ended September 30, 1999, which was primarily due to increases in
personnel, professional services and facilities.
Other Income (Expense). Other expense decreased to ($228,998) for the
nine months ended September 30, 2000 from ($277,820) for the nine months ended
September 30, 1999, this decrease was due primarily to the early retirement of
convertible debentures.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Our operating results have fluctuated in the past, and are expected to continue
to fluctuate in the future, due to a number of factors, many of which are
outside our control. These factors include:
o demand for our products;
o the rate at which we add new customers and the ability to retain
existing customers;
o the availability and pricing of materials from suppliers;
o the prices paid for our products;
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<PAGE> 19
o the amount and timing of costs relating to expansion of our
operations, including expanding our product development,
manufacturing and sales and marketing functions;
o the announcement or introduction of new types of products by us or
our competitors;
o delays in revenue recognition at the end of a fiscal period as a
result of shipping, logistical or other problems; and
o general economic conditions and economic conditions specific to the
outdoor electronic billboard industry.
As a strategic response to changes in the competitive environment, we may from
time to time make certain product, marketing or supply decisions or acquisitions
that could have a material adverse effect on our quarterly results of operations
and financial condition. Due to all of the foregoing factors, in some future
quarter our operating results may not meet or exceed the expectations of
securities analysts and investors. In such event, the trading price of our
common stock would likely be adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
offerings of equity and debt securities. Net cash used in operating activities
was $1,019,916 in 1999 and $476,221 in 1998. The increase in net cash used in
operating activities in 1999 was primarily attributable to increases in losses.
The net cash used in operating activities for the nine months ended September
30, 2000 was $889,964 and for the nine months ended September 30, 1999 was
$715,714. The increase in net cash used in operating activities for the nine
months ended September 30, 2000 was primarily due to an increase in issuances of
stock for services.
Net cash used in investing activities was $43,063 for the nine months ended
September 30, 2000, ($171,518) for the nine months ended September 30, 1999,
$288,056 in 1999 and $634,263 in 1998. Net cash used in investing activities was
comprised of purchases of property and equipment, certificates of deposit and
marketable securities, and an investment in Bio Moda, Inc. The increase in cash
provided by investing activities in 2000 was primarily attributable to the sale
of marketable securities.
Net cash provided by financing activities was $1,434,734 for the nine months
ended September 30, 2000, $924,609 for the nine months ended September 30, 1999,
$1,293,747 in 1999 and $1,240,675 in 1998.
As of September 30, 2000, we had received $710,000 from a private placement of 7
1/2% convertible debentures. The proceeds of this private placement are being
used for research and development, prototype construction and for working
capital.
As of September 30, 2000, our principal commitments consisted of obligations of
approximately $130,000, which included the costs of bank notes, leased equipment
and the lease of our executive offices, research and development facilities and
manufacturing plant. We plan to increase our operating expenses significantly in
order to increase research and development efforts, expand our manufacturing,
sales and marketing efforts, increase the size of our staff and support our
growing infrastructure. As a result, we expect to experience quarterly net
losses and negative cash flow through at least first quarter 2001.
As of September 30, 2000, we had approximately $884,904 of cash, cash
equivalents and certificates of deposit. We believe that our current cash and
cash equivalents, with cash flows from operations, if any, will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least the next eleven months. However, we will need to raise at least $3
million in order to pay for the
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<PAGE> 20
costs of producing a minimum volume of our products for sale. We have not yet
secured a source for this funding requirement. We may seek to sell additional
equity or convertible debt securities. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. We cannot assure you that financing will be available to us in
amounts or on terms acceptable to us.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities."
This statement of position requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when this statement of position
is adopted. Effective January 1, 1999, we adopted this statement of position,
and the impact of this change in accounting principle was to reduce assets and
increase the deficit accumulated during the development stage by $63,020 as of
December 31,1999.
17
<PAGE> 21
BUSINESS
COMPANY OVERVIEW
Advanced Optics Electronics Inc. is a developmental stage technology
company with its primary focus on the development, production and sales of our
large-scale flat panel displays, which utilize our patented technology. We are
currently continuing our research and development of our product and the
underlying technology, although we are in the process of making the transition
from a developmental stage company to producing and selling our product. We plan
to focus on producing and selling our large-scale flat panel displays for the
outdoor advertising billboard industry, which represents the first time that our
technology is available to this industry.
INDUSTRY
Our flat panel displays fit into a growing niche that is part of the broad
visual communications market, which includes printing, photography, television,
billboard, etc. In particular, our flat panel displays fit within the billboard
sub-category of the broad visual communications market. Billboards include
various niches commonly identified as painted signs, architectural signage,
electric signs, programmable signs and large video displays. The Outdoor
Advertising Association of America has indicated that over 275,000 large
roadside billboards exist in the United States. We believe that the advantages
of our flat panel displays for the outdoor advertising billboard industry will
be significant. Our flat panel displays have the benefit in comparison to
traditional printed billboards of providing dynamic, eye-catching ads and rapid
change of display images from a remote site. Billboard companies could benefit
by increasing revenues per sign by being able to sell the same space to
different advertisers at different times during the day, with the ability to
immediately access and change each sign via the remote site. Advertisers could
benefit substantially because they would be able to reach their target audience
with greater precision.
PRODUCTS
Our primary initial product that will be marketed to users of the outdoor
advertising industry is the flat panel display. Our flat panel displays will
provide an image measuring 12 feet by 33 feet, which is approximately the same
size as existing printed billboards. We believe that the major advantages of our
flat panel displays include better viewing quality, affordability, customer
system integrity, and an almost immediate change of display images from a remote
site. Our flat panel displays are expected to be inexpensive to produce relative
to alternative electronic billboard systems, none of which can be scaled up or
down as effectively and efficiently as our products.
SUPPLIERS AND AVAILABILITY OF RAW MATERIALS
We have identified at least six suppliers of the basic component of our systems.
We anticipate this technology to develop and mature rapidly in the next year,
which will create more suppliers, lower prices and greater availability. We are
continually evaluating suppliers of subassemblies and components and researching
alternatives. We are sensitive not only to the quality and cost of the parts and
pieces supplied but also the strategic importance of multiple supplier
relationships.
STRATEGY
After conducting extensive research in various industries, including laptop
computers, high definition televisions and outdoor advertising billboards, to
determine which market would be best suited for producing and selling products
utilizing our technology, we decided to concentrate our complete attention and
efforts on marketing to the outdoor electronic advertising billboards industry.
The billboard segment of the outdoor advertising industry exceeds $4 billion per
year.
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<PAGE> 22
We believe that, due to the Highway Beautification Act, the number of billboards
nationwide will not increase dramatically but should remain stable in the
future. We expect that advertisers will increase their focus on securing and
developing prime billboard locations. The customer base for billboards is
diversifying as more advertisers are attracted to this media. Our market
penetration analysis is based on capturing and converting existing sites in a
stable market and expanding the indoor market.
In September 2000, we received payment of $90,000 to produce and install two
large-scale flat panel displays, which is the first commercial application of
our Electro-Optic Array technology. After the completion of these two flat panel
displays, we intend to target the outdoor advertising billboard industry in
phases.
The first phase will be targeting the prime billboard locations that generate
monthly advertising revenues of approximately $25,000 or more per location. It
is estimated that there are approximately 700 of these locations in the United
States and another 1,500 outside of the United States. We estimate that we could
begin supplying flat panel displays to meet the initial demand for these
locations within five to seven months of installing our first two flat panel
displays under our existing commitment and obtaining funding for ongoing
development and commercialization. Once demand in these prime locations has been
met and increased manufacturing volumes have lowered the production costs per
display, we will target the remaining outdoor advertising billboard market.
Approximately 65% of billboards were booked for 12-month periods in 1999.
Long-term contracts could potentially limit our access to the desired prime
location sites during our start-up period. However, we believe that the trend is
to use shorter-term contracts with significant turnover of advertisers, which
favors the use of our flat panel displays because of the ease and speed with
which images can be changed from a remote site. We anticipate that our flat
panel display product and marketing strategy will create a new segment of the
outdoor advertising market while leveraging the underlying growth and excellent
fundamentals of the existing market. Revenues will be derived from a combination
of direct sales of flat panel displays, owned and operated electronic
billboards, leasing, licensing, and partnerships.
Our management team has extensive experience in finance, marketing and research
related to developing and rapidly growing technology businesses serving business
customers.
CUSTOMERS
Over the last ten years, there has been considerable consolidation amongst the
billboard owners in the outdoor advertising industry. As of 1999, it is
estimated that the four leading billboard companies in this industry account for
approximately 48% of the outdoor advertising billboard market. Media companies
have been purchasing billboard owners in order to offer packages of television,
radio and newly acquired outdoor space to advertisers. The concentration of
ownership and the convergence of media are beneficial trends for our product.
We intend to initiate customer contact through our own company by directly
communicating with potential business customers, including the four industry
leaders. We are developing a marketing department to initiate contact, process
each transaction and coordinate with our manufacturing department through
production and delivery.
COMPETITION
We will compete against established forms of electronic display technology, and
we believe that our products and technologies will be subject to substantial
competition as the market and technologies evolve. We believe our products and
technologies will be subject to substantial competition. Existing and potential
competitors may possess substantially greater product development capabilities
and
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<PAGE> 23
financial, technical, marketing or human resources than we do. Furthermore,
although we believe our products will be superior to established advertising
billboard products, there can be no assurance that business customers will
prefer our technology sufficiently to be willing to pay for it at the price at
which it will be offered.
We will compete with the existing billboard display techniques of hand painted
or printed and pasted signs. Recently, there has been a trend toward creating
the art digitally, but these images are still printed on large sheets and pasted
up in the same manner as before World War I. We believe these forms of billboard
presentations will only be viable in low density/low traffic areas. In
comparison, our flat panel displays include high brightness, full color,
superior image quality, wide viewing angle with excellent outdoor readability,
relatively low cost compared with competing electronic billboard technologies,
high reliability and rapid change of display images from a remote site.
We believe that the techniques that we have developed is superior to existing
technology when combining the issues of brightness, image quality and cost
required for electronic billboards. Competing technologies include:
o Low resolution devices which have a grainy picture and do not allow
certain colors to be viewed in direct sunlight and have a high
initial cost;
o Incandescent bulbs that are high maintenance and result in poor
graphics;
o Electromechanical systems that have poor image qualities and limited
colors; and
o Liquid Crystal Displays, or LCDs, that have a long useful life and an
existing manufacturing base, but are expensive to produce.
INTELLECTUAL PROPERTY
The Company holds the following Patents and Patents Pending:
o Patent #5,198,920 relating to Transverse Pixel Format for Spatial Light
Modulator.
o Patent Pending which relates to an Electro-Optic Array. The Electro-Optic
Array describes a high-density, high-resolution array that can be
selectively activated by low induced voltages to alter a light beam
passing through the array of valves. This proprietary technology that we
developed also relates to a process for manufacturing such a high-density
array using semiconductor-type processing equipment and techniques. This
manufacturing process constitutes a significant improvement over prior
techniques by using semiconductor processing technology to further
increase pixel density and reduce activation voltage.
o Patent Pending for Data Distribution for Large-Scale Displays includes a
pulse width modulation scheme for light emitting diode, or LED,
illumination, a data distribution scheme that allows greater ease and
economy in manufacturing and assembly, and a current source circuit that
allows for a design with lower power requirements.
RESEARCH AND DEVELOPMENT ACTIVITIES
For the year ended December 31, 1999, $239,029 was spent on research and
development activities, and for the year ended December 31, 1998, $148,123 was
spent on research and development activities. These expenditures are primarily
the result of costs associated with our ongoing efforts in developing our
proprietary flat panel display and associated computer systems.
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<PAGE> 24
EMPLOYEES
As of September 30, 2000, we employed 11 full-time employees and one part-time
employee. None of our employees are subject to a collective bargaining
agreement. Management believes that its relations with its employees are
satisfactory. We also contract with other personnel and subcontractors for
various projects on an as-needed basis.
PROPERTIES
Our executive offices, research and development facility, and manufacturing
plant are presently located in Albuquerque, New Mexico, where we lease
approximately 7,500 square feet. The leases on the premises expire on February
28, 2002, and the current aggregate annual rent is approximately $50,000.
COMPANY HISTORY
We were incorporated as a Nevada corporation on May 22, 1996. On November 7,
1996, we acquired all the assets of PLZTech including: patents and research and
development activities. PLZTech was a company involved in the development of
flat panel displays. PLZTech was incorporated in November 1992 under the name
PLZTech, Inc. in the state of Colorado and was engaged in the business of
research and development. Prior to our acquisition of the business and patents
of PLZTech, we had minimal business activities and had essentially just started
research and development activities. The definitive purchase agreement between
us and PLZTech was signed on November 6, 1996 and closed on November 6, 1996.
LEGAL PROCEEDINGS
We occasionally become involved in litigation arising out of our normal course
of business. There are no material pending legal proceedings against us.
21
<PAGE> 25
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth specific information regarding our executive
officers and directors as of September 30, 2000.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION(s)
-------------------------------- --- -----------
<S> <C> <C>
Michael H. Pete............................ 55 President and Director
Leslie S. Robins........................... 62 Chairman of the Board, Executive Vice President
and Secretary
John J. Cousins............................ 44 Vice President, Finance and Treasurer
Richard A. Josephberg...................... 54 Director
Harold C. Herman........................... 74 Director
</TABLE>
<TABLE>
<CAPTION>
KEY EMPLOYEES
-------------
<S> <C> <C>
Garth W. Gobeli............................ 70 Chief Scientist
Michael Harmon............................. 46 Senior Digital Design Engineer
Stephen Mills.............................. 50 Senior Electronics Design Engineer
Gary Fuehrer............................... 31 Senior Software/Systems Architect
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
MR. PETE has been our President and a member of our Board of Directors
since May 1996, and he served as our Treasurer from May 1996 to July 2000. From
July 1994 to May 1996, Mr. Pete served in the same capacities with our
predecessor, PLZ Tech. From 1990 to 1994, Mr. Pete was President of SEES New
Mexico Inc., working with federal research and development labs in Los Alamos
and Sandia to create and implement information management systems. From 1982 to
1990, Mr. Pete was President of Phoenix Filtration Systems, and from 1979 to
1981, he was a technical management consultant in the Office of the Secretary
for the United States Department of Energy. From 1977 to 1979, Mr. Pete was a
project manager for the consulting firm of Booz, Allen and Hamilton, and from
1975 to 1977, he was Office Director of the Low Income Weatherization Federal
Energy Administration in Washington, D.C. Mr. Pete has a B.A. from Williams
College and attended Stanford University Graduate School of Business and
Political Science.
MR. ROBINS has been our Executive Vice President, Secretary and
Chairman of our Board of Directors since May 1996, and from November 1992 to May
1996, he served in the same capacities with our predecessor, PLZ Tech. From
November 1989 to November 1992, Mr. Robins was Managing Partner of Coronado
Group, performing analyses of small technology companies, and from May 1986 to
June 1989, he was Executive Vice President of Triton Productions Inc. From
September 1978 to October 1987, Mr. Robins was Managing Partner of Longview
Management; serving as investment managers for individuals in the entertainment
industry. Mr. Robins has a B.S. from the University of Miami and attended
Harvard Business School.
MR. COUSINS joined us in June 1999 as Vice President, Finance, and he
has been our Treasurer since July 2000. From 1996 to 1999, Mr. Cousins was
President of Terra Firm. From 1992 to 1996, Mr. Cousins was Vice President of
Lubarsky Group Inc., and from 1991 to 1992, he was Vice President of Cimmaron
Business Development Corporation. Mr. Cousins has a B.A. from Boston University,
an M.B.A. from the Wharton School and a certificate in electronics technology
from the Lowell Institute School at the Massachusetts Institute of Technology.
MR. HERMAN has been a member of our Board of Directors since December
1998. He is a member of the State Bar in New York and California. From 1980 to
the present, Mr. Herman has been general
22
<PAGE> 26
partner of numerous limited partnerships owning commercial properties, including
apartment complexes, shopping centers and malls, in the Northeastern area of the
United States. From 1969 to 1980, Mr. Herman was a senior partner of the law
firm of Herman, Mcginnis and Kass Esqs., located in New York City, handling
business and legal matters relating to real estate, corporations and securities
law. Mr. Herman has a B.S. in physics and B.E.E. in Electrical Engineering from
City College of New York, an M.S. in applied mathematics from New York
University and an L.L.D. from Brooklyn Law School.
MR. JOSEPHBERG has been a member of our Board of Directors since April,
2000. From 1986 to the present, Mr. Josephberg has been a principal in the
investment and merchant banking firm of Josephberg Grosz & Co., Inc. in New York
City. From 1980 to 1984, Mr. Josephberg was a member of the New York Stock
Exchange. He has a B.A. in business administration from the University of
Cincinnati and has completed all the coursework towards an M.B.A. from Bernard
Baruch College.
KEY EMPLOYEES
DR. GOBELI joined us in November 1998 as Chief Scientist. From 1995 to
1998, he was employed by Complex Light Valve and TechMed. From 1993 to 1995, Dr.
Gobeli was head of research for our predecessor, PLZ Tech, and from 1990 to
1992, he was a senior scientist at Foresight where he was responsible for the
design, fabrication and testing of optics and illumination components. From 1989
to 1991, Dr. Gobeli was a principal at Chromex , where he designed and
supervised the prototype manufacturing and marketing of imaging spectrographs.
From 1987 to 1988, Dr. Gobeli was a scientist at CVI Laser, Inc., where he was
responsible for developing and bringing to market a double beam spectrometer.
Dr. Gobeli holds several patents and has secret clearance with the United States
Department of Defense. Dr. Gobeli has a B.S. in physics from Rice University, an
M.S. in physics from the University of Illinois, and a Ph.D. in physics from
Purdue University.
MR. HARMON joined us in August 1998 as a senior digital design
engineer. From 1991 to 1998, he worked for the University of Texas as a computer
systems development specialist building equipment and systems for experimental
and research applications. He co-founded and worked for Chromex, Inc. from 1988
to 1991, where he developed digital control electronics for next generation
monochromator, FF-250, which was the core engine for one of the first Rhaman
scattering spectrographs ever marketed. From 1985 until 1988 he worked for CVI
Laser Corp where he developed an in-house monochromator optics instrument,
Digichrom 240, that was subsequently marketed as a research instrument and is
still selling well. Mr. Harmon graduated from the University of Texas at
Arlington with a B.S. in electrical engineering and a minor in computer science.
MR. MILLS joined us in August 1998 as a senior electronics design
engineer. From 1990 to 1998, he worked as a consulting engineer for Linear
Solutions where he designed and prototyped all of the electronic circuitry
incorporated in a new portable spectrophotometer. During his employment with
Linear Solutions he designed low noise preamplifiers, precision current source,
synchronous detector, and other signal processing circuitry. Mr. Mills graduated
from the University of New Mexico with a B.S. in electrical engineering in 1987.
MR. FUEHRER joined us in February 2000 as a senior software developer
to provide the needed skills in computer hardware, operating systems, and
programming. From 1990 to 2000, he was the lead applications architect at
Science and Engineering Associates, Inc. where he was the principal consultant
on the design for software projects, including the development of the
administrator console for Microsoft's Systems Management Server. He is currently
nearing the completion of his Master's Degree in Computer Science at the
University of New Mexico where he previously graduated with a B.A. in
mathematics with a minor in physics.
23
<PAGE> 27
BOARD OF DIRECTORS
Our Board of Directors currently has four members, who are elected at
each annual meeting of stockholders to serve from the time of election and
qualification until the next annual meeting of stockholders or such time at
which their successors are elected and qualified.
DIRECTORS' COMPENSATION
Our non-employee directors are paid annual compensation of $1,500 for
their services and a fee of $1,500 for each meeting attended. Our officers who
are directors are not paid any directors fees. Our non-employee directors are
also eligible to receive stock option grants under the 1999 Incentive Stock
Option Plan, pursuant to which all such grants are being treated as
non-qualified stock options because our stockholders did not approve such plan
within twelve months of its being adopted by our Board of Directors. Pursuant to
the 1999 Incentive Stock Option Plan, Mr. Herman received a grant of an option
to purchase 150,000 shares of common stock in January 1999, which vested over a
one-year period, that he exercised in full in March 2000 at an exercise price of
$0.09 per share. Mr. Herman received a warrant to purchase 350,000 shares of
common stock in June 1999 at an exercise price of $0.15 per share, which vested
immediately. Mr. Herman received an additional warrant for 250,000 shares of
common stock in August 2000 at an exercise price of $0.41 per share. Mr. Herman
received a grant of an option to purchase an additional 225,000 shares of common
stock in October 2000 at an exercise price of $0.34 per share, which vested
immediately. Mr. Josephberg was entitled to receive, and upon his request, J.G.
Capital, Inc. received 75,000 shares of common stock in April 2000 and a warrant
to purchase 125,000 shares of common stock at an exercise price of $0.37 in
August 2000. Mr. Josephberg owns a 50% interest in J.G. Capital, Inc.
LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
Our Articles of Incorporation provides that, except to the extent
prohibited by the Nevada Revised Statutes, our directors shall not be personally
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty unless the breach related to acts or omissions involving
intentional misconduct, fraud, or a knowing violation of law. Under Nevada law,
our directors have fiduciary duties to us that are not eliminated by this
provision of the Articles of Incorporation and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available. In addition, each of our director will continue to be subject
to liability under Nevada law for breach of the director's duty of loyalty to us
for acts or omissions that are found by a court of competent jurisdiction to be
not in good faith or involving intentional misconduct, for knowing violations of
law, for actions leading to improper personal benefit to the director and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by Nevada law. This provision also does not affect our directors'
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws. In addition, we intend to maintain
liability insurance for our officers and directors.
Section 78.7502 of the Nevada Revised Statutes permits us to, and our
Articles of Incorporation provides that we may, indemnify each person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was, or has agreed to
become, one of our directors or officers, or is or was serving, or has agreed to
serve, at our request, as a director, officer or trustee of, or in a similar
capacity with, another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan), or by reason of any action
alleged to have been taken or omitted in such capacity, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
action, suit or proceeding and any appeal therefrom. Such right of
indemnification shall inure to such individuals whether or not the claim
asserted is based on matters that antedate the adoption of our Articles of
Incorporation. Such right of indemnification shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of the
heirs and personal representatives of such a person. The indemnification
provided by our Articles of Incorporation shall not be deemed exclusive of any
other rights that may be provided now or in the future under any provision
currently in effect or
24
<PAGE> 28
hereafter adopted by our Articles of Incorporation, by any agreement, by vote of
our stockholders, by resolution of our directors, by provision of law or
otherwise. Section 78.037 of the Nevada Revised Statutes permits a corporation
to eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 78.300 of the Nevada Revised Statutes relating to unlawful
dividends, stock purchases or redemptions or (iv) for any transaction from which
the director derived an improper personal benefit. Section 78.037 of the Nevada
Revised Statutes is designed, among other things, to encourage qualified
individuals to serve as directors of Nevada corporations. We believe this
provision will assist us in securing the services of qualified directors who are
not our employees. This provision has no effect on the availability of equitable
remedies, such as injunction or rescission. If equitable remedies are found not
to be available to our stockholders in any particular case, our stockholders may
not have any effective remedy against actions taken by our directors that
constitute negligence or gross negligence.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors pursuant to the foregoing provision, or
otherwise, we have been advised 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.
At present, there is no pending litigation or proceeding involving any
of our directors, officers or employees in which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation earned by our
Chief Executive Officer and our other executive officers.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------- ------------------------
RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING
POSITION YEAR SALARY($) COMPENSATION($) AWARDS($) OPTIONS
------------------ ---- --------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Michael Pete ................... 1999 36,000 -- 7,350 800,000
President, Treasurer and 1998 30,000 -- -- --
Director 1997 10,000 -- -- --
Leslie S. Robins ............... 1999 109,340 7,352(1) 131,915 5,000,000
Chairman of the Board, 1998 67,600 2,448(1) -- --
Executive Vice President 1997 18,000 -- -- --
and Secretary
John J. Cousins ................ 1999 41,495 -- 3,375 300,000
Vice President Finance 1998 -- -- -- --
1997 -- -- -- --
</TABLE>
----------
(1) Represents the amount of an automobile lease for the benefit of Mr. Robins.
EMPLOYMENT AGREEMENTS
Mr. Cousins entered into an employment agreement with us for an initial
period of employment with us for two years with a one-year renewal option. The
agreement provides that Mr. Cousins will receive an annual base salary of
$60,000 in the first year, $75,000 in the second year, and $94,000 in the option
year.
25
<PAGE> 29
STOCK OPTIONS
1999 INCENTIVE STOCK OPTION PLAN
In January 1999, our Board of Directors adopted the 1999 Incentive
Stock Option Plan, which provides for the grant of qualified incentive stock
options that meet the requirements of Section 422 of the Internal Revenue Code,
but such plan was not approved by the our stockholders within twelve months.
Thus, incentive stock options granted to our officers and key employees are
being treated as non-qualified stock options. The 1999 Incentive Stock Option
Plan is administered by our Board of Directors. The purpose of the 1999
Incentive Stock Option Plan is to provide a means of performance-based
compensation in order to attract and retain qualified personnel and to provide
an incentive to those whose job performance affects us.
The 1999 Incentive Stock Option Plan authorizes the grant of stock
options to purchase, and awards of, an aggregate of up to 10,000,000 shares of
our Common Stock. The number of shares reserved for issuance under the 1999
Incentive Stock Option Plan is subject to anti-dilution provisions for stock
splits, stock dividends and similar events. If a stock option granted under the
Stock Option Plan expires or terminates, or a grant is forfeited, the shares
subject to any unexercised portion of such stock option grant will again become
available for the issuance of further stock options under such plan.
Options granted under the 1999 Incentive Stock Option Plan will become
exercisable according to the terms of the grant made by our Board of Directors.
Grants will be subject to the terms and restrictions of the award made by our
Board of Directors. Our Board of Directors has discretionary authority to select
participants from among eligible persons and to determine at the time a stock
option is granted when and in what increments shares covered by such stock
option may be purchased.
The exercise price of any stock option granted under the 1999
Incentive Stock Option Plan is payable in full (1) in cash, (2) by surrender of
shares of our Common Stock already owned by the option holder having a market
value equal to the aggregate exercise price of all shares to be purchased, (3)
by such other consideration as our Board of Directors deems appropriate or (5)
by any combination of the foregoing.
Our Board of Directors may from time to time revise or amend the 1999
Incentive Stock Option Plan, and may suspend or discontinue it at any time.
However, no such revision or amendment may impair the rights of any participant
under any outstanding grant without such participant's consent or may, without
stockholder approval, increase the number of shares subject to the 1999
Incentive Stock Option Plan or decrease the exercise price of a stock option to
less than 100% of fair market value on the date of grant (with the exception of
adjustments resulting from changes in capitalization), materially modify the
class of participants eligible to receive options or grants under such plan,
materially increase the benefits accruing to participants under such plan or
extend the maximum option term under such plan.
As of November 20, 2000, non-qualified stock options to purchase
5,825,000 shares have been granted at exercise prices ranging from $.09 to $.34
per share pursuant to the 1999 Incentive Stock Option Plan. Of these stock
options, Harold Herman exercised options for 150,000 shares at an exercise price
of $.09 per share in March 2000, and Leslie Robins exercised options for
1,000,000 shares, 450,000 shares and 400,000 shares, each at an exercise price
of $.12 per share in June 2000, August 2000 and September 2000, respectively, in
exchange for promissory notes for $120,000, $54,000 and $48,000, respectively,
each with an annual interest rate of 10% due quarterly and the principal due in
three years. None of the other options have been exercised. As of October 31,
2000, 4,175,000 shares remained available for future grants under the Stock
Option Plan. Unless previously terminated by the Board of Directors, no Options
may be granted under the Stock Option Plan after January 3, 2009.
26
<PAGE> 30
OPTION GRANTS
The following table provides summary information regarding stock
options and warrants granted to our Chief Executive Officer and other executive
officers during the fiscal year ended 1999.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN 1999
INDIVIDUAL GRANTS
-------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED IN OPTION TERM(3)
OPTIONS FISCAL 1999 EXERCISE PRICE ------------------------------
NAME GRANTED (%)(1) ($/SHARE)(2) EXPIRATION DATE 5%($) 10%($)
---- ------------- ------------- -------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Pete ....... 300,000 4.7 0.09 1/5/03 5,819 12,530
Michael Pete ....... 500,000 7.8 0.15 6/15/04 20,721 45,788
Leslie Robins ...... 2,000,000 31.3 0.12 2/6/03 51,722 111,384
Leslie Robins ...... 3,000,000 46.9 0.15 6/15/04 124,327 274,730
John Cousins ....... 300,000 4.7 0.15 6/28/03 9,698 20,885
</TABLE>
----------
(1) We granted options for an aggregate of 2,900,000 shares to our
officers and key employees under the Stock Option Plan (not including
150,000 shares underlying options granted to a non-employee director)
during the fiscal year ended December 31, 1999, and we granted
warrants for an aggregate of 3,500,000 shares (not including 350,000
shares underlying warrants granted to a non-employee director) during
the fiscal year ended December 31, 1999. The percentage is calculated
based on the combined total of options and warrants granted to
officers and key employees during the fiscal year ended December 31,
1999.
(2) We granted options and warrants at an exercise price equal to the
fair market value of the common stock on the date of grant.
(3) The potential realizable value is calculated assuming the exercise
price on the date of grant appreciates at the indicated rate for the
entire term of the option or warrant and that the option or warrant
is exercised at the exercise price and sold on the last day of its
term at the appreciated price. All options listed have a terms of 4
years and all warrants listed have a term of 5 years. Stock price
appreciation of 5% and 10% is assumed pursuant to the rules of the
Securities and Exchange Commission. There can be no assurance that
the actual stock price will appreciate over the 4-year option term or
5-year warrant term at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the common stock
appreciates over the option or warrant term, no value will be
realized from the option or warrant granted made to the named
executive officers.
27
<PAGE> 31
OPTION EXERCISES AND HOLDINGS
The following table provides summary information concerning the shares
of common stock represented by outstanding stock options and warrants held by
our Chief Executive Officer and other executive officers as of December 31,
1999.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
DECEMBER 31, 1999(1)(3) DECEMBER 31, 1999(2)(3)
------------------------------------- ----------------------------------
NAME EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE($) UNEXERCISABLE($)
---- --------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
Michael Pete............. 800,000 --- 598,000 ---
Leslie Robins............ 4,600,000 400,000 3,383,000 302,000
John Cousins............. 180,000 120,000 130,500 87,000
</TABLE>
----------
(1) No options or warrants were exercised as of the completion of the
fiscal year ended December 31, 1999.
(2) The value of the unexercised "in-the-money" options and warrants is
based on the fair market value of $.875 per share as of December 31,
1999 minus the exercise price, multiplied by the numbers of shares
underlying the option or warrant, as the case may be.
(3) Options vest periodically over the term of one year as follows: 35%
vests 90 days after the grant date, 25% vests 180 days after the
grant date, 20% vests 270 days after the grant date and the remaining
20% vests 360 days after the grant date. Warrants vest immediately in
full on the grant date.
CERTAIN TRANSACTIONS
In June 2000, we issued to Leslie Robins, our Chairman of the Board,
Executive Vice President and Secretary, 1,000,000 shares of Common Stock as the
result of exercising options with an exercise price of $0.12 in exchange for a
promissory note in the principal amount of $120,000. The note bears interest at
10% per annum due quarterly and the principal is due in June 2003. In August
2000, we issued to Mr. Robins 450,000 shares of Common Stock as the result of
exercising options with an exercise price of $0.12 in exchange for a promissory
note in the principal amount of $54,000. The promissory note bears interest at
10.0% per annum due quarterly and the principal is due in August 2003. In
September 2000, we issued to Mr. Robins 400,000 shares of Common Stock as the
result of exercising options with an exercise price of $0.12 in exchange for a
promissory note in the principal amount of $48,000. The promissory note bears
interest at 10.0% per annum due quarterly and the principal is due in September
2003.
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<PAGE> 32
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with
respect to the beneficial ownership of our common stock on November 20, 2000 by
(i) each of our directors, (ii) each of our executive officers, (iii) each
person known to us to beneficially own more than 5% of our common stock and (iv)
all of our directors and executive officers as a group. Each of such persons can
be contacted at 8301 Washington NE, Suite 5, Albuquerque, New Mexico 87113.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED (2)
----------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER (1)(2) BENEFICIALLY OWNED OFFERING OFFERING
------------------------------- ----------------------------- --------- ---------
<S> <C> <C> <C>
Leslie Robins....................................... 14,614,395(3) 10.7% 10.7%
Michael Pete........................................ 1,289,524(4) * *
John Cousins........................................ 850,000(5) * *
Harold Herman....................................... 975,000(6) * *
Richard Josephberg.................................. 200,000(7) * *
All directors and executive officers as a group 17,828,919(8) 12.8% 12.8%
(5 persons)
</TABLE>
----------
*Less than 1.0%.
(1) To the Company's knowledge, except pursuant to applicable community
property laws or as indicated in the footnotes to this table, to our
knowledge, each stockholder identified in the table possesses sole
voting and investment power with respect to all shares of common
stock shown as beneficially owned by such stockholder.
(2) The percentage of total voting power is calculated assuming all
issued convertible notes and warrants outstanding were converted into
67,029,396 shares of common stock (excluding warrants granted to our
directors and officers to purchase 7,275,000 shares of common stock)
resulting in 128,342,072 shares of common stock outstanding on
November 20, 2000. 128,342,072 shares of common stock will be
outstanding immediately following the completion of this offering.
Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage of ownership
of that person, shares of common stock subject to options or warrants
held by that person that are currently exercisable or will become
exercisable within 60 days after the effective date of this offering
are deemed outstanding, while such shares are not deemed outstanding
for computing percentage ownership of any other person.
(3) Includes 2,050,000 shares of common stock issuable upon exercise of
options that are currently exercisable and 5,950,000 shares of common
stock issuable upon exercise of warrants that are currently
exercisable.
(4) Includes 575,000 shares of common stock issuable upon exercise of
options that are currently exercisable and 500,000 shares of common
stock issuable upon exercise of a warrant that is currently
exercisable.
(5) Includes 600,000 shares of common stock issuable upon exercise of
options that are currently exercisable and 100,000 shares of common
stock issuable upon exercise of a warrant that is currently
exercisable.
(6) Includes 225,000 shares of common stock issuable upon exercise of an
option that is currently exercisable and 600,000 shares of common
stock issuable upon exercise of a warrant that is currently
exercisable.
(7) Represents 75,000 shares of common stock and 125,000 shares of common
stock issuable upon exercise of a warrant that is currently
exercisable, all of which are held by J.G. Capital, Inc., of which
Mr. Josephberg owns a 50% interest.
(8) Includes 3,450,000 shares of common stock issuable upon exercise of
options that are currently exercisable and 7,275,000 shares of common
stock issuable upon exercise of warrants that are currently
exercisable.
29
<PAGE> 33
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will be authorized to issue
150,000,000 shares of common stock, $.001 par value per share. These are the
limits of what we can issue but we are not issuing 150,000,000 shares. The
following description of our capital stock does not purport to be complete and
is subject to and qualified by our certificate of incorporation and bylaws,
which are included as exhibits to the Registration Statement of which this
prospectus forms a part, and by the provisions of applicable Nevada law.
COMMON STOCK
As of November 20, 2000, assuming the conversion of all outstanding
convertible notes and warrants (excluding warrants granted to our directors and
officers to purchase 7,275,000 shares of common stock), there were 124,502,072
shares of common stock outstanding, which were held of record by approximately
12,550 stockholders. In addition, as of November 20, 2000, there were 7,275,000
shares subject to outstanding warrants granted to our directors and officers and
3,825,000 shares of common stock subject to outstanding employee stock options.
Upon completion of this offering, there will be 124,502,072 shares of common
stock outstanding, assuming no exercise of outstanding warrants granted to our
directors and officers and employee stock options.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of common stock are
entitled to receive ratably dividends, if any, as may be declared from time to
time by the board of directors out of funds legally available for that purpose.
In the event of our liquidation, dissolution or winding up of the Company, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable, and the shares of common stock to be
issued upon the closing of this offering will be fully paid and nonassessable.
CONVERTIBLE NOTES
8% convertible notes in the aggregate amount of $10 million that may be
converted into shares of our common stock were sold and issued to four investors
who are selling stockholders. Of this amount, we have received funds for a total
of $500,000 and funding of an additional $1.5 million is contingent upon the
successful registration of the underlying shares of common stock under the
Securities Act of 1933, as amended, in the Registration Statement of which this
prospectus forms a part. Following such registration, we also have the right
until September 15, 2003 to require these selling stockholders to fund up to the
remaining balance of $8 million in exchange for additional 8% convertible notes
that may be converted into shares of our common stock. We agreed to register the
shares of common stock underlying these convertible notes. We are required to
pay the expenses of such registration and include in the Registration Statement
the shares underlying the warrants, as described below, issued in connection
with the sale of the notes to these selling stockholders. The issuance of the
notes and the sale of the shares of common stock by these four selling
stockholders are pursuant to a convertible note purchase agreement dated
September 15, 2000 that we entered into with such selling stockholders, which is
included as an exhibit to the Registration Statement of which this prospectus
forms a part.
7 1/2% convertible notes in the aggregate amount of $1,055,667 that may
be converted into shares of our common stock were sold and issued to two
investors who are selling stockholders. Of this amount, we have received funds
for a total of $710,000 and $30,667 represents accrued interest on previous
private fundings that were rolled into the aggregate amount of the notes. The
funding of an additional $315,000 is contingent upon the successful registration
of the underlying shares of common stock under the Securities Act of 1933, as
amended, in the Registration Statement of which this
30
<PAGE> 34
prospectus forms a part. We agreed to register the shares of common stock
underlying these convertible notes. We are required to pay the expenses of such
registration and include in the Registration Statement the shares underlying the
warrants, as described below, issued in connection with the sale of the notes to
these selling stockholders. The issuance of the notes and the sale of the shares
of common stock by these two selling stockholders are pursuant to a securities
purchase agreement dated November 7, 2000 that we entered into with each such
selling stockholder, which are included as exhibits to the Registration
Statement of which this prospectus forms a part.
WARRANTS
In connection with the sale and issuance of the convertible notes to
the selling stockholders, we also issued to the selling stockholders, warrants
to purchase 500,000 shares of our common stock at an exercise price of $.38 per
share, warrants to purchase 55,000 shares of our common stock at an exercise
price of $1.62 per share and warrants to purchase 16,000 shares at an exercise
price of $.43 per share. The holders of the warrants are entitled to certain
rights with respect to the registration of the shares of common stock upon
exercise of the warrants under the Securities Act of 1933, as amended. The
issuance of warrants to purchase an additional 5,371,500 shares of our common
stock is contingent upon the successful registration of the underlying shares of
common stock under the Securities Act of 1933, as amended, in the Registration
Statement of which this prospectus forms a part, at which time the warrants will
be priced.
As of November 20, 2000, there were outstanding warrants to purchase
5,942,500 shares of common stock that had been issued to the selling
stockholders in connection with the sale of the convertible notes (including the
warrants issuable contingent upon the successful registration of the underlying
shares of common stock) and 7,275,000 warrants had been issued to our officers
and directors.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF NEVADA LAW
Certain provisions of Nevada law could make it more difficult to
acquire us by means of a tender offer, a proxy contest or otherwise and the
removal of incumbent officers and directors. These provisions, summarized below,
are expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
us to first negotiate with us. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent if an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals because, among
other things, negotiation of these proposals could result in an improvement of
their terms.
We are subject to Sections 78.411 -- 78.444 of the Nevada Revised
Statutes, anti-takeover laws. In general, Sections 78.411 -- 78.444 prohibit a
publicly held Nevada corporation from engaging in a "business combination" with
an "interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless, with exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a business
combination includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
interested stockholder is a person who, together with affiliates and associates,
owns, or within three years prior to the determination of interested stockholder
status, did own, 15% or more of a corporation's voting stock. The existence of
this provision would be expected to have an anti-takeover effect with respect to
transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for
the shares of common stock held by stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Oxford
Transfer & Registrar.
31
<PAGE> 35
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 124,502,072
shares of common stock that will be freely tradable without restriction or
further registration under the Securities Act, which assumes
o the conversion of all of our issued convertible notes and
warrants outstanding as of November 20, 2000 into an aggregate
of 67,029,396 shares of common stock upon the completion of this
offering;
o the issuance of 67,029,396 shares of common stock offered by the
selling stockholders; and
o no exercise of outstanding warrants granted to our directors and
officers or stock options granted to our employees and
directors.
RULE 144
All of the 67,029,396 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act. Upon
completion of this offering, we will have outstanding an additional 2,578,332
shares of common stock held by existing stockholders that were issued and sold
by us in reliance on exemptions from the registration requirements of the
Securities Act. In addition, holders of stock options could exercise such
options and sell certain of the shares issued upon exercise as described below.
If shares are purchased by our "affiliates" as that term is defined in Rule 144
under the Securities Act, their sales of shares would be subject to the
limitations and restrictions that are described below.
In general, under Rule 144 as currently in effect, after the date of
this prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned shares of our common stock for at least one year, including
any person who may be deemed to be an "affiliate" (as the term "affiliate" is
defined under the Securities Act), would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
o 1% of the number of shares of common stock then outstanding,
which will equal approximately 1,283,421 shares immediately
after this offering; or
o the average weekly trading volume of our common stock during the
four calendar weeks preceding the filing of a notice on Form 144
with respect to such sale.
Sales under Rule 144 are also subject to other requirements regarding
the manner of sale, notice filing and the availability of current public
information about us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
32
<PAGE> 36
RESALE OF SHARES UNDERLYING STOCK OPTIONS AND WARRANTS
As of November 20, 2000, there were a total of 3,825,000 shares of
common stock reserved for issuance and subject to outstanding options under our
1999 Incentive Stock Option Plan, of which options were vested to purchase
1,095,000 shares of common stock. An additional 4,175,000 shares of common stock
are reserved for issuance under our 1999 Incentive Stock Option Plan. We may
file a registration statement on Form S-8 under the Securities Act of 1933, as
amended, covering the shares that have been reserved for issuance under our 1999
Incentive Stock Option Plan, permitting the resale of such shares in the public
market.
As of November 20, 2000, there were outstanding warrants to purchase
13,217,500 shares of common stock, including warrants issuable contingent upon
the successful registration of the underlying shares of common stock and
warrants issued to our officers and directors to purchase 7,275,000 shares of
common stock.
THE SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
selling stockholders and the shares offered by them in this prospectus. None of
the selling stockholders within the past three years has had any material
relationship with us or any of our affiliates except as described below. The
term "selling shareholders" also includes any transferees, pledges, donees, or
other successors in interest to the selling shareholders named in the table
below. Because the selling shareholders may offer all or some of the shares
pursuant to this prospectus, and to our knowledge there are currently no
agreements, arrangements or understanding with respect to the sale of any of the
shares that may be held by the selling shareholders after completion of this
offering, we can give no estimate as to the amount of shares that will be held
by the selling shareholders after completion of this offering. The 63,189,396
shares offered in this prospectus include the following:
o 55,555,556 shares of common stock issued upon conversion of
convertible notes in the aggregate amount of $10,000,000 sold
and issued to Keshet Fund L.P., Keshet L.P., Nesher Ltd. and
Talbiya B. Investments L.P.;
o 5,340,000 shares of common stock issued upon exercise of
warrants at $______ per share which were issued to Keshet Fund
L.P., Keshet L.P., Nesher Ltd. and Talbiya B. Investments L.P.;
o 500,000 shares of common stock issued upon exercise of warrants
at $0.38 per share which were issued to Alon Enterprises Ltd.;
o 5,531,340 shares of common stock issued upon conversion of
convertible notes in the aggregate amount of $1,054,550 sold and
issued to RFL Asset Management, LLC and Triton Private Equities
Fund, L.P.;
o 55,000 shares of common stock issued upon exercise of warrants
at $1.62 per share which were issued to RFL Asset Management,
LLC and Triton Private Equities Fund, L.P.;
o 16,000 shares of common stock issued upon exercise of warrants
at $0.43 per share which were issued to RFL Asset Management,
LLC and Triton Private Equities Fund, L.P.; and
o 31,500 shares of common stock issued upon exercise of warrants
at $0.374 per share which were issued to RFL Asset Management,
LLC and Triton Private Equities Fund, L.P.
33
<PAGE> 37
<TABLE>
<CAPTION>
Number of Percentage of
Number of Shares Class of Shares
Shares Number of Beneficially Beneficially
Beneficially Shares Being Owned on Owned on
Owned Prior to Offered by the Completion of Completion of
Name of Selling Stockholder This Offering Stockholder this Offering this Offering
--------------------------- -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Keshet Fund L.P.
Ragnall House 18,268,667 18,268,667 0 0%
18 Peel Road
Douglan, Isle of Man
Keshet L.P.
Ragnall House 21,313,445 21,313,445 0 0%
18 Peel Road
Douglan, Isle of Man
Nesher Ltd.
Ragnall House 12,179,111 12,179,111 0 0%
18 Peel Road
Douglan, Isle of Man
Talbiya B. Investments L.P.
Ragnall House 9,134,333 9,134,333 0 0%
18 Peel Road
Douglan, Isle of Man
Alon Enterprises Ltd.
Ragnall House 500,000 500,000 0 0%
18 Peel Road
Douglan, Isle of Man
Triton Private Equities Fund, L.P.
225 North Market Street, Suite 220 3,583,731 3,583,731 0 0%
Wichita, Kansas 87202
RFL Asset Management, LLC
c/o Levinson Capital Management, LLC 2,050,109 2,050,109 0 0%
2 World Trade Center, Suite 1820
New York, New York 10048
</TABLE>
We will not receive any of the proceeds from the sale of the shares by
the selling stockholders. We will, however, receive $__________ if the warrants
are exercised. We have agreed to bear certain expenses in connection with the
registration of the shares being offered and sold by the selling stockholders,
estimated to be $150,000.
PLAN OF DISTRIBUTION
Subject to the agreements by the selling stockholders described above,
the selling stockholders may sell the shares from time to time
o at market prices prevailing on the OTC Bulletin Board at the
time of offer and sale, or at prices related to such prevailing
market prices; or
o in negotiated transactions; or
o a combination of such methods of sale.
34
<PAGE> 38
The selling stockholders may effect such transactions by offering and
selling the shares directly to or through securities broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the selling shareholders and/or the purchasers of the shares
for whom such broker-dealers may act as agent or to whom the selling
shareholders may sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
The selling stockholders and any broker-dealers who act in connection
with the sale of their shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commissions received by
them and profit on any resale of the shares as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. We have agreed
to indemnify the selling stockholders against certain liabilities, including
liabilities under the Securities Act as underwriters or otherwise.
We have advised the selling stockholders that they and any securities
broker-dealers or others who may be deemed to be statutory underwriters will be
subject to the prospectus delivery requirements under the Securities Act. Under
applicable rules and regulations under the Securities Exchange Act of 1934 any
person engaged in a distribution of any of the shares may not simultaneously
engage in market activities with respect to the common stock for the applicable
period under Regulation M prior to the commencement of such distribution. In
addition and without limiting the foregoing, the selling stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation Rules 10b-5 and Regulation
M, which provisions may limit the timing of purchases and sales of any of the
shares by the selling stockholders. All of the foregoing may affect the
marketability of the common stock.
In the absence of this Registration Statement, the selling stockholders
would be able to sell their shares only subject to the limitations of Rule 144
promulgated under the Securities Act of 1933 ("Rule 144"). In general, under
Rule 144 as currently in effect, an "affiliate" of the issuer, or a person who
has beneficially owned shares which are "restricted securities" for at least one
year, is entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
o one percent (1%) of the then outstanding shares of common stock
of the issuer; or
o the average weekly trading volume of the common stock during the
four calendar weeks preceding a sale by such person.
Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the issuer. Under Rule 144, however, a person who is not, and
for the three months prior to the sale of such shares has not been, an affiliate
of the issuer is free to sell shares which are "restricted securities" which
have been held for at least two years without regard to the limitations
contained in Rule 144. None of the selling stockholders will be subject to the
foregoing restrictions when selling their shares pursuant to this prospectus.
Under Section 16 of the Exchange Act, executive officers, directors,
and 10% or greater shareholders of Advanced Optics Electronics will be liable
to us for any profit realized from any purchase and sale (or any sale and
purchase) of common stock within a period of less than six months.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be
passed upon for us by Kirkpatrick & Lockhart LLP, Los Angeles, California.
35
<PAGE> 39
EXPERTS
Neff & Ricci LLP, independent auditors, audited our consolidated
financial statements at December 31, 1998 and 1999, and for the years ended
December 31, 1998 and 1999, as set forth in their report. We have included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on their report given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We filed with the SEC a Registration Statement on Form SB-2 under the
Securities Act for the shares of common stock in this offering. This Prospectus
does not contain all of the information in the Registration Statement and the
exhibits and schedule that were filed with the Registration Statement. For
further information with respect to us and our common stock, we refer you to the
Registration Statement and the exhibits and schedule that were filed with the
Registration Statement. Statements contained in this Prospectus about the
contents of any contract or any other document that is filed as an exhibit to
the Registration Statement are not necessarily complete, and we refer you to the
full text of the contract or other document filed as an exhibit to the
Registration Statement. A copy of the Registration Statement and the exhibits
and schedules that were filed with the Registration Statement may be inspected
without charge at the public reference facilities maintained by the SEC in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any
part of the Registration Statement may be obtained from the SEC upon payment of
the prescribed fee. The SEC maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC. The address of the site is http://www.sec.gov.
36
<PAGE> 40
ADVANCED OPTICS ELECTRONICS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants................. F-2
Balance Sheets..................................................... F-3
Statements of Operations........................................... F-4
Statements of Stockholders' Equity (Deficit)....................... F-5
Statements of Cash Flows........................................... F-6
Notes to Financial Statements...................................... F-7
</TABLE>
F-1
<PAGE> 41
[NEFF & RICCI LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors Advanced Optics Electronics, Inc.
We have audited the balance sheet of Advanced Optics Electronics, Inc. (a
development stage company) as of December 31, 1999, and the related statements
of income, retained earnings, and cash flows for the years ended December 31,
1999 and 1998, and for the 1999 and 1998 portion of the period from May 22,
1996 (inception) through December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements for the 1996 and 1997 portion of the period from May 22, 1996
(inception) through December 31, 1999, were audited by other auditors whose
report dated February 5, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Optics Electronics,
Inc. as of December 31, 1999, and the results of its operations and its cash
flows for the years ended December 31, 1999 and 1998, and for the 1999 and 1998
portion of the period from May 22, 1996 (inception) through December 31, 1999,
in conformity with generally accepted accounting principles.
/s/ NEFF & RICCI LLP
Albuquerque, New Mexico
February 18, 2000
F-2
<PAGE> 42
ADVANCED OPTICS ELECTRONICS, INC.
BALANCE SHEETS
SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 778,220 $ 190,387
Certificate of deposit 106,684 104,582
Marketable equity securities -- 36,474
Costs and estimated earnings in excess of billings on uncompleted contract 588,789 560,545
Raw materials 29,293 35,293
Due from officer and shareholder 44,493 67,494
-------------- --------------
Total current assets 1,547,479 994,775
-------------- --------------
FIXED ASSETS, AT COST
Furniture and Fixtures 29,461 28,097
Computers 44,490 35,900
Technical equipment 236,691 187,397
Automobile 43,313 43,313
Equipment under capital lease 101,359 101,359
Leasehold Improvements 18,362 16,775
Less accumulated depreciation (169,543) (102,691)
-------------- --------------
Total fixed assets 304,133 310,150
-------------- --------------
OTHER ASSETS
Note receivable from officer 199,477 31,030
Investment in Bio Moda, Inc. 156,698 207,334
Investment in Wizard Technologies, Inc., at cost -- 65,000
Debt origination costs, net of accumulated amortization 50,000 14,169
Goodwill, net of accumulated amortization 4,510 4,604
Patents, net of accumulated amortization 188,095 198,745
Other assets 30,089 30,000
-------------- --------------
Total other assets 628,869 550,882
-------------- --------------
TOTAL ASSETS $ 2,480,481 $ 1,855,807
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 41,662 $ 64,175
Notes payable 119,376 4,726
Accrued liabilities 7,764 16,205
Current portion of long-term debt and capital lease obligation 39,552 44,105
Allowance for loss on contract 108,414 71,545
-------------- --------------
Total current liabilities 316,768 200,756
-------------- --------------
Long-term portion of long-term debt and capital lease obligation 334,549 408,790
-------------- --------------
STOCKHOLDERS' EQUITY
Preferred Series A, 7.5% cumulative, convertible into common stock At a rate determined by
dividing the purchase price of the Preferred shares by the conversion price of the common
stock; $.001 par value; authorized 10,000,000 shares, issued 550 shares in first quarter of
2000 and 160 shares in the third quarter of 2000 1 --
Common stock, December 31, 1999 authorized 75,000,000 shares, $.001 par value,
46,140,973 shares issued and outstanding Common stock, September 30, 2000, authorized
150,000,000 shares $.001 par value 61,312,676 shares issued and 61,175,176 shares outstanding 61,313 46,141
Additional paid-in capital 8,635,792 4,870,257
Deficit accumulated during the development stage (6,813,368) (3,639,507)
Treasury stock (54,574) (30,630)
-------------- --------------
Total shareholders equity 1,829,164 1,246,261
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,480,481 $ 1,855,807
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 43
ADVANCED OPTICS ELECTRONICS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES
Contract revenue $ 178,200 $ 310,345 $ 261,375 $ 118,117
------------ ------------ ------------ ------------
COSTS AND EXPENSES
General and administrative 490,296 1,952,600 721,624 2,067,891
Contract costs 215,472 468,221 283,570 387,964
Research and development 148,123 239,029 137,051 447,448
------------ ------------ ------------ ------------
Total Expenses 853,891 2,659,850 1,142,245 2,903,303
------------ ------------ ------------ ------------
Operating loss (675,691) (2,349,505) (880,870) (2,785,186)
------------ ------------ ------------ ------------
OTHER INCOME AND (EXPENSES)
Interest income 851 10,865 11,028 10,813
Unrealized gain (loss) on marketable
equity securities (6,875) (26,684) (15,424) 4,194
Loss on Bio Moda, Inc. (68,424) (108,086) (48,309) (50,637)
Interest Expense (1,972) (189,374) (225,115) (193,368)
------------ ------------ ------------ ------------
Total other expenses (76,420) (313,279) (277,820) (228,998)
------------ ------------ ------------ ------------
Net loss before cumulative effect
of change in accounting
principle (752,111) (2,662,784) (1,158,690) (3,014,184)
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE -- (63,020) (63,020) --
------------ ------------ ------------ ------------
Net loss $ (752,111) $ (2,725,804) $ (1,221,710) $ (3,014,184)
============ ============ ============ ============
Net loss per share before cumulative
effect of change in accounting
principle (.055) (.070) (.04) (.06)
Cumulative effect of change in
accounting principle
-- (.002) -- --
------------ ------------ ------------ ------------
Net loss per share $ (.055) $ (.072) $ (.04) $ (.06)
============ ============ ============ ============
Weighted average shares outstanding 13,723,302 37,809,084 32,149,015 53,921,575
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 44
ADVANCED OPTICS ELECTRONICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK TREASURY STOCK
---------------------------- --------------------------- ----------------------------
PAR PAR
SHARES VALUE SHARES VALUE SHARES COST
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 7,281,212 $ 7,281 -- $ -- -- --
Stock issued for cash 10,979,275 10,979 -- -- -- --
Stock issued for services 2,751,000 2,751 -- -- -- --
Stock issued in exchange for 315,000 315 -- -- -- --
note receivable
Purchase and retirement of (472,200) (472) -- -- -- --
treasury stock
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 20,854,287 20,854 -- -- -- --
Stock issued for cash 8,681,624 8,682 -- -- -- --
Stock issued for services 17,094,313 17,094 -- -- -- --
Intrinsic value of beneficial -- -- -- -- -- --
conversion feature of notes
payable
Fair value of warrants related -- -- -- -- -- --
to notes payable
Purchase and retirement of (489,251) (489) -- -- -- --
treasury stock
Purchase of treasury stock -- -- -- -- (229,000) (41,760)
Sale of treasury stock -- -- -- -- 85,000 11,130
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 46,140,973 46,141 -- -- (144,000) (30,630)
Stock issued for cash 782,000 782 550 1 -- 852,710
Stock issued for services 1,791,733 1,792 -- -- -- 1,118,441
Purchase of treasury stock -- -- -- -- (6,500) (7,683)
Sale of treasury stock -- -- -- -- 25,000 4,486
Constructive dividends -- -- -- -- -- 42,581
(amortization of discount on
convertible preferred stock)
Net loss -- -- -- -- -- --
Balance, March 31, 2000 48,714,706 48,715 550 1 (125,500) $ (33,827)
------------ ------------ ------------ ------------ ------------ ------------
Exercise of stock options for 1,000,000 1,000 -- -- -- --
note receivable
Stock issued for services 1,247,970 1,248 -- -- -- --
Stock issued upon conversion of 9,200,000 9,200 -- -- -- --
outstanding convertible notes
Purchase of treasury stock -- -- -- -- (44,000) (33,817)
Constructive dividends -- -- -- -- -- --
(amortization of discount on
convertible preferred stock)
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2000 60,162,676 60,163 550 1 (169,500) (67,644)
Stock issued for cash -- -- 160 -- -- --
Exercise of stock options for 850,000 850 -- -- -- --
note receivable
Stock issued for services 300,000 300 -- -- -- --
Purchase of treasury stock -- -- -- -- (13,000) (4,986)
Sale of treasury stock -- -- -- -- 45,000 18,056
Intrinsic value of beneficial -- -- -- -- -- --
conversion feature of notes
payable
Fair value of warrants related -- -- -- -- -- --
to notes payable
Net loss -- -- -- -- -- --
Balance, September 30, 2000 61,312,676 $ 61,313 710 $ 1 (137,500) $ (54,574)
============ ============ ============ ============ ============ ============
(unaudited)
<CAPTION>
EQUITY (DEFICIT)
ACCUMULATED
ADDITIONAL DURING TOTAL
PAID IN DEVELOPMENT STOCKHOLDER
CAPITAL STAGE EQUITY
------------ ---------------- ------------
Balance, December 31, 1997 $ 668,316 $ (161,592) $ 514,005
Stock issued for cash 1,281,728 -- 1,292,707
Stock issued for services 293,719 -- 296,470
Stock issued in exchange for 28,685 -- 29,000
note receivable
Purchase and retirement of (39,913) -- (40,385)
treasury stock
Net loss -- (752,111) (752,111)
------------ ------------ ------------
Balance, December 31, 1998 2,232,535 (913,703) 1,339,686
Stock issued for cash 855,101 -- 863,783
Stock issued for services 1,469,320 -- 1,486,414
Intrinsic value of beneficial 174,610 -- 174,610
conversion feature of notes
payable
Fair value of warrants related 125,000 -- 125,000
to notes payable
Purchase and retirement of (10,643) -- (11,132)
treasury stock
Purchase of treasury stock -- -- (41,760)
Sale of treasury stock 24,334 -- 35,464
Net loss -- (2,725,804) (2,725,804)
------------ ------------ ------------
Balance, December 31, 1999 4,870,257 (3,639,507) 1,246,261
Stock issued for cash -- 853,493
Stock issued for services -- 1,120,233
Purchase of treasury stock -- -- (7,683)
Sale of treasury stock 45,284 -- 49,770
Constructive dividends (42,581) --
(amortization of discount on
convertible preferred stock)
Net loss (1,501,338) (1,501,338)
Balance, March 31, 2000 6,929,273 (5,183,426) 1,760,736
------------ ------------ ------------
Exercise of stock options for 119,000 -- 120,000
note receivable
Stock issued for services 384,181 -- 385,429
Stock issued upon conversion of 533,678 -- 542,878
outstanding convertible notes
Purchase of treasury stock -- -- (33,817)
Constructive dividends 117,096 (117,096) --
(amortization of discount on
convertible preferred stock)
Net loss -- (951,124) (951,124)
------------ ------------ ------------
Balance, June 30, 2000 8,083,228 (6,251,646) 1,824,102
Stock issued for cash 160,000 -- 160,000
Exercise of stock options for 101,150 -- 102,000
note receivable
Stock issued for services 90,260 -- 90,560
Purchase of treasury stock -- -- (4,986)
Sale of treasury stock 9,487 -- 27,543
Intrinsic value of beneficial 166,667 -- 166,667
conversion feature of notes
payable
Fair value of warrants related 25,000 -- 25,000
to notes payable
Net loss -- (561,722) (561,722)
------------ ------------ ------------
Balance, September 30, 2000 $ 8,635,792 $ (6,813,368) $ 1,829,164
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 45
ADVANCED OPTICS ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------------------------
1998 1999 1999 2000
-------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) $ (752,111) $ (2,725,804) $ (1,221,710) $ (3,014,184)
Adjustments to reconcile net loss to net
Cash provided by operating activities:
Amortization and depreciation expense 66,037 87,755 109,870 91,764
Write off organization costs -- 63,020 63,020 --
Amortization of discounts on --
Convertible notes 135,532 -- 190,611
Unrealized loss on marketable Securities 6,875 26,284 15,424 (4,194)
Loss on Bio Moda, Inc 68,424 108,086 48,309 50,637
Issuance of common stock for services 296,470 1,486,414 565,488 1,596,222
Issuance of notes for services -- 50,000 50,000 20,000
Contract receivable (178,200) (310,345) (261,375) (28,244)
Allowance for loss on contract -- 71,545 -- 36,869
Marketable equity securities -- (421)
Other receivables (13,704) (22,477) (21,970) 76,554
Inventory -- (35,293) (41,324) 6,000
Accrued liabilities and accounts payable 29,988 44,967 (21,446) 88,422
-------------- -------------- -------------- --------------
NET CASH APPLIED TO OPERATING ACTIVITIES (476,221) (1,019,916) (715,714) (889,964)
============== ============== ============== ==============
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of equipment (135,334) (133,824) (86,431) (60,835)
Investment in Bio Moda, Inc. (358,845) (25,000) -- --
Sale of marketable securities 100,642
Purchase of marketable securities (70,034) -- (19,836) (59,642)
Purchase of certificate of deposit (50,000) (54,582) (55,251) (55,408)
Redemption of certificate of deposit -- 53,306
Purchase of other assets (20,050) (9,650) (10,000) --
Investment in Wizard technologies, Inc. -- (65,000) -- --
Proceeds from sale of Wizard
Technologies, Inc. -- -- -- 65,000
-------------- -------------- -------------- --------------
NET CASH APPLIED TO INVESTING ACTIVITIES (634,263) (288,056) (171,518) 43,063
============== ============== ============== ==============
CASH FLOWS FROM FINANCING
ACTIVITIES
Additions to notes payable 41,733 478,050 447,383 430,000
Payments on notes payable and capital (63,380) (30,658)
Lease obligation (11,978) (39,586)
Issuance of common stock 1,292,707 863,783 507,639 853,493
Issuance of preferred stock -- 160,000
Sale of treasury stock -- 35,464 -- 77,313
Purchase of treasury stock (30,385) (52,892) (18,435) (46,486)
-------------- -------------- -------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,240,675 1,293,747 924,609 1,434,734
============== ============== ============== ==============
Net increase (decrease) in cash 130,191 (14,225) 37,377 587,833
Cash, beginning of period 74,421 204,612 204,612 190,387
-------------- -------------- -------------- --------------
CASH, END OF PERIOD $ 204,612 $ 190,387 $ 241,989 $ 778,220
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 46
ADVANCED OPTICS ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED.)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The interim financial information included herein is
unaudited. Certain information and footnote disclosures normally included in the
financial statements have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC), although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and related notes contained in the
Company's annual report on Form 10-KSB for the period ended December 31, 1999.
Other than as indicated herein, there have been no significant changes from the
financial data published in that report. In the opinion of management, such
unaudited information reflects all adjustments, consisting only of normal
recurring accruals and other adjustments necessary for a fair presentation of
the unaudited information.
Description of Business. Advanced Optics Electronics, Inc. (the Company) is a
developmental stage technology company with its principal focus on the
development and production of large-scale flat panel displays. The Company is
currently continuing its research and development of this product. Upon
substantial completion of the research and development of the large flat panel
display, the Company plans to make the transition from a developmental stage
company to selling and producing this product. The market for the large-scale
flat panel will include, but not be limited to, cockpit displays, flat panel
computer monitors, and advertising billboards. Advanced Optics Electronics, Inc.
plans to focus on producing and selling the large-scale flat panel displays for
outdoor advertising billboards.
The Company has obtained a contract to produce two outdoor advertising
billboards using its flat panel display technology. This is the first commercial
application of the Company's technology. The success of the Company will depend
on its ability to commercialize its technology and complete this contract. As of
September 30, 2000, completion of this contract was behind schedule and the
first milestones for billing had not yet been met. The Company received a
payment on the contract of approximately $90,000 during the quarter ending
September 30, 2000. While management believes the contract will ultimately be
completed, because the technology has not yet been used in a commercial
application, there can be no certainty that this will be accomplished. In
addition, the Company may be required to obtain additional capital in order to
fund the completion of the contract.
Marketable Equity Securities. The Company classifies all of its marketable
equity securities as available for sale securities. Available for sale
securities are carried at fair value with the unrealized gains and losses
reported in Other Comprehensive Income. As of September 30, 2000, gross
unrealized losses for the quarter were $2,352 and not considered significant to
the financial statements taken as a whole. Therefore, they have been reported
in the income statement.
Inventories. Inventory consists of raw materials and is carried at the lower of
cost (specific identification) or market.
Equity Investment. The investment in Bio Moda, Inc. is accounted for using the
equity method. Under this method, income and losses reported by the investee are
recorded by the Company in its proportionate interest at the time they are
recognized by the investee. The original cost of the Bio Moda, Inc. investment
exceeded the Company's proportionate interest in Bio Moda's book value. This
difference is being amortized over a 15 year period.
F-7
<PAGE> 47
ADVANCED OPTICS ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED.)
Loss Per Share. Loss per share is computed on the basis of the weighted average
number of common shares outstanding during the year and did not include the
effect of potential common stock as their effect would be antidilutive. The
numerator for the computation is the net loss and the denominator is the
weighted average shares of common stock outstanding. Certain options and
warrants outstanding were not included in the computation of loss per share
because their effect would be antidilutive. Convertible preferred stock issued
during the quarter also was not included in the computation of loss per share
because their effect would be antidilutive.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
principal areas requiring estimation are revenue recognition based on the
percentage of completion method, loss allowances and the valuation of common
stock issued for services.
Revenue and Cost Recognition. The Company recognizes revenue on its contract in
process using the percentage-of-completion method of accounting, which is based
on the proportion of the contract cost incurred to the estimated total contract
cost. Costs incurred and estimated earnings in excess of billings represent the
revenue recognized that has not yet been billed.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies,
overhead, and equipment depreciation.
The contract to produce two outdoor advertising billboards totals $1.7 million,
with $885,000 allocated to the first unit. An estimated total loss of
approximately $465,000 in the first unit has been recognized as of September
30, 2000. The Company's estimated cost to complete as of September 30, 2000 is
$291,000, which it expects to fund with cash, billings on the contract and
additional capital.
In accordance with the contract, the Company will bill the customer when certain
milestones have been met. During the quarter ending September 30, 2000, the
Company billed and received approximately $90,000 on the contract.
Adjustments to the original estimates of total contract revenue, total contract
cost, and extent of progress toward completion are often required as work
progresses under the contract and as experience is gained, even though the scope
of the work required under the contract may not change. The nature of accounting
for contracts is such that refinements of the estimating process for
continuously changing conditions and new developments are a characteristic of
the process. Accordingly, provisions for losses on contracts are made in the
period in which they become evident under the percentage-of-completion method.
F-8
<PAGE> 48
ADVANCED OPTICS ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED.)
NOTE 2. RELATED PARTY RECEIVABLES
<TABLE>
<CAPTION>
Related party receivables at September 30, 2000, consist of the following:
<S> <C>
Due from officer $ 29,493
Note receivable from former shareholder bearing 15,000
interest at 8% and due in November, 2000
Note receivable from officer, interest at 10% due 97,477
quarterly (first quarter prepaid) and principal due in
June, 2003
Note receivable from officer, interest at 10% due 48,000
quarterly and principal due in September 2003
Note receivable from officer interest at 10% due 54,000
--------
quarterly and principal due in August 2003
$243,970
========
</TABLE>
NOTE 3. INVESTMENTS
During 1999, Bio Moda, Inc. sold additional shares, therefore the Company's
investment in Bio Moda, Inc. decreased from 22 to 20 percent. As of September
30, 2000, the Company owned 931,253 shares of Bio Moda's total outstanding
shares of 4,650,985, and had an option to purchase an additional 187,000 shares
at .485 cents per share. Bio Moda, Inc. is a development stage company involved
primarily in the development of technology for the early detection of lung
cancer. As a development stage company, Bio Moda, Inc. has not had any revenues
and, as of September 30, 2000, was in the process of conducting clinical trials.
There is currently no active market for the common stock of Bio Moda, Inc. The
ultimate value of the Company's investment in Bio Moda, Inc. will depend on its
ability to complete its research and either commercialize or sell its
proprietary technology.
A summary of the unaudited financial data relative to Bio Moda, Inc. as of
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Current assets $30,730
Other assets 24,465
-------
55,195
Fixed assets 2,515
-------
Total assets $57,710
=======
</TABLE>
F-9
<PAGE> 49
ADVANCED OPTICS ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED.)
<TABLE>
<CAPTION>
LIABILITIES AND EQUITY
<S> <C>
Notes payable to stockholders $ 92,711
Common stock 760,037
Deficit accumulated during the
development stage (795,038)
Total liabilities and equity $ 57,710
==========
</TABLE>
The investment in Bio Moda, Inc. is accounted for using the equity method. A
summary of the investment is as follows:
<TABLE>
<S> <C>
Original cost, all of which exceeded $358,845
book value
Additional purchase in 1999 25,000
Share of net loss (166,709)
Amortization of excess of cost over
book value (60,438)
--------
Net investment $156,698
========
</TABLE>
In August 1999, the Company issued 200,000 shares of its common stock to Wizard
Technologies, Inc. for $88,580. The Company then purchased a 10 percent
ownership in Wizard for $65,000 with the proceeds. During the quarter ending
March 31, 2000, the Company sold back all of its shares of Wizard's common stock
to Wizard for its original investment of $65,000.
NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
Convertible Notes. On June 3, 1999, the Company issued $500,000 in convertible
notes which bear interest at an annual rate of 8 percent and mature (principal
and interest) on May 31, 2001. Effective August 1, 1999, the notes are
convertible into shares of common stock at a 25 percent discount to the closing
bid price of a share of common stock at the time of conversion or the time of
exercise. The notes were issued in exchange for $430,000 in cash, $50,000 in
legal services and $20,000 in commissions. The commissions have been capitalized
as debt origination costs and are being amortized over the life of the notes.
The notes are unsecured.
The intrinsic value of the conversion feature of the principal and accrued
interest was estimated to be $174,610. This has been recorded as an increase in
paid-in capital and a discount to the convertible notes payable, with related
amortization being charged to interest expense. The discount is being amortized
over a one year period, which is management's estimate of time before any
conversion will be exercised. The convertible notes also include detachable
warrants for the purchase of 12,500,000 shares of common stock at the lower of
75 percent of the closing bid price of a share of common stock at the time of
exercise or September 1, 1999. The warrants expire on June 3, 2002. Management
estimates that approximately half the warrants will be exercised prior to
expiration.
F-10
<PAGE> 50
ADVANCED OPTICS ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED.)
Management estimated the fair market value of these warrants at $125,000 and
recorded this amount as an increase in paid-in capital and a discount to the
convertible notes payable. The discount is being amortized over the two year
life of the notes.
A significant contingency required by the aforementioned convertible note and
warrant agreements is the registration of the underlying shares with the
Securities and Exchange Commission. The company is to use its best efforts to
register these shares and is in the process of preparing the registration
statement.
On June 12, 2000, the Company entered into an agreement that modified the
convertible notes agreement entered into on June 3, 1999. The result of the
modified agreement was the issuance of 9,200,000 shares of the Company's common
stock upon conversion of the convertible notes plus accrued interest through
June 12, 2000, which totaled $542,878. This transaction constituted a
conversion of the outstanding convertible notes, and as such, $40,058 of
unamortized intrinsic value of the conversion feature was charged to interest
expense during the quarter. In addition, the modified agreement voided the
related 12,500,000 detachable warrants, and as a result the unamortized
discount of $72,917 on the estimated fair market value of $125,000 for the
warrants was charged to interest expense during the quarter.
On September 15, 2000, the Company entered into an agreement to issue a total of
$10,000,000 in convertible notes which bear interest at an annual rate of 8
percent. The Company has authorized the initial sale of $2,000,000 of the
convertible notes, and has entered into a structured facility with Purchasers in
which the Purchasers shall be obligated to purchase the remaining $8,000,000 of
convertible notes. The Company's right to require the Purchasers to purchase
notes, commences on the actual effective date of the registration of the
Company's securities in an amount equal to the securities that would be
convertible upon issuance of the notes. The related agreement provides for a
limit on the amount of obligation notes that the Company may require the
Purchasers to purchase in a given month.
On September 15, 2000, the Company issued $500,000 of the initial $2,000,000 in
convertible notes which bear interest at an annual rate of 8 percent and mature
(principal and interest) on September 15, 2003. Effective as of the issuance
date, the notes are convertible into shares of common stock at the lesser of a
25 percent discount to the average of the three lowest closing bid prices during
the thirty trading days prior to the issue date of this note; and a 20 percent
discount to the average of the three lowest closing bid prices for the ninety
trading days prior to the conversion date. The notes were issued in exchange for
$430,000 in cash, $20,000 in legal services and $50,000 in commissions. The
commissions have been capitalized as debt origination costs and are being
amortized over the life of the notes. The notes are unsecured.
The intrinsic value of the conversion feature of the principal and accrued
interest was estimated to be $166,667. This has been recorded as an increase in
paid-in capital and a discount to the convertible notes payable, with related
amortization being charged to interest expense. The discount is being amortized
over a one year period, which is management's estimate of time before any
conversion will be exercised.
A significant contingency required by the aforementioned convertible notes is
the registration of the underlying shares with the Securities and Exchange
Commission. The company is to use its best efforts to register these shares and
is in the process of preparing the registration statement.
F-11
<PAGE> 51
ADVANCED OPTICS ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED.)
NOTE 5. EQUITY TRANSACTIONS
The Company was initially capitalized through the issuance of 500,000 shares for
$25,000 in cash. In November 1996, the Company issued 4,500,000 shares in
exchange for the outstanding shares of PLZ Tech, Inc. The transaction was
accounted for as a purchase and net assets of $285,596, consisting primarily of
patents and equipment were recorded. In previous financial statements, the
Company did not present unclaimed shares resulting from the merger with PLZ
Tech, Inc. as outstanding shares. In the accompanying 1997 and prior financial
statements the number of shares outstanding has been restated to include these
shares.
During 1997, the Company issued 2,281,212 shares of stock in a public offering,
primarily for cash.
During 1998, the Company repurchased 472,200 of its outstanding stock in
exchange for $10,000 in notes receivable and $30,385 in cash in various
transactions. This stock was subsequently retired.
The Company also issued 9,274,811 shares of common stock in exchange for
$1,292,707 in cash, net of sales commissions and other direct costs. Certain of
these sales included price maintenance agreements resulting in the issuance of
an additional 1,704,464 shares of stock in 1998.
In 1998, the Company issued 2,751,000 shares of common stock in exchange for
services from contractors, officers and others. These shares were valued at the
estimated fair market value for similar issuances of stock and amounted to
$296,470. The Company also issued 315,000 shares to an officer in exchange for a
note receivable of $29,000.
The notes bear interest at the rate of 7 percent with interest due semiannually
and the principal due July, 2001.
In 1999, the Company repurchased 489,251 shares of its outstanding stock for
$11,132 in cash. These shares were retired. The Company also repurchased 229,000
shares for
$41,760 and resold 85,000 of these shares for $35,464. The remaining 144,000
treasury shares have been recorded at cost.
The Company also sold 8,681,624 shares for $863,782 in cash, and issued
17,094,313 shares for services from contractors, officers and others, which were
valued at $1,486,414.
During the quarter ending March 31, 2000, the Company sold 782,000 shares of its
common stock for $368,495 in cash, and issued 1,791,733 shares of its common
stock for services from contractors, officers and others, which were valued at
$1,120,233. The value of the services is included in the costs and expenses on
the Statement of Operation. Also during this quarter, the Company sold 25,000
shares of its treasury stock for $49,770 and repurchased 6,500 shares for
$7,683. The repurchased shares have been recorded at cost.
On March 14, 2000, the Company issued 550 shares of its Series A convertible
preferred stock for $550,000. Related finders fees and attorney fees were
$65,000, and were netted against the proceeds for a net increase in cash and
equity of $485,000. Effective June 14, 2000, the shares are convertible into
shares of common stock at the lesser of 110 percent of the closing bid price of
a share of common stock
F-12
<PAGE> 52
ADVANCED OPTICS ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED.)
on March 13, 2000 or 77.5 percent of the average of the five lowest closing bid
prices for the common stock for the twenty trading days immediately preceding
the conversion date.
Management estimated the intrinsic value of the conversion feature to be
$159,677. This has been recorded as an increase in paid-in capital and a
discount to the convertible preferred stock, with related amortization being
charged to retained earnings via constructive dividends. The discount is being
amortized over a 90 day period, which is the period from the date of issuance to
the point at which the preferred shares can be converted to common shares. The
convertible preferred stock also includes detachable warrants for the purchase
of 55,000 shares of common stock at a purchase price per share equal to 110
percent of the closing bid price for the common stock on the closing date (March
8, 2000). The warrants expire on March 8, 2005. The detachable warrants have not
been valued in the accompanying financial statements, as management estimates
their fair market value to be immaterial.
During the quarter ended June 30, 2000, the Company issued 1,247,970 shares of
its common stock for services from contractors, officers and others, which were
valued at $385,429. The value of the services is included in the costs and
expenses on the Statement of Operations. The Company also repurchased 44,000
shares of its outstanding common stock for $33,817 in cash. These shares
remained in treasury at June 30, 2000, and have been recorded at cost.
Also during this quarter, an officer of the Company exercised 1,000,000 stock
options at a price of .12 cents per share. The Company issued a note receivable
to the officer in the amount of $120,000 for the shares. Interest for the first
quarter was prepaid.
During the quarter ended September 30, 2000, the Company issued 300,000 shares
of its common stock for services from contractors, officers and others, which
were valued at $90,260. The value of the services is included in the costs and
expenses on the Statement of Operations. The Company also sold 45,000 shares of
its outstanding common stock for $27,543 in cash and repurchased 13,000 shares
of its outstanding common stock for $4,986. These shares remained in Treasury at
September 30, 2000 and have been recorded at cost.
An officer of the Company exercised 850,000 stock options at a price of .12
cents per share. The Company issued a note receivable to the officer in the
amount of $102,000 for the shares.
Also, during the quarter the Company issued 160 shares of preferred stock for
$160,000 in cash.
NOTE 6. STOCK PLANS
During the quarter ending September 30, 2000, the Company granted an additional
2,150,000 stock options to certain key employees. This results in total stock
options granted and unexercised of 9,825,000 as of September 30, 2000. The
shares issued upon exercise of the options may be authorized and unissued shares
or shares held by the Company in its treasury. The exercise date of options
granted is based upon the related agreement as approved by the Board of
Directors. Also during this quarter, an officer exercised his options and
purchased 850,000 shares of common stock for $102,000 (see Notes 2 and 5).
F-13
<PAGE> 53
ADVANCED OPTICS ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(THE INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED.)
NOTE 7. SUBSEQUENT EVENT
On November 7, 2000, the Company entered into an agreement that modified the
outstanding convertible preferred agreements entered into on March 8, 2000 and
August 2, 2000. The new agreement resulted in the exchange of outstanding
preferred stock plus additional consideration for the Company's 7.5 percent
convertible debentures due November 7, 2003. The total amount of the debentures
is $740,667, including accrued interest of $30,667. The debentures are
convertible into shares of common stock at the lesser of the stocks closing
price on March 8, 2000 and 77.5 percent of the average of the five lowest
closing bid prices for 20 days before November 7, 2000.
The intrinsic value of the conversion feature of the principal and accrued
interest was estimated to be $166,650. The convertible debentures also include
detachable warrants for the purchase of 71,000 shares of common stock.
Management has estimated the fair market value of these warrants at $3,550.
F-14
<PAGE> 54
[INSIDE BACK COVER]
[ARTWORK TO BE INSERTED]
[LOGO]
<PAGE> 55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.7502 of the Nevada Revised Statutes permits the Company to,
and Article X of the Registrant's Articles of Incorporation provides that the
Registrant may, indemnify each person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was, or has agreed to become, a director or
officer of the Registrant, or is or was serving, or has agreed to serve, at the
request of the Registrant, as a director, officer or trustee of, or in a similar
capacity with, another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan), or by reason of any action
alleged to have been taken or omitted in such capacity, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
action, suit or proceeding and any appeal therefrom.
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, if any, payable by the Registrant in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................. $ 5,000
Printing expenses................................. $ 5,000
Legal fees and expenses........................... $100,000
Accounting fees and expenses...................... $ 30,000
Transfer Agent and Registrar fees................. $ 5,000
Miscellaneous expenses............................ $ 5,000
--------
Total........................................ $150,000
========
</TABLE>
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, we have issued unregistered securities to
the persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, except as specified below,
or any public offering, and we believe that each transaction was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof, Regulation D promulgated thereunder or Rule 701 pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under such Rule 701. All recipients had adequate access, through their
relationships with us, to information about us.
II-1
<PAGE> 56
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
1. 11/7/00 7.5% Convertible Notes with 4 with Warrants to Purchase
Common Stock Purchase 31,500 Shares of Common Stock.
Warrants attached
These securities were sold in exchange for 710 shares of Series A Convertible
Preferred Stock plus additional consideration. The aggregate amount of the
convertible notes is $1,055,667, which includes previously received funds of
$710,000, accrued interest of $30,667 on previous private fundings related to the
issuance of Series A Convertible Preferred Stock and funding of an additional
$315,000 contingent upon the successful registration of the underlying shares of
common stock. These securities were sold to two institutional investors and are the
subject of this Registration Statement.
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
2. 9/15/00 8% Convertible Notes with 20 with Warrants to Purchase
Common Stock Purchase 5,840,000 Shares of Common
Warrants attached Stock.
These securities were sold to four accredited investors for a total purchase price of
$10,000,000. The Company received $500,000 and will receive $1.5 million contingent
upon the successful registration of the underlying shares of common stock. Following
such registration, the Company will have the right to require funding of an
additional $8 million in exchange for convertible notes that may be converted into
shares of common stock. The Company agreed to pay a placement agent a commission of
10% of the total purchase price of the securities sold and reimburse the placement
agent for expenses. These securities are the subject of this Registration Statement.
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
3. 8/7/2000 Series A Convertible Preferred 160 shares of Series A
Stock with Common Stock Convertible Preferred Stock
Purchase Warrants attached with Warrants to Purchase
16,000 Shares of Common
Stock.
These shares were sold for a total offering price of $160,000. The Company agreed to
pay a placement agent a commission of 10% of the total purchase price of the
securities sold and reimburse the placement agent for expenses. These securities were
sold to two institutional investors and have been exchanged for 7.5% convertible
notes that are the subject of this Registration Statement.
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
4. 3/14/2000 to 3/31/2000 Series A Convertible Preferred 550 shares of Series A
Stock with Common Stock Convertible Preferred Stock
Purchase Warrants attached with Warrants to Purchase
55,000 Shares of Common
Stock.
These shares were sold for a total offering price of $550,000. The Company agreed to
pay a placement agent a commission of 10% of the total purchase price of the
securities sold and reimburse the placement agent for expenses. These securities were
sold to two institutional investors and have been exchanged for 7.5% convertible
notes that are the subject of this Registration Statement.
</TABLE>
II-2
<PAGE> 57
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
5. 1/3/2000 to 3/2 4/2000 Common Stock 782,000
These shares were sold for a total offering price of $368,495 to four accredited
investors whose net worths range from in excess of $1 million to $5 million. The
investors are known personally to one of the executive officers of the Company for
between one and three years.
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
6. 2/18/99 to 12/15/99 Common Stock 3,498,000
These shares were sold for cash to five accredited investors known to one of the
executive officers of the Company from between one and three years. The total
purchase price of the securities was $563,606.
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
7. 10/20/97 to 5/7/99 Series A, B, C, D, E & G, 9
8% Convertible Debentures
These securities were sold to four accredited investors, for a total purchase price
of $1,535,604 and a commission of 7.3% (including expenses) was paid to a placement
agent. These debentures have all been converted into 19,922,621 shares of Common
Stock of the Company.
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
8. 7/3/99 $500,000 Convertible 5
Debentures
These securities were sold to five accredited investors, known to an executive
officer of the Company. All but one of the investors also invested in the securities
of the Company referenced in paragraph 4 above. The placement agent received fees and
reimbursement of expenses of $70,000 in connection with this transaction. The total
purchase price of the securities was $500,000. These debentures have all been
converted into 9,200,000 shares of Common Stock of the Company.
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
9. 6/97 to 6/2000 Common Stock 15,274,771
The shares were issued to executive officers, employees, directors and outside
consultants and vendors for a total of $2,709,965 of services and as stock bonuses to
employees, in addition to employee salaries.
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
10. 4/1/98 to 11/19/98 Common Stock 975,000
The securities were sold to eight accredited investors, including three members of
one family and one executive officer of the Company. The shares sold to the executive
officer were paid for with a promissory note. All the investors are known to an
executive officer. The total purchase price was $127,500.
</TABLE>
<TABLE>
<CAPTION>
DATE OF ISSUANCE TITLE OF SECURITIES AMOUNT OF SECURITIES
---------------------- ------------------------------ ------------------------------
<S> <C> <C>
11. 7/24/97 to 8/26/97 Common Stock 155,000
These securities were sold to seven investors, four of whom are part of a large
net-worth family and all of whom are accredited investors known to an executive
officer of the Company. The total purchase price of the securities was $48,000.
</TABLE>
II-3
<PAGE> 58
ITEM 27 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
3.1 Articles of Incorporation of the Registrant filed May 22,
1996. (1)
3.1(a) Certificate of Amendment of Articles of Incorporation of the
Registrant filed December 6, 1998.
3.1(b) Deleted.
3.1(c) Certificate of Amendment of Articles of incorporation of the
Registrant filed June 22, 2000.
3.2 Bylaws of the Registrant. (1)
4.1 Specimen Common Stock Certificate.
4.2 Convertible Note Purchase Agreement dated September 15, 2000
by and among Registrant, Keshet Fund LP., Keshet L.P., Nesher
Ltd. and Talbiya B. Investments L.P. with exhibits attached
thereto.
4.3 Securities Purchase Agreement dated November 7, 2000 by and
between Registrant and RFL Asset Management, LLC with exhibits
attached thereto.
4.4 Securities Purchase Agreement dated November 7, 2000 by and
between Registrant and Triton Private Equities Fund, L.P. with
exhibits attached thereto.
5.1* Opinion of Kirkpatrick & Lockhart LLP.
10.1 1999 Incentive Stock Option Plan. (2)
10.2 Securities Purchase Agreement dated June 3, 1999 by and among
Registrant and investors listed on Schedule I attached
thereto.
10.2(a) Modification and Settlement Agreement dated June 12, 2000 by
and among Registrant and investors listed on Schedule I
attached thereto.
10.3 Securities Purchase Agreement dated March 8, 2000 by and
between Registrant and Triton Private Equities Fund, L.P. with
exhibits attached thereto.
10.4 Securities Purchase Agreement dated March 8, 2000 by and
between Registrant and RFL Asset Management, LLC with exhibits
attached thereto.
10.5 Supplemental Agreement dated August 7, 2000 by and between
Registrant and Triton Private Equities Fund, L.P. with
exhibits attached thereto.
10.6 Supplemental Agreement dated August 7, 2000 by and between
Registrant and RFL Asset Management, LLC with exhibits
attached thereto.
10.7 Warrant to Purchase Shares of Common Stock dated June 15, 1999
by and between Registrant and Leslie Robins.
10.7(a) Warrant to Purchase Shares of Common Stock dated August 9,
2000 by and between Registrant and Leslie Robins.
10.7(b) Warrant to Purchase Shares of Common Stock dated October 17,
2000 by and between Registrant and Leslie Robins.
10.8 Warrant to Purchase Shares of Common Stock dated June 15, 1999
by and between Registrant and Michael Pete.
10.9 Warrant to Purchase Shares of Common Stock dated June 15, 1999
by and between Registrant and Harold Herman.
10.9(a) Warrant to Purchase Shares of Common Stock dated August 23,
2000 by and between Registrant and Harold Herman.
10.10 Warrant to Purchase Shares of Common Stock dated August 9,
2000 by and between Registrant and J.G. Capital, Inc.
10.10(a) Warrant to Purchase Shares of Common Stock dated October 17,
2000 by and between Registrant and John Cousins.
10.11 Promissory Note dated June 21, 2000 held by Leslie Robins.
II-4
<PAGE> 59
10.12 Promissory Note dated August 3, 2000 held by Leslie Robins.
10.13 Promissory Note dated September 7, 2000 held by Leslie Robins.
10.14 Lease Agreement dated May 27, 1998 by and between Registrant
and JMP Company, Inc., regarding 8301 Washington NE, Suite 4,
Albuquerque, NM 87113. (1)
10.14(a) Renewal of Lease Agreement dated March 9, 2000 by and between
Registrant and JMP Company, Inc., regarding 8301 Washington
NE, Suite 4, Albuquerque, NM 87113.
10.15 Lease Agreement dated December 22, 1998 by and between
Registrant and JMP Company, Inc., regarding 8301 Washington
NE, Suite 5, Albuquerque, NM 87113.
10.15(a) Renewal of Lease Agreement dated March 9, 2000 by and between
Registrant and JMP Company, Inc., regarding 8301 Washington
NE, Suite 5, Albuquerque, NM 87113.
10.16 Lease Agreement dated February 10, 2000 by and between
Registrant and JMP Company, Inc., regarding 8301 Washington
NE, Suite 6, Albuquerque, NM 87113.
10.17 Employment Agreement dated June 28, 1999 by and between
Registrant and John Cousins.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Neff & Ricci LLP.
23.2* Consent of Kirkpatrick & Lockhart LLP (contained in exhibit
5.1).
24.1 Power of attorney (included on signature page of Registration
Statement).
----------
* To be filed by amendment.
(1) Incorporated by reference to the Registrant's Registration Statement
on Form 10-SB (No. 1000-24511) filed with the Securities and Exchange
Commission on June 23, 1998.
(2) Incorporated by reference to the Registrant's Form 10-KSB filed with
the Securities and Exchange Commission on March 21, 2000.
(B) FINANCIAL STATEMENT SCHEDULES
All such schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
ITEM 28 UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) For determining any liability under the Securities Act, treat the
information omitted from this form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Securities and Exchange Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration Statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
The undersigned Registrant hereby undertakes with respect to the
securities being offered and sold in this offering:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement to:
II-5
<PAGE> 60
(a) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(c) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post- effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Albuquerque, State of New
Mexico, on the 28th day of November, 2000.
ADVANCED OPTICS ELECTRONICS, INC.
By: /S/ LESLIE S. ROBINS
---------------------------------
Leslie S. Robins
Chairman of the Board
POWER OF ATTORNEY
We, the undersigned officers and directors of Advanced Optics
Electronics, Inc., do hereby constitute and appoint Leslie S. Robins or Michael
Pete our true and lawful attorneys and agents, to do any and all acts and things
in our names in the capacities indicated below, which said attorneys and agents,
or either of them, may deem necessary or advisable to enable said corporation to
comply with the Securities Act of 1933, as amended, and any rules, regulations,
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but without limitation,
power and authority to sign for us or any of us in our names and in the
capacities indicated below, any and all amendments (including any post-effective
amendment) to this Registration Statement, or any related registration statement
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, as amended; and we do hereby ratify and confirm all that the said
attorneys and agents, or either of them, shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL H. PETE
---------------------------------------
Michael H. Pete President (Principal Executive Officer) and November 28, 2000
Director
/s/ LESLIE S. ROBINS
---------------------------------------
Leslie S. Robins Chairman of the Board, Executive Vice November 28, 2000
President and Secretary
/s/ JOHN J. COUSINS
---------------------------------------
John J. Cousins Vice President, Finance and Treasurer November 28, 2000
(Principal Financial and Accounting Officer)
/s/ HAROLD C. HERMAN
---------------------------------------
Harold C. Herman Director November 28, 2000
/s/ RICHARD A. JOSEPHBERG
---------------------------------------
Richard A. Josephberg Director November 28, 2000
</TABLE>
II-7
<PAGE> 62
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Articles of Incorporation of the Registrant filed May 22,
1996. (1)
3.1(a) Certificate of Amendment of Articles of Incorporation of the
Registrant filed December 6, 1998.
3.1(b) Deleted.
3.1(c) Certificate of Amendment of Articles of incorporation of the
Registrant filed June 22, 2000.
3.2 Bylaws of the Registrant. (1)
4.1 Specimen Common Stock Certificate.
4.2 Convertible Note Purchase Agreement dated September 15, 2000
by and among Registrant, Keshet Fund LP., Keshet L.P., Nesher
Ltd. and Talbiya B. Investments L.P. with exhibits attached
thereto.
4.3 Securities Purchase Agreement dated November 7, 2000 by and
between Registrant and RFL Asset Management, LLC with exhibits
attached thereto.
4.4 Securities Purchase Agreement dated November 7, 2000 by and
between Registrant and Triton Private Equities Fund, L.P. with
exhibits attached thereto.
5.1* Opinion of Kirkpatrick & Lockhart LLP.
10.1 1999 Incentive Stock Option Plan. (2)
10.2 Securities Purchase Agreement dated June 3, 1999 by and among
Registrant and investors listed on Schedule I attached
thereto.
10.2(a) Modification and Settlement Agreement dated June 12, 2000 by
and among Registrant and investors listed on Schedule I
attached thereto.
10.3 Securities Purchase Agreement dated March 8, 2000 by and
between Registrant and Triton Private Equities Fund, L.P. with
exhibits attached thereto.
10.4 Securities Purchase Agreement dated March 8, 2000 by and
between Registrant and RFL Asset Management, LLC with exhibits
attached thereto.
10.5 Supplemental Agreement dated August 7, 2000 by and between
Registrant and Triton Private Equities Fund, L.P. with
exhibits attached thereto.
10.6 Supplemental Agreement dated August 7, 2000 by and between
Registrant and RFL Asset Management, LLC with exhibits
attached thereto.
10.7 Warrant to Purchase Shares of Common Stock dated June 15, 1999
by and between Registrant and Leslie Robins.
10.7(a) Warrant to Purchase Shares of Common Stock dated August 9,
2000 by and between Registrant and Leslie Robins.
10.7(b) Warrant to Purchase Shares of Common Stock dated October 17,
2000 by and between Registrant and Leslie Robins.
10.8 Warrant to Purchase Shares of Common Stock dated June 15, 1999
by and between Registrant and Michael Pete.
10.9 Warrant to Purchase Shares of Common Stock dated June 15, 1999
by and between Registrant and Harold Herman.
10.9(a) Warrant to Purchase Shares of Common Stock dated August 23,
2000 by and between Registrant and Harold Herman.
10.10 Warrant to Purchase Shares of Common Stock dated August 9,
2000 by and between Registrant and J.G. Capital, Inc.
10.10(a) Warrant to Purchase Shares of Common Stock dated October 17,
2000 by and between Registrant and John Cousins.
10.11 Promissory Note dated June 21, 2000 held by Leslie Robins.
</TABLE>
<PAGE> 63
<TABLE>
<S> <C>
10.12 Promissory Note dated August 3, 2000 held by Leslie Robins.
10.13 Promissory Note dated September 7, 2000 held by Leslie Robins.
10.14 Lease Agreement dated May 27, 1998 by and between Registrant
and JMP Company, Inc., regarding 8301 Washington NE, Suite 4,
Albuquerque, NM 87113. (1)
10.14(a) Renewal of Lease Agreement dated March 9, 2000 by and between
Registrant and JMP Company, Inc., regarding 8301 Washington
NE, Suite 4, Albuquerque, NM 87113.
10.15 Lease Agreement dated December 22, 1998 by and between
Registrant and JMP Company, Inc., regarding 8301 Washington
NE, Suite 5, Albuquerque, NM 87113.
10.15(a) Renewal of Lease Agreement dated March 9, 2000 by and between
Registrant and JMP Company, Inc., regarding 8301 Washington
NE, Suite 5, Albuquerque, NM 87113.
10.16 Lease Agreement dated February 10, 2000 by and between
Registrant and JMP Company, Inc., regarding 8301 Washington
NE, Suite 6, Albuquerque, NM 87113.
10.17 Employment Agreement dated June 28, 1999 by and between
Registrant and John Cousins.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Neff & Ricci LLP.
23.2* Consent of Kirkpatrick & Lockhart LLP (contained in exhibit
5.1).
24.1 Power of attorney (included on signature page of Registration
Statement).
</TABLE>
----------
* To be filed by amendment.
(1) Incorporated by reference to the Registrant's Registration Statement
on Form 10-SB (No. 1000-24511) filed with the Securities and Exchange
Commission on June 23, 1998.
(2) Incorporated by reference to the Registrant's Form 10-KSB filed with
the Securities and Exchange Commission on March 21, 2000.
