-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DLWqY3PkzG7k6fhab46TMqoVfckgbIds7TUgmfyC4RNp36SrJxBdNnlRe3UlNiu2 zvJOWnWpKvpBXV2XHwPhhg== 0001015402-01-000945.txt : 20010409 0001015402-01-000945.hdr.sgml : 20010409 ACCESSION NUMBER: 0001015402-01-000945 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA MOLECULAR ELECTRONICS CORP CENTRAL INDEX KEY: 0001069378 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 860888087 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 333-82493 FILM NUMBER: 1590959 BUSINESS ADDRESS: STREET 1: 13924 N GREEN TREE DRIVE CITY: TUCSON STATE: AZ ZIP: 85737 BUSINESS PHONE: 5208258333 MAIL ADDRESS: STREET 1: 13924 N GREEN TREE DRIVE CITY: TUCSON STATE: AZ ZIP: 85737 10KSB 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION ------------------------------------------------ WASHINGTON, D.C. 20549 FORM 10-KSB (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2000 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________. Commission File Number: 333-82493 CALIFORNIA MOLECULAR ELECTRONICS CORP. (EXACT NAME OF SMALL BUSINESS AS SPECIFIED IN ITS CHARTER) Arizona 86-0888087 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 50 Airport Parkway, San Jose, CA 95110 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (408) 451-8404 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS TITLE OF EACH EXCHANGE ON WHICH REGISTERED ---------------------- ------------------------------------------------ None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $110,099. State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. For purposes of the foregoing calculation only, the issuer has included in the shares owned by affiliates the beneficial ownership of common equity of officers and directors of the registrant and members of their families, and such inclusion shall not be construed as an admission that any such person is an affiliate for any other purposes. $2,201,628. As of March 30, 2001, there were 5,131,675 outstanding shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE None. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] ================================================================================ CALIFORNIA MOLECULAR ELECTRONICS CORP. TABLE OF CONTENTS 2000 FORM 10-KSB ITEM NO. PAGE - -------- ---- PART I Item 1. Business 3 Item 2. Properties 7 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters 7 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 7. Financial Statements 10 Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 10 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 10 Item 10. Executive Compensation 10 Item 11. Security Ownership of Certain Beneficial Owners and Management 11 Item 12. Certain Relationships and Related Transactions 11 Item 13. Exhibits and Reports on Form 8-K 12 This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), regarding future events and California Molecular Electronics Corp.'s ("CALMEC") plans and expectations that involve risks and uncertainties. When used in this Report, the words "estimate," "project," "intend," "expect" and "anticipate" and similar expressions are intended to identify such forward-looking statements. Because these forward looking statements involve risk and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of reasons, including those discussed in the section entitled "Risk Factors" of CALMEC's Form SB-2 filed with the Securities and Exchange Commission January 31, 2000. In light of the important factors that can materially affect results, the inclusion of forward-looking information herein should not be regarded as a representation by CALMEC or any other person that the objectives or plans for CALMEC will be achieved. The reader is therefore cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. CALMEC undertakes no obligation to publicly release updates or revisions to these statements. -2- PART I ITEM 1. BUSINESS - ------------------ California Molecular Electronics Corp. ("CALMEC" or the "Company"), an Arizona corporation, was incorporated on March 17, 1997. The Company was formed to take advantage of a new field of technology in which individual molecules are used to produce effects that are currently being produced by electronic circuits. This field is known as "molecular electronics." Molecular electronics seeks to use individual molecules as the component parts of computer devices, display devices, and data storage devices. CALMEC currently owns the patent and trade secret rights to Chiropticene(TM) switching, a single-molecule switching technology. The Company believes these switches, one molecule in size, will become key components of future computational, optical, and data storage devices. The Chiropticene(TM) switch goes beyond the semiconductor switch in size reduction. This switch is a single molecule that exhibits classical switching properties. Being only one molecule in size, it offers the promise of producing structures thousands of times smaller than the smallest structures possible with semiconductor electronics. The Company's aim is to gain control of patents and trade secrets in the molecular electronics field so as to take advantage of these technological and economic advances in order to generate revenues by licensing to others the patents and trade secrets controlled by the Company. Additionally, the Company intends to develop products through partnership agreements using the Chiropticene(TM) technology. The Company's business currently consists of two major areas of activity, Research and Development and Sales and Corporate Development. RESEARCH AND DEVELOPMENT ("R&D") - ----------------------------------- The purpose of the Company's R&D program is to capture as large a portion of the intellectual property in the field of molecular electronics as possible and to develop the capability to create products that exploit this intellectual property. To this end, the Company's R&D consists of the following segments: - Research - Intellectual Property Development - Product Technology Development These three segments work together. Research develops the Company's knowledge by answering the questions that the other two segments need answered. Intellectual Property Development fashions the Company's knowledge into patent-protectable or trade-secret-protectable units that can be licensed and otherwise exploited for business. Finally, Product Technology Development puts in place those technical processes and technology arrangements necessary for the Company to produce or support the production of salable products. All three research segments are functioning now at a low but valuable level. The Company has spent approximately $306,707 and $240,668 in research and development costs during the years ended December 31, 2000 and 1999, respectively. -3- SALES AND CORPORATE DEVELOPMENT - ---------------------------------- The purpose of this area of activity is to exploit CALMEC's R&D results in order to generate revenue. This area of activity is responsible for selling products and for developing business arrangements so as to foster these sales, as well as developing products using the Company's technology. PRODUCTS AND SERVICES The Company's products are intellectual property and technical services. Intellectual properties - CALMEC's patents and trade secrets - are salable products. The Company intends to license them and support them in exchange for the payment of fees and royalties. The Company also intends to sell technical services: contract R&D and product development support. Customers for these services will again be the companies in CALMEC's customer network. The Company believes that its special molecular electronics expertise will be of value to its customers as they attempt to develop molecular electronics products. The Company will also, in addition to the above activities, undertake the funding and development of certain products using the Company's technology. MARKET CALMEC believes that families of processors will be the major product areas flowing from the field of molecular electronics. The markets for these products may be an expanded version of today's markets for semiconductor chips. The common types of chips currently being manufactured include computer microprocessors, signal processors, special-purpose chips, programmable logic chips, memory chips and controllers. Semiconductor chips are purchased by the manufacturers of chip-dependent products. Chip-dependent products are manufactured products that would not exist if chips were to vanish. This is a very long list of products including PCs, laptops, personal digital assistants (PDAs), cellular phones, hand held calculators, digital camcorders, digital cameras and a great many other consumer and non-consumer products. Semiconductor chips also support a large chip-driven software market providing software applications based on these chips. The chip driven software market consists of all the software products that would not exist if chips were to vanish. This includes all PC software application products, internet application products, all PC operating systems, and in fact every software product written for application on any chip. The Company expects molecular-electronic processors to serve the same markets as today's semiconductor chips. However, since CALMEC believes that successful molecular electronics technology will provide much greater performance at a much smaller size and price, the Company further believes that molecular electronics processors will find their way into many new products. -4- COMPETITION The field of molecular electronics is in the very early stages. To the best of the Company's knowledge, no one anywhere is developing or selling products based on molecular electronics technology. The Company believes that at this stage, competition is for intellectual property that will enable the control of future markets and not for the products for these markets. Patents have been and are being granted for innovations in the field or innovations that will impact the field. It is the Company's opinion, however, that overall, the intellectual property of the field is largely underdeveloped. Moreover, an essential part of the Company's business strategy is to exploit, under exploitation agreements, existing and future intellectual property belonging to others for the mutual benefit of others and CALMEC. By virtue of these strategies, CALMEC hopes to control and minimize the impact of the competition that will be seen. The Company believes that the competition for this intellectual property will come from two sources: those who will seek to imitate CALMEC's customer-building strategy, and those who will develop and exploit intellectual property on their own. Currently, the Company knows of no companies interested in imitating its customer-building strategy. And only time will tell whether or not there will be many or few intellectual property developers who have the time, resources and commitment to undertake exploitation on their own without CALMEC's or others' involvement. The Company believes that its ultimate competitors will be companies within CALMEC's own product-development customer network. The Company's customers will have the knowledge, expertise and experience to engage this new market in part because of the Company's work with them. While CALMEC intends to work its customer agreements to its benefit, the Company recognizes that it will be impossible and perhaps even unwise to prevent its customers from being its competitors in various niches of the market. These customer-based competitors will probably be the earliest specific competitors that CALMEC will be able to identify. Management expects to know them in more intimate detail than other future competitors. PATENTS The Company has executed an exclusive license and patent assignment agreement for the worldwide rights to the economic exploitation of United States Patent Number 5,237,067 issued August 17, 1993 to Dr. Robert R. Schumaker, and its related technology, called as a whole "chiropticene" technology. Dr. Schumaker is also the Company's Executive Vice President for Research and Development and a major shareholder in the Company. CALMEC has also filed new patent applications on related molecular electronics innovations flowing from new work internal to the Company (United States Patent Number 6,124,963). On March 26, 1999, the Company executed an exclusive patent license agreement with the University of South Carolina for the worldwide rights to an invention (USC Disclosure #98038) and its related technology that exploits electrostatic signals for molecular electronic computation. On May 6, 1999, CALMEC executed an exclusive patent license agreement with the University of Minnesota for the worldwide rights to United States Patent Number 5,766,952 on vapochromic complexes and related United States Patent Numbers 6,137,118 and 6,160,267 together exploiting molecular electronic vapochromic devices. -5- In addition, the Company is working on developing patent exploitation agreements with numerous other universities and government labs that are leaders in the field of molecular electronics and that own important intellectual property in the field. Chiropticene(TM) and CALMEC(R) are trademarks belonging to the Company that refer to the Company's molecular switches and to the Company. EMPLOYEES As of December 31, 2000, CALMEC had four full-time employees, including three employees who are directors of the Company. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY DR. JON N. LEONARD is a consultant to business and government in science, technology, and business development. He has been the Chairman of CALMEC since early in 1997. He was the President and CEO of BPM Technology from 1992 through 1996, a company that raised $10 million in venture capital to develop and market a three-dimensional printer product. Prior to that, from 1985 to 1992, he was the Chief Scientist of, and responsible for new business development in, the Strategic Products Manufacturing Division of Hughes Aircraft Company. Dr. Leonard has authored numerous technical papers in the areas of electronics, computation and communication, as well as three popular books in the area of human health. Dr. Leonard received Ph.D. and Bachelors degrees in mathematics and physics from the University of Arizona and a Masters degree in engineering from UCLA. MR. JAMES J. MAREK, JR. has over 30 years of business experience in the management of high technology companies. Since September of 1997, Mr. Marek has been the President and CEO of CALMEC. Prior to this, in 1996, he had his own consulting practice specializing in start-up management, turnaround restructuring, marketing/sales issues, and contract negotiations. From 1990 to 1996, Mr. Marek was the President and General Manager of ITEC, Inc., a privately held $25 million manufacturer of systems for telephone administrations worldwide and a provider of contract manufacturing services. He has over 16 years in top management positions (CEO, President, General Manager, Vice President of Marketing and Sales, and Director) with full responsibility for start-up companies as well as multimillion dollar corporations manufacturing and marketing sophisticated electronic products. Mr. Marek has a Bachelor of Electrical Engineering degree from Marquette University and has taken post-graduate work in communications, marketing, finance, accounting, and business management. DR. ROBERT R. SCHUMAKER is a renowned chemist and inventor, credited with the development of new superconducting materials while at IBM, and the holder of more than a dozen patents. Since May of 1997 Dr. Schumaker has been the director of R&D at CALMEC. Prior to coming to CALMEC, from 1992 until 1997, Dr. Schumaker ran International Molecular Processors, a private company that he founded, that conducted research in the area of molecular switch devices. Before this, Dr. Schumaker spent 25 years as a research scientist at IBM and another 10 years in research and teaching at the University of Bordeaux (France), the University of Alabama, and Universidad Autonoma de Guadalajara (Mexico). Dr. Schumaker received his Bachelors degree in Chemistry from the University of California in Santa Cruz, and his Ph.D. degree in Chemistry from the University of Oregon. -6- ITEM 2. PROPERTIES None. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There was no submission of matters to a vote of security holders during the fourth quarter of the year ended December 31, 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Market Information ------------------- There is no public market for the Company's common stock, and a public market may not be available in the foreseeable future. Shareholders ------------ The number of common shareholders of record as of February 28, 2001 was 314. Dividend Policy ---------------- No cash dividends have been declared on the Company's common stock since the Company's inception. It is not anticipated that dividends will be paid in the foreseeable future. -7- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview - -------- CALMEC was formed to engage primarily in the business of producing and selling products and services related to the new technological field of molecular electronics. Molecular electronics is the technology of using single molecules to form components of electronic devices. The Company continues to be in the initial phase of its existence, and through December 31, 1999, CALMEC's three officers had elected to forego their salaries. Commencing February 2000, the Executive Vice President and Secretary began receiving remuneration for his services and the President and Chief Executive Officer began to receive a portion of his salary commencing May 2000. The Company will transition from the start-up phase to the operational phase when the Board of Directors has determined sufficient capital has been accumulated to do so. At that time, all employees and executive officers will receive salaries, additional space will be leased, capital equipment will be purchased, and other operating expenses will be incurred. Prior to that time, activities will be restricted to low cost activities that will keep the Company within its cash resources. In the second quarter of 1999, the Company started paying salaries to two chemists to perform research. Also in the second quarter of 1999, CALMEC began leasing lab space from San Jose State University for the purpose of housing these chemists and developing Chiropticene(TM) demonstration chemistry. The lease ran through March 31, 2000, and the Company has renegotiated with San Jose State University to extend the lease until March 31, 2001, and then again until March 31, 2002. On January 31, 2000, CALMEC filed a Form SB-2, Registration Statement under the Securities Act of 1933, with the Securities and Exchange Commission ("SEC"). On February 7, 2000, the Registration Statement became effective and CALMEC commenced its sale of up to 1,000,000 shares of common stock at $6.00 per share. CALMEC planned to raise $6 million with this offering, before payment of estimated offering expenses of $50,000. Subsequent to the effective date of the Registration Statement through February 28, 2001, CALMEC sold 120,239 shares of its common stock, for a total aggregate price of $721,434. The Company terminated the sale of its common stock under the Registration Statement on February 28, 2001. Operations - ---------- The Company was in the development stage during 1999, and had no revenues from operations. During the first quarter of 2000, the Company received a grant from The National Science Foundation in the amount of $100,000, which was paid in three equal installments. The grant supported research to demonstrate the feasibility of the unique Chiropticene(TM) molecular switch. The first installment of $33,333 was received in January 2000, and was recognized as grant income during the quarter ended March 31, 2000. The second installment of $33,333 was received in April 2000, and was recognized as grant income during the quarter ended June 30, 2000. The third and final installment of $33,334 was recognized during the fourth quarter of 2000. The grant has been recognized in earnings in the period in which the related expenditures were incurred by the Company. -8- R&D costs of $306,707 for the year ended December 31, 2000 compared to R&D costs of $240,668 in 1999, an increase of $66,039 or 27.4%. The increase was primarily related to an increase in R&D related salary and wage expense. Officers' compensation donated to the Company of $126,400 in 2000 decreased from $270,000 recorded in 1999, primarily related to the fact that certain of the officers began receiving payment for all or a portion of their salary in 2000. In 1999, 100 percent of the officers' compensation was donated to the Company. In 1999, the Company was still considered to be in the development stage, and costs other than R&D and Officers' compensation donated to the Company were considered preoperating expenses. In the year 2000, as the Company earned revenue, it is no longer considered in the development stage, and costs other than R&D and Officers' compensation donated to the Company are recorded as selling, general and administrative costs. Selling, general and administrative costs consist primarily of rent, travel and other administrative expenses, and in 2000 increased over 1999 by $125,004 or 72%, primarily related to increases in rent and travel expenses. Liquidity and Capital Resources - ---------------------------------- The full extent of CALMEC's future capital requirements and the adequacy of its available funds will depend on many factors, not all of which can be accurately predicted. Although no assurance can be given, the Company believes it can continue to operate in its present status for at least the next twelve months. After terminating its sale of common stock effective February 28, 2001 under its public offering relating to its February 7, 2000 Registration Statement filed with the SEC, the Company has undertaken additional and new activities to develop certain products using the Company's technology. The Company is aggressively pursuing industrial and venture capital funds, as well as a private placement offering, in order to develop this technology. The proposed private placement would attempt to sell 200,000 units at $6.00 per unit. A unit would be comprised of one share of Series A Preferred Stock, one warrant for one common share exercisable through October 31, 2001 at $2.50 per share, and one warrant to purchase an additional common share at $3.50 per share, through April 30, 2002. In the event that additional capital is required, CALMEC may seek to raise that capital through public or private equity or debt financings. Future capital funding transactions may result in dilution to stockholders. There can be no assurance that additional capital will be available on favorable terms, if at all. CALMEC's inability to obtain additional capital on acceptable terms could limit its ability to meet its plan of operation. -9- Hiring of employees - --------------------- CALMEC will transition from its start-up phase to its operational phase when its accumulated cash balances permit it to do so according to the business judgment of management. At that time, employees currently working without pay or for partial pay will begin receiving full compensation. Regardless of when that time occurs, the Company has already hired and is supporting the lab work of a chemist, and is paying one of the executive officers full compensation, and another executive officer a portion of his compensation. ITEM 7. FINANCIAL STATEMENTS (1) Financial Statements See Index to Financial Statements on Page F-1 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Reference is made to the information regarding Directors under the heading "Directors and Executive Officers of the Company" in Part I hereof. ITEM 10. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE Long-term Annual Compensation Compensation Awards ------------------- ------------------- (a) (b) (c) (g) Securities Underlying Name and Principal Position Year Salary ($) options/ SARS (#) - ---------------------------- ---- --------- ---------------------- President/CEO 2000 33,600 9,750 1999 - - EVP/Secretary 2000 110,000 - 1999 - - Note: Reference is made to the information in "Note 8 - Related Party Transactions" of the notes to the financial statements under Part II, Item 7 hereof. -10-
OPTIONS/SAR GRANTS IN THE LAST FISCAL YEAR (a) (b) (c) (d) (e) Number of Percent of Total Securities Options/ SARs Underlying Granted to Exercise or Name and Options/SARs Employees in Base Price Principal Position Granted (#) Fiscal Year ($/Sh) Expiration Date - ------------------- ------------- ----------------- ------------- ---------------- President/CEO 9,750 32.7% $ 6.00 April 30, 2010
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(1) (2) (3) (4) Amount and Nature of Name and Address of Beneficial Percent of Title of Class Beneficial Owner Owner Class - --------------- ----------------------------- ----------- ----------- Common Jon N. Leonard 3,987,166 78.3% 1512 W. Canada Hills Dr. Tucson, AZ 85737 Common James J. Marek, Jr. 390,200 7.70% 1080 Grande View Blvd., #828 Huntsville, AL 35824 Common Robert R. Schumaker 370,000 7.30% 520 Pilgrim Dr. Capitola, CA 95010
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. -11- ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See the exhibits filed under Item 13(c), which are filed herewith or incorporated by reference herein. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed below are filed or incorporated by reference herein.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - -------------- ----------------------- 3.1 Articles of Incorporation of California Molecular Electronics Corp., filed as exhibit 3.1 to our Registration Statement on Form SB-2 filed with the Commission on January 31, 2000 and incorporated herein by this reference. - -------------- ------------------------------------------------------------------------------ 3.2 Bylaws of California Molecular Electronics Corp., filed as exhibit 3.2 to our Registration Statement on Form SB-2 filed with the Commission on January 31, 2000 and incorporated herein by this reference. - -------------- ------------------------------------------------------------------------------ 10.1 Long term employment agreements between R. Schumaker and California Molecular Electronics Corp. and J. Marek and California Molecular Electronics Corp., filed as exhibit 4 to the Company's Registration Statement on Form SB-2 filed with the Commission on January 31, 2000 and incorporated herein by this reference.* - -------------- ------------------------------------------------------------------------------ 10.2 Exclusive patent license and assignment agreement between R. Schumaker and California Molecular Electronics Corp., filed as exhibit 5 to the Company's Registration Statement on Form SB-2 filed with the Commission on January 31, 2000 and incorporated herein by this reference. - -------------- ------------------------------------------------------------------------------ 10.3 Stock Option Agreement between James J. Marek, Jr. and California Molecular Electronics Corp. dated May 1, 2000.* - -------------- ------------------------------------------------------------------------------ 10.4 Rights Agreement between James J. Marek, Jr. and California Molecular Electronics Corp. dated June 1, 2000.* - -------------- ------------------------------------------------------------------------------ 27.1 Financial Data Schedule - -------------- ------------------------------------------------------------------------------ * Management contract or compensation plan arrangement.
-12- SIGNATURES - ---------- CALIFORNIA MOLECULAR ELECTRONICS CORP. In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. California Molecular Electronics Corp. - ----------------------------------------- (Registrant) /s/ James J. Marek, Jr. - --------------------------- James J. Marek, Jr. President and Chief Executive Officer Date: March 30, 2001 - ----------------------- In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date Name: Position Signature - -------------- ----------------------------- ----------------------- March 30, 2001 Dr. Jon N. Leonard: Director, Jon. N. Leonard - -------------- ----------------------------- ----------------------- Chairman of the Board /s/ Jon N. Leonard --------------------- ----------------------- March 30, 2001 James J. Marek, Jr: Director, James J. Marek, Jr. - -------------- ----------------------------- ----------------------- President, Chief Executive /s/ James J. Marek, Jr. -------------------------- ----------------------- Officer ------- -13- CALIFORNIA MOLECULAR ELECTRONICS CORP. FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000 AND 1999
Page ---- Report of Independent Certified Public Accountants F-2 Balance Sheet at December 31, 2000 and 1999 F-3 Statement of Operations for the Years Ended December 31, 200 and 1999 F-4 Statement of Stockholders' Equity for the Years Ended December 31, 2000 and 1999 F-5 Statement of Cash Flows for the Years Ended December 31, 2000 and 1999 F-6 Notes to Financial Statements F-7
F-1 March 17, 2001 To the Board of Directors and Stockholders of California Molecular Electronics Corp. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ------------------------------------------------------- In our opinion, the accompanying balance sheet and the related statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of California Molecular Electronics Corp. ("CALMEC") at December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. ODENBERG, ULLAKKO, MURANISHI & CO. LLP San Francisco, California F-2
CALIFORNIA MOLECULAR ELECTRONICS CORP. -------------------------------------- BALANCE SHEET December 31 ---------------------------- 2000 1999 ------------- ------------- ASSETS ------ Current assets: Cash $ 120,606 $ 91,993 Employee advance 10,000 - Prepaid expenses 8,247 6,493 ------------- ------------- Total current assets 138,853 98,486 Equipment, net 5,167 2,099 Other 1,406 427 ------------- ------------- $ 145,426 $ 101,012 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable and accrued liabilities $ 23,175 $ 13,800 Other payable 5,000 5,000 ------------- ------------- Total current liabilities 28,175 18,800 ------------- ------------- Stockholders' equity: Common stock, no par value: Authorized 20 million shares; 5,090,123 and 4,994,065 issued and outstanding (including 4,800 treasury shares) at December 31, 2000 and 1999, respectively 1,937,413 1,280,242 Less: Treasury stock at cost; 4,800 shares at December 31, 2000 and 1999, respectively (28,800) (28,800) Accumulated deficit (1,791,362) (1,169,230) ------------- ------------- 117,251 82,212 ------------- ------------- Commitments (Notes 6 and 10) ------------- ------------- $ 145,426 $ 101,012 ============= =============
See accompanying notes to financial statements. F-3
CALIFORNIA MOLECULAR ELECTRONICS CORP. -------------------------------------- STATEMENT OF OPERATIONS ----------------------- Year ended December 31 ---------------------- 2000 1999 ----------- ----------- Revenue: Grant income $ 100,000 $ - Interest income 10,099 9,319 ----------- ----------- 110,099 9,319 ----------- ----------- Expenses: Research and development expenses 306,707 240,668 Officers' compensation donated to the Company (Note 8) 126,400 270,000 Selling, general and administrative expenses 298,274 - Preoperating expenses - 173,270 ----------- ----------- Total expenses 731,381 683,938 ----------- ----------- Loss before state income taxes (621,282) (674,619) Provision for state income taxes 850 50 ----------- ----------- Net loss $ (622,132) $ (674,669) =========== =========== Basic and diluted loss per common share $ (0.12) $ (0.14) =========== =========== Weighted average number of common shares outstanding 5,071,256 4,930,858 =========== ===========
See accompanying notes to financial statements. F-4
CALIFORNIA MOLECULAR ELECTRONICS CORP. -------------------------------------- STATEMENT OF STOCKHOLDERS' EQUITY Common stock ---------------------- Treasury Accumulated Shares Amount Stock Deficit Total ------- ------- ------ -------- ------ Balance at December 31, 1998 4,887,520 $ 636,556 $ - $ (494,561) $ 141,995 Stock issued in private placement 91,540 347,900 - - 347,900 Stock issuance costs - (49,239) - - (49,239) Officers' compensation donated to the Company (Note 8) - 270,000 - - 270,000 Stock issued for license technology fee 15,005 75,025 75,025 Treasury stock, at cost (4,800) - (28,800) - (28,800) Net loss - - - (674,669) (674,669) ---------- ----------- --------- ------------ ---------- Balance at December 31, 1999 4,989,265 1,280,242 (28,800) (1,169,230) 82,212 Stock issued in public offering 89,007 534,042 - - 534,042 Stock issued for services 7,051 42,306 - - 42,306 Stock issuance costs - (45,577) - - (45,577) Officers' compensation donated to the Company (Note 8) - 126,400 - - 126,400 Net loss - - - (622,132) (622,132) ---------- ----------- --------- ------------ ---------- Balance at December 31, 2000 5,085,323 $1,937,413 $(28,800) $(1,791,362) $ 117,251 ========== =========== ========= ============ ==========
See accompanying notes to financial statements. F-5
CALIFORNIA MOLECULAR ELECTRONICS CORP. -------------------------------------- STATEMENT OF CASH FLOWS ----------------------- Year ended December 31 ---------------------- 2000 1999 --------- ---------- Operations: Net loss $(622,132) $(674,669) Items not requiring current use of cash: Officers' compensation, donated to the Company (Note 8) 126,400 270,000 Common stock issued for: License fees - 75,025 Other services 42,306 - Depreciation and amortization 1,838 525 Changes in other operating items: Employee advances (10,000) (20,147) Prepaid expenses (1,754) (6,493) Other (1,000) 200 Accounts payable and accrued liabilities 9,375 11,408 Other payable - 5,000 Payable to related party - (14,500) ---------- ---------- Cash used for operating activities (454,967) (353,651) ---------- ---------- Investments: Equipment (4,885) (2,624) ---------- ---------- Cash used for investing activities (4,885) (2,624) ---------- ---------- Financing: Advance from related party - (1,366) Issuance of common stock, after stock issuance expense 488,465 298,661 Purchase of Treasury stock - (3,653) ---------- ---------- Cash provided by financing activities 488,465 293,642 ---------- ---------- Increase (decrease) in cash 28,613 (62,633) Cash at beginning of period 91,993 154,626 ---------- ---------- Cash at end of period $ 120,606 $ 91,993 ========== ========== Supplemental cash flow disclosures: Taxes paid $ 850 $ 50 ========== ========== Interest paid $ 193 $ - ========== ========== Acquisition of Treasury stock $ - $ (25,147) For cancellation of employee advances - 25,147 ---------- ---------- $ - $ - ========== ==========
See accompanying notes to financial statements. F-6 CALIFORNIA MOLECULAR ELECTRONICS CORP. -------------------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- NOTE 1 - Operations and summary of significant accounting policies: California Molecular Electronics Corp. ("CALMEC" or the "Company"), an Arizona corporation, was incorporated on March 17, 1997. CALMEC was formed to engage primarily in the business of producing and selling products and services related to the new technological field of molecular electronics, as well as research and development related to this field. Molecular electronics is the technology of using single molecules to form the components of electronic devices. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has sustained operating losses since inception and expects such losses to continue as it furthers its research and development programs. The Company will need to obtain additional funds to continue its research and development activities and fund operating expenses. The Company has raised $240,312 from the sale of common stock during January through March 2001, and is actively pursuing industrial and venture capital and, as more fully described in Note 13, will be offering a private placement of its common stock. If the Company is unable to obtain the necessary capital, substantial restructuring options may be necessary which would have a material adverse effect on the Company's business, results of operations, and prospects. The financial statements do not include any adjustments to reflect the future effects in the recoverability and classification of assets or the amounts and classification of liabilities that might result from the possible inability of the Company to continue as a going concern. A summary of significant accounting policies follows: Use of estimates ------------------ The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Fair value of financial instruments --------------------------------------- The carrying values of financial instruments, such as employee advances and accounts payable, approximate their fair market values. Cash and cash equivalents ---------------------------- The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. F-7 Concentration of credit risk ------------------------------- The Company maintains its cash in bank deposit accounts at well-established financial institutions. At times the balances per the records of the financial institutions may exceed federally insured limits. Furniture and fixtures ------------------------ Furniture and fixtures are stated at cost. Expenditures for maintenance and repairs are charged to expense. Depreciation is computed using accelerated methods over the estimated useful lives of the assets of five years. Grant income ------------- Grant income is recognized as income in the period in which the related expenditures are incurred by the Company. Research and development -------------------------- Research and development costs are expensed as incurred. Income taxes ------------- The Company uses the asset and liability method in accounting for deferred income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the carrying amount of assets and liabilities for financial reporting and tax purposes (primarily relating to start-up costs) at each fiscal year end. Reclassification of financial statement presentation -------------------------------------------------------- Certain prior year balances have been reclassified to conform to the current year presentation. Loss per share ---------------- Basic and dilutive loss per common share is calculated by dividing the net loss for the period by the average number of common shares outstanding. In 2000 and 1999, dilutive loss per share excludes the effect of options, because the effect would have been antidilutive. F-8 NOTE 2 - Equipment: Equipment is summarized as follows: December 31 ------------ 2000 1999 ------ ------ Computer equipment $7,509 $2,624 Less - accumulated depreciation 2,342 525 ------ ------ $5,167 $2,099 ====== ====== NOTE 3 - Common stock offerings: In April 1998, CALMEC commenced a private placement offering of its common stock. The offering agreement allowed for the sale of up to 400,000 shares of CALMEC's common stock at $2.50 per share (restated for stock dividend; see Note 4), for a maximum value of $1 million. There was no minimum number of securities which were required to be sold in the offering. In February 1999, the Company increased the price of the shares to $5 per share (restated for the stock dividend). On March 1, 1999, the Company began providing stock purchasers with a warrant for each share purchased. The warrant entitles the purchasers to buy an additional share for $5 through February 2002. CALMEC terminated the offering in June 1999. On January 31, 2000, CALMEC filed a Form SB-2, Registration Statement Under The Securities Act of 1933, with the Securities and Exchange Commission ("SEC"), which became effective on February 7, 2000, and CALMEC commenced its sale of up to 1,000,000 shares of common stock at $6.00 per share. Subsequent to the effective date of the Registration Statement through February 28, 2001, CALMEC has sold 120,239 shares of its common stock, for an aggregate price of $721,434. The Company terminated the sale of its common stock under the Registration Statement on February 28, 2001. NOTE 4 - Issuances of capital stock: On March 19, 1997, the Company's chairman agreed to pay expenses he deemed essential to the Company's start-up phase, with the understanding that the Company would reimburse him for these costs at 10% per annum, until such time as the Board of Directors determined the Company had attained sufficient capital for its operations. The chairman agreed to cancel the first $10,000 of such obligations owed to him by the Company in exchange for 10 million shares of the Company's no par common stock valued at $.001 per share. On June 5, 1997, upon the execution of certain long-term employment and other agreements related to CALMEC, the Company issued 1 million shares of common stock to an officer/director of CALMEC at $.001 per share. On September 17, 1997, upon the execution of certain employment agreements, CALMEC issued 1 million shares of its common stock to the Company's president and CEO at $.002 per share. On January 1, 1998, each of the stockholders voluntarily contributed back to the Company 80% of his stock to effect a pro-rata voluntary 80% reduction in their ownership. The stock that was contributed back to the Company was deemed to be F-9 authorized and unissued stock rather than treasury stock. In 1998, the Company issued 87,520 shares of its common stock to accredited investors, as defined under Rule 501(a) of Regulation D promulgated by the Securities and Exchange Commission, at $2.50 per share. In 1999, the Company issued 106,545 shares of its common stock to accredited investors at prices ranging from $2.50 to $5.00 per share. On February 15, 1999, the Board of Directors declared a 100% stock dividend. All shares and per share data have been restated to reflect the stock dividend. In 2000, the Company issued 96,058 shares of its common stock under a public offering to investors at a price of $6.00 per share (see Note 3). NOTE 5 - Grant: During the first quarter of 2000, the Company received a grant from The National Science Foundation in the amount of $100,000, to be paid in three equal installments. The grant was made in support of research to demonstrate the feasibility of the unique Chiropticene(TM) molecular switch. The first installment of $33,333 was received in January 2000, and was recognized as grant income during the quarter ended March 31, 2000. The second installment of $33,333 was received in April 2000, and was recognized as grant income during the quarter ended June 30, 2000. The third and final installment of $33,334 was received in the fourth quarter of 2000. The grant has been recognized in earnings in the period in which the related expenditures were incurred by the Company. NOTE 6 - Leases: The Company had entered into a cost reimbursable contract with San Jose State University Foundation ("Foundation") for the period from April 1, 2000 through March 31, 2001, which has been extended through March 31, 2002. The contract includes advisory services to be provided by the San Jose State University Department of Chemistry, facilities, supplies and equipment use. The Foundation shall be reimbursed for costs incurred in providing the aforementioned items not to exceed a maximum amount of $90,658 over the period of the contract. The Company also leases office space in Arizona. Rent expense was $100,955 and $36,326 for the years ended December 31, 2000 and 1999, respectively. NOTE 7 - Licenses: CALMEC has entered into an exclusive license and patent assignment agreement with an officer/director of the Company. The agreement provides the Company with the exclusive rights to use Chiropticene(TM) switches, a class of molecular electronic switches. The agreement also called for the assignment to CALMEC of all of the officer/director's rights to Chiropticene(TM) technology on May 1, 1999. CALMEC paid the officer/director a license fee of $25,000 ($10,500 of the license fee was paid in 1998, and the balance was paid in 1999.) The cost of the license fee has been expensed in the accompanying financial statements as research and development costs. F-10 During 1999, CALMEC entered into license agreements with certain universities which provide the Company with exclusive licenses to use or sell products using technology owned by the universities. The Company has paid the universities $25,000, and has issued 15,005 shares of common stock to a university and certain inventors for license fees. CALMEC has reimbursed one of the universities $15,237 for prior expenses incurred. The Company has reflected the payments and common stock issuance in the amount of $115,262 as research and development costs in 1999 in the accompanying financial statements, with a credit to cash in the amount of $40,237 and to common stock in the amount of $75,025. NOTE 8 - Related party transactions: CALMEC's three officers have devoted 100% of their time to the business of the Company since their hire in 1997. Planned annual remuneration for the three officers is as follows: $40,000 - Chairman and Treasurer; $110,000 - President and Chief Executive Officer; and $120,000 - Executive Vice President and Secretary. The officers have elected to forego their salaries through December 31, 1999, and certain officers have continued to forego all or a portion of their salaries through December 31, 2000. As required by the Securities and Exchange Commission accounting rules, in the accompanying financial statements the officers' unpaid salaries totaling $126,400 and $270,000 for the years ended December 31, 2000 and 1999, respectively, are reflected as compensation expense and a credit to common stock, as the Company does not intend to repay such forfeited salaries in the future. Effective February 2000, the Executive Vice President and Secretary began to receive a salary for his services. Effective May 2000, the President and Chief Executive Officer("CEO") began to receive a portion of his salary in cash ($1,050 per week) and 250 stock options per week with an exercise price of $6.00 per share ("Rolling Option"). When the Board of Directors determines at some point in the future that the Company is able to pay full cash compensation to the CEO, the CEO has a right to no longer receive 250 stock options per week and require the Company to issue him shares of common stock or pay him $6.00 per share, or a combination of the two, based on the number of unexercised shares under the Rolling Option. NOTE 9 - Stock option plan: On May 1, 1997, the Board of Directors of CALMEC adopted the 1997 Stock Option Plan (the "1997 Plan"). The aggregate number of shares that are available for issuance pursuant to the exercise of options granted under the 1997 Plan may not exceed 1,600,000 shares of common stock. Options granted in 2000 and 1999 have vesting periods ranging from immediate to five years. Incentive stock options are priced at the fair market value of the stock at the date of grant. Nonqualified stock options are priced at eighty-five percent (85%) of the fair market value at the date of grant. Options generally have a life of seven to ten years. During 1997, CALMEC adopted Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") and, pursuant to the provisions of SFAS No. 123, applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") to the 1997 Plan. Accordingly, no compensation cost has been recognized for the Plan in 2000 and 1999. F-11 Had CALMEC elected to adopt the fair value approach of SFAS No. 123, the net loss of $622,132 as reported for the year ended December 31, 2000 would compare to a pro forma net loss of $645,588. The net loss of $674,669 as reported for the year ended December 31, 1999 would compare to a pro forma net loss of $737,762. Basic and diluted loss per share of $0.12 for the year ended December 31, 2000 would compare to a net loss per share of $0.13 on a pro forma basis. Basic and diluted loss per share of $0.14 as reported for the year ended December 31, 1999 would compare to a pro forma net loss per share of $0.15. The effects of applying SFAS No. 123 in the preceding pro forma disclosure are not indicative of the effect on reported net income for future years. The fair value of each option grant is estimated on the date of grant using the minimum value method with the following assumptions used for grants in 2000 and 1999, respectively: risk-free interest rates of 6.4% for both years, and expected lives of 5.8 years for both years. No dividend yield was used as CALMEC has not paid dividends in the past and does not anticipate paying dividends in the future.
2000 1999 ------------------ ------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price -------- ---------- -------- ---------- Outstanding at beginning of year 918,020 $ 0.4341 886,000 $ 0.2156 Granted 29,830 6.0000 48,520 5.0000 Canceled (20,000) (5.5000) (16,500) (2.1250) -------- ---------- -------- ---------- Outstanding at end of year 927,850 $ 0.5039 918,020 $ 0.4341 ======== ========== ======== ========== Options exercisable at year end 587,850 418,020 Weighted average grant-date fair value of options granted during the year whose exercise price equaled market price on date of grant $ 1.77 $ 1.37
No options were granted during 2000 or 1999 whose exercise price was greater than market price on the date of grant. In 2000, a nonqualified stock option with a fair value of $2.37 per share for 80 shares of common stock was granted with an exercise price less than the market price on the date of grant. No options were granted in 1999 with an exercise price less than the market price. F-12 The following table summarizes information about stock options outstanding at December 31, 2000:
Options Outstanding Options Exercisable - ------------------------------------------------------- ------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price - --------------- ----------- ----------- --------- ----------- --------- $5.00 - $6.00 58,350 7.6 years $ 5.4878 38,350 $ 5.0000 $ .0025 400,000 3.3 years $ .0025 240,000 $ .0025 $ .0050 400,000 3.7 years $ .0050 240,000 $ .0050 $2.1250 55,500 7.5 years $ 2.1250 55,500 $ 2.1250 $2.5000 14,000 4.3 years $ 2.5000 14,000 $ 2.5000 - --------------- ----------- ----------- --------- ----------- --------- $ .0025 - $6.00 927,850 4.0 years $ .5039 587,850 $ .5895 =============== =========== =========== ========= =========== =========
NOTE 10 - Commitments: In accordance with the Company's license agreement with a university (see Note 7), beginning January 1, 2002 and on January 1 of every year thereafter as long as the license is in effect, the Company shall pay the university a maintenance fee equal to either, at the university's option, 2,000 shares of the Company's common stock or a cash payment equal to the fair value of the 2,000 shares on the due date, not to be less than $10,000. NOTE 11 - Income taxes: The Company's operating loss for financial reporting purposes has been reported as deferred start-up costs for federal and state income tax purposes. Deferred tax assets are comprised of the following:
Year ended December 31, ----------------------- 2000 1999 ---------- ---------- Deferred start-up costs $ 332,962 $ 167,581 Valuation allowance for deferred tax assets (332,962) (167,581) ---------- ---------- Net deferred tax asset $ - $ - ========== ==========
A valuation allowance is provided for deferred tax assets as future deductibility is uncertain. At December 31, 2000 and 1999, all of the deferred tax assets were noncurrent. The change in valuation allowance of $165,381 is comprised of an increase due to net operating losses. F-13 A reconciliation of income tax computed at the federal statutory tax rate to the provision for income taxes is as follows:
Year ended December 31, -------------------------------------- 2000 1999 ------------------ ------------------ Amount % Amount % ---------- ------ ---------- ------ Income taxes at federal statutory rate $(207,885) (34.0) $(229,370) (34.0) Increase (decrease) in income taxes resulting from: State and local income taxes, net of federal tax benefit (30,571) (5.0) (33,731) (5.0) Permanent differences 42,976 7.0 91,800 13.6 State minimum taxes 850 0.0 50 0.0 Net operating loss 195,480 32.0 171,301 25.4 ---------- ------ ---------- ------ $ 850 0.0 $ 50 0.0 ========== ====== ========== ======
NOTE 12 - Recent accounting pronouncements: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities", as amended by Statements 137 and 138 in June 1999 and June 2000, respectively. These statements, which were required to be adopted for fiscal years beginning after June 15, 2000, require the Company to recognize all derivatives on the balance sheet at fair value. Among other disclosures, SFAS 133 requires that all derivatives be recognized and measured at fair value regardless of the purpose or intent of holding the derivative. SFAS 133 is effective for periods with fiscal years beginning after June 15, 2000. To date, the Company has not traded in derivatives or engaged in hedging activities. NOTE 13 - Subsequent event: On January 26, 2001, as an inducement to warrant holders (see Note 3) to exercise their warrants, the Company reduced the exercise price of warrants exercised before March 1, 2001 to $3.50 per share from $5.00 per share. Those warrant holders who exercise their warrants after March 1, 2001 and before April 30, 2001 will be able to exercise at $4.00 per share. For those warrant holders who exercise their warrants after April 30, 2001, the warrant exercise price will be at the initial $5.00 per share. For those warrant holders who exercise all of their warrants rather than just a portion of them prior to either March 1, 2001 or April 30, 2001, the Company will issue the warrant holders the same number of warrants at an exercise price of $3.25 per share, such warrants expiring on November 30, 2001. F-14 For those warrant holders who obtain the aforementioned warrants which expire on November 30, 2001, and exercise all of them before expiration, the Company will issue the warrant holders another warrant in the same number of shares as the original warrant, with an exercise price of $3.00 per share and expiring on May 31, 2002. The Company terminated the sale of common stock related to its February 7, 2000 Registration Statement at the end of February 2001 (see Note 3). During January through March 2001, the Company issued 46,352 shares of its common stock (including 15,120 shares issued related to exercise of warrants at $3.50 per share) for total proceeds of $240,312. The Company intends to fund new and additional activities with a combination of industrial and venture capital support, as well as a private placement offering. The proposed private placement would attempt to sell 200,000 units at $6.00 per unit. A unit would be comprised of one share of Series A Preferred Stock, one warrant for one common share exercisable through October 31, 2001 at $2.50 per share, and one warrant to purchase an additional common share at $3.50 per share, through April 30, 2002. F-15
EX-10.3 2 0002.txt CALMEC - -------------------------------------------------------------------------------- California Electronics Corporation Jon N. Leonard, Chairman May 1, 2000 James J. Marek, Jr. 1080 Grande View Blvd., # 828 Huntsville, AL 35824 Dear Jim: The Company is grateful for your service and accomplishments during your tenure as President and CEO, and has confidence in you and your continuing leadership into the future. Throughout your tenure, you have worked for the Company without compensation. But now things are changing with regard to your compensation. As you are aware, beginning with the pay period that starts Monday May 15, 2000, you will be receiving partial compensation of $2,100 per pay period ($1,050 per week). I am pleased to inform you that as of May 1, 2000 ("Date of Grant") California Molecular Electronics Corporation ("Company" or "CALMEC") has granted you under the California Molecular Electronics Corp. 1997 Stock Option Plan ("Plan"), a stock option ("Rolling Option") to purchase, a certain number, N, of shares ("Shares") of the Company's Common Stock at an exercise price of $6.00 per share ("Exercise Price"), where N is 500 plus 250 times the number of weeks that shall occur during the time period that begins on May 1, 2000 and that ends on the Full Comp Date, where the Full Comp Date is defined as that date at which the board of directors of the Company determines that the Company is able to begin the payment of full compensation to you for your services. The Exercise Price of this Rolling Option represents the fair market value of a share of Common Stock on the Date of Grant as determined by the Company's Board of Directors. A copy of the Plan is attached hereto. This Rolling Option is granted to you as part of the Company's compensation program. The purpose of the Plan is to give the Company and its stockholders the benefits arising from capital stock ownership by employees, officers, and directors of the Company, as well as consultants and advisors to the Company who are expected to contribute to the Company's future growth and success. This letter constitutes a Stock Option Agreement ("Agreement") between you and the Company and hereby incorporates the Plan by reference, a copy of which is attached hereto. In the event of any discrepancy between the terms of this Agreement and the Plan, the terms of the Plan shall govern. At any time or times, (where such time or times is referred to in this paragraph As "That Time"), subject to compliance with the terms and conditions of this Agreement and the Plan, you may exercise this Rolling Option with respect to the number of shares, N, indicated in the following formula: N = 1,000 + NWX250 - NA , where NA is the total number of shares already purchased by you under this Rolling Option prior to That Time and Nw is the number of weeks from May 1, 2000 to That Time, if That Time is before the Full Comp Date and is the number of weeks from May 1, 2000 to the Full Comp Date otherwise. James J. Marek, Jr. May 1, 2000 Page 2 of 4 The Rolling Option may not, however, be exercised after April 30, 2010 ("Expiration Date") and may terminate earlier as set forth herein or in the Plan. Subject to the provisions of the Plan and this Agreement, the Rolling Option may be exercised by written notice to the Company from the person or persons entitled to exercise the Rolling Option stating the number of shares with respect to which it is being exercised and accompanied by payment of the purchase price. A sample form of the Notice of Exercise is attached hereto for reference. This Rolling Option is intended to be an Incentive Stock Option, as described in Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). Your ability to receive the tax treatment accorded to Incentive Stock Options upon exercise of this Rolling Option and the subsequent sale of the stock is subject to timing requirements set forth in the Code. You should consult with your personal tax advisor with respect to the tax effects of this Rolling Option. It should be noted that the Shares that are issuable upon exercise of this Rolling Option have not been registered under the Securities Act of 1933 ("Act"). The foregoing notwithstanding, the Company has granted you this Rolling Option pursuant to an exemption from the share registration requirements as allowed under Rule 701 of the Securities and Exchange Commission ("SEC"). It is anticipated that the exemption contained in Rule 701 will apply to this Rolling Option. However, if the Shares issuable upon exercise of this Rolling Option are still unregistered and the Rule 701 exemption is not available at the time you wish to exercise this Rolling Option, the Company may not be able to sell you the Shares until either a registration statement under this Act is in effect with respect to the Shares or, if in the opinion of counsel to the Company, another exemption to the registration requirements is available. The availability of any exemption to the registration requirements may be conditioned, among other things, upon the Company's receipt of written representations from you regarding your investment experience, your receipt of financial and other information regarding the Company, and representations that you will not resell or otherwise dispose of the Shares you are acquiring other than in accordance with Rule 144 of the SEC. If an exemption to the registration requirements is not available, the Company shall be under no obligation to register these Shares under the Act. In as much as the Shares which are issuable upon the exercise of this Rolling Option have not been registered under the Act, they cannot be re-sold, pledged, or otherwise transferred by you unless they are: registered under the Act; the sale complies with the requirements of SEC Rule 144; or, in the opinion of counsel of the Company, another exemption to the registration requirements is available. Given these conditions, your ability to sell, pledge, or otherwise transfer these shares may be subject to substantial restrictions under the Act and the rules of the SEC. For this reason, you will be required to demonstrate to the satisfaction of the Company that a proposed sale, pledge, or transfer complies with the Act and the rules of the SEC. If you wish information on whether a proposed transaction my violate these restrictions, you should contact the Secretary of the Company or your own counsel. It should further be noted that the Shares issuable upon the exercise of this Rolling Option have not been registered or qualified under the securities laws of any State. Please be aware that the securities laws of some States require the Company place limitations on the transferability of such unregistered Shares. If contemplating a transfer to an entity in a State with such requirements, you will be required to demonstrate to the satisfaction of the Company that the proposed transfer complies with that State's law prior to effecting the transfer. James J. Marek, Jr. May 1, 2000 Page 3 of 4 Until such time as the Shares which are issuable upon the exercise of this Rolling Option have been registered in accordance with the Act, listed on a national securities exchange (as the term is used in the Act), the NASDAQ National Market, or the NASDAQ SmallCap Market, a transfer, pledge, sale, or other disposition thereof, unless accomplished by right of inheritance or by operation of law, shall be valid and effective only after the Shares proposed to be transferred are first offered for sale to the Company for the price at which, and under the terms on which, you propose to sell such Shares as evidenced by a bona fide offer to purchase. As such, prior to attempting such a transaction, you agree herein to notify the Secretary of the Company of the details relating to the proposed transaction and to comply with the Company's required procedures established to process such requests. As part of your Rolling Option, you agree that in connection with any registration of the Company's securities under the Act, upon the request of the Company or the underwriters managing any public offering of the Company's securities, you will not sell or otherwise dispose of any shares you acquire upon exercise of this Rolling Option without the prior written consent of the Company or the underwriters for such period as the Company or the underwriters may specify, provided that such period shall not exceed 180 days from the registration of the securities. This Agreement, the Plan, and references herein constitute the entire agreement between you and the Company with respect to the subject matter contained herein and supersede in their entirety any previous or contemporaneous agreements, whether oral or written, with respect to that subject matter. This Agreement may not be amended or modified except with the signed, written consent of the parties to such amendment or modification, and no right under it shall be deemed waived without the written consent of the party charged with waiving such right. All notices to be given under it shall be in writing and delivered either personally or by first class mail, postage prepaid, to the respective address. Please indicate your agreement to the terms and conditions set forth herein and the Plan by signing the accompanying copy of this letter and returning it to the Secretary of the Company. Upon receipt of the signed copy of this Agreement, the Company will activate the Rolling Option on your behalf. If a signed copy of this Agreement is not received by the Company before the close of business on the 20th day after the date of this letter, the Company will assume you are not accepting the offer contained herein and the offer will be withdrawn. It should be noted that signing this Agreement does in no way obligate you to exercise the Rolling Option. If you have any questions regarding your Rolling Option, the Plan, or if you desire further information prior to exercise, please do not hesitate to contact the Secretary of the Company. Sincerely, /s/ Jon N. Leonard - --------------------------- Jon N. Leonard, Chairman California Molecular Electronics Corporation 13924 Green Tree Drive Tucson, Arizona 85737 James J. Marek, Jr. May 1, 2000 Page 4 of 4 ACKNOWLEDGMENT: I acknowledge receipt of this Agreement and a copy of the California Molecular Electronics Corp. 1997 Stock Option Plan and, having reviewed both, hereby agree to be bound by all the terms and conditions set forth therein. /s/ James J. Marek, Jr. Date: 12/8/00 - ----------------------------------- -------------------- James J. Marek, Jr. NOTICE OF EXERCISE OF OPTION TO PURCHASE SHARES To: Corporate Secretary California Molecular Electronics Corp. I hereby exercise my option ("Rolling Option") granted as of ____________________ (please insert the Date of Grant as indicated in your Rolling Option Agreement) under the California Molecular Electronics Corp. 1997 Stock Option Plan for the purchase of _____________ shares ("Shares") of the Common Stock of California Molecular Electronics Corporation according to the terms and conditions thereof and herewith make payment of the full purchase price of $_________________ as follows: (please state means of payment) Please issue the certificate for the Shares in accordance with the instructions given below. _______________________________ Signature Instructions for Issuance of Shares: __________________________________ Name (Print) __________________________________ Street Address __________________________________ City, State, Zip __________________________________ Social Security Number __________________________________ Telephone EX-10.4 3 0003.txt CALMEC - -------------------------------------------------------------------------------- California Electronics Corporation Jon N. Leonard, Chairman RIGHTS AGREEMENT This agreement ("Rights Agreement") is entered into as of June 1, 2000, by California Molecular Electronics Corp. ("CALMEC" or the "Company"), in favor of its President and CEO, James J. Marek, Jr. WHEREAS under a certain agreement of employment ("Employment Agreement"), Mr. Marek has agreed to work for CALMEC without full compensation until such date (the "Full Comp Date") as the board of directors of CALMEC determines that the Company is able to begin the payment of full compensation to Mr. Marek for his services and is also able to perform under Item 2 of this agreement (see below); and WHEREAS CALMEC has granted a Rolling Option to Mr. Marek under an incentive stock option granted as of May 1, 2000 ("Rolling Option") that entitles him to purchase any portion of N shares of Company stock, where the number N is a variable that will grow as time passes until the Full Comp Date and may be reduced as, and if, the Rolling Option is exercised from time to time by Mr. Marek. NOW THEREFORE, CALMEC agrees as follows: At any time after the Full Comp Date, Mr. Marek shall have the one time right under this Rights Agreement to terminate the Rolling Option and require the Company to: 1. Issue him M shares of common stock, and/or 2. Pay him cash value at $6.00 per share for S shares, where the sum of M and S is equal to the number of unexercised shares under the Rolling Option at the time of termination. IN WITNESS WHEREOF, CALMEC has executed this Rights Agreement as of the day and year first above written. CALMEC: BY: /s/ Jon N. Leonard -------------------------------- Jon N. Leonard, Chairman Confirmation: /s/ James J. Marek, Jr - --------------------------------- James J. Marek, Jr.
-----END PRIVACY-ENHANCED MESSAGE-----