<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2000
Commission File Number 0-28081
CONSTELLATION 3D, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 13-4064492
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
230 Park Avenue, Suite 453, New York, NY 10169
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(Address of principal executive offices) (Zip Code)
(212) 983-1107
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of November 10, 2000, 43,457,026 shares of the registrant's common stock,
$.001 par value per share, (the "Common Stock") were issued and outstanding,
including the 500,000 shares of Common Stock issued to Constellation 3D Trust
LLC, a Delaware limited liability company wholly owned by the registrant. EXCEPT
WHERE AND AS OTHERWISE STATED TO THE CONTRARY IN THIS QUARTERLY REPORT, ALL
SHARE, WARRANT AND OPTION AMOUNTS, PRICES PER SHARE AND EXERCISE PRICES 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 THE COMMON
STOCK THAT TOOK EFFECT ON JANUARY 18, 2000.
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
INDEX TO THE FORM 10-Q
For the quarterly period ended September 30, 2000
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of September 30, 2000 and December 31, 1999..........1
Consolidated Condensed Statements of Operations for the three and nine months ended
September 30, 2000 and 1999, and the period from September 25, 1997 (inception) to
September 30, 2000............................................................................2
Consolidated Condensed Statements of Stockholders' Equity (Deficit) for the nine months
ended September 30, 2000 and the tweleve months ended December 31, 1999.......................3
Consolidated Condensed Statements of Cash Flows for the three and nine months ended
September 30, 2000 and 1999, and the period from September 25, 1997 (inception) to
September 30, 2000............................................................................4
Notes to Consolidated Condensed Financial Statements..........................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................................23
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................................................23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................25
SIGNATURES .............................................................................................28
</TABLE>
<PAGE>
Except where the context indicates otherwise, references in this document to
"we," "us" and "our" refer to the registrant, Constellation 3D, Inc.
(individually referred to in this Quarterly Report as "C3D" and together with
all of its directly and indirectly owned subsidiaries, collectively referred to
in this Quarterly Report on Form 10-Q (this "Quarterly Report") as the
"Company")).
FORWARD LOOKING STATEMENTS
Some of the information in this Quarterly Report and the documents
incorporated by reference in this Quarterly Report may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. You can identify these
statements by the appearance of words and phrases such as "will likely result,"
"may," "believes," "are expected to," "is anticipated to," "is forecasted to,"
"is designed to," "plans to," "predict," "seek," "estimate," "projected,"
"intends to" or other similar words and phrases. 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 the 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 the
Company conducts operations;
o litigation actions by directors, employees, investors and others;
o limited operation and management history;
<PAGE>
o dependence on key personnel;
o other factors discussed in the Quarterly Report.
All of the above factors could cause the Company's actual results to
differ materially from historical results and those presently anticipated. When
considering forward-looking statements, you should keep these factors in mind as
well as the other cautionary statements in this Quarterly Report, including
without limitation, the Risk Factors contained in this Quarterly Report. This
document should be read in conjunction with the Company's amended Form 10-K
filed with the Securities and Exchange Commission on March 31, 2000.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSTELLATION 3D, INC.
(A Development Stage Company)
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 (unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 11,916,493 $ 2,030,139
Prepaid and other 183,260 150,989
-----------------------------------------------------------------------------------------------------------------------
Total Current Assets 12,099,753 2,181,128
Furniture and Equipment, net 373,311 241,100
-----------------------------------------------------------------------------------------------------------------------
Total Assets $ 12,473,064 $ 2,422,228
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses $ 1,896,161 $ 1,268,404
Due to related parties 568,501 360,711
Current portion of convertible notes payable - 650,577
Due to shareholder - 1,316,712
-----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,464,662 3,596,404
Convertible Line of Credit, net of discount of $104,500 904,541 -
Convertible Notes Payable, net of discount of $2,537,800 2,011,639 2,105,480
Other Long Term Liabilities 42,151 39,969
-----------------------------------------------------------------------------------------------------------------------
Total Liabilities 5,422,993 5,741,853
-----------------------------------------------------------------------------------------------------------------------
Stockholders' Equity (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, 42,907,526 and
41,001,609 issued and outstanding 42,908 41,001
Additional paid in capital 32,942,456 7,310,708
Deficit accumulated during the development stage (25,935,293) (10,671,334)
-----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit) 7,050,071 (3,319,625)
-----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity (Deficit) $ 12,473,064 $ 2,422,228
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
1
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000
AND SEPTEMBER 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Cumulative Amounts
From Inception Three Months Ended September 30,
(September 25, 1997) --------------------------------
Through September 30, 2000 2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING EXPENSES
Research and development $ 8,707,016 $ 1,349,084 $ 655,678
General and administrative 7,841,960 1,049,974 351,277
Marketing 4,631,294 112,448 -
---------------------------------------------------------------------------------------------------------------
Total operating expenses 21,180,270 2,511,506 1,006,955
---------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Interest expense, net 4,612,161 2,669,202 97,301
Taxes 142,862 64,291 1,000
---------------------------------------------------------------------------------------------------------------
Net loss $(25,935,293) $(5,244,999) $(1,105,256)
===============================================================================================================
Net loss per share - basic and diluted $ (0.13) $ (0.04)
===============================================================================================================
Weighted average number of shares of
common stock outstanding - basic and
diluted 41,698,933 29,250,000
===============================================================================================================
</TABLE>
<PAGE>
[RESTUB TABLE]
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING EXPENSES
Research and development $ 3,267,122 $ 1,717,983
General and administrative 3,030,269 906,140
Marketing 4,631,294 -
------------------------------------------------------------------------------------
Total operating expenses 10,928,685 2,624,123
------------------------------------------------------------------------------------
OTHER EXPENSES
Interest expense, net 4,259,462 126,591
Taxes 75,812 12,000
------------------------------------------------------------------------------------
Net loss $(15,263,959) $(2,762,714)
====================================================================================
Net loss per share - basic and diluted $ (.37) $ (0.09)
====================================================================================
Weighted average number of shares of
common stock outstanding - basic and
diluted 41,234,050 29,238,000
====================================================================================
</TABLE>
The accompanying notes are an integral part
of these consolidated condensed financial statements.
2
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
Shares Amount Paid-in Capital Development Stage Total
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<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 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
- October 22, 1999 608,835 609 1,014,116 - 1,014,725
Sale of common stock for cash, net
November 1, 1999 25,509 25 99,974 - 99,999
Issuance of common stock for
services 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)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
Shares Amount Paid-in Capital Development Stage Total
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 41,001,609 41,001 7,310,708 (10,671,334) (3,319,625)
Deferred interest relating 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
relating to issuance of stock
options to consultant - May 11,
2000 - - 4,293,000 - 4,293,000
Issuance of common stock for cash -
August 17, 2000 25,000 25 249,975 - 250,000
Warrants issued relating to legal
services rendered - August 18,
2000 - - 50,000 - 50,000
Beneficial conversion discount of
convertible line of credit -
August 23, 2000 - - 73,000 - 73,000
Deferred interest relating to
issuance of detachabke warrants
on line of credit - August 23,
2000 - - 117,000 - 117,000
Conversion of loan payable - August
23, 2000 138,102 138 1,402,025 - 1,402,163
Conversion of notes payable -
August 23, 2000 166,097 166 1,686,233 - 1,686,399
Issuance of warrants and modification
of conversion terms in connection
with convertible debt and
shareholder loans - - 1,730,000 - 1,730,000
Issuance of common stock for cash
- August 23, 2000 492,459 493 4,614,562 - 4,615,055
Warrants issued in connection with
the acquisition of patents -
August 28, 2000 - - 56,000 - 56,000
Issuance of common stock for cash
- August 31, 2000 197,026 197 1,920,212 - 1,920,409
Conversion of notes payable -
September 12, 2000 380,000 380 681,194 - 681,574
Issuance of common stock for cash
- September 12, 2000 14,774 15 143,985 - 144,000
Issuance of common stock for cash
- September 19, 2000 492,459 493 4,614,562 - 4,615,055
Net loss - - - (15,263,959) (15,263,959)
-----------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000
(unaudited) 42,907,526 $ 42,908 $ 32,942,456 $(25,935,293) $ 7,050,071
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part
of these consolidated condensed financial statements.
3
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000
AND SEPTEMBER 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Cumulative Amounts
From Inception
(September 25, 1997) Three Months Ended September 30,
Through September 30, --------------------------------
2000 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(25,935,293) $(5,244,999) $(1,105,256)
Adjustments to reconcile net loss to net
cash used in operating activities:
Noncash stock-based compensation 4,321,750 - -
Beneficial conversion feature 318,000 73,000 -
Discount amortization on deferred interest 1,354,700 662,096 -
Interest expense relating to issuance of
warrants 1,080,000 1,080,000 -
Interest expense relating to modification
of debt conversion rates 650,000 650,000 -
Depreciation 127,936 18,550 8,107
Write down of furniture and equipment 49,750 - -
Warrants issued relating to legal services
rendered 50,000 50,000 -
Warrants issued relating to acquisition of
patents 56,000 56,000 -
Change in assets and liabilities:
Prepaid and other (198,194) 14,009 (72,955)
Accounts payable 1,896,988 384,305 92,491
Accrued interest on convertible notes
payable 198,270 (58,781) -
Accrued interest on shareholder loans 85,455 20,633 -
Accrued interest on line of credit 9,041 9,041 -
------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (15,935,597) (2,286,146) (1,077,613)
------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of property, plant and equipment (632,927) (103,020) (21,968)
Sale of property, plant and equipment 80,405 - 42,576
Business acquisition, net of cash acquired 1,019,413 - -
------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used in) Investing Activities 466,891 (103,020) 20,608
------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 16,533,057 11,544,517 -
Proceeds from issuance of convertible debt 7,700,000 - -
Proceeds from borrowings on line of credit 1,000,000 1,000,000 -
Proceeds from shareholders loan 1,541,490 - -
Net changes in other long-term debt 42,151 (15,306) (6,074)
Advances from (repayments to) related party 568,501 7,993 20,297
Advances from parent company - - 1,230,927
------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 27,385,199 12,537,204 1,245,150
------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 11,916,493 10,148,038 188,145
Cash and Cash Equivalents, beginning of period - 1,768,455 112,800
------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of period $ 11,916,493 $11,916,493 $ 300,945
============================================================================================================
Non-cash Financing Activity
Deferred financing cost related to detachable
warrants $ 3,997,000 $ 117,000 $ -
Conversion of notes payable 3,382,698 2,367,973 -
Conversion of loans payable 1,643,653 1,402,163 -
Net assets disposed of upon acquisition 66,028 - -
Stock issued in reverse acquisition 953,205 - -
============================================================================================================
</TABLE>
<PAGE>
[RESTUB TABLE]
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(15,263,959) $(2,762,714)
Adjustments to reconcile net loss to net
cash used in operating activities:
Noncash stock-based compensation 4,293,000 -
Beneficial conversion feature 193,000 -
Discount amortization on deferred interest 1,354,700 -
Interest expense relating to issuance of
warrants 1,080,000 -
Interest expense relating to modification
of debt conversion rates 650,000 -
Depreciation 48,573 42,100
Write down of furniture and equipment - 49,750
Warrants issued relating to legal services
rendered 50,000 -
Warrants issued relating to acquisition of
patents 56,000 -
Change in assets and liabilities:
Prepaid and other (32,271) (56,942)
Accounts payable 627,758 517,082
Accrued interest on convertible notes
payable 161,353 -
Accrued interest on shareholder loans 85,455 -
Accrued interest on line of credit 9,041 -
------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (6,687,350) (2,210,724)
------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of property, plant and equipment (180,785) (130,553)
Sale of property, plant and equipment - 42,576
Business acquisition, net of cash acquired - -
------------------------------------------------------------------------------------
Net Cash Provided (Used in) Investing Activities (180,785) (87,977)
------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 11,544,517 -
Proceeds from issuance of convertible debt 4,000,000 -
Proceeds from borrowings on line of credit 1,000,000 -
Proceeds from shareholders loan - 241,490
Net changes in other long-term debt 2,182 (2,396)
Advances from (repayments to) related party 207,790 (228,309)
Advances from parent company - 2,465,764
------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 16,754,489 2,476,549
------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 9,886,354 177,848
Cash and Cash Equivalents, beginning of period 2,030,139 123,097
------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of period $ 11,916,493 $ 300,945
====================================================================================
Non-cash Financing Activity
Deferred financing cost related to detachable
warrants $ 3,997,000 $ -
Conversion of notes payable 2,367,973 -
Conversion of loans payable 1,402,163 241,490
Net assets disposed of upon acquisition - -
Stock issued in reverse acquisition - -
====================================================================================
</TABLE>
The accompanying notes are an integral part
of these consolidated condensed financial statement
4
<PAGE>
CONSTELLATION 3D, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. BUSINESS DESCRIPTION
Constellation 3D, Inc., a Florida corporation ("C3D"); together with all of its
subsidiaries, (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 October 1, 1999, C3D completed the acquisition of Constellation Tech, which
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 those of both companies from the
date of acquisition. The financial statements for the period prior to the date
of acquisition are those of Constellation Tech. As the transaction was a reverse
acquisition with a public shell, no pro forma information related to this
transaction is provided. The equity (deficit) section of the balance sheet and
the earnings per share of the Company are retroactively restated to reflect the
effect of the exchange ratio established in the asset purchase agreement.
The consolidated condensed financial statements of the Company include the
accounts of its subsidiaries after elimination of intercompany balances and
transactions.
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. effective December 29, 1999, 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.
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.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated condensed interim financial statements of the
Company are unaudited and include, in the opinion of management, all normal
recurring adjustments necessary to present fairly the consolidated condensed
balance sheets as of September 30, 2000, and the related consolidated condensed
statements of operations, stockholders' equity (deficit) and cash flows for the
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These consolidated
condensed interim financial statements should be read in conjunction with the
Company's audited consolidated condensed financial statements and the related
notes thereto included in C3D's amended Form 10-K filed with the Securities and
Exchange Commission on March 31, 2000.
The results of operations and the cash flows presented for the three months
ended September 30, 2000 and 1999 and the results of operations and the cash
flows for the nine months ended September 30, 2000 and 1999, are not necessarily
indicative of the results to be expected for any other interim period or any
future fiscal year.
5
<PAGE>
The Company has been in the development stage since its inception. It has had no
operating revenue to date, has accumulated losses of $25,935,293 and will
require additional working capital to complete its business development
activities and generate revenue adequate to cover operating and further
development expenses.
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.
NOTE 3. INCOME TAXES
The Company records its provision for income taxes using the liability method.
Under this method, deferred tax assets and liabilities are recognized based on
the anticipated future tax effects arising from the differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. A 100% valuation allowance has been recorded against the
deferred tax asset as management has yet to establish that recovery of this
asset is more likely than not.
NOTE 4. 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. On January 18, 2000, a three-for-one forward split of C3D's
6
<PAGE>
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.
NOTE 5. STOCKHOLDERS' EQUITY
On August 23, 2000, a shareholder loan in the principal amount of $1,300,000
plus accrued 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 at an exercise price of $10.1531 per
share and five-year warrants to purchase 55,241 shares of common stock at an
exercise price of $14.6656 per share. The fair value ascribed to the warrants
was approximately $490,000 based on the Black-Scholes option-pricing model; such
amount was recorded as interest expense and as an addition to paid-in capital of
stockholders' equity.
On August 23, 2000, an aggregate principal amount of $1,600,000 plus accrued
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 conversion price
was amended to $10.1531 from $16.67 which resulted in additional interest
expense of $650,000 based on the excess of the fair values of all securities
transferred in excess of the fair value of securities issuable pursuant to the
original conversion terms; such amount was recorded as interest expense and as
an addition to paid-in capital of stockholders' equity. The noteholder also
received one-year warrants to purchase 83,048 shares of common stock at an
exercise price of $10.1531 per share and five-year warrants to purchase 66,439
shares of common stock at an exercise price of $14.6656 per share. The fair
value ascribed to the warrants was approximately $590,000 based on the
Black-Scholes option-pricing model; such amount was recorded as interest expense
and as an addition to paid-in capital of stockholders' equity.
On August 23, 2000, the Company sold 492,459 shares of common stock to Halifax
Fund, L.P.("Halifax") for an aggregate of $4,615,055 net of cost of financing.
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) adjustment 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. In
connection with this sale, the Company granted Halifax certain registration
rights with respect to 492,459 shares of common stock and the underlying shares
to be issued upon the exercise of the above described warrants.
On August 31, 2000, the Company sold 197,026 shares of common stock for an
aggregate of $2,000,426 to Koor Underwriters and Issuers Ltd. ("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) adjustment 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. In connection with
this sale, the Company granted Koor certain registration rights with respect to
197,026 shares of the common stock and the underlying shares to be issued upon
the exercise of the above described warrants.
On September 12, 2000, an aggregate principal amount of $600,000 plus accrued
interest of $81,574 of a convertible note, dated December 2, 1998, was converted
into 380,000 shares of common stock at $1.794 per share.
On September 19, 2000, the Company sold an additional 492,459 shares of common
stock to Halifax for an aggregate of $4,615,055 net of cost of financing. 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) adjustment 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. In connection with this
sale, the Company granted Halifax certain registration rights with respect to
492,459 shares of common stock and the underlying shares to be issued upon the
exercise of the above described warrants.
Convertible line of credit
On August 23, 2000, the Company established a credit line of up to $6 million
with Constellation 3D Technology Limited, a British Virgin Islands company. 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
outstanding loan amount together with accrued interest 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 23, 2000, which was $10.72. In connection
with this credit line, Constellation 3D Technology Limited will receive a
three-year warrant to purchase 20,000 shares of the Company common stock upon
signing the Loan Agreement and a three-year warrant to purchase 10,000 shares of
7
<PAGE>
the Company common stock upon each withdrawal made by the Company from this
credit line. The purchase price of the above-stated warrants is equal to 100% of
the closing price of the Company's common stock on August 23, 2000, being
$11.50. Up to one year from the Company's last withdrawal from the credit line,
Constellation 3D Technology Limited will have the right to purchase additional
shares of the Company's common stock for not less than $2,000,000. On August 28,
2000, the Company issued a Convertible Note to Constellation 3D Technology
Limited in the principal sum of $1,000,000.
Stock options
The shareholders approved the 1999 stock option plan (the "Plan") on December
27, 1999. The Plan allows the Company to grant stock options to its officers,
key employees, directors and other important consultants at prices not less than
fair market value at the date of grant. A maximum of 4,617,540 shares were
approved to be issued under the Plan. As at September 30, 2000 there were
3,871,550 options under this Plan outstanding and 1,365,000 options outside of
the Plan outstanding.
The following table summarizes information about stock options outstanding and
exercisable as at September 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------------
Number Weighted Number
Range of Outstanding as Average Weighted Exercisable as Weighted
----------------------- September 30, contractual Average at September 30, Average
Exercise Price 2000 Life Exercise Price 2000 Exercise Price
----------------------- -------------- ----------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1.33 525,000 4.72 $1.33 525,000 $1.33
$ 5.00 450,000 4.62 $5.00 450,000 $5.00
$ 11.25 390,000 3.90 $11.25 150,000 $11.25
$ 10.69 3,871,550 4.62 $10.69 1,622,750 $10.69
----------------- --------- ---- ------ --------- ------
$ 1.33 - $ 11.25 5,236,550 4.58 $9.26 2,747,750 $7.33
----------------- --------- ---- ------ --------- ------
</TABLE>
NOTE 6. 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 C3D is not a party to any of the
contracts upon which Challis bases its claims, Challis seeks to hold C3D liable
based on allegations that C3D is the alter-ego of Constellation Tech, and that
an officer of C3D 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 positions, results of operations and cash
flows.
NOTE 7. SUBSEQUENT EVENTS
On October 12, 2000, an aggregate principal amount of $500,000 plus accrued
interest of approximately $44,507 of 8% convertible notes was converted into
49,500 shares of common stock at a conversion price of $11.00 per share. The
noteholder also received one-year warrants to purchase 15,000 shares of common
stock at an exercise price of $10.1531. The issuance contains certain
registration rights with respect to the underlying common stock.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed in these forward-looking statements as a result
of various factors, including risk factors set forth in this Quarterly Report
and in the Company's amended Form 10-K filed with the Securities and Exchange
Commission on March 31, 2000. The following discussion should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this Quarterly Report.
Overview
Constellation 3D, Inc. ("C3D"), formerly known as C3D Inc., is 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 the Company in the Ukraine, the Company researches and develops its
proprietary technology ("Fluorescent Memory" or "Fluorescent Memory Technology")
The Company plans to continue its focus on research and development of
its data storage technology and to develop strategic alliances, joint ventures
and licensing arrangements with established companies in the data storage
industry. The Company expects that its operating expenses will increase
significantly during the foreseeable future as the result of its plans to:
o increase expenditures on marketing and business development by
hosting demonstrations of the Company's 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, and monitoring new technological developments in
the industry. The Company expects 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 $360,000 per month to
$450,000;
o increase expenditures on administration to provide the overall
management of the parent company as well as the subsidiaries
from the current levels of $340,000 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. The
Company expects such expenses to be approximately $1,000,000
over the next twelve months.
The Company must raise additional funds as a result of the planned
significant increase in its operating expenditures. The Company has sufficient
working capital to support its operations through September 2001 and is in the
process of negotiating for additional capital. The Company does not expect to
receive revenues until the end of the second quarter of the fiscal year 2001 and
expects to continue to incur operating losses until late in the third or fourth
quarter of fiscal year 2002. The Company is 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,
9
<PAGE>
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 or, if it is, that
it will be available on terms acceptable to the Company.
On February 8, 2000, C3D formed Constellation 3D Trust LLC, a Delaware
limited liability company. C3D 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 shares to
raise debt or equity capital and contribute the proceeds thereof to C3D, which
proceeds shall 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. For the purposes of the Company's consolidated condensed financial
statements, the net issuance of the 500,000 shares of Common Stock are not
considered to be issued or outstanding because the Common Stock has remained
under the control of C3D and will be cancelled if no financing transaction is
completed.
On August 22, 2000, the Company 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 $11.25 per share and terminate on August 22, 2004.
On December 1, 1999, the Company entered into a Placement Agency
Agreement and Warrant Agreement dated December 1, 1999 (the "Agency Agreement"
and "Warrant Agreement" respectively) with Sands Brothers & Co., Ltd. ("Sands
Brothers") which obligates Sands Brothers to raise through the placement of the
Company's 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 the Company. By the face of the March 23, 2000 amendments to the Agency and
Warrant Agreements, the Company was 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 the Company's 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 the Company's 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 the Company through a subordinated convertible
debenture. Pursuant to the provisions in the Agency Agreement, the Company
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, the Company
amended the Placement Agency Agreement, Warrant Agreement and Warrant
Certificate No. SB-2. Among other results of the amendments, Sands Brothers is
no longer the Company's exclusive financing source and is not entitled to any
fees or stock warrants with respect to financing sources, which it does not
bring to the Company.
The Company believes 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 the
Company within 150 days of the Commencement Date as defined in the Agency
Agreement. The Company intends to renegotiate the foregoing documents with Sands
Brothers.
The Company has a limited operating history upon which to base an
evaluation of its business. The Company's business and prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in new and rapidly evolving markets such as the data storage market.
These risks include, but are not limited to, rapid technological change,
inability to manage growth, competition from more established companies,
dependence on suppliers, internal system problems and the inability to obtain
sufficient financing and an unproven business record.
10
<PAGE>
Results of Operations for the Nine Months Ended September 30, 2000 Compared to
Nine Months Ended September 30, 1999
The Company's reported financial condition and earnings for the nine
months ended September 30, 2000, includes all amounts for the parent company,
C3D, and C3D's three wholly owned operating subsidiary companies, C-TriD Israel
Ltd., an Israeli company ("C-TriD"), TriD Store Vostok, a Russian company
("Vostok"), and FMD&E, Inc., a Massachusetts company ("FMD&E"). The Company's
reported financial condition and results of operations for the comparative nine
months ended September 30, 1999, include the consolidated amounts of the
predecessor company, Constellation Tech.
Revenue. The Company generated no revenue for the nine months ended
September 30, 2000 and 1999.
Research and Development Expenses. The Company incurred research and
development expenses of $3,267,122 for the nine months ended September 30, 2000,
compared with $1,717,983 for nine months ended September 30, 1999 for an
increase of $1,549,139, or about 91%. 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 patent
registration of intellectual property. The significant costs were payroll for
staff and contractors, which amounted to $2,109,885 for the nine months ended
September 30, 2000, compared with $1,005,242 for the nine months ended September
30, 1999. The increase was primarily due to the hiring of additional staff with
greater qualifications, and the expansion of the Company's contractual
relationships with current subcontractors. Professional fees were $288,677 for
patent registration for the nine months ended September 30, 2000, compared with
$451,557 for the nine months ended September 30, 1999. The decrease in patent
registration was due to the Company's proprietary Fluorescent Memory Technology
becoming more proven and patentable during the same period last year. Materials
consumed amounted to $275,972 for the nine months ended September 30, 2000,
compared with $36,455 for the nine months ended September 30, 1999. The increase
in material was due to purchase of various lasers required at the current stage
of development of the Company's products. Travel expenses amounted to $221,775
for the nine months ended September 30, 2000, compared with $13,383 travel
expenses for the nine months ended September 30, 1999. The increase in travel
costs is due to the travel of research and development staff between the
Company's geographical locations. General and administrative costs associated
with research and development facilities were $225,200 for the nine months ended
September 30, 2000, compared with $196,793 for the nine months ended September
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 $3,030,269 for the nine months ended September 30, 2000, compared with
$906,140 for the nine months ended September 30, 1999 for an increase of
$2,124,129, or about 234%. The Company paid substantially more for management
and facilities for the nine months ended September 30, 2000, than it did for the
nine months ended September 30, 1999. Payroll expenses and management fees
relating to general and administrative activities were $639,201 for the nine
months ended September 30, 2000, compared with $241,963 for the nine months
ended September 30, 1999. The rise in compensation expenses was due to the
increase in the size and compensation of the management team compared to the
nine months ended September 30, 1999. Professional fees were $1,049,968 for the
nine months ended September 30, 2000, compared with $55,557 for the nine months
ended September 30, 1999. The increase was for legal support for the Company's
legal and accounting work required for the preparation of the publicly filed
quarterly and annual reports, and the recently filed registration statement.
Office and maintenance charges were $620,018 for the nine months ended September
30, 2000, compared with $351,536 for the nine months ended September 30 1999.
The increase in office and maintenance charges relates to the increased activity
of the New York office for the nine months ended September 30, 2000, compared to
the nine months ended September 30, 1999, when there was no corporate office in
New York. Travel and accommodation expenses were $412,906 in the nine months
ended September 30, 2000, compared with $100,985 for the nine months ended
September 30, 1999. The increase in travel and accommodation expenditures was
due to the increased fund-raising activities of the Company for the nine months
ended September 30, 2000, over the nine months ended September 30, 1999.
Consulting fees
11
<PAGE>
amounted to $139,516 for the nine months ended September 30, 2000, compared with
$92,185 for the nine months ended September 30, 1999. Shareholder relations
expenses and filing fees were $139,708 for the nine months ended September 30,
2000, compared with no expenses or fees for the nine months ended September 30,
1999.
Marketing. Marketing expenses consisted of compensation to employees
and consultants and travel expenditures for demonstrations of the Company's
technology to potential strategic partners. Marketing expenses were $4,631,294
for the nine months ended September 30, 2000, compared to no expenses for the
nine months ended September 30, 1999, when the Company had yet to demonstrate
its technology. Most of these expenses, $4,519,161, were compensation expenses
relating to marketing and business development. The compensation expense
consisted of $4,293,000 in non-cash stock-based compensation due to the grant of
450,000 options to a non-employee consultant and $226,161 in payroll and
consulting fees for the nine months ended September 30, 2000, compared with no
such expenses for the nine months ended September 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.
The Company reflected the effects of the compensation expense related to the
grant of stock options as an increase to additional paid-in capital in the
statement of stockholders' equity. Travel and accommodation expenses for product
demonstrations and exhibits were $107,430 for the nine months ended September
30, 2000, compared with no expenses for the nine months ended September 30,
1999. The Company incurred $4,703 in expenses relating to media exposure for the
nine months ended September 30, 2000, compared to no expenses for the nine
months ended September 30, 1999.
Interest expense, net. The Company recorded net interest expense of
$4,259,462 for the nine months ended September 30, 2000, compared with $126,591
for the nine months ended September 30, 1999 for an increase of $4,132,871, or
3253%. The interest expense included $1,354,700 for the amortization of the
financing cost associated with the detachable warrants issued in connection with
the issuance of subordinated convertible debt and the convertible line of credit
during the nine months ended September 30, 2000, compared to no such expense for
the nine months ended September 30, 1999. The Company recorded interest expense
of $193,000 for the beneficial conversion feature on subordinated convertible
debt issued during the nine months ended September 30, 2000, compared to no such
expense for the nine months ended September 30, 1999. During the nine months
ended September 30, 2000, a shareholder loan and a convertible note were
converted into common stock. The original conversion terms were amended to
reduce the conversion price and the Company issued warrants relating to the
shareholder loan and convertible note. The value ascribed to the warrants and
the modification of the conversion terms for accounting purposes was $1,730,000;
such amount was recorded as interest expense and as an addition to paid-in
capital of stockholders' equity. The Company also recorded an interest expense
of $500,000 related to the commission charged on the subordinated convertible
debt issued during the nine months ended September 30, 2000, compared with no
such expense for the nine months ended September 30, 1999. Interest expenses
relating to bank overdrafts, shareholder loans and subordinated convertible debt
amounted to $501,898 for the nine months ended September 30, 2000, compared to
$126,591 for the nine months ended September 30, 1999. Interest revenue was
generated through short-term deposits and amounted to $20,136 during the nine
months ended September 30, 2000, compared with no interest revenue for the nine
months ended September 30, 1999.
Taxes. The Company has generated inter-company taxable income to date
and therefore has incurred $75,812 for the nine months ended September 30, 2000,
compared with $12,000 for the nine months ended September 30, 1999. Israeli and
Russian subsidiaries, C-TriD and Vostok, incurred taxes due to their treatment
of inter-company advances as taxable revenue. The Company has not generated any
taxable income to date and therefore has not paid any federal income taxes since
inception. The Company has fully reserved deferred tax assets created primarily
from net operating loss carry-forwards because management is unable to conclude
that future realization is likely.
Results of Operations for the Three Months Ended September 30, 2000 Compared to
the Three Months Ended September 30, 1999
The reported financial condition and earnings for the three months
ended September 30, 2000, includes all amounts for the parent company, C3D, and
C3D's three wholly owned operating subsidiary companies, C-TriD, Vostok and
FMD&E. The reported financial condition and results of operations for the
comparative three months ended September 30, 1999, include the consolidated
amounts of the predecessor company, Constellation Tech.
12
<PAGE>
Revenue. The Company generated no revenue in the three months ended
September 30, 2000 and 1999.
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,
professional fees for intellectual property, general and administrative expenses
related to development offices, and travel expenses. The Company incurred
research and development expenses of $1,349,084 for the three months ended
September 30, 2000, compared with $655,678 for the three months ended September
30, 1999 for an increase of $693,406, or about 106%. The significant costs were
payroll for staff and contractors, which amounted to $963,325 for the three
months ended September 30, 2000, compared with $485,242 for the three months
ended September 30, 1999. Professional fees were $139,400 for patent preparation
and filing for the three months ended September 30, 2000, compared with $68,305
for the three months ended September 30, 1999. General office expenses relating
to research and development amounted to $65,005 for the three months ended
September 30, 2000, compared with $79,657 for the three months ended September
30, 1999. The Company incurred $93,191 for expenses relating to the acquisition
of materials for the three months ended September 30, 2000, compared with
$18,574 for the three months ended September 30, 1999. The increase in material
was due to purchase of lasers required at the current stage of development of
the Company's products. Travel expenses amounted to $80,685 for the three months
ended September 30, 2000, compared with $13,383 for the three months ended
September 30, 1999. The increase in travel costs is due to the travel of
research and development staff between the Company's geographical locations.
General and Administrative Expenses. General and administrative
expenses consist of management compensation, rent, professional services,
telephone expense, travel and other general corporate expenses. General and
administrative expenses were $1,049,974 for the three months ended September 30,
2000, compared with $351,277 for the three months ended September 30, 1999 for
an increase of $698,697, or about 199%. This increase reflected the hiring of
additional management, increased facilities charges and expansion of operations
in the United States. Payroll expenses and management fees relating to general
and administrative expenses were $215,443 for the three months ended September
30, 2000, compared with $71,628 for the three months ended September 30, 1999.
The increase was due to the management team receiving compensation directly from
C3D during the third quarter of last year rather than the predecessor company.
Office and maintenance charges consisting of expenditures on rent, general
maintenance and communications were $332,013 for the three months ended
September 30, 2000, compared with $145,574 for the three months ended September
30, 1999. Travel and accommodation expenses were $160,062 for the three months
ended September 30, 2000, compared with $8,208 for the three months ended
September 30, 1999. Professional fees were $309,273 for the three months ended
September 30, 2000, compared with $29,165 for the three months ended September
30, 1999, the majority of which were related to legal support for the
preparation of the previously filed quarterly and registration statements.
Consulting fees amounted to $9,000 for the three months ended September 30,
2000, compared with $42,745 for the three months ended September 30, 1999.
Shareholder relations expenses and filing fees were $51,955 for the three months
ended September 30, 2000, compared with no expenses or fees for the three months
ended September 30, 1999.
Marketing. Marketing expenses consisted of compensation to employees
and consultants and travel expenditures for demonstrations of the Company's
technology to potential strategic partners. Marketing expenses were $112,448 for
the three months ended September 30, 2000, compared to no expenses for the three
months ended September 30, 1999, when the company had yet to demonstrate its
technology. Payroll and consulting fees relating to marketing and business
development were $61,161 for the three months ended September 30, 2000, compared
with no expenses for three months ended September 30, 1999. Travel and
accommodation expenses were $51,287 for the three months ended September 30,
2000, compared with no expenses for the three months ended September 30, 1999
Interest expense, net. The Company has recorded net interest expense of
$2,669,202 for the three months ended September 30, 2000, compared with $97,301
for the three months ended September
13
<PAGE>
30, 1999 for an increase of $2,571,901, or 2643%. The Company recorded interest
expense of $662,096 for the amortization of the financing cost associated with
the detachable warrants during the three months ended September 30, 2000,
compared to no expense for the three months ended September 30, 1999. The
Company recorded interest expense of $73,000 for the beneficial conversion
feature on convertible line of credit issued during the three months ended
September 30, 2000, compared to no such expense for the three months ended
September 30, 1999. During the three months ended September 30, 2000, a
shareholder loan and a convertible note were converted into common stock. The
original conversion terms were amended to reduce the conversion price and the
Company issued warrants relating to the Shareholder loan and convertible note.
The value ascribed to the warrants and the modification of the conversion terms
for accounting purposes was $1,730,000; such amount was recorded as interest
expense and as an addition to paid-in capital of stockholders' equity. Interest
expense relating to shareholder loans, notes payable and the subordinated
convertible debts amounted to $205,013 for the three months ended September 30,
2000, compared to $97,301 for the three months ended September 30, 1999.
Interest revenue was generated through short-term deposits and amounted to $907
during the three months ended September 30, 2000, compared with no interest
revenue for the three months ended September 30, 1999.
Taxes. The Company has generated inter-company taxable income to date
and therefore has paid $64,291 for the three months ended September 30, 2000,
compared with $1,000 for the three months ended September 30, 1999. The taxes
were incurred in the Israeli and Russian subsidiaries, C-TriD and Vostok, due to
their treatment of inter-company advances as taxable revenue. The Company has
not generated any taxable income to date and therefore has not paid any federal
income taxes since its inception. Deferred tax assets created primarily from net
operating loss carry-forwards have been fully reserved as management is unable
to conclude that future realization is more likely than not.
Liquidity and Capital Resources
As of September 30, 2000, the Company's cash position was $11,916,493
and its working capital was $9,635,091, 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, the Company has financed its operations from capital
contributions, shareholder loans, subordinated convertible debt, and borrowings
from a line of credit. During the nine months ended September 30, 2000, the
Company received net proceeds of $11,544,517 from the sale of common stock,
proceeds of $4,000,000 from the issuance of subordinate convertible debt,
$1,000,000 from borrowings on the line of credit, and advances from related
parties of $207,790. This compares with net proceeds from shareholder loans and
advances from related parties of $2,478,945 for the nine months ended September
30, 1999. During the nine months ended September 30, 2000, convertible notes in
the aggregate amount of $2,367,973 and loans payable in the aggregate amount of
$1,402,163 were converted into common shares of the Company.
Net cash used in operating activities was $6,687,350 for the nine
months ended September 30, 2000, including a net loss of $15,263,959 and an
increase in payables of $627,758. This compares with net cash used in operating
activities of $2,210,724 for the nine months ended September 30, 1999, including
a net loss of $2,762,714 and an increase in payables of $517,082. For the nine
months ended September 30, 2000, the Company recorded non-cash transactions of
$4,293,000 relating to the issuance of stock options to a non-employee
consultant, a charge of $193,000 for the beneficial conversion feature on
convertible debt and convertible line of credit issued during the period,
$1,080,000 and $650,000 relating to the issuance of warrants and the
modification of convertible debt during one period and $1,354,700 for the
amortization of the deferred interest from the issuance of detachable warrants
issued during the period. This compares with no such non-cash transactions for
the nine months ended September 30, 1999. The Company's current operating
expenditures are approximately $800,000 per month and the Company plans to
increase its operating expenditures to $1,100,000 a month in order to expand its
operations. The Company has not generated any revenues to date and does not
anticipate cash flow from operations to be sufficient to fund its cash
requirements until early in the year 2002.
The Company incurred net capital expenditures of $180,785 for the nine
months ended September 30, 2000, compared with $87,977 for the nine months ended
September 30, 1999. These expenditures were primarily for laboratory equipment
associated with the Company's continued research and development.
Based on its existing capital resources, the Company believes that it
will be able to fund operations through September 2001. The Company's capital
requirements depend on several factors, including the success and progress of
research development programs, the resources devoted to developing
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products, the extent to which products achieve market acceptance, and other
factors. The Company anticipates that it will require substantial additional
financing to fund its 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 the Company. There can be no assurance
that the Company will be able to raise additional cash if its cash resources are
exhausted. The Company's ability to arrange such financing in the future will
depend in part upon the prevailing capital market conditions as well as the
Company's business performance.
The Company has been in the development stage since its inception. It
has had no operating revenue to date, has accumulated losses of $25,935,293 and
will require additional working capital to complete its business development
activities and generate revenue adequate to cover operating and further
development expenses.
Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
In September 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 September 15, 2000, and must be applied to
instruments issued, acquired, or substantively modified after December 31, 1997.
Also, Statement Of Position 98-5, "Reporting the Costs of Start-up Activities"
is effective for the year ended January 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that it does not have any material exposure to
interest or commodity risks. The Company does not own any derivative
instruments, does not engage in any hedging transactions but does have
outstanding long-term debt with fixed interest rates. The Company is exposed to
economic and political changes in international markets where the Company
competes, such as inflation rates, recession, foreign ownership restrictions,
domestic and foreign government spending, budgetary and trade policies and other
external factors over which the Company has no control.
The Company expects that, like many companies, it may be exposed to
some degree of market risk, particularly for its Ukrainian, Israeli and Russian
operations. The Company cannot provide any assurance that future developments in
each respective country will not generally have an adverse effect on the
financial condition of the Company. The Company does not anticipate that it will
enter into derivative transactions (e.g., foreign currency forward or option
contracts) to hedge against known or forecasted market changes.
The Company believes that it does face political risk based on having
operations in the Ukraine, Israel and Russia. These countries do face political
instability that could have a material adverse effect on the Company's
operations. However, the Company believes that this is unlikely to occur. The
Company does not possess "political risk" or other similar insurance to protect
it against business interruption losses caused by political acts.
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RISK FACTORS
The Company has no history of revenue, and expects to continue to incur
operating losses until late 2002.
As a research and development company, there is no revenue history and therefore
the Company has not achieved profitability. The Company expects to continue to
incur operating losses until late in the third or fourth quarter of 2002. The
Company incurred a net loss of $15,263,959 for the nine months ended September
30, 2000, $4,866,687 for the year ended December 31, 1999 and $3,191,902 for the
year ended December 31, 1998. The Company has never generated profits, and there
is no assurance that, in the future, the Company will be profitable on a
quarterly or annual basis. In addition, over the next twelve months, the Company
plans to increase operating expenses from approximately $800,000 per month to
$1,100,000 per month in order to fund research and development and increase
administration resources. However, the Company expects to receive revenues by
the end of the second quarter of 2001. Nevertheless, it is possible that the
Company revenue may never be sufficient to recognize a profit.
The Company has a limited operating history that began in 1997 and may encounter
difficulties typical to new operations.
Some of the Company 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 the Company's scientists had
begun in 1995.
Since the Company is a new operation, it may encounter problems, expenses,
difficulties, complications, and delays typical to new operations. Primarily,
there is the risk that the Company may not be able to transform the technology
developed into commercially profitable products. Also, there is the risk that
once another company or the Company introduced the products into the market
place, the market will not accept or adopt the Company's products.
The Company frequently will need to raise large amounts of additional capital to
sustain operations, and the Company cannot assure that it can continue to raise
sufficient capital when the Company needs to do so.
The Company believes that it has sufficient working capital to sustain
operations through September 2001. However, because the Company is a research
and development company in the data storage technology field, it continually
expends large amounts of capital over short periods of time. The Company
currently does not generate any revenues and does not expect to do so until the
end of the second quarter of 2001. The Company cannot assure that any revenues
generated in the future, if any, will be sufficient to finance the complete cost
of the Company's research and development. The Company will require additional
funds before it achieves positive cash flow from operations. The Company's
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 the Company marketing
efforts. The Company is actively in the process of raising additional capital,
including the issuance of warrants and convertible debt securities and the
potential issuance of preferred shares. The Company's outstanding convertible
debt does not materially adversely affect the Company's 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 the Company options for changing the business and cause
substantial cash flow problems. The Company cannot assure you that additional
financing or additional funds will be available when the Company needs them or,
if available, on terms acceptable to us. Any additional stock or convertible
debt financing which the Company obtains, if any, could result in substantial
dilution to shareholders. The Company is not currently considering acquiring a
bank line of credit.
The Company and the Company's contractor conduct operations in countries with a
recent history of economic and political instability.
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In addition to the Company's activities in the United States, the Company
conducts business operations in Israel and Russia. Additionally, the Company has
hired a subcontractor to perform various activities 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 the
Company's ability to conduct business or on the Company's financial condition.
Economic instability in the foreign nations in which the Company operates might
result from or lead to inflation, high interest rates and social unrest which
could adversely affect the Company's 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 the Company's operations and performance.
The rate of inflation in Israel, Russia and the Ukraine has not materially
adversely affected the Company's financial condition. It is impossible for us to
predict whether the rate of inflation in Israel, Russia or the Ukraine will
materially adversely affect the Company's future financial condition. However,
the Company believes 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 the Company's 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 the Company's 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 the
Company in U.S. dollars. Such increases in costs might materially adversely
affect the Company's financial condition. Presently, the Company does not have a
hedging policy for protection against changes in the dollar costs of the
Company's activities.
Changes and fluctuations in interest rates might affect the Company's 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 the Company's employees. Because the Company finances
most of the Company non-U.S. operations in U.S. dollars, and since the Company
expects that this financing will continue in the future, the Company believes
that local interest rate fluctuations will not have a material adverse impact on
the Company's 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 the Company locally as the
well as the overall operations.
Political instability in the foreign nations in which the Company operates might
result from or lead to military confrontation, frequent changes in national
governments, terrorism and corruption which could adversely affect the Company's
operations and performance.
The Company does 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 the Company has operations in Israel, there is a risk that the
political instability will have an adverse impact on the Company's 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
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scheduled work of the Israeli research and development facility. This obligation
could delay the commercial launch of the planned volumetric storage product line
and materially adversely affect the Company's results of operations and
financial condition.
Russia's significant political and economic instability could have a material
adverse effect on the results of the Company's operations and the market price
of the Company's 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. The Company
does not believe that these activities have had a materially adverse effect.
However, in the future, such factors may have a material adverse effect on the
Company's operations. Difficulties in protecting and enforcing the Company's
rights and future changes to local laws and regulations could adversely affect
the Company's ability to conduct operations in Russia.
Additional strains on the 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.
The Company 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 the Company's ability to
conduct business or on the Company's financial condition.
The Company does not enter into derivative transactions to hedge market risk in
Russia, Israel or the Ukraine, and market fluctuation may adversely affect the
Company's Ukrainian, Israeli and Russian operations.
The Company cannot provide any assurance that future developments in each
respective country will not generally have an adverse effect on the Company's
financial condition. Therefore, the Company does not anticipate that the Company
will enter into derivative transactions, such as foreign currency forward or
option contracts, to hedge against known or forecasted market changes.
The Company may require additional technology in order to successfully develop
and license the Company's technology.
The Company believes that it has developed a substantial amount of technology
for the Company's products. Nevertheless, if the Company cannot develop the
additional technology that it needs to be able to sell the products, the Company
may have to purchase technology from others. The Company cannot promise or
accurately forecast whether it will succeed in performing these acquisitions.
The Company depends upon, and could become unable to maintain or attract,
knowledgeable and experienced personnel vital to the Company's financial
success.
In order to succeed, the Company depends upon its 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.
The Company faces competition for such personnel from other companies, research
and academic institutions, government entities and other organizations. The
Company cannot assure that it will be able to attract and retain other qualified
personnel it needs for the business. Furthermore, the Company does not currently
maintain "key man" insurance for any personnel.
Provisions of Florida law and the Company articles of incorporation could deter
takeover attempts.
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The provisions of the Florida Business Corporation Act (as amended) and the
Company's articles of incorporation (as amended) could make it more difficult
for a third party to acquire control of the Company, even if the change of
control would benefit the shareholders.
The Company cannot assure you that the Company will successfully protect the
Company's Fluorescent Memory Technology and enforce the Company's intellectual
property rights.
Although the Company intends to rely on trade secret, trademark, copyright and
other intellectual property laws to protect the Company's Fluorescent Memory
Technology, the Company currently relies almost entirely on patent laws for
protection. While the Company intends to vigorously enforce the Company's
intellectual property rights, it cannot assure you that the steps taken to
protect the Fluorescent Memory Technology and to enforce the rights will be
successful. Through the Company's wholly owned subsidiary, TriDStore IP, L.L.C.,
as of October 4, 2000, the Company individually held 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. The Company cannot assure you that it
will timely exercise the 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.
The Company expects to develop trade secrets and may seek patent or copyright
protection for trade secrets. The Company cannot assure you that it will develop
trade secrets or seek patent or copyright protection for any or all of them. The
Company intends to enter into confidentiality and non-disclosure agreements to
protect one or more trade secrets which it or the Company's employees or
independent contractors may develop, but the Company cannot assure you that it
will do so or that the appropriate parties will maintain the confidentiality
necessary to protect the Company's trade secrets. A failure to maintain one or
more trade secrets could have a material adverse financial impact on the
Company.
The Company may offer products in the U.S. and in foreign countries based on the
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, the
Company may be unable to enforce its patent rights in those jurisdictions, even
if the Company is able to obtain intellectual property rights.
The Company has filed intent to use trademark applications with the U.S. Patent
and Trademark Office for the trademarks "CLEARCARD" and "CONSTELLATION 3D". The
Company cannot assure you that these applications will mature into registrations
or that the Company will even use these marks. Furthermore, the Company acquired
the internet domain names "C-3D.NET," "C-TRID.COM," "C-TRID.NET", "C3DINC.COM",
"CONSTELLATION3D.COM", and "CONSTELLATION3D.NET". Currently, the Company
maintains a web site at http://www.c-3d.net.
The Company cannot guarantee that any patents, copyrights, trade secrets,
trademarks or domain names that it developed or obtained will provide sufficient
value or protection to the Company. Furthermore, the Company cannot assure that
other parties will not challenge the 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 Fluorescent Memory
Technology without infringing, diluting, misusing, misappropriating or otherwise
violating the Company's intellectual property rights, the Company's financial
condition may materially suffer.
Due to potential intellectual property claims and litigation that parties may
initiate against the Company, the Company may suffer economic losses and become
unable to research, develop or license the sale or manufacture of the
technology.
As is typical in the data storage industry, other parties may in the future
notify the Company of claims that may be infringing, diluting, misusing,
misappropriating or otherwise violating the Company's intellectual property
rights. It is impossible to predict the outcome of such potential claims, and
the Company cannot
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assure that the relevant authorities will resolve the potential claims in the
Company's favor. The Company also cannot assure that an unfavorable resolution
of a claim will not have a material adverse effect on the Company's 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. The Company cannot assure 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, the Company or the Company's joint ventures might
have to pay substantial damages, or courts might enjoin the Company 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 the Company
seeks licensure for intellectual property that it cannot otherwise lawfully use,
the Company cannot assure you that it will be able to obtain such licensure on
satisfactory terms.
The Company might not own intellectual property that it believes it owns or that
the Company needs in order to successfully research, develop and license the
Company's technology.
In the future, a court, patent office or other authority may deem one of the
Company's employees or contractors and not the Company to be the legal owner of
one or more patents, patent applications or other intellectual property, which
is material to protecting the Company's data storage technology. The Company
typically requires that the Company's employees and contractors assign to the
Company all right, title and interest in and to the intellectual property that
was developed for the Company. However, the Company cannot assure that it will
obtain legal ownership of one or more licenses to use the intellectual property,
which an authority deems to be the property of the Company's employee or
contractor, on satisfactory terms. The Company's failure to obtain the legal
ownership of, or one or more licenses to use, the intellectual property may have
a material adverse effect on the Company's business or financial results.
The Company may eventually face inherent business risk of exposure to product
liability claims.
The Company's business may confront allegations that the use or misuse of the
Company's future products caused the death or injury of a customer, consumer or
user or to have had some other adverse effect. The Company does not presently
have product liability insurance. Currently, the Company's technology is not
mass manufactured and it does not expect that anyone will mass manufacture the
Company's technology in the near future. Possible future product liability
lawsuits may affect the reputation of the Company's future products and services
or otherwise diminish the Company's financial resources even though it may
obtain product liability insurance. The Company may protect itself against
product liability claims by contractually requiring the joint ventures and
licensees:
o to have continuous quality control inspections, detailed training and
instructions in the manufacture of the Company's products;
o to indemnify the Company 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, the Company cannot assure that
any existing product liability insurance of a joint venture or any existing
indemnification by joint ventures will adequately cover the liability claims. In
addition, the Company cannot assure that product liability insurance will be
available of joint ventures in sufficient amounts and at acceptable costs.
The Company 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, the Company cannot assure you that the key components for future
products will be available from a number of source suppliers. Therefore, the
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Company and joint ventures and licensees may experience difficulty in obtaining
a sufficient supply of key components on a timely basis. The Company intends 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 the Company's future products.
The Company cannot assure that it 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
the Company's 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 joint
ventures from producing sufficient quantities of the Company's products to
satisfy market demand. Additionally, in the case of a component purchased
exclusively from one supplier, 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 joint ventures and
licensees to modify the design of the Company's 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 the Company's business and financial
results.
The Company may become financially dependent on one or a small number of
customers.
Because the Company is a research and development company, it has not developed
a customer base for its products. The Company intends to establish joint
ventures and licensing arrangements with strategic partners to market and sell
Fluorescent Memory Technology. In the future, it is possible that the Company or
joint ventures and licensees will have sales to one or a small number of
customers which equal ten percent or more of the Company's consolidated
revenues. However, the Company does not intend to become financially dependent
on one or a small number of customers with whom the Company does most or all of
its business.
The Company's officers spend time on projects that bear no relation to the
Company's activities.
Some of the Company's officers, notably Leonardo Berezowsky and Michael
Goldberg, serve as directors, officers and employees of other companies. While
the Company believes that the officers will be devoting adequate time to
effectively manage the Company, it 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 the Company's financial condition. The Company
believes that the other company positions of its officers does not raise actual
or potential conflicts of interest that could interfere with the carrying out of
their respective duties at the Company.
The Company expects that products may be subject to various legal and regulatory
controls.
The Company is unaware of any particular electrical, telecommunication,
environmental, health or safety laws and standards that will apply to its
products. While the Company does not anticipate special regulations of its
products, the Company cannot assure that it 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 the Company. 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 the Company's products, compliance with those
regulations could have a material adverse effect on the Company's financial
condition.
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The Company faces intense competition in the data storage technology industry.
The Company estimates that there are approximately 14 enterprises currently
researching, developing or producing other types of data storage technology,
which the Company considers to be its material competitors. The data storage
technology industry is fiercely competitive, and a number of the Company's
competitors, such as EMC Corporation, Iomega Corporation and Seagate Technology,
Inc. have already established their names, brands, products and technologies in
the marketplace. The Company expects that some competitors will continue to have
significant market shares. The Company's competitors may further increase their
market shares through mergers, acquisitions and research and development.
While the Company believes that Fluorescent Memory products and joint venture
and licensing strategies will result in competitive advantages, the Company
cannot assure you that it will obtain or maintain any of such advantages over
time. Furthermore, the Company cannot assure you that a competitor will not
invent a superior technology, or that the Company's products and services will
be able to penetrate the data storage market. Many of the Company's current and
potential competitors have or may have advantages over the Company 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
the Company offers.
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PART II -OTHER INFORMATION
ITEM 1. 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 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, operations and cash
flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 12, 2000, the Company sold to one investor, for aggregate cash
consideration of $150,000, (1) 14,774 shares of common stock at a price of
$10.1531 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
$10.1531 per share. All the warrants are subject to adjustment. In connection
with the sale of the foregoing securities, a broker received $6,000.00 as a
commission.
On August 31, 2000, the Company sold to seventeen investors, for an aggregate
cash consideration of $2,000,426, (1) 197,026 shares of common stock at a price
of $10.1531 per share, (2) five-year warrants to purchase 78,813 shares of the
Company 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 $10.1531 per share. In connection with the sale of the foregoing
securities, Koor Underwriter and Issuer Ltd., as a broker, received five-year
warrants to purchase 295,539 shares of the Company's common stock at an exercise
price of $14.6656 per share and $80,017.04 as commissions.
On September 19, 2000 and on August 23, 2000, the Company sold to one investor,
for an aggregate cash consideration of $10,000,000, (1) 984,918 shares of the
Company common stock at a price of $10.1531 per share, (2) a five-year warrant
to purchase 393,968 shares of the Company's 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 $10.1531 per share. In connection with the
sale of the foregoing securities to the investor, (1) The Shemano Group, Inc.,
as broker, received five-year warrants to purchase 400,000 shares of the
Company's common stock at an exercise price of $14.6656 and $500,000 (5% of the
$10,000,000 purchase price) as commissions, and (2) Koor Underwriter and Issuer
Ltd., as broker, received warrants to purchase 200,000 shares of the Company
common stock and $200,000 (2% of the $10,000,000 purchase price) as commissions.
On August 23, 2000, the Company established a credit line of up to $6 million
with Constellation 3D Technology Limited, a British Virgin Islands company. 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
outstanding loan amount together with accrued interest 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 23, 2000, which was $10.72. In connection
with this credit line, Constellation 3D Technology Limited will receive a
three-year warrant to purchase 20,000 shares of the Company common stock upon
signing the Loan Agreement and a three-year warrant to purchase 10,000 shares of
the Company common stock upon each withdrawal made by the Company from this
credit line. The purchase price of the above-stated warrants is equal to 100% of
the closing price of the Company's common stock on August 23, 2000, being
$11.50.
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Up to one year from the Company's last withdrawal from the credit line,
Constellation 3D Technology Limited will have the right to purchase additional
shares of the Company's common stock for not less than $2,000,000. On August 28,
2000, the Company issued a Convertible Note to Constellation 3D Technology
Limited in the principal sum of $1,000,000.
On August 22, 2000, in consideration for the assignment of patents, the Company
granted jointly to the assignors a warrant to purchase 10,000 shares of the
Company's 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, the Company granted Blank Rome Comisky & McCauley LLP
("Blank Rome") a warrant to purchase 5,555 shares of the Company's common stock
in order to reduce the amount of the Company's outstanding legal fees due to
Blank Rome by Fifty Thousand Dollars ($50,000.00). Blank Rome serves as the
Company's legal counsel. The warrant currently is exercisable at a price of
$0.001 per share and will terminate on July 31, 2005.
On August 17, 2000, the Company sold for an aggregate cash consideration of
$250,000, 25,000 shares of the Company's common stock to TCO Investment Inc., a
British Virgin Islands company. In connection to this sale, on August 18, 2000,
the Company granted warrants to purchase (1) 15,000 shares of the Company's
common stock to another investor and (2) 10,000 shares of the Company's common
stock to a third investor. The exercise price of the warrants is $11.50 per
share.
On August 23, 2000, the Company entered into an agreement with Winnburn Advisory
("Winnburn"), a company organized under the laws of Nevis, pursuant to which the
8% Series C Convertible Note dated December 24, 1999 in the principal amount of
$1,600,000 plus interest of $86,399 in favor of Winnburn was converted into
166,097 shares of common stock at a conversion rate of $10.1531 per share. In
connection with this conversion, Winnburn also received one-year warrants to
purchase 83,048 shares of common stock at an exercise price of $10.1531 and
five-year warrants to purchase 66,439 shares of common stock at an exercise
price of $14.6656. All the warrants are subject to adjustment.
On October 29, 1999 and November 18, 1999, the Company issued $300,000 and
$1,000,000 promissory notes to Epicenter Venture Finance Ltd. ("Epicenter"). On
August 23, 2000, the Company entered into an agreement with Epicenter, pursuant
to which the notes in the principal amount of $1,300,000 plus interest of
$102,163 were converted into 138,102 shares of common stock at a price of
$10.1531 per share. In connection with this conversion, Epicenter also received
one-year warrants to purchase 69,051 shares of common stock at an exercise price
of $10.1531, and five-year warrants to purchase 55,241 shares of common stock at
an exercise price of $14.6656. All the warrants are subject to adjustment.
On December 2, 1998, the Company entered into a $600,000 Loan Conversion Rights
Agreement with Argotec Ltd. ("Formula Ventures Ltd."). In connection with this
issuance, the Company granted to Formula Ventures Ltd. certain registration
rights with respect to the underlying stock. On September 12, 2000, Formula
Ventures Ltd. converted the loan and related accrued interest into 380,000
shares of the Company's common stock at a conversion price of $1.79 per share.
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.
On September 15, 2000, C3D cancelled 10,000,000 of the 10,500,000 shares of
Common Stock originally issued to Constellation 3D Trust LLC as a capital
contribution. Constellation 3D Trust LLC intends to use the remaining 500,000
shares to raise debt or equity capital and contribute the proceeds thereof to
C3D, which proceeds shall be used for general corporate purposes.
On October 12, 2000, the Company entered into an agreement with Wilbro Nominees
Limited ("Wilbro"), a company organized under the laws of England, pursuant to
which the 8% Series B Convertible Note dated November 11, 1999 in the principal
amount of $500,000 plus interest of $44,507 in favor of Wilbro was converted
into 49,500 shares of common stock at a conversion rate of approximately $11.00
per share. In connection with this conversion, Wilbro also received one-year
warrants to purchase 15,000 shares of common stock at an exercise price of
$10.1531.
24
<PAGE>
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included herein:
4.1(3) Loan Conversion Rights Agreement, dated December 2, 1998, by and
between Argotec, Ltd./Formula Ventures, Ltd. and Constellation 3D
Holdings, Limited.
4.2(3) 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.
4.10(3) 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(3) 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(3) 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(3) Finders Agreement, dated July 13, 2000, between Constellation 3D,
Inc., and The Shemano Group, Inc.
4.15(1) Registration Rights Agreement, entered into as of August 23, 2000,
between Constellation 3D, Inc., a Florida corporation, and Halifax
Fund, L.P.
4.16(1) Common Stock Purchase Warrant No. W1 to Purchase Shares of $.001 par
value Common Stock of Constellation 3D, Inc., dated August 23, 2000,
issued to Halifax Fund, L.P.
4.17(2) 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.
4.18(1) 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(2) 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(1) 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.
25
<PAGE>
4.21(2) 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(2) Letter Agreement for Additional Investment, dated September 19, 2000,
by and between Halifax Fund L.P. and Constellation 3D, Inc.
4.23(3) Registration Right's Agreement, dated August 23, 2000, by and between
Constellation 3D, Inc. and Koor's Investors.
4.24(3) 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(3) 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(3) 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(3) Warrant Agreement, dated August 18, 2000, by and between
Constellation 3D, Inc., and Blank Rome Comisky & McCauley LLP.
4.28(3) Registration Rights Agreement, entered into September 12, 2000,
between Constellation 3D, Inc., and Hershkovitz Jacqueline.
4.29(3) 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(3) Common Stock Optional Warrant No. OW1 to Purchase Optional Units of
Constellation 3D, Inc., dated September 12, 2000, issued to
Hershkovitz Jacqueline.
4.31(3) 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(3) Amendment and Supplement to Common Stock Investment-Term Sheet dated
August 18, 2000, by and between TCO Investment Inc. and Constellation
3D, Inc.
10.16(3) Contract for Services, dated May 11, 2000, between Constellation 3D,
Inc. and Greenland Investments, Inc.
10.17(3) Stock Option Agreement, dated August 22, 2000, made by and between
Constellation 3D, Inc. and Vladimir Schwartz.
10.18(3) Warrant Agreement, dated August 22, 2000, by and among Constellation
3D, Inc., TriD Store IP LLC, Reflekt Technology, Inc., and Vladimir
Schwartz.
10.34(1) Common Stock Investment Agreement, dated as of August 23, 2000, among
Constellation 3D, Inc., a Florida corporation, and Halifax Fund, L.P.
10.35(3) Common Stock Investment Agreement, dated August 31, 2000, among
Constellation 3D, Inc., and Koor's Investors.
26
<PAGE>
10.36(3) Contract for Capital Raising dated August 18, 2000, between Koor
Underwriters and Issues Ltd. and Constellation 3D, Inc.
10.37(3) Convertible Note dated August 28, 2000, by and between Constellation
3D Technology Ltd. and Constellation 3D, Inc.
10.38(3) Loan Agreement dated August 23, 2000, by and among Constellation 3D
Technology Limited and Constellation 3D, Inc.
10.39(3) Common Stock Investment Agreement, dated September 12, 2000, among
Constellation 3D, Inc., and Hershkovitz Jacqueline.
10.41(3) 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.
27. Financial Data Schedule.
(1) Incorporated by reference to exhibits filed with Form 8-K on
August 25, 2000.
(2) Incorporated by reference to exhibits filed with Form 8-K on
October 6, 2000.
(3) Incorporated by reference to exhibits filed with the Company's
registration statement on Form S-1 (file number 33-48378).
(b) Reports on Form 8-K
The following reports on Form 8-K have been filed with the Securities and
Exchange Commission during the period:
1. On August 25, 2000 a report on Form 8-K was filed disclosing the Common
Stock Investment from Halifax Fund L.P. ("Halifax") dated August 23,
2000 for an aggregate of $5,000,000, pursuant to which Halifax
purchased 492,459 shares of common stock at a price of $10.1531, and
received warrants to purchase common stock.
2. On October 6, 2000 a report on Form 8-K was filed disclosing a second
Common Stock Investment from Halifax dated September 19, 2000 for an
amount of $5,000,000, pursuant to which Halifax purchased another
492,459 shares of common stock at a price of $10.1531, and received
warrants to purchase common stock.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSTELLATION 3D, INC.
----------------------
(Registrant)
Date: November 14, 2000 By: /s/ Eugene Levich
------------------------------------
EUGENE LEVICH
President and
Chief Executive Officer
(Principal Executive Officer
and Director)
Date: November 14, 2000 By: /s/ Leonardo Berezowsky
------------------------------------
LEONARDO BEREZOWSKY
Chief Financial Officer and Senior
Vice President of Finance
(Principal Financial and
Accounting Officer)
28
<PAGE>
CONSTELLATION 3D, INC.
INDEX TO EXHIBITS
Exhibit
Number
-------
4.1(3) Loan Conversion Rights Agreement, dated December 2, 1998, by and
between Argotec, Ltd./Formula Ventures, Ltd. and Constellation 3D
Holdings, Limited.
4.2(3) 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.
4.10(3) 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(3) 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(3) 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(3) Finders Agreement, dated July 13, 2000, between Constellation 3D,
Inc., and The Shemano Group, Inc.
4.15(1) Registration Rights Agreement, entered into as of August 23, 2000,
between Constellation 3D, Inc., a Florida corporation, and Halifax
Fund, L.P.
4.16(1) Common Stock Purchase Warrant No. W1 to Purchase Shares of $.001 par
value Common Stock of Constellation 3D, Inc., dated August 23, 2000,
issued to Halifax Fund, L.P.
4.17(2) 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.
4.18(1) 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(2) 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(1) 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(2) 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.
<PAGE>
4.22(2) Letter Agreement for Additional Investment, dated September 19, 2000,
by and between Halifax Fund L.P. and Constellation 3D, Inc.
4.23(3) Registration Right's Agreement, dated August 23, 2000, by and between
Constellation 3D, Inc. and Koor's Investors.
4.24(3) 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(3) 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(3) 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(3) Warrant Agreement, dated August 18, 2000, by and between
Constellation 3D, Inc., and Blank Rome Comisky & McCauley LLP.
4.28(3) Registration Rights Agreement, entered into September 12, 2000,
between Constellation 3D, Inc., and Hershkovitz Jacqueline.
4.29(3) 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(3) Common Stock Optional Warrant No. OW1 to Purchase Optional Units of
Constellation 3D, Inc., dated September 12, 2000, issued to
Hershkovitz Jacqueline.
4.31(3) 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(3) Amendment and Supplement to Common Stock Investment-Term Sheet dated
August 18, 2000, by and between TCO Investment Inc. and
Constellation 3D, Inc.
10.16(3) Contract for Services, dated May 11, 2000, between Constellation 3D,
Inc. and Greenland Investments, Inc.
10.17(3) Stock Option Agreement, dated August 22, 2000, made by and between
Constellation 3D, Inc. and Vladimir Schwartz.
10.18(3) Warrant Agreement, dated August 22, 2000, by and among Constellation
3D, Inc., TriD Store IP LLC, Reflekt Technology, Inc., and Vladimir
Schwartz.
10.34(1) Common Stock Investment Agreement, dated as of August 23, 2000, among
Constellation 3D, Inc., a Florida corporation, and Halifax Fund, L.P.
10.35(3) Common Stock Investment Agreement, dated August 31, 2000, among
Constellation 3D, Inc., and Koor's Investors.
10.36(3) Contract for Capital Raising dated August 18, 2000, between Koor
Underwriters and Issues Ltd. and Constellation 3D, Inc.
10.37(3) Convertible Note dated August 28, 2000, by and between Constellation
3D Technology Ltd. and Constellation 3D, Inc.
<PAGE>
10.38(3) Loan Agreement dated August 23, 2000, by and among Constellation 3D
Technology Limited and Constellation 3D, Inc.
10.39(3) Common Stock Investment Agreement, dated September 12, 2000, among
Constellation 3D, Inc., and Hershkovitz Jacqueline.
10.41(3) 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.
27. Financial Data Schedule.
(1) Incorporated by reference to exhibits filed with Form 8-K on
August 25, 2000.
(2) Incorporated by reference to exhibits filed with Form 8-K on
October 6, 2000.
(3) Incorporated by reference to exhibits filed with the Company's
registration statement on Form S-1 (file number 33-48378).
