-----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, Tq+UrZGANSfWd8kvrjSmf5pbgKg91lOTeFNcdot0lwESrtxZQ2CezTI5I/av36GQ DKJq52fEeE+2T8LH8Tkung== 0001015402-02-001069.txt : 20020415 0001015402-02-001069.hdr.sgml : 20020415 ACCESSION NUMBER: 0001015402-02-001069 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 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: 1934 Act SEC FILE NUMBER: 333-82493 FILM NUMBER: 02596597 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 doc1.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, 2001 [ ] 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. $3,481. 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. $2,422,320. As of March 17, 2002, there were 5,200,586 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 2001 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 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 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 us. 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 $299,228 and $273,107 in research and development costs during the years ended December 31, 2001 and 2000, 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 -5- 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. During May, 2001, the Company executed an exclusive patent license agreement with three professors for worldwide rights to the invention entitled "Molecular Dipolar Rotors" as covered under United States Patent Application Serial Number 09/812,647 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 are trademarks belonging to the Company that refer to the Company's molecular switches and to the Company. EMPLOYEES As of December 31, 2001, 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. -6- 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. ITEM 2. PROPERTIES The Company leases lab space at San Jose State University, and office space in Tucson, Arizona and Huntsville, Alabama. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On March 25, 2001, the Company held a Special Meeting of Shareholders to vote on a proposed amendment to the Articles of Incorporation that would allow the Company to issue preferred shares of stock. Present at the Special Meeting were 4,395,257 of the 5,131,675 outstanding shares of common stock. All 4,395,257 shares present voted in favor of the proposed amendment. 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 December 31, 2001 was 338. 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 commencing May 2000 the President and Chief Executive Officer began to receive a portion of his salary. 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 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, 2003. 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 during 2000. The grant supported research to demonstrate the feasibility of the unique Chiropticene molecular switch. The Company recognized the $100,000 as grant income during 2000, as the related expenditures were incurred by the Company in 2000. -8- R&D costs of $299,228 for the year ended December 31, 2001 compared to R&D costs of $273,107 in 2000, an increase of $26,121 or 9.6%. The increase was primarily related to a purchase of technology with stock, offset by a decrease in R&D related salary and wage expense. Officers' compensation donated to the Company of $40,000 in 2001 decreased from $67,900 recorded in 2000, entirely related to the fact that certain of the officers began receiving payment for all or a portion of their salary during 2000. 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 to be 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 increased from $390,374 in 2000 to $424,691 in 2001, an increase of $34,317 or 8.8%, primarily related to an officer receiving a portion of his salary for a full year offset by a decrease in 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 in order to develop this technology. CALMEC is seeking to raise additional capital through public or private equity or debt financings. Future capital funding transactions may result in dilution to existing 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. 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 -9- 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 2001 54,600 13,000 2000 33,600 9,750 EVP/Secretary 2001 120,000 - 2000 110,000 -
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 13,000 69.8% $ 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 3,978,666 76.8% 1512 W. Canada Hills Dr. Tucson, AZ 85737 Common James J. Marek, Jr. 390,200 7.5% 1080 Grande View Blvd., #828 Huntsville, AL 35824 Common Robert R. Schumaker 370,000 7.1% 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 our 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 our 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 and incorporated herein by this reference.* - ------- ----------------------------------------------------------------------------- 10.4 Rights Agreement between James J. Marek, Jr. and California Molecular Electronics Corp. dated June 1, 2000 and incorporated herein by this reference.* - ------- ----------------------------------------------------------------------------- 10.5 Long term employment agreements between James J. Marek, Jr. and California Molecular Electronics Corp., dated September 1, 2001.* - ------- -----------------------------------------------------------------------------
* 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, 2002 - --------------------- 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, 2002 Dr. Jon N. Leonard: Director, Jon. N. Leonard - -------------- ----------------------------- ---------------- Chairman of the Board /s/ Jon N. Leonard ------------------------ ------------------- March 30, 2002 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, 2001 AND 2000 Page ---- Report of Independent Certified Public Accountants F-2 Balance Sheet at December 31, 2001 and 2000 F-3 Statement of Operations for the Years Ended December 31, 2001 and 2000 F-4 Statement of Stockholders' Equity for the Years Ended December 31, 2001 and 2000 F-5 Statement of Cash Flows for the Years Ended December 31, 2001 and 2000 F-6 Notes to Financial Statements F-7
F-1 March 17, 2002 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 (deficit) and cash flows present fairly, in all material respects, the financial position of California Molecular Electronics Corp. ("CALMEC") at December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America 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 ---------------------------- 2001 2000 ------------- ------------- ASSETS ------ Current assets: Cash $ 94,375 $ 120,606 Receivable from stockholders 19,655 10,000 Prepaid expenses - 8,247 ------------- ------------- Total current assets 114,030 138,853 Equipment, net 4,670 5,167 Other 1,388 1,406 ------------- ------------- $ 120,088 $ 145,426 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- Current liabilities: Accounts payable and accrued liabilities $ 23,634 $ 23,175 Accrued officer's compensation 136,500 58,500 Other payable 5,000 5,000 ------------- ------------- Total current liabilities 165,134 86,675 ------------- ------------- Stockholders' equity (deficit): Preferred stock, no par value: Authorized 10 million shares; 33,314 and none issued and outstanding at December 31, 2001 and 2000, respectively 196,381 - Common stock, no par value: Authorized 20 million shares; 5,186,886 and 5,090,123 issued and outstanding (including 4,800 treasury shares) at December 31, 2001 and 2000, respectively 2,341,088 1,878,913 Less: Treasury stock at cost; 4,800 shares at December 31, 2001 and 2000, respectively (28,800) (28,800) Accumulated deficit (2,553,715) (1,791,362) ------------- ------------- (45,046) 58,751 ------------- ------------- Commitments (Notes 5 and 9) ------------- ------------- $ 120,088 $ 145,426 ============= =============
See accompanying notes to financial statements. F-3
CALIFORNIA MOLECULAR ELECTRONICS CORP. -------------------------------------- STATEMENT OF OPERATIONS ----------------------- Year ended December 31 ------------------------ 2001 2000 ----------- ----------- Revenue: Grant income $ 100,000 Interest income $ 3,481 10,099 ----------- ----------- 3,481 110,099 ----------- ----------- Expenses: Research and development expenses 299,228 273,107 Officers' compensation donated to the Company (Note 7) 40,000 67,900 Selling, general and administrative expenses 424,691 390,374 ----------- ----------- Total expenses 763,919 731,381 ----------- ----------- Loss before state income taxes (760,438) (621,282) Provision for state income taxes 1,915 850 ----------- ----------- Net loss $ (762,353) $ (622,132) =========== =========== Basic and diluted loss per common share $ (0.15) $ (0.12) =========== =========== Weighted average number of common shares outstanding 5,136,044 5,071,256 =========== ===========
See accompanying notes to financial statements. F-4
CALIFORNIA MOLECULAR ELECTRONICS CORP. -------------------------------------- STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) ------------------------------------------- Common stock Preferred Stock ---------------------- ----------------- Treasury Accumulated Shares Amount Shares Amount Stock Deficit Total --------- ----------- ------ --------- ---------- ------------- ---------- 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 in exchange for services (Note 3) 7,051 42,306 - - - - 42,306 Stock issuance costs - (45,577) - - - - (45,577) Officers' compensation donated to the Company (Note 7) - 67,900 - - - - 67,900 Net loss - - - - - (622,132) (622,132) --------- ----------- ------ --------- ---------- ------------- ---------- Balance at December 31, 2000 5,085,323 1,878,913 - - (28,800) (1,791,362) 58,751 Stock issued in public offering 31,232 187,392 - - - - 187,392 Series A Preferred stock issued in - - 33,314 199,884 - - 199,884 private placement offering Exercise of warrants 51,370 155,295 - - - - 155,295 Stock issued for license fee (Note 3) 10,500 63,000 - - - - 63,000 Stock issued to an employee as compensation 1,000 6,000 - - - - 6,000 Stock issued in exchange for services 2,661 15,966 - - - - 15,966 Grant of option in exchange for services - 570 - - - - 570 Stock issuance costs - (6,048) - (3,503) - - (9,551) Officers' compensation donated to the - 40,000 - - - - 40,000 Company (Note 7) Net loss - - - - - (762,353) (762,353) --------- ----------- ------ --------- ---------- ------------- ---------- Balance at December 31, 2001 5,182,086 $2,341,088 33,314 $196,381 $ (28,800) $ (2,553,715) $ (45,046) ========= =========== ====== ========= ========== ============= ==========
See accompanying notes to financial statements. F-5
CALIFORNIA MOLECULAR ELECTRONICS CORP. -------------------------------------- STATEMENT OF CASH FLOWS ----------------------- Year ended December 31 ---------------------- 2001 2000 ---------- ---------- Operations: Net loss $(762,353) $(622,132) Items not requiring current use of cash: Officers' compensation, donated to the Company (Note 7) 40,000 67,900 Depreciation and amortization 2,457 1,838 License fees in exchange for stock 63,000 - Stock issued as compensation 6,000 - Legal fees in exchange for stock 15,966 42,306 Other fees in exchange for option 570 - Changes in other operating items: Prepaid expenses 8,247 (1,754) Other 18 (1,000) Accounts payable and accrued liabilities 459 9,375 Accrued officer's compensation 78,000 58,500 ---------- ---------- Cash used for operating activities (547,636) (444,967) ---------- ---------- Investments: Equipment (1,960) (4,885) ---------- ---------- Cash used for investing activities (1,960) (4,885) ---------- ---------- Financing: Issuance of common and preferred stock, net of stock issuance expense 377,725 488,465 Exercise of common stock warrants 155,295 - Advance to stockholders (9,655) (10,000) ---------- ---------- Cash provided by financing activities 523,365 478,465 ---------- ---------- Increase (decrease) in cash (26,231) 28,613 Cash at beginning of period 120,606 91,993 ---------- ---------- Cash at end of period $ 94,375 $ 120,606 ========== ========== Supplemental cash flow disclosures: Taxes paid $ 1,915 $ 850 ========== ========== Interest paid $ 747 $ 193 ========== ==========
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. Basis of presentation ----------------------- These financial statements are presented on the basis that the Company will continue as a going concern. This going concern assumption contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time. As shown in the accompanying financial statements, the Company incurred net losses of $762,353 and $622,132 for the years ended December 31, 2001 and 2000, respectively. The Company will need to obtain additional funds to continue its research and development activities and fund operating expenses. As of December 31, 2001, the Company had cash of $94,375. In addition, the Company has raised $56,000 related to the exercise of warrants during January through March 17, 2002, and is actively pursuing industrial and venture capital. Management also plans to raise additional cash by encouraging warrant holders to exercise their warrants (See Note 3). However, there can be no assurance that management's efforts to raise additional capital will be successful. Those factors create an uncertainty about the Company's ability to continue as a going concern. If the Company is unable to obtain the necessary capital, management plans to restructure the Company operations to allow it to continue to operate by reducing or eliminating cash compensation paid to the Company's President and Chief Executive Officer and Executive Vice President and Secretary (See Note 7), and scaling down the Company's research and development and other expenditures. Management believes that this would allow the Company to continue to operate and to pursue its business plan through at least 2002. A summary of significant accounting policies follows: Use of estimates ------------------ The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. F-7 Fair value of financial instruments --------------------------------------- The carrying values of financial instruments, such as receivable from stockholders 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. 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. Loss per share ---------------- Basic and diluted loss per common share is calculated by dividing the net loss for the period by the weighted average number of common shares outstanding. In 2001 and 2000, diluted loss per share excludes the effect of convertible preferred stock, options and warrants, because the effect would have been antidilutive. F-8 Reclassification of financial statement presentation -------------------------------------------------------- Certain reclassifications have been made to the 2000 financial statements to conform to the 2001 financial statement presentation. Such reclassifications have had no effect on net loss as previously reported. NOTE 2 - Equipment: Equipment is summarized as follows: December 31 ------------------ 2001 2000 -------- -------- Computer equipment $ 9,469 $ 7,509 Less - accumulated depreciation 4,799 2,342 -------- -------- $ 4,670 $ 5,167 ======== ======== NOTE 3 - Stock offerings: Common stock ------------- 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), 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 $5.00 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 entitled the purchasers to buy an additional share for $5.00 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. Additionally, the Company issued 7,051 shares of its common stock in exchange for services in the amount of $42,306 in 2000. The Company terminated the sale of its common stock under the Registration Statement on February 28, 2001. During 2001, the Company issued 2,661 shares of common stock and an option to purchase 634 shares of common stock to vendors in exchange for services. Such issuances have been reflected as selling, general and administrative costs of $16,536. Also in 2001, the Company issued 1,000 shares of common stock to an employee and 10,500 shares of common stock related to a license agreement (see Note 6), both of which are recorded as research and development costs of $6,000 and $63,000, respectively. F-9 On January 26, 2001, as an inducement to warrant holders 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 exercised their warrants after March 1, 2001 and before April 30, 2001 were able to exercise at $4.00 per share. For those warrant holders who exercised their warrants after April 30, 2001, the warrant exercise price was the initial $5.00 per share. For those warrant holders who exercised all of their warrants rather than just a portion of them prior to April 30, 2001, the Company issued the warrant holders the same number of warrants at an exercise price of $3.25 per share, such warrants expiring on November 30, 2001. For those warrant holders who obtain the aforementioned warrants which expired on November 30, 2001, and exercised all of them before expiration, the Company issued 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. During the year ended December 31, 2001, warrant holders exercised 1,000 warrants at $3.00 per share, 1,000 warrants at $3.25 per share, 15,120 warrants at $3.50 per share, and 7,000 warrants at $4.00 per share for a total of $87,170 related to the aforementioned warrants. Preferred stock ---------------- On March 25, 2001, the Company commenced a private placement offering to sell 200,000 units at $6.00 per unit. A unit is comprised of one share of Series A Preferred Stock, one warrant for the purchase of 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. During the year ended December 31, 2001, the Company sold 33,314 units for $199,884 and warrant holders exercised 27,250 warrants related to these units for $68,125. The private placement was closed on October 1, 2001. The Series A Preferred Stock has a conversion price of $6.00 per share and is convertible at the option of the holder into one share of common stock. The conversion price of the Series A Preferred Stock is subject to adjustment upon certain events. The Series A Preferred Stock outstanding will automatically be converted into common stock at the then effective conversion price (a) immediately upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of capital stock of the Company in which the proceeds received by the Company, net of underwriting discounts and commissions, equal or exceed $15 million, or (b) immediately upon the vote of a majority of the shares of the Series A Preferred Stock outstanding on the date of such vote. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of the Series A Preferred Stock then outstanding are entitled to be paid, out of the assets of the Company available for distribution to its stockholders, before any payments are to be made to holders of the Company's common stock. F-10 NOTE 4 - 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 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 as revenue in the period in which the related expenditures were incurred by the Company. NOTE 5 - 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, 2003. The contract may be cancelled by either party, with thirty days written notice. 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 $90,659 over the period of the contract. The Company also leases office space in Arizona and Alabama on a month to month basis. Rent expense was $100,904 and $100,955 for the years ended December 31, 2001 and 2000, respectively. NOTE 6 - 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 ChiropticeneTM 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 prior years' financial statements as research and development costs. 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 paid the universities $25,000, and issued 15,005 shares of common stock to a university and certain inventors for license fees. CALMEC reimbursed one of the universities $15,237 for prior expenses incurred. The Company reflected the payments and common stock issuance in the amount of $115,262 as research and development costs in 1999. During 2001, CALMEC entered into a license agreement with certain inventors which provide the Company with exclusive licenses to use or sell products using technology owned by the inventors. The Company issued 10,500 shares of common stock for license fees. CALMEC has reflected the issuance of such common stock in the amount of $63,000 as research and development costs in 2001. F-11 NOTE 7 - 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 elected to forego their salaries through December 31, 1999, and certain officers have continued to forego all or a portion of their salaries in 2000 and 2001. As required by the Securities and Exchange Commission accounting rules, in the accompanying financial statements the officers' unpaid salaries totaling $40,000 and $67,900 for the years ended December 31, 2001 and 2000, 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 will no longer receive 250 stock options per week. At such time, the officer can 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. The Company's obligation under this agreement has been recorded as compensation expense in the amount of $78,000 and $58,500 for the years ended December 31, 2001 and 2000, respectively. On September 1, 2001, CALMEC entered into a long-term employment agreement ("Agreement") with its CEO. Under the Agreement, once the Company enters the operational phase, the Company will pay the CEO a salary of $132,000 per year. The Company will enter into the operational phase once the Board of Directors has determined sufficient capital has been accumulated to do so. The Agreement has a term of five years ending on August 31, 2006. Prior to the Company entering the operational phase, the CEO will continue to perform his duties for compensation as described in the preceding paragraph. As additional compensation, upon the first anniversary of the Agreement, the CEO will receive a seven year stock option to purchase 400,000 shares of CALMEC common stock at an exercise price of $6.00 per share, vesting at 100,000 shares per year thereafter of completed employment. NOTE 8 - 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 2001 and 2000 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. F-12 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 2001 and 2000. Had CALMEC elected to adopt the fair value approach of SFAS No. 123, the net loss of $762,353 as reported for the year ended December 31, 2001 would compare to a pro forma net loss of $779,694. 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. Basic and diluted loss per share of $0.15 for the year ended December 31, 2001 would compare to a net loss per share of $0.15 on a pro forma basis. Basic and diluted loss per share of $0.12 as reported for the year ended December 31, 2000 would compare to a pro forma net loss per share of $0.13. The effects of applying SFAS No. 123 in the preceding pro forma disclosure are not indicative of the effect on reported net loss 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 2001 and 2000, respectively: risk-free interest rates of 4.0% and 6.4%, and expected lives of 4.2 and 5.8 years. No dividend yield was used as CALMEC has not paid dividends in the past and does not anticipate paying dividends in the future.
Year ended December 31, ------------------------------------------ 2001 2000 ------------------- --------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price -------- --------- --------- ---------- Outstanding at beginning of year 927,850 $ 0.5039 918,020 $ 0.4341 Granted 18,634 5.9694 29,830 6.0000 Canceled/Expired - - (20,000) (5.5000) -------- --------- --------- ---------- Outstanding at end of year 946,484 $ 0.6284 927,850 $ 0.5039 ======== ========= ========= ========== Options exercisable at year-end 772,484 587,850 Weighted average grant-date fair value of options granted during the year whose exercise price equaled market price on date of grant $ 0.93 $ 1.77
No options to employees were granted during 2001 or 2000 whose exercise price was greater or less than the market price on the date of grant. In 2001, the Company issued nonqualified stock options with a fair value of $570 to a vendor, and in 2000, the Company issued nonqualified stock options with an immaterial fair value to an outside consultant. F-13 The following table summarizes information about stock options outstanding at December 31, 2001:
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 - -------------- ----------- ----------- --------- ----------- --------- $ .0025 400,000 2.3 years $ .0025 320,000 $ .0025 $ .0050 400,000 2.7 years $ .0050 320,000 $ .0050 $2.5000 71,420 5.8 years $ 2.5000 71,420 $ 2.5000 $5.00 - $6.00 75,064 7.2 years $ 5.5048 61,064 $ 5.4895 - -------------- ----------- ----------- --------- ----------- --------- $.0025 - $6.00 946,484 3.1 years $ .6284 772,484 $ .6682 ============== =========== =========== ========= =========== =========
NOTE 9 - Commitments: In accordance with the Company's license agreement with a university (see Note 6), 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. The fee shall be equal to either, at the university's option, 2,000 shares of the Company's common stock or a cash payment equal to the greater of $10,000 or the fair value of the 2,000 shares on the due date. CALMEC had the following warrants outstanding at December 31, 2001: Number Outstanding Exercise Price Maturity Dates ----------- -------------- -------------- 25,586 $3.00 2002 25,500 $5.00 2002 34,400 $3.50 2002 NOTE 10 - Income taxes: The Company's operating loss for financial reporting purposes had been reported as deferred start-up costs for federal and state income tax purposes through December 31, 2000. Deferred tax assets are comprised of the following:
Year ended December 31, ----------------------- 2001 2000 ---------- ---------- Deferred start-up costs/net operating losses $ 607,467 $ 332,962 Valuation allowance for deferred tax assets (607,467) (332,962) ---------- ---------- Net deferred tax asset $ - $ - ========== ==========
A valuation allowance is provided for deferred tax assets as future deductibility is uncertain. At December 31, 2001 and 2000, all of the deferred tax assets were noncurrent. The change in valuation allowance of $274,505 results from the net operating loss for 2001. F-14 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, -------------------------------------- 2001 2000 ------------------ ------------------ Amount % Amount % ---------- ------ ---------- ------ Income taxes at federal statutory rate $(258,549) (34.0) $(207,885) (34.0) Increase (decrease) in income taxes resulting from: State and local income taxes, net of federal tax benefit (45,169) (6.0) (30,571) (5.0) Permanent differences 13,600 4.0 42,976 7.0 State minimum taxes 1,915 0.0 850 0.0 Net operating loss 290,118 36.0 195,480 32.0 ---------- ------ ---------- ------ $ 1,915 0.0 $ 850 0.0 ========== ====== ========== ======
NOTE 11 - Subsequent events: For the period January 1 through March 15, 2002, the Company has issued 18,500 shares of common stock related to the exercise of warrants for total proceeds of $56,000. F-15 EX-10.5 3 doc2.txt Exhibit 10.5 LONG-TERM EMPLOYMENT AGREEMENT CALIFORNIA MOLECULAR ELECTRONICS CORP. (CALMEC(R)) THIS AGREEMENT, dated as of September 1, 2001, is made and entered into by and between California Molecular Electronics Corp., an Arizona Corporation ("CALMEC" or the "Company"), and James J. Marek, Jr. of 1080 Grande View Blvd., #828, Huntsville, AL ("Employee"). WHEREAS Employee has been employed by CALMEC under a long term employment agreement dated September l, 1997 the term of which expired on August 31, 2001, and WHEREAS CALMEC and Employee have also entered into other agreements with each other, among which are a stock rights agreement dated June 1, 2000 ("Rights Agreement"), and a rolling stock option dated May l, 2000 ("Rolling Option"), and WHEREAS CALMEC and Employee desire that a new long term agreement be entered into between Employee and CALMEC, NOW THEREFORE EMPLOYEE AND CALMEC AGREE AS FOLLOWS: 1. EMPLOYMENT. Upon execution of this Agreement CALMEC employs Employee and Employee accepts employment, subject to and in accordance with the terms and conditions of this Agreement. 2. TERM OF EMPLOYMENT. Employee's term of employment ("Term of Employment") will begin on September 1, 2001 and will continue for five years (until August 31, 2006) unless sooner terminated by CALMEC in accordance with Section 8 below. 3. SALARY. Beginning on the Company's Actual Startup Date, as this term is defined in section 14 below, CALMEC will pay Employee a salary of $132,000 per year in the form of regular paychecks that will be issued on a weekly, bi-weekly, semi-monthly, or monthly basis in accordance with the CALMEC payroll procedures in effect at that time. Employee's compensation shall include usual fringe benefits. Prior to the Actual Startup Date, Employee will perform his duties for compensation as described in the Rolling Option agreement and Rights Agreement. 4. ADDITIONAL COMPENSATION. As additional compensation, upon the first anniversary of this agreement, Employee will be provided a seven year stock option for an additional 400,000 shares of CALMEC Common Stock at an exercise price of $6.00 per share (which the Board of Directors of CALMEC has determined is 100% of the current fair market value of the Company's common stock), vesting at 100,000 shares per year thereafter of completed employment. 5. OFFICE EXPENSE. Both parties recognize that Employee maintains a CALMEC office at his home in Huntsville, Alabama. To cover the real out of pocket expense Employee incurs for this office, Company agrees to pay Employee $200.00 per month for this expense, so long as this office must be maintained. 6. EMPLOYEE'S TITLE AND DUTIES. Employee shall hold the position of President and CEO, reporting to the CALMEC Board of Directors, and with responsibility for the development and operation of CALMEC and to perform other such duties as the Board may assign. EMPLOYEE TO DEVOTE FULL TIME TO CALMEC'S BUSINESS. Employee will devote full time attention and energies to the business of CALMEC during his employment. JAMES J. MAREK, JR. LONG TERM EMPLOYMENT AGREEMENT, 9/1/01 PAGE 2 7. EMPLOYEE'S LONG-TERM ILLNESS OR INCAPACITY. If Employee is unable to perform his obligations under this Agreement because of illness or incapacity for a period of more than nine months in any year, CALMEC may terminate this Agreement. 8. TERMINATION OF EMPLOYMENT. CALMEC may terminate this Agreement at anytime upon ten days' written notice to Employee. If CALMEC requests, Employee will continue to perform his duties and be paid his regular salary up to the date of termination. If after Actual Startup Date Employee is terminated, CALMEC will pay Employee on the date of termination a nine month's severance or the balance of his five year salary under this agreement, whichever is greater. It is understood by both parties that all payments contemplated hereunder are less taxes and social security required to be withheld. 9. EMPLOYEE'S DEATH. If Employee dies during the term of his employment, CALMEC will pay to Employee's estate any compensation due him up to the end of the month in which Employee dies. 10. ASSIGNMENT. This Agreement shall not be assignable except upon written consent of all parties hereto. 11. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of The State of Arizona, and disputes, if any, arising out of this Agreement shall be resolved by the federal or state courts of Arizona, with venue of such proceedings lying in Pima County, Arizona. 12. ENTIRE AGREEMENT. This instrument is the entire employment agreement between Company and Employee. Oral changes will have no effect. It may be altered only by a written agreement. 13. WAIVER. A waiver of any breach of any provision of this Agreement shall not be construed as a continuing waiver of other breaches of the same or other provisions of this Agreement. 14. ACTUAL STARTUP DATE. The Actual Startup Date shall be that date, as determined by the Board of Directors, that CALMEC shall have attained capital sufficient for its operations. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. CALMEC: Employee: By: /s/ Jon N. Leonard By: /s/ James J. Marek, Jr. ----------------------------- -------------------------------- Jon N. Leonard, Chairman James J. Marek, Jr. -----END PRIVACY-ENHANCED MESSAGE-----