<PAGE>
As filed with the Securities and Exchange Commission on November 8, 2000
Registration No. 333-48378
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CONSTELLATION 3D, INC.
(Exact name of registrant as specified in its charter)
Florida 3572 13-4064492
-------------------------------- ---------------------------- ----------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code number) Identification
Number)
230 Park Avenue
Suite 453
New York, New York 10169
(212) 983-1107
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael L. Goldberg, Esquire
Member of the Board of Directors, interim Chief Operating Officer,
Secretary and Director of Legal Affairs
Constellation 3D, Inc.
2625 NE 11th Court
Fort Lauderdale, FL 33304
(954) 568-3007
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
Alan L. Zeiger, Esquire
Alan H. Lieblich, Esquire
David M. Klieger, Esquire
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103-6998
(215) 569-5500
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable 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. [ ]
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 thereafter become effective in accordance with Section 8(a) of
the Securities Act, or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================
Proposed Proposed
maximum maximum
Title of each class of Amount to be offering price Aggregate Amount of
Securities to be registered registered per share offering price registration fee
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value $0.001
per share, owned by selling
shareholders .................... 2,732,469(1) $ 8.3672(2) $ 22,863,114.62 $ 6,035.86 PAID
------------------------------------------------------------------------------------------------------------------
Common stock, par value $0.001
per share, issuable upon
exercise of warrants ............ 2,291,922(3) (4) $ 30,044,181.92 $ 7,931.66 PAID
------------------------------------------------------------------------------------------------------------------
Common stock, par value $0.001
per share, issuable upon
conversion of debenture.......... 226,629(5) $17.65(6) $ 4,000,001.85 $ 1,056.00
------------------------------------------------------------------------------------------------------------------
Common stock, par value $0.001
per share, issuable upon
exercise of warrants............. 700,000(7) $10.98435(8) $ 7,689,045 $ 2,029.91
==================================================================================================================
</TABLE>
(1) This Registration Statement covers 2,732,469 shares of common stock of
Constellation 3D, Inc. owned by selling shareholders, which shares may be
offered from time to time.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended.
(3) This Registration Statement covers 2,291,922 shares of common stock of
Constellation 3D, Inc. issuable upon the exercise of warrants owned by
selling shareholders, which shares may be offered from time to time.
(4) Based upon $10.15313 exercise price of warrants with respect to 765,457
shares, $14.6656 exercise price of warrants with respect to 1,495,910
shares, $8.3672 offering price per share, as calculated pursuant to
footnote 2, with respect to warrants to purchase 5,555 shares, and $11.50
exercise price of warrants with respect to 25,000 shares as set forth in
the warrants, estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(g) of the Securities Act of
1933, as amended.
(5) This Registration Statement covers 226,629 shares of common stock of
Constellation 3D, Inc. issuable upon the conversion of a debenture owned by
a selling shareholder, which shares may be offered from time to time.
(6) Based upon $17.65 conversion price of convertible debenture in the principal
amount of $4,000,000.
(7) This Registration Statement covers 700,000 shares of common stock of
Constellation 3D, Inc. issuable upon exercise of warrants owned by a selling
shareholder, which shares may be offered from time to time.
(8) Based upon $10.98435 offering price per share, as calculated in accordance
with Rules 457(c) and 457(g) of the Securities Act of 1933, as amended.
In accordance with Rule 416 under the Securities Act of 1933, this
prospectus also covers such indeterminate number of additional shares as may
become issuable to prevent dilution resulting from stock splits, stock
dividends or similar transactions as set forth in the securities referred to
above.
<PAGE>
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 it is not a solicitation to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion, dated November 8, 2000
PROSPECTUS
[GRAPHIC OMITTED]
CONSTELLATION 3D, INC.
5,951,020 Shares of Common Stock
-----------------------------
This prospectus relates to the offering, which is not being underwritten,
of 5,951,020 shares of our common stock by some of our current shareholders and
holders of warrants and convertible securities listed on page 47. We refer to
these shareholders and holders of warrants and convertible securities as selling
shareholders in this document. We issued 2,732,469 of the shares of our common
stock being sold by these selling shareholders. 2,991,922 shares of our common
stock being sold by these selling shareholders are issuable upon the exercise of
warrants. 226,629 shares of our common stock being sold by these selling
shareholders are issuable upon the conversion of convertible securities.
The selling shareholders may sell their shares of common stock of
Constellation 3D, Inc. in one or more transactions on the NASD's
Over-the-Counter Bulletin Board at market prices prevailing at the time of sale
or in private transactions at negotiated prices. We will not receive any of the
proceeds from the sale of the common stock sold by selling shareholders, except
that we may receive the exercise price from the exercise of warrants underlying
the common stock registered.
Prospective investors should carefully consider "Risk Factors" beginning
on page 4.
The NASD's Over-the-Counter Bulletin Board currently quotes our common
stock under the symbol "CFMD." On November 7, 2000, the last sales price of our
common stock as quoted on the NASD's Over-the-Counter Bulletin Board was
$10.6875 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this prospectus is November 8, 2000.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary ................................................................... 1
Risk Factors ......................................................................... 4
Forward Looking Statements ........................................................... 11
Use of Proceeds ...................................................................... 12
Dividend Policy ...................................................................... 12
Price Range of Common Stock .......................................................... 12
Capitalization ....................................................................... 13
Selected Consolidated Financial Data ................................................. 14
Management's Discussion and Analysis of Financial Condition and Results of Operations 15
Changes in and Disagreements with Accountants ........................................ 23
Quantitative and Qualitative Disclosures About Market Risk ........................... 23
Our Business ......................................................................... 23
Company History and Structure ........................................................ 24
Products ............................................................................. 26
Distribution and Principal Markets ................................................... 26
Intellectual Property ................................................................ 30
Competitive Conditions and Methods of Competition .................................... 32
Employees ............................................................................ 36
Legal Proceedings .................................................................... 36
Properties ........................................................................... 36
Directors and Executive Officers ..................................................... 37
Executive Compensation ............................................................... 40
Certain Transactions ................................................................. 42
Principal Shareholders ............................................................... 44
Selling Shareholders ................................................................. 47
Description of Our Securities ........................................................ 49
Shares Eligible for Future Sale ...................................................... 53
Plan of Distribution ................................................................. 54
Legal Matters ........................................................................ 55
Interests of Named Experts and Counsel ............................................... 55
Experts .............................................................................. 55
Where You Can Find More Information .................................................. 56
Index to Consolidated Financial Statements ........................................... 57
</TABLE>
You should rely only on the information provided in this prospectus. We
have not authorized anyone else to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. The shareholders selling common stock under this prospectus will
not make an offer of their shares in any state where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front page of this
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
<PAGE>
Prospectus Summary
This summary highlights information contained in other parts of this
prospectus. It is not complete and may not contain all of the information that
you should consider before investing in our common stock. You should read the
entire prospectus carefully.
Except where the context would indicate otherwise, we use the terms "we,"
"us," "our" and "C3D" to mean Constellation 3D, Inc. (formerly C3D Inc.) and
its subsidiaries in this prospectus.
We have filed intent to use trademark applications with the U.S. Patent
and Trademark Office for the trademarks "CLEARCARD" and "CONSTELLATION 3D." All
other product and brand names mentioned in the prospectus are the property of
their respective owners.
Our Business
We are a development stage company engaged in a research and development
program to launch the mass-market production of a technology called Fluorescent
Memory Technology (also known as Fluorescent Media Disc and Florescent Memory
Card Technology, FMD and FMC Technology, FMD/C Technology and by other
substantially similar names). We began operations as of October 1, 1999 and
have no prior operating history other than that associated with the acquisition
of certain assets of Constellation 3D Technology Limited, a British Virgin
Islands company (Constellation Tech), which primarily performed research and
development of three-dimensional technology for the storage of digital
information on disc. However, some of our subsidiaries were in operation before
October 1, 1999, when Constellation 3D Holdings Limited, an Irish company
(Constellation Holdings), or Constellation Tech owned them.
We have no revenue history and therefore have not achieved profitability.
We are an international enterprise headquartered in New York, New York. With
operations in the United States, Israel and Russia and a subcontractor who
performs services for us in the Ukraine, we research and develop data storage
technology products for commercial applications.
Our mission is to develop state-of-the-art technologies and products to
serve the growing data storage needs of customers in government, business,
education and consumer segments through continuous research and product
innovation. By providing new data storage solutions to our customers through
joint ventures, strategic alliances, and licensing agreements, we intend to be
a substantial presence in the data storage research and development market and
thereby provide significant returns to our shareholders.
Our new technology focuses upon the concept of the volumetric storage of
information. FMD Technology records data on multiple layers located inside a
disk or a card, as opposed to the single or double layer method available in
compact discs and DVDs. The recording, reading and storing of the information
uses fluorescent materials embedded in pits and grooves in each of the layers.
The fluorescent material emits radiation when excited by an external light
source. The FMD Technology then decodes the information as modulations of the
intensity and color of the emitted radiation.
Our research has determined that these fluorescent multilayer disks and
cards furnish the user with considerably improved storage space and storage
time and deliver substantial performance advantages when compared to the CDs
and DVDs currently produced.
Our Challenges
Given the licensing and joint venture development aspects of our business
model, we have established corporate goals and strategies that will guide the
process of bringing products based on our technology to market. These goals
include:
o the identification of key strategic market segments,
1
<PAGE>
o the creation of marketable products demanded by these segments,
o the development of business relationships with best-in-class partners in
these segments,
o the establishment of FMD/C as an industry standard for the next
generation of removable optical data storage, and
o the creation of strong brand awareness and recognition of our technology.
We intend to bring our products to market as quickly as possible, and we
will focus on markets where we can expect to gain a significant market share
and thereby achieve the maximum return for each marketing dollar spent, both
financially and strategically. We intend to leverage our experience within
these segments to cross over from specific niche markets into broader
mainstream markets.
The exploitation of key market segments will coincide with development
milestones relating to FMD/C technology. We expect to focus first on creating
relationships regarding Read Only Memory (ROM) products, followed by Write Once
Read Many Times (WORM) and then Rewritable (R/W) and hybrid ROM-R-R/W products.
However, we may change and adapt this strategy as we develop strategic
relationships with other companies.
Potential roadblocks to the introduction of FMD/C technology include:
o the willingness of content and application providers to accept the new
media standards and to release valuable content for the media,
o acceptance, by media and drive manufacturers, of our royalty pricing
scheme, and
o creation of a critical mass of initial partners able to ensure broad
acceptance and adoption of our technology and its associated standards.
Our principal executive offices are located at 230 Park Avenue, Suite 453,
New York, NY 10169, and our telephone number is (212) 983-1107.
The Securities
<TABLE>
<CAPTION>
<S> <C>
Common stock offered by selling shareholders ............ 5,951,020 shares, including shares
underlying warrants and convertible securities(1)
Common stock outstanding prior to this Offering ......... 42,957,026 shares (2)(3)
NASD OTC Bulletin Board symbol .......................... CFMD
</TABLE>
-------------
(1) Assumes that the maximum number of shares offered by the selling
shareholders under this prospectus is sold.
(2) Excludes 500,000 shares of our common stock owned by Constellation 3D Trust
LLC, one of our wholly owned subsidiaries.
(3) Does not include:
o an aggregate of 2,321,922 shares of common stock issuable upon the
exercise of certain outstanding warrants that are currently exercisable
at an average weighted price of $13.06 per share and 10,000 shares of
common stock issuable upon the exercise of warrants exercisable after
August 21, 2001 at the exercise price of $11.25 per share;
o up to an additional 4,617,540 shares of common stock which are reserved
for issuance pursuant to our stock option plan of which 3,871,550 are
currently granted under the plan;
2
<PAGE>
o an aggregate of 1,365,000 shares of common stock which are reserved for
issuance pursuant to options granted separately from our stock option
plan;
o an aggregate of 3,450,000 shares of common stock for which warrants are
exercisable at an average weighted price of $11.64 per share if the
agreements governing those warrants, which we intend to renegotiate, are
enforceable by their terms and are not renegotiated by us; and
o an aggregate of 319,913 shares of common stock into which convertible
loans are convertible at an average weighted price of $15.629 per share.
3
<PAGE>
Risk Factors
You should carefully consider the following risks before making an
investment decision. The following risks and uncertainties are not the only
ones we face. Risks and uncertainties which either we do not know about or we
currently believe are immaterial may also materially impair our business
operations.
If any of the following risks occur, our business, results of operations
or financial condition could be materially adversely affected. In that event,
the trading price of our common stock could decline, and you may lose all or
part of your investment.
Risks Related to Our Business
We have no history of revenue, and we expect to continue to incur operating
losses until late 2003.
As a research and development company, we have no revenue history and
therefore have not achieved profitability. We expect to continue to incur
operating losses until late in the third or fourth quarter of 2003. We incurred
a net loss of $10,018,960 for the six months ended June 30, 2000, $4,866,687
for the year ended December 31, 1999 and $3,191,902 for the year ended December
31, 1998. We have never generated profits, and we cannot assure you that, in
the future, we will be profitable on a quarterly or annual basis. In addition,
over the next twelve months, we plan to increase our operating expenses from
approximately $750,000 per month to $1,100,000 per month in order to fund
research and development and increase our administration resources. However, we
expect to receive revenues by the end of the second quarter of 2001.
Nevertheless, it is possible that our revenue may never be sufficient to
recognize a profit.
We have a limited operating history that began in 1997 and may encounter
difficulties typical to new operations.
Some of our subsidiaries began operating in January of 1997, when they
continued to perform research and development of three-dimensional technology
for the storage of digital information on disc that our scientists had begun in
1995.
Since we are a new operation, we may encounter problems, expenses,
difficulties, complications, and delays typical to new operations. Primarily,
there is the risk that we may not be able to transform the technology we
develop into commercially profitable products. Also, there is the risk that
once another company or we introduce our products into the market place, the
market will not accept or adopt our products.
We frequently will need to raise large amounts of additional capital to sustain
our operations, and we cannot assure you that we can continue to raise
sufficient capital when we need to do so.
We believe that we have sufficient working capital to sustain our
operations through September 2001. However, because we are a research and
development company in the data storage technology field, we continually expend
large amounts of capital over short periods of time. We currently do not
generate any revenues and do not expect to do so until the end of the second
quarter of 2001. We cannot assure you that the revenues we generate in the
future, if any, will be sufficient to finance the complete cost of our research
and development. We will require additional funds before we achieve positive
cash flow from operations. Our future capital requirements and profitability
depend on many factors, such as the timely success of product development
projects, the timeliness and success of joint venture and corporate alliance
strategies and our marketing efforts. We are actively in the process of raising
additional capital, including the issuance of warrants and convertible debt
securities and the potential issuance of preferred shares. Our outstanding
convertible debt does not materially adversely effect our liquidity. However,
future debt or preferred share offerings could result in restrictions that
could make payments of such debts difficult, create difficulties in obtaining
future financings, limit our options for changing the business and cause
substantial cash flow problems. We cannot assure you that additional financing
or additional funds will be available when we need them or, if available, on
terms acceptable to us. Any additional stock or convertible debt financing
which we obtain, if we obtain any, could result in substantial dilution to
shareholders. We are not currently considering acquiring a bank line of credit.
4
<PAGE>
We and our contractor conduct operations in countries with a recent history of
economic and political instability.
In addition to our activities in the United States, we conduct business
operations in Israel and Russia. Additionally, we have hired a subcontractor to
perform various activities for us in the Ukraine. In recent history, these
three nations have experienced significant economic and political instability.
It is possible that present or future economic or political instability in
these nations will have a material adverse impact on our ability to conduct our
business or on our financial condition.
Economic instability in the foreign nations in which we operate might result
from or lead to inflation, high interest rates and social unrest which could
adversely affect our operations and performance.
Economic instability may encompass unstable price levels such as
inflation, unstable interest levels or rates, such as fluctuation of capital,
and social unrest that could adversely affect our operations and performance.
The rate of inflation in Israel, Russia and the Ukraine has not materially
adversely affected our financial condition. It is impossible for us to predict
whether the rate of inflation in Israel, Russia or the Ukraine will materially
adversely affect our future financial condition. However, we believe that it is
possible that such adverse effects might result in the future. On numerous
occasions in the past, high rates of inflation have occurred in Israel, Russia
and the Ukraine. High inflation may reoccur in the future, causing insecurity
and uneasiness in the local populace in general, including our employees. In
these situations, there is often concern about the increasing cost of living
and attempts to keep pace with it. This situation by itself might adversely
affect our performance. Whenever the currency exchange rate does not
proportionally match inflation, as has happened as a matter of governmental
policy in countries such as Israel, Argentina, and Russia, generally there is
an increase in the costs to us in U.S. dollars. Such increases in costs might
materially adversely affect our financial condition. Presently, we do not have
a hedging policy for protecting us against changes in the dollar costs of our
activities.
Changes and fluctuations in interest rates might affect our operations in
Israel, Russia and the Ukraine. The changes in interest rates might create
either investment or disinvestment that might affect the economy of an entire
country, and thus also our employees. Because we finance most of our non-U.S.
operations in U.S. dollars, and since we expect that this financing will
continue in the future, we believe that local interest rate fluctuations will
not have a material adverse impact on our financial condition.
The economic situation in Israel, Russia and the Ukraine might eventually
develop into extended social unrest. Such social unrest might materially
adversely affect both the financial performance of our local as well as our
overall operations.
Political instability in the foreign nations in which we operate might result
from or lead to military confrontation, frequent changes in national
governments, terrorism and corruption which could adversely affect our
operations and performance.
We do not possess political risk or other insurance to protect against
business interruption losses caused by political acts.
Israel's physical security and integrity have been at risk since Israel's
inception as a modern nation. Israel and Syria have attempted to restart peace
negotiations. However, there is no formal peace between Israel and Syria or
Lebanon. Additionally, there are conflicts between Israel and Iraq and between
Israel and Iran. Israel and the Palestinian Authority have been conducting
negotiations regarding the legal status of the West Bank, Gaza Strip and
Jerusalem, the current Israeli capital. In connection with those negotiations
and their results, violent activity has occurred, and may reoccur. Therefore,
to the extent that we have operations in Israel, there is a risk that the
political instability will have an adverse impact on our ability to conduct
business. It is highly unlikely, but possible, that Israel's compulsory
military service obligation for its citizens, which lasts until an individual
is 55 years of age, could disrupt the scheduled work of our Israeli research
and development facility. This obligation could delay the commercial launch of
our planned volumetric storage product line and materially adversely affect our
results of operations and financial condition.
5
<PAGE>
Russia's significant political and economic instability could have a
material adverse effect on the results of our operations and the market price of
our stock. Russia has incurred significant debt, which it may fail to repay on a
timely basis. Russian currency, the ruble, has encountered foreign exchange
volatility. The Russian government has experienced frequent political
instability and change, including wars inside Russia, acts of terrorism, power
struggles among government officials and among big commercial enterprises. In
recent years, the Russian former president replaced prime ministers frequently,
and parties with radical positions regarding intervention of the government in
the economy, like the Communist Party, have gained in influence. We do not
believe that these activities have materially adversely affected us. However, in
the future, such factors may have a material adverse effect on our operations.
Difficulties in protecting and enforcing our rights and future changes to local
laws and regulations could adversely affect our ability to conduct operations in
Russia.
Additional strains on our local operations might result from other factors,
such as the delay of Moscow banks in acknowledging wire transfers of funds into
Russia. These delays can range from a day to a week. Also, Moscow banks often
charge very expensive and somewhat arbitrary fees for wire transfers.
Our activities in the Ukraine are limited to the operations of a single
subcontractor. As Russia, the Ukraine has experienced significant political and
economic change. The Ukrainian economy is less developed than that of Russia and
is susceptible to most of the same economic risks as Russia, including
governmental debt defaults or restructurings, currency restrictions, foreign
exchange volatility and political instability. Economic or political instability
in the Ukraine might have a material adverse impact on our ability to conduct
business or on our financial condition.
We do not enter into derivative transactions to hedge market risk in Russia,
Israel or the Ukraine, and market fluctuation may adversely affect our
Ukrainian, Israeli and Russian operations.
We cannot provide any assurance that future developments in each respective
country will not generally have an adverse effect on our financial condition.
Therefore, we do not anticipate that we will enter into derivative transactions,
such as foreign currency forward or option contracts, to hedge against known or
forecasted market changes.
We may require additional technology in order to successfully develop and
license our technology.
We believe that we have developed a substantial amount of technology for
our products. Nevertheless, if we cannot develop the additional technology that
we need to be able to sell our products, we may have to purchase technology from
others. We cannot promise or accurately forecast whether we will succeed in
performing these acquisitions.
We depend upon, and could become unable to maintain or attract, knowledgeable
and experienced personnel vital to our financial success.
In order to succeed, we depend upon our ability to attract and retain
highly qualified technical and management personnel, including experts in the
field of data storage technology and the sciences underlying such technology.
These individuals are in high demand and are often subject to competing offers.
We face competition for such personnel from other companies, research and
academic institutions, government entities and other organizations. We cannot
assure you that we will be able to attract and retain other qualified personnel
we need for our business. Furthermore, we do not currently maintain "key man"
insurance for any personnel.
Provisions of Florida law and our articles of incorporation could deter
takeover attempts.
The provisions of the Florida Business Corporation Act (as amended) and our
articles of incorporation (as amended) could make it more difficult for a third
party to acquire control of us, even if the change of control would benefit the
shareholders. See page 49 of "Description of Our Securities" in this prospectus
for more information.
6
<PAGE>
We cannot assure you that we will successfully protect our Fluorescent Memory
Technology and enforce our intellectual property rights.
Although we intend to rely on trade secret, trademark, copyright and other
intellectual property laws to protect our Fluorescent Memory Technology, we
currently rely almost entirely on patent laws for our protection. While we
intend to vigorously enforce our intellectual property rights, we cannot assure
you that the steps we take to protect our Fluorescent Memory Technology and to
enforce our rights will be successful. Through our wholly owned subsidiary,
TriDStore IP, L.L.C., as of October 4, 2000, we individually hold nine U.S.
patents, more than fifty U.S. and foreign regular patent applications, eleven
pending U.S. provisional patent applications and twelve international patent
applications pursuant to the Patent Cooperation Treaty. We cannot assure you
that we will timely exercise our right to convert provisional or PCT patent
applications into regular or international patent applications or that patent
authorities will issue patents for any regular or international patent
applications.
We expect to develop trade secrets. We may seek patent or copyright
protection for trade secrets. We cannot assure you that we will develop trade
secrets or seek patent or copyright protection for any or all of them. We intend
to enter into confidentiality and non-disclosure agreements to protect one or
more trade secrets which we or our employees or independent contractors may
develop, but we cannot assure you that we will do so or that the appropriate
parties will maintain the confidentiality necessary to protect our trade
secrets. A failure to maintain one or more trade secrets could have a material
adverse financial impact on us.
Our company may offer products in the U.S. and in foreign countries based
on our patented Fluorescent Memory Technology. However, certain countries in the
Pacific Rim and elsewhere may not offer the same degree of intellectual property
protection that the U.S., European Community and Japan afford. Therefore, we may
be unable to enforce our patent rights in those jurisdictions, even if we are
able to obtain intellectual property rights.
We have filed intent to use trademark applications with the U.S. Patent and
Trademark Office for the trademarks "CLEARCARD" and "CONSTELLATION 3D". We
cannot assure you that these applications will mature into registrations or that
we will even use these marks. Furthermore, we acquired the internet domain names
"C-3D.NET," "C-TRID.COM," "C-TRID.NET", "C3DINC.COM", "CONSTELLATION3D.COM", and
"CONSTELLATION3D.NET". Currently, we maintain a web site at http://www.c-3d.net.
We cannot guarantee that any patents, copyrights, trade secrets, trademarks
or domain names that we developed or obtained will provide sufficient value or
protection to us. Furthermore, we cannot assure you that other parties will not
challenge their validity or that other parties will not assert affirmative
defenses to infringement or dilution. If another party succeeds in developing
data storage technology comparable to our Fluorescent Memory Technology without
infringing, diluting, misusing, misappropriating or otherwise violating our
intellectual property rights, our financial condition may materially suffer.
Due to potential intellectual property claims and litigation that parties may
initiate against us, we may suffer economic losses and become unable to
research, develop or license the sale or manufacture of our technology.
As is typical in the data storage industry, other parties may in the future
notify us of claims that we may be infringing, diluting, misusing,
misappropriating or otherwise violating their intellectual property rights. It
is impossible to predict the outcome of such potential claims, and we cannot
assure you that the relevant authorities will resolve the potential claims in
our favor. We also cannot assure you that an unfavorable resolution of a claim
will not have a material adverse effect on our business or financial results. In
particular, there has been significant litigation in the data storage industry
relating to infringement of patents and other intellectual property rights. We
cannot assure you that future intellectual property claims will not result in
litigation. If another party were to establish infringement, dilution, misuse,
misappropriation or any other intellectual property rights violation, we or our
joint ventures might have to pay substantial damages, or courts might enjoin us
from developing, marketing, manufacturing and selling the infringing product(s)
in one or more countries. In addition, the costs of engaging in intellectual
property litigation can be substantial regardless of outcome. If we seek
licensure for intellectual property that we cannot otherwise lawfully use, we
cannot assure you that we will be able to obtain such licensure on satisfactory
terms.
7
<PAGE>
We might not own intellectual property that we believe we own or that we need
in order to successfully research, develop and license our technology.
In the future, a court, patent office or other authority may deem one of
our employees or contractors and not our company to be the legal owner of one
or more patents, patent applications or other intellectual property which is
material to protecting our data storage technology. We typically require that
our employees and contractors assign to us all right, title and interest in and
to the intellectual property that they develop for us. However, we cannot
assure you that we will obtain legal ownership of one or more licenses to use
the intellectual property, which an authority deems to be the property of our
employee or contractor, on satisfactory terms. Our failure to obtain the legal
ownership of, or one or more licenses to use, the intellectual property may
have a material adverse effect on our business or financial results.
We may eventually face inherent business risk of exposure to product liability
claims.
Our business may confront allegations that the use or misuse of our future
products caused the death or injury of a customer, consumer or user or to have
had some other adverse effect. We do not presently have product liability
insurance. Currently, our technology is not mass manufactured and we do not
expect that anyone will mass manufacture our technology in the near future.
Possible future product liability lawsuits may affect the reputation of our
future products and services or otherwise diminish our financial resources even
though we may obtain product liability insurance and we may protect ourselves
against product liability claims by contractually requiring our joint ventures
and licensees:
o to have continuous quality control inspections, detailed training and
instructions in the manufacture of our company's products;
o to indemnify us for damages caused by tortuous acts or omissions of the
joint venture or licensee; or
o to obtain and maintain adequate product liability insurance.
If injured persons bring product liability suits, we cannot assure you
that any existing product liability insurance of a joint venture or any
existing indemnification by our joint ventures will adequately cover the
liability claims. In addition, we cannot assure you that product liability
insurance will be available to us or our joint ventures in sufficient amounts
and at acceptable costs.
We may be unable to obtain sufficient components on commercially reasonable or
satisfactory terms.
It is common in the data storage technology manufacturing and assembly
industry for certain components to be available only from a few or sole-source
suppliers. However, we cannot assure you that the key components for our future
products will be available from a number of source suppliers. Therefore, we and
our joint ventures and licensees may experience difficulty in obtaining a
sufficient supply of key components on a timely basis. We intend to develop
relationships with qualified manufacturers with the goal of securing
high-volume manufacturing capabilities, thus controlling the cost of current
and future models of our future products.
We cannot assure you that we will be able to obtain a sufficient supply of
components on a timely basis or on commercially reasonable terms or realize any
future cost savings. The same supply and cost problems could adversely affect
our sales of products. The inability to obtain sufficient components and
equipment, to obtain or develop alternative sources of supply at competitive
prices and quality or to avoid manufacturing delays could prevent our joint
ventures from producing sufficient quantities of our products to satisfy market
demand. Additionally, in the case of a component purchased exclusively from one
supplier, our joint ventures could become unable to produce any quantity of the
affected product(s) until such component becomes available from an alternative
source. These problems could cause delays to product shipments, thereby
increasing the joint venture's material or manufacturing costs or causing an
imbalance in the inventory levels of certain components. Moreover, difficulties
in obtaining sufficient components may cause our joint ventures and licensees
to modify the design of our products to use a more readily available component.
These design modifications may result in product performance problems. Any or
all of these problems could result in the loss of customers, provide an
opportunity for competing products to achieve market acceptance and otherwise
adversely affect our business and financial results.
8
<PAGE>
We may become financially dependent on one or a small number of customers.
Because we are a research and development company, we have not developed a
customer base for our products. We intend to establish joint ventures and
licensing arrangements with strategic partners to market and sell our
Fluorescent Memory Technology. In the future, it is possible that we or our
joint ventures and licensees will have sales to one or a small number of
customers which equal ten percent or more of our consolidated revenues.
However, we do not intend to become financially dependent on one or a small
number of customers with whom we do most or all of our business.
Our officers spend time on projects that bear no relation to our activities.
Some of our officers, notably Leonardo Berezowsky and Michael Goldberg,
serve as directors, officers and employees of other companies. See "Directors
and Executive Officers" on page 37. While we believe that our officers will be
devoting adequate time to effectively manage us, we cannot assure you that
their other positions will not negatively impact their duties and that the
impact will not have a material adverse effect on our financial condition. We
believe that the other company positions of our officers do not raise actual or
potential conflicts of interest that could interfere with the carrying out of
their respective duties at our company.
Our expected products may be subject to various legal and regulatory controls.
We are unaware of any particular electrical, telecommunication,
environmental, health or safety laws and standards that will apply to our
products. While we do not anticipate special regulation of our products, we
cannot assure you that we will not have to comply with laws and regulations of
domestic, international or foreign governmental or legal authorities.
Compliance with these laws and regulations could have a material adverse affect
on us. The Federal Communications Commission (FCC) regulates computer hardware
that contains or utilizes magnetic forces to store information. If the FCC in
the future chooses to regulate fluorescent-based computer storage devices, such
as our products, compliance with those regulations could have a material
adverse effect on our financial condition.
We face intense competition in the data storage technology industry.
We estimate that there are approximately 14 enterprises currently
researching, developing or producing other types of data storage technology
which we consider to be our material competitors. The data storage technology
industry is fiercely competitive, and a number of our competitors, such as EMC
Corporation, Iomega Corporation and Seagate Technology, Inc. have already
established their names, brands, products and technologies in the marketplace.
We expect that some competitors will continue to have significant market
shares. Our competitors may further increase their market shares through
mergers, acquisitions and research and development.
While we believe that our Fluorescent Memory products and joint venture
and licensing strategies will result in competitive advantages, we cannot
assure you that we will obtain or maintain any of such advantages over time.
Furthermore, we cannot assure you that a competitor will not invent a superior
technology, or that our products and services will be able to penetrate the
data storage market. Many of our current and potential competitors have or may
have advantages over us such as greater financial, personnel, marketing, sales
and public relations resources. Existing or future competitors may develop or
offer products that provide significant performance, price, creative or other
advantages over products that we offer.
9
<PAGE>
Risks Related to Our Common Stock
The market price of our common stock may fluctuate significantly.
The stock market in general and the market for shares in technology
companies in particular have recently experienced extreme price fluctuations,
which have often been unrelated to the operating performance of the affected
companies. We believe that the principal factors that may cause price
fluctuations are:
o fluctuations in our financial results;
o fluctuations in our product development timetables;
o general conditions and development in the technology industries and the
worldwide economy;
o conditions and expectations regarding the data storage markets;
o sales of our common stock into the marketplace;
o the number of market makers for our common stock;
o announcements of technological innovations or new or enhanced products by
us or our competitors;
o a shortfall in revenue, gross margin, earnings or other financial results
from operations or changes in analysts' expectations; and
o developments in our relationships with our suppliers and potential
customers.
We cannot be certain that the market price of our common stock will not
experience significant fluctuations in the future, including fluctuations that
are adverse and unrelated to our performance. The sales of a substantial number
of shares of our common stock after the filing of this registration statement
could adversely affect the market price of our common stock by introducing a
large number of sellers to the market. Given the potential for fluctuations in
the price of our shares, these sales could cause the market price of our common
stock to decline.
Investors who need immediate or future income should refrain from the purchase
of our common stock.
We do not intend to pay dividends to the holders of our outstanding common
stock in the foreseeable future. Investors who need immediate or future income
by way of dividends from their investment should refrain from the purchase of
our common stock.
The market price of our common stock may decrease if a large number of shares
are sold in the future.
Future sales of our common stock in the public market, or the issuance of
shares of common stock upon the exercise of stock options and warrants or
otherwise, could adversely affect the market price of our common stock and
impair our ability to raise capital through the sale of equity or
equity-related securities. As of October 20, 2000, the following number
of shares of common stock will be issued or issuable:
<TABLE>
<CAPTION>
<S> <C>
Issued and outstanding (1) ....................................... 42,957,026
Issuable upon exercise of outstanding warrants whether or not
currently-exercisable (2)(4) .................................... 6,481,922
Issuable upon exercise of outstanding stock options whether or not
currently exercisable ........................................... 5,236,550
Issuable upon conversion of convertible loans (3)................. 319,913
</TABLE>
------------
(1) Excluding 500,000 shares of our common stock owned by Constellation 3D
Trust LLC, one of our wholly owned subsidiaries.
(2) Currently exercisable at exercise prices ranging from $0.001 to $15.13 per
share.
(3) A loan of $4,000,000 provided by Sands Brothers Venture Capital Associates
LLC convertible at $17.65 per share and a loan of $1,000,000 provided by
Constellation Tech convertible at $10.72 per share.
(4) Includes 3,450,000 warrants evidenced by agreements which we believe are no
longer enforceable, because Sands Brothers & Co., Ltd. (Sands Brothers)
failed to satisfy its obligation to raise $7.5 million in financing for us
within 150 days of the Commencement Date as defined in the Placement
Agency Agreement that we and Sands Brothers entered into in December 1999
and later amended. We intend to renegotiate the agreements regarding the
warrants that we originally agreed to issue to Sands Brothers.
10
<PAGE>
As of October 20, 2000, of the 42,957,026 issued and outstanding shares
identified in the table above, 32,674,576 are restricted securities (i.e.,
excluding 500,000 shares of our common stock owned by Constellation 3D Trust
LLC, one of our wholly owned subsidiaries) within the meaning of Rule 144 under
the Securities Act, and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available. Such
restricted securities will be eligible for sale in the public market subject to
compliance with Rule 144. In addition, other exemptions may be available for
sales of such restricted securities held by non-affiliates of our company. See
"Shares Eligible for Future Sale."
We cannot predict the effect, if any, that market sales of shares of
common stock, or the availability of such shares of common stock for sale, will
have on the market price of the shares of common stock prevailing from time to
time. Nevertheless, sales of substantial amounts of shares of common stock in
the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices for the shares of common stock and
could impair our ability to raise capital through an offering of our equity
securities.
Forward Looking Statements
Some of the information in this prospectus or the documents we incorporate
by reference in this prospectus may contain forward-looking statements. You can
identify forward-looking statements by the use of forward-looking language such
as "will likely result," "may," "believes," "are expected to," "is anticipated
to," "is forecasted to," "is designed to," "plans to," "predict," "seek,"
"estimate," "projects," "intends to" or other similar words. Important factors
that could cause actual results to differ materially from expectations include:
o failure to raise sufficient capital to fund business operating plans;
o market conditions and demand for new data storage technology;
o our competitors' ability to successfully develop new technologies to
satisfy demand for data storage;
o difficulties in achieving sales, gross margin and operating expense
targets based on competitive market factors;
o difficulties in competing successfully in the markets for new products
with established and emerging competitors;
o difficulties with single source supplies, product defects or product
delays;
o difficulties in forming and maintaining successful joint venture
relationships;
o difficulties in negotiating and receiving licensing royalties;
o difficulties in obtaining, maintaining and using intellectual property
protections;
o changes in data storage technological protocols and standards;
o volatility in interest rates and currency exchange rates;
o difficulties in state, federal, foreign and international regulation and
licensing requirements;
o economic and political instability in the foreign countries where we
conduct operations;
o litigation actions by directors, employees, investors and others;
o limited operation and management history;
o dependence on key personnel; and
o other factors discussed in this prospectus.
All of the above factors could cause our actual results to differ
materially from historical results and those we presently anticipate. When you
consider forward-looking statements, you should keep these factors in mind as
well as the other cautionary statements in this prospectus, including the Risk
Factors beginning on page 4.
11
<PAGE>
Use of Proceeds
All net proceeds from the sale of our common stock will go to the
shareholders selling common stock under this prospectus. We will not receive
any proceeds from the sale of the common stock sold by the selling
shareholders, except that we will receive the exercise price from the exercise
of warrants underlying the common stock registered. The proceeds from the
exercise of warrants by cash payment will be used for working capital and other
general corporate purposes.
Dividend Policy
We have never paid any cash dividends to any of our shareholders, because
we have lacked earnings to pay such dividends, and we have no intention to pay
cash dividends in the foreseeable future.
Price Range of Common Stock
Our common stock is quoted on the NASD's Over-the-Counter Bulletin Board
under the symbol "CFMD."
On December 17, 1999, our Board of Directors approved a three-for-one
forward split of our common stock for the shareholders of record on December
16, 1999. The adjustment of the price per share of the common stock that
resulted from the forward split took effect on January 18, 2000 and before
trading of the common stock began on January 18, 2000. ALL OF THE HIGH AND LOW
BIDS REPORTED IN THE CHART IMMEDIATELY BELOW HAVE BEEN ADJUSTED TO GIVE
RETROACTIVE EFFECT TO THE CHANGE IN THE PRICE PER SHARE OF THE COMMON STOCK
RESULTING FROM THAT STOCK SPLIT.
Time Period High Bid Low Bid
----------- -------- -------
Fiscal Year Ending 2000:
First Quarter ........... $63.625 $19.33
Second Quarter .......... $43.50 $ 9.875
Third Quarter ........... $20.1875 $ 9.75
Fourth Quarter* ......... $11.75 $ 6.75
Fiscal Year Ending 1999:
Fourth Quarter .......... $32.63 $ 5.35
Third Quarter ........... $ 7.92 $ 3.33
Second Quarter .......... $ 4.04 $ 0.58
First Quarter ........... -- --
------------
*For the period October 1, 2000 through and including October 18, 2000.
On October 18, 2000, the highest bid was $9.75, and the lowest bid was
$8.06.
The over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not necessarily
represent actual transactions.
As of October 20, 2000, there were approximately 108 shareholders of
record of our common stock, excluding Constellation 3D Trust LLC, one of our
wholly owned subsidiaries.
12
<PAGE>
Capitalization
The following table sets forth our capitalization as of June 30, 2000 on
an historical basis and on a pro forma basis giving effect to sales of common
stock, issuances of options and warrants subsequent to June 30, 2000. You
should read the table below in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and notes included in this prospectus where such
transactions are presented:
<TABLE>
<CAPTION>
Actual Pro Forma
---------------- ----------------
<S> <C> <C>
Current portion of convertible notes payable .......................... $ 674,481 $ --
============= =============
Convertible notes payable, less current portion ....................... 3,114,314 1,450,139
------------- -------------
Preferred stock, no par value; 10,000,000 shares authorized, issued and
outstanding; -- none ................................................. -- --
Common stock, $.001 par value; 100,000,000 shares authorized, issued
and outstanding; actual 41,001,609, pro forma 42,902,706 ............. 41,001 42,903
Additional paid in capital ............................................ 15,603,708 31,059,928
Deficit accumulated during the development stage ...................... (20,690,294) (20,690,294)
------------- -------------
Total stockholders' equity (deficit) ................................. (5,045,585) 10,412,537
------------- -------------
Total capitalization ................................................. $ (1,931,271) $ 11,862,676
============= =============
</TABLE>
13
<PAGE>
Selected Consolidated Financial Data
The following selected consolidated financial information with respect to
our financial position as of June 30, 2000 and December 31, 1999 and 1998 and
results of operations for the six months ended June 30, 2000, the years ended
December 31, 1999 and 1998, the period from September 25, 1997 (inception) to
December 31, 1997 and the period from September 25, 1997 (inception) to June
30, 2000 has been derived from our audited consolidated financial statements.
The selected consolidated financial information with respect to our financial
position as of June 30, 1999 and December 31, 1997, and our results of
operations for the six months ended June 30, 1999 have been derived from our
unaudited consolidated financial statements which, in the opinion of our
management, have been prepared on the same basis as the audited financial
statements and include all normal and recurring adjustments necessary for a
fair presentation of the information set forth therein. The results for the six
months ended June 30, 2000 are not necessarily indicative of future results.
You should read the selected consolidated financial information presented below
in conjunction with our consolidated financial statements and notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus.
For our fiscal year ended 1997, our financial statements use September 25
as the inception date. Thus, the financial information for our fiscal year 1997
is for approximately three months, whereas our financial information for fiscal
year 1998 is for a twelve-month period.
<TABLE>
<CAPTION>
Cumulative
Amounts From
Inception
(September 25,
1997) Through Six Months
June 30, Ended June 30,
---------------- ---------------------------------
(Unaudited)
2000 2000 1999
---------------- ----------------- --------------
<S> <C> <C> <C>
Statement of Operations
Data
Operating expenses:
Research and development ........... $ 7,357,932 $ 1,918,038 $ 1,062,305
General and administrative ......... 6,791,986 1,980,295 554,863
Marketing(1) ....................... 4,518,846 4,518,846 --
------------- ------------- ------------
Total operating expenses ........... 18,668,764 8,417,179 1,617,168
Other expense:
Interest (income) expense,
net ............................... 1,942,959 1,590,260 29,290
Taxes .............................. 78,571 11,521 11,000
------------- ------------- ------------
Net loss ........................... $ (20,690,294) $ (10,018,960) (1,657,458)
Net loss per share--basic
and diluted ....................... (0.24) (0.06)
Weighted average number of
common shares
outstanding--basic and
diluted ........................... 41,001,609 29,214,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Period From
Inception
(September 25,
Years Ended 1997) Through
December 31, December 31,
------------------------------ ---------------
1999 1998 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Statement of Operations
Data
Operating expenses:
Research and development ........... $ 2,413,239 $ 1,534,948 $ 1,491,707
General and administrative ......... 2,084,027 1,660,477 1,067,187
Marketing(1) ....................... -- -- --
------------ ------------ ------------
Total operating expenses ........... 4,497,266 3,195,425 2,558,894
Other expense:
Interest (income) expense,
net ............................... 305,833 (6,985) 53,851
Taxes .............................. 63,588 3,462 --
------------ ------------ ------------
Net loss ........................... (4,866,687) (3,191,902) (2,612,745)
Net loss per share--basic
and diluted ....................... (0.15) (6.80) (4,355)
Weighted average number of
common shares
outstanding--basic and
diluted ........................... 32,148,978 469,275 600
June 30, December 31, December 31,
------------------------------- ---------------------------- ---------------
2000 1999 1999 1998 1997
-------------- --------------- -------------- ------------ ---------------
Balance Sheet Data:
Current Assets .................. $ 1,965,724 $ 268,048 $ 2,181,128 $ 294,358 $ 2,854,766
Current liabilities ............. 4,128,380 3,083,183 3,596,404 1,430,871 5,541,326
Total assets .................... 2,254,566 560,121 2,422,228 561,589 2,954,929
Long-term liabilities ........... 3,171,771 50,503 2,145,449 46,825 26,345
Additional paid in capital ...... 15,603,708 4,870,021 7,310,708 4,859,326 --
Total stockholders' deficit ..... (5,045,585) (2,573,565) (3,319,625) (916,107) (2,612,745)
</TABLE>
------------
(1) Includes a non-cash compensation charge to operations of $4,293,000,
representing the fair value of options granted to a non-employee
consultant who provided business development services.
14
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Some of the information that follows may contain forward-looking
statements. You can identify forward-looking statements by the use of
forward-looking language such as "will likely result," "may," "believes," "are
expected to," "is anticipated to," "is forecasted to," "is designed to," "plans
to," "predict," "seek," "estimate," "projects," "intends to" or other similar
words.
Our actual results may differ materially from historical results and those
we presently anticipate. When you consider forward-looking statements, you
should keep that in mind as well as the other cautionary statements in this
prospectus, including the Risk Factors beginning on page 4.
Overview
We are an international company headquartered in New York, New York. With
operations in the United States, Israel and Russia and a subcontractor who
performs services for us in the Ukraine, we research and develop technology
called Fluorescent Memory Technology.
We plan to continue our focus on research and development of the
Fluorescent Memory Technology and to develop strategic alliances, joint
ventures and licensing arrangements with established companies in the data
storage industry. We expect that our operating expenses will increase
significantly during the foreseeable future as the result of our plans to:
o increase expenditures on marketing, business development, public
relations, and investors relations. Activities to take place include
hosting demonstrations of our technology to potential strategic partners,
continually obtaining information about the market size and growth
parameters to update the market analysis, updating industry pricing and
cost trends, enlarging the team responsible for establishing partnerships,
monitoring new technological developments in the industry, and enrolling
public and investors relations firms. We expect to increase expenditures
from the current levels of approximately $40,000 per month to $150,000 per
month for the above activities;
o enhance existing capabilities of products by increasing the levels of
research and development expenditures and capital assets from the current
levels of $350,000 per month to $450,000 per month;
o increase expenditures on administration to provide the overall management
of our company as well as of our subsidiaries from the current levels of
$330,000 per month to $380,000 per month;
o increase monthly expenditures on professional fees for patent
registration, licensing and joint venture agreements from $40,000 per
month to $100,000 per month; and
o establish research and development facilities with initial manufacturing
capabilities in the United States by hiring additional staff and
transferring equipment and personnel. We expect these expenses to be
approximately $1,000,000 over the next twelve months.
We must raise additional funds as a result of our planned increase in our
operating expenditures. We have sufficient working capital to support our
operations through September, 2001 and are in the process of negotiating for
additional capital. We expect to receive revenues by the end of the second
quarter of the fiscal year 2001 and expect to continue to incur operating
losses until late in the third or fourth quarter of fiscal year 2003. We are
currently exploring additional financing alternatives, including the
possibility of private equity or debt offerings.
Although our existing debt securities contain no such restrictions, the
signing of future convertible debt or preferred share agreements could result
in restrictions being placed on dividends, interest and principal payments, or
any other covenant restrictions that could make payments of such debts
difficult, create difficulties in obtaining further financings, limit the
flexibility of changes in the business, and cause substantial liquidity
problems. There can be no assurance, however, that such financing will be
available to us or, if it is, that it will be available on terms acceptable to
us.
15
<PAGE>
Effective August 22, 2000, we issued 10,000 warrants jointly to Reflekt
Technology, Inc., a Massachusetts corporation (Reflekt) and Vladimir Schwartz,
President, sole director and sole shareholder of Reflekt (Schwartz) in exchange
for certain patents which Reflekt or Schwartz owned in whole or in part. The
warrants are exercisable beginning August 22, 2001 at an exercise price of
about $11.25 per share and terminate on August 22, 2004.
On February 8, 2000, we formed Constellation 3D Trust LLC, a Delaware
limited liability company that we wholly own. We then issued 10,500,000 shares
of common stock to Constellation 3D Trust LLC as a capital contribution and
later cancelled all but 500,000 of said shares. Constellation 3D Trust LLC
intends to use the 500,000 shares to raise debt or equity capital and
contribute the proceeds thereof to us, which proceeds will be used for general
corporate purposes. There is no assurance that the issuance of the shares will
result in the raising of any debt or equity capital.
On December 1, 1999, we entered into a Placement Agency Agreement and
Warrant Agreement with Sands Brothers & Co., Ltd. (the Agency Agreement and
Warrant Agreement respectively) which obligates Sands Brothers & Co., Ltd.
(Sands Brothers) to raise through the placement of our securities, on a best
efforts basis, a minimum of $4.0 million (the Minimum Amount) and, as amended on
March 23, 2000, a maximum of $120.0 million for us. By the face of the March 23,
2000 amendments to the Agency and Warrant Agreements, we were to issue to Sands
Brothers warrants to purchase 1,050,000 shares at an exercise price of $3.67 per
share for the Minimum Amount of securities sold, and 600,000 stock warrants for
each $1.0 million of our securities sold up to $25.0 million (the Additional
Placement Agent Warrants) at an exercise price equal to a 40% discount to the
average of the bid price of our common stock for the 120 day period prior to any
closing, but in no event less than $5.00 per share. On March 24, 2000, Sands
Brothers Venture Capital Associates LLC, an affiliate of Sands Brothers,
invested $4 million in us through a subordinated convertible debenture. Pursuant
to the provisions in the Agency Agreement, we agreed to issue to Sands Brothers
warrants to purchase 1,050,000 and 2,400,000 shares of common stock at the
prices of $3.67 and $15.13, respectively.
On March 23, May 16, May 31, June 28 and August 3, 2000, we amended the
Placement Agency Agreement, Warrant Agreement and Warrant Certificate No. SB-2.
Among other results of the amendments, Sands Brothers is no longer our
exclusive financing source and is not entitled to any fees or stock warrants
with respect to financing sources which it does not bring to us.
We believe that the warrants and all provisions in the Agency Agreement,
and all documents related thereto which call for the issuance of the warrants to
Sands Brothers are no longer enforceable, because Sands Brothers failed to
satisfy its obligation to raise $7.5 million in financing for us within 150 days
of the Commencement Date as defined in the Agency Agreement. We intend to
renegotiate the foregoing documents with Sands Brothers.
We have a limited operating history upon which to base an evaluation of
our business. You should consider our business and prospects in light of the
risks, expenses and difficulties which companies in the early stages of
development frequently encounter, particularly companies in new and rapidly
evolving markets such as the data storage market. These risks include rapid
technological change, inability to manage growth, competition from more
established companies, dependence on suppliers, internal system problems, and
the inability to obtain additional financing and an unproven business record.
Results of Operations for the Six Months Ended June 30, 2000 Compared to Six
Months Ended June 30, 1999
Our reported financial condition and results of operations for the six
months ended June 30, 2000, includes all amounts for our company and our three
wholly owned operating subsidiary companies, C-TriD Israel Ltd. (C-TriD), TriD
Store Vostok (Vostok), and FMD&E, Inc. (FMD&E). Our reported financial
condition and results of operations for the comparative six months ended June
30, 1999, include the consolidated amounts of our predecessor company,
Constellation Tech.
16
<PAGE>
Revenue. We generated no revenue for the six months ended June 30, 2000
and 1999.
Research and Development Expenses. We incurred research and development
expenses of $1,918,038 for the six months ended June 30, 2000, compared with
$1,062,305 for six months ended June 30, 1999 for an increase of $855,733, or
about 81%. Research and development expenses consist primarily of expenses
incurred for the development of our data storage technology, including
compensation of technical staff and contractors, materials consumed in the
development process, and professional fees for patent registration of
intellectual property. Payroll for staff and costs for contractors amounted to
$1,146,560 for the six months ended June 30, 2000, compared with $520,000 for
the six months ended June 30, 1999 for an increase of $626,560, or about 120%.
We increased payroll for staff and costs for contractors, primarily because we
hired staff with greater qualifications, and we expanded our contractual
relationships with our subcontractor. Professional fees were $149,277 for
patent registration for the six months ended June 30, 2000, compared with
$383,252 for the six months ended June 30, 1999. The decrease in patent
registration was due to our proprietary technology being more proven and
patentable during the same period last year. Materials consumed amounted to
$182,781 for the six months ended June 30, 2000, compared with $17,881 for the
six months ended June 30, 1999. The increase in material was due to the
purchase of various lasers required at the current stage of development of our
products. Travel expenses amounted to $141,090 for the six months ended June
30, 2000, compared with $24,300 for the six months ended June 30, 1999. The
increase in travel costs is due to the travel of research and development staff
between our geographical locations. General and administrative costs associated
with research and development facilities were $160,195 for the six months ended
June 30, 2000, compared with $92,836 for the six months ended June 30, 1999.
General and Administrative Expenses. General and administrative expenses
consist of management compensation, rent, professional fees, telephone, travel
and other general corporate expenses. General and administrative expenses were
$1,980,295 for the six months ended June 30, 2000, compared with $554,863 for
the six months ended June 30, 1999 for an increase of $1,425,432 or about 257%.
We paid substantially more for management and facilities for the six months
ended June 30, 2000, than we did for the six months ended June 30, 1999.
Payroll expenses and management fees relating to general and administrative
activities were $423,758 for the six months ended June 30, 2000, compared with
$170,335 for the six months ended June 30, 1999. The rise in compensation
expenses was due to the increase in the size and compensation of the management
team compared to that in place for the six months ended June 30, 1999. Office
and maintenance charges were $288,005 for the six months ended June 30, 2000,
compared with $205,962 for the six months ended June 30 1999. The increase in
office and maintenance charges relates to the increased activity of the New
York office for the six months ended June 30, 2000, compared to the six months
ended June 30, 1999, when there was no corporate office in New York. Travel and
accommodation expenses were $288,725 in the six months ended June 30, 2000,
compared with $92,777 for the six months ended June 30, 1999. The increase in
travel and accommodation expenditures was due to our increased fund-raising
activities for the six months ended June 30, 2000, over the six months ended
June 30, 1999. Professional fees were $740,695 for the six months ended June
30, 2000, compared with $26,392 for the six months ended June 30, 1999. The
increase was for legal support for our financing transactions and the legal and
accounting work required for the preparation of our publicly filed quarterly
and annual reports. Consulting fees amounted to $130,516 for the six months
ended June 30, 2000, compared with $49,440 for the six months ended June 30,
1999. Shareholder relations expenses and filing fees were $90,711 for the six
months ended June 30, 2000, compared with no shareholder relations expenses for
the six months ended June 30, 1999.
Marketing. Marketing expenses consisted of compensation to consultants and
travel expenditures for demonstrations of our technology to potential strategic
partners. Marketing expenses were $4,518,846 for the six months ended June 30,
2000, compared to no expenses for the six months ended June 30, 1999, when we
had yet to demonstrate our technology. Most of these expenses, $4,458,000, were
compensation expenses relating to marketing and business development. The
compensation expense consisted of $4,293,000 in noncash stock-based
compensation due to the grant of 450,000 options to our non-employee consultant
and $165,000 in consulting fees for the six months ended June 30, 2000,
compared with no such expenses for the six months ended June 30, 1999. The
compensation charge relating to the grant of stock options represents the
relative fair value ascribed to the options measured using the Black-Scholes
option pricing model. We present the effects of the compensation expense
related to the grant of stock options as an addition to paid-in capital
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in the statement of stockholders' deficit. Travel and accommodation expenses
for product demonstrations and exhibits were $56,143 for the six months ended
June 30, 2000, compared with no expenses for the six months ended June 30,
1999. We incurred $4,703 in expenses relating to media exposure for the six
months ended June 30, 2000, compared to no expenses for the six months ended
June 30, 1999.
Interest Income and Expense, net. We have recorded net interest expense of
$1,590,260 for the six months ended June 30, 2000, compared with $29,290 for
the six months ended June 30, 1999 for an increase of $1,560,970. The interest
expense included a $120,000 beneficial conversion feature on subordinated
convertible debt issued during the six months ended June 30, 2000, compared to
no such expense for the six months ended June 30, 1999. We recorded interest
expense of $692,604 for the amortization of the financing cost associated with
the detachable warrants issued in connection with the issuance of subordinated
convertible debt during the six months ended June 30, 2000, compared to no such
expense for the six months ended June 30, 1999. We also recorded an interest
expense of $500,000 related to the commission charged on the subordinated
convertible debt issued during the six months ended June 30, 2000, compared
with no such expense for the six months ended June 30, 1999. Interest expenses
relating to bank overdrafts, shareholder loans and subordinated convertible
debt amounted to $296,885 for the six months ended June 30, 2000, compared to
$29,290 for the six months ended June 30, 1999. Interest revenue was generated
through short-term deposits and amounted to $19,229 during the six months ended
June 30, 2000, compared with no interest revenue for the six months ended June
30, 1999.
Income Taxes. We have generated inter-company taxable income to date and
therefore have incurred $11,521 for the six months ended June 30, 2000,
compared with $11,000 for the six months ended June 30, 1999. Israeli and
Russian subsidiaries, C-TriD and Vostok, incurred taxes due to their treatment
of inter-company advances as taxable revenue. We have not generated any taxable
income to date and therefore have not paid any federal income taxes since our
inception. We have fully reserved deferred tax assets created primarily from
net operating from net operating loss carry-forwards because our management is
unable to conclude that future realization is likely.
Results of Operations for the Year Ended December 31, 1999 Compared to the Year
Ended December 31, 1998
Our reported results of operations from operations for fiscal 1999 include
the combined earnings of two subsidiaries, C-TriD and Vostok, for the full 1999
year, the earnings of the predecessor company, Constellation Tech, for the nine
months ended September 30, 1999, together with our earnings after October 1,
1999, the date on which we completed the acquisition of certain assets of
Constellation Tech.
Revenue. We generated no revenue in the years ended December 31, 1999 and
1998.
Research and Development Expenses. Research and development expenses
consist primarily of expenses incurred for the development of the data storage
technology, including compensation of technical staff and contractors,
materials consumed in the development process, and professional fees for
intellectual property. We incurred research and development expenses of
$2,413,239 for the year ended December 31, 1999, compared with $1,534,948 for
the year ended December 31, 1998, for an increase of $878,291 or 57%. The
significant costs were payroll for staff and contractors which amounted to
$1,366,002 for the year ended December 31,1999, compared with $965,114 for year
ended December 31, 1998. The increase in payroll expenditures was due to the
increase in staff to 54 people for the year ended December 31, 1999 from 35
people for the year ended December 31, 1998. Professional fees were $556,432
for patent preparation and filing for the year ended December 31, 1999,
compared with $312,612 for the year ended December 31, 1998. The increase in
patent costs was due to the expanded coverage in scope and geography of our
Fluorescent Memory Technology. Materials consumed amounted to $64,155 for the
year ended December 31, 1999, compared with $139,565 for the year ended
December 31, 1998. This decrease was due to the reduction of new materials
required as our products went from prototypes to a demonstrable product in
1999.
General and Administrative Expenses. General and administrative expenses
consist of management compensation, rent, professional services, telephone
expense, travel and other general corporate expenses.
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General and administrative expenses were $ 2,084,027 for the year ended
December 31, 1999 compared with $1,660,477 for the year ended December 31, 1998
for an increase of $423,550 or about 26%. This increase reflected the hiring of
additional management personnel, increased facilities charges and expansion of
operations. Payroll expenses and management fees relating to general and
administrative expenses were $466,034 in the year ended December 31, 1999,
compared with $690,066 for the year ended December 31, 1998. The decrease was
due to the reduction of a management contract from $400,000 for the year ended
December 31, 1998 to $100,000 for the year ended December 31, 1999. Office and
maintenance charges consisting of expenditures on rent, general maintenance,
and communications were $436,903 for the year ended December 31, 1999, compared
with $491,322 for the year ended December 31, 1998. Travel and accommodation
expenses were $303,443 for the year ended December 31, 1999, compared with
$327,355 for the year ended December 31, 1998. Professional fees were $328,480
for the year ended December 31, 1999, compared with $56,180 for the year ended
December 31, 1998, the majority of which relate to legal support for our
financing transactions and the preparation of our publicly filed registration
statement. Business development expenses were $97,635 for the year ended
December 31, 1999, compared with no business development expenses for the year
ended December 31, 1998.
Interest Income and Expense, net. We have net interest expense of $305,833
for the year ended December 31, 1999, compared with a net interest income of
$6,985 for the year ended December 31, 1998. The interest expense included a
$125,000 beneficial conversion feature on subordinated convertible debt issued
during the year ended December 31, 1999, compared to no such expense for the
year ended December 31, 1998. We also recorded an interest expense of $100,000
related to the commission charged on the subordinated convertible debt issued
during year ended December 31, 1999, compared with no such expense for the year
ended December 31, 1998. Interest income and expense is generated by bank
overdrafts, shareholder loans, subordinated convertible debt and non-cash
financing charges.
Income Taxes. We have generated inter-company taxable income to date and
therefore have paid $63,588 for the year ended December 31, 1999, compared with
$3,462 for the year ended December 31, 1998. Israeli and Russian subsidiaries,
C-TriD and Vostok, incurred taxes due to their treatment of inter-company
advances as taxable revenue. We have not generated any taxable income to date
and therefore have not paid any federal income taxes since our inception. We
have fully reserved deferred tax assets created primarily from net operating
loss carry-forwards as management is unable to conclude that future realization
is more likely than not.
For our fiscal year ended 1997, our results of operations include the
period from September 25 (inception) to December 31, 1997. Thus, the results of
operations for our fiscal year 1997 is for approximately three months, whereas
our results of operations for fiscal year 1998 is for a twelve-month period.
Therefore, no comparison has been made between fiscal years 1997 and 1998.
Liquidity and Capital Resources
As of June 30, 2000, we had cash and cash equivalents of $1,768,455 and
our working capital deficit was $2,162,656, compared to a cash position of
$2,030,139 and a working capital deficit of $1,415,276 as at December 31, 1999.
Since inception, we have financed our operations from capital
contributions, shareholder loans and subordinated convertible debt. During the
six months ended June 30, 2000, we received gross proceeds of $4,000,000 from
the issuance of subordinate convertible debt and net advances from related
parties of $199,797. This compares with net proceeds from shareholder loans and
advances from related parties of $1,479,411 for the year ended December 31,
1999. As at May 19, 2000 and July 31, 2000, shareholder's loans in the principal
amounts of $300,000 and $1,000,000 respectively, became due and payable
immediately. On August 23, 2000, principal amounts including interest was
converted into common stock at a conversion price of $10.1531 per share.
Subsequent to the six month period ended June 30, 2000, we received gross
proceeds of $12,400,426 through the sale of 1,221,718 shares of our common
stock. We granted the shareholders certain registration rights and warrants in
conjunction with the financing. In addition, shareholder loans and subordinate
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convertible debt in the amounts of $1,402,163 and $2,367,973, respectively,
were converted into 138,102 and 546,097 shares, respectively, of our common
stock. On August 22, 2000, the majority shareholder of the company,
Constellation Tech, entered into a $6,000,000 line of credit with us. As of
October 2, 2000, we utilized $1,000,000 of this credit facility.
Net cash used in operating activities was $4,401,204 for the six months
ended June 30, 2000, including a net loss of $10,018,960 and an increase in
payables of $243,453. This compares with net cash used in operating activities
of $1,133,111 for the six months ended June 30, 1999, including a net loss of
$1,657,458 and an increase in payables of $424,591. For the six months ended
June 30, 2000, we recorded non-cash compensation expense of $4,293,000 relating
to the issuance of stock options to a non-employee marketing consultant, a
charge of $120,000 for the beneficial conversion feature on the subordinated
convertible note issued during the period, and $692,604 of amortization of
deferred financing costs resulting from the issuance of detachable warrants
issued during the period. We will incur additional amortization charges of
approximately $3,200,000 through September 2001 in connection with these
detachable warrants. This compares with no such non-cash transactions for the
six months ended June 30, 1999. Our current operating expenditures are
approximately $750,000 per month and we plan to increase our operating
expenditures to $1,100,000 a month in order to expand our operations. We have
not generated any revenues to date and do not anticipate cash flow from
operations to be sufficient to fund our cash requirements until late in the
year 2003.
We incurred net capital expenditures of $77,765 for the six months ended
June 30, 2000, compared with $108,585 for the six months ended June 30, 1999.
These expenditures were primarily for laboratory equipment associated with our
continued research and development.
We currently have no commitments for any credit facilities such as
revolving credit agreements or lines of credit that could provide additional
working capital except for an agreement with Constellation Tech, our majority
shareholder, to provide us with a credit line of $6,000,000 out of which we
borrowed $1,000,000. Based on our existing capital resources, we believe that
we will be able to fund operations through September 2001. Our capital
requirements depend on several factors, including the success and progress of
research and development programs, the resources devoted to developing
products, the extent to which products achieve market acceptance and other
factors. We anticipate that we will require substantial additional financing to
fund our working capital requirements. There can be no assurance, however, that
additional funding will be available or, if available, that it will be
available on terms acceptable to us. If adequate funds are not available, we
may not be able to continue. There can be no assurance that we will be able to
raise additional cash if our cash resources are exhausted. Our ability to
arrange such financing in the future will depend in part upon the prevailing
capital market conditions as well as our business performance.
We have been in the development stage since our inception. We have had no
operating revenue to date, have accumulated losses of $20,690,294 and will
require additional working capital to complete our business development
activities and generate revenue adequate to cover operating and further
development expenses.
On October 12, 2000, we converted our $500,000 loan from Wilbro Nominees
Limited into 49,500 shares of our common stock and one-year warrants to purchase
15,000 shares of our common stock at an exercise price of $10.15313. This
investor is a selling shareholder under the prospectus.
On September 12, 2000, we converted our loan originally in the principal
amount of $600,000 from Argotec Ltd. (Formula Ventures Ltd.) into 380,000
shares of our common stock issued to Formula Ventures L.P. (242,326 shares),
FV-PEH L.P. (68,628 shares), and Formula Ventures (Israel) L.P. (69,046 shares)
These investors are selling shareholders under the prospectus.
On September 12, 2000, we entered into the Common Stock Investment
Agreement with Jacqueline Hershkovitz. According to the common stock Investment
Agreement, J. Hershkovitz purchased (1) 14,774 shares of common stock at a
price of $10.15313 per share, (2) five year warrants to purchase 5,910 shares
of common stock at an exercise price of $14.6656 per share, (3) and one year
warrants to purchase 7,387 shares of common stock at an exercise price of
$10.15313 per share. All the warrants are subject to adjustment. We issued the
shares of common stock and the warrants as an exempt offering under Section
4(2) of the Securities Act. Through her registration rights, this investor is a
selling shareholder under this prospectus.
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On August 31, 2000, we concluded a $ 2,000,426 equity financing through a
sale of 197,026 shares of our common stock to a group consisting of the
following seventeen investors: I. Nahori, H. Yehosoaa, A. Ori, B. Tamir, K.
Zeev, E. Tzion, O. Ron, E. Miro, A. Shilontchik, Y. Peleg, A. Ben-Ami, G.
Altshuler, Koor Underwriter and Issuer Ltd., Menorah Gaoon Investment Ltd.,
Bilgori Shalom and Yafa, The Hebrew University Employee Fund, and Shoher Tov
Ltd., collectively called Koor's Investors. In connection with this equity
financing, we issued the following warrants to Koor's Investors: (1) five-year
warrants to purchase 78,813 shares of our common stock at the initial exercise
price of $14.6656 per share, (2) warrants to purchase a number of shares of
common stock pursuant to a certain formula set forth in the written agreement,
and (3) one-year warrants to purchase 98,513 shares of common stock at the
initial exercise price of $10.15313 per share and additional warrants
pertaining to those 98,513 shares of common stock. In connection with this
transaction, we granted Koor's Investors certain registration rights with
respect to 197,026 shares of the common stock and the shares to be issued upon
the exercise of the warrants granted to Koor's Investors. We issued the shares
of common stock and the warrants as an exempt offering under Section 506 of
Regulation D of the Securities Act of 1933.
In connection with the sale of the foregoing securities to Koor's
Investors, Koor Underwriter and Issuer Ltd., as a broker, received warrants to
purchase 295,539 shares of our common stock and $80,017.04 (4% of the
$2,000,426 purchase price) as commissions. We also paid a 17% Valued Added Tax
on the cash payments. We issued the warrants as an exempt offering under
Section 506, Regulation D of the Securities Act. Koor's Investors and Koor
Underwriter and Issuer Ltd., as a broker, through their registration rights,
are selling shareholders under this prospectus.
On August 23, 2000, we entered into the Common Stock Investment Agreement
with Halifax Fund, L.P., a private fund organized under the laws of the Cayman
Islands, providing for the $5 million equity financing through a sale of 492,459
shares of our common stock to Halifax Fund, L.P. In connection with this equity
financing, we issued the following warrants to Halifax Fund L.P.: (1) five-year
warrants to purchase 196,984 shares of our common stock at the initial exercise
price of $14.6656 per share, (2) adjustment warrants to purchase a number of
shares of common stock pursuant to a certain formula set forth in the written
agreement, and (3) one-year warrants to purchase 246,229 shares of common stock
at the initial exercise price of $10.15313 per share and additional warrants
pertaining to those 246,229 shares of common stock. On September 19, 2000, we
entered into the Letter Agreement with Halifax Fund, L.P., amending the common
stock Investment Agreement of August 23, 2000. According to the Letter
Agreement, Halifax Fund, L.P., provided to us the second $5,000,000 equity
financing in consideration for the same number of shares and warrants as
purchased by it in connection with the first $5,000,000 financing described
above. Therefore, Halifax Fund, L.P. has purchased in the aggregate (1) 984,918
shares of our common stock, (2) five-year warrants to purchase 393,968 shares of
our common stock, and (3) one-year warrants to purchase 492,458 shares of our
common stock.
In connection with these transactions, we granted Halifax Fund, L.P.
certain registration rights with respect to 984,918 shares of the common stock
and the shares to be issued upon the exercise of the warrants granted to
Halifax Fund, L.P. We issued the shares of common stock and the warrants as an
exempt offering under Section 506 of Regulation D of the Securities Act. of
1933. Halifax Fund, L.P. is a selling shareholder under this prospectus.
In connection with the sale of the foregoing securities to Halifax Fund,
L.P., (1) The Shemano Group, Inc., as a broker, received warrants to purchase
400,000 shares of our common stock and $500,000 (5% of the $10,000,000 purchase
price) as commissions, and (2) Koor Underwriter and Issuer Ltd., as a broker,
received warrants to purchase 200,000 shares of our common stock and $200,000
(2% of the $10,000,000 purchase price) as commissions. We issued the warrants
as an exempt offering under Section 506, Regulation D of the Securities Act.
The Shemano Group, Inc. and Koor Underwriter and Issuer Ltd., as brokers, are
selling shareholders under this prospectus.
On August 23, 2000, we converted the outstanding note in the original
principal amount of $1,600,000 to Winnburn Advisory to 166,097 shares of our
common stock, one-year warrants to purchase 83,048 shares of our common stock
at the exercise price of $10.15313, and five-year warrants to purchase 66,439
shares of our common stock at the exercise price of $14.6656. Winnburn Advisory
is the selling shareholder under this prospectus.
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On August 23, 2000, we converted the outstanding notes in the total
original principal amount of $1,300,000 to EpiCenter Venture Finance Ltd. to
138,102 shares of our common stock, one-year warrants to purchase 69,051 shares
of our commons stock at the exercise price of $10.15313 and five-year warrants
to purchase 55,241 shares of our common stock at the exercise price of
$14.6656. EpiCenter Venture Finance Ltd. is a selling shareholder under this
prospectus.
On August 22, 2000, we issued options to purchase 390,000 shares of our
common stock to Vladimir Schwartz, our Chief Technology Officer, as
compensation for the services rendered to us. The exercise price of these
option shares is $11.25 per share. The options will expire on August 22, 2004.
On August 22, 2000, in consideration of the assignment of patents to us by
Mr. Schwartz and Reflekt Technology, Inc., a Massachusetts corporation, of
which Mr. Schwartz is the President, sole director and sole shareholder, we
granted jointly to Mr. Schwartz and Reflekt Technology, Inc. a warrant to
purchase 10,000 shares of our common stock. The exercise price of the warrant
shares is $11.25 per share. The warrant will terminate on August 22, 2004. We
issued the warrant as an exempt offering under Section 4(2) of the Securities
Act.
On August 22, 2000, we entered into a certain Loan Agreement with
Constellation 3D Technology Limited, a British Virgin Islands company, pursuant
to which Constellation 3D Technology Limited agreed to open a credit line of up
to $6,000,000 for us. The interest rate for each withdrawal will be the
interest rate of three-month LIBOR plus 3%. Constellation 3D Technology Limited
has the right to convert the loan amount into equity at a price per share of
90% of the average closing price of our common stock for the 12 trading days
prior to August 22, 2000. In connection with this credit line, Constellation 3D
Technology Limited will receive a three-year warrant to purchase 20,000 shares
of our common stock upon signing the Loan Agreement and a three-year warrant to
purchase 10,000 shares of our common stock upon each withdrawal made by us from
this credit line. The purchase price of the above-stated warrants is equal to
100% of the closing price of our common stock on August 22, 2000. Up to one
year from our last withdrawal from the credit line, Constellation 3D Technology
Limited will have the right to purchase additional shares of our common stock
for not less than $2,000,000. On August 28, 2000, we issued the Convertible
Note to Constellation 3D Technology Limited in the principal sum of $1,000,000
as an exempt offering under Section 4(2) of the Securities Act of 1933.
On August 18, 2000, we granted Blank Rome Comisky & McCauley LLP a warrant
to purchase 5,555 shares of our common stock in order to reduce the amount of
our outstanding legal fees due to Blank Rome Comisky & McCauley LLP by Fifty
Thousand Dollars ($50,000.00). Blank Rome Comisky & McCauley LLP serves as our
legal counsel. The warrant currently is exercisable at a price of $0.001 per
share and will terminate on July 31, 2005. Blank Rome Comisky & McCauley LLP
obtained certain registration rights in connection with the grant of the
warrant and is a selling shareholder under this prospectus.
On August 17, 2000, we entered into a Common Stock Investment Agreement by
which we sold 25,000 shares of our common stock to TCO Investment Inc. and on
August 18, 2000, we granted warrants to purchase (1) 15,000 shares of our
common stock to Guldborg, International, and (2) 10,000 shares of our common
stock to Farpell Inc. These investors are selling shareholders under this
prospectus.
On March 24, 2000, we issued a 10.0% Subordinated Convertible Debenture due
September 24, 2001 in principal amount of $4.0 million to Sands Brothers Venture
Capital Associates LLC, an affiliate of Sands Brothers & Co. Ltd. (Sands
Brothers). As part of the Placement Agency Agreement with Sands Brothers, we
agreed to grant to Sands Brothers Venture Capital Associates LLC certain
registration rights with respect to the underlying common stock. We agreed to
issue the convertible debenture, convertible at $17.65 per share as of the issue
date, as an exempt offering under Section 4(2) of the Securities Act of 1933. In
connection with such debenture, we agreed to issue, as an exempt offering under
Section 4(2) of the Securities Act of 1933, to Sands Brothers warrants to
purchase 1,050,000 shares of our common stock at an exercise price of $3.67 per
share and warrants to purchase 2,400,000 shares of our common stock at an
exercise price of $15.13 per share. Both sets of warrants, if enforceable by
their terms and not renegotiated by us, expire on December 1, 2004.
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Changes in and Disagreements with Accountants
Barry L. Friedman, P.C., Certified Public Accountant, resigned as our
auditor effective October 19, 1999 due to our need to begin filing financial
reports pursuant to the Exchange Act in order to continue the quotation of our
common stock on the NASD's Over-the-Counter Bulletin Board. Barry L. Friedman,
P.C. served as our auditor prior to our reverse acquisition with Constellation
3D Technology Limited on October 1, 1999. We engaged BDO International as our
principal auditor and the principal auditor of our subsidiaries in October,
1999. BDO International served as our principal auditor and our subsidiaries'
principal auditor during the last fiscal year. BDO Seidman, LLP, a member firm
of BDO International, will serve as our principal auditor for the current
fiscal year.
Mr. Friedman's report on the financial statements for either of the past
two years did not contain an adverse opinion or a disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope, or accounting
principles. Our Board of Directors ratified Mr. Friedman's resignation and the
appointment of BDO International and BDO Seidman, LLP as our auditors on
September 19, 2000.
During our two most recent fiscal years and the subsequent interim period
preceding the resignation of Mr. Friedman, there were no disagreements with Mr.
Friedman on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, as well as no reportable
events as described in the rules of the SEC.
Quantitative and Qualitative Disclosures About Market Risk
Since our inception, we have not held any material market rate sensitive
instruments.
Our Business
We are a development stage company engaged in a research and development
program to launch the mass-market production of a technology called Fluorescent
Memory Technology (also known as Fluorescent Media Disc and Florescent Memory
Card Technology, FMD and FMC Technology, FMD/C Technology and by other
substantially similar names). We began operations as of October 1, 1999 and
have no prior operating history other than that associated with the acquisition
of certain assets of Constellation 3D Technology Limited, a British Virgin
Islands company (Constellation Tech), which primarily performed research and
development of three-dimensional technology for the storage of digital
information on disc. However, our subsidiaries were in operation before October
1, 1999, when Constellation 3D Holdings Limited, an Irish company
(Constellation Holdings) or Constellation Tech owned them.
We have no revenue history and therefore have not achieved profitability.
We are an international enterprise headquartered in New York, New York. With
operations in the United States, Israel and Russia and a subcontractor who
performs services for us in the Ukraine, we research and develop data storage
technology products for commercial applications.
Our mission is to develop state-of-the-art technologies and products to
serve the growing data storage needs of customers in government, business,
education and consumer segments through continuous research and product
innovation. By providing new data storage solutions to our customers through
joint ventures, strategic alliances, and licensing agreements, we intend to
have a substantial presence in the data storage research and development market
and thereby provide significant returns to our shareholders.
Our new technology focuses upon the concept of the volumetric storage of
information. FMD Technology records data on multiple layers located inside a
disk or a card, as opposed to the single or double layer method available in
compact discs and DVDs. The recording, reading and storing of the information
uses fluorescent materials embedded in pits and grooves in each of the layers.
The fluorescent material emits radiation when excited by an external light
source. The FMD Technology then decodes the information as modulations of the
intensity and color of the emitted radiation.
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Our research has determined that these fluorescent multilayer disks and
cards furnish the user with considerably improved storage space and storage
time and deliver substantial performance advantages when compared to the CDs
and DVDs currently produced.
Company History and Structure
Our founder incorporated us on December 27, 1995 under the name Latin
Venture Partners, Inc. The name of Latin Venture Partners, Inc. changed to C3D
Inc. on March 24, 1999 in anticipation of a transaction with Constellation
Tech. As approved by the necessary number of votes at our Annual Meeting of
Shareholders held on December 27, 1999, we changed our name to Constellation
3D, Inc. effective December 29, 1999. From our inception on December 27, 1995
until October 1, 1999, we have had no business operations.
On October 1, 1999, we purchased certain assets of Constellation Tech for
total consideration of 29,250,000 shares of our common stock and our assumption
of substantially all liabilities and obligations of Constellation Tech (the
"Acquisition").
In the Acquisition, we acquired the following assets:
o Constellation's Tech's then sole existing membership interest in
TriDStore IP, L.L.C.;
o all of the issued and outstanding ordinary shares in TriD Store Vostok;
o 99 of the 100 allotted shares of C-TriD Israel Ltd.; and
o all of the issued and outstanding shares of common stock of TriD SV, Inc.
TriDStore IP, L.L.C. is a Delaware limited liability company formed on
February 2, 1998, formerly known as OMD Devices, L.L.C. until March 9, 1999.
TriDStore IP, L.L.C. owns a substantial majority of our material intellectual
property which consists mostly of patent registrations and applications. See
"Risk Factors" on page 4.
TriD Store Vostok is a Russian company formed on January 15, 1999. We
conduct our Russian operations through TriD Store Vostok.
C-TriD Israel Ltd. is an Israeli company formed on December 2, 1996. We
are now the owner of all outstanding shares of C-TriD Israel Ltd. We conduct
our Israeli operations through C-TriD Israel Ltd.
TriD SV, Inc. is a Delaware corporation formed on August 10, 1998. As of
October 20, 2000, TriD SV, Inc. has had no operations.
On February 8, 2000, we formed Constellation 3D Trust LLC, a Delaware
limited liability company that we wholly own. We then issued 10,500,000 (Ten
Million Five Hundred Thousand) shares of common stock to Constellation 3D Trust
LLC as a capital contribution and later cancelled all but 500,000 (Five Hundred
Thousand) of said shares. Constellation 3D Trust LLC intends to use the 500,000
(Five Hundred Thousand) shares to raise debt or equity capital and contribute
the proceeds thereof to us, which proceeds will be used for general corporate
purposes. There is no assurance that the issuance of the shares will result in
the raising of any debt or equity capital.
On April 7, 2000, we formed FMD&E, Inc., a Massachusetts corporation that
we wholly own ("FMD&E"). We formed FMD&E after we decided not to consummate the
acquisition of Reflekt Technology, Inc., a Massachusetts corporation. Since
April 2000, FMD&E has been designing fluorescent multi-layer production
equipment.
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ORGANIZATIONAL STRUCTURE
OF THE
CONSTELLATION 3D, INC. ENTERPRISE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
CONSTELLATION 3D, INC.
(Florida, USA)
(Headquartered in
New York, New York, USA)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
100% 100% 100% 100% 100% 100%
--------------------------------------------------------------------------------------------------------------------
TriDStore, IP, TriDStore C-TriD Israel Ltd. TriD SV, Inc. Constellation 3D FMD&E, Inc.
L.L.C. Vostok (Israel) (Delaware, USA) Trust LLC (Massachusetts,
(Delaware, USA) (a.k.a. 3-D Vostok (Delaware, USA) USA)
ZAO) (Russia)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
25
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Products
We have developed FMD and FMC Technology and, through licensing and/or
joint ventures, plan to use it to introduce the following products:
1. First Generation Discs and Cards
a. Read Only Memory (ROM) Products
o FMD-ROM. We expect that this class of products will take the form of
a disc, with data storage capacities of up to 100 Gigabytes (GB). It
should include red laser-based disc/drive units that are also
capable of reading CDs and DVDs.
o FMC ClearCard(TM)-ROM. We expect that this class of products will
take the form of credit-card-sized card devices, with data storage
capacities of up to 5 GB.
b. Write Once Read Many Times (WORM) Products
o FMD-R (Recordable). We anticipate that this class of products will
take the form of a disc, with data storage capacities of up to 100
GB. We project that these products will include red laser-based
disc/drive units that are also capable of reading CDs.
o FMC ClearCard(TM)-R (Recordable). We expect that this product line
will be credit-card-sized cards, with data storage capacities up to
5 GB.
We anticipate that the first prototypes of this technology will be
demonstrated by Summer 2001, and we expect that this technology will go beyond
ROM in offering a one-time recording function, allowing the user to choose the
data to be stored.
c. Rewritable (R/W) Products
o FMD-R/W. We expect that this line of products will be a 120 mm disc
with data storage capacities of up to 100 GB.
o FMC ClearCard(TM)-R/W. We anticipate that this product line will be
credit-card-sized cards, with data storage capacities of up to 5 GB.
We expect to be able to demonstrate this technology, by the end of 2001
and anticipate that the technology will allow multiple erasing and re-recording
of user-specified data.
2. Second Generation Discs & Cards
We anticipate the development of these products within 18 to 24 months
after the first generation. We estimate that the discs will have data storage
capacities up to 1 Terabytes (TB) (1,000 GB) and that the cards will have data
storage capacities up to 25 GB.
3. Hybrid ROM-R-R/W Discs and Cards
We believe that the multi-layer structure of our FMD/C media allows the
creation of hybrid memory devices, combining the advantages of Read-only,
Recordable and Rewritable memory.
Distribution and Principal Markets
We do not plan to normally engage in direct sales and distribution of
FMD/C products. Instead, we intend to partner with industry leaders having a
substantial sales and distribution capability within targeted market segments,
such as the PC Market, the Home Consumer Market, Digital Cinema, and Mobil
Computing. The primary exception would be with respect to market segments that
become evident as strategically important to our overall success, where we
intend to become more directly involved in the sales and marketing process.
We expect to receive revenues primarily through licensing and royalty
revenues, in accordance with our business model. We intend to establish royalty
rates by agreement with joint venture partners and technology licensees,
calculated as a percentage of the licensee's revenue generated -- a per-unit
price, or a flat fee. We
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expect to derive royalties from a percentage of the value to the licensee that
is attributed to our technology. Early in the product rollout, we may partially
waive royalties in order to help speed market introduction of the technology.
In general, we expect to set the price at the optimum level to achieve the
highest possible overall revenue return.
Based on the market penetration of CD and DVD, we believe that sales for
120 mm (CD/DVD-sized) FMD disc will come from 2 primary categories: the PC
Market and Home Consumer Market. A description of these market segments and
others follows.
The PC Market
The market size of the PC Market exceeds 200 million drives and includes
billions of discs. We believe that the market needs storage solutions past the
4.7 GB (or 8.54 GB dual layer) capacity currently offered by DVD-ROM and 4.6 GB
currently offered by DVD-R. The PC Market currently uses Compact Disc Read Only
Memory (CD-ROM), recordable CDs (CD-R), DVD-ROM and DVD-RAM formats.
The home and office personal computer market is one of the largest for
optical discs. It includes software (ROM) and personal storage (CD-R and R/W).
Annual worldwide demand for ROM discs is well over 1 billion units. In the past
2-3 years, due to the increased size of software applications, distribution of
software has moved from the floppy disc (holding 1.44 Megabytes (MB)) to the CD
(holding 650 MB), and is now starting to move to DVD (holding 4.7 GB).
The demand for storage in the PC ROM software market continues to grow as
applications such as games and encyclopedias add more multimedia and video
features. These changes have spurred the move from CD-ROM storage to DVD-ROM
storage, with FMD-ROM as the available format for applications requiring over
4.7 GB of capacity.
This trend is mirrored for recordable media, with annual CD-R disc
worldwide demand at 3.8 billion units. CD-R has now in fact become a commodity
product, with bulk prices close to $0.30 per disc and just a few firms, such as
Ritek Corporation and CMC Magnetics, controlling worldwide supply. The
DVD-recordable market is now beginning to increase substantially (despite the
format battles between DVD-R/W, DVD-RW+ and DVD-RAM), and is led by the need
for greater storage capacity in order to record and/or archive video & audio
content. We are developing, using current inexpensive red-laser-based FMD
media, discs with a capacity of up to 25 GB, giving a 5-fold increase in
recordable optical storage capacity.
For removable carriers, we plan to develop our FMC ClearCard(TM) in various
sizes, ranging from around 500 MB to about 5 GB. We believe that these cards
will initially service the portable computing market and later the office and
home computer desktop market.
Home Consumer Market
In the home video market, VHS tape is still the predominant format, but
the use of DVD in the United States and Europe is now occurring faster than
many experts had anticipated.
In the United States, DVD is approaching 10% market penetration, which
signifies rapid mass-market acceptance. Major movies are now being released
primarily or even exclusively in the format, and old celluloid classics are
being digitally re-mastered for DVD release.
We expect that our discs and cards will provide a suitable solution for
the distribution of films and other types of recorded information and may
replace the analog technology of VHS used in VCRs, portable applications to be
used in high-resolution hand-held movie players and in-car and in-plane
entertainment systems.
o HDTV
One important and growing market for removable storage carriers is high
definition television, also called HDTV. This high quality television format
has been gradually introduced in the United States, Europe and Asia. Format
issues have hampered the speed of introduction, but we think that certain
federal laws, including the requirement that all television broadcasts be made
digitally by 2006 make it increasingly likely that some form of the HDTV format
will be successful.
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The high pixel rate for HDTV requires relatively large data capacities and
transfer speeds to achieve the high quality definition the format allows.
Sonic Solutions and Ravisent Technologies Inc. have announced a new
format, called hDVD which they claim has up to four times the resolution of
standard DVD-Video titles for the HDTV market. However, some industry experts
believe that in order to truly enable the HDTV format, media with over 50 GB
memory capacity will be required.
We believe that we are the only company planning to offer a single carrier
solution for HDTV, and that we are therefore well positioned to be the
predominant storage carrier for HDTV playback.
o Personal Digital TV Recorders
The market for Personal TV recorders potentially will exceed 200 million
players and billions of discs. We estimate that the data storage market needs
storage solutions with storage capacities greater than 50 GB for both ROM and
recordable data storage. Currently, the personal digital TV recorder market
uses DVD-R, DVD-RAM and hard disc.
TiVo Inc. and Replay Networks Inc. currently supply the market for digital
personal television recorders, with units containing hard discs with capacities
up to 30 GB. We perceive the biggest problem, even with the recording of
non-high definition television, to be what to do when the disc is full. With
removable FMD-R discs, with expected capacities up to 100 GB, consumers will be
able to record many hours of entertainment and keep the recorded discs for
subsequent replay as desired. In addition, we expect the FMC-R ClearCard to
offer the same functionality for compressed information. We also expect both
the FMD-R disks and cards in mobile applications such as hand-held players.
As these formats reach mass-market acceptance, we anticipate that they
could require the production of large quantities of FMD discs annually.
Digital Cinema
The digital cinema market consists of approximately 34,000 screens
nationwide, and approximately 133,000 worldwide, with 75% of non-digital
screens expected to convert to digital within 10 years. We believe this market
requires a single disc with more than 100 GB of capacity and more than 50
megabits per second read speed. Currently, the digital cinema market lacks a
standard format.
Digital progress is on the verge of making fundamental changes in the film
industry. Leaders in the industry and electronics firms have been developing a
new "electronic cinema" to replace the celluloid movie reel. Joe Butt, director
of entertainment and technology strategies at Forrester Research, Inc., states
that the new digital projectors will be common in movie theaters within three
years, and will become the new standard by 2007.
Digital Cinema technology represents enormous benefits over celluloid
reels and projectors in the areas of convenience, units costs savings, and
quality. The Digital Cinema era will offer advantages such as the shorter
lead-time in bringing films to market and switching times on changing
projectors over from one film to another. The cost of each celluloid reel is
about $2,000.
The cost savings potential is extremely large when one considers that
there are about 5,000 prints shipped domestically and more worldwide on most
major films. Delivery costs and time only exacerbate the situation. According
to the National Association of Theater Owners, Digital Cinema could save the
industry up to $600 million per year.
Director George Lucas and Lucasfilm Ltd. are pioneering the transition to
Digital Cinema. Lucasfilm Ltd. financed the first digital projectors to be used
in theaters. In May of 1999, the much anticipated "Star Wars: Episode I -- The
Phantom Menace" debuted on Digital Cinema projector.
We believe some hurdles still need to be overcome in the development of
Digital Cinema on a broad scale. These include data storage capacity and read
times -- issues which we believe we are well positioned to address. The digital
cinema industry is one marketplace that we believe will be an early adopter of
our technology.
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Mobile Computing
In this growing arena, we are targeting:
o The wireless digital telephone market;
o Personal Digital Assistants;
o Ebooks; and
o GPS systems.
o Wireless Digital Telephone Market
We believe that personal digital assistants, also called PDAs, and cell
phones are on a quick path of convergence. The key participants in the wireless
digital telephone market are the service providers such as ATT Corp., Sprint
Communications Company, L.P., and MCI WorldCom, Inc., and the equipment vendors
such as Nokia Corp., Ericsson LM Telephone Co., and Motorola Inc.
We see third generation (3G) mobile telephone networks as an evolutionary
step up from today's second generation digital mobile systems. We expect that
3G media telephones and communicators will have multimedia messaging
capabilities which will include still imaging, video calls and video streaming,
wireless Internet browsing and speech. We anticipate that users will have their
own personal, mobile, multi-media communications service.
All of these enhanced features will demand greater data storage capacity
and performance. This demand, however, must be balanced with mobility. As a
result, storage media must be of a compact nature to serve this market. We
realize the value of this 3G technology and we intend to capitalize on it, by
partnering with the companies that are instrumental in developing it.
It is difficult to predict how many consumers will become 3G subscribers
as the technology develops, but Lucent Technologies, a leading provider of
telecommunications products and services, predicts that there will be more than
175 million subscribers for wireless data services by 2005.
o Personal Digital Assistants
We think that the PDA market represents a market segment with vast
potential for our FMD/C technology. We expect that as more functionality
ranging from multimedia applications to personal communications is built into
PDAs, the PDA unit's demand for digital storage will grow substantially.
The Strategis Group anticipates substantial growth in the markets of PDA
computing and smartphones, phones wirelessly connected to the Internet. Palm,
Inc., a majority-owned subsidiary of 3Com Corporation, is the leading global
provider of hand-held computing devices. Psion PLC, Sony Corporation and
Microsoft Corporation, in conjunction with Sharp Electronics Corp., Hewlett
Packard Company and others, are other major players in this segment.
o Memory Used in Mobile Computing
The combined market for all hand-held devices requiring data storage is in
the hundreds of millions of units. The Mobile Computing Market requires high
capacity, small size and low power usage.
The most common memory storage carrier in the mobile computing market is
flash memory. According to recent Merrill Lynch & Co., Inc., estimates, this
represents a $15 billion market. Currently, flash memory is limited to less
than 200 MB per unit and costs about $2,000 per GB. Flash memory is a R/W
technology that enables the user to continuously operate the unit without the
frequent change of storage media. It is designed specifically to address the
storage requirements of emerging applications in the consumer electronics and
industrial/communications markets such as digital cameras, personal digital
assistants, portable digital music players, digital video recorders and smart
phones, communications routers and switches and wireless communications base
stations. SanDisk Corporation dominates the flash memory market, and Sony
Corporation has now entered it with its Memory Stick product.
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IBM Corp. introduced its new hard disc based microdrive PCMCIA card in a
second mobile computing data storage carrier. We project that this drive will
initially cost hundreds of dollars.
Last, DataPlay, Inc. is developing a compact DVD-technology-based optical
data carrier for use in hand-held devices.
We believe that our recordable FMC ClearCard will seriously compete with
flash memory, hard disc microdrives and DVD-technology-based carriers. We
project that our 5 GB FMC-R will cost significantly less per unit to produce in
volume and could thereby retail for lower prices. We hope to obtain a
significant portion of these markets.
Corporate Data Storage, Internet Streaming, Video On Demand and Video
Archiving
o Corporate Data Storage
As companies store and analyze more data on transactions, customers, and
operational and financial parameters, the corporate sector represents a
substantial and growing portion of the demand for data storage. Applications
such as storage area networks, data warehousing, supercomputing, Internet
streaming and data mining are projected to require ever-greater capacity in
order to handle the volume of data to be processed.
International Data Corp. reported that the demand for corporate data
storage has been growing at more than 80% yearly for the past four years and
will double annually for several years to come. Industry estimates predict that
the average Fortune 500 company database size is anticipated to grow to 6.5 TB
in 2002 from today's average size of 672 GB.
o Internet Streaming and Video on Demand
As users of the Internet -- both corporate and individual - move toward
high-bandwidth connection (via optical fiber channels, ADSL (Asynchronous Data
Subscriber Line) and cable modems), very large amounts of video data will be
transferred from server to end-user. We believe that at both ends, high
capacity data storage carriers will be required. We expect that the Internet
server and corporate recipient markets will use our products.
o Video Archiving
The market requires terabytes of storage at a cost lower than that of a
random array of inexpensive discs (also known as RAID). Major vendors such as
Oracle Corporation, IBM Corp., EMC Corp. and SAP AG provide video archiving
solutions. Movie studios and broadcast corporations have data archiving
capacity requirements of up to several Pentabytes (1,000 TB, also known as PB).
We expect that our 100 GB FMD-ROM and FMD-R discs will greatly ease the
burden on providers of corporate data storage and video archiving storage
facilities, both in terms of cost and size of facility.
IBM Corp. and EMC Corp. are the main technology providers in this field
with RAID, optical jukeboxes or tape systems. They now offer a cost per 100 GB
of approximately $600 for their high-end systems. We believe that 100 GB FMD-R
discs can be produced in volume for significantly lower prices per unit than
those other technologies.
Intellectual Property
Through our wholly owned subsidiary TriDStore IP, L.L.C., as of October 4,
2000, we own the following U.S. patents:
o U.S. Patent No. 5,847,141, entitled "Photochromic Material for
Electro-Optic Storage Memory," which issued on December 8, 1998 and which
expires on December 22, 2015. This patent covers photochromically modified
pyridones which are useful in three dimensional, stable, optical memory
storage devices.
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o U.S. Patent No. 5,936,878, entitled "Polymeric Photo-Chromic
Composition," which issued on August 10, 1999 and which expires on
December 12, 2017. This patent covers the use of photochromically modified
spiropyrans in three dimensional, stable, optical memory storage devices.
o U.S. Patent No. 5,945,252, entitled "Photochemical Generation of Stable
Fluorescent Amines from Peri-Phenoxiderivatives of Polycyclic P-Quinones,"
which issued August 31, 1999 and which expires on December 11, 2017. This
patent covers the use of photochromically modified polycyclic quinones in
three dimensional, stable, optical memory storage devices.
o U.S. Patent No. 5,982,740, entitled "Dry Bonded Digital Versatile Disc,"
which issued on November 9, 1999 and which expires on November 25, 2017.
This patent covers a disc for storing digital information comprising a
plurality of adhesively bonded sub discs.
o U.S. Patent No. 6,009,065, entitled "Optical Pickup for 3-D Data Storage
Reading from the Multilayer Fluorescent Optical Disk," which issued on
December 28, 1999 and which expires on December 4, 2017. This patent
covers an optical pickup capable of reading binary optical information
from a multilayer fluorescent disk.
o U.S. Patent No. 6,027,855, entitled "Photo-Chemical Generation of Stable
Fluorescent Derivatives of Rhodamine B," which issued on February 22, 2000
and which expires on December 12, 2016. This patent covers a method for
optically recording information in a three-dimensional memory system
having an active medium which includes a Rhodamine B compound.
o U.S. Patent No. 6,039,898, entitled "Optical Memory Device and Method for
Manufacturing Thereof," which issued on March 21, 2000 and which expires
on October 22, 2017. This patent covers a o method of making an optical
memory device comprising one or more layers, each having a patterned
surface with spaced regions for receiving o fluorescent material capable
of recording and transmitting data.
o U.S. Patent No. 6,071,671 entitled "Fluorescent Optical Memory," which
issued on June 6, 2000 and which expires on October 6, 2017. This patent
covers a method for making an optical 3-D memory device having a plurality
of layers, each carrying fluorescent material which can be reversibly
rendered non-fluorescent by electromagnetic radiation for storing and
recovering data.
o U.S. Patent No. 6,080,288, entitled "System for Forming Nickel Stampers
Utilized in Optical Disc Production," which issued on June 27, 2000 and
which expires on May 29, 2018. This patent covers a system for electro
depositing a metal layer on a substrate using a rotary jet planarizer.
As of October 4, 2000, we own more than 70 additional pending U.S.
regular, U.S. provisional, Patent Cooperation Treaty and foreign patent
applications covering compositions, methods, and apparatus which relate to our
Fluorescent Media Technology. We are in the process of preparing and filing
other patent applications.
We cannot assure you that any of our patent applications will result in
the issuance of patents, or, if the applicable regulatory agency issues
patents, that they will be of sufficient scope and strength to provide
meaningful protection of our technology or any commercial advantage to us, or
that no one will challenge, invalidate or circumvent our patents in the future.
Moreover, we cannot assure you that our competitors, many of which have
substantial resources and have made substantial investments in competing
technologies, do not presently have or will not seek patents that will prevent,
limit or interfere with our ability to make, use or sell our products either in
the U.S. or in other countries.
We intend to rely on a combination of patents, trade secrets, copyrights
and trademarks to protect our intellectual property rights. We cannot assure
you, however, that competitors will not independently develop substantially
equivalent proprietary technology, or that we can meaningfully protect our
rights in unpatented proprietary technology. Nevertheless, we intend to enforce
our intellectual property rights whenever we become aware of any infringement
or violation of our rights.
Our success and ability to compete will depend in part upon our ability to
protect our proprietary technology and other intellectual property. We have
filed numerous patent applications to protect technology, inventions and
improvements which we believe are significant to the development of our
business and
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protectable under applicable patent laws. However, we may sell our patented
products in foreign countries where we do not apply for patent protection, or,
if we do apply, where the applicable regulatory body does not grant a patent.
In those countries where we do not obtain patents, there is a risk that
competitors may be able to reverse engineer our products and undermine our
ability to compete there. In addition, there are foreign countries whose
intellectual property laws are not enforceable or, if enforceable, are
enforceable to a lesser extent than the intellectual property laws of the
United States. If we market our patented products in such countries, there is a
risk of piracy or reverse engineering by competitors that may undermine our
ability to compete.
We do not believe that we infringe any patents or infringe, dilute or
otherwise violate intellectual property of others. However, we cannot assure
you that current and potential competitors and other third parties have not
filed or will not file applications for patents, or that the applicable
regulatory body has not issued or will not issue, patents or other proprietary
rights relating to devices, apparatus, materials or processes which we use or
propose to use.
Competitive Conditions and Methods of Competition
Our Fluorescent Medio Disc and Card Technology will compete with a variety
of existing and future data storage technologies. While hard disk drives are
the most common form of mass data storage and CDs and DVDs are the most common
removable data storage carriers, these are not the only storage media available
to consumers. A variety of options exist, each with unique price and
performance characteristics to meet specific requirements.
Existing Competitive Technologies
o Removable Mass Storage Devices
We believe that the trend of processing sensitive data on desktop PCs
instead of on mainframe computers has made removable mass storage solutions
increasingly important and that floppy diskettes, which have been the most
commonly used removable storage devices, often are insufficient for certain
data-intensive applications. For these applications, high capacity removable
mass storage devices offer advantages. Removable mass storage devices, which
are particularly suitable for secondary storage applications like data backup
and archiving, rather than as a primary form of on-line storage, come in many
forms, such as tape cartridges, Compact Disc Read Only Memory (CD-ROMs) and
recordable CDs (CD-R).
o Tape Drives
The magnetic tape drive, including floppy discs, was one of the first
computer storage technologies, and early mainframe computers commonly used it.
However, its inability to randomly access or write data like disk drives makes
it much slower than newer data storage technologies. Therefore, new
technologies have replaced it as the primary storage device in most computer
applications. However, due to its high storage capabilities and low
cost-to-megabyte ratio, it is still very much in use as a storage medium for
archiving large amounts of data. Additionally, recent advances in tape
technology, such as digital audio tape cartridges, have also made tape a
preferred technology for backing up network servers and other critical data.
o Optical Disc Drives
Optical Disc Drives, which include CD drives, DVD drives, and
magneto-optical drives, came onto the public scene in the mid 1980s and have
gained mainstream acceptance.
We anticipate that the advent of re-writable optical discs will make the
optical disc drive an increasingly important segment of the data storage
industry. In ODDs, such as CDs, DVDs, and MOs, light from a semiconductor laser
focuses onto the storage layer to perform writing or reading. The disc
substrate or a thick overcoat protects the storage layer, making this
technology well-suited for removable media.
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CD-ROM drives are by far the most widely used ODDs and are the computer
industry's standard for distribution of software products. They are typically
used to distribute large databases and documents that require only periodic
access. Read/Write drives, on the other hand, are used almost exclusively for
archival storage where it is important that the data cannot be changed or
erased after being written, as in the case of financial record storage.
CD Audio is the primary means of music distribution world-wide, and DVD
video is fast becoming the leading distribution method for film and video
content.
o Magnetic Disk Drives
One of the original data storage media, some view magnetic disk drives
(commonly known as hard drive/disc) as the most reliable source of storage
media. Despite the advent of alternate technologies, magnetic storage remains
dominant, particularly where mass storage is concerned. Magnetic disk heads fly
on a slider approximately one ten-millionth of a meter over the surface of the
storage medium. The writing process creates small magnetic domains, and the
read process detects the magnetic fields of these domains. One can overwrite
the information indefinitely.
o Magneto-Optical Disks
Magneto-optical, or MO, disk systems combine the technology of traditional
magnetic media, like hard disk drives, with optical disc technology. Some
expect that MO technology will allow users to store hundreds of megabytes of
data on a disk that looks similar to a traditional 3.5-inch floppy disk and
typically comes in a 3.5-inch or 5.25-inch form factor. MO disks have many
advantages. They provide relatively high data densities. One can change the
data stored on them at will, and such data are resistant to magnetic fields,
unlike a traditional floppy or hard disk. The disadvantage of MO technology is
that, because of the relatively high intensity of the magnetic field created
with the combined use of the read/write head and laser, the two rotations
required for writing data make them twice as slow as hard disk drives during
write operations. We believe that our Fluorescent Memory Technology, due to its
faster read/write capability coupled with high data storage capacity, has a
distinct advantage in this product category.
o Personal Computer Cards
PC Cards use the Personal Computer Memory Card International Association
standard, and can be either storage or Input/Output cards. By virtue of being
compact, highly reliable, lightweight and requiring low power, they are storage
media for battery-powered notebook and palmtop computers, hand-held personal
digital assistants and personal communicator devices. Due to their diminutive
size, these "memory cards" make transporting data relatively easy. One can use
them for program storage or data interchange between systems. A significant
deterrent to the widespread use of PC cards is their high cost relative to hard
disk drives. We believe that manufacturers can produce our 1 to 5 GB
ClearCardsTM at a lower cost than PC Cards of equivalent performance levels
enabling our joint ventures and licensees to sell those ClearCards at prices
below those comparable PC Cards.
o Flash Memory
Flash memory, a rewritable memory based on semi-conductors, is currently a
$15 billion a year market according to recent market analysis. The maximum
storage per unit is not more than 512 MB. While flash memory represents an
extremely large market, its value per byte is relatively quite low. We think
that our storage products offer much more compelling value per byte.
Competitive Technologies in Development
In addition to the existing storage devices, there are some comparable
data storage technologies in the research and development phase, some of which
might never be commercially used.
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o Blue Laser Optical Disc Technology
Efforts by Royal Phillips Electronics and Sony Corporation to produce
higher storage capacities based on reflective technologies have centered around
the introduction of blue lasers. However, we believe that blue lasers are not
likely to be available to consumers for several years. In addition, we project
that FMD Technology will be able to take advantage of the blue laser technology
on multiple layers rather than a single layer in case of DVD.
o Future Magnetic Hard Disk Drives
The achievable area density of magnetic recording has grown about 60% per
year during the last decade. Devices with an area density of 4 GB per square
inch are in production, and area densities of 20 GB per square inch have been
created. However, the magnetic domains become unstable at a physical and
technical limit called the super-paramagnetic limit. Therefore, further growth
in area density is limited, although it is not certain where this limit puts an
end to the further density increase of magnetic memory. Furthermore, many
magnetic memory carriers are not easily removable, are not easily disposable
and are relatively expensive.
o Holographic Storage
The introduction of commercial lasers sparked interest in enabling 3
dimensional storage using holographic technology. However, attempts at
commercialization so far failed primarily due to lack of a suitable storage
materials for media manufacturing.
o Near Field Drives
In near field recording, a device focuses onto the front surface of the
storage medium, thereby avoiding some problems with distortions of the focused
beam in the protected layer. Near field drives can achieve high density, but at
high cost, as the medium remains exposed to dust and remains vulnerable to
crashes of the drive head. Thus, we believe that this technology is not
suitable for portable devices. The storage capacity is limited, because in near
field optics, data is stored in a thin layer at the surface.
o Atomic Force Microscopy
In the field of probe-based storage, scientists are fabricating tiny
silicon cantilevers one one-hundred thousandth of a meter long and three ten
millionths of a meter thick, with an even smaller silicon probe tip that is
eight billionths of a meter in diameter. The tip rests on a rotating plastic
disk. To store data, heat from an electric pulse through the tip momentarily
softens the surface of the plastic, and the slight force that the tip exerts on
the plastic pokes a tiny depression. As the tip is pulled across the tip on
playback, there is detection of its dip into the pit. Researchers report that
this technique can reliably read and write data at a density of 64 gigabits per
square inch and have developed the basics for a read only system holding a CD's
worth of data on a disk the size of a penny.
o Scanning Tunneling Microscopy
Scanning Tunneling Microscopy reportedly has the potential to store as
many as one million GB per square inch, although we do not expect consumers to
see commercial usage of this technique in the foreseeable future. The technique
involves moving xenon on a nickel surface with a scanning tunneling microscope.
As attempted, this process required a temperature, in Fahrenheit, of nearly 460
degrees below zero and several hours to complete.
Key Trends and Major Competitors in the Market
The exponential growth of devices using data storage technology -- for
consumer, business, and entertainment applications -- and their associated
storage requirements represent a prime opportunity for our FMD/C Technology.
The following is a sample of the trends and rapid growth of the data storage
industry as it has impact on more and more aspects of daily life.
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<PAGE>
o In the PC market, memory-hungry consumer applications ranging from
computer games to database applications require consumers to upgrade
frequently. Eight years ago, many considered an 80 MB hard drive to be
excessive -- today a hard drive of that size could not accommodate
mainstream operating systems such as MS Windows.
o The storage requirements of enterprise computing applications such as
data warehousing solutions doubles almost annually.
o Hand-held devices, including PDAs and mobile phones, are expected to
demand multi-gigabyte capacities in the next few years in order to store
rich multimedia content.
o The entertainment industry, as it moves to higher resolution standards in
applications such as Digital Cinema and HDTV, will require minimum data
storage capacities of up to 100 GB per movie -- we believe that we are the
only company that has the capacity in the near future to provide a single
disc solution for these entertainment applications.
The standard removable memory media in production today is the reflective
optical disc. Companies involved in the production of Compact Disk Read Only
Memory (CD ROM), recordable CDs (CD-R), CD-RW, DVD-ROM and DVD-R discs include
Royal Phillips Electronics, Sony Corporation and Discovision Associates for CD
and several industry consortiums for DVD (Royal Phillips Electronics, Sony
Corporation, Pioneer Corporation, Hitachi, Ltd., Matsushita Electronics Co.,
Ltd., Mitsubishi Electric, Time Warner Inc., Toshiba Corporation, and Thomson
Corporation). These firms license the basic technology behind the format and
the production of discs and earn approximately $0.15 per disc manufactured and
approximately 3% of the sale price for each drive.
Over 500 firms worldwide manufacture optical discs with the majority of
discs being produced by larger firms that also own the disc's content,
including Time Warner Inc., Sony Corporation, BMG Entertainment. Large
independent replicators of pre-recorded content include Panasonic, Technicolor,
Cinram International, Inc., Disctronics Manufacturing, Inc., and in the
recordable market (CD-R, CD, RW) Ritek Corporation and CMC Magnetics.
Drive/Player manufactures include, among others, Denon Digital, LLC,
Hitachi, LTD., Victor Company of Japan, LTD., Kenwood Corporation, Panasonic,
Royal Phillips Electronics, Pioneer Corp., Sharp Electronics Corp., Sony
Corporation, Thomson Corporation and Toshiba Corporation.
Content owners include software producers, music labels and movie studios.
All major studios are now supporting the open DVD-Video format with over 4,200
titles available in North America.
Methods of Competition and Certain Challenges
Given the licensing and joint venture development aspects of our business
model, we have established corporate goals and strategies that will guide the
process. These goals include:
o the identification of key strategic market segments,
o the creation of marketable products demanded by these segments,
o the development of business relationships with best-in-class partners in
these segments,
o the establishment of FMD/C as an industry standard for the next
generation of removable optical data storage, and
o the creation of strong brand awareness and recognition of our technology.
We are intent on bringing our products to market as quickly as possible,
and we will focus on markets where we can expect to gain a significant market
share and thereby achieve the maximum return for each marketing dollar spent,
both financially and strategically. We intend to leverage our experience within
these segments to cross over from specific niche markets into broader
mainstream markets.
35
<PAGE>
The exploitation of key market segments will coincide with development
milestones relating to FMD/C technology. We will focus first on creating
relationships regarding ROM products, followed by WORM and then R/W and hybrid
ROM-R-R/W products. Exceptions to this strategy may occur, such as the possible
determination during the ROM phase of certain key strategic relationships
regarding WORM and R/W drives and media.
Potential roadblocks to the introduction of FMD/C technology include:
o the willingness of content and application providers to accept the new
media standards and to release valuable content for the media,
o acceptance, by media and drive manufacturers, of the royalty pricing
scheme, and
o creation of a critical mass of initial partners able to ensure broad
acceptance and adoption of the technology and its associated standards.
Risks Pertaining to Foreign Operations
See the description of risks pertaining to our foreign operation in section
"Risk Factors" on page 4.
Employees
As of October 1, 2000, we had 73 workers, including 19 in the research and
development office in Israel, 35 in the research and development office in
Moscow, one subcontractor in Ukraine and five in management, finance and
administration and seven in research and development in North America. None of
our employees are covered by a collective bargaining agreement.
Legal Proceedings
On June 9, 2000, Challis International Limited commenced a lawsuit in the
Supreme Court of the State of New York, County of New York, against
Constellation 3D Technology Limited and our company. The complaint alleges that
Challis entered into several contracts with Constellation Tech or its
predecessor-in-interest pursuant to which Constellation Tech agreed to provide
Challis with 11.946% of the shares it would receive in our company. Although
none of the contracts upon which Challis bases its claims were with our
company, Challis seeks to hold us liable by alleging that we are the alter-ego
of Constellation Tech. Although our company is not a party to any of the
contracts, Challis alleges that since one of our officers signed an appendix to
one of the contracts, our company is therefore directly liable. In addition,
Challis alleges that the contracts entitle it to 3,494,205 shares of our common
stock. The complaint seeks an order directing us to issue proper certificates
to Challis for 3,494,205 shares or, alternatively, the fair market value of the
shares, plus any incidental damages.
We are unable to determine with any certainty the ultimate outcome of the
litigation and its effect on our business or financial condition. We intend to
vigorously defend this lawsuit.
Properties
We are leasing facilities at 230 Park Avenue, Suite 453, New York, New
York 10169 for administrative purposes. The facilities serve as the office of
our Chief Executive Officer. The lease expires December 31, 2000 with an option
to renew for one year. We are in the process of seeking new facilities, and we
do not believe that any loss of these current facilities will have a material
adverse effect on our financial condition.
C-TriD Israel Ltd. entered into three operating lease agreements for the
facilities it uses at 2 Prof. Bergman Str., Rehovot 76327 Israel. The first
lease was to expire on May 14, 1999, but C-TriD Israel Ltd. exercised its
option to extend the lease period until May 14, 2001. The second lease is to
expire on April 5, 2001, but there is an option to extend the lease period
until April 4, 2003. The third lease is to expire on August 31, 2004, but there
is an option to extend the lease period until August 31, 2008. We conduct
research and development at the Rehovot facilities.
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<PAGE>
TriD Store Vostok leases two sets of facilities in Moscow, Russia
primarily to conduct research and development. The lease for the facilities at
119146, Moscow, 2nd Frunzenskaya ul., 8, Building 1, expired December 1, 1999,
and the lease for the facilities at MSU Science Park Building 5, Locations
513A, 514 and 522 expired December 30, 1999. However, TriD Store Vostok has
renewed both leases. The lease for the facilities at 119146, Moscow, 2nd
Frunzenskaya ul., 8, Building 1 will now expire on December 30, 2000. The lease
for the facilities at MSU Science Park has changed. It is now a lease for
premises at Leninsky Hills, Possession 1, Building 75, Entrance 5, Premises
514, 515 and 523, and will expire December 31, 2000.
We lease facilities at 1875 Charleston Road, Mountain View, California
94043. The lease is month-to-month and includes our right to certain services
such as secretarial support. We conduct research and development at these
facilities.
Presently, we are using the Fort Lauderdale, Florida office located at
2625 NE 11th Court, Fort Lauderdale, Florida 33304, owned by one of our
directors. The offices are primarily being used for our administrative
functions. We currently have no lease arrangement for the Fort Lauderdale
offices, but we are not at material risk of losing our capacity to adequately
use the facilities.
Also, we lease premises, as a tenant-at-will, located at 50 Beharrell
Street, Concord, Massachusetts 01742, where we perform research, development
and marketing activities. We project that these premises will not be adequate
for conducting our business activities, and we are in the process of looking
for other premises in this area. We believe that we will be able to find a new
location shortly and that the inadequacy of the premises is not a material risk
to our financial condition.
We believe that, for the foreseeable future, our current facilities,
except the premises at 50 Beharrell Street described above, are suitable,
adequate and capable of the necessary productivity for our activities. We
expect that we will continue to fully utilize these facilities and that we will
renew our leases and rental agreements before their termination or find other
adequate facilities to conduct the operations. We might acquire additional
facilities as we deem it appropriate.
Directors and Executive Officers
<TABLE>
<CAPTION>
Name Age Position
---------------------------------- ----- ---------------------------------------------------------
<S> <C> <C>
Professor Eugene Levich .......... 52 Chairman of the Board of Directors, President, and Chief
Executive Officer
Michael Goldberg ................. 51 Member of the Board of Directors, Secretary, Director of
Legal Affairs, and Chief Operating Officer (interim)
Lev Zaidenberg ................... 46 Member of the Board of Directors
Stuart N. Garawitz ............... 45 Member of the Board of Directors
Val Mandel ....................... 47 Member of the Board of Directors
Joseph Shefet .................... 57 Member of the Board of Directors
Leonardo Berezowsky .............. 43 Senior Vice President of Finance and Chief Financial
Officer
Vladimir Schwartz ................ 48 Chief Technical Officer (interim)
Ronen Yaffe ...................... 30 Treasurer
</TABLE>
The terms of all directors expire at the next annual shareholders' meeting
following their election. The terms of Messrs. Garawitz, Mandel and Shefet, our
directors elected to fill vacancies on the Board, expire at the next
shareholders' meeting at which shareholders will elect directors.
None of our directors or executive officers are parties to any arrangement
or our understanding with any other person with respect to nomination or
appointment as an officer or director. There is no relationship by blood,
marriage or adoption, not more remote than first cousin, between any of our
directors or executive officers.
37
<PAGE>
Information concerning each director's and executive officer's business
history and experience is set forth below:
Professor Eugene Levich
Professor Eugene Levich serves as our President, Chief Executive Officer
and Chairman of our Board of Directors. We appointed him President and Chief
Executive Officer effective April 19, 1999. He became a member of our Board of
Directors effective April 19, 1999, and Chairman of our Board of Directors
effective August 22, 2000. Professor Levich received a M.Sc. in Physics from
Moscow University in 1968 and a Ph.D. in Theoretical Physics from the Landau
Institute in 1970. He has served in varying academic capacities at a range of
research institutions, including Harvard University, as Visiting Fellow; Oxford
University as Senior Visiting Fellow at the Department of Theoretical Physics
at Magdalene College three times; City University of New York, as Professor at
the Faculties of Physics and Engineering; the Weizman Institute of Sciences, as
Associate Professor at the Department of Nuclear Physics; and Tel-Aviv
University Faculty of Engineering, as Visiting Professor. From 1996 until 1998,
Professor Levich worked as President of Memde Ltd. Professor Levich has
authored over 28 patents and has published over 90 papers in the fields of
astrophysics, plasma turbulence and chaos, nonlinear phenomena in optics and
turbulence in fluids. His most recent scientific contribution in the field of
turbulence control was in cooperation with Professor D. ter Haar, Professor
Emeritus of Oxford University, entitled "The Origin of Coherence in
Turbulence."
Eugene Levich has been the President of Constellation Group Investments,
Inc. since its inception. Constellation Group Investments, Inc. indirectly may
control the voting and disposition of 67.7% of our common stock. It is a
holding company for high-tech enterprises.
Since 1999, Mr. Levich serves as the Chief Executive Officer of
Constellation 3D Technology Limited, the beneficial owner of 67.7% of our
common stock.
Mr. Levich is the Operating Manager, President, Treasurer, and Secretary
of TriDStore IP, L.L.C., one of our wholly owned subsidiaries. Mr. Levich has
served as the Operating Manager, the Treasurer and Secretary of TriDStore IP,
L.L.C. since May 14, 1999. Mr. Levich has been the President of TriDStore IP,
L.L.C. since October 16, 1998.
Mr. Levich also serves as the Chief Executive Officer of C-TriD Israel
Ltd., one of our wholly owned subsidiaries. Mr. Levich has been the Chief
Executive Officer of C-TriD Israel Ltd. since April 1, 1999.
Mr. Levich serves as the President and Secretary of TriD SV, Inc., one of
our wholly owned subsidiaries. Mr. Levich has been the President and the
Secretary of TriD SV, Inc. since August 11, 1998.
Mr. Levich has been the Manager of Constellation 3D Trust LLC, one of our
wholly owned subsidiaries, since February 10, 2000.
Michael Goldberg
Michael Goldberg serves as our Secretary, Director of Legal Affairs,
interim Chief Operating Officer and member of our Board of Directors. He became
our Secretary effective August 9, 1999, our Director of Legal Affairs effective
March 8, 1999 and our interim Chief Operating Officer effective February 3,
2000. He became a member of our Board of Directors effective April 19, 1999.
Mr. Goldberg graduated as Asper Fellow from the University of Maryland Law
School in 1974. Since 1990, he has been serving as Chairman and Chief Executive
Officer of Rx Medical Services Corp., a medical company that manages and owns a
small rural hospital and some outpatient surgery centers. On average, Mr.
Goldberg spends no less than thirty-five (35) hours per week devoted
exclusively to our affairs.
Mr. Goldberg has been the Manager of Constellation 3D Trust LLC, one of
our wholly owned subsidiaries, since March 2, 2000.
Lev Zaidenberg
Lev Zaidenberg serves as a Member of our Board of Directors. He became a
member of our Board of Directors effective April 19, 1999. Mr. Zaidenberg
received a B.Sc. in Applied Mathematics and a M.Sc. in
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<PAGE>
Information Systems and Business Administration from Tel-Aviv University. From
1988 to 1994, he was a partner and executive at DCL Systems Engineering Ltd.,
responsible for the development of computer products for molecular modeling and
financial trading. Since 1984, he has served as a consultant to the Israeli
Defense Forces in computer auditing and security. From January 1996 until
August 2000, Mr. Zaidenberg was the Chief Executive Officer [and President of
Mutek Solutions Ltd., a software company with headquarters in Israel and
subsidiaries in the United States and Germany. Mr. Zaidenberg is presently
Chairman of the Board of Mutek Solutions Ltd., and of Visson Enterprises Ltd.,
a company dealing with displays.
Since its inception, Mr. Zaidenberg has been the President of United
European Enterprises Ltd., which indirectly has been able to control the voting
and disposition of 67.7% of our common stock. United European Enterprises Ltd.
is a holding company.
Mr. Zaidenberg has been a director of Constellation 3D Technology Limited,
the beneficial owner of 67.7% of our common stock since its inception.
Mr. Zaidenberg has been the Treasurer of TriD SV, Inc., one of our wholly
owned subsidiaries, since August 11, 1998.
Stuart Garawitz
Stuart Garawitz is a member of our Board of Directors. He became a member
effective May 26, 2000. Mr. Garawitz graduated from Penn State University in
1977 with a B.S. degree in business with majors in finance and marketing. From
1992 until 1996, Mr. Garawitz was the managing director of Laidlaw Equities, a
New York Stock Exchange Member Firm. From 1996 until 1998, Mr. Garawitz worked
at Robb, Peck, McCooey as a managing director. From 1998 until December 1999,
Mr. Garawitz worked at Oppenheimer & Co., a brokerage firm, as an executive
director of the Private Client Division. Since January 2000, Mr. Garawitz has
been a partner at M.S. Farrell & Co., an investment banking and money
management firm.
Val Mandel
Val Mandel is a member of our Board of Directors. He became a member
effective May 26, 2000. Mr. Mandel received a B.S. in Engineering from the
Moscow Civil Engineering College in 1975 and a J.D. degree from the Rutgers
University School of Law in 1986. Mr. Mandel was a partner at Hellring Lindeman
Goldstein & Siegal, a New Jersey law firm, from 1994 until 1997. Since October
1997, Mr. Mandel has been practicing law in his own law firm -- Val Mandel,
P.C.
Joseph Shefet
Joseph Shefet is a member of our Board of Directors. He became a member of
the Board of Directors effective May 26, 2000. Mr. Shefet received a B.S. in
Law in 1966 and a Master's Degree in Business Administration in 1968 from the
Hebrew University in Jerusalem. Mr. Shefet is a Certified Public Accountant in
Israel and an attorney who is a member of the American Bar Association and the
Israeli Bar Association. Since 1976, Mr. Shefet has been a senior partner in
Shaham-Shefet, a law firm specializing in international taxation.
Leonardo Berezowsky
Leonardo Berezowsky serves as our Senior Vice President of Finance and
Chief Financial Officer. He became Senior Vice President of Finance and Chief
Financial Officer effective November 5, 1999. Mr. Berezowsky received a B.A. in
Economics in 1980, a B.A. in Computer Sciences in 1981, and an M.A. in
Economics in 1982 from the Hebrew University in Jerusalem. From 1987 to 1994,
he worked as Chief Financial Officer of Somelcs, a company engaged in research
and development in the energy field. In 1995 he served as Chief Operating
Officer of C. Multiprocessing Technologies Ltd., a software development
company. From 1996 until June 2000, he served as Chief Operating Officer of
Mutek Solutions Ltd., a software company with headquarters in Israel and
subsidiaries in the United States and Germany, and as director of Mutek
Solutions Inc., a company related to Mutek Solutions Ltd. Starting July 2000,
Mr. Berezowsky has devoted his time exclusively to our affairs.
39
<PAGE>
Mr. Berezowsky has been the Chief Operating Officer of Constellation Group
Investments, Inc., the beneficial owner of 67.7% of our common stock, since its
inception.
Mr. Berezowsky has served as the Chief Operating Officer of C-TriD Israel
Ltd., one of our wholly owned subsidiaries, since 1999.
Vladimir Schwartz
Vladimir Schwartz serves as our Chief Technical Officer (interim). He
became Chief Technical Officer (interim) effective July 6, 2000. Mr. Schwartz
received a M.Sc. in Mechanical Engineering from the Odessa College of Marine
Engineering in Ukraine. From 1993 until April 2000, Mr. Schwartz served as
Engineer of Reflekt Technology, Inc., a Massachusetts company engaged in the
design and manufacturing of optical disc replication equipment. Mr. Schwartz
serves as the President of Reflekt Technology, Inc. Since April 2000, Mr.
Schwartz has been President and Chief Executive Officer of FMD&E, Inc., one of
our wholly owned subsidiaries.
Ronen Yaffe
Ronen Yaffe serves as our Treasurer. He became Treasurer effective
November 5, 1999. From 1994 to 1998, he was a Manager for Deloitte Touche
Tohmatsu International Israel Ltd., where he oversaw the audit of Israeli
high-tech public and private companies and advised such companies regarding
Enterprise Resource Providers. He also led the process of integrating Deloitte
Touche's accounting software into Deloitte Touche's Israeli operations. In
August 1996, he graduated from The School of Business Administration at the
College of Management located in Tel Aviv, Israel. In 1998, he became a
Certified Public Accountant. Since June 1998, Mr. Yaffe has been the Chief
Financial Officer and Vice President of C-TriD Israel Ltd., one of our wholly
owned subsidiaries.
Executive Compensation
Except for Eugene Levich, our Chief Executive Officer and President, none
of our executive officers had, as one of our executive officers, a total annual
salary and bonus exceeding $100,000 for fiscal year 1999. There is no
additional individual who would have been one of our four other most highly
compensated executive officers had he served as one of our executive officers
through the end of fiscal year 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Other Annual
Principal Position Fiscal Year Salary Bonus Compensation
---------------------------------------- --------------- --------------- ------- -----------------
<S> <C> <C> <C> <C>
Professor Eugene Levich, Chief Executive
Officer and President ................. 1999 $105,000 -- --
1998 $ 65,000 -- $ 20,000(1)
(approx.) (approx.)
1997 $ 65,000 -- $ 20,000(1)
(approx.) (approx.)
</TABLE>
------------
(1) Until the end of 1998, neither Constellation Tech, Constellation Holdings
nor C3D directly compensated Professor Levich for his position as Chief
Executive Officer. However, in 1998 and 1997, Constellation Holdings paid
management fees to Constellation Memory Division, a Nevis company, which
transferred, among other amounts, approximately $85,000 to Memde Israel
Ltd., an Israeli company related to CMD. This $85,000 was paid by Memde as
compensation, including non-salary and non-bonus compensation, to
Professor Levich, who was then a principal and the president of Memde.
On December 17, 1999, our Board of Directors approved a three-for-one
forward split of our common stock for shareholders of record as of December 16,
1999. The adjustment of the price per share of the common stock that resulted
from the forward split took effect before trading began on January 18, 2000.
40
<PAGE>
On December 27, 1999, at our Annual Meeting of Shareholders, our
shareholders approved and adopted our 1999 Stock Option Plan. The purpose of
the plan is to provide additional incentive to our and our parent's or
subsidiaries' officers, key employees, directors and important consultants by
encouraging them to invest in us and thereby acquire a personal interest in our
continued success and progress. We have issued options for 3,871,550 shares of
common stock out of 4,617,540 shares of common stock which we may issue under
the plan.
All of our and our parent's or subsidiaries' officers, key employees,
directors and important consultants are eligible to receive options under the
plan.
The plan provides that our Board or Compensation Committee may select who
may receive options and may grant either incentive or nonqualified options for
either reacquired or unissued shares of our common stock.
In connection with our three-for-one forward common stock split, we
increased the number of shares of common stock issuable under the plan to
4,617,540. In the event of any change in our common stock by reason of a stock
consolidation, transfer of assets, reorganization, conversion or what our Board
or Compensation Committee deems to be similar circumstances, we will
appropriately adjust the aggregate number and kind of shares issuable under the
plan. The common stock issuable under terminated unexercised options is
available for future option grants. On September 19, 2000, our Board amended
the plan to make the tax laws of Israel applicable to our Israeli employees.
During our fiscal year ended December 31, 1999, none of our named
executive officers were granted any stock options for our common stock.
On May 15, 2000 under our 1999 Stock Option Plan, we granted to the
following executive officers and directors options to purchase shares of our
common stock at an exercise price of $10.69 per share. The closing price of our
common stock was $10.69 per share on May 15, 2000.
o To Ronen Yaffe, our Treasurer, we granted an option to purchase 230,000
shares of common stock, vesting in 3 months after the date of the grant;
o To Eugene Levich, our President, Chief Executive Officer and Chairman of
the Board, we granted an option to purchase 450,000 shares of common
stock, vesting in one year from the date of the grant;
o To Leonardo Berezowsky, our Senior Vice President of Finance and Chief
Financial Officer, we granted an option to purchase 150,000 shares of
common stock, vesting in 3 months after the date of the grant;
o To Michael Goldberg, our Secretary, Director of Legal Affairs, Chief
Operating Officer (interim), and a director, we granted an option to
purchase 150,000 shares of the common stock, vesting in one year from the
date of the grant;
o To Lev Zaidenberg, a director, we granted an option to purchase 90,000
shares of the common stock, vesting in one year from the date of the
grant; and
o To Itzhak Yaakov, our former director, we granted an option to purchase
90,000 shares of the common stock, vesting in one year from the date of
the grant.
Director Compensation
WE HAVE ADJUSTED THE AMOUNTS OF THE SHARES OR OPTIONS ISSUED OR GRANTED
PRIOR TO JANUARY 18, 2000 AND MENTIONED IN THIS DISCUSSION OF DIRECTOR
COMPENSATION DUE TO THE THREE-FOR-ONE FORWARD SPLIT OF OUR COMMON STOCK THAT
TOOK EFFECT JANUARY 18, 2000.
For past services by General Yaakov as our former director, starting July
1999, Yaakov Consultants, of which General Yaakov is the sole owner, receives a
monthly fee of $5,000 until we receive an investment of $2 million, and
thereafter, $10,000 per month. There is no written contract for this
compensation. In addition, for past services as a director, on March 8, 1999,
our Board authorized the grant of 150,000 shares of
41
<PAGE>
common stock and 300,000 options to purchase common stock at an exercise price
of $1.33 per share for an exercise period of five (5) years to General Yaakov.
We issued 150,000 shares on December 7, 1999, and we granted him options on
December 27, 1999. General Yaakov resigned from our Board of Directors
effective August 22, 2000.
For past services as a director, on March 8, 1999, our Board authorized
the grant of 150,000 shares of common stock and 225,000 options to purchase
common stock at an exercise price of $1.33 per share for an exercise period of
five (5) years to Michael Goldberg. The issuance of the 150,000 shares occurred
on December 7, 1999, and the grant of options occurred on December 27, 1999.
Compensation Committee Interlocks and Insider Participation
Our compensation committee consists of Michael Goldberg and Lev
Zaidenberg. Michael Goldberg and Lev Zaidenberg became members effective June
17, 1999. Michael Goldberg has been our Secretary since August 9, 1999, our
Director of Legal Affairs since March 8, 1999, and our Chief Operating Officer
(interim) since February 3, 2000. Mr. Zaidenberg has been the Treasurer of TriD
SV, Inc., one of our wholly owned subsidiaries, since August 11, 1998.
Certain Transactions
THE AMOUNTS OF SHARES OR OPTIONS ISSUED OR GRANTED PRIOR TO JANUARY 18,
2000 AND MENTIONED IN THIS DISCUSSION OF CERTAIN TRANSACTIONS, AS WELL AS THE
PRICES PER SHARE FOR SUCH SHARES OR OPTIONS, HAVE BEEN ADJUSTED DUE TO THE
THREE-FOR-ONE FORWARD SPLIT OF OUR COMMON STOCK THAT TOOK EFFECT JANUARY 18,
2000.
On August 22, 2000, we granted to both Vladimir Schwartz, our interim
Chief Technology Officer and Reflekt Technology, Inc., a Massachusetts
corporation of which Mr. Schwartz is President, sole director and sole
shareholder, a warrant to purchase 10,000 shares of our common stock at an
exercise price of $11.25 per share in exchange for certain patents owned in
whole or in part by Mr. Schwartz or Reflekt. Mr. Schwartz or Reflekt may
exercise the warrant after August 21, 2001. The last sales price of our common
stock was $11.25 per share on August 22, 2000.
On the same day, we also granted to Mr. Schwartz options to purchase
390,000 shares of our common stock at the same exercise price. Mr. Schwartz may
exercise an option to purchase 150,000 shares at any time. Mr. Schwartz may
exercise an option to purchase the remaining 240,000 shares after August 21,
2001.
On August 22, 2000, we received a $6,000,000 line of credit from
Constellation 3D Technology Limited, a beneficial owner of 67.7 % of our common
stock. On August 28, 2000, we borrowed $1,000,000 under the line of credit.
On February 8, 2000, we formed Constellation 3D Trust LLC, a Delaware
limited liability company that we wholly own. We then issued 10,500,000 (Ten
Million Five Hundred Thousand) shares of common stock to Constellation 3D Trust
LLC as a capital contribution and later cancelled all but 500,000 (Five Hundred
Thousand) of said shares. Constellation 3D Trust LLC intends to use the 500,000
(Five Hundred Thousand) shares to raise debt or equity capital and contribute
the proceeds thereof to us, which proceeds will be used for general corporate
purposes. There is no assurance that the issuance of the shares will result in
the raising of any debt or equity capital.
On October 1, 1999, we purchased certain assets of Constellation Tech for
total consideration of 29,250,000 shares of our common stock and our assumption
of substantially all liabilities and obligations of Constellation Tech (the
Acquisition).
In the Acquisition, we acquired the following assets:
o Constellation's Tech's then sole existing membership interest in
TriDStore IP, L.L.C.;
o all of the issued and outstanding ordinary shares in TriD Store Vostok;
42
<PAGE>
o 99 of the 100 allotted shares of C-TriD Israel Ltd.; and
o all of the issued and outstanding shares of common stock of TriD SV, Inc.
Compensation Arrangements
On July 15, 1999, Ronen Yaffe, our Treasurer, entered into an employment
contract with C-TriD Israel Ltd. The contract is still effective. Pursuant to
the contract, as orally amended, for services as the Chief Financial officer of
C-TriD Israel Ltd., C-TriD Israel Ltd. will pay Mr. Yaffe 29,244 New Israeli
Shekels (approximately U.S. $7,235 based on an October 5, 2000 interbank
exchange rate of approximately 4.042 New Israeli Shekels per U.S. Dollar,
without fees or surcharges) per month. In 1999, Mr. Yaffe received a bonus of
$5,000 through C-TriD Israel Ltd. In addition, C-TriD will pay a bonus to Mr.
Yaffe if C-TriD Israel Ltd. distributes a bonus to its employees, as determined
by the Board of Directors of C-TriD Israel Ltd. and dependent on Mr. Yaffe's
performance and the financial results of C-TriD Israel Ltd. and stock options
in C-TriD Israel Ltd. if C-TriD Israel Ltd. adopts a stock option plan for its
employees.
On June 17, 1999, our Compensation Committee set certain compensations
which, on May 11, 2000, it decided to continue. There are no written contracts
for such compensations. Professor Eugene Levich, our President, Chief Executive
Officer, and Chairman of the Board of Directors, is to receive $15,000 per
month as of June 1, 1999. Leonardo Berezowsky, our Senior Vice President of
Finance and Chief Financial Officer, is to receive $10,000 per month, $5,000
monthly as of June 1, 1999, and $5,000 to accrue monthly until the next
significant financing following May 11, 2000. Michael Goldberg, our Secretary,
Director of Legal Affairs, interim Chief Operating Officer and member of the
Board of Directors, is to receive $10,000 per month, $5,000 monthly as of June
1, 1999, and $5,000 to accrue monthly until the next significant financing
following May 11, 2000. In his capacity as our consultant, Lev Zaidenberg, our
member of the Board of Directors, is to receive $10,000 per month, $5,000
monthly as of June 1, 1999, and $5,000 to accrue monthly until the next
significant financing following May 11, 2000.
For past services by General Yaakov as our former director, starting July
1999, Yaakov Consultants, of which General Yaakov is the sole owner, receives a
monthly fee of $5,000 until we receive an investment of $2 million, and
thereafter, $10,000 per month. There is no written contract for this
compensation. In addition, for past services as a director, on March 8, 1999,
our Board authorized the grant of 150,000 shares of common stock and 300,000
options to purchase common stock at an exercise price of $1.33 per share for an
exercise period of five (5) years to General Yaakov. We issued 150,000 shares
on December 7, 1999, and we granted him options on December 27, 1999. General
Yaakov resigned from our Board of Directors effective August 22, 2000.
For past services rendered as a director, we issued 150,000 shares of
common stock to Michael Goldberg. Furthermore, the Board authorized the
issuance to Mr. Goldberg of options to purchase 225,000 shares of common stock,
at the purchase price of $1.33 per share. The issuance of common stock to Mr.
Goldberg occurred on December 7, 1999, and the issuance of options to him
occurred on December 27, 1999.
43
<PAGE>
Principal Shareholders
The following table sets forth the beneficial ownership of the common stock
as of October 20, 2000 by each person known by us to own beneficially more than
five percent (5%) of the issued and outstanding common stock, each of our
directors and executive officers, and the directors and executive officers as a
group. For purposes of this prospectus, beneficial owner of shares of our common
stock includes any person who, directly or indirectly, has or shares voting
power which includes the power to vote, or to direct the voting of, such shares
of our common stock and/or investment power which includes the power to dispose,
or to direct the disposition of, such shares of our common stock. The percentage
of beneficial ownership, as provided in the table below, was calculated on the
basis of the total of 42,957,026 shares of common stock issued and outstanding
as of October 20, 2000, i.e., excluding 500,000 shares held by Constellation 3D
Trust LLC since Constellation 3D Trust LLC is our wholly-owned subsidiary.
<TABLE>
<CAPTION>
Name and Address of Number of Shares
Beneficial Owner Beneficially Owned Percent
-------------------------------------------------------- -------------------- ----------
<S> <C> <C>
Constellation 3D Technology Limited 29,089,283(2) 67.7%
235 West 76th Street, Suit 8D
New York, New York 10023
Rapids Trust Limited 29,089,283(2) 67.7%
56 Mazah Street
Tel Aviv, Israel 55905
United European Enterprises Ltd. 29,089,283(2) 67.7%
56 Mazah Street
Tel Aviv, Israel 55905
Constellation Group Investments Inc. 29,089,283(2) 67.7%
c/o Euro-American Trust and Management Services Limited
P.O. Box 3161
Road Town, Tortola, British Virgin Islands
Markus Banzer 29,089,283(2) 67.7%
Gr. Bongert 9
Triesen, Liechtenstein
Hubert Buchel 29,089,283(2) 67.7%
Salums 63
Gamprin, Liechtenstein
Criterion Treuunternehmen reg. 29,089,283(2) 67.7%
Austr. 49
Vaduz, Liechtenstein
Sands Brothers & Co. Ltd. 3,676,629(3) 7.9%
90 Park Avenue
New York, NY 10016
Professor Eugene Levich(1) 29,089,283(4) 67.7%
Lev Zaidenberg(1) 29,089,283(5) 67.7%
Leonardo Berezowsky(1) 29,239,283(6) 67.8%
Michael Goldberg(1) 368,300(7) *
Ronen Yaffe(1) 230,000(8) *
Vladimir Schwartz(1) 150,000(9) *
Val Mandel(1) 45(10) *
All directors and executive officers as a group 29,987,628(11) 68.6%
</TABLE>
------------
* Beneficial ownership of less than 1%.
44
<PAGE>
(1) The business address of such person or entity is 230 Park Avenue, Suite
453, New York, New York 10169.
(2) Constellation 3D Technology Limited, a British Virgin Islands company,
directly owns 29,089,283 shares of our common stock. United European
Enterprises Ltd., a Nevis company, owns approximately 55.5% of the voting
shares of Constellation 3D Technology Limited and, through its
instructions to Rapids Trusts Limited, an Israeli trust, thereby controls
how Constellation 3D Technology Limited votes and invests its 29,089,283
shares of our common stock. Constellation Group Investments Inc., a
British Virgin Islands Company, directly owns approximately 54.9% of the
voting shares of United European Enterprises and thereby indirectly
controls how Constellation 3D Technology Limited votes and invests its
29,089,283 shares of our common stock. Markus Banzer, Hubert Buchel and
Criterion Treuunternehmen reg., as the sole three trustees of the Alex-L
Foundation, the Lion & Heart Foundation and Lediligi, three Liechtenstein
trusts, have, through those trusts, complete ownership of all of the
voting shares of Constellation Group Investments Inc. and thereby
indirectly control how Constellation 3D Technology Limited votes and
invests its 29,089,283 shares of our common stock. No individual, trust or
business entity controls the three trustees. Upon the death or disability
of a trustee, the remaining trustee(s) choose his or her replacement. Upon
the death or disability of all trustees before any living and able
replacement is chosen, a court of Liechtenstein chooses their
replacements.
(3) 3,676,629 shares represent (a) 3,450,000 shares of common stock issuable
upon exercise of warrants which are exercisable by Sands Brothers & Co.
Ltd. within 60 days of October 20, 2000 if the agreements governing such
warrants, as amended, are enforceable by their terms and are not
renegotiated by us and (b) 226,629 shares of common stock which may be
acquired by Sands Brothers Venture Capital Associates LLC, of which Sands
Brothers & Co Ltd. is member manager, within 60 days of October 20, 2000
upon conversion of debenture in the principal amount of $4,000,000 (Four
Million Dollars). We believe that the agreements governing said warrants
are no longer enforceable, because Sands Brothers failed to satisfy its
obligation to raise $7.5 million in financing for us within 150 days of
the Commencement Date as defined in the Placement Agency Agreement. We
intend to renegotiate the agreements governing said warrants
with Sands Brothers.
(4) Professor Levich is the Chairman of our Board of Directors, our Chief
Executive Officer and President and a director and/or executive officer of
Constellation 3D Technology Limited, United European Enterprises Ltd.
and/or Constellation Group Investments Inc. Certain members of Professor
Levich's family are among the beneficiaries of the Alex-L Foundation. See
footnote (2). 29,089,283 shares represent 29,089,283 shares owned by
Constellation 3D Technology Limited.
(5) Mr. Zaidenberg is our director and a director and/or executive officer of
Constellation 3D Technology Limited, United European Enterprises Ltd.
and/or Constellation Group Investments Inc. Certain members of Mr.
Zaidenberg's family are among the beneficiaries of the Lion & Heart
Foundation. See footnote (2). 29,089,283 shares represent 29,089,283
shares owned by Constellation 3D Technology Limited.
(6) Mr. Berezowsky is our Senior Vice President of Finance and Chief Financial
Officer and executive officer of Constellation Group Investments Inc. Mr.
Berezowsky and certain members of his family are among the beneficiaries
of the Lediligi Foundation. See footnote (2). 29,239,283 shares represent
29,089,283 shares owned by Constellation 3D Technology Limited and 150,000
shares of common stock issuable upon exercise of options, which are
exercisable within 60 days of October 20, 2000.
(7) Mr. Goldberg is our Secretary, Director of Legal Affairs, interim Chief
Operating Officer, and member of our Board of Directors. 368,300 shares
represent 143,300 shares of common stock issued and outstanding and
225,000 shares of common stock issuable upon exercise of options, which
are exercisable within 60 days of October 20, 2000.
45
<PAGE>
(8) Mr. Yaffe is our Treasurer. 230,000 shares represent 230,000 shares of
common stock issuable upon exercise of options, which are exercisable
within 60 days of October 20, 2000.
(9) Mr. Schwartz is our interim Chief Technical Officer. 150,000 shares
represent 150,000 shares of common stock issuable upon exercise of
options, which are exercisable within 60 days of October 20, 2000.
(10) Val Mandel's wife owns 45 shares of common stock.
(11) 29,987,628 shares include (a) 143,300 shares of common stock issued to Mr.
Goldberg in total and outstanding, (b) 755,000 shares of common stock
issuable upon the exercise by Messrs. Berezowsky, Yaffe, Goldberg, and
Schwartz of options which are exercisable within 60 days of October 20,
2000, (c) 45 shares owned by Val Mandel's wife and (d) 29,089,283 shares
of common stock over which Constellation 3D Technology Limited, United
European Enterprises, Constellation Group Investments Inc., and the
trustees of certain trusts have direct or indirect voting and/or
investment power. See footnote (2).
We do not know of any arrangements, including any pledge by any of our
security holders which may become a change in control for us.
46
<PAGE>
Selling Shareholders
The following table provides certain information regarding the beneficial
ownership of our common stock by the selling shareholders prior to and after
the offering. Beneficial ownership is determined under the rules of the SEC,
and generally includes voting or investment power with respect to securities.
We assume that the selling shareholders will sell all of the common stock that
we are registering with this prospectus.
<TABLE>
<CAPTION>
Number of
Shares
Owned Prior to
Selling Shareholder the Offering Percent
------------------------------------------ ---------------- ---------
<S> <C> <C>
Iris Nahori .............................. 93,475 *
Yehosoaa Hershkovitz ..................... 28,061 *
Ori Ackerman ............................. 11,229 *
Tamir Barak .............................. 1,871 *
Zeev Korech .............................. 1,870 *
Tzion Edri ............................... 3,552 *
Ron Ori .................................. 9,357 *
Ehud Miro ................................ 18,714 *
Abraham Shilontchik ...................... 6,550 *
Yair Peleg ............................... 4,678 *
Amnon Ben-Ami ............................ 4,678 *
Gilad Altshuler .......................... 79,720 *
Koor Underwriter and Issuer Ltd. ......... 506,393 1.2%
Menorah Gaoon Investment Ltd. ............ 10,854 *
Shalom and Yafa Bilgori .................. 4,678 *
The Hebrew University Employee Fund ...... 69,240 *
Shocher Tov .............................. 14,971 *
Seattle Investment LLC ................... 608,835 1.4%
Norberto Andres Korn ..................... 43,793 *
Elias Mehadded Sakkal .................... 43,774 *
Israel Kaganas ........................... 40,000 *
IK-JK Investments ........................ 10,000 *
Carlos J. Socas .......................... 1,000 *
Martin Durruty ........................... 450 *
Claudio Zuchovicki ....................... 700 *
Javier Giangarelli ....................... 2,000
Franco Tasco ............................. 2,000 *
Flavio Paparella ......................... 1,000 *
Norman Fernandez ......................... 6,000 *
Mathias Fleischer ........................ 5,000 *
Mario Fleischer .......................... 5,000 *
Blank Rome Comisky &
McCauley LLP ............................ 5,555 *
TCO Investment Inc. ...................... 25,000 *
Guldborg International ................... 15,000 *
Farpell Inc. ............................. 10,000 *
Halifax Fund, L.P. ....................... 2,571,344 5.8%
MBA on Demand LLC ........................ 7,500 *
Formula Ventures L.P. .................... 242,326 *
FV-PEH L.P. .............................. 68,628 *
Formula Ventures (Israel) L.P. ........... 69,046 *
Wilbro Nominees Limited .................. 64,500 *
Winnburn Advisory ........................ 315,584 *
Epicenter Venture Finance Ltd. ........... 262,394 *
The Shemano Group, Inc. .................. 400,000 *
Hershkovitz Jacqueline ................... 28,071 *
Sands Brothers Venture Capital Associates
LLC..................................... 226,629 *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of Number of Percent of
Shares Being Shares Shares Owned
Offered Owned After After the
Selling Shareholder for Sale the Offering Offering
------------------------------------------ ------------------------------------ -------------- -------------
<S> <C> <C> <C>
Iris Nahori .............................. 93,475(1) -- --
Yehosoaa Hershkovitz ..................... 28,061(1) -- --
Ori Ackerman ............................. 11,229(1) -- --
Tamir Barak .............................. 1,871(1) -- --
Zeev Korech .............................. 1,870(1) -- --
Tzion Edri ............................... 3,552(1) -- --
Ron Ori .................................. 9,357(1) -- --
Ehud Miro ................................ 18,714(1) -- --
Abraham Shilontchik ...................... 6,550(1) -- --
Yair Peleg ............................... 4,678(1) -- --
Amnon Ben-Ami ............................ 4,678(1) -- --
Gilad Altshuler .......................... 79,720(1) -- --
Koor Underwriter and Issuer Ltd. ......... 506,393(1), (6),(14) -- --
Menorah Gaoon Investment Ltd. ............ 10,854(1) -- --
Shalom and Yafa Bilgori .................. 4,678(1) -- --
The Hebrew University Employee Fund ...... 69,240(1) -- --
Shocher Tov .............................. 14,971(1) -- --
Seattle Investment LLC ................... 608,835(2) -- --
Norberto Andres Korn ..................... 43,793(3) -- --
Elias Mehadded Sakkal .................... 43,774(3) -- --
Israel Kaganas ........................... 40,000(3) -- --
IK-JK Investments ........................ 10,000(3) -- --
Carlos J. Socas .......................... 1,000(3) -- --
Martin Durruty ........................... 450(3) -- --
Claudio Zuchovicki ....................... 700(3) -- --
Javier Giangarelli ....................... 2,000(3) -- --
Franco Tasco ............................. 2,000(3) -- --
Flavio Paparella ......................... 1,000(3) -- --
Norman Fernandez ......................... 6,000(3) -- --
Mathias Fleischer ........................ 5,000(3) -- --
Mario Fleischer .......................... 5,000(3) -- --
Blank Rome Comisky &
McCauley LLP ............................ 5,555(4) --
TCO Investment Inc. ...................... 25,000(5) -- --
Guldborg International ................... 15,000(5) -- --
Farpell Inc. ............................. 10,000(5) -- --
Halifax Fund, L.P. ....................... 2,571,344(6) -- --
MBA on Demand LLC ........................ 7,500(7) -- --
Formula Ventures L.P. .................... 242,326(8) -- --
FV-PEH L.P. .............................. 68,628(8)
Formula Ventures (Israel) L.P. ........... 69,046(8)
Wilbro Nominees Limited .................. 64,500(9) -- --
Winnburn Advisory ........................ 315,584(10) -- --
Epicenter Venture Finance Ltd. ........... 262,394(11) -- --
The Shemano Group, Inc. .................. 400,000(12) -- --
Hershkovitz Jacqueline ................... 28,071(13) -- --
Sands Brothers Venture Capital Associates
LLC..................................... 226,629(15) -- --
</TABLE>
------------
* Beneficial ownership of less than 1%
47
<PAGE>
(1) Represents a fraction of 197,026 shares of common stock which were
purchased by investors severally; a fraction of five year warrants to
purchase 78,813 shares of common stock at an exercise price of $14.6656 per
share; and a fraction of one year warrants to purchase 98,513 shares of
common stock at an exercise price of $10.15313 per share. All of the
warrants are subject to anti-dilution adjustment. The following table shows
the ownership of shares and warrants by each of the investors.
<TABLE>
<CAPTION>
One-Year Five-Year
Investor Name Shares Warrants Warrants
--------------------------------------------- -------- ---------- ----------
<S> <C> <C> <C>
Iris Nahori ................................. 49,197 24,599 19,679
Yehosoaa Hershkovitz ........................ 14,769 7,384 5,908
Ori Ackerman ................................ 5,910 2,955 2,364
Tamir Barak ................................. 985 492 394
Zeev Korech ................................. 984 492 394
Tzion Edri .................................. 1,869 935 748
Ori Ron ..................................... 4,925 2,462 1,970
Ehud Miro ................................... 9,849 4,925 3,940
Abraham Shilontchik ......................... 3,447 1,724 1,379
Yair Peleg .................................. 2,462 1,231 985
Amnon Ben-Ami ............................... 2,462 1,231 985
Gilad Altshuler ............................. 41,958 20,979 16,783
Koor Underwriter and Issuer Ltd. ............ 5,713 2,856 2,285
Menorah Gaoon Investment Ltd. ............... 5,713 2,856 2,285
Shalom and Yafa Bilgori ..................... 2,462 1,231 985
The Hebrew University Employee Fund ......... 36,442 18,221 14,577
Shocher Tov ................................. 7,879 3,940 3,152
</TABLE>
(2) Represents 608,835 shares of common stock acquired upon the conversion of
the 10% Series A Convertible Note dated August 10, 1999, with a conversion
ratio of $5 per share. On January 18, 2000, we effected a three-for-one
forward stock split resulting in the increase of the shares owned from
202,945 to 608,835.
(3) Represents a fraction of 160,717 shares of our common stock owned by
several investors in Constellation 3D Technology Ltd.
(4) Represents 5,555 shares of common stock issuable upon the exercise of
warrants at the exercise price of $0.001 per share.
(5) Represents 25,000 shares of common stock and five-year warrants to purchase
25,000 shares of common stock at an exercise price of $11.50. (Guldborg
International owns warrants to purchase 15,000 shares, and Farpell Inc.
owns warrants to purchase 10,000 shares.)
(6) Represents 984,918 shares of common stock; five year warrants to purchase
393,968 shares of common stock at an exercise price of $14.6656 per share;
adjustment warrants to purchase 700,000 shares of common stock at an
exercise price of $0 per share which are not exercisable within 60 days of
November 8, 2000; and one year warrants to purchase 492,458
shares of common stock at an exercise price of $10.15313 per share. All of
the warrants are subject to adjustment.
(7) Represents 7,500 shares of common stock. On January 18, 2000 we effected a
3 for 1 stock split resulting in the increase of the shares owned from
2,500 to 7,500.
(8) Represents 380,000 shares of common stock acquired upon the conversion of
the Loan Conversion Rights Agreement dated December 2, 1998. The shares
were issued as follows: 242,326 to Formula Ventures L.P., 68,628 to FV-PEH
L.P., and 69,046 to Formula Ventures (Israel) L.P.
(9) Represents 49,500 shares of common stock acquired upon the conversion of
the 8% Series B Convertible Note dated November 11, 1999 and 15,000 one
year warrants at $10.15313.
(10) Represents 166,097 shares of common stock acquired, one year warrants to
purchase 83,048 shares of common stock at the exercise price of $10.15313,
and five year warrants to purchase 66,439 shares of common stock at the
exercise price of $14.6656 according to the 8% Series C Convertible Note
dated December 24, 1999, and a letter dated August 23, 2000 by which the
loan was converted into equity.
48
<PAGE>
(11) Represents 138,102 shares of common stock acquired, one year warrants to
purchase 69,051 shares of commons stock at the exercise price of
$10.15313, and five year warrants to purchase 55,241 shares of common
stock at the exercise price of $14.6656 according to the Promissory Notes
dated October 29, 1999 and November 18, 1999 and a letter dated August 23,
2000 by which the loans were converted into equity.
(12) Represents five year warrants to purchase 400,000 shares of common stock
at an exercise price of $14.6656 per share. The warrants will be issued as
follows: 140,000 to Gary J. Shemano, 70,000 to Michael R. Jacks, 140,000
to Bill Corbett and 50,000 to Eric Lipetz.
(13) Represents 14,774 shares of common stock; five year warrants to purchase
5,910 shares of common stock at an exercise price of $14.6656 per share;
and one year warrants to purchase 7,387 shares of common stock at an
exercise price of $10.15313 per share.
(14) Represents (1) 5,713 shares of common stock, a five-year warrant to
purchase 2,285 shares of common stock and a one-year warrant to purchase
2,856 shares of common stock in connection with the transaction described
in footnote 1 and (2) five year warrants to purchase 495,539 shares of
common stock at an exercise price of $14.6656 per share, in connection
with the transactions described in footnotes 1 and 6 above.
(15) Represents 226,629 shares of common stock issuable upon conversion of a
debenture convertible at $17.65 per share.
Description of Our Securities
Our authorized capital stock consists of 100,000,000 shares of common
stock, $.001 par value per share, and 10,000,000 shares of preferred stock, no
par value per share.
Common Stock
As of October 20, 2000, there were approximately 42,957,026 shares of our
common stock outstanding held of record by approximately 108 shareholders,
excluding 500,000 shares owned by Constellation 3D Trust LLC, one of our wholly
owned subsidiaries. Our common stock is listed and traded on the NASD's
Over-the-Counter Bulletin Board under the symbol CFMD. Holders of our common
stock are entitled to one vote per share on all matters to be voted upon by the
shareholders. The shareholders may not cumulate votes in connection with the
election of directors. A director may be removed from office with or without
cause and by the vote of at least 50.01% of the votes entitled to be cast at a
meeting of shareholders. The holders of our common stock are entitled to receive
ratably dividends, if any, declared from time to time by our board of directors
out of funds legally available for dividends. In the event of our liquidation,
dissolution or winding up, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of liabilities. Our common stock
has no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to our common stock.
Preferred Stock
We have 10,000,000 shares of our preferred stock authorized and no shares
are outstanding. Our board of directors has the authority to issue the shares
of our preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any
unissued and undesignated shares of our preferred stock and to fix the number
of shares constituting any series and the designations of such series, without
any further vote or action by the shareholders. Although it presently has no
intention to do so, our board of directors, without shareholder approval, can
issue our preferred stock with voting and conversion rights, which could
adversely affect the voting power or other rights of the holders of our common
stock. The issuance of our preferred stock may have the effect of delaying,
deferring or preventing our change in control.
Florida Antitakeover Laws
The provisions of the Florida Business Corporation Act (as amended) and
our articles of incorporation (as amended), which are described below, could
make it more difficult for a third party to acquire control of us, even if the
change of control would benefit the shareholders.
49
<PAGE>
Section 607.0901 of the Florida Business Corporation Act generally
requires that, in a merger, consolidation, specified asset sale or other
specified transaction between an interested shareholder (or an affiliate of the
interested shareholder) and a Florida public corporation, all of the
shareholders receive an amount equal to the greater of:
(1) the highest price per share, including brokerage commissions and other
specified fees, paid by the interested shareholder for any shares
acquired by it (the Highest Per Share Price) within the two-year period
immediately preceding the date on which it became an interested
shareholder or the announcement date of the transaction, whichever is
higher;
(2) the fair market value per share on the date on which it became an
interested shareholder or the announcement date of the transaction,
whichever is higher, or
(3) the fair market value per share determined under (2) above, multiplied
by the ratio of the Highest Per Share Price within the two year period
immediately preceding the announcement date of the transaction to the
fair market value per share on the date of the interested shareholder's
first share acquisition during such two year period.
An interested shareholder generally means as a person that owns more than
10 percent of the voting shares of a corporation. The fair market value per
share generally means the highest closing sale price during the immediately
preceding 30-day period. The fair price provisions do not apply:
(1) to a transaction approved by two-thirds of the shareholders excluding
the interested shareholder;
(2) to a transaction approved by a majority of the directors who are not
affiliated with the interested shareholder;
(3) to a corporation which has not had more than 300 shareholders of record
at any time during the previous three years;
(4) if the interested shareholder has owned at least 80 percent of the
outstanding shares for at least five years; or
(5) if the interested shareholder owns at least 90 percent of the
outstanding shares excluding shares acquired from the corporation.
Our articles of incorporation, as amended, also provide that Section
607.0902 of the Florida Business Corporation Act does not apply to us.
Section 607.0902 generally provides that if any person acquires 20 percent
or more of the outstanding voting shares of a public corporation, all of the
shares acquired by the person within 90 days before and after the date on which
the person reached the 20 percent threshold will not have voting rights.
However, if the remaining disinterested shareholders approve voting rights for
the acquired shares by a majority vote, the shares will have voting rights.
Section 607.0902 further provides that statute similarly regulates share
acquisitions 33 1/3 percent and 50 percent of the voting shares of a public
corporation.
Our articles of incorporation, as amended, provide that acts of the
shareholders will require the approval of 50.01% of the outstanding votes of
shareholders. Our Articles of Incorporation, as amended, provide also that our
board of directors has the authority to issue up to 10 million shares of
preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the holders of our common stock. The rights of the holders of any
preferred stock that may be issued in the future may adversely affect the
rights of the holders of our common stock. The issuance of preferred stock
could make it more difficult for a third party to acquire a majority of our
outstanding voting stock, thereby delaying, deferring or preventing a change of
control. Such preferred stock may have other rights, including economic rights,
senior to our common stock, and as a result, the issuance of the preferred
stock could limit the price that investors might be willing to pay in the
future for shares of our common stock and could have a material adverse effect
on the market value of our common stock.
50
<PAGE>
Indemnification and Registration Rights
As of August 10, 1999 we entered into an Investor's Rights Agreement with
Seattle Investments LLC. In the Investor's Rights Agreement, we agreed to
indemnify this selling shareholder against all losses, claims, damages,
liabilities and expenses caused by any untrue statement of material fact,
alleged untrue statement of a material fact, omission of a material fact, or
alleged omission of a material fact required to be stated to make the statement
not misleading contained in any registration statement, prospectus, or any
amendment of the registration statement or prospectus or any violation or
alleged violation of the 1933 Act, 1934 Act, or any state securities law.
However, we are not obligated to indemnify this selling shareholder if the
material misstatement or omission were caused by or contained in any
information furnished in writing to us by this selling shareholder expressly
for use in the registration statement, prospectus or amendment of the
registration statement or prospectus. Additionally, this selling shareholder
has agreed to indemnify us against all losses, claims, damages, liabilities and
expenses caused by any untrue statement of material fact, alleged untrue
statement of material fact or omission of a material fact required to be stated
to make the statement not misleading that was contained in any information
furnished in writing to us by this selling shareholder expressly for use in the
registration statement, prospectus or amendment of the registration statement
or prospectus.
On November 11,1999, we entered into a registration rights agreement with
Wilbro Nominees Limited pursuant to which we agreed to indemnify this selling
shareholder against any losses, claims, damages or liabilities relating to any
untrue statement of material fact, alleged untrue statement of material fact,
omission of a material fact, or alleged omission of a material fact necessary
to make the statements not misleading or any violation of the 1933 Act or state
securities or "blue sky" laws relating to our action or inaction regarding this
registration statement. We are not required to indemnify the selling
shareholder for any liabilities for any statement made in reliance upon written
information furnished to us by the selling shareholder for the purpose of
preparing the registration statement. The selling shareholder agreed to
indemnify us against all liabilities caused by any untrue statement or omission
of material fact upon which we reasonably relied and that was contained in any
information furnished in writing to us by this selling shareholder expressly
for use in the registration statement.
As of November 29, 1999, we entered into a Subscription Agreement with
MBA-on-Demand LLC. In the Subscription Agreement, we agreed to indemnify this
selling shareholder against any claim, liability, loss, damage or expense
(including attorneys' fees and other costs of investigating and litigating
claims) caused, directly or indirectly, by our breach of any representation,
warranty or agreement made in the Subscription Agreement. Additionally, this
selling shareholder has agreed to indemnify us against any claim, liability,
loss, damage or expense (including attorneys' fees and other costs of
investigating and litigating claims) caused, directly or indirectly, by its
breach of any representation, warranty or agreement made in the Subscription
Agreement.
As of December 24, 1999, we entered into a registration rights agreement
with Winnburn Advisory. In the registration rights agreement, we agreed to
indemnify this selling shareholder against all losses, claims, damages,
liabilities and expenses caused by any untrue statement of material fact,
alleged untrue statement of material fact, omission of a material fact, or
alleged omission of a material fact required to be stated to make the statement
not misleading contained in any registration statement, prospectus, or any
amendment of the registration statement or prospectus or any violation by us of
the 1933 Act or state securities or "blue sky" laws relating to our action or
inaction regarding this registration statement. However, we are not obligated
to indemnify this selling shareholder if the material misstatement or omission
were caused by or contained in any information furnished in writing to us by
this selling shareholder expressly for use in the registration statement,
prospectus or amendment of the registration statement or prospectus.
Additionally, this selling shareholder has agreed to indemnify us against all
losses, claims, damages, liabilities and expenses caused by any untrue
statement of material fact or omission of a material fact required to be stated
to make the statement not misleading that was contained in any information
furnished in writing to us by this selling shareholder expressly for use in the
registration statement, prospectus or amendment of the registration statement
or prospectus.
<PAGE>
On March 23, 2000, we entered into a securities purchase agreement with
Sands Brothers Venture Capital LLC, pursuant to which we issued a convertible
debenture to Sands Brothers Venture Capital Associates LLC and entered into a
registration rights agreement with Sands Brothers Venture Capital LLC on March
24, 2000. In the registration rights agreement, we agreed to indemnify Sands
Brothers Venture Capital LLC, the selling shareholder, against any losses,
claims, damages or liabilities, joint or several, to which the selling
shareholder may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement, prospectus, or any amendment or supplement of the
registration statement or prospectus or arise out of our omission or alleged
omission to state a material fact required to be stated in the registration
statement or prospectus or necessary to make the statements therein not
misleading, or any violation or alleged violation of the Securities Act or any
state securities or blue sky laws. However, we are not obligated to indemnify
the selling shareholder if and to the extent that any such loss, claim, damage
or liability arises out of or is based on our reliance upon an untrue statement
or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by the selling shareholder specifically
for use in the registration statement or prospectus. Additionally this selling
shareholder agreed to indemnify us, each person who controls us, our officers
who sign the registration statement and our directors against all losses,
claims, damages or liabilities, joint or several, to which we, our officers,
directors or controlling persons may become subject insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise our of or
are based upon reliance on any untrue statement or alleged untrue statement of
any material fact contained in the registration statement or any prospectus or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse us and each such officer, director, underwriter and controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action, provided that the selling shareholder will be liabile hereunder in any
such case if and only to the extent that any such loss, claims, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such seller, as such, furnished in
writing to us by the selling shareholder specifically for use in such
registration statement or prospectus, and provided, that the liability of each
seller thereunder shall be limited to the proceeds received by such selling
shareholder from the sale of securities covered by such registration statement.
On August 17, 2000, we entered into an investment agreement with TCO
Investment Inc. The agreement contains a registration rights provision but no
indemnification provisions. TCO Investment Inc. is a selling shareholder under
this prospectus.
51
<PAGE>
On August 18, 2000, we entered into a warrant agreement containing
registration rights with Blank Rome Comisky & McCauley LLP. The agreement does
not contain any indemnification provisions. Blank Rome Comisky & McCauley LLP
is a selling shareholder under this prospectus.
On August 23, 2000, we entered into the registration rights agreement with
Halifax Fund L.P., which we amended on September 19, 2000. Pursuant to the
agreement, as amended, we agreed to indemnify this selling shareholder against
any losses, claims, damages or liabilities relating to any untrue statement of
material fact, alleged untrue statement of material fact, omission of a
material fact, or alleged omission of a material fact necessary to make the
statements not misleading. We are not required to indemnify the selling
shareholder for any liabilities for any statement made in reliance upon written
information furnished to us by the selling shareholder for the purpose of
preparing the registration statement. The selling shareholder agreed to
indemnify us against all liabilities caused by any untrue statement, alleged
untrue statement, omission of material fact, or alleged omission of material
fact upon which we reasonably relied and that was contained in any information
furnished in writing to us by this selling shareholder expressly for use in the
registration statement.
On August 31, 2000, we entered into a registration rights agreement with
certain selling shareholders: I. Nahori, H. Yehosoaa, A. Ori, B. Tamir, K.
Zeev, E. Tzion, O. Ron, E. Miro, A. Shilontchik, Y. Peleg, A. Ben-Ami, G.
Altshuler, Koor Underwriter and Issuer Ltd., Menorah Gaoon Investment Ltd.,
Bilgori Shalom and Yafa, The Hebrew University Employee Fund, and Shocher Tov,
collectively called Koor's Investors, who concurrently purchased our
securities. In the registration rights agreement, we agreed to indemnify these
selling shareholders against all losses, claims, damages, liabilities and costs
relating to any untrue statement of material fact, alleged untrue statement of
material fact, omission of a material fact required to be stated to make any
statement not misleading contained in any registration statement, prospectus,
or any amendment of the registration statement or prospectus. We also agreed to
indemnify these selling shareholders for any violation of any law, including
state and federal securities laws. However, we are not obligated to indemnify
these selling shareholders if the material misstatement or omission upon which
we reasonably relied were caused by or contained in any information furnished
in writing to us by these selling shareholders expressly for use in the
registration statement, prospectus or amendment of the registration statement
or prospectus.
Additionally, except for Blank Rome Comisky & McCauley LLP, these selling
shareholders have agreed to indemnify us against all losses, claims, damages,
liabilities and expenses caused by any untrue statement of material fact,
alleged untrue statement of material fact, omission of a material fact, or
alleged omission of a material fact required to be stated to make the statement
not misleading upon which we reasonably relied and which was contained in any
information furnished in writing to us by these selling shareholders expressly
for use in the registration statement, prospectus or amendment of the
registration statement or prospectus. These selling shareholders are not
required to indemnify us for the cost of settling any proceeding unless the
settlement was previously approved, in writing, by these selling shareholders.
Additionally, the liability of these selling shareholders for any
indemnification of the selling shareholder may not exceed the net proceeds
received by these selling shareholders upon the sale of securities that giving
rise to the indemnification obligation.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Interwest
Transfer Company located at 1981 East Murray Holladay Road, Suite 100, Salt
Lake City, Utah 84117, and its telephone number is (801) 272-9294.
52
<PAGE>
Shares Eligible for Future Sale
Future sales of our common stock in the public market, or the issuance of
shares of common stock upon the exercise of stock options and warrants, or
otherwise, could adversely affect the market price of our common stock and
impair our ability to raise capital through the sale of equity or
equity-related securities.
<TABLE>
<S> <C>
Issued and outstanding (1) ................................................. 42,957,026
Issuable upon exercise of outstanding warrants whether or not currently-
exercisable (2)(4) ....................................................... 6,481,922
Issuable upon exercise of outstanding stock options whether or not currently
exercisable .............................................................. 5,236,550
Issuable upon conversion of convertible loans(3) ........................... 319,913
</TABLE>
------------
(1) Excluding 500,000 shares of our common stock owned by Constellation 3D
Trust LLC, one of our wholly owned subsidiaries.
(2) Currently exercisable at exercise prices ranging from $0.001 to $15.13 per
share.
(3) A loan of $4,000,000 provided by Sands Brothers Venture Capital Associates
LLC convertible at $17.65 per share and a loan of $1,000,000 provided by
Constellation Tech convertible at $10.72 per share.
(4) Includes 3,450,000 warrants evidenced by agreements which we believe are no
longer enforceable, because Sands Brothers & Co., Ltd. (Sands Brothers)
failed to satisfy its obligation to raise $7.5 million in financing for us
within 150 days of the Commencement Date as defined in the Placement
Agency Agreement that we and Sands Brothers entered into in December 1999
and later amended. We intend to renegotiate the agreements regarding the
warrants that we originally agreed to issue to Sands Brothers.
As of October 20, 2000, of the 42,957,026 issued and outstanding shares
held by non-affiliates identified in the table above, 32,674,576 are "restricted
securities" (i.e., excluding 500,000 shares of our common stock owned by
Constellation 3D Trust LLC, one of our wholly owned subsidiaries) within the
meaning of Rule 144 under the Securities Act, and may not be sold in the absence
of registration under the Securities Act unless an exemption from registration
is available. Such restricted securities will be eligible for sale in the public
market subject to compliance with Rule 144. In addition, other exemptions may be
available for sales of such restricted securities held by our non-affiliates.
In general, under Rule 144 of the Securities Act, as currently in effect,
a person (or persons whose shares are required to be aggregated) who has
beneficially owned restricted securities for at least one year, including a
person who may be deemed an affiliate, is entitled to sell, within any
three-month period, a number of shares of common stock that does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly reported trading volume of the common stock during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the SEC pursuant to Rule 144 (or, if no such notice is required, the date of
receipt of the order to execute the transaction by the broker or the date of
execution of the transaction directly with a market maker). Sales under Rule
144 are also subject to certain other requirements relating to manner of sale,
notice of sale and availability of current public information with respect to
us. A person (or persons whose shares are required to be aggregated) who is not
and has not been our affiliate at any time during the three months preceding a
sale is entitled to sell such shares of common stock under Rule 144 without
regard to the volume limitations described above, provided that two years have
elapsed since the date on which such restricted shares of common stock were
acquired from us or the date on which they were acquired from our affiliate.
53
<PAGE>
No prediction can be made as to the effect, if any, that market sales of
shares of common stock, or the availability of the shares of common stock for
sale, will have on the market price of the shares of common stock prevailing
from time to time. Nevertheless, sales of substantial amounts of shares of
common stock in the public market, or the perception that such sales could
occur, could adversely affect prevailing market prices for the shares of common
stock and could impair our ability to raise capital through an offering of
equity securities.
Plan of Distribution
The shareholders selling common stock under this prospectus, or their
pledgees or transferees, may offer their shares of our common stock at various
times through dealers or brokers or other agents or directly to one or more
purchasers in one or more of the following transactions:
o using the NASD's Over-the-Counter Bulletin Board or other market on
which the common stock may be listed, quoted or trading;
o in privately negotiated transactions;
o in brokerage transactions;
o put or call option transactions;
o in short sales; or
o in a combination of any of the above transactions.
The shareholders selling our common stock under this prospectus may sell
their shares:
o at market prices prevailing at the time of sale;
o at prices related to those prevailing market prices; or
o at negotiated prices.
These selling shareholders may use brokers, dealers or other agents to
sell their shares. If this happens, the brokers, dealers or other agents may
receive discounts, concessions or commissions from the shareholders, or they
may receive commissions from purchasers of common stock for whom they acted as
agents. The discounts, concessions or commissions as to a particular broker,
dealer or other agent may be in excess of those customary in the type of
transaction involved.
The selling shareholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with those
transactions, broker-dealers or other financial institutions may engage in
short sales of the common stock or of securities convertible into or
exchangeable for the common stock in the course of hedging positions they
assume with the selling stockholders. The selling stockholders may also enter
into options or other transactions with broker-dealers or other financial
institutions which require the delivery to those broker-dealers or other
financial institutions of the common stock offered by this prospectus, which
common stock the broker-dealers or other financial institutions may resell
pursuant to this prospectus (as amended or supplemented to reflect the
transaction).
This prospectus also may be used, with our consent, by donees or pledgees
of the shareholders selling common stock under this prospectus, or by other
persons acquiring common stock from these shareholders and who wish to offer
and sell that common stock under circumstances requiring or making desirable
its use. To the extent required, we will file, during any period in which
offers or sales are being made, one or more supplements to this prospectus to
set forth:
o the names of donees or pledgees of the shareholders;
o the number of shares of common stock involved;
o the price at which those shares are sold;
o the commissions paid or discounts or concessions allowed, where
applicable; and
54
<PAGE>
o any other material information with respect to the plan of distribution
not previously disclosed.
Upon a selling shareholder notifying us that any material arrangement has
been entered into with a broker-dealer for the sale of common stock through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will be
filed, if required, pursuant to Rule 424(b) under the Securities Act,
disclosing:
o the name of each selling stockholder and of the participating
broker-dealer;
o the number of shares involved;
o the initial price at which the shares were sold;
o the commissions paid or discounts or concessions allowed to the
broker-dealer(s), where applicable;
o that the broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this prospectus;
and
o other facts material to the transactions.
Additionally, upon a selling shareholder notifying us that a donee or a
pledgee intends to sell more than 1,000 shares, we may file a supplement to
this prospectus.
Neither we nor the shareholders selling common stock under this prospectus
can presently estimate the amount of this compensation. We know of no existing
arrangements between any shareholder and any other shareholder, broker, dealer
or other agent relating to the sale or distribution of the common stock. Under
applicable rules and regulations under the U.S. Securities Exchange Act, any
person engaged in a distribution of any of the common stock 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 that
distribution.
The shareholders selling common stock under this prospectus will be
subject to applicable provisions of the U.S. Securities Exchange Act and its
rules and regulations, including without limitation Rule 10b-5 and Regulation
M, which may limit the timing of purchases and sales of any of the common stock
by those shareholders. All of this may affect the marketability of the common
stock.
We will pay substantially all of the expenses incident to this offering
other than commissions, concessions and discounts of brokers, dealers or other
agents or the legal fees of the selling shareholders' counsel. Each shareholder
selling common stock under this prospectus may indemnify any broker, dealer, or
other agent that participates in transactions involving sales of the common
stock against certain liabilities, including liabilities arising under the
Securities Act. We have agreed to indemnify certain of the selling shareholders
and may agree to indemnify any statutory "underwriters" and controlling persons
of those "underwriters" against certain liabilities, including certain
liabilities under the Securities Act of 1933. In order to comply with certain
states' securities laws, if applicable, the common stock will be sold in those
jurisdictions only through registered or licensed brokers or dealers.
Legal Matters
The validity of the common stock being offered hereby and certain other
matters in connection with this offering are being passed upon for us by Blank
Rome Comisky & McCauley LLP, Philadelphia, Pennsylvania.
Interests of Named Experts and Counsel
On August 18, 2000, we granted Blank Rome Comisky & McCauley LLP a warrant
to purchase 5,555 shares of our common stock in order to reduce the amount of
our outstanding legal fees due to Blank Rome Comisky & McCauley LLP by Fifty
Thousand Dollars ($50,000.00). Blank Rome Comisky & McCauley LLP serves as our
legal counsel. The warrant currently is exercisable at a price of $0.001 per
share and will terminate on July 31, 2005. Blank Rome Comisky & McCauley LLP
obtained certain registration rights in connection with the grant of the
warrant and is a selling shareholder under this prospectus.
Experts
The audited financial statements included in this prospectus and related
registration statement have been audited by BDO Seidman, LLP and BDO
International, independent auditors, to the extent and for the periods set
forth in their reports appearing elsewhere herein and in the registration
statement, and are included in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
55
<PAGE>
Where You Can Find More Information
We regularly file annual, quarterly and special reports, proxy statements
and other information with the SEC under the Securities Exchange Act. You may
read and copy any reports, statements and other information we file with the
SEC at the SEC's public reference room at 450 Fifth Street, NW, Washington,
D.C., 20549 and at the SEC's regional offices in Illinois and New York. You may
obtain information on the operation of the public reference rooms by calling
the SEC at 1-800-SEC-0330. Our SEC filings are also available on the SEC's
Internet site (http://www.sec.gov). You may also visit our Internet site
(http://www.c-3d.net), but the information contained on our web site does not
form part of this prospectus.
56
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants ....................................... F-1
Report of Independent Public Accountants ................................................. F-2
Consolidated Financial Statements
Balance Sheets as of June 30, 2000 and December 31, 1999 and 1998 ....................... F-3
Statements of Operations for the six months ended June 30, 2000 and 1999 (unaudited),
the years ended December 31, 1999 and 1998, the period from September 25, 1997
(inception) to December 31, 1997, and the period from September 25, 1997 (inception)
to June 30, 2000 ...................................................................... F-4
Statement of Changes in Stockholders' Deficit for the six months ended June 30, 2000 and
the years ended December 31, 1999 and 1998, and the period from September 25, 1997
(inception) to December 31, 1997 ...................................................... F-5
Statements of Cash Flows for the six months ended June 30, 2000 and 1999 (unaudited),
the years ended December 31, 1999 and 1998, the period from September 25, 1997
(inception) to December 31, 1997, and the period from September 25, 1997 (inception)
to June 30, 2000 ...................................................................... F-6
Notes to Consolidated Financial Statements .............................................. F-7 - F-18
</TABLE>
57
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders of
Constellation 3D, Inc.
We have audited the accompanying consolidated balance sheet of
Constellation 3D, Inc. (a development stage company) and its subsidiaries (the
"Company") as of June 30, 2000 and the related consolidated statements of
operations, stockholders' deficit and cash flows for the six months ended June
30, 2000 and the period from September 25, 1997 (inception) through June 30,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the financial statements of
Constellation 3D, Inc. for the period from inception (September 25, 1997) to
December 31, 1999. Such statements are included in the cumulative September 25,
1997 (inception) to June 30, 2000 totals of statements of operations and cash
flows and reflect a net loss of 48% of the related cumulative total. Those
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to amounts for the period from inception
(September 25, 1997) to December 31, 1999 included in the cumulative totals, is
based solely upon the report of the other auditors.
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
from 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 provide a reasonable basis
for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above, present fairly, in all
material respects, the financial position of Constellation 3D, Inc. (a
development stage company) and its subsidiaries at June 30, 2000, and the
results of their operations and their cash flows for the six months then ended
and for the period from September 25, 1997 (inception) through June 30, 2000 in
conformity with generally accepted accounting principles.
BDO Seidman LLP
New York, New York
July 21, 2000, (except for Note 10 which
is as of September 19, 2000)
F-1
<PAGE>
Report of Independent Public Accountants
Board of Directors and Stockholders of
Constellation 3D, Inc.
We have audited the accompanying consolidated balance sheets of Constellation
3D, Inc. (a development stage company) and its subsidiaries (the "Company") as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the years ended December
31, 1999 and 1998, the period from inception (September 25, 1997) through
December 31, 1997, and the period from inception (September 25, 1997) 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in Israel, which do not differ in any material respects from auditing
standards in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free from 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of
Constellation 3D, Inc. (a development stage company) and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for the years ended December 31, 1999 and 1998, the period from inception
(September 25, 1997) through December 31, 1997 and the period from inception
(September 25, 1997) through December 31, 1999 in conformity with generally
accepted accounting principles in the United States.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in the development stage and has generated
no operating revenue to date and will need to raise additional working capital
for future development costs. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BDO International
Tel-Aviv, Israel
February 22, 2000, (except for Note 11 which
is as of March 24, 2000)
F-2
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31, December 31,
2000 1999 1998
---------------- ---------------- ---------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ............................ $ 1,768,455 $ 2,030,139 $ 123,097
Prepaid and other .................................... 197,269 150,989 171,261
------------- ------------- ------------
Total Current Assets .................................. 1,965,724 2,181,128 294,358
Furniture and Equipment, net .......................... 288,842 241,100 267,231
------------- ------------- ------------
Total Assets .......................................... $ 2,254,566 $ 2,422,228 $ 561,589
============= ============= ============
LIABILITIES AND STOCKHOLDERS'
DEFICIT
Current Liabilities
Current portion of convertible notes payable ......... $ 674,481 $ 650,577 $ 377,624
Accounts payable and accrued expenses ................ 1,511,857 1,268,404 630,457
Due to related parties ............................... 560,508 360,711 422,790
Due to shareholder ................................... 1,381,534 1,316,712 --
------------- ------------- ------------
Total Current Liabilities ............................. 4,128,380 3,596,404 1,430,871
Convertible Notes Payable, net, less current portion . 3,114,314 2,105,480 --
Other Long-Term Liabilities ........................... 57,457 39,969 46,825
------------- ------------- ------------
Total Liabilities ..................................... 7,300,151 5,741,853 1,477,696
------------- ------------- ------------
Commitments and Contingencies
Stockholders' Deficit:
Preferred stock, no par value; 10,000,000 shares
authorized; 0 issued and outstanding ............... -- -- --
Common stock, $.001 par value; 100,000,000
shares authorized; 41,001,609, 41,001,609 and
29,214,000 issued and outstanding .................. 41,001 41,001 29,214
Additional paid in capital ........................... 15,603,708 7,310,708 4,859,326
Deficit accumulated during the development stage (20,690,294) (10,671,334) (5,804,647)
------------- ------------- ------------
Total Stockholders' Deficit ........................... (5,045,585) (3,319,625) (916,107)
Total Liabilities and Stockholders' Deficit ........... $ 2,254,566 $ 2,422,228 $ 561,589
============= ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
Amounts From
Inception
(September 25, 1997) Six Months
Through June 30, Ended June 30,
---------------------- -----------------------------------
(unaudited)
2000 2000 1999
---------------------- ----------------- ----------------
<S> <C> <C> <C>
OPERATING EXPENSES
Research and development ............... $ 7,357,932 $ 1,918,038 $ 1,062,305
General and administrative ............. 6,791,986 1,980,295 554,863
Marketing .............................. 4,518,846 4,518,846 --
-------------- ------------- ------------
Total operating expenses ................ 18,668,764 8,417,179 1,617,168
OTHER EXPENSES ..........................
Interest (income) expense, net ......... 1,942,959 1,590,260 29,290
Taxes .................................. 78,571 11,521 11,000
-------------- ------------- ------------
Net loss ................................ $ (20,690,294) $ (10,018,960) $ (1,657,458)
============== ============= ============
Net loss per share -- basic and diluted $ (0.24) $ (0.06)
============= ============
Weighed average number of shares of
common stock outstanding -- basic
and diluted ............................ 41,001,609 29,214,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Period From
Inception
(September 25, 1997)
Years Ended Through
December 31, December 31,
---------------------------------- ---------------------
1999 1998 1997
---------------- ---------------- ---------------------
<S> <C> <C> <C>
OPERATING EXPENSES
Research and development ............... $ 2,413,239 $ 1,534,948 $ 1,491,707
General and administrative ............. 2,084,027 1,660,477 1,067,187
Marketing .............................. -- -- --
------------ ------------ -------------
Total operating expenses ................ 4,497,266 3,195,425 2,558,894
OTHER EXPENSES ..........................
Interest (income) expense, net ......... 305,833 (6,985) 53,851
Taxes .................................. 63,588 3,462 --
------------ ------------ -------------
Net loss ................................ $ (4,866,687) $ (3,191,902) $ (2,612,745)
============ ============ =============
Net loss per share -- basic and diluted $ (0.15) $ (6.80) $ (4,354.57)
============ ============ =============
Weighed average number of shares of
common stock outstanding -- basic
and diluted ............................ 32,148,978 469,275 600
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the
-------------------------- Additional Development
Shares Amount Paid-in Capital Stage Total
------------ ------------ ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, September 25, 1997 ................ -- $ -- $ -- $ -- $ --
Constellation 3D, Inc. Activities
(Formerly Constellation 3D Holdings):
Issuance of common stock for cash .......... 600 3 -- -- 3
Net loss ................................... -- -- -- (2,612,745) (2,612,745)
---------- --------- ----------- ------------- -------------
Balance, December 31, 1997 ................. 600 3 -- (2,612,745) (2,612,742)
Issuance of common stock for
cancellation of shareholders'
advances, December 27, 1998 ............... 3,749,400 39,906 4,848,631 -- 4,888,537
Recapitalization, December 27, 1998 ........ 25,464,000 (10,695) 10,695 -- --
Net loss ................................... -- -- -- (3,191,902) (3,191,902)
---------- --------- ----------- ------------- -------------
Balance, December 31, 1998 ................. 29,214,000 29,214 4,859,326 (5,804,647) (916,107)
Debt settlement through the issuance of
common stock -- April 1, 1999 ............. 36,000 36 241,454 -- 241,490
Common stock issued in connection
with reverse acquisition -- October 1,
1999 ...................................... 11,109,765 11,109 942,096 -- 953,205
Conversion of notes payable
($1.67/share) -- October 22, 1999 ......... 608,835 609 1,014,116 -- 1,014,725
Sale of common stock for cash, net
($4.90/share) November 1, 1999 ............ 25,509 25 99,974 -- 99,999
Issuance of common stock for services
($3.83/share) November 8, 1999 ............ 7,500 8 28,742 -- 28,750
Beneficial conversion discount of
Convertible debt -- November 11,
1999 ...................................... -- -- 125,000 -- 125,000
Net loss ................................... -- -- -- (4,866,687) (4,866,687)
---------- --------- ----------- ------------- -------------
Balance, December 31, 1999 ................. 41,001,609 41,001 7,310,708 (10,671,334) (3,319,625)
Deferred interest related to issuance of
detachable warrants -- March 24,
2000 ...................................... -- -- 3,880,000 -- 3,880,000
Beneficial conversion discount of
Convertible debt -- March 24, 2000 ........ -- -- 120,000 -- 120,000
Noncash stock-based compensation
related to issuance of stock options to
consultant -- May 11, 2000 ................ -- -- 4,293,000 -- 4,293,000
Net loss ................................... -- -- -- (10,018,960) (10,018,960)
---------- --------- ----------- ------------- -------------
Balance, June 30, 2000 ..................... 41,001,609 $ 41,001 $15,603,708 $ (20,690,294) $ (5,045,585)
========== ========= =========== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
Amounts From
Inception
(September 25,
1997) Through Six Months
June 30, Ended June 30,
---------------- -----------------------------------
(unaudited)
2000 2000 1999
---------------- ----------------- ----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss ........................................ $ (20,690,294) $ (10,018,960) $ (1,657,458)
Adjustments to reconcile net loss to net cash
used in operating activities:
Noncash stock-based compensation ................ 4,321,750 4,293,000 --
Beneficial conversion feature ................... 245,000 120,000 --
Amortization of deferred financing costs ........ 692,604 692,604 --
Depreciation .................................... 109,386 30,023 33,993
Write down of furniture and equipment ........... 49,750 -- 49,750
Change in assets and liabilities:
Prepaid and other ............................... (212,203) (46,280) 16,013
Accounts payable ................................ 2,112,683 243,453 424,591
Accrued interest on convertible note Payable .... 233,147 196,230 --
Accrued interest on notes payable ............... 23,904 23,904 --
Accrued interest on shareholder loans ............ 64,822 64,822 --
------------- ------------- ------------
Net Cash Used in Operating Activities ............ (13,049,451) (4,401,204) (1,133,111)
------------- ------------- ------------
Cash Flows From Investing Activities
Purchase of furniture and equipment ............. (529,907) (77,765) (108,585)
Sale of furniture and equipment ................. 80,405 -- --
Cash acquired in purchase of business ........... 1,019,413 -- --
------------- ------------- ------------
Net Cash Provided by (Used in) Investing
Activities ...................................... 569,911 (77,765) (108,585)
------------- ------------- ------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock ........... 4,988,540 -- --
Proceeds from issuance of convertible debt....... 7,100,000 4,000,000 --
Proceeds from (repayments to) shareholders
loan ........................................... 1,541,490 -- 241,490
Net changes in other long-term debt ............. 57,457 17,488 3,678
Advances from (repayments to) related
party .......................................... 560,508 199,797 (248,606)
Advances from parent company .................... -- -- 1,234,837
------------- ------------- ------------
Net Cash Provided by Financing Activities ........ 14,247,995 4,217,285 1,231,399
------------- ------------- ------------
Net increase (Decrease) in Cash and Cash
Equivalents ..................................... 1,768,455 (261,684) (10,297)
Cash and Cash Equivalents, beginning of
period .......................................... -- 2,030,139 123,097
------------- ------------- ------------
Cash and Cash Equivalents, end of period ......... $ 1,768,455 $ 1,768,455 $ 112,800
============= ============= ============
Supplemental Disclosure of Cash Flow
Information:
Cash paid for taxes ............................. $ 78,571 $ 11,521 $ 11,000
============= ============= ============
Non-cash Investing and Financing Activities:
Deferred financing costs related to
detachable warrants ............................ $ 3,880,000 $ 3,880,000 $ --
Conversion of note payable ...................... 1,256,215 -- --
Net assets disposed of upon acquisition ......... 66,028 -- --
Stock issued in reverse acquisition ............. 953,205 -- --
Debt settlement through issuance of
common stock ................................... 241,490 -- --
============= ============= ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Period from
Inception
(September 25,
Years Ended 1997) Through
December 31, December 31,
---------------------------------- ---------------
(unaudited)
1999 1998 1997
---------------- ---------------- ---------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss ........................................ $ (4,866,687) $ (3,191,902) $ (2,612,745)
Adjustments to reconcile net loss to net cash
used in operating activities:
Noncash stock-based compensation ................ 28,750 -- --
Beneficial conversion feature ................... 125,000 -- --
Amortization of deferred financing costs ........ -- -- --
Depreciation .................................... 40,438 33,129 5,796
Write down of furniture and equipment ........... -- -- --
Change in assets and liabilities:
Prepaid and other ............................... 5,338 (135,214) (36,047)
Accounts payable ................................ 910,899 150,343 857,738
Accrued interest on convertible note Payable .... 36,917 -- --
Accrued interest on notes payable ............... -- -- --
Accrued interest on shareholder loans ........... -- -- --
------------ ------------ ------------
Net Cash Used in Operating Activities ............ (3,719,345) (3,143,644) (1,785,258)
------------ ------------ ------------
Cash Flows From Investing Activities
Purchase of furniture and equipment ............. (145,986) (200,197) (105,959)
Sale of furniture and equipment ................. 80,405 -- --
Cash acquired in purchase of business ........... 1,019,413 -- --
------------ ------------ ------------
Net Cash Provided by (Used in) Investing
Activities ...................................... 953,832 (200,197) (105,959)
------------ ------------ ------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock ........... 100,000 4,888,537 3
Proceeds from issuance of convertible debt....... 3,100,000 -- --
Proceeds from (repayments to) shareholders
loan ........................................... 1,541,490 (4,152,521) 4,152,521
Net changes in other long-term debt ............. (6,856) 20,480 26,345
Advances from (repayments to) related
party .......................................... (62,079) (108,277) 531,067
Advances from parent company .................... -- -- --
------------ ------------ ------------
Net Cash Provided by Financing Activities ........ 4,672,555 648,219 4,709,936
------------ ------------ ------------
Net increase (Decrease) in Cash and Cash
Equivalents ..................................... 1,907,042 (2,695,622) 2,818,719
Cash and Cash Equivalents, beginning of
period .......................................... 123,097 2,818,719 --
------------ ------------ ------------
Cash and Cash Equivalents, end of period ......... $ 2,030,139 $ 123,097 $ 2,818,719
============ ============ ============
Supplemental Disclosure of Cash Flow
Information:
Cash paid for taxes ............................. $ 63,588 $ 3,462 $ --
============ ============ ============
Non-cash Investing and Financing Activities:
Deferred financing costs related to
detachable warrants ............................ $ -- $ -- $ --
Conversion of note payable ...................... 1,014,725 -- --
Net assets disposed of upon acquisition ......... 66,208 -- --
Stock issued in reverse acquisition ............. 953,205 -- --
Debt settlement through issuance of
common stock ................................... 241,490 -- --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statement
F-6
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited)
NOTE 1. Description of Business and Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
Constellation 3D, Inc. and each of its wholly-owned subsidiaries ("C3D" or the
"Company").
The Company was incorporated on December 27, 1995, under the name Latin
Venture Partners, Inc. The name of the Company was changed to C3D Inc. on March
24, 1999 in anticipation of a transaction with Constellation 3D Technology
Limited, a British Virgin Islands company ("Constellation Tech"). On December
29, 1999, the Company changed its name from C3D Inc. to Constellation 3D, Inc.
On October 1, 1999, C3D completed an asset purchase agreement and acquired
substantially all the operations of Constellation Tech for total consideration
of 29,250,000 shares of the Company's $.001 par value common stock, and the
assumption of substantially all liabilities and obligations of Constellation
Tech. The asset purchase agreement also provided for the cancellation of
2,925,000 shares of treasury stock.
The acquisition of Constellation Tech was treated as a reverse acquisition
whereby C3D was acquired by Constellation Tech, with the balance sheets being
combined using each company's historical cost bases. The results of operations
include that of both companies from the date of acquisition forward. The
financial statements for the period prior to the date of acquisition are those
of Constellation Tech. As the transaction is a reverse acquisition with a
public shell with no operations, no pro forma information related to this
transaction is provided.
The equity section of the balance sheet and the net loss per share of the
Company are retroactively restated to reflect the effect of the exchange ratio
established in the asset purchase agreement. The Company has developed what it
believes to be a state-of-the-art optical, data storage product that surpasses
the physical limits of two-dimensional memory technology. Research and
development work on the Company's technology has been conducted and is being
conducted in the United States, Israel, Russia and Ukraine.
On December 27, 1999, as approved by the requisite number of shares at the
Annual Meeting of Shareholders, C3D Inc. changed its name to Constellation 3D,
Inc. and amended its Articles of Incorporation to allow for an increase in the
number of shares authorized from 50,000,000 shares to 100,000,000 shares of
Common Stock ($.001 par value). In addition, the Company is authorized to issue
10,000,000 shares of preferred stock (no par value). On January 18, 2000, a
three-for-one forward split of C3D's Common Stock took effect for shareholders
of record as of December 16, 1999, and all per share information for all prior
periods have been adjusted accordingly.
Principles of Consolidation -- The consolidated financial statements of
the Company include the accounts of its subsidiaries after elimination of
intercompany balances and transactions.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Furniture and Equipment -- Furniture and equipment are stated at cost.
Depreciation and amortization are computed utilizing straight-line and
accelerated methods over estimated useful lives ranging from three to seven
years.
Marketing Costs -- The Company expenses the cost of marketing and
advertising as incurred. Marketing expense includes a noncash compensation
charge of $4,293,000 for the six months ended June 30, 2000. (See Note 7)
Income Taxes -- The Company accounts for income taxes in accordance with
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition
of deferred tax assets and liabilities for the expected future income tax
consequences of events that have been recognized in a company's financial
statements or tax return. Under this method, deferred tax assets and
liabilities are determined based on the temporary differences between the
F-7
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 1. Description of Business and Summary of Significant Accounting Policies
-- (Continued)
financial statement carrying amounts and their tax basis using enacted tax
rates in effect in the years in which the temporary differences are expected to
reverse. Valuation allowances are provided when management determines that the
realization of deferred tax assets fails to meet the more likely than not
standard imposed by SFAS 109.
Fair Value of Financial Instruments -- Carrying amounts reported in the
balance sheet for cash and cash equivalents, accounts payable, accrued
expenses, and amounts due to related parties and shareholders approximate fair
value because of their immediate or short-term nature. The fair value of
long-term debt and convertible debt approximates their carrying value because
the stated rates of the debt either reflect recent market conditions or are
variable in nature.
Revenue Recognition -- The Company is conducting research and development
activities to develop new multi-layer data storage media and currently has no
operating revenues. It is the intent of this company to enter into strategic
alliances to license its technology to its strategic partners.
Research and Development -- Costs will be expensed as incurred until
technological feasibility has been obtained, product design has been completed
and a working model has been developed and tested.
Foreign Currency Translation -- The financial statements of the
subsidiaries are translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS
52"). The currency of the operations of the Company's subsidiary in Israel is
conducted in U.S. dollars since most of its financing and other activities are
in dollars. Transactions and balances originally denominated in dollars are
presented in their original amounts. Balances in non-dollar currencies are
translated into dollars using historical and current exchange rates for
non-monetary and monetary balances, respectively. For non-dollar transactions
reflected in the statements of operations, the exchange rates at the
transaction dates are used. Depreciation expenses are based on historical
exchange rates. The resulting translation gains or losses are charged to
operations. The Company's subsidiary in Russia maintains accounting records in
Russian ruble. The ruble is considered the subsidiary's functional currency.
Transactions and balances not already measured in dollars have been re-measured
into dollars as applied to entities in highly inflationary economies. Revenues,
costs, capital and non-monetary assets and liabilities are translated at
historical exchange rates prevailing on the transaction date. Monetary assets
and liabilities are translated at the exchange rates prevailing on the balance
sheet date. Translation gains and losses from remeasurement of monetary assets
and liabilities that are not denominated in U.S. dollars are not material to
the consolidated operations of the Company.
Stock-Based Compensation -- Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"), establishes a
fair value method of accounting for stock-based compensation plans and for
transactions in which a company acquires goods or services from non-employees
in exchange for equity instruments. SFAS 123 also allows companies to account
for stock-based employee compensation in accordance with Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," or
SFAS 123. The Company elected to follow APB 25 which measures compensation
expense for employee stock options as the excess, if any, of the fair market
price of the Company's stock at the measurement date over the amount an
employee must pay to acquire stock.
Net Loss Per Share -- Basic loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding during each
period. Diluted earnings per share reflect, in periods in which they have a
dilutive effect, the effect of common shares issuable upon exercise of stock
options, warrants and contingent shares, based on the treasury method of
computing such effects, and are not included in the calculation of loss per
share, as their effect was anti-dilutive. All per share information has been
adjusted to reflect the three-for-one stock split declared on December 16,
1999.
F-8
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 1. Description of Business and Summary of Significant Accounting Policies
-- (Continued)
Accounting Estimates -- The Company's financial statements are prepared in
conformity with generally accepted accounting principles of the United States,
which 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 revenue and expenses during the reporting period. Actual results
could differ from these estimates.
Reclassifications -- Certain reclassifications have been made to the prior
period's financial statement amounts to conform to the current period's
presentation.
Interim Statements -- The accompanying consolidated statements of
operations and cash flows for the six months ended June 30, 1999 are unaudited
and include, in the opinion of management, all normal recurring adjustments
necessary to present fairly the related statements of operations and cash flows
for the six months ended June 30, 1999.
Recent Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
The statement establishes accounting and reporting standards requiring that
every derivative instrument (including some types of derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an
asset or liability measured at its fair value. The Statement requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS 133, as amended by SFAS No. 137 defining
SFAS No. 133's effective date, is effective for fiscal years beginning after
June 15, 2000, and must be applied to instruments issued, acquired, or
substantively modified after December 31, 1997.
In March 2000, the Financial Accounting Standards Board released
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN 44"). FIN 44 addresses certain practice issues related to
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"). FIN 44 applies only to companies that have chosen not to
adopt SFAS 123, Accounting for Stock-Based Compensation, for transactions with
employees. Among other issues, FIN 44 clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occur after either December
15, 1998 or January 12, 2000. To the extent that FIN 44 covers events occurring
during the periods after December 15, 1998 or January 12, 2000, but before the
effective date of July 1, 2000, the effects of applying FIN 44 are recognized
on a prospective basis from July 1, 2000.
The Company does not expect the adoption of either of the above accounting
pronouncements to have a material effect on its financial position or results
of operations.
Effective January 1, 1999, the Company adopted Statement of Position 98-5
("SOP 98-5"), Reporting on the Costs of Start-Up Activities, issued by the
American Institute of Certified Public Accountants. SOP 98-5 establishes
guidance on the financial reporting of start-up costs and organization costs.
The Statement requires that costs of start-up activities and organization costs
be expenses as incurred. The effect of adopting this standard was not material
to the Company.
F-9
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 2. Development Stage Operations
The Company has been in the development stage since its inception. It has
had no operating revenues to date, has accumulated losses of $20,690,294, and
will require additional working capital to complete its business development
activities and generate revenues adequate to cover operating and further
development expenses.
Subsequent to June 30, 2000, the Company raised $11,620,409, net of
commissions and fees of $780,017, through private placements, obtained a $6
million line of credit from a related party (of which the Company has utilized
$1,000,000 of this credit facility) and converted $2,368,119 of long-term
convertible notes payable into equity. Additionally, the Company converted
short-term shareholder promissory notes aggregating $1,402,163 into equity.
Based on the effects of these transactions and agreements and the Company's
projected cash requirements, the Company has sufficient working capital to
sustain operations through June 30, 2001 (see Note 10).
The Company believes it can raise additional working capital through
future sales of its common stock or subordinated debt in private placement
transactions. However, there can be no assurance that the Company will be
successful in its efforts to raise these funds.
NOTE 3. Furniture and Equipment
Furniture and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, December 31, December 31,
2000 1999 1998
------------ -------------- -------------
<S> <C> <C> <C>
Furniture and equipment ................ $ 398,228 $ 320,463 $ 306,156
Less: accumulated depreciation ......... 109,386 79,363 38,925
--------- --------- ---------
Furniture and equipment, net ........... $ 288,842 $ 241,100 $ 267,231
========= ========= =========
</TABLE>
NOTE 4. Convertible Notes Payable
Convertible notes payable (which include accrued interest) consist of the
following (See Note 10):
<TABLE>
<CAPTION>
June 30, December 31, December 31,
2000 1999 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Convertible note payable, interest at LIBOR + 3%,
due on demand (a) .............................. $ 674,481 $ 650,577 $ 377,624
Convertible note payable, interest at 8%, due
October 31, 2001 (b) ........................... 533,425 505,480 --
Convertible note payable, interest at 8%, due
October 31, 2001 (c) ........................... 1,664,175 1,600,000 --
Convertible note payable, interest at 10%, due
September 24, 2001 (d) ......................... 4,104,110 -- --
----------- ----------- ---------
6,976,191 2,756,057 377,624
Less: amount representing interest on detachable
stock purchase warrants (Note 7) ............... 3,187,396 -- --
----------- ----------- ---------
3,788,795 2,756,057 377,624
Less: current maturities ........................ 674,481 650,577 377,624
----------- ----------- ---------
$ 3,114,314 $ 2,105,480 $ --
=========== =========== =========
</TABLE>
F-10
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 4. Convertible Notes Payable -- (Continued)
The noncurrent portion of convertible notes payable matures during the
year ended December 31, 2001.
(a) The Company entered into a short-term unsecured loan agreement with
Formula Ventures, Ltd. in 1997 for $270,000. The agreement was amended on
October 15, 1998, increasing the facility to $600,000. The loan is payable upon
demand and bears interest at LIBOR +3% (9.649% at June 30, 2000). The loan was
converted on September 12, 2000, into 380,000 common shares of the Company.
(b) On November 11, 1999, the Company issued $500,000 of convertible
subordinated debt to Wilbro Nominee Limited. The note is due October 31, 2001
with interest at the rate of 8% per annum. The note is convertible into common
stock at a price equal to 80% of the average posted price for the 20 days
preceding the conversion date, beginning May 11, 2000. The market value for the
Company's stock on November 11, 1999 was $7.67. The excess of the fair value of
the conversion formula over the fair value of the stock was deemed to be a
beneficial conversion feature valued at $125,000, which was recorded as an
increase to additional paid-in capital and interest expense.
(c) On December 24, 1999, the Company issued $1,600,000 of convertible
subordinated debt to Winnburn Advisory. The note is due October 31, 2001 with
interest at the rate of 8% per annum. The note could be converted immediately
into common stock at the greater of $16.67 per common share or the average
market price for the Company's common stock for the 20 days preceding the
conversion date. During August 2000, the conversion price was amended to
$10.1531 per common share and was converted into 166,097 common shares of the
Company.
(d) On December 1, 1999 ("Commencement Date"), we entered into a Placement
Agency Agreement and Warrant Agreement with Sands Brothers & Co., Ltd. (the
"Agency Agreement" and "Warrant Agreement", respectively) which obligates Sands
Brothers & Co. Ltd. ("Sands Brothers") to raise through the placement of our
securities, on a best efforts basis, a minimum of $4.0 million and, as amended
on March 23, 2000, a maximum of $120.0 million for us. On the Commencement Date,
it was anticipated that Sands Brothers would raise $7.5 million within 90 days
subsequent to the Commencement Date. In the event that the $7.5 million was not
raised within 150 days from the Commencement Date, the agreement will be subject
to renegotiation by both parties. On March 24, 2000, C3D issued a 10%
subordinated convertible debenture for the principal amount of $4,000,000 to
Sands Brothers Venture Capital Associates LLC ("Sands Brothers VC"), an
affiliate of Sands Brothers. The subordinate convertible debenture can be
converted at any time into shares of common stock of the Company at a conversion
price of $17.65 and expires on September 24, 2001. Sands Brothers VC has the
right to demand repayment of all or any portion of the principal amount of the
convertible debenture and interest outstanding before the maturity date in the
event that C3D receives more than $25,000,000 in gross financing through the
sale of debt and/or equity securities or a change of control of the Company
occurs. C3D granted the subordinated convertible debenture holder certain
registration rights with respect to the underlying common stock.
NOTE 5. Income Taxes
At June 30, 2000, the Company has net operating loss carry forwards assets
of approximately $10,000,000 and $2,000,000 available to offset future US
source income and Israeli source income, respectively, which begin to expire in
2018. The Company's effective tax rate was estimated at 34% and 36% for US
source income and Israeli source income, respectively. A 100% valuation
allowance has been recorded against the deferred tax asset, primarily resulting
from net operating loss carry forwards, as management has yet to conclude that
realization of such assets is more likely than not.
The Company recognized current tax expense of $11,521 for the six months
ended June 30, 2000 and $63,588, $3,462 and $0 for the years ended December 31,
1999, 1998 and for the period from September 25, 1997 through December 31,
1997, respectively. Tax expense for all periods presented represent Russian and
Israeli tax legislation requiring taxes to be provided for on cash receipts.
F-11
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 6. Related Party Transactions (See Note 10)
The Company retained all key employees under informal agreements during
the six months ended June 30, 2000 and the years ended December 31, 1999 and
1998. These agreements may be cancelled at any time. The expense of these
agreements totaled $315,000 for the six months ended June 30, 2000 and $437,500
and $400,000 for the years ended December 31, 1999 and 1998, respectively. As
of June 30, 2000, December 31, 1999 and 1998, due to related parties included
$283,000, $190,000, and $400,000, respectively, of unpaid expenses under those
agreements.
The Company assumed amounts due to a related party for $164,385 at the
time of the reverse acquisition on October 1, 1999 (see Note 1), which amount
was outstanding at June 30, 2000 and December 31, 1999. There is no maturity
date or interest bearing on this debt.
The Company borrowed $1.3 million from an existing shareholder, consisting
of a $300,000 promissory note issued on October 29, 1999 and a $1 million
promissory note issued on November 18, 1999. Both notes are unsecured, bear
interest at 10% per annum, and mature on the earlier date of July 31, 2000 or
upon consummation of various levels of financing transactions. Interest expense
amounted to approximately $65,000 and $17,000 during the six months ended June
30, 2000 and the year ended December 31, 1999, respectively. On August 23,
2000, both promissory notes were converted into a total of 138,102 common
shares of the Company.
Subsequent to June 30, 2000, the Company entered into a credit agreement
with Constellation Tech that provides for advances up to a maximum of $6,000,000
(Note 10). The Company has utilized $1,000,000 of this credit facility.
NOTE 7. Stockholders' Deficit (See Note 10)
For accounting purposes, on December 27, 1998, stockholders of
Constellation Tech converted approximately $4,888,537 of stockholder advances
into 3,749,400 shares of Constellation Tech's common stock. Additionally, for
accounting purposes, Constellation Tech was recapitalized on December 27, 1998
through the issuance of an additional 25,464,000 shares of common stock to
existing shareholders of Constellation Tech. For accounting purposes, after the
recapitalization, together with the issuance of 36,000 shares of common stock
for debt settlement on April 1, 1999, the number of issued shares of
Constellation Tech's common stock amounted to 29,250,000.
On October 1, 1999, C3D completed an asset purchase agreement and acquired
substantially all the operations of Constellation Tech for total consideration
of 29,250,000 shares of the Company's $.001 par value common stock, and the
assumption of substantially all liabilities and obligations of Constellation
Tech. The asset purchase agreement also provided for the cancellation of
2,925,000 shares of treasury stock of the Company.
During the six months ended June 30, 2000, the Company has issued a total
of 10,500,000 shares of common stock to Constellation 3D Trust LLC, a
wholly-owned subsidiary of the Company. Constellation 3D Trust LLC intends to
use the shares to raise debt or equity capital and contribute the proceeds
thereof to the Company. For the purposes of the Company's consolidated
financial statements, the issuance of the 10,500,000 shares of common stock are
not considered to be issued or outstanding because the common stock has
remained under the control of the Company and will be cancelled if no financing
transaction is completed. On September 15, 2000, 10,000,000 of the shares of
common stock were cancelled.
On March 24, 2000, C3D issued a 10% subordinated convertible debenture for
the principal amount of $4,000,000 with detachable warrants to Sands Brothers
VC. Proceeds from the subordinated convertible debenture issued with the
detachable stock purchase warrants are allocated between the debenture and the
warrants based on their relative fair values as required by Accounting
Principles Board Opinion No. 14. The value ascribed to the detachable warrants
for accounting purposes was $3,880,000 based on the proceeds of the
subordinated convertible debenture to the Company. The $3,880,000 value was
recorded as a debt discount and will be amortized as a component of interest
expense over the term of the related debt. This amount is
F-12
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 7. Stockholders' Deficit (See Note 10) -- (Continued)
presented as an addition to paid-in capital of stockholders' deficit and as an
offset to the related liability in the accompanying June 30, 2000 consolidated
balance sheet. The balance was deemed to be a beneficial conversion feature
valued at $120,000, which was recorded as interest expense and an increase to
additional paid-in capital during the six months ended June 30, 2000. The
subordinated convertible debenture can be converted at any time into shares of
common stock of the Company at a conversion price of $17.65 and expires on
September 24, 2001. The market value for the Company's stock on March 24, 2000
was $46.50.
Upon closing of the $4,000,000 subordinated convertible debenture to Sands
Brothers VC on March 24, 2000, and pursuant to the terms of the agency
agreement originally signed on December 1, 1999, by and between the Company and
Sands Brothers, the Company issued to Sands Brothers detachable warrants to
purchase 1,050,000 shares of common stock at an exercise price of $3.67 per
share and warrants to purchase 2,400,000 shares of common stock at an exercise
price of $15.13 per share until December 1, 2004. C3D granted the warrant
holder certain registration rights with respect to the underlying common stock
and the option to exercise the stock warrants in lieu of any cash payment in
exchange for the number of shares of common stock that amount to the difference
between the market price and the exercise price of the stock warrants.
On June 28, 2000, the Company entered into an agreement to amend the
Agency Agreement and Warrant Agreement pursuant to which, effective July 10,
2000, the retention of Sands Brothers under the Agency Agreement shall be one
of a non-exclusive basis and Sands Brothers shall not be entitled to any fees
or stock warrants with respect to financing sources not brought by Sands
Brothers.
On August 3, 2000, the Company entered into another agreement to amend the
Agency Agreement, the Warrant Agreement and Warrant Certificate No. SB-2,
pursuant to which Sands Brothers would receive, in connection with financing by
any party introduced directly or indirectly by Sands Brothers and which is
consummated by no later than November 1, 2000 (but with respect to one
particular investor only, by August 11, 2000), 300,000 warrants for each $1
million of financing on the first $25 million of financing and 150,000 warrants
for each $1 million of financing on a further $50 million of financing, at an
exercise price of $10.34 per share. The exercise price is reduced to $8.25 per
share in the event that at least $75 million of financing is available from
financing sources having good and immediately available funds for the Company.
The Company intends to renegotiate the Agency Agreement and related agreements
with Sands Brothers.
Stock Options
On March 8, 1999, certain board members were granted options to purchase
up to 525,000 shares of the Company's common stock at $1.33 per share. These
options vested immediately, and expire in June 2005. At June 30, 2000, these
525,000 options remain outstanding. No expense was recognized upon granting of
the options as the exercise price was equal to the estimated market value, as
evidenced by the sale of 1,359,765 shares of common stock to unrelated third
parties completed on March 15, 1999 but not issued until May 15, 1999.
On December 27, 1999, the Company adopted the 1999 stock option plan (the
"Plan"). The Plan allows the Company to grant both qualified and nonqualified
stock options at prices not less than fair market value at date of grant to
officers, key employees, directors or anyone who provides services to the
Company. A maximum of 4,617,540 shares was approved to be issued under the
Plan. As at June 30, 2000 there were 3,871,550 options under this Plan
outstanding.
Options granted under the Plan expire not more than ten years from the
date of grant. Generally, options vest in five years. Except as described
below, all stock options have been granted at exercise prices approximating the
market value on the date of the grant.
F-13
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 7. Stockholders' Deficit (See Note 10) -- (Continued)
On May 11, 2000 the Company granted options to a non-employee consultant
who provided business development services to purchase 450,000 shares of the
Company's common stock at an exercise price of $5.00 per share. The option to
purchase the shares vested on June 30, 2000 and will expire in May 2005. In
connection with the issuance, the Company recorded a non-cash compensation
charge to operations of $4,293,000, representing the fair value of the
issuance, calculated using the Black-Scholes option-pricing model. This amount
is included in marketing expense for the six months ended June 30, 2000.
SFAS No. 123 requires the Company to provide pro forma information
regarding net loss as if compensation cost of the Company's stock option plan
had been determined in accordance with the fair value based method prescribed
in SFAS No. 123. No options were granted prior to 1999. The weighted average
fair value of options granted during the six months ended June 30, 2000 and the
year ended December 31, 1999 were $1.29 and $4.73, respectively. The Company
estimates the fair value of each stock option at the grant date by using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants during the six months ended June 30, 2000 and the
year ended December 31, 1999: no dividend yield for any period; expected lives
of 1 to 5 years for the six months ended June 30, 2000 and the year ended
December 31,1999; expected volatility of 80% during the six months ended June
30, 2000 and the year ended December 31,1999; weighted average risk-free
interest rates of 5.05% for the six months ended June 30, 2000 and 6.73% for
the year ended December 31,1999.
Under the accounting provisions of SFAS No. 123 for options to employees
and directors, the Company's net loss and net loss per share would have been
adjusted to the pro forma amounts indicated below. There is no pro forma effect
on net loss per share for 1998 and for the period from September 25, 1997
(inception) to December 31, 1997.
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
------------------ ------------------
Pro forma net loss .......... $ (28,331,994) $ (5,547,700)
Pro forma net loss per share:
Basic and Diluted ........... $ (0.69) $ (0.17)
A summary of the status of the Company's stock option plan as of June 30,
2000 and changes during the period from September 25, 1997 (inception) through
June 30, 2000 is presented below:
<TABLE>
<CAPTION>
Weighted
Number of average
Shares exercise price
----------- ---------------
<S> <C> <C>
Options outstanding at September 25,1997 (inception) ......... -- --
Options granted in 1999 ...................................... 525,000 $ 1.33
Options outstanding at December 31, 1999 ..................... 525,000 $ 1.33
Options granted during the six months ended June 30, 2000 .... 4,321,550 $ 10.10
Options outstanding at June 30, 2000 ......................... 4,846,550 $ 9.15
Options exercisable at June 30, 2000 ......................... 975,000 $ 3.02
</TABLE>
F-14
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 7. Stockholders' Deficit (See Note 10) -- (Continued)
The following table summarizes information about stock options outstanding
and exercisable at June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ----------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable at Average
Range of at June 30, Contractual Exercise at June 30, Exercise
Exercise Price 2000 Life Price 2000 Price
---------------- ------------- ------------- ---------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.33 525,000 4.97 $ 1.33 525,000 $ 1.33
$ 5.00 450,000 4.88 $ 5.00 450,000 $ 5.00
$ 10.69 3,871,550 4.88 $ 10.69
-------------- --------- ---- ------- ------- ------
$1.33 - $10.69 4,846,550 $ 9.15 975,000 $ 3.02
-------------- --------- ---- ------- ------- ------
</TABLE>
Warrants
On March 24, 2000, upon closing of the $4,000,000 subordinate convertible
debenture to Sands Brothers VC and pursuant to the terms of the agency
agreement originally signed on December 1, 1999, by and between the Company and
Sands Brothers, the Company issued to Sands Brothers detachable warrants to
purchase 1,050,000 shares of common stock at an exercise price of $3.67 per
share and warrants to purchase 2,400,000 shares of common stock at an exercise
price of $15.13 per share until December 1, 2004.
The Company estimates the fair value of each warrant at the grant date by
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants during the six months ended June 30, 2000:
no dividend yield; expected lives of 4.7 years; expected volatility of 45.8%;
weighted average risk-free interest rate of 6.59%.
The following table summarizes information about warrants outstanding at
June 30, 2000:
<TABLE>
<CAPTION>
Fair Market
Exercise Value on
Grant Date Shares Price Expiration Date Grant Date
------------------------ ----------- ---------- ------------------ --------------
<S> <C> <C> <C> <C>
March 24, 2000 ......... 1,050,000 $ 3.67 December 1, 2004 $45,975,395
March 24, 2000 ......... 2,400,000 $ 15.13 December 1, 2004 $86,382,718
--------- ------- ------------------ -----------
</TABLE>
NOTE 8. Commitments -- Operating leases
The Company has entered into operating lease agreements for buildings used
for office space and research activities. The leases expire on various dates
through 2001. Future minimum lease payments approximate $83,000 in the latter
half of 2000 and $20,000 in 2001. Rent expense was approximately $142,000 and
$66,000 for the six months ended June 30, 2000 and 1999, respectively, and
$160,000 and $116,800 for the years ended December 31, 1999 and 1998,
respectively.
NOTE 9. Legal Proceedings
On June 9, 2000, Challis International Limited ("Challis") commenced a
lawsuit in the Supreme Court of the State of New York, County of New York,
against Constellation Tech and C3D. The Complaint alleges that Challis entered
into several contracts with Constellation Tech or its predecessor-in-interest
pursuant to which Constellation Tech agreed to provide Challis with 11.946% of
the shares it would receive in C3D. Although the Company is not a party to any
of the contracts upon which Challis bases its claims, Challis seeks to hold
F-15
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 9. Legal Proceedings -- (Continued)
C3D liable based on allegations that C3D is the alter-ego of Constellation Tech
and that an officer of the Company signed an appendix to one of the contracts
between Challis and Constellation Tech. Challis alleges that it is entitled to
3,494,205 shares of C3D. The complaint seeks an order directing the defendants
to issue proper certificates to Challis for 3,494,205 shares of C3D or, if
specific performance is not granted, the fair market value of the shares, plus
any incidental damages. The Company believes that the outcome will not have a
material adverse effect on the Company's financial position, results of
operations and cash flows.
NOTE 10. Subsequent Events
On August 31, 2000, the Company sold 197,026 shares of common stock for an
aggregate of $2,000,426 to Koor Underwriters ("Koor"). In connection with this
sale, the Company issued the following warrants: (1) five-year warrants to
purchase 78,813 shares of common stock at the initial exercise price of
$14.6656 per share, (2) warrants to purchase a number of shares of common stock
pursuant to a certain formula (as defined in the agreement), and (3) one-year
warrants to purchase 98,513 shares of common stock at the initial exercise
price of $10.15313 per share and additional warrants (as defined in the
agreement). In connection with this sale, the Company granted Koor certain
registration rights with respect to 197,026 shares of the common stock and the
shares to be issued upon the exercise of the above described warrants.
On August 23, 2000, the Company sold for an aggregate of $5,000,000,
492,459 shares of common stock to Halifax Fund, L.P.("Halifax"). In connection
with this sale, the Company issued the following warrants to Halifax: (1)
five-year warrants to purchase 196,984 shares of common stock at the initial
exercise price of $14.6656 per share, (2) warrants to purchase a number of
shares of common stock pursuant to a certain formula (as defined in the
agreement), and (3) one-year warrants to purchase 246,229 shares of common
stock at the initial exercise price of $10.15313 per share and additional
warrants (as defined in the agreement). In connection with this sale, the
Company granted Halifax certain registration rights with respect to 492,459
shares of common stock and the shares to be issued upon the exercise of the
above described warrants.
On September 19, 2000, the Company amended and supplemented the investment
agreement with Halifax and sold for an aggregate of $5,000,000 an additional
492,459 shares of common stock. In connection with this additional investment,
the Company amended the investment agreement for the following additional
warrants to Halifax: (1) five-year warrants to purchase 196,984 shares of
common stock at the initial exercise price of $14.6656 per share, (2) warrants
to purchase a number of shares of common stock pursuant to a certain formula
(as defined in the agreement), and (3) one-year warrants to purchase 246,229
shares of common stock at the initial exercise price of $10.15313 per share and
additional warrants (as defined in the agreement). In connection with this
sale, the Company granted Halifax certain registration rights with respect to
492,459 shares of common stock and the shares to be issued upon the exercise of
the above described warrants.
In connection with the sale of the foregoing securities, the Company paid
$780,017 and issued warrants to purchase 895,539 of common stock at the
exercise price of $14.6656 per share as commissions to brokers.
On August 17, 2000, the Company sold for an aggregate of $250,000, 25,000
shares of common stock to TCO Investments ("TCO"). In connection with this
sale, on August 18, 2000, the Company issued five-year warrants to purchase
15,000 and 10,000 shares of common stock to Guldborg International and Farpell
Inc., respectively, at an exercise price equal to the market price of the
common stock on the date of issuance. In connection with this sale, the Company
granted TCO, Guldborg International and Farpell Inc. certain registration
rights with respect to 25,000 shares of common stock and the shares to be
issued upon the exercise of the above described warrants.
The Company entered into a credit line agreement on August 22, 2000 with
Constellation Tech ("lender"), which provides for advances up to $1,000,000
within 6 consecutive periods of 30 days each, up to
F-16
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 10. Subsequent Events -- (Continued)
maximum borrowings of $6,000,000. All advances are payable within one year from
the date of issuance. The interest rate for each advance will be the interest
rate of three-month LIBOR plus 3%. Any outstanding balances due to the lender
may be converted into equity at a price per share of 90% of the average closing
price of the Company's common stock for the 12 trading days prior to August 22,
2000. In connection with this credit line, the lender will receive a three-year
warrant to purchase 20,000 shares of common stock upon signing the agreement
and a three-year warrant to purchase 10,000 shares of common stock upon each
advance made by the lender at a purchase price equal to 100% of the closing
price of the Company's common stock on August 22, 2000. The fair value ascribed
to the 30,000 warrants was approximately $117,000 based on the Black-Scholes
option-pricing model; such amount will be recorded as deferred financing cost
and amortized to interest expense over the term of the credit line. Upon the
last advance, the lender will have the right to purchase additional shares of
common stock for a price not less than $2,000,000. As of September 22, the
Company has utilized $1,000,000 of this credit facility. Constellation Tech is
a related party by virtue of it owning the majority of the shares of the
Company's common stock as well as having common directors and officers.
On August 23, 2000, an aggregate principal amount of $1,600,000 plus
interest of $86,399 of 8% convertible notes was converted into 166,097 shares
of common stock at a conversion rate of $10.1531 per share. The noteholder also
received one year warrants to purchase 83,048 shares of common stock and five
year warrants to purchase 66,439 shares of common stock.
On August 23, 2000, a shareholder loan in the principal amount of
$1,300,000 plus interest of $102,163 was converted into 138,102 shares of
common stock at $10.1531 per share. The shareholder also received one year
warrants to purchase 69,051 shares of common stock and five year warrants to
purchase 55,241 shares of common stock.
On September 12, 2000, an aggregate principal amount of $600,000 plus
accrued interest of approximately $81,720 of convertible notes was converted
into 380,000 shares of common stock at $1.794 per share.
On September 12, 2000, the Company sold 14,774 shares of common stock for
an aggregate of $150,000. In connection with this sale, the Company issued the
following warrants: (1) five-year warrants to purchase 5,910 shares of common
stock at the initial exercise price of $14.6656 per share, (2) warrants to
purchase a number of shares of common stock pursuant to a certain formula (as
defined in the agreement), and (3) one-year warrants to purchase 7,387 shares
of common stock at the initial exercise price of $10.15313 per share and
additional warrants (as defined in the agreement) pertaining to 7,387 shares of
common stock. In connection with this sale, the Company granted the investor
certain registration rights with respect to 14,774 shares of the common stock
and the shares to be issued upon the exercise of the above described warrants.
The balance sheet amounts at June 30, 2000 would be adjusted to the pro
forma (unaudited) amounts listed below as a result of the above described
transactions:
Cash and cash equivalents ...... $ 14,388,864
Current assets ................. 14,586,133
Current liabilities ............ 2,954,842
Long term liabilities .......... 1,507,596
Stockholders' equity ........... 10,412,537
F-17
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts related to the six months ended June 30, 1999 are unaudited) --
(Continued)
NOTE 10. Subsequent Events -- (Continued)
On August 22, 2000, the Company issued options to purchase 390,000 shares
of common stock to Vladimir Schwartz, the Chief Technology Officer, as
compensation for services. Of the total grant 150,000 options vest immediately
and 240,000 options vest after one year from the date of the grant. The
exercise price is $11.25 per share and expires on August 22, 2004.
Additionally, the Company granted Mr. Schwartz a warrant to purchase 10,000
shares of common stock in consideration of the assignment of certain patents.
The warrant is exercisable at $11.25 per share and, vesting after one year from
the date of the grant, expires on August 22, 2004.
F-18
<PAGE>
You should rely only on the information contained in this prospectus. No
dealer, sales person or other person is authorized to give information that is
not contained in this prospectus. This prospectus is not an offer to sell nor
is it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this prospectus is
correct only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of these securities.
[GRAPHIC OMITTED]
CONSTELLATION 3D, INC.
5,951,020 SHARES
COMMON STOCK
---------------------
PROSPECTUS
---------------------
November 8, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
We have incurred the following estimated expenses in connection with the
issuance and distribution of the securities to be registered.
(1) SEC Registration Fee $17,000.00;
(2) Costs of Printing and Engraving $75,000.00;
(3) Legal Fees and Expenses $175,000.00;
(4) Accounting Fees and Expenses $200,000.00; and
(5) Miscellaneous $5,000.00.
------------------------- -----------
Total: $472,000.00
Item 14. Indemnification of Officers and Directors
Our Amended Articles of Incorporation provide for indemnification of our
officers and directors. They state that, to the fullest extent permitted by
law, none of our directors or officers will be personally liable to us or our
shareholders for damages for breach of any duty owed to us or our shareholders.
According to our Amended Articles of Incorporation, we have the power, in our
Bylaws or in any resolution of our shareholders or directors, to undertake to
indemnify our officers and directors against any contingency or peril as may be
determined to be in our best interests, and in conjunction therewith, to
procure, at our expense, policies of insurance. Our Bylaws do not specifically
provide for indemnification of our officers or directors.
For our directors and officers, we have obtained Directors and Officers
Liability and Reimbursement Insurance from Zurich American Insurance Company.
The insurance policy coverage is for the period from March 15, 2000 until March
15, 2001. The annual premium is $96,000. We have no other arrangements
specifically providing for indemnification of our officers or directors, and we
have no arrangements for the indemnification of our controlling persons.
Our Amended Articles of Incorporation provide for indemnification of our
officers and directors regardless of the criminal or intentional nature of the
wrongful activity undertaken, but (i) only so far as such indemnification is
determined to be in our best interests and (ii) only to the extent not
prohibited by applicable Florida law.
The Florida Business Corporation Act requires that the officer or director
who was or is a party to any proceeding, including an action by, or in the
right of, the corporation, to have acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation. Even if the officer or director satisfies the foregoing mental
state requirements, the Florida Business Corporation Act may further limit the
right of the officer or director to indemnification or the amount of
indemnification which he has the right to receive. For instance,
indemnification is not available to any director or officer if the court
establishes that actions or omissions to act of such director or officer
constitute: (1) a violation of the criminal law, unless the director or officer
had reasonable cause to believe that his conduct was lawful or had no
reasonable cause to believe that his conduct was unlawful, (2) a transaction
from which the director or officer derived an improper personal benefit, (3) in
case of a director, a circumstance under which the director is liable for an
unlawful distribution, or (4) willful misconduct or a conscious disregard for
the best interests of the corporation.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors or officers pursuant to the foregoing
provisions, we have been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. In the event that such
director, officer, or controlling person asserts a claim for indemnification by
us against such liabilities (other than our payment of expenses incurred or
paid by a
II-1
<PAGE>
director, officer, or controlling person of ours in the successful defense of
any action, suit, or proceeding) in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by us is against pubic policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Item 15. Recent Sales of Unregistered Securities
The information below relates to our securities that we sold and that we
did not register under the Securities Act of 1933. The share amounts and prices
per share have been adjusted to give retroactive effect to the change in the
price per share of the common stock resulting from the three-for-one forward
split of C3D's common stock that took effect on January 18, 2000.
On September 12, 2000, we sold to one investor, for aggregate cash
consideration of $150,000, (1) 14,774 shares of common stock at a price of
$10.15313 per share, (2) a five year warrant to purchase 5,910 shares of common
stock at the exercise price of $14.6656 per share, and (3) and a one year
warrant to purchase 7,387 shares of common stock at the exercise price of
$10.15313 per share. All the warrants are subject to adjustment.
On August 31, 2000, we sold to seventeen investors, for aggregate cash
consideration of a $2,000,426, (1) 197,026 shares of common stock, (2)
five-year warrants to purchase 78,813 shares of our common stock at the
exercise price of $14.6656 per share, and (3) one-year warrants to purchase
98,513 shares of common stock at the exercise price of $10.15313 per share. In
connection with the sale of the foregoing securities, Koor Underwriter and
Issuer Ltd., as a broker, received warrants to purchase 295,539 shares of our
common stock and $80,017.04 as commissions.
On September 19, 2000 and on August 23, 2000, we sold to one investor, for
aggregate cash consideration of $10,000,000, (1) 984,918 shares of our common
stock, (2) a five-year warrant to purchase 393,968 shares of our common stock
at the exercise price of $14.6656 per share, and (3) a one-year warrant to
purchase 492,458 shares of common stock at the exercise price of $10.15313 per
share. In connection with the sale of the foregoing securities to the investor,
(1) The Shemano Group, Inc., a broker, received warrants to purchase 400,000
shares of our common stock and $500,000 as commissions, and (2) Koor
Underwriter and Issuer Ltd., another broker, received warrants to purchase
200,000 shares of our common stock and $200,000 as commissions. This investor
and brokers are selling shareholders under the prospectus.
On August 22, 2000, we established a credit line of up to $6 million with
a lender. The interest rate for each withdrawal will be the interest rate of
three-month LIBOR plus 3%. The lender has the right to convert the loan amount
into equity at a price per share of 90% of the average closing price of our
common stock for the 12 trading days prior to August 22, 2000. In connection
therewith, the lender received a three-year warrant to purchase 20,000 shares
of our common stock and will receive a three-year warrant to purchase 10,000
shares of our common stock upon each withdrawal made by us from this credit
line. The purchase price of the above-stated warrants is equal to 100% of the
closing price of our common stock on August 22, 2000. Up to one year from our
last withdrawal from the credit line, the lender will have the right to
purchase additional shares of our common stock for not less than $2,000,000. On
August 28, 2000, we issued a convertible note to the lender in the principal
sum of $1,000,000.
On August 22, 2000, in consideration of the assignment of patents to us,
we granted jointly to the assignors a warrant to purchase 10,000 shares of our
common stock. The exercise price of the warrant shares is $11.25 per share. The
warrant will terminate on August 22, 2004.
On August 18, 2000, we granted to our legal counsel a warrant to purchase
5,555 shares of our common stock in consideration of a reduction in legal fees
of Fifty Thousand Dollars ($50,000.00). The warrant currently is exercisable at
a price of $0.001 per share and will terminate on July 31, 2005.
On August 18, 2000 and on August 17, 2000, we sold, for aggregate cash
consideration of $250,000, 25,000 shares of our common stock to an investor,
and granted warrants to purchase (1) 15,000 shares of our common stock to
another investor and (2) 10,000 shares of our common stock to a third investor.
II-2
<PAGE>
On March 24, 2000, we issued a 10.0% Subordinated Convertible Debenture due
September 24, 2001 in principal amount of $4.0 million in consideration of $4.0
million to an investor. The convertible debenture is convertible into common
stock at $17.65 per share as of the issue date. In connection with the debenture
we agreed to issue to the placement agent warrants to purchase 1,050,000 shares
of our common stock at an exercise price of $3.67 per share and warrants to
purchase 2,400,000 shares of our common stock at an exercise price of $15.13 per
share.
On February 3, 2000, we issued 7,500 shares of common stock, which we
valued at $28,750 to an investor as consideration for services rendered.
On January 15, 2000 and February 7, 2000, we issued an aggregate of 25,509
shares of common stock to an investor for a total purchase price of $125,000.
In connection with such subscription, we paid a commission in the amount of
$25,000 to Challis International Limited.
On December 24, 1999, we issued $1,600,000 of convertible subordinated
debt. On August 23, 2000, the lender agreed to convert the outstanding note for
$1,600,000 to 166,097 shares of our common stock, five-year warrants to
purchase 66,439 shares of our common stock at an exercise price of $14.6656 per
share, and one-year warrants to purchase 83,048 shares of our common stock at
an exercise price of $10.15313 per share.
On November 11, 1999, we issued $500,000 of convertible subordinated debt.
On October 12, 2000, we converted this loan into 49,500 shares of our common
stock and one-year warrants to purchase 15,000 shares of our common stock at an
exercise price of $10.15313. Moorwood Investment Limited, a British Virgin
Islands company (Moorwood), arranged the financing, and in consideration
therefor, received a fee of $100,000 and warrants to purchase up to 300,000
shares of common stock at an exercise price of $3.33 per share, provided that,
among other conditions, Moorwood successfully placed financing in an aggregate
amount of $2,500,000 by December 16, 1999. Moorwood placed only $500,000 in
financings by that date.
On October 29, 1999 and November 18, 1999, we issued $300,000 and $1
million promissory notes to a lender. On August 23, 2000, the lender agreed to
convert the outstanding notes for $1,300,000 to 138,102 shares of our common
stock, five-year warrants to purchase 55,241 shares at an exercise price of
$14.6656, and one-year warrants to purchase 69,051 shares at an exercise price
of $10.15313.
On October 1, 1999, among other undertakings, we issued 29,250,000 shares
of common stock to Constellation 3D Technology Limited as consideration for the
sale of certain assets of Constellation 3D Technology Limited.
On August 10, 1999, we issued $1 million of convertible subordinated debt
to an investor. On October 22, 1999, the investor converted its note due
December 31, 1999 and related accrued interest into 608,835 shares of common
stock.
On December 2, 1998, we entered into the $600,000 Loan Conversion Rights
Agreement with an investor. On September 12, 2000, the investor converted the
loan and related accrued interest into 380,000 shares of our common stock.
The sale and issuance of the foregoing securities were believed to be
exempt from registration under the Securities Act by virtue of Section 4 (2)
thereof and Regulation D as transactions not involving any public offering. The
recipients represented their status as accredited investors at the time of
subscription and their intention to acquire securities for investment purposes
only and not with a view to distribution thereof. Appropriate legends were
affixed to stock certificates issued in such transactions and all recipients
had adequate access to information about the company.
On May 7, 1999, we issued 1,359,765 shares of our common stock at an
aggregate offering price of $1,813,020 to twenty-five individuals and entities
then residing outside of the United States pursuant to Regulation S under the
Securities Act of 1933.
On March 24, 1999, we issued 9,375,000 shares of our common stock at an
aggregate offering price of $250,000 to sixteen individuals and entities
pursuant to Rule 504.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Number Description
------------- -------------------------------------------------------------------------------------------------------
<S> <C>
2.1(1) Asset Purchase Agreement by and between C3D INC., a Florida corporation as Buyer,
CONSTELLATION C3D TECHNOLOGY LIMITED, a British Virgin Islands corporation, as
Seller, TRID STORE, INC., a Delaware corporation and TRID IP S.A., a Luxembourg corporation
dated as of October 1, 1999.
3.1(1) Articles of Incorporation of Latin Venture Partners, Inc., filed December 27, 1995.
3.2(1) Articles of Amendment to Articles of Incorporation of Latin Venture Partners, Inc., filed August 3, 1998.
3.3(1) Articles of Amendment to Articles of Incorporation of Latin Venture Partners, Inc., filed March 24, 1999.
3.3A(3) C3D Inc. Articles of Amendment to the Articles of Incorporation, filed December 29, 1999.
3.4(1) Bylaws of C3D Inc.
4.1* Loan Conversion Rights Agreement, dated December 2, 1998, by and between Argotec,
Ltd./Formula Ventures, Ltd. and Constellation 3D Holdings, Limited.
4.2* Letter Agreement converting the outstanding loan in the amount of $600,000 to common stock,
dated September 12, 2000, between Formula Ventures, L.P. and Constellation 3D, Inc.
4.3(1) Investor's Rights Agreement, dated August 10, 1999, by and between C3D Inc. and Seattle
Investment L.L.C.
4.4(2) Purchase Agreement, dated November 11, 1999, by and between Wilbro Nominees Limited and C3D Inc.
4.5(2) Registration Rights Agreement, dated November 11, 1999, by and between Wilbro Nominees
Limited and C3D Inc.
4.6(2) Warrant dated November 11, 1999, issued to Moorwood Investment Limited.
4.7(2) Subscription Agreement, dated November 29, 1999, by and between C3D Inc. and
MBA-on-Demand, L.L.C.
4.8(2) Purchase Agreement, dated as of December 24, 1999 between Winnburn Advisory and C3D Inc.
4.9(2) Registration Rights Agreement, dated as of December 24, 1999 between Winnburn Advisory and C3D Inc.
4.10* Letter Agreement converting 8% Series C Convertible Note to common stock, dated August 23,
2000, by and between Winnburn Advisory and Constellation 3D, Inc.
4.11* Letter Agreement converting 8% Series C Convertible Note for $300,000 to common stock, dated
August 23, 2000, by and between Epicenter Venture Finance Ltd. and Constellation 3D, Inc.
4.12* Letter Agreement converting 8% Series C Convertible Note for $1,000,000 to common stock,
dated August 23, 2000, by and between Epicenter Venture Finance Ltd. and Constellation 3D, Inc.
4.13* Finders Agreement, dated July 13, 2000, between Constellation 3D, Inc., and The Shemano Group, Inc.
4.14* Letter Agreement concerning warrant registration instructions, dated September 18, 2000, between
The Shemano Group, Inc. and Constellation 3D, Inc.
4.15(5) Registration Rights Agreement, entered into as of August 23, 2000, between Constellation 3D,
Inc., a Florida corporation, and Halifax Fund, L.P.
4.16(5) Common Stock Purchase Warrant No. W1 to Purchase Shares of $.001par value Common Stock of
Constellation 3D, Inc., dated August 23, 2000, issued to Halifax Fund, L.P.
4.17(7) Amended and Restated Common Stock Purchase Warrant No. W2 to Purchase Shares of $.001 par
value Common Stock of Constellation 3D, Inc., dated September 19, 2000, issued to Halifax Fund, L.P.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Description
-------------- -------------------------------------------------------------------------------------------------
<S> <C>
4.18(5) Common Stock Optional Warrant No. OW1 to Purchase Optional Units of Constellation 3D, Inc.,
dated August 23, 2000, issued to Halifax Fund, L.P.
4.19(7) Amended and Restated Common Stock Optional Warrant No. OW2 to Purchase Optional Units of
Constellation 3D, Inc., dated September 19, 2000, issued to Halifax Fund, L.P.
4.20(5) Common Stock Adjustment Warrant No. AW1 to Receive Shares of $.001 par value Common
Stock of Constellation 3D, Inc., dated August 23, 2000, issued to Halifax Fund, L.P.
4.21(7) Amended and Restated Common Stock Adjustment Warrant No. AW2 to Receive Shares of $.001
par value Common Stock of Constellation 3D, Inc., dated September 19, 2000, issued to Halifax
Fund, L.P.
4.22(7) Letter Agreement for Additional Investment, dated September 19, 2000, by and between Halifax
Fund L.P. and Constellation 3D, Inc.
4.23* Registration Right's Agreement, dated August 23, 2000, by and between Constellation 3D, Inc. and
Koor's Investors.
4.24* Common Stock Purchase Warrant No. W1 to Purchase Shares of $.001 par value Common Stock
of Constellation 3D, Inc., dated August 31, 2000, issued to Koor's Investors.
4.25* Common Stock Optional Warrant No. OW1 to Purchase Optional Units of Constellation 3D, Inc.,
dated August 31, 2000, issued to Koor's Investors.
4.26* Common Stock Adjustment Warrant No. AW1 to Receive Share of $.001 par value Common Stock
of Constellation 3D, Inc., dated August 31, 2000, issued to Koor's Investors.
4.27* Warrant Agreement, dated August 18, 2000, by and between Constellation 3D, Inc., and Blank
Rome Comisky & McCauley LLP.
4.28* Registration Rights Agreement, entered into September 12, 2000, between Constellation 3D, Inc.,
and Hershkovitz Jacqueline.
4.29* Common Stock Purchase Warrant No. W1 to Purchase Shares of $.001 par value Common Stock
of Constellation 3D, Inc., dated September 12, 2000, issued to Hershkovitz Jacqueline
4.30* Common Stock Optional Warrant No. OW1 to Purchase Optional Units of Constellation 3D, Inc.,
dated September 12, 2000, issued to Hershkovitz Jacqueline.
4.31* Common Stock Investment-Term Sheet to purchase up to $250,000 in common stock, dated
August 17, 2000, by and between TCO Investment Inc. and Constellation 3D, Inc.
4.32* Amendment and Supplement to Common Stock Investment-Term Sheet, dated August 18, 2000, by
and between TCO Investment and Constellation 3D, Inc.
5.1** Opinion of Blank Rome Comisky & McCauley LLP.
10.1(1) Rental Contract, Unprotected According to the Tenant's Protection Law (Various Instructions) of
1968 as Drafted into the Tenant's Protection Law (Consolidated Version) of 1972, made and
signed in Tel Aviv on March 25, 1997.
10.2(1) Rental Contract, Unprotected According to the Tenant's Protection Law (Various Instructions) of
1968 as Drafted into the Tenant's Protection Law (Consolidated Version) of 1972, made and
signed in Tel Aviv on February 8, 1998.
10.3(1) Agreement N. 356/181298 on the rent of office premises, dated December 18, 1998 between
MACHMIR Co., Ltd. as "Lessor" and ZAO "TriD Store Vostok" as "Renter."
10.4(1) Optima Services Agreement (Member), dated April 23, 1999, by and between Omni Offices Inc.
and C3D Inc.
10.5(1) The Rent Agreement, No. 5/8, dated July 5, 1999, between MSU Science Park as "Lessor" and
ZAO "TriD Store Vostok" as "Tenant."
10.6(1) Attachment No. 1 to The Rent Agreement, No. 5/8, dated July 5, 1999, between MSU Science
Park as "Lessor" and ZAO "TriD Store Vostok" as "Tenant."
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Number Description
-------------- ----------------------------------------------------------------------------------------------
<S> <C>
10.7(2) Sublease Agreement, dated November 18, 1999, by and between HarexGlobal Corporation, as
lessor, and C3D Inc., as lessee.
10.8(3) Agreement N. 356A/291299 on the rent of the office premises, dated December 29, 1999 between
MACHMIR Co., Ltd. as "Lessor" and ZAO "TriD Store Vostok" as "Renter."
10.9(3) The Rent Agreement of office premises No. 5/2, dated January 5, 2000, between MSU Science
Park as "Lessor" and ZAO "TriD Store Vostok" as "Renter."
10.10(1) Employment Agreement dated July 15, 1998, by and between Memory Services (M.D.) (1996)
Ltd. and Ronen Yaffe.
10.11(2) Letter of Intent, dated December 20, 1999, by and between Toolex International N.V. and C3D
Inc.
10.12(2) Co-Invention Agreement, dated December 20, 1999, by and between Toolex International N.V. and
C3D Inc.
10.13(3) Constellation 3D, Inc. 1999 Stock Option Plan
10.14(3) Stock Option Agreement, dated December 27, 1999, made by and between C3D Inc. and Brigadier
General Itzhak Yaakov
10.15(3) Stock Option Agreement, dated December 27, 1999, made by and between C3D Inc. and Michael
L. Goldberg, Esquire
10.16* Contract for Services, dated May 11, 2000, between Constellation 3D, Inc. and Greenland
Investments, Inc.
10.17* Stock Option Agreement, dated August 22, 2000, made by and between Constellation 3D, Inc. and
Vladimir Schwartz.
10.18* Warrant Agreement, dated August 22, 2000, by and among Constellation 3D, Inc., TriD Store IP
LLC, Reflekt Technology, Inc., and Vladimir Schwartz.
10.19(3) Placement Agency Agreement, dated December 1, 1999, by and between Sands Brothers & Co.,
Ltd. and C3D, Inc.
10.20(3) Amendment No. 1 to Placement Agency Agreement, dated December 22, 1999 by and between
Sands Brothers & Co., Ltd. and C3D, Inc.
10.21(6) Amendment No. 2 to Placement Agency Agreement, dated March 7, 2000, by and between Sands
Brothers & Co., Ltd. and C3D, Inc.
10.22(6) Amendment No. 3 to Placement Agency Agreement, dated March 23, 2000, by and between Sands
Brothers & Co., Ltd. and C3D, Inc.
10.23(4) Amendment No. 4 to Placement Agency Agreement, dated May 16, 2000, by and between Sands
Brothers & Co., Ltd. and Constellation 3D, Inc.; Amendment No. 2 to Warrant Agreement dated
May 16, 2000, between Constellation 3D, Inc. and Sands Brothers & Co., Ltd.
10.24(4) Amendment No. 5 to Placement Agency Agreement, dated May 31, 2000, by and between Sands
Brothers & Co., Ltd. and Constellation 3D, Inc.; Amendment No. 3 to Warrant Agreement, dated
May 31, 2000, between Constellation 3D, Inc. and Sands Brothers & Co., Ltd.; Amendment No. 1
to Warrant Certificate No. SB-2, dated May 31, 2000, between Constellation 3D, Inc. and Sands
Brothers & Co., Ltd.
10.25(4) Amendment No. 6 to Placement Agency Agreement, dated June 28, 2000, by and between Sands
Brothers & Co., Ltd. and Constellation 3D, Inc.
10.26(4) Amendment No. 7 to Placement Agency Agreement, dated August 3, 2000, by and between Sands
Brothers & Co., Ltd. and Constellation 3D, Inc., Amendment No. 4 to Warrant Agreement, dated
August 3, 2000, by and between Sands Brothers & Co., Ltd. and Constellation 3D, Inc.,
Amendment No. 2 to Warrant Certificate No. SB-2, dated August 3, 2000, between Constellation
3D, Inc. and Sands Brothers & Co., Ltd.
10.27(3) Warrant Agreement, dated December 1, 1999, by and between Sands Brothers & Co., Ltd. and
C3D, Inc.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Number Description
--------------- ------------------------------------------------------------------------------------------------
<S> <C>
10.28(6) Amendment No. 1 to Warrant Agreement, dated March 23, 2000, by and between Sands Brothers
& Co., Ltd. and C3D, Inc.
10.29(6) Securities Purchase Agreement made the 23rd day of March 2000 by and between Constellation
3D, Inc. and Sands Brothers Venture Capital Associates LLC.
10.30(6) Registration Rights Agreement dated as of March 24, 2000 by and among Constellation 3D, Inc.
and Sands Brothers Venture Capital LLC.
10.31(6) 10% Subordinate Convertible Debenture, dated March 24, 2000, made by Constellation 3D, Inc. to
Sands Brothers Venture Capital Associates LLC.
10.32(6) Warrant Certificate, No. SB-1, dated as of March 24, 2000, issued to Sands Brothers & Co., Ltd.
10.33(6) Warrant Certificate, No. SB-2, dated as of March 24, 2000, issued to Sands Brothers & Co., Ltd.
10.34(5) Common Stock Investment Agreement, dated as of August 23, 2000, among Constellation 3D,
Inc., a Florida corporation, and Halifax Fund, L.P.
10.35* Common Stock Investment Agreement, dated August 31, 2000, among Constellation 3D, Inc., and
Koor's Investors.
10.36* Contract for Capital Raising, dated August 18, 2000, between Koor Underwriters and Issues Ltd.
and Constellation 3D, Inc.
10.37* Convertible Note, dated August 28, 2000, by and between Constellation 3D Technology Ltd. and
Constellation 3D, Inc.
10.38* Loan Agreement, dated August 31, 2000, by and among Constellation 3D Technology Limited and
Constellation 3D, Inc.
10.39* Common Stock Investment Agreement, dated September 12, 2000, among Constellation 3D, Inc.,
and Hershkovitz Jacqueline.
10.40* Amendment to the 1999 Stock Option Plan of Constellation 3D, Inc.
10.41* Letter Amendment to the Common Stock Investment Agreement dated as of August 31, 2000 and
Related Agreements, by and between Constellation 3D, Inc. and Koor Underwriters and Issuers
Ltd.
10.42* Agreement of Unprotected Tenancy according to Law for Tenant Protection (Miscellaneous
Instructions) 5728-1968 as Integrated into Law for Tenant Protection (Consolidation Version)
5732-1972 as drawn and signed in Holon on the 30th of August 2000, between Sadav (1988)
Building and Ivestment Ltd. and C3D Israel Ltd.
16.1* Auditor's Resignation Letter dated October 20, 2000.
21.1* Subsidiaries of the Registrant.
23.1** Consent of BDO Seidman, LLP
23.2** Consent of BDO International
23.3** Consent of Blank Rome Comisky & McCauley LLP (included in Exhibit 5.1)
27.1* Financial Data Schedule.
</TABLE>
------------
(1) Incorporated by reference to exhibits filed with Registration Statement on
Form 10 filed November 12, 1999.
(2) Incorporated by reference to exhibits filed with Registration Statement on
Form 10/A No. 1 filed December 27, 1999.
(3) Incorporated by reference to exhibits filed with Registration Statement on
Post-Effective Form 10/A No. 2 filed January 14, 2000.
(4) Incorporated by reference to exhibits filed with Form 10-Q filed August 14,
2000.
(5) Incorporated by reference to exhibits filed with Form 8-K filed August 25,
2000.
(6) Incorporated by reference to exhibits filed with Form 10-K/A filed March
31, 2000.
(7) Incorporated by reference to exhibits filed with Form 8-K filed October 6,
2000.
* Previously filed.
** Filed herewith.
II-7
<PAGE>
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (1) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933; (2) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement. 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 Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more that a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement
and (3) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(b) The undersigned registrant hereby undertakes that for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
(d) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, 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 Act and
will be governed by the final adjudication of such issue.
(f) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the 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 pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 8, 2000.
CONSTELLATION 3D, INC.
By: /s/ Eugene Levich
-----------------------------------
Name: Eugene Levich
Title: President, Chief Executive
Officer and Chairman of the
Board of Directors
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on November
8, 2000 in the capacities and on the date indicated.
*
-------------------------------------
Name: Leonardo Berezowsky
Title: Senior Vice President of Finance
and Chief Financial Officer (principal
financial and accounting officer)
By: /s/ Michael Goldberg
-------------------------------------
Name: Michael Goldberg
Title: Director
Date: November 8, 2000.
*
-------------------------------------
Name: Lev Zaidenberg
Title: Director
*
-------------------------------------
Name: Stuart N. Garawitz
Title: Director
*
-------------------------------------
Name: Val Mandel
Title: Director
*
-------------------------------------
Name: Joseph Shefet
Title: Director
*By: /s/ Michael Goldberg
------------------------------------
Name: Michael Goldberg
Title: Attorney-in-fact
Date: November 8, 2000
II-9
