UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
ADVANCED PRECISION TECHNOLOGY, INC.
___________________________________________________________________
(Name of Small Business Issuer in its charter)
NEVADA
___________________________________________________________
(State or other jurisdiction of incorporation or organization)
87-0455378
________________________________________
(I.R.S. Employer Identification Number)
2271-D South Vasco Road, Livermore, CA 94550
______________________________________________
(Address of principal executive offices)
(925) 447-6900
(Issuer's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act.
None
Securities to be registered pursuant to Section 12(g) of the Act.
Common Stock, par value $0.001 per share
________________________________________________________________________
(Title of Class)
__________________________________________________________________________
(Title of Class)
<PAGE>
Part I
Item 1. Description of Business.
Company Overview
----------------
Advanced Precision Technology, Inc. (formerly UV Color Corporation), a
Nevada corporation (the "Company"), is a San Francisco area developer of
innovative identity verification systems using biometrics. "Biometric" is
defined in Webster's Dictionary as "the statistical measurement and analysis
of biological observations and phenomena." A more technically accurate
definition is: any automated technique of measuring a physical characteristic
or personal trait of an individual and comparing that characteristic to a
database of one or many records in order to recognize the identity of that
individual. Even more simply stated, biometrics is the use of some part of
the human body (such as a fingerprint) as a unique "password" to achieve
identity verification.
The Company holds a total of seven United States Patents covering various
aspects of its cutting edge technology and has one United States Patent
application pending. The Company's business plan calls for the Company to
produce cost-effective, reliable fingerprint identity verification solutions.
Biometric Industry Overview
----------------------------
The analysis of unique biological characteristics of an individual, also
known as biometrics, is being used increasingly for identification and
verification purposes. Examples of unique biological characteristics that can
be used to identify an individual include fingerprints, retinal blood vessel
or iris patterns of the eye, hand geometry, voice and facial structure. Among
these, fingerprint analysis has gained the most widespread use for biometric
identification and verification purposes. Fingerprint analysis is an accurate
and reliable method to distinguish one individual from another, employs
well-developed and proven technology and processes and is viewed as less
intrusive relative to certain other biometric identification methods. The
process of capturing, storing, retrieving and comparing fingerprints has
become increasingly automated as a result of advances in optics, electronics
and computing. These advances have enabled fingerprint verification
technology to be used to confirm an individual's identity for a variety of
commercial and governmental applications.
Biometric Security
-------------------
The costs of fraud are estimated to be in the billions of dollars each
year in the United States alone. In addition, damages resulting from security
breaches, such as unauthorized persons gaining improper access to confidential
information, may not be quantifiable, but can be equally as problematic.
Accordingly, the ability to verify the identity of a specific individual is of
critical importance in reducing acts of fraud and increasing security. Each
day an individual is required to identify himself numerous times with
something the individual has in his possession or with the knowledge of
<PAGE> 2
certain information, such as: magnetic stripe cards and PINs to transact
business at ATMs or point-of-sale terminals; passwords to log-on to a computer
or a computer network; keys, cards or passwords to enter the workplace; PINs,
passwords and account numbers to complete a commercial transaction on-line;
credit cards to make a credit purchase; time cards to begin work; and a
driver's license to write a check or transact business at a bank.
However, these common verification methods generally cannot provide
positive identification. Keys, credit cards, ATM cards and card keys can be
lost or stolen. Passwords, account numbers or other information used for
identity verification can be divulged to or intercepted by unauthorized users
through electronic means and otherwise. In the workplace, time-and-attendance
information can be improperly altered by an employee punching a time card for
a tardy or absent co-worker.
Over the last decade, technological advances, including significant
advances in two-dimensional imagers, high performance microprocessors and
computer memory, have enabled the commercial development of equipment to read,
record and analyze unique biological data. Potential applications of biometric
identification and verification systems span a broad range and include
computer database and network access and security, computer software, intranet
and Internet security, electronic commerce, communications devices,
point-of-sale terminals, bank transaction authorization, facility access and
security, ATMs, time-and-attendance, home security and automobiles.
However, implementation of biometric equipment for these diverse
applications may require network management software, customer-specific
applications software and interfaces that allow integration with the
customer's existing computer systems to provide complete biometric solutions.
Biometric Imaging Fingerprint images have emerged as an important means of
identification and verification in both government and civilian markets. In
law enforcement in particular, fingerprint identification is widely utilized
and has been accepted by courts around the world.
Historically, fingerprints have been collected using the traditional
"ink-and-roll" process. Typically, this process starts at the local law
enforcement agency where usually three or more complete sets of ink-and-roll
prints are taken, one for the local agency, one for the state and one for the
Federal Bureau of Investigation ("FBI"). The FBI reports that it currently
receives over 34,000 fingerprint cards each work day. The fingerprint is then
compared at the local agency, state and/or FBI with a database of fingerprints
by means of an Automated Fingerprint Identification Systems("AFIS"), a
computer system developed in the 1970s which uses minutiae-based recognition
algorithms which detect fingerprint characteristics to accomplish fingerprint
matching. Before the AFIS can make the comparison, an ink-and-roll card is
run through a scanner that creates a digital image of the fingerprint. The
AFIS then compares the digital image with an existing database of fingerprints
to identify an individual if that individual's fingerprint is in the database
and, at the same time, updates the database with that fingerprint image.
<PAGE> 3
While the advent of computerized AFIS systems significantly improved the
ability to compare fingerprints against large databases of fingerprints, the
manual process of collecting and mailing ink-and-roll cards to the agency that
maintains the AFIS and scanning the fingerprint image into the AFIS has led to
significant bottlenecks. In addition, the fingerprinting process can be
complicated by a lack of cooperation of the person being fingerprinted, the
need to take multiple sets of prints and operator error. Various agencies have
reported that in excess of 30% of such cards are rejected because prints are
smudged or applied incorrectly. If the FBI or state agency rejects the card,
the local agency is often required to locate the individual, if possible, and
have another set of fingerprints taken. As a result, the time between taking
a set of fingerprints and receiving the results of the search may take several
days, several weeks or longer.
Live-scan biometric imaging systems, which electronically capture and
digitize an image of the fingerprint directly from a person's finger, were
developed to replace the manual ink-and-roll process. The digitized
fingerprint image captured by the live-scan system can then be compared with a
database of stored fingerprint images by an AFIS. If a state or federal agency
can receive electronic fingerprint cards, then the image can be electronically
relayed to that agency for comparison and the results can be returned to the
local agency within minutes or hours. In addition, because the fingerprint
images are captured electronically, multiple cards can be printed from one set
of images, eliminating the need to roll the fingerprint numerous times.
Live-scan systems also generally have quality assurance features that help
reduce the chance of operator error during the fingerprinting process.
A number of domestic and certain international law enforcement
communities are in the process of converting from manual ink-and-roll
fingerprint capture to live-scan fingerprint capture. In the United States,
the FBI has undertaken a major program to upgrade its Identification Division
and in July 1999 announced that it has officially activated its new
identification facility in West Virginia to receive a majority of fingerprint
submissions electronically. This announcement by the FBI, coupled with
increased automation at the federal and state levels, has prompted other
federal, state and local agencies to adopt live-scan systems as their primary
method for conducting background and identification checks. Other federal
agencies, including immigration and Naturalization Service ("INS"), Internal
Revenue Service, U.S. Drug Enforcement Agency, U.S. Marshals Service and the
U.S. Secret Service use live-scan systems to perform identification and
background checks.
The ability to capture a forensic quality fingerprint image
electronically and compare that fingerprint with a database of fingerprint
images also has important civilian (non-law enforcement) applications, such as
conducting employee background checks (for jobs in federal or state
government, banking, airport, child care, stock brokers and other securities
professionals or gaming) or screening potential foster parents. Millions of
fingerprint cards are taken each year in the United States for civilian
purposes. Traditionally, local police stations have performed this service,
with completed fingerprint cards submitted to state authorities or the FBI to
perform a background investigation. This process usually takes several weeks
to complete. In addition, if an
<PAGE> 4
ink-and-roll fingerprint card is rejected, an applicant must go through the
process again, which can delay further an applicant's start date. In some
cases, employers or agencies find themselves with such a backlog of applicants
awaiting fingerprinting or results of the background check that they allow
applicants to start the job without the background check being complete,
placing the employer at risk if an applicant has a criminal record. The need
for reliable and convenient fingerprint capture in a non-law enforcement
environment and the need to streamline the background checking process have
created a demand for live-scan products and fingerprinting services.
The Company's Position
----------------------
In the mid-1990's, the Company worked with San Jose State University
Foundation and researchers at San Jose State University ("SJSU"), Department
of Modern Optics, to establish proof of concept (to prove that the Company's
theories could work) for its holographic fingerprint identity verification
technology. This "work for hire" contract was to build working systems of the
Company's holographic verification technology and in doing so, the researchers
discovered and developed innovative fingerprint capture technology.
This discovery allowed the capture of undistorted fingerprints optically
and electronically that could be compared directly to existing ink-based
fingerprint records. This discovery was reported by SJSU researchers to the
Optical Society of America, and was featured on the cover of Applied Optics in
October 1996. The Company aggressively filed patent applications on this and
other discoveries resulting from the researchers' work. Under the contract
with SJSU Foundation, the Company was assigned all discovery and patent
rights, with shares of the Company's stock being provided to SJSU Foundation
upon the granting of any US Patent. (See "Certain Relationships and Related
Transactions".)
In January 1997, the Company licensed its patent pending fingerprint
capture technology to Hi-Key Technologies, Inc. ("Hi-Key") of Eden Prarie, MN,
for the manufacture of fingerprint capture units. The Company delivered to
Hi-Key over 300 prisms containing Holographic Optical Elements for inclusion
in Hi-Key's access control product and HK-7 fingerprint scanner. The Company
and Hi-Key delivered over 200 of these fingerprint capture products for use in
immigration, access control, and ID-card applications. Hi-Key went out of
business in early 1998, and retained no rights or licenses to the Company's
technology.
In 1997, the Company established its own facility for design,
pre-production and replication of holographic optical elements (HOEs) and for
long-term holographic technology research and development by acquiring the
equipment assets of Point Source Productions and assuming their lease
obligations. The Company continued to prepare holograms at that facility with
the help of Bob Hess, its founder. Mr. Hess was paid as a subcontractor and
waived patent rights in return for stock incentives. No additional patents
have yet been filed from this work.
<PAGE> 5
In 1997 and 1998, the Company worked with SRI International (formerly
known as Stanford Research Institute) of Menlo Park, CA, for advanced
development of the Company's proprietary holographic fingerprint verification
and capture devices. The initial project was further development of the
holographic verification technology, but this project was suspended to focus
on reducing to practice and developing a design-for-manufacture of the
Company's fingerprint capture product.
SRI International assembled a highly qualified team of product design,
mechanical, electrical, and optical engineers who collaborated with the
Company's technical team. In 1998 and 1999 the Company completed development
of engineering prototypes for sub-contractor manufacture of the Company's
APrinT" HoloPass". Under this work-for-hire contract the Company was to
retain all patent rights in exchange for stock warrants. No additional
patents have been filed from this work and the stock warrants have expired
without exercise. (See "Related Party Transactions".)
The Company built and delivered 40 of these devices to immigration, child
ID, and access control markets and contracted with Lex Solutions, Inc. of
Fairfax, VA, to develop complementary software which included search and match
algorithms for use in integration. During these installations, it was
determined that further enhancement of the design was needed to meet the needs
of the market and FBI Image Quality Standards for the electronic transmittal
of fingerprint images.
During this time, the Company also developed the Aprint HoloPassTM
Multi-Function Fingerprint Capture/Verfication Device which combined the
HoloPass with a "smart card" reader and related software to demonstrate the
ability to secure a smart card (a card containing a computer chip for storage
of information) by placing fingerprint information in the smart card about the
enrolled user. The Company demonstrated this successful implementation of
fingerprints as unique "PIN" codes to protect smart cards to prospective
customers, channel partners, OEMs, and system integrators in person and at
major trade conferences such as CardTech/SecureTech (CTST) 98 in Washington,
D.C., and CTST 99 in Chicago, IL and CTST 2000 in Miami Beach, FL.
In late 1998 and early 1999, the Company contracted with Newport
Corporation ("Newport") of Irvine, CA for enhancement and completion of
engineering blueprints and proposals for sub-contract manufacturing. The
Company worked with Newport to develop additional prototypes demonstrating the
enhanced design. The Company retained all intellectual property rights but
failed to reach a long-term manufacturing arrangement with Newport.
The Company has successfully used these blueprints to subcontract key
components through multiple outside vendors and to build a refined HoloPass to
begin shipping to key vendors, system integrators, and end users in test
markets in law enforcement, access control and Photo-ID.
In December 1999, the Company was selected as a test participant in the
Wireless Application Testing Program ("WATP") as part of the National Crime
Information Center
<PAGE> 6
("NCIC-2000") program with the FBI located in Clarksburg, WV. This program is
tentatively scheduled to go to pilot in late 2000, with a mass rollout to
state and municipal law enforcement agencies nationwide during the next
several years.
The Company is currently bringing to market this refined AprinT HoloPass as
its flagship product. This device looks similar to a 35 millimeter camera and
produces high quality, single digit "plain" impression fingerprint capture
images. This device is designed to electronically capture high resolution
(500 dots per inch) single-digit fingerprint images that can be compared
directly to ink-based prints for one-to-many "identification" or for
enrollment of the user into a database for later one-to-one verification
against the database or to the image stored in a card.
This device is designed to comply or exceed existing standards and
provide a standard video (RS-170) output consistent with existing installed
vendors. By complying with standards and providing consistent high quality
images, the Company believes it will be plug compatible to Identix's Touchview
II, Identicator's DFR-90, and CrossMatch's Verifier 200, which combined
constitute a majority of existing installed high-end fingerprint capture
devices. This compatibility allows any current or new user of a competing
system to "unplug" a competitive device in their system and transparently
replace it with the Company's device, in many cases at a lower cost.
The Company believes its philosophy of consistent high quality imaging of
the "full" single-digit fingerprint impression, ability to cost effectively
meet or exceed existing standards and "plug and play" capability for current
and emerging programs and applications, will create significant market share
in the rapidly emerging identity verification marketplace.
The Company raised $2,365,000 of investment capital in the second quarter
of 2000. This capital will allow the Company the opportunity to execute its
business plan, which includes the establishment of the Company's own
manufacturing facility for the mass production of this fingerprint capture
product by the end of the first quarter of 2001. The Company believes that
these funds are sufficient to insure at least 12 months of operations and to
allow future revenue generation to finance further operations.
The identity verification marketplace is rapidly emerging. After six years of
developing innovative biometric identity verification solutions, the Company
believes that its solutions will be more reliable due to superior image
quality. The Company believes that its products will also be available at a
lower cost than solutions provided by the Company's competitors, adding to
what the Company believes will be a significant strategic advantage in
relation to its major competitors. See "Risk Factors Competition".
The Company currently subcontracts all of its work to independent
contractors. However, on October 1, 2000, the Company anticipates that it
will have a total of seven employees, five of whom will be full-time employees
of the Company.
<PAGE> 7
Patents and Trademarks
The Company holds one United States registered trademark, seven United
States Patents, and has one United States Patent Application Pending. The
Company has received U.S. Registered Trademark Serial No. 75/044280 for the
label "AprinT" and has secured the Internet domain name "aprint.com". The
Company's seven United States Patents are effective for 20 years from the date
of their respective filing dates and are described below.
U.S. Patent No. 6,111,671 filed November 18, 1999 and granted August 29,
2000, for Matched Filters for a Real Time Fingerprint Sensor and Verification
System. The systems use innovative holographic optics to capture an
undistorted fingerprint image that can be compared directly to a previously
loaded ink-based print or "filter" that is stored as a hologram.
U.S. Patent No. 6,002,499 filed May 9, 1997 and granted December 14,
1999 for Realtime Fingerprint Sensor and Verification System. This patent
offers a laser-based optical correlation technology to verify fingerprints
with those stored as a hologram within the "matched filter" system. The
Company also has a divisional patent application pending for "Jitter" system.
U.S. Patent No. 6,038,043 filed March 10, 1997 and granted March 14, 2000
for Method for Recording a Holographic Optical Element. This process patent
covers the method for making the holographic optical element ("HOE").
U.S. Patent No. 5,892,599 filed August 9, 1996 and granted April 6, 1999
for Miniature Fingerprint Sensor Using a Trapezoidal Prism and a Holographic
Optical Element. This patent uses an HOE to converge the output, thereby
shortening the focal length and allowing significant dimensional
miniaturization of the fingerprint capture device.
U.S. Patent No. 5,629,764 filed July 7, 1995 and granted May 13, 1997 for
Prism Fingerprint Sensor Using a Holographic Optical Element. This patent
uses a HOE to eliminate optical distortion in "live" fingerprint capture
technology.
U.S. Patent No. 5,138,468 filed February 2, 1990 and granted August 11,
1992 for Keyless Holographic Lock. This patent offers a laser-based
technology to verify fingerprints with those stored as a hologram in a
computer mouse or comparable device.
U.S. Patent No. 5,095,194 filed October 12, 1989 and granted March 10,
1992 for Holographic Credit Card with Automatical Authentication and Approval.
This patent offers a laser-based technology to verify fingerprints with those
stored as a hologram on a credit card.
<PAGE> 8
Risk Factors
------------
Lack of Operating History
-------------------------
The Company has no history of operations, making it difficult to assess
the Company's future operating performance or future financial results or
condition.
Unpredictability of Biometric Identity Verification Industry
------------------------------------------------------------
The Company's success will depend on the growth of the Biometric Identity
Verification Industry. Without the acceptance of the public and vendors, the
Company may be unable to achieve and sustain profitability. The Biometric
Identity Verification Industry is a new and rapidly evolving industry whose
demand and market acceptance has yet come to full fruition. Biometric
products have not gained widespread commercial acceptance. The Company's
business will most likely not grow unless the market for biometric products
expands both domestically and internationally.
Key Personnel
-------------
The Company has no employment contracts with any of its officers or
directors. The Company's success depends on its executive officers and their
staying with the Company or, in the event they do not, retaining replacement
personnel with the commensurate experience and acumen. The loss of services
of the Company's executive officers could adversely affect the Company. In
addition, as the Company grows, it will need to attract additional key
personnel to sustain growth. There is no assurance that the Company will be
able to attract sufficiently qualified personnel to fulfill the Company's plan
of operation. The inability of the Company to attract qualified personnel
could adversely affect the Company.
Competition
------------
There are currently four major competing firms in the post research and
development manufacturing stage that offer "open system", single digit
scanners in the market. One of these four firms, Identix, Inc., controls
approximately 85% of the market. There can be no assurance that the Company
will be able to capture any significant portion of such market share. In
addition, the biometrics market is in its very early stages and growing
rapidly. There can therefor also be no assurance that new competitors will
not enter the market or that such new competitors will not have superior
technology to that of the Company. Biometric security products also compete
with non-biometric technologies such as traditional key, card, surveillance
systems and passwords.
Uncertainty Over the Company's Ability to Guard its Proprietary Rights
----------------------------------------------------------------------
Although the key components and systems of the Company's devices are
protected by patents, there can be no assurance that others will not infringe
on those rights. The Company currently has limited resources and, therefore,
may not be able to
<PAGE> 9
adequately protect its intellectual property rights from commercial piracy,
both in the United States and internationally.
Technological Changes
----------------------
The Biometric Identity Verification Industry is a highly technical field
with numerous and frequent changes taking place at a rapid pace. The Company
is attempting to keep in step with such changes. However, the Company's
business may be adversely affected by its competitors' development of enhanced
or improved technology. The Company may lack sufficient financial resources
to undertake the revamping of its existing technology and equipment to stay in
competition with others.
Privacy Issues
---------------
Certain groups have publicly objected to the use of biometric products
for some applications on civil liberties grounds. Legislation has been
proposed to regulate the use of biometric security products, which could limit
certain applications of biometrics including limitation of their use by
certain groups. In the event that legislation is passed prohibiting or
restricting certain uses of biometrics, such legislation could have a material
adverse effect on the Company's business.
Timing of Orders
----------------
The Company's revenues and operating results will likely vary
significantly from quarter to quarter. Because biometric identity
verification devices tend to be sold to organizations under contracts calling
for the delivery of a relatively large number of devices rather than on a unit
by unit basis, most of the Company's revenues will most likely be derived from
a relatively small number of large orders. Accordingly, revenues in a
particular quarter will depend on the timing and size of major orders.
Sales Cycle
-----------
Products in the biometric industry often have a lengthy sales cycle while
potential customers evaluate and receive approvals for purchase. The Company
could suffer a severe negative impact if the Company fails to receive an order
for a product after expending significant funds and effort in an attempt to
secure an order. If the Company fails to ship one or more large orders as
forecasted for a fiscal quarter, the Company's total revenues and operating
results for that quarter could be materially and adversely affected.
Lead - Time
-----------
The lead-time for ordering parts and materials and building the Company's
products can be several months. If demand for the Company's products lags
significantly behind what the Company has anticipated or forecasted, the
Company may produce
<PAGE> 10
more products than it can sell, which could result in cash flow problems and
write-offs or write-downs of obsolete inventory.
Sufficient Cash to Sustain Operations
--------------------------------------
Although the Company recently raised over $2.3 million in equity
financing which the Company believes will be sufficient to fund operations for
at least the next 12 months, there can be no assurance that the Company will
have sufficient cash to sustain operations without obtaining additional
financing. If the Company is unable to fund operations from its own
operations at the conclusion of such 12 month period and the Company is unable
to obtain additional financing, the Company would be adversely affected
materially and significantly, to the point that the Company may not be able to
continue as a going concern.
Government and Public Agency Contracts
--------------------------------------
The Company anticipates deriving substantial revenue from government
contracts, which are often non-standard, involve competitive bidding and may
be subject to cancellation without penalty. Government contracts frequently
include provisions that are not standard in private commercial transactions,
including bonding requirements. Public agency contracts are frequently
awarded only after formal competitive bidding processes, which have been and
may continue to be protracted, and typically impose provisions that permit
cancellation in the event that funds are unavailable to the public agency. In
addition, local government agency contracts may be contingent upon
availability of matching funds from state or federal entities. Revenues
generated from government contracts are subject to audit and subsequent
adjustment by negotiation with representatives of the government agencies.
Suppliers
---------
The Company obtains certain components and complete products from a
variety of suppliers. The Company does not have long-term agreements with any
suppliers. Any delays resulting from suppliers failing to deliver components
on a timely basis in sufficient quantities and of sufficient quality or any
significant increase in the price of components from existing or alternative
suppliers could have a material adverse effect on the Company's business.
International
-------------
The Company's growth may become dependent to some extent on the Company's
ability to make international sales. There are certain risks inherent in
international commerce including regional economic conditions; export
restrictions; fluctuations in foreign currencies and the United States dollar;
loss of revenue, property and equipment from expropriation, nationalization,
war, insurrection, terrorism and other political risks; the overlap of
different tax structures; seasonal reductions in business activity; risks of
<PAGE> 11
increases in taxes and other government fees; involuntary renegotiation of
contracts with foreign governments.
Performance Failure
-------------------
The Company's products are complex and may contain undetected or
unresolved defects when sold or may not meet customer's performance criteria.
Performance failure may cause loss of market share, delay in or loss of market
acceptance, additional warranty expense or product recall. The negative
effects of any failure could result in a material adverse effect on the
Company's business.
History of the Company
----------------------
The Company was organized as a Nevada corporation as "Global Technology,
Ltd." in 1985. In 1988 the Company changed its name to "Advanced Precision
Technology, Ltd." and merged with "Ximberley Corp.", a Utah corporation.
Neither the Company nor Ximberley Corp. had engaged in any business prior to
this merger. In 1989 and 1990, the Company was engaged in the business of
environmental underground testing, which it abandoned after 1990.
In November 1992 the Company acquired UV Color Corporation, a Minnesota
corporation, as a wholly owned subsidiary. Pursuant to this acquisition, the
Company issued 2,200,000 shares of its common stock in exchange for all of the
issued and outstanding shares of UV Color Corporation. The Company then
changed its name to "UV Color Corporation."
In January 1993 the acquisition of UV Color Corporation was rescinded by
mutual agreement. In June 1994 the Company filed a Certificate of Amendment
to its Amended and Restated Articles of Incorporation changing the Company's
name back to Advanced Precision Technology, Inc.
The origins of the Company's fingerprint identity verification business
began in June 1993, when Bruce A. Pastorius and Dr. Joseph Barbanell founded
Holographics, Inc., a Nevada corporation. On June 17, 1994, the Company
effected a one-for-four reverse split of its Common Stock and subsequently
issued 16,000,000 shares of Common Stock to acquire all of the issued and
outstanding shares of Holographics, Inc.
Item 2. Plan of Operation.
Over the next 12 months, the Company plans to enter the identity
verification market through manufacturing and directly distributing the
Company's high quality fingerprint capture product to established channel
leaders, solution providers, and major government agencies. In support of
this strategic plan, the Company has developed ongoing relationships by
demonstrating in person and providing product to test, with leading industry
experts, integrators, end users and consultants. Over the past 24 months, the
Company has expended approximately $500,000 on research and development.
<PAGE> 12
The Company has established new corporate offices and is in the process of
establishing production facilities. The Company is investing in significant
capital expenditures in equipment, internal systems, and personnel to meet
these anticipated demands. By focusing on federal and state government
agencies that currently purchase fingerprint systems, and by building the
internal infrastructure to meet these demands, the Company plans to establish
the installation base, economies of scale and technical credibility necessary
to enable profitable operations.
Major Markets of Interest
-------------------------
The Company is currently seeking or intends to seek sales contracts to
the following general categories of potential customers and applications: (1)
Law Enforcement Agencies, including the FBI, state, county and municipal
jurisdictions; (2) Civil Markets, including United States Immigration,
passport, military, state driver licenses, welfare fraud deterrence and
benefit entitlement; (3) Commercial Markets, including access control of
physical sites, access control of computers and databases, and security in
support of card based financial systems; and (4) International Markets,
including countries with national ID programs, border control, voter
registration, social benefits, and national health.
Market Entry Strategy
--------------------
The Company's plan includes establishing strategic partnerships with
established vendors including Value Added Resellers/Distributors (VARs),
Original Equipment Manufacturers (OEMs), and System Integrators (SIs).
Relationships with VARs would include nonexclusive arrangements for target
markets of interest wherein selected channel partners have established
relationships with large potential segments or higher margin "niche" markets.
Relationships with OEMs would involve ATMs, point of sale, time clocks,
transit turnstiles, access control, and healthcare information system vendors.
SIs would include large scale system providers such as IBM, EDS, NEC, Unisys
and similar companies.
The Company developed its APrinT HoloPass" fingerprint capture devices,
which utilize high image quality by design and multi-channel distribution
system based upon the marketing experience and insights gained from over five
years of industry participation and internal market research. The Company's
products have been engineered to provide high quality, consistent images, and
to achieve compliance with the strictest government and industry standards at
relatively low cost. Government standards include "FBI IQS EFTS" and
"ANSI/NIST".
By licensing and/or marketing under non-exclusive strategic agreements
with major corporations that are serving diverse target market segments, the
Company expects to reduce the higher business risks associated with
over-dependence on a single industry, or a single large customer, or a
specific geographic region. In addition, the Company plans to work with
established security vendors in the access control/physical security
<PAGE> 13
application markets in an effort to better access major corporations,
colleges, airports, hospitals, laboratories, government facilities, and
computer networks.
The Company believes this strategy will complement the Company's
product marketing efforts with end users and system integrators for large
scale fingerprint capture/verification applications such as law enforcement,
military ID, driver licenses, passports, voter registration programs, computer
security/commerce and propsed electronic benefits transfer programs by state
and federal agencies.
The Company has integrated its proprietary fingerprint capture devices
with complementary software for enrollment and verification. Separately, it
also developed proprietary technology for transfer of captured fingerprints
into "smart" cards, for subsequent verification of the user's fingerprint at
the time the "smart" card is used. By meeting high government standards and by
initially focusing on market segments that are currently purchasing
fingerprint identity verification products, the Company expects to
conclusively establish its technology as one of the standards for the
industry.
The Company's primary focus is existing government, industrial, and
commercial market segments requiring rapid, high-quality fingerprint
enrollment and identity verification in one-to-one and one-to-many
applications. One-to-one applications include security access systems that
use an individual's unique fingerprint pattern to enter restricted access
locations, to access a specific computer or data, or "smart cards".
One-to-many applications include fingerprint identity verification database
comparisons for corporate employees, military personnel, suspected criminals,
prospective handgun purchasers, recipients of government welfare or
entitlement benefits, state licensed drivers, and foreign countries'
fingerprint identification programs.
The Company's marketing strategy consists of market penetration through
price performance leadership. The Company anticipates that it will be selling
direct or through current market suppliers, system integrators, value-added
resellers, and international agents. The Company intends to support its
marketing strategy with quality collateral material, targeted advertising, and
publicity campaigns.
The Company is establishing its corporate office and production
facility to meet the anticipated demands of these marketing efforts. The
Company is investing over $150,000 in capital equipment and facilities to
enable this effort. The Company intends to significantly increase the number
of its employees by adding quality personnel in the areas of operations,
assembly, testing, engineering, and administration.
The Company plans to do additional research and development into
improving and reducing the cost of all key components in the HoloPass device.
Additional projects are planned to add digital output, internal logic, and
wireless operations to the HoloPass product.
<PAGE> 14
The Company anticipates that its current funding will last for 12
months, and hopes to be operating profitably by the end of such 12 month
period. The Company has placed funds into relative term certificates of
deposit and secured lines of credit.
Item 3. Description of Property.
The Company occupies approximately 5,186 square feet of office and
industrial space located at 2271-D South Vasco Road, Livermore, California
94550. The Company pays rent of $3,525 per month. The Company's lease
expires on May 31, 2003.
Item 4. Security Ownership of Certain Beneficial Owners.
The following table sets forth information relating to the beneficial
ownership of the Company's Common Stock by all persons beneficially holding
more than 5% of the Company's Common Stock, by each of the Company's executive
officers and directors, and by all of the Company's executive officers and
directors as a group. None of the Company's officers or directors has any
rights to acquire any additional stock through any options, warrants, rights,
conversion privileges or similar obligations. The addresses of each of the
executive officers and directors are in care of the Company. All of the
persons listed below have sole investment and voting power unless otherwise
noted.
Percentage
Name of Number of of Outstanding
Stockholder Shares Owned Common Stock
---------------------- ---------------- ---------------
Bruce A. Pastorius 13,100,000 (1) 24.2%
Chairman, Chief Executive
Officer and President
James D. Homer 485,000 0.9%
Secretary and Director
B. Eugene Waite 10,000 (2) 0.1%
Director
Glenn Fishbine 75,000 0.1%
Director
James P. Roake 1,524,288 (3) 2.8%
Director
All Executive Officers and 15,194,288 28.1%
Directors as a Group
___________________________________________________________________________
(1) Includes 5,285,000 shares held by BAP Technologies, a dba of Mr.
Pastorius, and 100,000 shares held by Holographics, Inc., each of which is
controlled by Mr.
<PAGE> 15
Pastorius. See "Certain Relationships and Related Transactions". Also
includes 1,050,000, the certificates for which state the owner to be Mr.
Pastorius as custodian for shares in the names of Mr. Pastorius' children.
As custodian, Mr. Pastorius maintains voting control over such shares.
(2) Mr. Waite owns these shares jointly with his wife Dolly.
(3) Mr. Roake owns these shares jointly with his wife Ruth.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The members of the Board of Directors of the Company serve until the next
annual meeting of stockholders, or until their successors have been duly
elected. The executive officers serve at the pleasure of the Board of
Directors. Information as to the executive officers and directors of the
Company is set forth below.
Name Title
--------------------- -------------
Bruce A. Pastorius Chairman, Chief Executive Officer and
President
James D. Homer Secretary and Director
B. Eugene Waite Director
Glenn Fishbine Director
James P. Roake Director
Bruce A. Pastorius. Mr. Pastorius has been the Chairman of the Company's
Board of Directors, the Chief Executive Officer and President of the Company
since 1994. Mr. Pastorius has approximately 20 years experience in direct
sales, sales management, product management, and marketing to commercial and
government agencies. From 1993 to 1994, he was the President of Holographic
Credit Card, the assets of which were acquired by the Company in 1994. From
1980 to 1993, he worked for SDI USA, Inc. of San Mateo, California, a producer
of system software for IBM Mainframes in various management positions with
responsibilities for marketing, sales, training, regional and national
accounts. Mr. Pastorius received his Bachelor of Science degree in Business
Administration from the University of Minnesota. Mr. Pastorius is 43 years of
age.
James D. Homer. Mr. Homer has been the Secretary and a Director of the
Company since 1995. Mr. Homer has worked at the Western Area Channel
Operations of IBM since 1993, where he is responsible for developing the
area's Channel Business Unit, and leading the development, recognition, and
quality assurance functions for value-added resellers. Mr. Homer received his
Masters of Business Administration
<PAGE> 16
degree with emphasis in Finance from the University of Minnesota. Mr. Homer
is 43 years of age.
B. Eugene Waite. Mr. Waite has been a Director of the Company since
1995. Mr. Waite has served as the Director of Finance for the City of Rio
Rancho, New Mexico since 1992. From 1990 to 1992 Mr. Waite worked as a
Management Consultant. From 1980 to 1989 he worked for Honeywell Avionics
Systems Division as Director of Contract Management and Director of Finance
and Controller. Mr. Waite received his Bachelor of Science degree in Business
Administration from Duquesne University. Mr. Waite is 69 years of age.
Glenn Fishbine. Mr. Fishbine has been a Director of the Company since
June 2000. Mr. Fishbine has served as the Director of Information Systems for
Lake Region Manufacturing, Inc. since 1998. From 1997 to 1998 he was a Senior
Consultant for Biometric Design, LLC where he developed a manufacturing plan
for holographic camera systems. From 1985 to 1997 he was Senior Vice
President for Digital Biometrics, Inc., a company for which he was a
Co-Founder. Mr. Fishbine received his Bachelor of Arts degree in Political
Science and Economics from the University of New Mexico, and his Masters of
Arts degree in Political Science from the University of Minnesota. Mr.
Fishbine is 48 years of age.
James P. Roake. Mr. Roake has been a Director of the Company since June
2000. Mr. Roake founded Roake Development in 1994, a construction and
development company. In 1976, he founded Roake International, Inc., a small
fast food chain. Mr. Roake remains the active head of both companies. Mr.
Roake received his Bachelor of Science degree in Business Administration from
Portland State University. Mr. Roake is 53 years of age.
Item 6. Executive Compensation.
The Company paid a salary to Bruce A. Pastorius, the Company's Chairman,
Chief Executive Officer and President, of $120,000 per year for each of 1998,
1999 and through May 2000. In June 2000, Mr. Pastorius' salary was increased
to $150,000 per year. Mr. Pastorius also has the beneficial use of a Company
owned automobile. No officers of the Company other than Mr. Pastorius receive
annual compensation from the Company of $100,000 or more. The Company's
directors receive no compensation for serving as directors of the Company.
The Company currently has no full-time employees other than Mr.
Pastorius. The Company uses sub-contractors to conduct its day to day
operations.
Item 7. Certain Relationships and Related Transactions.
In March 1995, Bruce A. Pastorius (dba BAP Technologies) acquired all
rights, titles, and interests in U.S. Patent No. 5,095,194 for Holograhic
Credit Card with Automatical Authentication and Verification and U.S. Patent
No. 5,138,468 for Keyless
<PAGE> 17
Holographic Lock from Dr. Joseph Barbanell, the inventor, and Gary Zellerbach
for stock and other valuable consideration. Mr. Pastorius acquired these
patents in order to insure that any previous rights to these patents would not
be diluted or sold to any of the Company's competitors.
In May 1996, Mr. Pastorius assigned these rights to the Company in return
for a promissory note of $250,000 and rights to 2,160,000 shares of the
Company to cover costs incurred by Mr. Pastorius in his acquisition of these
patents. Proceeds to pay Mr. Pastorius were to be raised in a private
placement of preferred stock. When such placement failed to generate
sufficient funds to pay Mr. Pastorius, the note was converted to a
non-interest bearing long-term note, to be paid when ever the Company raised
sufficient funds to repay such note. On September 30, 1998, the Board of
Directors authorized the issuance of 2,160,000 shares of the Company's Common
Stock to BAP Technologies and extension of the note to June 30, 1999. On
December 15, 1999, the Board of Directors authorized the issuance of 3,125,000
shares of the Company's Common Stock to BAP Technologies as repayment in full
of the promissory note (an amount equal to the internal value of the Company's
common stock at that time divided by $250,000). Mr. Pastorius then completed
all assignments of such patent rights to the Company.
The Company did research and development work at San Jose State
University, Department of Modern Optics, through contracts with San Jose State
University Foundation. While these contracts were work-for-hire contracts
wherein SJSU waived all intellectual property rights, during the term of the
contract, the contract was amended in 1996 to provide stock to San Jose State
University Foundation for this waiver. A total of 650,000 shares of the
Company's Common Stock were issued for continuation of the work. An
additional 250,000 shares were to be issued for each Letters Patent granted to
the researchers and assigned to the Company, of which the Company has issued
1,000,000 shares for 4 U. S. Letters Patents.
Item 8. Description of Securities
The Company's Articles of Incorporation, as amended, authorize the
issuance of one hundred million shares of Common Stock, par value $0.001 per
share, of which 54,071,077 were issued and outstanding as of June 30, 2000.
Holders of shares of the Company's Common Stock are entitled to one vote for
each share on all matters to be voted on by the stockholders of the Company.
Holders of shares of the Company's Common Stock have no cumulative voting
rights. Holders of shares of the Company's Common Stock are entitled to share
ratably in dividends, if any, as may be declared, from time to time by the
Board of Directors in its discretion, from funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of shares of the Company's Common Stock are entitled to share pro rata
all assets remaining after payment in full of all liabilities. Holders of
shares of the Company's Common Stock have no preemptive rights to purchase the
Company's Common Stock. There are no conversion rights or redemption or
sinking fund provisions with respect to
<PAGE> 18
the Common Stock. All of the outstanding shares of the Company's Common Stock
are fully paid and non-assessable.
The Company's Articles of Incorporation, as amended, authorize the
issuance of 25,000,000 shares of Preferred Class A Capital Stock, no par
value. The Company has 1,250 shares of Preferred Stock outstanding, all of
which are fully paid and non-assessable. The outstanding preferred stock is
non-voting and pays a 12% cumulative dividend payable in additional shares of
preferred stock. The Company has the right, in its sole discretion, to redeem
the shares of preferred stock at any time at 110% of its face value ($110 per
share). Each share of preferred stock is convertible, at the sole discretion
of the holders thereof, into 200 shares of the Company's Common Stock. The
shares of preferred stock have a liquidation preference over the shares of the
Company's Common stock. Holders of the preferred shares have no preemptive
rights.
Part II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
The Company's Common Stock has been traded over-the-counter and quoted on
the OTC NASDAQ Electronic Bulletin Board under the symbol "APRE". The
Company's Common Stock currently trades in the "pink sheets" because the
Company is not a full reporting company under the Securities Exchange Act of
1934, as amended. The following table represents the range of the high and
low bid prices of the Company's Common Stock each calendar quarter of 1998 and
1999 and the first, second and third calendar quarters of 2000, through
September 22, 2000. The source of the information below is the National
Association of Securities Dealers, Historical Quotes Department. Such
quotations represent prices between dealers and may not include retail
markups, markdowns, or commissions and may not necessarily represent actual
transactions.
High Low
-------- --------
1998
----
First Quarter $1.875 $1.125
Second Quarter $1.75 $0.625
Third Quarter $0.6875 $0.34375
Fourth Quarter $0.50 $0.25
1999
----
First Quarter $0.50 $0.19
Second Quarter $0.27 $0.18
Third Quarter $0.51 $0.05
Fourth Quarter $0.40 $0.15
2000
----
First Quarter $1.06 $0.25
Second Quarter $1.05 $0.59
Third Quarter
(through Sept. 22, 2000) $0.65 $0.25
<PAGE> 19
As of June 30, 2000, there were 513 record holders of the Company's
Common Stock.
The Company has not paid any dividends on its Common Stock and does not
intend to do so for the foreseeable future.
Item 2. Legal Proceedings.
The Company is not currently involved in any legal proceedings, the
outcome of which, in the view of the Company's management, would materially
affect the Company's operations.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 4. Recent Sales of Unregistered Securities.
1997
----
During the calendar year ending December 31, 1997, the Company issued
shares of Common Stock and Series A 12% Convertible Callable Preferred Stock
(the "Preferred Stock") as described below. No issuance involved a public
offering or any general solicitation. Each issuance was pursuant to
exemptions provided by Sections 3(b) and 4(2) of the Securities Act of 1933,
as amended (the "Securities Act"), and Regulation D promulgated thereunder.
In July, October, and December 1997, the Company issued a total of
499,000 shares of Common Stock for services rendered on behalf of the Company.
These shares were issued pursuant to the terms of the Company's relationships
with its subcontractors, calling for each of them to receive payment in stock
in lieu of cash for any over budget work at $0.25 per share, the same price as
in the private placement. Services performed on behalf of the Company
included research and development, investor relations, camera development,
waiver of patent rights and legal fees.
In October and December 1997, the Company issued a total of 2,450,000
shares of Common Stock as fees and repayment of collateral for loans to the
Company in the amount of $230,000.
In February 1997, the Company issued 400,000 shares of Common Stock at a
price of $0.25 per share to two accredited investors, neither of which had any
other affiliation with or relation to the Company, with warrants attached
thereto to purchase 600,000 shares of Common Stock at $0.25 per share expiring
on June 30, 1997, all of which expired prior to exercise. The shares were
sold in a private placement under
<PAGE> 20
Regulation D of the Securities Act with the price being negotiated between the
Company and the purchasers.
In August 1997, the Company issued 500,000 shares of Common Stock at a
price of $0.25 per share to an accredited investor not otherwise affiliated
with the Company. These shares were sold in a private placement under
Regulation D of the Securities Act with the price being negotiated between the
parties.
From April to November 1997, the Company issued 2,250 shares of
Preferred Stock at $100 per share to accredited investors, with warrants
attached thereto, none of which were ever exercised. Each share was
convertible into common stock at a ratio of 200 shares of common stock per
share of Preferred Stock. The terms of this offering represented an
approximate 50% discount to the price at which the Company's Common Stock was
trading. The shares were sold in a private placement under Regulation D of
the Securities Act
1998
----
During the calendar year ending December 31, 1998, the Company issued
shares of Common Stock and Preferred Stock as described below. Each issuance
was pursuant to exemptions provided by Sections 3(b) and 4(2) of the
Securities Act and Regulation D promulgated thereunder.
In January 1998, the Company issued 100 shares of Preferred Stock at $100
per share to an accredited investor, with warrants attached thereto, none of
which were ever exercised under the same terms and in the same offering as
the offering of Preferred Stock in 1997.
In May, August, and December 1998, the Company issued a total of
4,024,000 shares of Common Stock for services rendered on behalf of the
Company. These shares were issued pursuant to the terms of the Company's
relationships with its subcontractors, calling for each of them to receive
payment in stock in lieu of cash for any over budget work at $0.25 per share,
the same price as in the private placement. Services performed on behalf of
the Company included research and development, investor relations, camera
development, waiver of patent rights and legal fees. Included in these shares
are 2,160,000 shares issued to BAP Technologies. See "Certain Relationships
and Related Transactions".
In February, March, May, June, August and December 1998, the Company
issued a total of 5,280,000 shares of Common Stock as fees and repayment of
collateral for loans to the Company in the amount of $542,560. These loans
were negotiated between the Company and private parties and typically called
for the Company to repay the loans in stock at between $0.10 and $0.25 per
share plus interest usually at about 10% per annum if the Company did not
repay the loans within a specified period of time.
<PAGE> 21
1999
----
During the calendar year ending December 31, 1999, the Company issued
shares of Common Stock as described below. Each issuance was pursuant to
exemptions provided by Sections 3(b) and 4(2) of the Securities Act and
Regulation D promulgated thereunder.
In May, June, September and November of 1999, the Company issued a total
of 1,990,000 shares of Common Stock for services rendered on behalf of the
Company. These shares were issued pursuant to the terms of the Company's
relationships with its subcontractors, calling for each of them to receive
payment in stock in lieu of cash for any over budget work at $0.08 to $0.10
per share, the same price as in the private placement. Services performed on
behalf of the Company included research and development, investor relations,
camera development, waiver of patent rights and legal fees. Included in these
shares are shares issued to SJSU for waiver of certain patent rights as
described in "Certain Relationships and Related Transactions". Also included
in these shares are 3,125,000 shares issued to BAP Technologies. See "Certain
Relationships and Related Transactions".
In February, June, September, November and December of 1999, the Company
issued a total of 5,477,000 shares of Common Stock as fees and repayment of
collateral for loans to the Company in the amount of $443,023. These loans
were negotiated between the Company and private parties and typically called
for the Company to repay the loans in stock at between $0.10 and $0.25 per
share plus interest usually at about 10% per annum if the Company did not
repay the loans within a specified period of time.
2000
----
From January 1, 2000 to July 17, 2000, the Company issued shares of
Common Stock as described below. Each issuance was pursuant to exemptions
provided by Sections 3(b) and 4(2) of the Securities Act and Regulation D
promulgated thereunder.
In May, June and July 2000, the Company issued a total of 7,166,666
shares of Common Stock sold to accredited investors only in a private
placement at $0.33 per share, raising total gross proceeds of $2,365,000. The
price was negotiated between the Company and the purchasers and represented a
discount to the price at which the Company's Common Stock was trading during
that period. The shares were sold pursuant to exemption from registration
under Regulation D of the Securities Act.
In March, May and June 2000, the Company issued a total of 1,224,000
shares of Common Stock for services rendered on behalf of the Company. These
shares were issued pursuant to the terms of the Company's relationships with
its subcontractors, calling for each of them to receive payment in stock in
lieu of cash for any over budget work at $0.10 per share. Services performed
on behalf of the Company included research and development, investor
relations, camera development, waiver of patent rights and legal fees.
<PAGE> 22
In March and June of 2000, the Company issued a total of 3,852,000 shares
of Common Stock as fees and repayment of collateral for loans to the Company.
These loans were negotiated between the Company and private parties and
typically called for the Company to repay the loans in stock at between $0.10
and $0.25 per share plus interest usually at about 10% per annum if the
Company did not repay the loans within a specified period of time.
Item 5. Indemnification of Directors and Officers.
The Company indemnifies its officers and directors to the fullest extent
accorded under Nevada law, as set forth in the Nevada Revised Statutes
("NRS"), Sections 78.7502, 78.751 and 78.752, as amended. In accordance with
NRS Section 78.7502, the Company may indemnify its officers and directors
against expenses they incur in connection with any threatened, pending or
completed legal action or proceeding involving Company, whether civil,
criminal, administrative or otherwise, involving such persons in their
capacities as officers and/or directors, so long as they acted in good faith
and in a manner which they reasonably believed to be in the Company's best
interests. In accordance with NRS Section 78-7502(2), the Company does not
indemnify its officers or directors against expenses resulting from suits or
proceedings brought by or to assert a right of the Company in which the
officer and/or director is adjudged liable to the Company, unless a court
determines otherwise.
NRS Section 78.752 allows corporations to purchase and maintain insurance
policies or to make other financial arrangements on behalf of any current or
past officer and/or director for any liability asserted against him, and any
liability or expense incurred, arising out of his status as an officer and/or
director. These financial arrangements may include trust funds,
self-insurance programs, guarantees and insurance policies.
<PAGE> 23
Part F/S
The following financial statements are included herein:
The Company's unaudited financial statements for the six months ended June 30,
2000 and June 30, 1999
Unaudited balance sheet for the six months ended June 30, 2000 and 1999
Unaudited statement of operations for the six months ended June 30, 2000
and 1999, and cumulative during development stage
Unaudited statement of cash flows for the six months ended June 30, 2000
and 1999, and cumulative during development stage
Unaudited statement of changes in stockholders' equity
Notes to unaudited financial statements for June 30, 2000
The Company's audited financial statements as of December 31, 1999 and 1998
Balance sheet for December 31, 1999 and 1998 (audited)
Statement of operations for the years ended December 31, 1999, 1998 and
1997, and cumulative during development stage (audited)
Statement of changes in stockholders' equity (audited)
Statement of cash flows for the years ended December 31, 1999, 1998 and
1997, and cumulative during development stage (audited)
Notes to financial statements for December 31, 1999 and 1998
<PAGE> 24
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED BALANCE SHEET
6 Months Ended June 30,
2000 1999
------------- -------------
ASSETS
------
CURRENT ASSETS:
CASH $ 2,006,486 $ 23,517
Accounts Receivable - -
Inventory 18,968 11,457
Prepaid Expenses 2,600 -
------------- -------------
TOTAL CURRENT ASSETS 2,028,054 34,974
------------- -------------
FIXED ASSETS:
Leasehold Improvements 10,100 -
Equipment 203,490 126,827
Accumulated Depreciation (115,117) (79,874)
------------- -------------
TOTAL FIXED ASSETS 98,473 46,953
------------- -------------
OTHER ASSETS:
Patents 1,276,513 1,194,469
Accumulated Amortization (264,840) (193,547)
------------- -------------
TOTAL OTHER ASSETS 1,011,673 1,000,922
------------- -------------
TOTAL ASSETS $ 3,138,200 $ 1,082,849
============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
CURRENT LIABILITIES:
Accounts payable $ 1,190 $ 220,784
Accrued Expenses 11,932 7,526
Loans Payable - stockholder 60,000 344,841
Notes Payable - 20,000
------------- -------------
TOTAL CURRENT LIABILITIES $ 73,122 $ 593,151
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value; authorized
25,000,000 shares, issued & outstanding:
2000 - 1,250 shares
1999 - 1,250 shares $ 125,000 $ 125,000
Common stock, $.001 par value; authorized
100,000,000 shares issued and outstanding:
2000 - 54,071,077 shares
1999 - 35,659,147 shares 54,071 35,659
Additional paid-in capital 6,449,248 3,088,094
Accumulated deficit - December 31, 1992 (258,205) (258,205)
Deficit accumulated during development stage (3,305,036) (2,500,850)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 3,065,078 489,698
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,138,200 $ 1,082,849
============= =============
See accompanying notes.
<PAGE> 25
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENT OF OPERATIONS
CUMULATIVE
6 Months Ended June 30, DURING
---------------------------- DEVELOPMENT
2000 1999 STAGE
------------- -------------- -------------
REVENUES: $ - $ - $ 82,478
------------- -------------- -------------
EXPENSES:
Cost of Goods Sold - - 28,049
Research and Development 90,349 6,405 1,247,648
Marketing 76,513 16,077 550,357
Administrative 173,632 30,492 860,906
President's Salary 75,000 60,000 315,000
Depreciation& Amortization 55,279 51,257 385,554
------------- -------------- -------------
TOTAL EXPENSES 470,773 164,231 3,387,514
------------- -------------- -------------
NET LOSS $ (470,773) $ (164,231) $ 3,305,036
============= ============== =============
LOSS PER SHARE $ ( .01) $ (.005)
============= ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 43,288,458 34,165,750
============= ==============
See accompanying notes.
<PAGE> 26
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
6 Months Ended June 30, DURING
---------------------------- DEVELOPMENT
2000 1999 STAGE
------------- -------------- -------------
<S> <C> <C> <C>
CASH PROVIDED (USED IN) OPERATIONS:
Net loss $ (470,773) $ (164,231) $ (3,305,036)
Adjustments to reconcile net loss
to cash used in operations:
Depreciation & amortization 55,279 51,257 379,957
Expenses paid by common stock 122,400 79,308 790,151
Increase (decrease) in:
Accounts Receivable - - (63,072)
Inventory 6,631 3,999 11,256
Prepaid expenses - 2,600 2,600
Accrued Expenses - (5,202) 2,234
Due Stockholder (38,755) 61,214 (80,897)
Accounts payable (167,485) (21,182) 1,190
------------- -------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATIONS (492,703) (7,763) (2,261,617)
------------- -------------- -------------
CASH USED IN INVESTMENT ACTIVITIES:
Investments in patents (29,111) (25,000) (196,732)
Organization expense - - (5,597)
Equipment (74,374) - (194,989)
------------- -------------- -------------
NET CASH USED IN INVESTMENT ACTIVITIES (103,485) (25,000) (397,318)
------------- -------------- -------------
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of preferred
and common stock 2,271,665 - 3,159,502
Contribution to capital - - 176,180
Notes Payable (931,854) 37,500 1,329,695
------------- -------------- -------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,339,811 37,500 4,665,305
------------- -------------- -------------
NET INCREASE (DECREASE) IN
CASH & EQUIVALENTS 1,935,999 20,263 2,006,370
CASH & EQUIVALENTS, BEGINNING OF PERIOD 70,371 3,254 -
------------- -------------- -------------
CASH & EQUIVALENTS, END OF PERIOD $ 2,006,370 $ 23,517 $ 2,006,370
============= ============== =============
See accompanying notes.
3
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Deficit
Accumulated Accumulated
Additional Deficit During
Preferred Common Paid-In December 31, Development
Stock Stock Capital 1992 Stage
----------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31,1998 $ 125,000 $ 34,035 $ 2,947,716 $ (258,205) $(2,336,619)
Shares issued in payment of
expenses and equipment - 884 78,618 - -
Shares issued in payment of
notes payable - 740 61,760 - -
Net loss - - - - (164,231)
----------- --------- ------------ ------------ ------------
BALANCE JUNE 30,1999 $ 125,000 $ 35,659 $ 3,088,094 $ (258,205) $(2,500,850)
=========== ========= ============ ============ ============
BALANCE DECEMBER 31,1999 $ 125,000 $ 41,502 $ 3,558,752 $ (258,205) $(2,834,263)
Proceeds from the Sale of
Common Stock - 7,193 2,364,473 - -
Shares issued in payment of
expenses, equipment and patents - 1,224 121,176 - -
Shares issued in payment of
notes payable - 4,152 374,848 - -
Net loss - - - - ( 470,773)
----------- --------- ------------ ------------ ------------
BALANCE JUNE 30,2000 $ 125,000 $ 54,071 $ 6,449,248 $ (258,205) $(3,305,036)
=========== ========= ============ ============ ============
See accompanying notes.
4
</TABLE>
<PAGE> 28
ADVANCED PRECISION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE COMPANY:
The Company is in the development stage and is engaged in developing the
business of producing and marketing its patented fingerprint capture device
and its patented personalized identification cards, optical approval devices
and optical enrollment device for real time fingerprint verification and
authentication.
BUSINESS COMBINATIONS:
On June 17, 1994, the Company issued 16,000,000 shares of common stock, after
a 1 for 4 reverse split, for all of the common stock of Holographics, Inc.
This transaction was accounted for as a recapitalization, and, accordingly,
the financial statements include the accounts and operations of Holographics,
Inc. for all periods prior to the merger.
INVENTORY:
Inventory, which is all work-in-progress, is stated at the lower of cost,
determined on a first-in, first-out method, or market.
EQUIPMENT:
Equipment is stated at cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of three years. Depreciation expense of
$35,146 in 1999, $34,829 in 1998, $18,432 in 1997 and $97,447 cumulative
during development stage has been charged to operations.
PATENTS:
The cost to acquire patents is capitalized and amortized on a straight-line
basis over 17 years. Amortization expense of $67,368 in 1999, $67,009 in
1998, $64,244 in 1997 and $227,231 cumulative during development stage has
been charged to operations. The Company reviews patent costs for impairment
whenever events or changes indicate that the carrying amount may not be
recoverable.
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred.
CASH FLOWS STATEMENT:
The Company considers investments purchased with a maturity of three months or
less to be cash equivalents.
5
<PAGE> 29
ADVANCED PRECISION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
STOCK-BASED COMPENSATION:
Stock-based compensation is recognized at the fair value of the consideration
received.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
LOSS PER SHARE:
As of December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS
128 provides for the calculation of basic and diluted earnings per share.
Basic earnings per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities, including stock option and warrants,
that could share in the earnings of an entity. Because the Company has a net
loss, dilutive earnings per share are the same as basic earnings per share.
As required by SFAS 128, all prior earnings have been restated to reflect the
retroactive application of this accounting pronouncement. Adoption of SFAS
128 had no effect on previously reported earnings per share.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that the Company disclose the
estimated fair value for its financial instruments for which it is practicable
to estimate their values. The Company's financial instruments include cash,
stockholder advances, notes payable and accounts payable. The carrying value
of cash approximates fair value due to the short maturities of these
instruments. The fair value of other financial instruments is not practical
to estimate because of the current financial condition of the Company.
6
<PAGE> 30
ADVANCED PRECISION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 2 - FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared assuming the Company will continue
as a going concern. Although the Company is still in the development stage,
management has raised financing to begin production of its products.
The Company's ability to continue as a going concern is dependent on
management's success in commencement of operations. See Note 8 for subsequent
financing.
The Company's recurring losses and negative working capital in the past raise
substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 3 - PATENTS
Patent costs include the following:
Payments to a stockholder, principally with
stock, to purchase his patents, at the cost which
he paid to purchase them from a third party $ 886,347
650,000 shares of Company stock issued to San
Jose State University Foundation in consideration
for patent work and a waiver of patent rights
developed under a work for hire contract 162,500
Legal fees, Patent Office costs and payments of
cash and stock to consultants and subcontractors
for waiver of any patent claims 227,666
-------------
$ 1,276,513
NOTE 4 - NOTES PAYABLE
Notes payable at June 30, 1999 represents promissory notes with interest of
10%. The notes were due on demand.
NOTE 5 - LOANS PAYABLE-STOCKHOLDER
Loans payable-stockholder represent advances to and payment of expenses on
behalf of the Company made by the Company's president. The loans are due on
demand and do not bear interest.
NOTE 6 - INCOME TAX
The Company has approximately $3,500,000 of Federal operating loss
carryforwards with expiration dates through the year 2014.
7
<PAGE> 31
ADVANCED PRECISION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
Since the Company is in the development stage and management cannot determine
that it is more likely than not the asset will be recovered, it has provided a
100% valuation allowance against the deferred tax asset resulting from its net
operating loss carryforwards. Accordingly, no deferred tax asset is reflected
in the accompanying financial statements. There are no deferred tax
liabilities.
The deferred tax assets and valuation allowances are $1,048,000 at December
31, 1999 and $880,000 at December 31, 1998.
NOTE 7 - CASH FLOW STATEMENT
There were no cash payments for interest or taxes during the periods
presented.
NOTE 8 - LEASE COMMITMENT
The Company leases its office under a 36-month lease at $3575 per month
expiring 5/31/2003, with minimum lease payments as follows:
Year Ending December 31, Amount
----------------------- ---------
2000 $25,200
2001 43,200
2002 43,200
2003 18,000
The Company previously leased its office under a lease of less than one year.
Rent expense was $5400 in 2000, $10,916 in 1999.
NOTE 9 - PREFERRED STOCK
The Company's preferred stock is non-voting and pays a 12% cumulative dividend
payable in additional preferred stock. The Company has the right to redeem
the preferred stock at 110% of the face value. In addition, each preferred
share is convertible into 200 shares of the Company's common stock.
NOTE 10 - STOCK WARRANTS
Each shareholder of preferred stock received Class A and Class B Common Stock
Purchase Warrants, 200 Class A and 200 Class B for each preferred share. Each
A Warrant entitles the holder to purchase one share of common stock at $1.00
per share to February 28, 1998. Each B Warrant entitles the holder to
purchase one share of common stock at $2.00 per share until August 31, 1998.
The options expired and none were exercised.
8
<PAGE 32
ADVANCED PRECISION TECHNOLOGY, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
ARTHUR KORN
Certified Public Accountant
<PAGE> 33
<Letterhead of:
ARTHUR KORN, CPA
402 Hummingbird Place
Clayton, CA 94517
TEL (925)672-5200
FAX (925) 672-5201>
REPORT OF INDEPENDENT AUDITOR
Board of Directors
Advanced Precision Technology, Inc.
I have audited the accompanying balance sheet of Advanced Precision
Technology, Inc. (a development stage company) as of December 31, 1999 and
1998 and the related statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1999 and for the period January 1, 1993 (inception of development stage
activities) to December 31, 1999. These financial statements are the
responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amount and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Precision
Technology, Inc. at December 31, 1999 and 1998 and the results of operation,
and cash flows for each of the three years in the period ended December 31,
1999 and for the period January 1, 1993 (inception of development stage
activities) to December 31, 1999, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
has been in the development stage since its inception and has sustained
recurring losses, has negative working capital and has not as yet commenced
operations. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Continuation as a going concern is
dependent upon the Company's ability to meet future financing requirements and
the success of its future operations, the outcome of which cannot be
determined at this time. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Management's plan regarding future operations is also described in Note 2.
/s/ Arthur Korn CPA
Clayton, California
June 6, 2000
<PAGE> 34
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31,
1999 1998
------------- -------------
ASSETS
------
CURRENT ASSETS:
Cash $ 70,371 $ 3,254
Inventory 12,338 7,458
Prepaid expenses 2,600 -
------------- -------------
Total Current Assets 85,309 10,712
------------- -------------
FIXED ASSETS:
Equipment 129,115 126,827
Accumulated depreciation 97,447 62,301
------------- -------------
31,668 64,526
------------- -------------
OTHER ASSETS:
Patents 1,247,402 1,169,469
Accumulated amortization 227,231 159,863
------------- -------------
1,020,171 1,009,606
------------- -------------
$ 1,137,148 $ 1,084,844
============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
CURRENT LIABILITIES:
Accounts payable $ 168,675 $ 241,966
Notes payable 195,000 45,000
Accrued expenses 11,932 2,324
Loans payable - stockholder 98,755 283,627
------------- -------------
Total Current Liabilities 474,362 572,917
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value;
authorized 25,000,000 shares;
1,250 shares issued and outstanding 125,000 125,000
Common stock, $.001 par value;
authorized 100,000,000 shares,
issued and outstanding:
1999 - 41,502,147 shares
1998 - 34,035,125 shares 41,502 34,035
Additional paid-in capital 3,588,752 2,947,716
Accumulated deficit December 31, 1992 (258,205) (258,205)
Deficit accumulated during
development stage (2,834,263) (2,336,619)
------------- -------------
662,786 511,927
------------- -------------
$ 1,137,148 $ 1,084,844
============= =============
See accompanying notes.
-2-
<PAGE> 35
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
Cumulative
During
Development Year Ended December 31,
Stage 1999 1998 1997
------------ ------------ ------------ ------------
REVENUES $ 82,478 $ - $ - $ 82,478
------------ ------------ ------------ ------------
EXPENSES:
Cost of goods sold 28,049 - - 28,049
Research and development 1,157,299 68,179 352,801 507,884
Marketing 473,844 78,037 135,594 153,980
Administrative 687,274 128,914 274,651 216,111
President's salary 240,000 120,000 120,000 -
Depreciation and
amortization 330,275 102,514 101,838 84,916
------------ ------------ ------------ ------------
2,916,741 497,644 984,884 990,940
------------ ------------ ------------ ------------
NET LOSS $(2,834,263) $ (497,644) $ (984,844) $ (908,462)
============ ============ ============ ============
LOSS PER SHARE $ (.01) $ (.04) $ (.04)
============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 34,759,821 27,144,821 22,786,625
============ ============ ============
See accompanying notes.
-3-
<PAGE> 36
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated
Additional Deficit During
Preferred Common Paid-In December 31, Development
Stock Stock Capital 1992 Stage
----------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ - $ 20,862 $ 826,139 $ (258,205) $ (443,273)
Proceeds from sale of stock 245,000 1,500 373,500 - -
Shares issued as prepaid
compensation - 285 70,965 - -
Shares issued in payment of
expenses, equipment and patents - 584 151,416 - -
Shares issued in payment
of notes payable - 1,200 118,800 - -
Preferred shares converted
to common (140,000) 280 139,720 - -
Net loss - - - - (908,462)
----------- --------- ------------ ------------ ------------
BALANCE DECEMBER 31, 1997 105,000 24,711 1,680,540 (258,205) (1,351,735)
Proceeds from sale of stock 20,000 20 9,980 - -
Shares issued in payment of
expenses, equipment and patents - 1,864 179,636 - -
Shares issued in payment
of notes payable - 7,440 1,077,560 - -
Net loss - - - - (984,884)
----------- --------- ------------ ------------ ------------
BALANCE DECEMBER 31, 1998 125,000 34,035 2,947,716 (258,205) (2,336,619)
Shares issued in payment of
expenses, equipment and patents - 1,990 198,013 - -
Shares issued in payment of
notes payable - 5,477 443,023 - -
Net loss - - - - (497,644)
----------- --------- ------------ ------------ ------------
BALANCE DECEMBER 31, 1999 $ 125,000 $ 41,502 $ 3,558,752 $ (258,205) $(2,834,263)
=========== ========= ============ ============ ============
See accompanying notes.
-4-
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
CUMULATIVE
DURING
DEVELOPMENT Year Ended December 31,
STAGE 1999 1998 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH USED IN OPERATIONS
Net loss $(2,834,263) $ (497,644) $ (984,884) $ (904,462)
Adjustments to reconcile net loss
to cash used in operations:
Depreciation and amortization 324,678 102,514 101,838 84,916
Expenses paid with common stock 667,751 82,379 441,872 143,500
Increase (decrease) in:
Accounts receivable - - 31,536 (31,536)
Inventory 12,338 18,266 765 (6,693)
Prepaid expenses 2,600 (68,650) 71,250 -
Accounts payable 168,675 (73,291) 98,824 72,180
Accrued expenses 2,324 (9,608) (2,324) -
Due stockholder 283,627 184,872 283,627 -
------------ ------------- ------------- -------------
NET CASH USED IN OPERATIONS (1,768,908) (261,162) (524,750) (642,095)
------------ ------------- ------------- -------------
CASH USED IN INVESTING ACTIVITIES
Investments in patents (167,621) (17,932) (3,207) (28,270)
Equipment (120,615) (2,288) (31,602) (66,960)
------------ ------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (288,236) (20,220) (34,809) (95,230)
------------ ------------- ------------- -------------
CASH PROVIDED BY FINANCING ACTIVITIES
Proceeds from issuance of common
and preferred stock 887,836 - 30,000 620,000
Contributions to capital 176,180 - - -
Short term notes payable 1,063,499 348,499 495,000 138,000
------------ ------------- ------------- -------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,127,515 348,499 525,000 758,000
------------ ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS 70,371 67,117 (34,559) 16,675
CASH AND EQUIVALENTS,
BEGINNING OF PERIOD - 3,254 37,813 21,138
------------ ------------- ------------- -------------
CASH AND EQUIVALENTS, END OF PERIOD $ 70,371 $ 70,371 $ 3,254 $ 37,813
============ ============= ============= =============
See accompanying notes.
-5-
</TABLE>
<PAGE> 38
ADVANCED PRECISION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE COMPANY:
The Company is in the development stage and is engaged in developing the
business of producing and marketing its patented fingerprint capture device
and its patented personalized identification cards, optical approval devices
and optical enrollment device for real time fingerprint verification and
authentication.
BUSINESS COMBINATIONS:
On June 17, 1994, the Company issued 16,000,000 shares of common stock, after
a 1 for 4 reverse split, for all of the common stock of Holographics, Inc.
This transaction was accounted for as a recapitalization, and, accordingly,
the financial statements include the accounts and operations of Holographics,
Inc. for all periods prior to the merger.
INVENTORY:
Inventory, which is all work-in-progress, is stated at the lower of cost,
determined on a first-in, first-out method, or market.
EQUIPMENT:
Equipment is stated at cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of three years. Depreciation expense of
$35,146 in 1999, $34,829 in 1998, $18,432 in 1997 and $97,447 cumulative
during development stage has been charged to operations.
PATENTS:
The cost to acquire patents is capitalized and amortized on a straight-line
basis over 17 years. Amortization expense of $67,368 in 1999, $67,009 in
1998, $64,244 in 1997 and $227,231 cumulative during development stage has
been charged to operations. The Company reviews patent costs for impairment
whenever events or changes indicate that the carrying amount may not be
recoverable.
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred.
CASH FLOWS STATEMENT:
The Company considers investments purchased with a maturity of three months or
less to be cash equivalents.
-6-
<PAGE> 39
ADVANCED PRECISION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
STOCK-BASED COMPENSATION:
Stock-based compensation is recognized at the fair value of the consideration
received.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
LOSS PER SHARE:
As of December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS
128 provides for the calculation of basic and diluted earnings per share.
Basic earnings per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities, including stock option and warrants,
that could share in the earnings of an entity. Because the Company has a net
loss, dilutive earnings per share are the same as basic earnings per share.
As required by SFAS 128, all prior earnings have been restated to reflect the
retroactive application of this accounting pronouncement. Adoption of SFAS
128 had no effect on previously reported earnings per share.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires that the Company disclose the
estimated fair value for its financial instruments for which it is practicable
to estimate their values. The Company's financial instruments include cash,
stockholder advances, notes payable and accounts payable. The carrying value
of cash approximates fair value due to the short maturities of these
instruments. The fair value of other financial instruments is not practical
to estimate because of the current financial condition of the Company.
NOTE 2 - FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared assuming the Company will continue
as a going concern. Although the Company is still in the development stage,
management is currently negotiating to raise adequate financing to begin
production of its products.
-7-
<PAGE> 40
ADVANCED PRECISION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
The Company's ability to continue as a going concern is dependent on
management's success in obtaining financing and the commencement of
operations. See Note 8 for subsequent financing.
The Company's recurring losses and negative working capital raise substantial
doubt about the ability of the Company to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE 3 - PATENTS
Patent costs include the following:
Payments to a stockholder, principally with
stock, to purchase his patents, at the cost which
he paid to purchase them from a third party $ 886,347
650,000 shares of Company stock issued to San
Jose State University Foundation in consideration
for patent work and a waiver of patent rights
developed under a work for hire contract 162,500
Legal fees, Patent Office costs and payments of
cash and stock to consultants and subcontractors
for waiver of any patent claims 198,555
------------
$ 1,247,402
NOTE 4 - NOTES PAYABLE
Notes payable at December 31, 1999 and 1998 represent three month promissory
notes with interest of 20%. The notes are due through February 17, 2000.
NOTE 5 - LOANS PAYABLE-STOCKHOLDER
Loans payable-stockholder represent advances to and payment of expenses on
behalf of the Company made by the Company's president. The loans are due on
demand and do not bear interest.
NOTE 6 - INCOME TAX
The Company has approximately $3,083,000 of Federal operating loss
carryforwards with expiration dates through the year 2014.
Since the Company is in the development stage and management cannot determine
that it is more likely than not the asset will be recovered, it has provided a
100% valuation allowance against the deferred tax asset resulting from its net
operating loss carryforwards. Accordingly, no deferred tax asset is reflected
-8-
<PAGE> 41
ADVANCED PRECISION TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
in the accompanying financial statements. There are no deferred tax
liabilities.
The deferred tax assets and valuation allowances are $1,048,000 at December
31, 1999 and $880,000 at December 31, 1998.
NOTE 7 - CASH FLOW STATEMENT
There were no cash payments for interest or taxes during the periods
presented.
NOTE 8 - LEASE COMMITMENT
The Company leases its office under a lease of less than one year.
Rent expense was $21,382 in 1999, $26,162 in 1998, and $2,394 in 1997.
NOTE 9 - PREFERRED STOCK
The Company's preferred stock is non-voting and pays a 12% cumulative dividend
payable in additional preferred stock. The Company has the right to redeem
the preferred stock at 110% of the face value. In addition, each preferred
share is convertible into 200 shares of the Company's common stock.
NOTE 10 - STOCK WARRANTS
Each shareholder of preferred stock received Class A and Class B Common Stock
Purchase Warrants, 200 Class A and 200 Class B for each preferred share. Each
A Warrant entitles the holder to purchase one share of common stock at $1.00
per share to February 28, 1998. Each B Warrant entitles the holder to
purchase one share of common stock at $2.00 per share until August 31, 1998.
The options expired and none were exercised.
NOTE 11 - SUBSEQUENT EVENT
On May 16, 2000 completed a private placement to accredited individuals for
$2,365,000.
-9-
<PAGE> 42
PART III
Item 1. Index to Exhibits.
All of the following exhibits required by Item 601 of Regulation S-B were
previously filed with the exception of exhibits 6.1 and 27.1 which are filed
herewith:
Exhibit No. Document Description
2.1.1 Articles of Incorporation of Global Technology, Ltd., dated
February 6, 1985
2.1.2 Articles of Amendment of Global Technology, Ltd., changing the
name to "Advanced Precision Technology, Inc." dated April 11,
1988
2.1.3 Amendment and Revised Articles of Incorporation of Advanced
Precision Technology, Inc. changing the name to "UV Color
Corporation" dated December 1, 1992
2.1.4 Certificate of Amendment of UV Color Corporation changing the
name to "Advanced Precision Technology, Inc." dated June 9, 1994
2.2 Bylaws
6.1 Agreement and Assignment of Patents
6.2 Lease for 2271-D South Vasco Road, Livermore, CA 94550 dated May
8, 2000
8.1 Agreement and Plan of Reorganization by and between Ximberley
Corporation, Advanced Precision Technology, Inc. and Precision
Tank Testing, dated March 21, 1988
8.2 Agreement and Plan of Reorganization by and between Advanced
Precision Technology, Inc. and Holographics, Inc., dated May 27,
1994, as amended
27.1 Financial Data Schedule
<PAGE> 43
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated: September 26, 2000 ADVANCED PRECISION TECHNOLOGY, INC.
/S/ BRUCE A. PASTORIUS
By:________________________________
BRUCE A. PASTORIUS
Chairman, Chief Executive Officer
and President
/S/ JAMES D. HOMER
By:________________________________
JAMES D. HOMER
Secretary and Director
