As filed with the Securities and Exchange Commission on February 14, 2002
Registration No. 333-82010
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
PRE-EFFECTIVE AMENDMENT TO
FORM S-3
ON FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ATLANTIC TECHNOLOGY VENTURES, INC.
(Exact name of registrant as specified in its charter)
Delaware 8731 36-3898269
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
350 Fifth Avenue
Suite 5507
New York, New York 10118
(212) 267-2503
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------------
FREDERIC P. ZOTOS, ESQ.
350 Fifth Avenue
Suite 5507
New York, New York 10118
(212) 267-2503
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------
COPIES TO:
EZRA G. LEVIN, ESQ.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
(212) 715-9100
Approximate date of commencement of proposed sale to the public: At such
time or times as may be determined by the selling shareholders after this
registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------- ---------------- --------------- ------------------- -------------- --------------- --------------
Number of Proposed
Shares Maximum Proposed Maximum Amount of Amount Amount of
Title of Shares to be Offering Price Aggregate Registration Previously Registration
to be Registered Registered Per Share(1) Offering Price(1) Fee Paid(2) Fee Due
- --------------------- ---------------- --------------- ------------------- -------------- --------------- --------------
Common stock, par 8,333,318 $ .22 $1,833,329.96 $438.17 $527.79 $0
value $.001 per
share (3)
- --------------------- ---------------- --------------- ------------------- -------------- --------------- --------------
Common stock, par 8,333,318 $ .22 $1,833,329.96 $438.17 $527.79 $0
value $.001 per
share (4)
- --------------------- ---------------- --------------- ------------------- -------------- --------------- --------------
Common stock, par 833,331 $ .22 $183,332.82 $43.82 $52.78 $0
value $.001 per
share (5)
- --------------------- ---------------- --------------- ------------------- -------------- --------------- --------------
Common stock, par 70,000 $ .22 $15,400.00 $3.68 $4.43 $0
value $.001 per
share (6)
- --------------------- ---------------- --------------- ------------------- -------------- --------------- --------------
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act, based on the average
of the high and low sales prices for Atlantic common stock reported on
the NASD Over-the-Counter Bulletin Board on February 12, 2002.
(2) These amounts were paid to the Commission by Atlantic in connection with
its filing on February 1, 2002, of a registration statement on Form S-3,
registration number 333-82010. Atlantic is amending that registration
statement by means of this filing.
(3) Represent shares of Atlantic common stock issued under the securities
purchase agreement dated as of November 2, 2001, between Atlantic and
certain investors.
(4) Represent shares of Atlantic common stock that are issuable upon
exercise of warrants issued to the investors under the securities
purchase agreement.
(5) Represent shares of Atlantic common stock that are issuable upon
exercise of warrants issued to Joseph Stevens & Company, Inc., the
placement agent under the placement agent agreement dated as of November
6, 2001, between Atlantic and Joseph Stevens, for services rendered
relating to the private placement of our stock.
2
(6) Represent shares of Atlantic common stock that Atlantic agreed to issue
to each of BH Capital Investments, L.P. and Excalibur Limited
Partnership in return for their commitment to provide Atlantic with
financing in connection with an asset purchase for which Atlantic had
submitted a bid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
3
17,569,967 SHARES
ATLANTIC TECHNOLOGY VENTURES, INC.
COMMON STOCK
The shares of common stock of Atlantic Technology Ventures, Inc. covered
by this prospectus are being offered and sold by certain selling shareholders
listed in this prospectus.
Atlantic's common stock is traded on the NASD Over-the Counter Bulletin
Board under the symbol "ATLC.OB".
Investing in Atlantic's common stock involves certain risks. See "Risk
Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is ______, 2002.
TABLE OF CONTENTS
RISK FACTORS.......................................................................................3
USE OF PROCEEDS....................................................................................9
MANAGEMENT'S DISCUSSION AND ANALYSIS..............................................................10
DESCRIPTION OF BUSINESS...........................................................................15
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......................................17
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS...........................................17
DESCRIPTION OF PROPERTY...........................................................................23
PRINCIPAL SHAREHOLDERS............................................................................25
DESCRIPTION OF SECURITIES.........................................................................27
SELLING SHAREHOLDERS..............................................................................28
PLAN OF DISTRIBUTION..............................................................................30
EXPERTS...........................................................................................31
ADDITIONAL INFORMATION............................................................................31
COMMISSION'S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES...........................32
INDEX TO FINANCIAL STATEMENTS.....................................................................33
2
RISK FACTORS
Investing in our common stock is very risky, and you should be able to
bear losing your entire investment. You should carefully consider the risks
presented by the following factors.
Risks Related To Our Financial Condition
Because we have not completed developing any of our products or generated any
product sales, we expect to incur significant operating losses over the next
several years and our ability to generate profits in the future is uncertain.
We have never been profitable and we may never become profitable. As of
September 30, 2001, we had an accumulated deficit of $26,163,254. All of our
technologies are in the research and development stage, which requires
substantial expenditures. Our operating loss from inception includes revenues
consisting of milestone payments and development revenue, including a profit
component, by Bausch & Lomb in connection with development of the Catarex
device, and a government grant. In March 2001, we received $2.4 million of net
proceeds from the sale of substantially all of the assets of Optex
Ophthalmologics, Inc., our 81.2%-owned subsidiary. At the conclusion of this
sale of assets, we terminated our agreement with Bausch & Lomb that generated
the revenue described above. We do not have a current source of revenue nor do
we expect to generate any additional revenues in the near future. We expect to
incur significant operating losses over the next several years, primarily due to
continued and expanded research and development programs, including preclinical
studies and clinical trials for our products and technologies under development,
as well as costs incurred in identifying and possibly acquiring additional
technologies.
We do not expect to generate any additional revenues in the near future.
If we do not obtain additional funding, our ability to develop our technologies
will be materially adversely affected.
We will need substantial additional funds to develop our technologies.
We will seek those funds through public or private equity or debt financings,
through collaborative arrangements or from other sources (including exercise of
the warrants we have issued giving the holder the right to purchase shares of
our capital stock for a stated exercise price). Funding may not, however, be
available on acceptable terms, if at all. Additionally, because our common stock
has been delisted from Nasdaq, it may be more difficult to obtain additional
funding. Furthermore, pursuant to the common stock purchase agreement with
Fusion Capital, and until its termination, we have agreed not to issue any
variable-priced equity or variable-priced equity-like securities unless we have
obtained Fusion Capital's prior written consent. This may further impede our
ability to raise additional funding. In addition, because our stock price is
below the floor price of $0.68, we cannot draw funds pursuant to the Fusion
Capital Agreement described in the SEC Documents. If we are unable to obtain
additional financing as needed, we may be required to reduce the scope of our
operations, which will have a material adverse effect on our business.
As of September 30, 2001, we had a cash and cash equivalents balance of
$440,558. We anticipate that our current resources (including the $2 million
proceeds of the first closing of our recent private placement) will be
sufficient to finance our currently anticipated needs for operating and capital
expenditures for the next six months. If the investors in our recent private
placement elect to invest an additional $1,000,000, we anticipate that our
resources would be sufficient to finance our currently anticipated needs for
operating and capital expenditures for the next 12 months. We can, however, give
no assurance that we will receive any additional proceeds from the recent
private placement. We plan on performing further tests on CT-3 during the first
six months of 2002. If the results of these tests are not promising, our ability
to raise additional funds may be adversely affected.
3
Risks Related To Our Operations
We have a limited operating history upon which to base an investment decision.
We are a development-stage company and have not demonstrated our ability
to perform the functions necessary for the successful commercialization of any
of our product candidates. The successful commercialization of our product
candidates will require us to perform a variety of functions, including:
o continuing to undertake pre-clinical development and clinical trials;
o participating in regulatory approval processes;
o formulating and manufacturing products; and
o conducting sales and marketing activities.
Our operations have been limited to organizing and staffing our company,
acquiring, developing and securing our proprietary technology and undertaking
pre-clinical trials and clinical trials of our principal product candidates.
These operations provide a limited basis for you to assess our ability to
commercialize our product candidates and the advisability of investing in our
common stock.
We are in the early stages of developing our technologies and may not succeed in
developing commercially viable products.
To be profitable, we must, alone or with others, successfully
commercialize our technologies. Our technologies are, however, in early stages
of development, will require significant further research, development and
testing, and are subject to the risks of failure inherent in developing products
based on innovative or novel technologies. They are also rigorously regulated by
the federal government, particularly the U.S. Food and Drug Administration, or
"FDA," and by comparable agencies in state and local jurisdictions and in
foreign countries. Each of the following is possible with respect to any one of
our products:
o that we will not be able to maintain our current research and
development schedules;
o that, in the case of one of our pharmaceutical technologies, we will
not be able to enter into human clinical trials because of scientific,
governmental or financial reasons, or that we will encounter problems
in clinical trials that will cause us to delay or suspend development
of one of the technologies;
o that the product will be found to be ineffective or unsafe;
o that government regulation will delay or prevent the product's
marketing for a considerable period of time and impose costly
procedures upon our activities;
o that the FDA or other regulatory agencies will not approve a given
product or will not do so on a timely basis;
o that the FDA or other regulatory agencies may not approve the process
or facilities by which a given product is manufactured;
o that our dependence on others to manufacture our products may
adversely affect our ability to develop and deliver the products on a
timely and competitive basis;
o that, if we are required to manufacture our own products, we will be
subject to similar risks regarding delays or difficulties encountered
in manufacturing the products, will require substantial additional
capital, and may be unable to manufacture the products successfully or
in a cost-effective manner;
o that the FDA's policies may change and additional government
regulations and policies may be instituted, both of which could
prevent or delay regulatory approval of our potential products; or
o that we will be unable to obtain, or will be delayed in obtaining,
approval of a product in other countries, because the approval process
varies from country to country and the time needed to secure approval
may be longer or shorter than that required for FDA approval.
4
Similarly, it is possible that, for the following reasons, we may be
unable to commercialize, or receive royalties from the sale of, any given
technology, even if it is shown to be effective:
o if it is uneconomical;
o if, in the case of one of our pharmaceutical technologies or the
Catarex device, it is not eligible for third-party reimbursement from
government or private insurers;
o if others hold proprietary rights that preclude us from
commercializing it;
o if others have brought to market equivalent or superior products;
o if others have superior resources to market similar products or
technologies;
o if government regulation imposes limitations on the indicated uses of
a product, or later discovery of previously unknown problems with a
product results in added restrictions on the product or results in the
product being withdrawn from the market; or
o if it has undesirable or unintended side effects that prevent or limit
its commercial use.
We are dependent on others for the clinical development and regulatory approvals
of our products.
We anticipate that we will in the future seek to enter into
collaborative agreements with pharmaceutical companies for the development of,
clinical testing of, seeking of regulatory approval for and commercialization of
certain of our pharmaceutical products. We may in the future grant to our
collaborative partners, if any, rights to license and commercialize any
pharmaceutical products developed under these collaborative agreements and such
rights would limit our flexibility in considering alternatives for the
commercialization of such products. Under such agreements, we may rely on our
collaborative partners to conduct research efforts and clinical trials on,
obtain regulatory approvals for, manufacture, market and commercialize certain
of our products. Although we believe that our collaborative partners will have
an economic motivation to commercialize the pharmaceutical products that they
may license, the amount and timing of resources devoted to these activities
generally will be controlled by each such individual partner. To the extent that
we decide not to, or are unable to, enter into any such collaborative
arrangements, significant capital expenditures, management resources and time
will be required to establish and develop in-house capabilities for the
development of, clinical testing of, seeking of regulatory approval for and
commercialization of certain of our pharmaceutical products. There can be no
assurance that we will be successful in establishing any collaborative
arrangements, or that, if established, such future partners will be successful
in commercializing products or that we will derive any revenues from such
arrangements. In addition, if we are unsuccessful in establishing such future
collaborative arrangements, there can be no assurance that we will be able to
establish in-house capabilities for the development of, clinical testing of,
seeking of regulatory approval for and commercialization of certain of our
pharmaceutical products.
We lack manufacturing experience and will rely on third parties to manufacture
our potential products.
We do not have a manufacturing facility. We have contracted with Iris
Pharmaceuticals, Inc. for clinical trial materials for CT-3. While we believe
that this arrangement should provide us with sufficient clinical trial materials
through Phase II human clinical testing, we do not currently have a second
manufacturer of clinical trial materials for commercialization and there can be
no assurance that we will be able to identify and qualify any such
manufacturers, and, if able to do so, that any such manufacturing agreements
will contain terms that are favorable to us, if at all. We have and will rely on
contract manufacturers for the foreseeable future to produce quantities of
products and substances necessary for research and development, pre-clinical
trials, human clinical trials and product commercialization. There can be no
assurance that such products can be manufactured at a cost or in quantities
necessary to make them commercially viable. There can be no assurance that third
party manufacturers will be able to meet our needs with respect to timing,
quantity and quality. If we are unable to contract for a sufficient supply of
required products and substances on acceptable terms, or if we should encounter
delays or difficulties in our relationships with manufacturers, our research and
development, pre-clinical and clinical testing would be delayed, thereby
delaying the submission of products for regulatory approval or the market
introduction and subsequent sales of such products. Any such delay may have a
materially adverse effect on our business, financial condition and results of
operations. Moreover, contract manufacturers that we may use must adhere to
current Good Manufacturing Practice ("GMP") regulations enforced by the FDA
through its facilities
5
inspection program. If the facilities of such manufacturers cannot pass a
pre-approval plant inspection, the FDA pre-market approval of our products will
not be granted. To the extent that we decide not to, or is unable to, enter into
further collaborative arrangements with respect to the manufacture of clinical
trial materials for its products, or in the event that our contract
manufacturing agreement with Iris Pharmaceuticals, Inc. is terminated or proves
to be inadequate for our manufacturing needs, significant capital expenditures,
management resources and time will be required to establish and develop a
manufacturing facility and to assemble a team of professionals with the
technical expertise to perform such manufacturing. There can be no assurance
that we will be able to establish and develop a manufacturing facility and to
assemble a team of professional with the technical expertise to perform
manufacturing and such failure would likely have a materially adverse effect on
us.
We lack sales and marketing experience and will rely on third parties.
We have no experience in sales, marketing or distribution. We do not
anticipate having the resources in the foreseeable future to allocate to the
sales and marketing of our proposed products. Our future success may depend, in
part, on our ability to enter into and maintain such collaborative
relationships, the collaborator's strategic interest in the products under
development, and such collaborator's ability to successfully market and sell any
such products. We intend to pursue collaborative arrangements regarding the
sales and marketing of our products, however, there can be no assurance that we
will be able to establish or maintain such collaborative arrangements, or if
able to do so, that they will have effective sales forces. To the extent that we
decide not to, or are unable to, enter into collaborative arrangements with
respect to the sales and marketing of its proposed products, significant capital
expenditures, management resources and time will be required to establish and
develop an in-house marketing and sales force with technical expertise. There
can also be no assurance that we will be able to establish or maintain
relationships with third party collaborators or develop in-house sales and
distribution capabilities. To the extent that we depend on third parties for
marketing and distribution, any revenues we receive will depend upon the efforts
of such third parties, and there can be no assurance that such efforts will be
successful. In addition, there can also be no assurance that we will be able to
market and sell our product in the United States or overseas.
If we fail to adequately protect or enforce our intellectual property rights or
secure rights to patents of others, the value of our intellectual property
rights would diminish.
Our success, competitive position and future revenues will depend in
part on our ability and the abilities of our licensors to obtain and maintain
patent protection for our products, methods, processes and other technologies,
to preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights of
third parties. We cannot predict:
o the degree and range of protection any patents will afford us against
competitors including whether third parties will find ways to
invalidate or otherwise circumvent our patents;
o if and when patents will issue;
o whether or not others will obtain patents claiming aspects similar to
those covered by our patents and patent applications; or
o whether we will need to initiate litigation or administrative
proceedings which may be costly whether we win or lose.
Our product candidates could infringe the proprietary rights of other
parties. If our products, methods, processes and other technologies infringe the
proprietary rights of other parties, we could incur substantial costs and we may
have to:
o obtain licenses, which may not be available on commercially reasonable
terms, if at all;
o redesign our products or processes to avoid infringement;
o stop using the subject matter claimed in the patents held by others;
o pay damages; or
6
o defend litigation or administrative proceedings which may be costly
whether we win or lose, and which could result in a substantial
diversion of our valuable management resources.
We rely on technologies that are licensed from third parties.
We have entered into certain agreements with, and licensed certain
technology and compounds from, third parties. We have relied on scientific,
technical, clinical, commercial and other data supplied and disclosed by others
in entering into these agreements and will rely on such data in support of
development of certain products. Although we have no reason to believe that this
information contains errors of omission or fact, there can be no assurance that
there are no errors of omission or fact that would materially adversely affect
the future approvability or commercial viability of these products.
We may incur substantial liabilities and may be required to limit
commercialization of our products in response to product liability lawsuits.
The testing and marketing of medical products entail an inherent risk of
product liability. Some of our license agreements require us to obtain product
liability insurance when we begin clinical testing or commercialization of our
proposed products and to indemnify our licensors against product liability
claims brought against them as a result of the products developed by us. If we
cannot successfully defend ourselves against product liability claims, we may
incur substantial liabilities or be required to limit commercialization of our
products. Our inability to obtain sufficient product liability insurance at an
acceptable cost to protect against potential product liability claims could
prevent or inhibit the commercialization of pharmaceutical products we develop,
alone or with corporate collaborators. We, or any corporate collaborators, may
not be able to obtain insurance at a reasonable cost, if at all. Even if our
agreements with any future corporate collaborators entitle us to indemnification
against losses, such indemnification may not be available or adequate should any
claim arise.
Any breach by us of environmental regulations could result in our incurring
significant costs.
Federal, state and local laws, rules, regulations and policies govern
our use, generation, manufacture, storage, air emission, effluent discharge,
handling and disposal of certain materials and wastes. Although we believe that
we have complied with these laws and regulations in all material respects and
have not been required to take any action to correct any noncompliance, we may
be required to incur significant costs to comply with environmental and health
and safety regulations in the future. In addition, our research and development
activities involve the controlled use of hazardous materials and we cannot
eliminate the risk of accidental contamination or injury from these materials,
although we believe that our safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal
regulations. In the event of an accident, we could be held liable for any
resulting damages and we do not have insurance to cover this contingency.
Risks Related to Our Securities
We have been delisted from Nasdaq, and the resulting market illiquidity could
adversely affect our ability to raise funds.
On August 22, 2001, our securities were delisted from trading on Nasdaq.
Since then, any trading in the securities has been conducted on the National
Association of Securities Dealers' "Electronic Bulletin Board." This could
affect adversely the liquidity of our securities, not only in terms of the
number of securities that can be bought and sold at a given price, but also
through delays in the timing of transactions and reduction in security analysts'
and the media's coverage of us. This may result in lower prices for our
securities than might otherwise be attained and could also result in a larger
spread between the bid and asked prices for our securities. In addition, our
delisting could adversely affect our ability to raise funds.
In addition, our common stock is a "penny stock." Broker-dealers who
sell penny stocks must provide purchasers of these stocks with a standardized
risk-disclosure document prepared by the SEC. This document provides information
about penny stocks and the nature and level of risks involved in investing in
the penny-stock market. A broker must also give a purchaser, orally or in
writing, bid and offer quotations and information
7
regarding broker and salesperson compensation, make a written determination that
the penny stock is a suitable investment for the purchaser, and obtain the
purchaser's written agreement to the purchase. The penny stock rules may make it
difficult for you to sell your shares of our stock. Because of the rules, there
is less trading in penny stocks. Also, many brokers choose not to participate in
penny stock transactions.
Our stock price is, and we expect it to remain, volatile, which could limit
investors' ability to sell stock at a profit.
The volatile price of our stock makes it difficult for investors to
predict the value of their investment, to sell shares at a profit at any given
time, or to plan purchases and sales in advance. A variety of factors may affect
the market price of our common stock. These include, but are not limited to:
o publicity regarding actual or potential clinical results relating to
products under development by our competitors or us;
o delay or failure in initiating, completing or analyzing pre-clinical
or clinical trials or unsatisfactory design or result of these trials;
o achievement or rejection of regulatory approvals by our competitors or
us;
o announcements of technological innovations or new commercial products
by our competitors or us;
o developments concerning proprietary rights, including patents;
o developments concerning our collaborations;
o regulatory developments in the United States and foreign countries;
o economic or other crises and other external factors;
o period-to-period fluctuations in our revenue and other results of
operations;
o changes in financial estimates by securities analysts; and
o sales of our common stock.
We will not be able to control many of these factors, and we believe
that period-to-period comparisons of our financial results will not necessarily
be indicative of our future performance.
In addition, the stock market in general, and the market for
biotechnology companies in particular, has experienced extreme price and volume
fluctuations that may have been unrelated or disproportionate to the operating
performance of individual companies. These broad market and industry factors may
seriously harm the market price of our common stock, regardless of our operating
performance.
Trading in our stock over the last 12 months has been limited, so investors may
not be able to sell as much stock as they want at prevailing prices.
The average daily trading volume in our common stock was approximately
27,000 shares and the average daily number of transactions was approximately 20
over the last 12 months. If limited trading in our stock continues, it may be
difficult for investors to sell their shares in the public market at any given
time at prevailing prices. Also, the sale of a large block of our securities
could depress the price of our securities to a greater degree than a company
that typically has higher volume of trading of securities.
Because holders of our Series A preferred stock have rights superior to those of
the holders of our common stock, in certain circumstances holders of our common
stock may be adversely affected.
Holders of shares of our outstanding Series A preferred stock can
convert each share into 3.27 shares of our common stock without paying us any
cash. The conversion price of shares of Series A preferred stock is $3.06 per
share of common stock. Both the conversion rate and the conversion price may be
adjusted in favor of holders of shares of Series A preferred stock upon certain
triggering events. Accordingly, the number of shares of common stock that
holders of shares of Series A preferred stock receive upon conversion may
increase, which may result in
8
substantial dilution to the common stockholders and could adversely affect the
prevailing market price of our securities. We expect that certain recent
issuances, including our recent private placement, will result in such an
adjustment.
In addition, each February 7 and August 7 we are obligated to pay
dividends, in arrears, to the holders of shares of Series A preferred stock, and
the dividends consist of 0.065 additional shares of Series A preferred stock for
each outstanding share of Series A preferred stock. Our issuing additional
shares of Series A preferred stock without payment of any cash to us could
adversely affect the prevailing market price of our securities.
If we are liquidated, sold to or merged with another entity (and we are
not the surviving entity after the merger), we will be obligated to pay holders
of shares of Series A preferred stock a liquidation preference of $13.00 per
share before any payment is made to holders of shares of common stock. After
payment of the liquidation preference, we might not have any assets remaining to
pay the holders of shares of common stock. The liquidation preference could
adversely affect the market price of our securities.
The holders of shares of Series A preferred stock have rights in
addition to those summarily described. A complete description of the rights of
the Series A preferred stock is contained in the certificate of designations of
the Series A preferred stock filed with the Secretary of State of Delaware.
Sale of shares of our common stock to Fusion Capital may cause dilution, and
sale of those shares by Fusion Capital could cause the price of our common stock
to decline.
Under an equity-line-of-credit arrangement, Fusion Capital has committed
to purchasing $6,000,000 of our common stock. Our stock price is currently below
the $0.68 minimum required in order for us to be able to sell shares of our
common stock to Fusion, but if in the future our stock price exceeds this
minimum, we may elect to sell shares of our common stock to Fusion under the
equity-line-of-credit arrangement. In addition, Fusion Capital recently waived
the $0.68 minimum and on November 30, 2001, purchased from us under the
equity-line-of-credit arrangement 416,667 shares of our common stock at a price
per share of $0.24, representing an aggregate purchase price of $100,000.
The purchase price for the common stock to be issued to Fusion Capital
under our common stock purchase agreement with Fusion Capital will fluctuate
based on the closing price of our common stock. Fusion Capital may at any time
sell none, some or all of the shares of common stock purchased from us.
Depending upon market liquidity at the time, sale by Fusion of shares we issue
to them could cause the trading price of our common stock to decline. Sale of a
substantial number of shares of our common stock by Fusion, or anticipation of
such sales, could make it more difficult for us to sell equity or equity related
securities in the future at a time and at a price that it might otherwise wish
to effect sales.
The existence of the agreement with Fusion Capital to purchase shares of our
common stock could cause downward pressure on the market price of our common
stock.
Both the actual dilution and the potential for dilution resulting from
any sales of our common stock to Fusion Capital could cause holders to elect to
sell their shares of our common stock, which could cause the trading price of
our common stock to decrease. In addition, prospective investors anticipating
the downward pressure on the price of our common stock due to the shares
available for sale by Fusion Capital could refrain from purchases or effect
sales in anticipation of a decline of the market price.
USE OF PROCEEDS
We will not receive any proceeds from any sales of the shares.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion includes "forward-looking" statements that reflect our
current views with respect to future events and financial performance. We use
words such as we "expect," "anticipate," "believe," and "intend" and similar
expressions to identify forward-looking statements. Investors should be aware
that actual results may differ materially from our expressed expectations
because of risks and uncertainties inherent in future events, particularly those
risks identified in the "Risk Factors" section of this prospectus, and should
not unduly rely on these forward looking statements.
OVERVIEW
We were incorporated in Delaware on May 18, 1993, and commenced
operations on July 13, 1993. We are engaged in the development of biomedical,
pharmaceutical, electronic infrastructure, software and communications products
and technologies. We have rights to technologies which we believe may be useful
in the treatment of a variety of diseases, including cancer, infectious disease,
and pain and inflammation, and we are entitled to royalties and other revenues
in connection with a third technology, relating to the treatment of ophthalmic
disorders. Our existing products and technologies under development are each
held either by us or our subsidiaries. We have been unprofitable since inception
and expect to incur substantial additional operating losses over the next
several years. The following discussion and analysis should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Form SB-2.
RESULTS OF OPERATIONS
Nine Month Period Ended September 30, 2001 vs. 2000
In accordance with a license and development agreement, as amended,
Bausch & Lomb Surgical has paid our subsidiary, Optex Ophthalmologics, Inc.
("Optex"), for developing its Catarex technology. For the nine months ended
September 30, 2001, this agreement provided $2,461,922 of development revenue
and related cost of development revenue of $2,082,568. For the nine months ended
September 30, 2000, this agreement provided $3,419,831 of development revenue
and related cost of development revenue of $2,735,865. The decrease in revenues
and related expenses over last year was due to the fact that there were no
revenues and related expenses since the termination of the agreement in March
2001. The decrease is offset by the recognition of a project completion bonus of
$1,067,345 paid out and recognized at the completion of the project in March
2001. With the termination of the above agreement at the conclusion of the sale
of substantially all of Optex's assets (mostly intangible assets with no book
value) in March 2001, as described further below, we will no longer have the
revenues or profits associated with that agreement available to us.
For the nine months ended September 30, 2001, research and development
expense was $774,340 as compared to $854,927 for the nine months ended September
30, 2000. This decrease is due mainly to the cessation of research and
development activities on the antisense technology as a result of the sale of
the assets of Gemini. This decrease is offset somewhat by increased expenditures
on certain development projects, including CT-3 during the first part of the
year.
Through September 30, 2000, we made an investment in TeraComm, Inc. of
$1,000,000 in cash and common stock and warrants valued at $1.8 million. For the
nine months ended September 30, 2000, we expensed $2,653,382 of this payment as
acquired in-process research and development since TeraComm's product
development activity was in its very early stages. As a result of TeraComm's not
meeting a technical milestone at December 31, 2000, no further investments were
made in TeraComm.
For the nine months ended September 30, 2001, general and administrative
expense was $2,333,567 as compared to $1,595,463 for the nine months ended
September 30, 2000. This increase is largely due to an increase in payroll costs
over last year of approximately $130,000, and an increase in expenses incurred
in conjunction with a common stock purchase agreement entered into during the
second quarter of 2001 with Fusion Capital Fund II, LLC. These expenses include
the cost of our issuing 600,000 commitment shares to Fusion Capital of $444,000
and a finders fee of $120,000. Fusion's obligation to purchase our shares is
subject to certain conditions, including the effectiveness of a registration
statement covering the shares to be purchased. That registration statement was
declared effective on July 6, 2001. A material contingency that may affect our
operating plans and ability to raise funds under this agreement is our stock
price. Currently, our stock price is below the floor price of $0.68 specified in
the Fusion Capital agreement and as a result we are
10
currently unable to draw funds pursuant to the Fusion Capital agreement. As the
Fusion Capital agreement is currently structured, we cannot guarantee that we
will be able to draw any funds. To date, we have not drawn funds pursuant to
this agreement. See "Liquidity and Capital Resources" for further details on
this agreement. In addition, we incurred expenses associated with the issuance
of 35,000 shares of our common stock to each of BH Capital Investments, L.P. and
Excalibur Limited Partnership in August 2001 in return for their commitment to
provide us with $3.5 million of financing in connection with an asset purchase
for which we had submitted a bid. We did not ultimately purchase those assets.
Those shares had an estimated fair value of $44,100 which was recorded as a
general and administrative expense for the nine months ended September 30, 2001.
For the nine months ended September 30, 2001, we had compensation
expense relating to stock warrants of $70,634 as compared to $1,073,511 in the
prior year. The current year expense consists of $25,279 associated with
warrants issued to Dian Griesel during March 2001 as partial compensation for
investor relations services and $45,355 associated with fully vested warrants
issued to Proteus Capital Corp in August 2001 as partial compensation for fund
raising services. Additional expense associated with the warrants issued to Dian
Griesel will continue to be incurred over the remainder of the two-year term of
the agreement. As long as these warrants continue to vest, that expense will be
directly affected by the movement in the price of our common stock. For the nine
months ended September 30, 2000, we had $1,073,511 of expense associated with
warrants issued to Joseph Stevens & Company as partial compensation for
investment banking services. Compensation expense relating to these investor
relations and investment banking services represent a general and administrative
expense.
For the nine months ended September 30, 2001, interest and other income
was $40,618, compared to $97,267 in the nine months ended September 30, 2000.
The decrease in interest income is primarily due to the decline in our cash
reserves.
Net loss applicable to common shares for the nine months ended September
30, 2001, was $2,044,369 as compared to $6,249,540 for the nine months ended
September 30, 2000. This decrease in net loss applicable to common shares is
attributable in part to a gain on the sale of the assets of our subsidiary,
Optex, recognized during the nine months ended September 30, 2001 in the amount
of $2,569,451, partially offset by a distribution to the minority shareholders
of Optex of $837,274 (see further discussion of this sale below). In addition,
the decrease in net loss applicable to common shares is compounded by the
recording of acquired in-process research and development expense in conjunction
with our investment in TeraComm, Inc. of $2,653,382 in the nine months ended
September 30, 2000. In the nine months ended September 30, 2000, we recorded
compensation expense of $1,073,511 relating to stock warrants issued to Joseph
Stevens & Company compared with compensation expense of $70,634 relating to
stock warrants issued to the Dian Griesel and Proteus Capital Corp. during the
current year. The loss differential is partially reduced by a loss recorded on
the sale of the assets of Gemini of $334,408 in the nine months ended September
30, 2001 and the cost of our issuing 600,000 commitment shares to Fusion Capital
Fund II, LLC of $444,000 incurred in the nine months ended September 30, 2001.
In addition, with the termination of our agreement with Bausch & Lomb, we no
longer have the revenue or profits associated with that agreement available to
us. As a result, we had a reduction in profit from this agreement of $304,612
from the nine months ended September 30, 2000 as compared to 2001.
Net loss applicable to common shares for the nine months ended September
30, 2001 also included a beneficial conversion on shares of our Series B
preferred stock in the amount of $600,000 and a dividend of $167,127 paid upon
the repurchase of the outstanding shares of Series B preferred stock recorded
during the nine months ended September 30, 2001. We also issued preferred stock
dividends on our Series A preferred stock for which the estimated fair value of
$107,449 and $811,514 was included in the net loss applicable to common shares
for the nine months ended September 30, 2001 and 2000, respectively. The
decrease in the estimated fair value of these dividends as compared to the prior
year is primarily a reflection of the decline in our stock price and a reduction
of the number of preferred shares issued.
2000 Versus 1999
In accordance with a development agreement as amended in September 1999,
Bausch & Lomb Surgical paid our subsidiary, Optex, for developing its Catarex
technology, plus a profit component. For the year ended December 31, 2000, this
agreement provided $5,169,288 of development revenue, and the related cost of
development revenue was $4,135,430. For the year ended December 31, 1999, this
agreement provided $1,082,510 of development revenue, and the related cost of
development revenue was $866,008 which solely represented the activity for the
fourth quarter of 1999. On March 2, 2001, Optex sold substantially all of its
assets, including those related to the Catarex technology, to Bausch & Lomb. As
described above, the development agreement was terminated and we will no longer
receive development revenue under that agreement.
11
Research and development expenditures consist primarily of costs
associated with research and development personnel; the cost of operating our
research and development laboratories; payments made under our license
agreements, sponsored research agreements, research agreements with institutes,
and consultants' agreements with its licensors, scientific collaborators, and
research institutes; and costs related to patent filings and maintenance. For
the year ended December 31, 2000, our research and development expense was
$1,130,345 as compared to $1,091,291 for the year ended December 31, 1999. The
1999 expense is presented net of nine months of Bausch & Lomb reimbursements of
$1,044,708 received prior to the September 1999 amendment described in the
preceding paragraph. This increase was due to increased expenditures for the
year on certain development projects, including the costs associated with the
completion of a successful Phase I study for our CT-3 compound during 2000.
During 2000, we made an investment in TeraComm Research, Inc., accounted
for under the equity method of accounting, of $1,000,000 cash as well as common
stock and a warrant to purchase common stock, together valued at $1,800,000. Of
the $2,800,000 purchase price, we expensed $2,653,382 as acquired in-process
research and development, as no capitalizable intangible assets are present at
TeraComm, as its product development activity is in the very early stages and
has no alternative future use at this time. The TeraComm investment is accounted
for in accordance with the equity method of accounting for investments as we
continue to have the ability to exert significant influence over TeraComm
through our Board seat and other involvement with management.
General and administrative expenses consist primarily of expenses
associated with corporate operations, legal, finance and accounting, human
resources and other general operating costs. For the year ended December 31,
2000, our general and administrative expense was $2,235,535 as compared to
$1,941,425, which is net of Bausch & Lomb reimbursements of $184,360 for the
year ended December 31, 1999 received prior to the September 1999 amendment.
This increase was due to costs incurred in hiring and relocating executives, an
increase in payroll costs over last year, and an increase in fees for
professional services attributable to legal filings and due diligence relating
to fundraising efforts and certain investments.
In 2000, we had $1,020,128 of expense associated with warrants issued to
Joseph Stevens & Company as partial compensation for investment banking services
provided by Joseph Stevens & Company during 2000. Compensation expense relating
to these investment banking services represents a general and administrative
expense.
For the year ended December 31, 2000, our interest and other income was
$92,670 compared to $292,630 for the year ended December 31, 1999. This decrease
was primarily due to a decline in our cash reserves, which resulted in decreased
interest income. For the year ended December 31, 2000, our share of losses of
TeraComm amounted to $79,274.
Net loss applicable to common shares for the year ended December 31,
2000, was $6,847,749 as compared to a net loss applicable to common shares of
$2,760,881 for the year ended December 31, 1999. This increase in net loss
applicable to common shares is primarily attributable to acquired in-process
research and development expense relating to our investment in TeraComm of
$2,653,382. In the year ended December 31, 2000, we recorded compensation
expense of $1,020,865 relating to stock warrants issued to Joseph Stevens & Co.
which did not exist during 1999. Net loss applicable to common shares in 2000
also included a dividend paid upon the repurchase of the outstanding Series B
preferred stock of $233,757 which was not paid in 1999. We also issued preferred
stock dividends on our Series A preferred stock for which the estimated fair
value of $811,514 and $314,366 was included in the net loss applicable to common
shares for the years ended 2000 and 1999, respectively. The increase in the
estimated fair value of these dividends as compared to the prior year is
partially a reflection of an increase in our stock price. Going forward, with
the termination of our agreement with Bausch & Lomb, described below, we will no
longer have the revenue or profits associated with that agreement available to
us. For the year ended December 31, 2000, we received $5,169,288 in development
revenue from Bausch & Lomb as compared with $1,082,510 in 1999.
1999 Versus 1998
During 1999, Optex's development agreement with Bausch & Lomb was
amended to include a profit component. Fees earned from the date of the
amendment are presented in our financial statements as development
12
revenue. Prior to amendment of this agreement in September 1999, reimbursements
from Bausch & Lomb, which represented pass-through expenses, were treated as a
reduction of expenses and totaled $2,276,579 since the inception of the
agreement. Reimbursements made under the agreement in 1999 reduced our research
and development expenses by $1,044,708 and general and administrative expenses
by $184,360. Net general and administrative expenses for the year ended December
31, 1999, were $1,941,425 as compared to $2,668,508 for the corresponding period
in 1998. This decrease was primarily attributable to a general reduction in
corporate overhead associated with reduced corporate staffing, patent
prosecution fees, advertising, and travel expenses.
Research and development expenses, including license fees, were
$1,091,291 for the year ended December 31, 1999, as compared to $3,036,355 for
the corresponding period in 1998. These amounts are net of reimbursements from
Bausch & Lomb of $1,044,708 in 1999 and $899,936 in 1998. The decrease in
research and development expenses in 1999 was attributable to reduced research
and development activities for all of our technologies, except for the Catarex
technology being developed by Optex, with respect to which increased development
work was offset by higher reimbursement from Bausch & Lomb. Termination of the
license agreement between Channel and the Trustees of the University of
Pennsylvania contributed to reduced research and development activities.
Interest income in 1999 was $292,630 compared to $451,335 in 1998. The
decrease was attributable to reduced investment amounts.
Net loss applicable to common shares for the year ended December 31,
1999 was $2,760,881 as compared to a net loss applicable to common shares of
$4,381,779 for the year ended December 31, 1998. This decrease in net loss is
primarily attributable to an imputed preferred stock dividend on our Series A
preferred stock of 1,628,251 in 1998 compared to a preferred stock dividend on
our Series A preferred stock of $314,366 in 1999. In addition, research and
development expenses decreased by $1,945,064 from 1998 to 1999 and general and
administrative expenses decreased by $727,083 from 1998 to 1999 as a result of
our efforts to scale back on these expenses in 1999. This decrease in expenses
is partially offset by $2,500,000 of license revenue which was recognized in
1998 from our agreement with Bausch and Lomb. This is compared with total
revenue net of cost of development for 1999 of $293,571 subsequent to the
September 1999 amendment with Bausch & Lomb.
LIQUIDITY AND CAPITAL RESOURCES
From inception to September 30, 2001, we incurred an accumulated deficit
of $26,163,254, and we have to incur additional losses through the year ended
December 31, 2001 and expct to for the foreseeable future. The loss has been
incurred through primarily research and development activities related to the
various technologies under our control.
Pursuant to an asset purchase agreement dated January 31, 2001, among
Bausch & Lomb, a Bausch & Lomb affiliate, Atlantic, and Optex, on March 2, 2001,
Optex sold to Bausch & Lomb substantially all its assets (mostly intangible
assets with no book value), including all those related to the Catarex
technology. As a result of this sale, Atlantic and Optex no longer have any
obligations to Bausch & Lomb in connection with development of the Catarex
technology. The purchase price was $3 million paid at closing (approximately
$564,000 of which was distributed to the minority shareholders). In addition,
Optex is entitled to receive additional consideration, namely $1 million once
Bausch & Lomb receives regulatory approval to market the Catarex device in
Japan, royalties on net sales on the terms stated in the original development
agreement dated May 14, 1998, between Bausch & Lomb and Optex, as amended, and
minimum royalties of $90,000, $350,000, and $750,000 for the first, second, and
third years, respectively, starting on first commercial use of the Catarex
device or January 1, 2004, whichever is earlier. Optex also has the option to
repurchase the acquired assets from Bausch & Lomb if it ceases developing the
Catarex technology at fair value. Upon the sale of Optex assets, Bausch & Lomb's
development agreement with Optex was terminated. In the asset purchase agreement
Optex agreed to forgo future contingent payments provided for in the earlier
development agreement. As a result of this transaction, we recorded a gain on
the sale of Optex assets of $2,569,451. We made a profit distribution of
$837,274 to Optex's minority shareholders, representing their share of the
cumulative profit from the development agreement with Bausch & Lomb and the
proceeds from the sale of Optex' assets.
On September 28, 2000, pursuant to a convertible preferred stock and
warrants purchase agreement (the "Purchase Agreement"), we issued to BH Capital
Investments, L.P. and Excalibur Limited Partnership (together, the "Investors")
for a purchase price of $2,000,000, 689,656 shares of our Series B convertible
preferred stock and
13
warrants to purchase 134,000 shares of our common stock. Half of the shares of
Series B preferred stock (344,828 shares) and warrants to purchase half of the
shares of common stock (67,000 shares) were held in escrow, along with half of
the purchase price.
On December 4, 2000, Atlantic and the Investors entered into a stock
repurchase agreement (the stock "Repurchase Agreement") pursuant to which we
repurchased from the Investors for $500,000 137,930 shares of Series B preferred
stock, and agreed to the release from escrow to the Investors of the $1,000,000
purchase price of the 344,828 shares of Series B preferred stock held in escrow.
We also allowed the Investors to keep all of the warrants issued under the
purchase agreement and issued to the Investors warrants to purchase a further
20,000 shares of our common stock at the same exercise price. On January 19,
2001, 41,380 shares of Series B preferred stock were converted by the Investors
into 236,422 shares of our common stock. On March 9, 2001, Atlantic and the
Investors entered into a second stock repurchase agreement pursuant to which we
repurchased from the Investors, for an aggregate purchase price of $617,067, all
165,518 shares of our Series B preferred stock held by the Investors. The
repurchase price represented 125% of the purchase price originally paid by the
investors for the repurchased shares, as well as an amount equal to the annual
dividend on the Series B preferred stock at a rate per share of 8% of the
original purchase price. The repurchased shares constitute all remaining
outstanding shares of Series B preferred stock; we have cancelled those shares.
On May 7, 2001, we entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC pursuant to which Fusion Capital agreed to purchase
up to $6.0 million of our common stock over a 30-month period, subject to a
6-month extension or earlier termination at our discretion. This agreement
replaced an earlier common stock purchase agreement between Atlantic and Fusion
Capital dated March 16, 2001. Fusion's obligation to purchase shares of our
common stock is subject to certain conditions, including the effectiveness of a
registration statement covering the shares to be purchased. That registration
statement was declared effective on July 6, 2001. The selling price of the
shares will be equal to the lesser of (1) $20.00 or (2) a price based upon the
future market price of the common stock, without any fixed discount to the
market price. A material contingency that may affect our operating plans and
ability to raise funds under this agreement is our stock price. Currently, our
stock price is below the floor price of $0.68 specified in the Fusion Capital
agreement and as a result we are currently unable to draw funds pursuant to the
Fusion Capital agreement. As the Fusion Capital agreement is currently
structured, we cannot guarantee that we will be able to draw any funds. On
November 30, 2001 Fusion Capital purchased from us under the agreement 416,667
shares of our common stock at a price per share of $0.24, representing an
aggregate purchase price of $100,000. agreement. We paid a $120,000 finder's fee
relating to this transaction to Gardner Resources, Ltd. and issued to Fusion
Capital Fund II, LLC 600,000 common shares as a commitment fee. Those shares had
an estimated fair value of $444,000. We have amended our agreement with Fusion
Capital to allow Atlantic to draw funds pursuant to the agreement regardless of
its listing status on the Nasdaq SmallCap Market.
On November 6, 2001, we entered into an agreement with Joseph Stevens &
Company, Inc. in which Joseph Stevens agreed to act as placement agent for a
private placement of shares of our common stock. In that private placement, the
price of each share of our common stock was $0.24 and the minimum and maximum
subscription amounts were $2,000,000 and $3,000,000, respectively. In addition,
each investor receives a warrant to purchase one share of our common stock for
every share of our common stock purchased by that investor. The warrants have an
exercise price of $0.29 and are exercisable for five years from the closing
date. On December 3, 2001, we issued to certain investors an aggregate of
8,333,318 shares of our common stock for the minimum subscrption of $2,000,000.
In connection with the private placement, we paid Joseph Stevens a placement fee
equal to 7% of the aggregate subscription amount plus a warrant to purchase
833,331 shares of our common stock, which represented 10% of the number of
shares issued to the investments. The term of this warrant is five years and the
per share exercise price is $0.27. We expect to receive additional commitments
of up to $1 million for the maximum aggregate subscription amount, but there can
be no assurances that we will.
Our available working capital and capital requirements will depend upon
numerous factors, including progress of our research and development programs;
our progress in and the cost of ongoing and planned preclinical and clinical
testing; the timing and cost of obtaining regulatory approvals; the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights; competing technological and market developments;
changes in our existing collaborative and licensing relationships; the resources
that we devote to developing manufacturing and commercializing capabilities;
technological advances; the status of our competitors; our ability to establish
collaborative arrangements with other organizations; and our need to purchase
additional capital equipment.
14
At September 30, 2001 we had $440,558 in cash and cash equivalents. At
December 31, 2001 our cash balance was $1,591,761, after giving effect to the
aformentioned private placement. As of September 30, 2001, our current
liabilities exceeded our current assets and we had a working capital deficit of
$280,607. We anticipate that our resources will be sufficient to finance our
anticipated needs for operating and capital expenditures at our current level of
operations for at least the next six months. If the investors in our recent
private placement elect to invest an additional $1,000,000, we anticipate that
our resources would be sufficient to finance our currently anticipated needs for
operating and capital expenditures for the next 12 months. In addition, we will
attempt to generate capital through a combination of collaborative agreements,
strategic alliances, and debt financing. However, we can give no assurance that
we will be able to obtain additional capital through these sources or upon terms
acceptable to us.
We have the following short term and long term liquidity needs. Our cash
utilized for operations for the next year is expected to be approximately
$150,000 per month. Currently, these expected operating expenses include
approximately $40,000 per month for research and preclinical development
expenses and approximately $110,000 for general and administrative expenses.
On August 9, 2001, we retained Proteus Capital Corp. on a non-exclusive
basis as our financial advisors to assist us with raising additional funds.
Pursuant to our agreement with Proteus, we granted Proteus warrants to purchase
100,000 shares of our common stock at $0.59 per share, which was the average
closing stock price for the two weeks ending August 17, 2001. The warrants were
fully vested on the date of the agreement and the term of the warrants is five
years.
Subsequent to an oral hearing before a Nasdaq Listing Qualifications
Panel, on August 23, 2001, our securities were delisted from the Nasdaq Stock
Market for failing to meet the minimum bid price requirements set forth in the
NASD Marketplace Rules, as our common stock had traded for less than $1.00 for
more than 30 consecutive business days. Our common stock trades now on the OTC
Bulletin Board under the symbol "ATLC.OB". Delisting our common stock from
Nasdaq could have a material adverse effect on our ability to raise additional
capital, our stockholders' liquidity and the price of our common stock.
DESCRIPTION OF BUSINESS
GENERAL
We are engaged in the business of developing and commercializing
early-stage technologies. Specifically, we aim to do the following:
o identify early biomedical, pharmaceutical, electronic infrastructure,
software, communications or other technologies that we believe could
be commercially viable;
o acquire proprietary rights to these technologies, either by license or
by acquiring an ownership interest;
o fund research and development of these technologies; and
o bring these technologies to market, either directly or by selling or
licensing these technologies to other companies willing to make the
necessary investment to conduct the next level of research or seek
required regulatory approvals.
We have in the past focused on biomedical and pharmaceutical
technologies. We are currently developing one such technology that we believe
may be useful in treating pain and inflammation. We are also entitled to
royalties and other revenues in connection with commercialization of
technologies relating to cataract surgery.
CORPORATE STRUCTURE
We were incorporated in Delaware on May 18, 1993. Any technologies or
rights to royalties or other revenues are held either by Atlantic or by our
subsidiaries Optex Ophthalmologics, Inc., or "Optex," and Gemini Technologies,
Inc., or "Gemini."
15
We seek to minimize administrative costs, thereby maximizing the capital
available for research and development. We do so by providing a centralized
management team that oversees the transition of products and technologies from
the early development stage to commercialization. In addition, we budget and
monitor funds and other resources among Atlantic and our subsidiaries, thereby
providing flexibility to allocate resources among technologies based on the
progress of individual technologies.
ATLANTIC AND ITS SUBSIDIARIES
Optex and the Catarex(TM) Technology
Our majority-owned (81.2%) subsidiary, Optex, is entitled to royalties
and other revenues in connection with commercialization of the Catarex
technology. Bausch & Lomb, a multinational ophthalmics company, is developing
this technology to overcome the limitations and deficiencies of traditional
cataract extraction techniques. Optex had owned this technology and was
developing it pursuant to a development agreement with Bausch & Lomb, but on
March 2, 2001, Optex sold to Bausch & Lomb substantially all of its assets
(mostly intangible assets with no book value), including those related to the
Catarex technology.
Bausch & Lomb, which has committed over $15 million on the project to
date, has assumed full responsibility for development and marketing of the
technology, and will pay Optex royalties on sales of the device and the
associated system.
Bausch & Lomb had planned to conduct a human feasibility study on the
first-generation Catarex handpiece at a location outside the United States in
mid- September 2001, but cancelled it due to several factors, including the
immediate concern surrounding extended travel as a result the September 11, 2001
terrorist tragedy.
Bausch & Lomb has informed us that, in an effort to accelerate the
project, it will combine the feasibility study and clinical trials on the
first-generation Catarex handpiece into one study under an FDA approved
investigational device exemption, or "IDE." Bausch & Lomb considers that the
risk of combining the two studies is minimal, since all the studies to date
indicate that the system operates as intended.
Bausch & Lomb has submitted the IDE to the FDA in the fourth quarter of
2001. The FDA requires at least 30 days to review and approval on IDE. This
would allow Bausch & Lomb to begin the trials as early as the first quarter of
2002, depending on the speed of patient registration. Once the clinical trails
are completed there will be a 90-day follow-up period, and then the data will be
submitted in a report to the FDA along with a 510(k) application for the
first-generation Catarex handpiece.
Bausch & Lomb has also informed us that it is continuing to develop a
second-generation Catarex handpiece that better integrates the "back-end"
plumbing of the Catarex handpiece with its surgical platform but retains
unchanged the "front-end" surgical instrument of the Catarex handpiece. Since
the front-end of the second-generation handpiece is identical to that in the
first-generation handpiece, Bausch & Lomb believes that FDA approval of the
first-generation Catarex handpiece should streamline FDA approval of the
second-generation Catarex handpiece.
CT-3 Anti-inflammatory/Analgesic Compound
We are developing our proprietary compound CT-3, a patented synthetic
derivative of carboxylic tetrahydrocannabinol (THC-7C), as an alternative to
nonsteroidal anti-inflammatory drugs, or "NSAIDs," such as aspirin and
ibuprofen. Over 130 million Americans suffer from chronic pain and 40 million
suffer from arthritis. Worldwide prescription sales of
analgesic/anti-inflammatory drugs exceeded $9 billion in 1999. Preliminary
studies have shown that CT-3 demonstrates analgesic/anti-inflammatory properties
at microgram doses without central nervous system or gastrointestinal side
effects and also reduces joint damage caused by rheumatoid arthritis.
Since CT-3 appears to possess a wide range of therapeutic activity, we
are carefully choosing an indication that we feel CT-3 would be most efficacious
for and one that will strategically allow us to increase the licensing value of
CT-3 in the most timely and cost effective manner. We are continuing our efforts
by conducting additional
16
preclinical tests to study the analgesic activity of CT-3, particularly with
reference to neuropathic pain. Preliminary results show that CT-3
intraperitoneally dramatically reduces allodynia in neuropathic rats (with a
partial sciatic nerve ligation). We are planning to initiate shortly a Phase
I/II clinical trial of safety, tolerability, and efficacy to determine the upper
limits of safe dosing with CT-3 and to measure the potential for CT-3 to act as
a pain reliever in patients with neuropathic pain. In addition, we have recently
initiated a development plan for CT-3 to test its efficacy in multiple
sclerosis. In an animal model for multiple sclerosis, CT-3 induced a significant
decrease in spasticity, demonstrated a rapid inhibition of limb stiffness and
the effect was relatively long-lived. The results of the study validated
spasticity as a potential indication for CT-3 use. We are also preparing to
conduct Phase II clinical trials to evaluate the efficacy of CT-3 in multiple
sclerosis-associated tremors and spasticity.
We are continuing to develop CT-3 for use in the treatment of a variety
of indications. In order to significantly increase the potential value of a
sublicensing deal, we have determined to delay sublicensing CT-3, to suitable
strategic partners to assist in clinical development, regulatory approval
filing, manufacturing and marketing of CT-3 until after successful completion of
the Phase II Clinical Trials.
Gemini and the 2-5A Antisense Technology
Gemini Technologies, Inc., Atlantic's majority-owned subsidiary, had
license rights to an aerosolized 2-5A antisense compound to inhibit respiratory
syncytial virus (RSV). Pursuant to an asset purchase agreement dated April 23,
2001, between Atlantic, Gemini Technologies, Inc., the Cleveland Clinic
Foundation, or "CCF," and CCF's affiliate IFN, Inc., on May 4, 2001, Gemini sold
to IFN substantially all its assets (mostly intangible assets with no book
value), including all those related to the 2-5A antisense enhancing technology
for future contingent royalty payments and withdrawal of arbitration described
below.
As the purchase price for Gemini's assets, IFN agreed to pay Gemini,
upon receipt, an amount equal to 20 percent of all amounts that CCF is entitled
to pursuant to the Cleveland sublicense, subject to adjustments. The purchase
price will be reduced by 1 percent of the sublicense fees for each $150,000
expended by IFN to develop the technology, subject to a floor of 5 percent. In
addition, upon closing CCF withdrew its outstanding arbitration demand against
Gemini and Atlantic, with prejudice, and each party is obligated to pay its own
costs and attorneys' fees related thereto.
We feel that this solution represents a satisfactory alternative to two
undesirable alternatives, namely (1) termination of the Cleveland sublicense
with no compensation to Gemini and substantial shutdown costs and (2) continued
development of 2-5A at levels that Gemini would not be able to justify or
sustain.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Frederic P. Zotos, Esq., 35, has been a member of our board of directors
since May 1999, our President since April 3, 2000, and our Chief Executive
Officer since February 15, 2001. From June 1999 to April 2000, Mr. Zotos was
Director of Due Diligence and Internal Legal Counsel of Licent Capital, LLC, an
intellectual property royalty finance company located in Jericho, New York. From
September 1998 until June 1999, Mr. Zotos practiced as an independent patent
attorney and technology licensing consultant in Cohasset, Massachusetts. From
December 1996 until August 1998, Mr. Zotos was Assistant to the President and
Patent Counsel of Competitive Technologies, Inc., a publicly-traded technology
licensing agency located in Fairfield, Connecticut. From July 1994 until
November 1996, Mr. Zotos was an Intellectual Property Associate of Pepe &
Hazard, a general practice law firm located in Hartford, Connecticut. He is
Co-Chair of the Fairfield-Westchester and Chair of the New York City Chapters of
the Licensing Executive Society. Mr. Zotos is a registered patent attorney with
the United States Patent and Trademark Office, and is also registered to
practice law in Massachusetts and Connecticut. He earned a B.S. in Mechanical
Engineering from Northeastern University in 1987, a joint J.D. and M.B.A. degree
from Northeastern University in 1993, and successfully completed an M.S. in
Electrical Engineering Prerequisite Program from Northeastern University in
1994.
17
Steve H. Kanzer, C.P.A., Esq., 37, has been a member of our board of
directors since its inception in 1993. He is currently a member of our Audit
Committee and Compensation Committee. From December 1997 to November 2001, Mr.
Kanzer was President and Chief Executive Officer of Corporate Technology
Development, Inc., a biotechnology holding company based in Miami, Florida.
Since December 2000 Mr. Kanzer has also been Chairman, Chief Executive Officer
and President of Accredited Equities, Inc., a venture capital and investment
banking firm based in Miami, and President of several private biopharmaceutical
companies also based in Miami. From 1992 until December 1998, Mr. Kanzer was a
founder and Senior Managing Director of Paramount, and Senior Managing
Director--Head of Venture Capital of Paramount Capital Investments, LLC
("Paramount Investments"), a biotechnology and biopharmaceutical venture capital
and merchant banking firm that is associated with Paramount. From 1993 until
June 1998, Mr. Kanzer was a founder and a member of the board of directors of
Boston Life Sciences, Inc., a publicly-traded pharmaceutical research and
development company. From 1994 until June 2000, Mr. Kanzer was a founder and
Chairman of Discovery Laboratories, Inc., a publicly-traded pharmaceutical
research and development company. Mr. Kanzer is a founder and a member of the
board of directors of DOR BioPharma, Inc., a publicly-traded pharmaceutical
research and development company. Prior to joining Paramount, Mr. Kanzer was an
attorney with Skadden, Arps, Slate, Meagher & Flom LLP in New York, New York
from September 1988 to October 1991. He received his J.D. from New York
University School of Law in 1988 and a B.B.A. in Accounting from Baruch College
in 1985. In his capacity as employee and director of other companies in the
venture capital field, Mr. Kanzer is not required to present to Atlantic
opportunities that arise outside the scope of his duties as a director of
Atlantic.
Peter O. Kliem, 62, has been a member of our board of directors since
March 21, 2000 and is a member of our Compensation Committee. Mr. Kliem is a
co-founder, President and CEO of Enanta Pharmaceuticals, a Boston based
biotechnology start-up. Prior to this start-up, he worked with Polaroid
Corporation for 36 years, most recently in the positions of Senior Vice
President, Business Development, Senior VP, Electronic Imaging and Senior VP and
Director of Research & Development. During his tenure with Polaroid, he
initiated and executed major strategic alliances with corporations in the U.S.,
Europe, and the Far East. Mr. Kliem also introduced a broad range of innovative
products such as printers, lasers, CCD and CID imaging, fiber optics, flat panel
display, magnetic/optical storage and medical diagnostic products in complex
technological environments. Mr. Kliem is a member of the board of directors of
DOR BioPharma, Inc., a publicly-traded pharmaceutical research and development
company. He serves as trustee and vice president of the Boston Biomedical
Research Institute and served as Chairman of PB Diagnostics. He is a member of
the board of directors of the privately held company, Corporate Technology
Development, Inc. In addition, he serves as Industry Advisor to TVM-Techno
Venture Management. Mr. Kliem earned his M.S. in chemistry from Northeastern
University.
A. Joseph Rudick, M.D., 44, was our Chief Executive Officer from April
10, 2000 until February 15, 2001, and has been a member of our board of
directors since May 1999. He was also our President from May 1999 to April 3,
2000, and was a founder of Atlantic and two of its majority-owned subsidiaries,
Optex and Channel. Dr. Rudick served as a business consultant to Atlantic from
January 1997 until November 1998. From June 1994 until November 1998, Dr. Rudick
was a Vice President of Paramount Capital, Inc., an investment bank specializing
in the biotechnology and biopharmaceutical industries. Since 1988, he has been a
Partner of Associate Ophthalmologists P.C., a private ophthalmology practice
located in New York, and from 1993 to 1998 he served as a director of Healthdesk
Corporation, a publicly-traded medical information company of which he was a
co-founder. Dr. Rudick earned a B.A. in Chemistry from Williams College in 1979
and an M.D. from the University of Pennsylvania in 1983.
David Tanen, 38, has been a member of our board of directors since
January 28, 2002. Mr. Tanen has served as Associate Director of Paramount
Capital since October 1996. Mr. Tanen also serves as an officer of Oxiquant,
Inc., Paralex, Inc. and MTR, Inc., and as a director of Innovative Drug Delivery
Systems Inc. and several privately held development stage biotechnology
companies. Mr. Tanen is also a member of Orion Biomedical GP, LLC. Mr. Tanen
holds a J.D. from Fordham University School of Law.
Nicholas J. Rossettos, CPA, 36, has been our Chief Financial Officer
since April 2000. Previously, Mr. Rossettos was from 1999, Manager of Finance
for Centerwatch, a pharmaceutical trade publisher headquartered in Boston,
Massachusetts, that is a wholly owned subsidiary of Thomson Corporation of
Toronto, Canada. Prior to that, from 1994, he was Director of Finance and
Administration for EnviroBusiness, Inc., an environmental and technical
management-consulting firm headquartered in Cambridge, Massachusetts. He holds
an A.B. in Economics from Princeton University and a M.S. in Accounting and
M.B.A. from Northeastern University.
18
There are no family relationships among the executive officers or
directors of Atlantic.
Compensation of Executive Officers
Pursuant to our 1995 stock option plan, on April 12, 2000, Dr. Rudick
was granted options for 100,000 shares of common stock at an exercise price of
$4.1875. Additionally, on April 12, 2000, Dr. Rudick was granted options for
25,000 shares of common stock at an exercise price of $4.1875 in connection with
his promotion to Chief Executive Officer. During the 2000 fiscal year, options
for 50,000 shares of common stock that had been granted to Dr. Rudick on August
9, 1999, were rescinded in order to correct for the grant to Dr. Rudick during
the 1999 fiscal year of options for 37,000 shares of common stock above the
amount permitted by our stock option plan for that fiscal year. Pursuant to the
1995 stock option plan, on April 12, 2000, Frederic Zotos was granted options
for 100,000 shares of common stock at an exercise price of $4.1875.
Additionally, on April 12, 2000, Frederic Zotos was granted options for 150,000
shares of common stock at an exercise price of $4.1875 in connection with his
promotion to President. On April 12, 2000, Nicholas Rossettos was granted
options for 50,000 shares of common stock at an exercise price of $4.1875 in
connection with his promotion to Chief Financial Officer.
The following table sets forth, for the last three fiscal years, the
compensation earned for services rendered in all capacities by Atlantic's chief
executive officer and the other highest-paid executive officers serving as such
at the end of 2000 whose compensation for that fiscal year was in excess of
$100,000. The individuals named in the table will be hereinafter referred to as
the "Named Officers." No other executive officer of Atlantic received
compensation in excess of $100,000 during fiscal year 2000. No executive officer
who would otherwise have been included in this table on the basis of 2000 salary
and bonus resigned or terminated employment during the year.
SUMMARY COMPENSATION TABLE
- ----------------------------- ------- ----------------------------------- ------------------- --------------
Annual Compensation Long-Term All Other
Compensation Compensation
Awards ($)
----------------------------------- ------------------- --------------
Name and Principal Position Year Salary($)(1) Bonus($) Other Annual Securities
Compensation Underlying
($) Options/SARs(#)
- ----------------------------- ------- ---------- --------- -------------- ------------------- --------------
A. Joseph Rudick, M.D.(1) 2000 123,750 111,174 0 25,000 84,674(2)
Chief Executive Officer 1999 0 23,502 0 87,000(3) 81,523(4)
1998 0 0 0 10,000
- ----------------------------- ------- ---------- --------- -------------- ------------------- --------------
Frederic P. Zotos, Esq. (5) 2000 131,250 50,000 10,000(6) 250,000 14,750(7)
President 1999 0 0 0 37,000 2,600(8)
1998 0 0 0 0 0
- ----------------------------- ------- ---------- --------- -------------- ------------------- --------------
Nicholas J. Rossettos, 2000 91,146 25,000 10,000(10) 50,000 0
C.P.A. (9) Chief Financial 1999 0 0 0 0 0
Officer, 1998 0 0 0 0 0
Treasurer and Secretary
- ----------------------------- ------- ---------- --------- -------------- ------------------- --------------
- -------------------------
(1) Dr. Rudick became Chief Executive Officer of Atlantic on April 10, 2000; he
resigned this position effective February 15, 2001.
(2) Represents $18,174 paid to Dr. Rudick in recognition of his role in
negotiating an amendment to Optex's contract with Bausch & Lomb (see Item
12 below for a more detailed explanation) less $1,5000 returned to Atlantic
by him due to mistaken overpayment of director's fees for the 1999 fiscal
year.
(3) Excludes options for 50,000 shares of common stock granted to Dr. Rudick on
August 9, 1999, but rescinded in the 2000 fiscal year to correct the grant
to him in the 1999 fiscal year of options for 37,000 shares of common stock
above the amount permitted by the stock option plan for that fiscal year.
19
(4) Represents $50,516 in fees paid to Dr. Rudick for consulting services
rendered, $7,500 in director's fees, of which $1,500 was paid in error and
therefore returned to Atlantic by him in 2000, and $23,507 paid in
recognition of his role in negotiating an amendment to Optex's contract
with Bausch & Lomb.
(5) Mr. Zotos became President of Atlantic on April 3, 2000, and Chief
Executive Officer effective February 15, 2001.
(6) Represents matching contributions by Atlantic pursuant to Atlantic's
SAR-SEP retirement plan.
(7) Represents $8,000 in fees paid for consulting services rendered and $6,750
in director's fees.
(8) Represents fees paid for consulting services rendered.
(9) Mr. Rossettos became Chief Financial Officer of Atlantic on April 10,
2000.
(10) Represents matching contributions by Atlantic pursuant to Atlantic's
SAR-SEP retirement plan.
Options and Stock Appreciation Rights
The following table contains information concerning the grant of stock
options under the 1995 Stock Option Plan to the Named Officers during the 2000
fiscal year. Except as described in footnote (1) below, no stock appreciation
rights were granted during the 2000 fiscal year.
20
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------------
Individual Grants
- -----------------------------------------------------------------------------------------------
Name Number of % of Underlying Exercise Expiration
Securities Options/SARs Price Date
Underlying Granted to ($/Share)(3)
Options/ Employees in
SARs Fiscal Year(2)
Granted(#)(1)
- ----------------------------- ------------------ -------------------- ------------- -----------
A. Joseph Rudick M.D. 125,000 25% $4.1875 4/12/10
- ----------------------------- ------------------ -------------------- ------------- -----------
Frederick Zotos, Esq. 250,000 51% $4.1875 4/12/10
- ----------------------------- ------------------ -------------------- ------------- -----------
Nicholas J. Rossettos, CPA 50,000 10% $4.1875 4/12/10
- ----------------------------- ------------------ -------------------- ------------- -----------
Other Employees 20,000 4% $4.1875 4/12/10
50,000 10% $3.4375 5/15/10
- ----------------------------- ------------------ -------------------- ------------- -----------
- ------------------------
(1) Each option has a maximum term of ten years, subject to earlier termination
in the event of the optionee's cessation of service with Atlantic. Dr.
Rudick's options became exercisable as follows: (1) the first option for
100,000 shares of common stock, 25% on April 3, 2000 and 25% each of the
first three anniversaries of the date of granting; (2) the second option
for 25,000 shares of common stock, 25% upon granting and 25% each of the
first three anniversaries of the date of granting. Mr. Zotos' options are
exercisable as follows: (1) the first option for 100,000 shares of common
stock, 25% upon granting and 25% each of the first three anniversaries of
the date of granting; (2) the second option for 150,000 shares of common
stock, 25% upon granting and 25% each of the first three anniversaries of
the date of granting. Mr. Rossettos' options for 50,000 shares of common
stock are exercisable as follows: 25% upon granting and 25% upon each of
the first three anniversaries of the date of granting. Options for the
remainder of the employees are exercisable as follows: (1) the option for
20,000 shares of common stock, 25% upon granting and 25% upon each of the
first three anniversaries of the date of granting; (2) the option for
50,000 shares of common stock, 25% upon granting and 25% upon each of the
first three anniversaries of the date of granting. Each option will become
immediately exercisable in full upon an acquisition of Atlantic by merger
or asset sale, unless the option is assumed by the successor entity. Each
option includes a limited stock appreciation right pursuant to which the
optionee may surrender the option, to the extent exercisable for vested
shares, upon the successful completion of a hostile tender for securities
possessing more than 50% of the combined voting power of Atlantic's
outstanding voting securities. In return for the surrendered option, the
optionee will receive a cash distribution per surrendered option share
equal to the excess of (1) the highest price paid per share of common stock
in that hostile tender offer over (2) the exercise price payable per share
under the cancelled option.
(2) Calculated based on total option grants to employees of 495,000 shares of
common stock during the 2000 fiscal year.
(3) The exercise price may be paid in cash or in shares of common stock (valued
at fair market value on the exercise date) or through a cashless exercise
procedure involving a same-day sale of the purchased shares. Atlantic may
also finance the option exercise by loaning the optionee sufficient funds
to pay the exercise price for the purchased shares and the federal and
state income tax liability incurred by the optionee in connection with such
exercise. The optionee may be permitted, subject to the approval of the
Plan Administrator, to apply a portion of the shares purchased under the
option (or to deliver existing shares of common stock) in satisfaction of
such tax liability.
(4) Stock options for 50,000 shares granted to Dr. Rudick on August 9, 1999,
would have vested upon the sale of Optex on January 31, 2001. These options
were, however, rescinded during the 2000 fiscal year, in order to correct
for the grant to Dr. Rudick in the 1999 fiscal year of options for 37,000
shares above the amount permitted by the 1995 stock option plan for that
fiscal year.
21
Option Exercises and Holdings
The following table provides information with respect to the Named
Officers concerning the exercisability of options during fiscal year 2000 and
unexercisable options held as of the end of fiscal year 1999. No stock
appreciation rights were exercised during fiscal year 1999, and, except for the
limited rights described in footnote (1) to the preceding table, no stock
appreciation rights were outstanding at the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR ("FY")
AND FY-END OPTION VALUES
- ------------------------ ------------ ------------ -------------------------- ------------------------------
Name Shares Value No. of Securities Value of Unexercised
Acquired Realized Underlying Unexercised In-the-Money Options/SARs at
on Exercise (1) Options/SARs at FY-End FY-End (Market price of
(#) shares at FY-End less
exercise price) ($)(1)
------------ ------------- -------------- ---------------
Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------------ ------------ ------------ ------------- -------------- ---------------
A. Joseph Rudick, M.D. 0 - 94,361 127,639 0 0
- ------------------------ ------------ ------------ ------------ ------------- -------------- ---------------
Frederic P. Zotos 0 - 92,833 194,167 0 0
- ------------------------ ------------ ------------ ------------ ------------- -------------- ---------------
Nicholas J. Rossettos 0 - 12,500 37,500 0 0
- ------------------------ ------------ ------------ ------------ ------------- -------------- ---------------
- ------------------
(1) Equal to the fair market value of the purchased shares at the time of the
option exercise over the exercise price paid for those shares.
(2) Based on the fair market value of Atlantic's common stock on December 31,
2000 of $0.66 per share, the closing sales price per share on that date on
the Nasdaq SmallCap Market.
Compensation of Directors
Non-employee directors are eligible to participate in an automatic stock
option grant program pursuant to the 1995 stock option plan. Non-employee
directors are granted an option for 10,000 shares of common stock upon their
initial election or appointment to the board and an option for 2,000 shares of
common stock on the date of each annual meeting of our stockholders for those
non-employee directors continuing to serve after that meeting. On September 29,
2000, pursuant to the automatic stock option grant program, Atlantic granted
each of Steve Kanzer and Peter Kliem options for 2,000 shares of common stock at
an exercise price of $3.1875 per share, the fair market value of our common
stock on the date of grant. Additionally, on September 29, 2000, Peter Kliem was
granted options for 25,000 shares of common stock at an exercise price of
$3.1875. On September 29, 2000, Steve Kanzer was granted options for 25,000
shares of common stock at an exercise price of $3.1875. Peter Kliem was also
granted options for 23,000 shares of common stock on April 6, 2000, at an
exercise price of $5.125 and options for 10,000 shares of common stock on March
21, 2000, at an exercise price of $6.125.
The board agreed that effective October 21, 1999, each non-employee
member of the board is to receive $6,000 per year for his services as a
director, payable semi-annually in arrears, plus $1,500 for each board meeting
attended in person, $750 for each board meeting attended via telephone
conference call and $500 for each meeting of a committee of the board attended.
Board members are reimbursed for reasonable expenses incurred in connection with
attending meetings of the board and of committees of the board.
Long Term Incentive Plan Awards
No long term incentive plan awards were made to a Named Officer during
the last fiscal year.
22
Employment Contracts and Termination of Employment and Change of Control
Agreements
Effective April 10, 2000, Dr. Rudick became Chief Executive Officer of
Atlantic pursuant to an employment agreement dated as of the effective date.
This agreement has a three-year term ending on April 10, 2003. Effective
February 15, 2001, Dr. Rudick resigned as Chief Executive Officer of Atlantic at
which time the employment agreement was amended to reflect a new compensation
structure.
Effective April 3, 2000, Mr. Zotos became President of Atlantic pursuant
to an employment agreement dated as of the effective date. This agreement has a
three-year term ending on April 2, 2003. As President, Mr. Zotos reports to the
Chief Executive Officer. Mr. Zotos and his dependents are eligible to receive
paid medical and long term disability insurance and such other health benefits
as Atlantic makes available to other senior officers and directors. Effective
February 15, 2001, Mr. Zotos was also appointed Chief Executive Officer of
Atlantic at which time the employment agreement was amended to reflect a new
compensation structure.
Effective April 10, 2000, Mr. Rossettos became Chief Financial Officer
of Atlantic pursuant to an employment agreement dated as of the effective date.
This agreement has a three-year term ending on April 10, 2003. Mr. Rossettos
reports to the President or Chief Executive Officer. Mr. Rossettos and his
dependents are eligible to receive paid medical and long term disability
insurance and such other health benefits as Atlantic makes available to other
senior officers and directors.
The Compensation Committee has the discretion under the 1995 stock
option plan to accelerate options granted to any officers in connection with a
change in control of Atlantic or upon the subsequent termination of the
officer's employment following the change of control.
Change of Control Transactions
We are not aware of any transactions resulting in a change of control
during fiscal year 2000.
DESCRIPTION OF PROPERTY
We leased space for our executive office at 150 Broadway, Suite 1009,
New York, New York 10038, for a monthly lease payment of $967. On March 19,
2001, we moved into new offices at 350 Fifth Avenue, Suite 5507, New York, New
York 10118. The lease for this space is for a term of two years and two and a
half months with a monthly lease payment of $6,645.
To facilitate our exploration of investment opportunities in
fiber-optics, we leased space at One Executive Park East, 135 Bolton Road in the
Town of Vernon, County of Tolland, Connecticut 06066. This lease is for a term
of three years ending May 14, 2003, with monthly lease payments of $1,251. We
are currently looking to sublease these premises.
We believe that our existing facilities are adequate to meet our current
requirements and that our insurance coverage adequately covers our interest in
our leased spaces. We do not own any real property.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 4, 2000, we entered into a financial advisory and consulting
agreement with Joseph Stevens & Company, Inc. In this agreement, we engaged
Joseph Stevens to provide us with investment banking services from January 4,
2000 until January 4, 2001. As partial compensation for the services to be
rendered by Joseph Stevens, we issued them three warrants to purchase an
aggregate of 450,000 shares of our common stock. The exercise price and exercise
period of each warrant is as follows:
23
============================================================================================
Warrant Number No. of Shares Exercise Price Exercise Period
============================================================================================
No.1 150,000 $2.50 1/4/00 through 1/4/05
- --------------------------------------------------------------------------------------------
1/4/01 through 1/4/06 (which vested in
equal monthly increments during
No.2 150,000 $3.50 1/4/00-1/4/01)
- --------------------------------------------------------------------------------------------
1/4/02 through 1/4/07 (which vested in
equal monthly increments during
No.3 150,000 $4.50 1/4/00-1/4/01)
============================================================================================
In addition, each warrant may only be exercised when the market price of
a share of common stock is at least $1.00 greater than the exercise price of
that warrant. In connection with issuance of the warrants, Atlantic and Joseph
Stevens entered into a letter agreement granting Joseph Stevens registration
rights in respect of the shares of common stock issuable upon exercise of the
warrants.
Pursuant to Atlantic's restated certificate of incorporation and bylaws,
Atlantic entered into indemnification agreements with each of its directors and
executive officers.
All transactions between Atlantic and its officers, directors, principal
stockholders and their affiliates are approved by a majority of the board of
directors, including a majority of the independent and disinterested outside
directors on the board of directors. We believe that the transaction set forth
above was made on terms no less favorable to us than could have been obtained
from unaffiliated third parties.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock was listed on the Nasdaq SmallCap Market until August
23, 2001, when our stock was delisted. Since that date our common stock has been
listed on the NASD Over-the-Counter Bulletin Board. The following table sets
forth the high and low price for our common stock as quoted, in U.S.
dollars, by the Nasdaq SmallCap Market and the OTC BB, as applicable, during
each quarter within the last two fiscal years:
=============================================
Quarter Ended High Low
=============================================
December 31, 1999 $2.25 $1.25
- ---------------------------------------------
March 31, 2000 $10.625 $1.375
- ---------------------------------------------
June 30, 2000 $6.375 $2.50
- ---------------------------------------------
September 30, 2000 $5.00 $2.50
- ---------------------------------------------
December 31, 2000 $3.313 $0.406
- ---------------------------------------------
March 31, 2001 $1.438 $0.625
- ---------------------------------------------
June 30, 2001 $1.00 $0.51
- ---------------------------------------------
September 30, 2001 $0.80 $0.16
- ---------------------------------------------
December 31, 2001 $0.51 $0.16
=============================================
The number of holders of record of our common stock as of February 12,
2002 was 153.
We have not paid or declared any dividends on our common stock and we do
not anticipate paying dividends on our common stock in the foreseeable future.
The certificate of designations for our Series A preferred stock provides that
we may not pay dividends on our common stock unless a special dividend is paid
on our Series A preferred stock.
24
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to us with
respect to the beneficial ownership of common stock as of February 12, 2002, by
(1) all persons who are beneficial owners of 5% or more of our common stock, (2)
each director and nominee, (3) the Named Officers in the Summary Compensation
Table above, and (4) all directors and executive officers as a group. We do not
know of any person who beneficially owns more than 5% of the Series A preferred
stock and none of our directors or the Named Officers owns any shares of Series
A preferred stock. Consequently, the following table does not contain
information with respect to the Series A preferred stock.
The number of shares beneficially owned is determined under rules
promulgated by the SEC, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under those rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual has
the right to acquire within 60 days of February 12, 2002, through the exercise
or conversion of any stock option, convertible security, warrant or other right.
Including those shares in the tables does not, however, constitute an admission
that the named stockholder is a direct or indirect beneficial owner of those
shares. Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares that power with that person's
spouse) with respect to all shares of capital stock listed as owned by that
person or entity. The common stock represented here includes the common stock
that the beneficial holders would directly possess if they converted all shares
of Series A Preferred Stock held by them.
NUMBER OF PERCENT OF TOTAL SHARES
NUMBER OF % OF TOTAL SHARES
NAME AND ADDRESS SHARES OUTSTANDING (1)
- ---------------- ------ -----------
CERTAIN BENEFICIAL HOLDERS:
Lindsay A. Rosenwald, M.D.(2) 4,665,904 28.9%
787 Seventh Avenue
New York, NY 10019
Joseph Stevens(3) 1,283,331 7.8%
59 Maiden Lane, 32nd Floor
New York, NY 10038
MANAGEMENT:
A. Joseph Rudick, M.D.(4) 201,166 1.2%
Frederic P. Zotos, Esq.(5) 283,666 1.7%
Steve H. Kanzer, C.P.A., Esq.(6) 110,000 *
Peter O. Kliem(7) 100,916 *
Nicholas J. Rossettos, C.P.A.(8) 87,500 *
All current executive
officers and directors as
a group (5 persons) 412,499 2.7%
25
- ------------------------
* Less than 1.0%
(1) Percentage of beneficial ownership is calculated assuming 16,004,599 shares
of common stock were outstanding on February 12, 2002.
(2) Includes 154,350 shares of common stock issuable upon conversion of 47,202
shares of Series A preferred stock convertible within 60 days of February
12, 2002. Also includes 190 shares of common stock held by June Street
Corporation and 190 shares of common stock held by Huntington Street
Corporation. Dr. Rosenwald is the sole proprietor of both June Street
Corporation and Huntington Street Corporation.
(3) Includes 450,000 shares of common stock issuable upon exercise of three
warrants exercisable within 60 days of February 12, 2002.
(4) Represents options exercisable within 60 days of February 12, 2002. 25,000
shares of common stock were exercisable pursuant to stock options granted
on February 20, 2001 for 100,000 shares, of which 25% or 25,000 were
exercisable as of February 20, 2002, then an additional 25% annually
thereafter; an additional 6,250 shares of common stock were exercisable
pursuant to stock options granted on February 20, 2001 for 25,000 shares,
of which 25% or 6,250 were exercisable as of February 20, 2002, then an
additional 25% annually thereafter; an additional 75,000 shares of common
stock are exercisable pursuant to stock options granted under the plan on
April 12, 2000 for 100,000 shares, of which 50% or 50,000 shares were
exercisable as of April 3, 2001, then an additional 25% annually
thereafter; an additional 18,750 shares are exercisable pursuant to stock
options granted on April 12, 2000 for 25,000 shares, of which 25% or 6,250
were exercisable immediately, then an additional 25% annually thereafter;
an additional 25,000 shares are exercisable pursuant to stock options
granted October 21, 1999, all of which were immediately exercisable; an
additional 2,000 shares are exercisable pursuant to stock options granted
on September 23, 1999, all of which were exercisable on September 23, 2000;
an additional 32,500 shares are exercisable pursuant to stock options
granted on August 9, 1999 for 50,000 shares, of which 25% or 12,500 were
exercisable on issuance, then an additional 25% annually thereafter; an
additional 6,666 shares are exercisable pursuant to stock options granted
on May 28, 1999 for 10,000 shares, exercisable in three equal amounts
starting one year from grant date; and an additional 10,000 shares are
exercisable pursuant to stock options granted on August 7, 1998 for 10,000
shares, of which one third were exercisable after one year, with the
remainder exercisable monthly (or 277.79 per month) over two years.
(5) Represents options exercisable within 60 days of February 12, 2002. 25,000
shares of common stock were exercisable pursuant to stock options granted
on February 20, 2001 for 100,000 shares, of which 25% or 25,000 were
exercisable as of February 20, 2002, then an additional 25% annually
thereafter; an additional 37,500 shares of common stock were exercisable
pursuant to stock options granted on February 20, 2001 for 150,000 shares,
of which 25% or 37,500 were exercisable as of February 20, 2002, then an
additional 25% annually thereafter; an additional 75,000 shares of common
stock are exercisable pursuant to stock options granted on April 12, 2000
for 100,000 shares, of which 25% or 25,000 shares were exercisable on
issuance, then an additional 25% annually thereafter; an additional 112,500
shares are exercisable pursuant to stock options granted on April 12, 2000
for 150,000, of which 25% or 37,500 were exercisable on issuance, then an
additional 25% annually thereafter; an additional 25,000 shares are
exercisable pursuant to stock options granted October 21, 1999, all of
which were immediately exercisable; an additional 2,000 shares are
exercisable pursuant to stock options granted September 23, 1999 for 2,000
shares, all of which were exercisable after one year; and an additional
6,666 shares are exercisable pursuant to stock options granted May 28, 1999
for 10,000 shares, exercisable in three equal annual amounts exercisable
starting one year from grant date.
(6) Represents options exercisable within 60 days of February 12, 2002. 50,000
shares of common stock were exercisable pursuant to stock options granted
on February 20, 2001, all of which were immediately exercisable; an
additional 25,000 shares are exercisable pursuant to stock options granted
on February 29, 2000, all of which were immediately exercisable; an
additional 2,000 shares are exercisable pursuant to stock options granted
on September 29, 2000, all of which were immediately exercisable; an
additional
26
25,000 shares are exercisable pursuant to stock options granted on October
21, 1999, all of which were immediately exercisable; an additional 2,000
shares are exercisable pursuant to stock options granted September 23,
1999, all of which were exercisable on September 23, 2000; an additional
2,000 shares are exercisable pursuant to stock options granted August 28,
1998; an additional 2,000 shares are exercisable pursuant to stock options
granted on June 17, 1997; and an additional 2,000 shares are exercisable
pursuant to stock options granted on July 24, 1996.
(7) Represents options exercisable within 60 days of June, 29 2001. 50,000
shares of common stock were exercisable pursuant to stock options granted
on February 20, 2001, all of which were immediately exercisable; an
additional 25,000 shares of common stock are exercisable pursuant to stock
options granted September 29, 2000, all of which were immediately
exercisable; an additional 2,000 shares are exercisable pursuant to stock
options granted September 29, 2000, all of which were immediately
exercisable; an additional 17,250 shares are exercisable pursuant to stock
options for 23,000 shares granted on April 6, 2000, of which 25% or 5,570
were exercisable on issuance, and then an additional 25% annually
thereafter; and an additional 6,666 shares of common stock were exercisable
pursuant to stock options granted on March, 21 2000 for 10,000 shares,
which are exercisable in three equal annual amounts starting from one year
of the grant date.
(8) Represents options exercisable within 60 days of February 12, 2002. 12,500
shares of common stock were exercisable pursuant to stock options granted
on February 20, 2001 for 50,000 shares, exercisable in four equal annual
amounts starting from one year of the grant date; and an additional 75,000
shares of common stock are exercisable pursuant to stock options for 50,000
shares granted April 4, 2000, of which 25% or 12,500 were exercisable on
issuance, and then an additional 25% annually thereafter.
Description of Securities
General
Our certificate of incorporation authorizes us to issue 50,000,000
shares of common stock and 10,000,000 shares of preferred stock. Of the
authorized preferred stock, 1,375,000 shares have been designated Series A
convertible preferred stock and 1,647,312 shares have been designated Series B
convertible preferred stock. As of February 12, 2002, 16,004,599 shares of our
common stock were issued and outstanding, 330,714 shares of our Series A
preferred stock were issued and outstanding, and no shares of our Series B
preferred stock were issued and outstanding.
Common Stock
Holders of our common stock are entitled to one vote for each share on
all matters to be voted on by our stockholders. Holders of our common stock have
no cumulative voting rights. They are entitled to share ratably any dividends
that may be declared from time to time by the board of directors in its
discretion from funds legally available for dividends. Holders of our common
stock have no preemptive rights to purchase our common stock. There are no
conversion rights or sinking fund provisions for the common stock.
Our common stock is listed on the NASD Over-the-Counter Bulletin Board.
Series A Preferred Stock
Holders of shares of our Series A preferred stock can convert each share
into 3.27 shares of our common stock without paying us any cash. The conversion
price of shares of Series A preferred stock is $3.06 per share of common stock.
Both the conversion rate and the conversion price may be adjusted in favor of
holders of shares of Series A preferred stock upon certain triggering events.
On matters to be voted on by our stockholders, holders of shares of
Series A preferred stock are entitled to the number of votes equal to the number
of votes that could be cast in such vote by a holder of the common stock
27
into which those shares of Series A preferred stock are convertible on the
record date for that vote, or if no record date has been established, on the
date that vote is taken. So long as at least 50% of the shares of Series A
preferred stock are outstanding, the affirmative vote or consent of the holders
of at least 66.67% of all outstanding Series A preferred stock voting separately
as a class is necessary to effect certain actions, including, but not limited
to, declaration of dividends or distribution on any of our securities other than
the Series A preferred stock pursuant to the provisions of the certificate of
designations of the Series A preferred stock and approval of any liquidation,
dissolution or sale of substantially all of our assets. Currently there are
outstanding fewer than 50% of the shares of Series A preferred stock
outstanding.
Each February 7 and August 7 we are obligated to pay dividends, in
arrears, to the holders of shares of Series A preferred stock, and the dividends
consist of 0.065 additional shares of Series A preferred stock for each
outstanding share of Series A preferred stock.
If we are liquidated, sold to or merged with another entity (and we are
not the surviving entity after the merger), we will be obligated to pay holders
of shares of Series A preferred stock a liquidation preference of $13.00 per
share before any payment is made to holders of shares of our common stock.
The holders of shares of Series A preferred stock have rights in
addition to those summarily described. A complete description of the rights of
the Series A preferred stock is contained in the certificate of designations of
the Series A preferred stock filed with the Delaware Secretary of State.
Series B Preferred Stock
We are currently authorized to issue 1,647,312 shares of Series B
preferred stock, with such voting rights, designations, preferences, limitations
and relative rights as are contained in the certificate of designations of the
Series B preferred stock, as amended, filed with the Secretary of State of the
State of Delaware. Currently there are no shares of Series B preferred stock
outstanding.
SELLING SHAREHOLDERS
On December 3, 2001, we issued in a private placement to certain
investors, 8,333,318 shares of our common stock and issued to the investors
warrants to acquire a further 8,333,318 shares of our common stock. We also
issued to the placement agent in the private placement, Joseph Stevens &
Company, Inc., warrants to acquire 833,331 shares of our common stock. (These
transactions are described in our Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 6, 2001.)
On August 1, 2001, we agreed to issue 35,000 shares of our common stock
to each of BH Capital Investments, L.P. and Excalibur Limited Partnership in
return for their commitment to provide us with $3.5 million of financing in
connection with an asset purchase for which we had submitted a bid. We
subsequently issued those shares but ultimately did not purchase those assets.
In issuing these shares, we relied on the exemption from registration provided
by Regulation D of the Securities Act.
The table below sets forth information as of February 12, 2002,
regarding the beneficial ownership of shares of common stock by the selling
shareholders. The information regarding the selling shareholders' beneficial
ownership after this offering assumes that all the shares of common stock
offered by this prospectus are sold. The presentation is based on the 16,004,599
shares of our common stock that were outstanding on February 12, 2002.
28
Number of
shares
included in
this
Number of offering
shares Number of that are Percentage
beneficially outstanding issuable Number of of the
owned prior shares upon shares owned shares owned
to this included in exercise of subsequent to after this
Selling Shareholder offering this offering warrant this offering offering
------------------- -------- ------------- ------- ------------- --------
Lindsay A. Rosenwald 4,665,904(1) 2,083,333 2,083,333 499,238 3.1%
Neal Ackerman and
Martha Ackerman JT WROS 1,250,000 625,000 625,000 0 -
J. William Doyle 833,332 416,666 416,666 0 -
Louis Reif 833,332 416,666 416,666 0 -
Delaware Charter
Guarantee & TR F/B/O
Howard Tanning IRA 833,332 416,666 416,666 0 -
Morris Arnston 416,666 208,333 208,333 0 -
Braziel Family Trust
D/T/D 9/7/95, Ronald &
Debra Braziel Trustees 421,666 208,333 208,333 5,000 *
Industrial Electronics 416,666 208,333 208,333 0 -
John Dunkin 416,666 208,333 208,333 0 -
R. Craig Fetz 512,940(2) 208,333 208,333 96,274 *
John Goodman 416,666 208,333 208,333 0 -
Stephen & Pilar
Lebovitz JT WROS 416,666 208,333 208,333 0 -
Stephen Lisenby 416,666 208,333 208,333 0 -
Harvey Lustig &
Ronnie Lustig JT WROS 420,666 208,333 208,333 4,000 *
Nasser & Co. CPA 416,666 208,333 208,333 0 -
Michael Pinney 416,666 208,333 208,333 0 -
Nancy Pudelsky &
David Pudelsky JT WROS 416,666 208,333 208,333 0 -
Suzanne Schiller 416,666 208,333 208,333 0 -
Lucile Slocum 416,666 208,333 208,333 0 -
Carolyn Taylor 416,666 208,333 208,333 0 -
Gregg Dovolis 208,332 104,166 104,166 0 -
Richard Friedman 212,632(3) 104,166 104,166 4,300 *
Robert Guercio 208,332 104,166 104,166 0 -
Thomas Hashem 208,332 104,166 104,166 0 -
Norman Jacob 208,332 104,166 104,166 0 -
John Kuehn 208,332 104,166 104,166 0 -
Hyman Lezell Revocable
Inter-Vivos Trust 242,190(4) 104,166 104,166 33,858 *
29
Delaware Charter
Guarantee & Tr F/B/O
Richard Pellegrino IRA 208,332 104,166 104,166 0 -
Robert Pellegrino
Profit Sharing Plan 208,332 104,166 104,166 0 -
Ivy Scheinholz 208,332 104,166 104,166 0 -
William Silver 227,007(5) 104,166 104,166 18,675 *
Praful Desai 125,000 62,500 62,500 0 -
George Kimble & Mary
Ellen Kimble JT WROS 83,332 41,666 41,666 0 -
Joseph Stevens &
Company, Inc. 1,283,331(6) 0 833,331 450,000 2.7%
B.H. Capital
Investments, L.P. 156,756(6) 35,000 0 121,756 -
Excalibur Limited
Partnership 156,756(6) 35,000 0 121,756 -
* Less than 1%.
(1) Includes 154,350 shares of common stock issuable upon conversion of 47,202
shares of Series A preferred stock convertible within 60 days of February
12, 2002. Also includes 190 shares of common stock held by June Street
Corporation and 190 shares of common stock held by Huntington Street
Corporation. Dr. Rosenwald is the sole proprietor of both June Street
Corporation and Huntington Street Corporation.
(2) Includes 89,519 shares of common stock issuable upon conversion of 27,376
shares of Series A preferred stock convertible within 60 days of February
12, 2002.
(3) Includes 4.000 shares of common stock held jointly with another person.
(4) Includes 33,510 shares of common stock issuable upon conversion of 10,248
shares of Series A preferred stock convertible within 60 days of February
12, 2002.
(5) Includes 5,700 shares of common stock held jointly with another person and
8,175 shares of common stock issuable upon conversion of 2,500 shares of
Series A preferred stock convertible within 60 days of February 12, 2002.
(6) Includes 450,000 shares of common stock issuable upon exercise of three
warrants exercisable within 60 days of February 12, 2002.
(7) Includes 77,000 shares of common stock issuable upon exercise of warrants
exercisable within 60 days of February 12, 2002.
The aggregate proceeds to the selling shareholders from the sale of the
common stock offered by them hereby will be the purchase price of common stock
less discounts and commissions, if any.
PLAN OF DISTRIBUTION
The selling shareholders, which term includes their successors,
transferees, pledgees or donees or their successors, may sell the common stock
directly to purchasers or through underwriters, broker-dealers or agents, who
may receive compensation in the form of discounts, concessions or commissions
from the selling shareholders or the
30
purchasers, which discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The common stock may be sold by any selling shareholder in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at prices related to such prevailing market prices, at varying prices determined
at the time of sale, or at negotiated prices. Such sales may be effected in
transactions, which may involve crosses or block transactions (1) on any
national securities exchange or quotation service on which the common stock may
be listed or quoted at the time of sale, (2) in the over-the-counter market, (3)
in transactions otherwise than on such exchanges or services or in the
over-the-counter market, (4) through the writing of options, whether such
options are listed on an options exchange or otherwise, or (5) through the
settlement of short sales. In connection with the sale of our common stock or
otherwise, any selling shareholder may enter into hedging transactions with
broker-dealers or other financial institutions which may in turn engage in short
sales of the common stock and deliver these securities to close out such short
positions, or loan or pledge the common stock to broker-dealers that in turn may
sell these securities.
Each selling shareholder reserves the right to accept and, together with
its agents from time to time, to reject, in whole or in part, any proposed
purchase of common stock to be made directly or through agents.
Our outstanding common stock is listed for trading on the NASD
Over-the-Counter Bulletin Board under the symbol "ATLC.OB".
Any underwriters, broker-dealers or agents that participate in the sale
of the common stock may be "underwriters" within the meaning of Section 2(11) of
the Securities Act. Any discounts, commissions, concessions or profit they earn
on any resale of the shares may be underwriting discounts and commissions under
the Securities Act.
To the extent required, the common stock to be sold, the name of each
selling shareholder, the respective purchase prices and the public offering
prices, the name of any agent, dealer or underwriter, and any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement of which this prospectus is a part.
We have agreed to indemnify the selling shareholders against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments that the selling shareholders may be required to make in
respect of such liabilities.
EXPERTS
The consolidated financial statements of Atlantic Technology Ventures,
Inc. and subsidiaries (a development stage company) as of December 31, 2000 and
1999, and for each of the years in the three-year period ended December 31,
2000, and for the period from July 13, 1993 (inception) to December 31, 2000,
have been included herein and in the registration statement in reliance upon the
report of KPMG LLP, independent accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
Certain legal matters in connection with the shares of our common stock
offered for resale in this prospectus have been passed upon for us by Kramer
Levin Naftalis & Frankel LLP, New York, New York.
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 with the Securities
and Exchange Commission relating to the common stock offered by this prospectus.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. Statements contained
31
in this prospectus concerning the contents of any contract or other document
referred to are not necessarily complete and in each instance we refer you to
the copy of the contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.
For further information with respect to us and the common stock we are
offering, please refer to the registration statement. A copy of the registration
statement can be inspected by anyone without charge at the public reference room
of the SEC, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's Regional Offices located at 233 Broadway, New York, New York 10279,
and 500 West Madison Street, Chicago, Illinois 60601. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
room. Copies of these materials can be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The SEC maintains a Web site (http://www.sec.gov) that
contains information regarding registrants that file electronically with the
SEC.
COMMISSION'S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
In the SEC's opinion, indemnification for certain acts of directors,
officers and controlling persons is against public policy, as expressed in the
Securities Act, and is, therefore, unenforceable. If a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person of Atlantic in the successful
defense of any action, suit or proceeding) is asserted by any Atlantic director,
officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by Atlantic is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of that issue.
32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS FOR FISCAL YEAR 2000
Page
----
Independent Auditors' Report........................................................................... F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999........................................... F-2
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 and for the
Period from July 13, 1993 (inception) to December 31, 2000.............................................. F-3
Consolidated Statements of Shareholders' Equity for the Period from July 13, 1993 (inception) to December
31, 2000............................................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 and for the
Period from July 13, 1993 (inception) to December 31, 2000.............................................. F-8
Notes to Consolidated Financial Statements............................................................. F-9
CONSOLIDATED FINANCIAL STATEMENTS FOR NINE MONTHS ENDED SEPTEMBER 30, 2001
Consolidated Balance Sheet as of September 30, 2001 (unaudited)........................................ F-29
Consolidated Statements (unaudited) of Operations for the nine months ended September 30, 2001 and 2000
and the period from July 13, 1993 (inception) to September 30, 2001.................................... F-30
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2001 and 2000
and the period from July 13, 1993 (inception) to September 30, 2001.................................... F-31
Notes to Consolidated Financial Statements (unaudited)................................................. F-32
33
Independent Auditors' Report
The Board of Directors and Stockholders
Atlantic Technology Ventures, Inc.:
We have audited the accompanying consolidated balance sheets of Atlantic
Technology Ventures, Inc. and subsidiaries (a development stage company) as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 2000 and for the period from July 13, 1993
(inception) to December 31, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Atlantic Technology
Ventures, Inc. and subsidiaries (a development stage company) as of December 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2000, and for the
period from July 13, 1993 (inception) to December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Short Hills, New Jersey
March 30, 2001
F-1
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
As of December 31,
Assets 2000 1999
------------------ -------------------
Current assets:
Cash and cash equivalents $ 2,663,583 3,473,321
Accounts receivable 192,997 337,323
Prepaid expenses 22,599 17,414
------------------ -------------------
Total current assets 2,879,179 3,828,058
Property and equipment, net 227,088 131,832
Investment in affiliate 67,344 --
Other assets 2,901 --
------------------ -------------------
Total assets $ 3,176,512 3,959,890
================== ===================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 785,838 542,759
Deferred revenue 1,294,615 --
------------------ -------------------
Total current liabilities $ 2,080,453 542,759
Redeemable Series B convertible preferred stock.
Authorized 1,647,312 shares; 206,896 shares issued and
outstanding at December 31, 2000 600,000 --
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 10,000,000
shares; 1,375,000 shares designated as Series A
convertible preferred stock: None issued and outstanding -- --
Series A convertible preferred stock, $.001 par value.
Authorized 1,375,000 shares; 359,711 and 610,088 shares issued and
outstanding at December 31, 2000 and 1999, respectively (liquidation
preference aggregating $4,676,243 and $7,931,144 at December 31, 2000
and 1999, respectively) 360 610
Convertible preferred stock warrants, 112,896 and 117,195
issued and outstanding at December 31, 2000 and
1999, respectively 520,263 540,074
Common stock, $.001 par value. Authorized 50,000,000
shares; 6,122,135 and 4,815,990 shares issued and outstanding
at December 31, 2000 and 1999, respectively 6,122 4,816
Common stock subscribed. 182 shares at December 31, 2000
and 1999 -- --
Additional paid-in capital 24,796,190 21,662,272
Deficit accumulated during development stage (24,826,334) (18,790,099)
------------------ -------------------
496,601 3,417,673
Less common stock subscriptions receivable (218) (218)
Less treasury stock, at cost (324) (324)
------------------ -------------------
Total stockholders' equity 496,059 3,417,131
------------------ -------------------
Total liabilities and stockholders' equity $ 3,176,512 3,959,890
================== ===================
See accompanying notes to consolidated financial statements.
F-2
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
Cumulative
period from
July 13, 1993
(inception) to
Year ended December 31, December 31,
-----------------------------------------------------
2000 1999 1998 2000
--------------- --------------- -------------- ----------------
Revenues:
Development revenue $ 5,169,288 1,082,510 -- $6,251,798
License revenue -- -- 2,500,000 2,500,000
Grant revenue 189,658 77,069 -- 366,659
--------------- --------------- -------------- ----------------
Total revenues 5,358,946 1,159,579 2,500,000 9,118,457
--------------- --------------- -------------- ----------------
Costs and expenses:
Cost of development revenue 4,135,430 866,008 -- 5,001,438
Research and development 1,130,345 1,091,291 3,036,355 9,504,910
Acquired in-process research and
development 2,653,382 -- -- 2,653,382
General and administrative 2,235,535 1,941,425 2,668,508 15,903,226
Compensation expense relating to
stock warrants (general and administrative) 1,020,128 -- -- 1,020,865
License fees -- -- -- 173,500
--------------- --------------- -------------- ----------------
Total operating expenses 11,174,820 3,898,724 5,704,863 34,257,321
--------------- --------------- -------------- ----------------
Operating loss (5,815,874) (2,739,145) (3,204,863) (25,138,864)
Other (income) expense:
Interest and other income (92,670) (292,630) (451,335) (1,251,136)
Interest expense -- -- -- 625,575
Equity in loss of affiliate 79,274 -- -- 79,274
--------------- --------------- -------------- ----------------
Total other (income) expense (13,396) (292,630) (451,335) (546,287)
--------------- --------------- -------------- ----------------
Net loss $ (5,802,478) (2,446,515) (2,753,528) (24,592,577)
=============== =============== ============== ================
Imputed convertible preferred stock
dividend -- -- 1,628,251 5,331,555
Dividend paid upon repurchase of Series B 233,757 -- -- 233,757
Preferred stock dividend issued in
preferred shares 811,514 314,366 -- 1,283,063
--------------- --------------- -------------- ----------------
Net loss applicable to common shares $ (6,847,749) (2,760,881) (4,381,779) (31,440,952)
=============== =============== ============== ================
Per share - basic and diluted
Net loss applicable to common shares $ (1.21) (0.59) (1.13)
=============== =============== ==============
Weighted average shares of common
stock outstanding 5,656,741 4,692,912 3,883,412
=============== =============== ==============
See accompanying notes to consolidated financial statements.
F-3
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
Series A Series B
Convertible Convertible
Preferred Stock Preferred Stock
---------------------- ------------------------
Shares Amount Shares Amount
--------- ----------- --------- ------------
Common stock subscribed at $.001 per share
July-November 1993 -- $ -- -- $ --
Issued common stock at $.001 per share,
June 1994 -- -- -- --
Issued and subscribed common stock at $.05
per share, August 1994 -- -- -- --
Payments of common stock subscriptions -- -- -- --
Issuance of warrants, September 1995 -- -- -- --
Issued common stock and warrants at $4 per unit,
December 1995 (net of costs of issuance
of $1,454,300) -- -- -- --
Conversion of demand notes payable and
the related accrued interest to common stock,
December 1995 -- -- -- --
Repurchase of common stock -- -- -- --
Compensation related to grant of stock
options -- -- -- --
Amortization of deferred compensation -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1995 -- -- -- --
Issuance of warrants, April 1996 -- -- -- --
Issued common stock and warrants at $6.73
per share, August 1996 (net of costs of
issuance of $76,438) -- -- -- --
Amortization of deferred compensation -- -- -- --
Net loss -- -- -- --
----------- ----------- -----------
Balance at December 31, 1996 -- -- -- --
Issued convertible preferred stock at $10 per unit,
May and August 1997 (net of costs of issuance
of $1,758,816) 1,237,200 1,237 -- --
Channel merger -- -- -- --
Conversion of preferred to common stock (22,477) (22) -- --
Issuance of convertible preferred stock
warrants -- -- -- --
Issuance of warrants -- -- -- --
Amortization of deferred compensation -- -- -- --
Imputed convertible preferred stock dividend -- -- -- --
Imputed convertible preferred stock dividend -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1997 1,214,723 1,215 -- --
Conversion of preferred to common stock (584,265) (585) -- --
Cashless exercise of preferred warrants 2,010 2 -- --
Exercise of options -- -- -- --
Exercise of warrants -- -- -- --
Expense related to grant of stock options -- -- -- --
Amortization of deferred compensation -- -- -- --
Imputed convertible preferred stock dividend -- -- -- --
Imputed convertible preferred stock dividend -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1998 632,468 632 -- --
Conversion of preferred to common stock (95,599) (95) -- --
Preferred stock dividend 73,219 73 -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1999 610,088 610 -- --
Conversion of preferred to common stock (309,959) (310) -- --
Preferred stock dividend 59,582 60 -- --
Cashless exercise of preferred warrants -- -- -- --
Exercise of options -- -- -- --
Issuance of common stock to TeraComm shareholders -- -- -- --
Expense related to grant of stock warrants -- -- -- --
Issuance of Series B convertible preferred stock -- -- 344,828 345
Costs related to issuance of Series B preferred stock -- -- -- --
Repurchase of Series B convertible preferred stock -- -- (137,931) (138)
Dividend upon repurchase of Series B convertible
preferred stock -- -- -- --
Reclassification of Series B convertible preferred
stock to redeemable Series B convertible
preferred stock -- -- (206,897) (207)
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 2000 359,711 $ 360 -- $ --
=========== =========== =========== ===========
F-4
Convertible
Preferred
Stock Warrants Common Stock
-------------------------- -------------------------
Number Amount Shares Amount
----------- ----------- ----------- -----------
Common stock subscribed at $.001 per share
July-November 1993 -- $ -- -- $ --
Issued common stock at $.001 per share,
June 1994 -- -- 84 --
Issued and subscribed common stock at $.05
per share, August 1994 -- -- 860 1
Payments of common stock subscriptions -- -- 5,061 5
Issuance of warrants, September 1995 -- -- -- --
Issued common stock and warrants at $4 per unit,
December 1995 (net of costs of issuance
of $1,454,300) -- -- 1,872,750 1,873
Conversion of demand notes payable and
the related accrued interest to common stock,
December 1995 -- -- 785,234 785
Repurchase of common stock -- -- (269) --
Compensation related to grant of stock
options -- -- -- --
Amortization of deferred compensation -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1995 -- -- 2,663,720 2,664
Issuance of warrants, April 1996 -- -- -- --
Issued common stock and warrants at $6.73
per share, August 1996 (net of costs of
issuance of $76,438) -- -- 250,000 250
Amortization of deferred compensation -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1996 -- -- 2,913,720 2,914
Issued convertible preferred stock at $10 per unit,
May and August 1997 (net of costs of issuance
of $1,758,816) -- -- -- --
Channel merger -- -- 103,200 103
Conversion of preferred to common stock -- -- 47,651 48
Issuance of convertible preferred stock
warrants 123,720 570,143 -- --
Issuance of warrants -- -- -- --
Amortization of deferred compensation -- -- -- --
Imputed convertible preferred stock dividend -- -- -- --
Imputed convertible preferred stock dividend -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1997 123,720 570,143 3,064,571 3,065
Conversion of preferred to common stock -- -- 1,367,817 1,367
Cashless exercise of preferred warrants (6,525) (30,069) -- --
Exercise of options -- -- 70,000 70
Exercise of warrants -- -- 1,000 1
Expense related to grant of stock options -- -- -- --
Amortization of deferred compensation -- -- -- --
Imputed convertible preferred stock dividend -- -- -- --
Imputed convertible preferred stock dividend -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1998 117,195 540,074 4,503,388 4,503
Conversion of preferred to common stock -- -- 312,602 313
Preferred stock dividend -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1999 117,195 540,074 4,815,990 4,816
Conversion of preferred to common stock -- -- 1,011,038 1,011
Preferred stock dividend -- -- -- --
Cashless exercise of preferred warrants (4,299) (19,811) 9,453 9
Exercise of options -- -- 85,654 86
Issuance of common stock to TeraComm shareholders -- -- 200,000 200
Expense related to grant of stock warrants -- -- -- --
Issuance of Series B convertible preferred stock -- -- -- --
Costs related to issuance of Series B preferred stock -- -- -- --
Repurchase of Series B convertible preferred stock -- -- -- --
Dividend upon repurchase of Series B convertible
preferred stock -- -- -- --
Reclassification of Series B convertible preferred
stock to redeemable Series B convertible
preferred stock -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 2000 112,896 $ 520,263 6,122,135 $ 6,122
=========== =========== =========== ===========
F-5
Deficit
accumulated
Common Stock Additional during Deferred
Subscribed Paid-in Development Compen-
Number Amount Capital Stage sation
-------- ----------- ---------- ------------ ---------
Common stock subscribed at $.001 per share
July-November 1993 5,231 $ 5 $ 6,272 $ -- $ --
Issued common stock at $.001 per share,
June 1994 -- -- 101 -- --
Issued and subscribed common stock at $.05
per share, August 1994 12 -- 52,374 -- --
Payments of common stock subscriptions (5,061) (5) -- -- --
Issuance of warrants, September 1995 -- -- 300,000 -- --
Issued common stock and warrants at $4 per unit,
December 1995 (net of costs of issuance
of $1,454,300) -- -- 6,034,827 -- --
Conversion of demand notes payable and
the related accrued interest to common stock,
December 1995 -- -- 2,441,519 -- --
Repurchase of common stock -- -- -- -- --
Compensation related to grant of stock
options -- -- 208,782 -- (144,000)
Amortization of deferred compensation -- -- -- -- 12,000
Net loss -- -- -- (4,880,968) --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 182 -- 9,043,875 (4,880,968) (132,000)
Issuance of warrants, April 1996 -- -- 139,000 -- --
Issued common stock and warrants at $6.73
per share, August 1996 (net of costs of
issuance of $76,438) -- -- 1,452,063 -- --
Amortization of deferred compensation -- -- -- -- 28,800
Net loss -- -- -- (3,557,692) --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 182 -- 10,634,938 (8,438,660) (103,200)
Issued convertible preferred stock at $10 per unit,
May and August 1997 (net of costs of issuance
of $1,758,816) -- -- 10,611,947 -- --
Channel merger -- -- 657,797 -- --
Conversion of preferred to common stock -- -- (26) -- --
Issuance of convertible preferred stock
warrants -- -- (570,143) -- --
Issuance of warrants -- -- 159,202 -- --
Amortization of deferred compensation -- -- -- -- 28,800
Imputed convertible preferred stock dividend -- -- (3,703,304) -- --
Imputed convertible preferred stock dividend -- -- 3,703,304 -- --
Net loss -- -- -- (5,151,396) --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 182 -- 21,493,715 (13,590,056) (74,400)
Conversion of preferred to common stock -- -- (782) -- --
Cashless exercise of preferred warrants -- -- 30,067 -- --
Exercise of options -- -- 52,430 -- --
Exercise of warrants -- -- 5,499 -- --
Expense related to grant of stock options -- -- 81,952 -- --
Amortization of deferred compensation -- -- -- -- 74,400
Imputed convertible preferred stock dividend -- -- (1,628,251) -- --
Imputed convertible preferred stock dividend -- -- 1,628,251 -- --
Net loss -- -- -- (2,753,528) --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 182 -- 21,662,881 (16,343,584) --
Conversion of preferred to common stock -- -- (218) -- --
Preferred stock dividend -- -- (391) -- --
Net loss -- -- -- (2,446,515) --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 182 -- 21,662,272 (18,790,099) --
Conversion of preferred to common stock -- -- (701) -- --
Preferred stock dividend -- -- (60) -- --
Cashless exercise of preferred warrants -- -- 19,802 --
Exercise of options -- -- 344,512 -- --
Issuance of common stock to TeraComm shareholders -- -- 1,799,800 -- --
Expense related to grant of stock warrants -- -- 1,020,128 -- --
Issuance of Series B convertible preferred stock -- -- 975,943 -- --
Costs related to issuance of Series B preferred stock -- -- (147,800) -- --
Repurchase of Series B convertible preferred stock -- -- (399,862) -- --
Dividend upon repurchase of Series B convertible
preferred stock -- -- 121,949 (233,757) --
Reclassification of Series B convertible preferred
stock to redeemable Series B convertible
preferred stock -- -- (599,793) -- --
Net loss -- -- -- (5,802,478) --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 182 -- 24,796,190 (24,826,334) $ --
=========== =========== =========== =========== ===========
F-6
Common Total
Stock Stock-
Subscrip- holders'
tions Treasury Equity
Receivable Stock (Deficit)
-------------- ------------ --------------
Common stock subscribed at $.001 per share
July-November 1993 (6,277) -- --
Issued common stock at $.001 per share,
June 1994 -- -- 101
Issued and subscribed common stock at $.05
per share, August 1994 (750) -- 51,625
Payments of common stock subscriptions 6,809 -- 6,809
Issuance of warrants, September 1995 -- -- 300,000
Issued common stock and warrants at $4 per unit,
December 1995 (net of costs of issuance
of $1,454,300) -- -- 6,036,700
Conversion of demand notes payable and
the related accrued interest to common stock,
December 1995 -- -- 2,442,304
Repurchase of common stock -- (324) (324)
Compensation related to grant of stock
options -- -- 64,782
Amortization of deferred compensation -- -- 12,000
Net loss -- -- (4,880,968)
----------- ----------- -----------
Balance at December 31, 1995 (218) (324) 4,033,029
Issuance of warrants, April 1996 -- -- 139,000
Issued common stock and warrants at $6.73
per share, August 1996 (net of costs of
issuance of $76,438) -- -- 1,452,313
Amortization of deferred compensation -- -- 28,800
Net loss -- -- (3,557,692)
----------- ----------- -----------
Balance at December 31, 1996 (218) (324) 2,095,450
Issued convertible preferred stock at $10 per unit,
May and August 1997 (net of costs of issuance
of $1,758,816) -- -- 10,613,184
Channel merger -- -- 657,900
Conversion of preferred to common stock -- -- --
Issuance of convertible preferred stock
warrants -- -- --
Issuance of warrants -- -- 159,202
Amortization of deferred compensation -- -- 28,800
Imputed convertible preferred stock dividend -- -- (3,703,304)
Imputed convertible preferred stock dividend -- -- 3,703,304
Net loss -- -- (5,151,396)
----------- ----------- -----------
Balance at December 31, 1997 (218) (324) 8,403,140
Conversion of preferred to common stock -- -- --
Cashless exercise of preferred warrants -- -- --
Exercise of options -- -- 52,500
Exercise of warrants -- -- 5,500
Expense related to grant of stock options -- -- 81,952
Amortization of deferred compensation -- -- 74,400
Imputed convertible preferred stock dividend -- -- (1,628,251)
Imputed convertible preferred stock dividend -- -- 1,628,251
Net loss -- -- (2,753,528)
----------- ----------- -----------
Balance at December 31, 1998 (218) (324) 5,863,964
Conversion of preferred to common stock -- -- --
Preferred stock dividend -- -- (318)
Net loss -- -- (2,446,515)
----------- ----------- -----------
Balance at December 31, 1999 (218) (324) 3,417,131
Conversion of preferred to common stock -- -- --
Preferred stock dividend -- -- --
Exercise of options -- -- 344,598
Issuance of common stock to TeraComm shareholders -- -- 1,800,000
Expense related to grant of stock warrants -- -- 1,020,128
Issuance of Series B convertible preferred stock -- -- 976,288
Costs related to issuance of Series B preferred stock -- -- (147,800)
Repurchase of Series B convertible preferred stock -- -- (400,000)
Dividend upon repurchase of Series B convertible
preferred stock -- -- (111,808)
Reclassification of Series B convertible preferred
stock to redeemable Series B convertible
preferred stock -- -- (600,000)
Net loss -- -- (5,802,478)
----------- ----------- -----------
Balance at December 31, 2000 (218) (324) 496,059
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-7
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
Cumulative
period from
July 13, 1993
(inception) to
Year ended December 31, December 31,
------------------------------------------
2000 1999 1998 2000
------------ ------------ ------------ -------------
Cash flows from operating activities:
Net loss $(5,802,478) (2,446,515) (2,753,528) (24,592,577)
Adjustments to reconcile net loss to
net cash used in operating activities:
Acquired in-process research and development 1,800,000 -- -- 1,800,000
Expense relating to issuance of warrants -- -- -- 298,202
Expense relating to the issuance of options -- -- 81,952 81,952
Expense related to Channel merger -- -- -- 657,900
Change in equity of affiliate 79,274 -- -- 79,274
Compensation expense relating to
stock options and warrants 1,020,128 -- 74,400 1,228,910
Discount on notes payable - bridge financing -- -- -- 300,000
Depreciation 76,095 113,771 166,553 506,505
Loss on disposal of furniture and equipment -- 73,387 -- 73,387
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 144,326 43,692 (381,015) (192,997)
(Increase) decrease in prepaid expenses (5,185) 24,694 (40,858) (22,599)
Increase in deferred revenue 1,294,615 -- -- 1,294,615
Increase (decrease) in accrued expenses 243,079 (114,242) 264,435 785,838
Increase (decrease) in accrued interest -- -- -- 172,305
(Increase) decrease in other assets (2,901) -- -- (2,901)
----------- ----------- ----------- -----------
Net cash used in operating activities (1,153,047) (2,305,213) (2,588,061) (17,532,186)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment (171,351) (62,917) (177,765) (813,081)
Investment in affiliate (146,618) -- -- (146,618)
Proceeds from sale of furniture and equipment -- 6,100 -- 6,100
----------- ----------- ----------- -----------
Net cash used in investing activities (317,969) (56,817) (177,765) (953,599)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants -- -- 5,500 5,500
Proceeds from exercise of stock options 344,598 -- 52,500 397,098
Proceeds from issuance of demand notes payable -- -- -- 2,395,000
Repayment of demand notes payable -- -- -- (125,000)
Proceeds from the issuance of notes payable -
bridge financing -- -- -- 1,200,000
Proceeds from issuance of warrants -- -- -- 300,000
Repayment of notes payable - bridge financing -- -- -- (1,500,000)
Repurchase of common stock -- -- -- (324)
Preferred stock dividend paid -- (318) -- (318)
Proceeds from the issuance of common stock -- -- -- 7,547,548
Proceeds from issuance of convertible preferred stock 828,488 -- -- 11,441,672
Repurchase of convertible preferred stock (511,808) -- -- (511,808)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities 661,278 (318) 58,000 21,149,368
----------- ----------- ----------- -----------
Net decrease in cash and cash equivalents (809,738) (2,362,348) (2,707,826) 2,663,583
Cash and cash equivalents at beginning of period 3,473,321 5,835,669 8,543,495 --
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,663,583 3,473,321 5,835,669 2,663,583
=========== =========== =========== ===========
Supplemental disclosure of noncash financing activities:
Issuance of common stock in exchange for
common stock subscriptions $ -- -- -- 7,027
Conversion of demand notes payable and the related
accrued interest to common stock -- -- -- 2,442,304
Cashless exercise of preferred warrants 19,811 -- 30,069 49,880
Conversion of preferred to common stock 1,011 313 1,367 2,426
Preferred stock dividend issued in shares 811,514 314,366 -- 1,125,880
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-8
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(1) Organization, Liquidity and Basis of Presentation
Organization
Atlantic Technology Ventures, Inc. (the Company) was incorporated on May
18, 1993, began operations on July 13, 1993, and is the majority owner of
two operating companies - Gemini Technologies, Inc. (Gemini), and Optex
Ophthalmologics, Inc. (Optex), and has one wholly-owned subsidiary -
Channel Therapeutics, Inc. (Channel) (collectively, the Operating
Companies).
Gemini (an 84.7%-owned subsidiary) was incorporated on May 18, 1993 to
exploit a new proprietary technology which combines 2'-5' oligoadenylate
(2-5A), with standard antisense compounds to alter the production of
disease-causing proteins. Optex (an 81.2%-owned subsidiary) was
incorporated on October 19, 1993 to develop its principal product, a novel
cataract removal device. On March 2, 2001, the Company concluded the sale
of substantially all of its Optex assets to Bausch & Lomb, Inc. (see note
12.) Channel was incorporated on May 18, 1993 to develop pharmaceutical
products in the fields of cardiovascular disease, pain and inflammatory
disorders. Prior to 1997, Channel was an 88%-owned subsidiary. The Company
purchased the remaining 12% of Channel in 1997 for $657,900 through the
issuance of common stock (see note 7). Channel ceased operations during
1999. The Company also holds a 14.4% ownership in a fiber optic switching
company, TeraComm Research, Inc. (see note 4).
The Company and each of its operating companies are in the development
stage, devoting substantially all efforts to obtaining financing and
performing research and development activities.
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Liquidity
The accompanying consolidated financial statements have been prepared
assuming that the Company will operate as a going concern. The Company
anticipates that their current liquid resources, together with the $2.4
million in net proceeds received in March 2001 from an agreement between
the Company and Bausch & Lomb (see note 12) less $617,067 paid to certain
investors in conjunction with the repurchase of Series B convertible
preferred stock (see note 7) will be sufficient to finance their currently
anticipated needs for operating and capital expenditures for at least the
next 12 months. In addition, the Company will attempt to generate
additional capital through a combination of collaborative agreements,
strategic alliances and equity and debt financing. However, the Company can
give no assurance that they will be able to obtain additional capital
through these sources or upon terms acceptable to them.
F-9
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 7,
"Accounting and Reporting by Development Stage Enterprises," which requires
development stage enterprises to employ the same accounting principles as
operating companies.
(2) Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated
principally using straight-line methods over their useful lives, generally
five years, except for leasehold improvements which are depreciated over
the lesser of five years or the term of the lease.
Minority Interest
The Company has recorded 100% of the losses of the Operating Companies in
its consolidated statements of operations as the minority shareholders are
not required to and have not funded their pro rata share of losses.
Minority interest losses recorded by the Company since inception total
$454,075 as of December 31, 2000 and will only be recovered if and when the
Operating Companies generate income to the extent of those losses recorded
by the Company.
Research and Development
All research and development costs are expensed as incurred and include
costs of consultants who conduct research and development on behalf of the
Company and the Operating Companies. Costs related to the acquisition of
technology rights and patents for which development work is still in
process, are expensed as incurred and considered a component of research
and development costs.
F-10
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Revenue Recognition
Revenue under research contracts is recorded as earned under the contracts,
generally as services are provided. Revenues from the achievement of
research and development milestones will be recognized when and if the
milestones are achieved and are presented as license revenue. Continuation
of certain contracts and grants are dependent upon the Company achieving
specific contractual milestones; however, none of the payments received to
date are refundable regardless of the outcome of the project. Grant revenue
is recognized in accordance with the terms of the grant and as services are
performed, and generally equals the related research and development
expense.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities, and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Comprehensive Income
In accordance with SFAS No. 130, "Reporting Comprehensive Income," the
Company applies the rules for the reporting and display of comprehensive
income and its components. The net loss is equal to the comprehensive loss
for all periods presented.
Computation of Net Loss per Common Share
Basic net loss per common share is calculated by dividing net loss
applicable to common shares by the weighted-average number of common shares
outstanding for the period. Diluted net loss per common share is the same
as basic net loss per common share, as common equivalent shares from stock
options, stock warrants, stock subscriptions, and convertible preferred
stock would have an antidilutive effect because the Company incurred a net
loss during each period presented.
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-11
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Stock-Based Compensation
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation an interpretation of APB Opinion No. 25," issued in March
2000, to account for its fixed plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. SFAS No.
123, "Accounting for Stock-Based Compensation," established accounting and
disclosure requirements using a fair value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic value-based method
of accounting described above, and has adopted the disclosure requirements
of SFAS No. 123.
Options of stock awards issued to non-employees and consultants are
recorded at their fair value as determined in accordance with SFAS No. 123
and EITF No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or Services" and recognized as expense over the related vesting period.
Financial Instruments and Derivatives
At December 31, 2000 and 1999, the fair values of cash and cash
equivalents, accounts receivable, prepaid expenses, accounts payable and
accrued expenses, and deferred revenue approximate carrying values due to
the short-term nature of these instruments.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and, as amended, is effective for all fiscal
years beginning after June 15, 2000. SFAS No. 133 standardizes the
accounting for derivative instruments including certain derivative
instruments embedded in other contracts and requires derivative instruments
to be recognized as assets and liabilities and recorded at fair value. The
Company currently is not party to any derivative instruments. Any future
transactions involving derivative instruments will be evaluated based on
SFAS No. 133.
(3) Property and Equipment
Property and equipment consists of the following at December 31,:
2000 1999
--------- ---------
Furniture and equipment $ 440,493 269,142
Leasehold improvements 83,861 83,861
--------- ---------
524,354 353,003
Less accumulated depreciation (297,266) (221,171)
--------- ---------
Net property and equipment $ 227,088 131,832
========= =========
(4) Investment in Affiliate
On May 12, 2000, the Company acquired shares of preferred stock
representing a 35% ownership interest in TeraComm Research, Inc.
(TeraComm), a privately-held company that is developing next-generation
high-speed fiberoptic communications technologies. The purchase price for
this ownership interest was $5,000,000 in cash, 200,000 shares of the
Company's common stock, and a warrant to purchase a further 200,000 shares
of the Company's common stock. The warrants have a term of 3 years and are
exercisable at $8.975 per share of common stock, but only if the market
price of the Company's common stock is $30 or more. Of the $5,000,000 cash
portion of the purchase price, the Company paid $1,000,000 in 2000. The
Company is accounting for its investments in TeraComm in accordance with
the equity method of accounting for investments since the Company has the
ability to exert significant influence over TeraComm, primarily through its
representation on the TeraComm Board of Directors.
F-12
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
On July 18, 2000, the Company and TeraComm amended the purchase agreement.
In the amendment, the parties agreed that the $4,000,000 balance of the
$5,000,000 cash component of the purchase price would not be due until
TeraComm achieved a specified milestone. Within ten days after TeraComm
achieved that milestone or December 30, 2000, whichever occurred earlier,
the Company was required to pay TeraComm $1,000,000 and thereafter make to
TeraComm three payments of $1,000,000 at the three-month intervals. If the
Company failed to make any of these payments, TeraComm's only recourse
would be reducing proportionately the Company's ownership interest. When
the Company failed to make the first $1,000,000 payment by midnight at the
end of December 30, 2000, the Company was deemed to have surrendered to
TeraComm a proportion of the Company's TeraComm shares equal to the
proportion of the dollar value of the purchase price for the Company's
TeraComm shares ($6,795,000) that was represented by the unpaid $4,000,000
of the cash portion of the purchase price. This had the effect of reducing
to 14.4% the Company's actual ownership interest in TeraComm. However, the
Company continues to hold a seat on the Board of Directors of TeraComm and
continues to have the ability to exert significant influence through its
involvement with TeraCom management.
Upon acquiring an interest in TeraComm, the Company allocated a portion of
the purchase price based on the fair value of the indentifiable tangible
assets acquired and liabilities assumed. At the time of acquisition, such
assets and liabilities were minimal. TeraComm had no other intangible
assets beyond the technology then under development -- a high-speed
fiber-optic switch. This technology at the date of acquisition, was not
commercially viable, did not then have any identifiable revenue stream and
did not have any alternate future use. This high-speed fiber-optic switch
is TeraComm's only subscribable technology. TeraComm is a very early-stage
development company with only identifiable revenue sources, therefore the
excess of the purchase price over the sum of the amounts assigned to
identifiable assets acquired less liabilities assumed is not considered to
respresent "goodwill". The Company's acquisition of the interest in
TeraComm was based solely on the value of the future commercialized
products and therefore the excess of the purchase price as described above
was attributed to the research and development activities of TeraComm.
As such, of the $1,000,000 cash and common stock and common stock warrants
valued at $1,800,000 currently invested in TeraComm, the Company has
expensed approximately $2,650,000 as acquired in-process research and
development, as TeraComm's product development activity is in the very
early stages. The Company's share of losses of TeraComm amounted to $79,274
in 2000.
(5) Demand Notes Payable to Related Parties
Demand notes payable at December 31, 1994 consisted of advances from one of
the founders of the Company, who served as a director and was, at that
time, the controlling shareholder of the Company (Controlling Shareholder),
totaling $485,000, advances from a partnership including certain family
members of the Controlling Shareholder (the Partnership) totaling $400,000,
and advances under a line of credit agreement with the Controlling
Shareholder totaling $500,000. All unpaid principal and accrued interest
through June 30, 1995, including a note payable of $1,010,000 issued in
1995, was converted into 785,234 shares of common stock of the Company upon
the consummation of the initial public offering (IPO).
Demand notes payable at December 31, 1995 totaling $125,000 consisted of a
loan provided to the Company by the Partnership in July 1995. This loan had
an interest rate of 10% annually. Terms of the loan required the Company to
repay the principal amount of such loan, together with the interest accrued
thereon, with a portion of the proceeds received by the Company in the IPO.
This loan and the related accrued interest was fully repaid in January
1996.
F-13
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(6) Notes Payable - Bridge Financing
On September 12, 1995, the Company closed the sale of thirty units with
each unit consisting of an unsecured 10% promissory note of the Company in
the principal amount of $50,000 and 50,000 warrants, each exercisable to
purchase one share of common stock of the Company at an initial exercise
price of $1.50 per share. The total proceeds received of $1,500,000 were
allocated to the notes payable and warrants based on the estimated fair
value as determined by the Board of Directors of the Company of $1,200,000
and $300,000, respectively. The warrants were reflected as additional
paid-in capital.
Proceeds from the IPO were used to pay these notes payable, with $75,000
remaining unpaid at December 31, 1995. This remaining obligation was paid
in January 1996.
(7) Stockholders' Equity
Common Stock
In 1993, the Company received common stock subscriptions for 5,231 shares
of common stock from various individuals, including the Controlling
Shareholder and the Partnership, in exchange for common stock subscriptions
receivable of $6,277. In December 1994, the Company issued 2,606 shares of
common stock upon receipt of payment of $3,127 representing a portion of
these common stock subscriptions receivable.
In June 1994, the Company received common stock subscriptions for 84 shares
of common stock from various individuals including directors and employees.
Payment of the related common stock subscriptions receivable in the amount
of $101 was received in December 1994 which resulted in the issuance of 84
shares of common stock.
In August 1994, the Company received common stock subscriptions for 872
shares of common stock from certain investors. Payment of the related
common stock subscriptions receivable in the amount of $33,000 and $18,625
was received in August 1994 and December 1994, respectively, which resulted
in the issuance of 860 shares of common stock.
In March 1995, June 1995, and August 1995, the Company repurchased 62, 20,
and 187 shares of common stock, respectively, for an aggregate total of
$324.
In March 1995, May 1995, and June 1995, the Company issued 2,170, 125, and
160 shares of common stock, respectively, upon receipt of payment of $3,682
representing subscriptions receivable.
In December 1995, the Company issued 1,872,750 shares of common stock
through a public offering, resulting in net proceeds, after deducting
applicable expenses, of $6,036,700. Concurrent with this
F-14
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
offering, 785,234 shares of common stock were issued upon the conversion of
certain demand notes payable and accrued interest totaling $2,442,304 (see
note 5).
In August 1996, the Company sold in a private placement 250,000 shares of
common stock to certain investors resulting in net proceeds of $1,452,313.
In connection with this private placement, the Company paid Paramount
Capital, Inc. (Paramount) a finders fee of $76,438 and issued an employee
of Paramount a warrant to purchase 12,500 shares of the Company's common
stock at $6.73 per share, which expires August 16, 2001. Paramount is owned
by the Controlling Shareholder.
Pursuant to an Agreement and Plan of Reorganization by and among the
Company, Channel, and New Channel, Inc., a Delaware corporation, dated
February 20, 1997, all of the stockholders of Channel (except for the
Company) agreed to receive an aggregate of 103,200 shares of common stock
of the Company in exchange for their shares of common stock, par values
$0.001 per share, of Channel. On February 20, 1997, Channel became a
wholly-owned subsidiary of the Company. Subsequent to this transaction,
Channel issued a dividend to the Company consisting of all of Channel's
rights to the CT-3 technology, which is in the field of pain and
inflammation. On May 16, 1997, the Company issued 103,200 shares of common
stock of the Company to stockholders of Channel. In connection with the
issuance of these shares, the Company recognized an expense in the amount
of $657,900. This expense was recorded as research and development expense
in the consolidated statement of operations for the year ended December 31,
1997.
In May 2000, the Company issued 200,000 shares of common stock to
shareholders of TeraComm (see note 4).
Convertible Preferred Stock
Series A Preferred
In May and August, 1997, the Company sold in a private placement 1,237,200
shares of Series A convertible preferred stock (Series A Preferred) to
certain investors resulting in net proceeds of $10,613,184.
Prior to August 7, 1998 (the Reset Date), each share of Series A Preferred
was convertible into 2.12 shares of common stock initially at a conversion
price of $4.72 per share of common stock. Pursuant to the Certificate of
Designations for the Series A Preferred, the conversion price was adjusted
on the Reset Date such that now each share is convertible into 3.27 shares
of common stock at a conversion price of $3.06. This conversion price is
subject to adjustment upon the occurrence of certain events, including the
issuance of common stock at a per share price less than the conversion
price, or the occurrence of a merger, reorganization, consolidation,
reclassification, stock dividend or stock split which will result in an
increase or decrease in the number of common stock shares outstanding.
F-15
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Holders of Series A Preferred will be entitled to receive dividends, as,
when, and if declared by the Board of Directors. Commencing on the Reset
Date, the holders of the Series A Preferred are entitled to payment-in-kind
dividends, payable semi-annually in arrears, on their respective shares of
Series A Preferred at the annual rate of 0.13 shares of Series A Preferred
for each outstanding share of Series A Preferred. The Company did not make
the February 7, 1999 dividend payment. On August 9, 1999, the Company
issued a payment-in-kind dividend of 0.13325 of a share of Series A
Preferred for each share of Series A Preferred held as of the record date
of August 2, 1999, amounting to an aggregate of 73,219 shares. This
dividend included the dividend payment of 0.065 of a share of Series A
Preferred for each share of Series A Preferred held which had not been made
on February 7, 1999, and the portion of the dividend payment due August 9,
1999, was increased from 0.065 of a share to 0.06825 of a share to reflect
non-payment of the February 7, 1999 dividend. On February 15, 2000, and
August 7, 2000, the Company issued the respective payment-in-kind
dividends, amounting to an aggregate of 59,582 shares of Series A
Preferred, based on the holders as of the record dates of February 2, 2000,
and August 7, 2000, respectively. The estimated fair value of the
respective dividends are included in the Company's calculation of the 2000
and 1999 net loss per common share.
The holders of shares of Series A Preferred have the right at all meetings
of stockholders of the Company to that number of votes equal to the number
of shares of common stock issuable upon conversion of the Series A
Preferred at the record or vote date for determination of the stockholders
entitled to vote on such matters.
In connection with the issuance of the Series A Preferred, the Company
recognized $1,628,251 and $3,703,304 in 1998 and 1997, respectively, as an
imputed preferred stock dividend in the calculation of net loss per common
share to record the difference between the conversion price of the
preferred stock and the market price of the common stock on the effective
date of the private placement.
Upon liquidation, the holders of shares of Series A Preferred then
outstanding will first be entitled to receive, pro rata, and in preference
to the holders of common stock, Series B Preferred and any capital stock of
the Company, an amount per share equal to $13.00 plus any accrued but
unpaid dividends, if any.
The Certificate of Designations of Series A Preferred provides that the
Company may not issue securities that have superior rights to Series A
Preferred without the consent of the holders of Series A Preferred.
Accordingly, so long as these convertible securities remain unexercised and
shares of Series A Preferred remain uncovered, the terms under which the
Company could obtain additional funding, if at all, may be adversely
affected.
Redeemable Series B Preferred
On September 28, 2000, pursuant to a Convertible Preferred Stock and
Warrants Purchase Agreement (the Purchase Agreement) the Company issued to
BH Capital Investments, L.P. and Excalibur Limited Partnership (together,
the Investors) for a purchase price of $2,000,000, 689,656 shares of the
F-16
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Company's Series B convertible preferred stock (Series B Preferred) and
warrants to purchase 134,000 shares of the Company's common stock. Half of
the shares of the Series B Preferred (344,828 shares) and warrants to
purchase half of the shares of common stock (67,000 shares) were held in
escrow, along with half of the purchase price.
On December 4, 2000, the Company and the Investors entered into a stock
repurchase agreement (the Stock Repurchase Agreement) pursuant to which the
Company repurchased from the Investors for $500,000, 137,930 shares of
Series B Preferred, which represents 125% of the purchase price paid by the
Investors for those shares and for warrants to purchase 26,800 shares of
the Company's common stock with an estimated value of $28,719, and agreed
to the release from escrow to the Investors of the $1,000,000 purchase
price of the 344,828 shares of Series B Preferred held in escrow. The
Company also allowed the Investors to keep all of the warrants issued under
the Purchase Agreement and released from escrow to the Investors warrants
to purchase 67,000 shares of the Company's common stock with an estimated
value of $71,799, and issued to the Investors warrants to purchase a
further 20,000 shares of the Company's common stock at the same exercise
price with an estimated value of $21,432. In addition, the Company was
required to pay the legal expenses of the Investors, totaling $11,807. The
carrying amount of the 137,930 shares repurchased is equal to $400,000;
therefore, the amount paid in excess of the carrying amount plus the value
of the warrants given to the Investors, totaling $233,757, was recorded as
a dividend upon repurchase of Series B Preferred shares and deducted from
net loss to arrive at net loss applicable to common shares.
The warrants are exercisable at the fixed exercise price or 110% of the
market price 180 days after the date of issuance, whichever is lower.
Pursuant to a second amendment to the Purchase Agreement, executed on
January 9, 2001, the fixed exercise price of the warrants was lowered from
$3.19, the fixed exercise price upon their issuance, to $1.00, the market
price of the Company's common stock at the time of the renegotiations. Each
warrant may be exercised any time during the 5 years from the date of
granting. The warrants may not be exercised if doing so would result in the
Company's issuing a number of shares of common stock in excess of the limit
imposed by the rules of the Nasdaq SmallCap Market.
Pursuant to the Company's renegotiations with the Investors, the Company is
required, among other things, to redeem on March 28, 2002, all outstanding
shares of Series B Preferred for (A) 125% of the original issue price per
share or (B) the market price of the shares of common stock into which they
are convertible, whichever is greater (the Redemption Price). The Company
may at any time redeem all outstanding shares of Series B Preferred at the
Redemption Price. As a result of the renegotiations discussed in this
paragraph, the Series B Preferred is considered redeemable and the
remaining outstanding shares at December 31, 2000 are classified outside of
permanent equity in the accompanying consolidated balance sheet. At
December 31, 2000, the Company had 206,898 shares outstanding at a carrying
amount of $2.90 per share.
Holders of shares of the Company's outstanding Series B Preferred could
convert each share into shares of common stock without paying the Company
any cash. The conversion price per share of the
F-17
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Series B Preferred was also amended by the second amendment to the Purchase
Agreement. The conversion price per share of Series B Preferred on any
given day is the lower of (1) $1.00 or (2) 90% of the average of the two
lowest closing bid prices on the principal market of the common stock out
of the fifteen trading days immediately prior to conversion, but the
conversion price will be reduced by an additional 5% if the common stock is
not listed on either the Nasdaq SmallCap Market or Nasdaq National Market
as of that date, and in no event will the conversion price be lower than
the floor price ($0.50 for the conversion of a share of Series B Preferred
effected on or before March 28, 2002). The conversion price may be adjusted
in favor of holders of shares of Series B Preferred upon certain triggering
events. The conversion rate is determined by dividing the original price of
the Series B Preferred by the conversion price in effect at the time of
conversion; but before any adjustment is required upon the occurrence of
any such triggering events, the conversion price will be equal to the
original price of the Series B Preferred. The change in conversion price
upon the renegotiations on January 9, 2001 resulted in a difference between
the conversion price of the Series B Preferred and the market price of the
common stock on the effective date of the renegotiation. This amount,
estimated at approximately $620,000, will be recorded as an imputed
preferred stock dividend within equity and will be included in the
calculation of net earnings/(loss) per common share in the first quarter of
2001.
On January 19, 2001, 41,380 shares of Series B Preferred were converted by
the Investors into 236,422 shares of the Company's common stock. On March
9, 2001, the Company and the Investors entered into Stock Repurchase
Agreement No. 2, pursuant to which the Company repurchased from the
Investors, for an aggregate purchase price of $617,067, all 165,518 shares
of the Company's Series B Preferred held by the Investors on March 9, 2001.
The carrying amount of the 165,518 shares is equal to $480,000; therefore
the amount in excess of the carrying amount, which equals $137,067, will be
recorded as a dividend upon repurchase of Series B Preferred shares and
deducted from net loss to arrive at net loss applicable to common shares.
(8) Stock Options
In August 1995, in connection with a severance agreement entered into
between the Company and a former CEO, the Company granted options (not
pursuant to the 1995 Stock Option Plan) to purchase 23,557 shares of common
stock at an exercise price of $1.00 per share with immediate vesting. Total
compensation expense recorded at the date of grant with regards to those
options was $64,782 with the offset recorded as additional paid-in capital.
Stock Option Plan
In July 1995, the Company established the 1995 Stock Option Plan (the
Plan), which provided for the granting of up to 650,000 options to
officers, directors, employees and consultants for the purchase of stock.
In July 1996, the Plan was amended to increase the total number of shares
authorized for issuance by 300,000 shares to a total of 950,000 shares and
beginning with the 1997 calendar year, by an amount equal to one percent
(1%) of the shares of common stock outstanding on December 31 of the
immediately preceding calendar year. At December 31, 2000 and 1999,
1,102,977 and 1,054,817
F-18
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
shares were authorized for issuance. The options have a maximum term of 10
years and vest over a period determined by the Company's Board of Directors
(generally 4 years).
The Company applies APB Opinion No. 25 in accounting for its Plan.
Accordingly, compensation cost has been recognized for stock options
granted to employees and directors only to the extent that the quoted
market price of the Company's stock at the date of grant exceeded the
exercise price of the option.
During 1995, the Company granted options to purchase 246,598 shares of the
Company's common stock at exercise prices below the quoted market prices of
its common stock. Deferred compensation expense in the amount of $144,000
was recorded at the date of grant with the offset recorded as an increase
to additional paid-in capital. Compensation expense in the amount of
$74,400, $28,800, $28,800 and 12,000 was recognized in 1998, 1997, 1996,
and 1995, respectively.
In November 1997, the Company granted options to purchase 24,000 shares of
the Company's common stock at $9.50 per share to Investor Relations Group
(Investor). These options expire November 10, 2002. The Company recognized
expense of $81,952, which is included in general and administrative expense
in the consolidated statement of operations for the year ended December 31,
1998. The expense represents the estimated fair market value of the
options, in accordance with SFAS No. 123.
During 2000, the Company granted employees and directors an aggregate of
407,000 plan options and 175,000 options outside of the Plan. All stock
options granted during 2000, 1999 and 1998 were granted at the quoted
market price on the date of grant. On February 20, 2001, the Company
agreed to issue an aggregate of 550,000 stock options to certain executive
officers and employees at the quoted market price on the date of grant.
Had compensation costs been determined in accordance with the fair value
method prescribed by SFAS No. 123, the Company's net loss applicable to
common shares and net loss per common share (basic and diluted) for Plan
options would have been increased to the pro forma amounts indicated below:
2000 1999 1998
----------- ---------- ----------
Net loss applicable to common shares:
As reported $ 6,847,749 2,760,881 4,381,779
Pro forma 8,190,926 3,623,177 5,038,676
Net loss per common share - basic
and diluted:
As reported 1.21 0.59 1.13
Pro forma 1.45 0.77 1.30
F-19
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions
used for the grants in 2000, 1999, and 1998: dividend yield of 0%; expected
volatility of 170% for 2000, 94% for 1999 and 95% for 1998; risk-free
interest rate of 6.5% for 2000 and 1999 and 5.0% for 1998; and expected
lives of eight years for each year presented.
A summary of the status of the Company's stock options as of December 31,
2000, 1999 and 1998 and changes during the years then ended is presented
below:
Weighted Weighted Weighted
average average average
2000 exercise 1999 exercise 1998 exercise
shares price shares price shares price
--------- -------- -------- ------- -------- --------
At the beginning
of the year 396,200 $ 3.25 837,798 $ 5.06 715,598 $ 5.16
Granted 582,000 4.10 221,000 1.39 192,200 3.19
Exercised (14,000) 2.56 -- -- (70,000) 0.75
Cancelled (160,000) 3.97 (662,598) 4.93 -- --
--------- -------- -------- ------- -------- --------
At the end of
the year 804,200 $ 3.73 396,200 $ 3.25 837,798 $ 5.06
======== ======= ========
Options exercisable
at year-end 354,478 211,869 574,660
========= ======== ========
Weighted-average
fair value of
options granted
during the year $ 4.05 $ 1.20 $ 2.84
======== ======== ========
F-20
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The following table summarizes the information about Plan stock options
outstanding at December 31, 2000:
Number Remaining Number of
Exercise of options contractual options
price outstanding life exercisable
--------- ---------- ----------- ----------
$1.313 50,000 8.61 years 25,000
$1.375 20,000 8.41 years 6,666
$1.500 75,000 8.81 years 75,000
$1.750 6,000 8.73 years 6,000
$2.313 2,000 7.66 years 2,000
$3.188 54,000 9.75 years 50,000
$3.250 40,000 7.61 years 31,112
$3.438 50,000 9.38 years 12,500
$4.188 445,000 9.28 years 111,250
$5.125 23,000 9.27 years 5,750
$6.125 10,000 9.22 years --
$6.813 1,200 2.19 years 1,200
$7.000 2,000 6.46 years 2,000
$7.500 2,000 5.56 years 2,000
$9.500 24,000 1.86 years 24,000
---------- ----------
804,200 354,478
========== ==========
(9) Stock Warrants
In connection with notes payable - bridge financing, the Company issued
warrants to purchase 1,500,000 shares of common stock at an initial
exercise price of $1.50 per share; subject to an upward adjustment upon
consummation of the IPO. Simultaneously with the consummation of the IPO,
these warrants were converted into redeemable warrants at an exercise price
of $5.50 per share on a one-for-one basis (see note 6). These redeemable
warrants expired unexercised on December 13, 2000.
As of December 14, 1996, the redeemable warrants are subject to redemption
by the Company at a redemption price of $0.05 per redeemable warrant on 30
days prior written notice, provided that the average closing bid price of
the common stock as reported on Nasdaq equals or exceeds $8.25 per share,
subject to adjustment, for any 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior to the date
of notice of the redemption.
F-21
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
In December 1995, in connection with the IPO, the Company issued redeemable
warrants to purchase 1,872,750 shares of common stock at an exercise price
of $5.50 per share. The remainder of these redeemable warrants expired
unexercised on December 13, 2000. Commencing December 14, 1996, these
redeemable warrants are subject to redemption by the Company at its option,
at a redemption price of $.05 per warrant provided that the average closing
bid price of the common stock equals or exceeds $8.25 per share for a
specified period of time, and the Company has obtained the required
approvals from the Underwriters of the Company's IPO. In January 1998,
1,000 warrants were exercised.
In connection with the IPO, the Company granted to Joseph Stevens & Co.,
L.P. (the Underwriter) warrants to purchase from the Company 165,000 units,
each unit consisting of one share of common stock and one redeemable
warrant at an initial exercise price of $6.60 per unit. Such warrants are
exercisable during the four-year period commencing December 13, 1996. The
redeemable warrants issuable upon exercise of these warrants have an
exercise price of $6.05 per share. As long as the warrants remain
unexercised, the terms under which the Company could obtain additional
capital may be adversely affected. Thse redeemable warrants expired
unexercised on December 13, 2000.
The Company entered into an agreement with Paramount effective April 15,
1996 pursuant to which Paramount will, on a non-exclusive basis, render
financial advisory services to the Company. Two warrants exercisable for
shares of the Company's common stock were issued to Paramount in connection
with this agreement. These included a warrant to purchase 25,000 shares of
the Company's common stock at $10 per share, which warrant expires on April
16, 2001 and a warrant to purchase 25,000 shares of the Company's common
stock at $8.05 per share, which warrant expires on June 16, 2001. In
connection with the issuance of these warrants, the Company recognized an
expense in the amount of $139,000 for the fair value of the warrants. This
expense was recorded as general and administrative in the consolidated
statement of operations for the year ended December 31, 1996.
In connection with the Channel merger discussed in note 7, the Company
issued a warrant to a director of the Company to purchase 37,500 shares of
the Company's common stock at $5.33 per share, which warrant expires on
July 14, 2006. The Company recognized expense of $48,562 for the fair value
of the warrants which was recorded as a research and development expense in
the consolidated statement of operations for the year ended December 31,
1997.
The Company entered into an agreement with an investor pursuant to which
the investor will render investor relations and corporate communication
services to the Company. A warrant to purchase 24,000 shares of the
Company's common stock at $7.00 per share, which warrant expires on
November 22, 2001, was issued in 1996. The Company recognized expense of
$110,640 for the fair value of the warrants, which was recorded as a
general and administrative expense in the consolidated statements of
operations for the year ended December 31, 1997.
Concurrent with the private placement offering of Series A Preferred in
1997, the Company issued 123,720 warrants to designees of Paramount, the
placement agent. These warrants are initially
F-22
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
exercisable at a price equal to $11.00 per share and may be exercised at
any time during the 10-year period commenced February 17, 1998. The rights,
preferences and privileges of the shares of Series A Preferred issuable
upon exercise of these warrants are identical to those offered to the
participants in the private placement. The warrants contain anti-dilution
provisions providing for adjustment of the number of securities underlying
the Series A Preferred issuable upon exercise of the warrants and the
exercise price of the warrants under certain circumstances. The warrants
are not redeemable and will remain outstanding, to the extent not
exercised, notwithstanding any mandatory redemption or conversion of the
Series A Preferred underlying the warrants. In accordance with SFAS No.
123, the Company determined the fair value of the warrants using the
Black-Scholes Model and allocated this value of $570,143 to convertible
preferred stock warrants with a corresponding reduction in additional
paid-in capital. In April 2000 and June 1998, 4,799 and 6,525 warrants,
respectively, were exercised via a cashless method for 6,955 and 2,010
shares of Series A Preferred, respectively.
On January 4, 2000, the Company entered into a Financial Advisory and
Consulting Agreement with the Underwriters. In this agreement, the Company
engaged the Underwriters to provide investment-banking services for one
year commencing January 4, 2000. As partial compensation for the services
to be rendered by the Underwriters, the Company issued the Underwriters
three warrants to purchase an aggregate of 450,000 shares of its common
stock. The exercise price ranges between $2.50 and $4.50 and the exercise
period of each warrant is at various times through 2007. In addition, each
warrant may only be exercised when the market price per share of common
stock is at least $1.00 greater than the exercise price of that warrant. In
connection with the issuance of the warrants, the Company and the
Underwriters entered into a letter agreement granting registration rights
in respect of the shares of common stock issuable upon exercise of the
warrants. In accordance with EITF Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services" and other relative accounting
literature, the Company recorded the estimated fair value of the warrants
of $1,020,128, which represents a general and administrative expense, as
compensation expense relating to stock options and warrants over the
vesting period through January 4, 2001.
(10) Related-Party Transactions
During 1999, the Company entered into consulting agreements with certain
members of its Board of Directors. Prior to 1999, the Company had several
consulting agreements with directors of the Company. These agreements, all
of which have been terminated, required either monthly consulting fees or
project-based fees. No additional agreements were entered into during 2000.
Consulting expense under these agreements was $8,000, $99,000 and $96,000
for the years ended December 31, 2000, 1999 and 1998, respectively.
(11) Income Taxes
There was no current or deferred tax expense for the years ended December
31, 2000, 1999 and 1998 because of the Company's operating losses.
F-23
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The components of deferred tax assets and deferred tax liabilities as of
December 31, 2000 and 1999 are as follows:
2000 1999
------------ ------------
Deferred tax assets:
Tax loss carryforwards $ 9,139,517 7,003,948
Research and development credit 743,286 495,555
Fixed assets 2,563 9,651
------------ ------------
Gross deferred tax assets 9,985,366 7,509,154
Less valuation allowance 9,985,366 7,509,154
------------ ------------
Net deferred tax assets -- --
Deferred tax liabilities -- --
------------ ------------
Net deferred tax asset (liabality) $ -- --
============ ============
F-24
The reasons for the difference between actual income tax expense (benefit)
for the years ended December 31, 2000, 1999 and 1998 and the amount
computed by applying the statutory federal income tax rate to losses before
income tax (benefit) are as follows:
2000 1999 1998
-------------------- ---------------------- -------------------
% of % of % of
pretax pretax pretax
Amount earnings Amount earnings Amount earnings
-------- --------- --------- --------- --------- -------
Income tax expense
at statutory rate $(1,973,000) (34.0%) $ (832,000) (34.0%) $ (936,000) (34.0%)
State income taxes,
net of Federal
tax benefit (640,000) (10.9%) (147,000) (6.0%) (165,000) (6.0%)
Change in valuation
reserve 2,476,000 42.1% 527,000 21.5% 1,255,000 45.6%
Credits generated
in current year (248,000) (4.2%) (74,000) (3.0%) (183,000) (6.6%)
Adjustment to prior
estimated income
tax expense -- -- 529,000 21.6% -- --%
Other, net 385,000 7.0% (3,000) (0.1%) 29,000 1.0%
----------- ---- ----------- ---- ----------- ----
Income tax benefet $ -- --% $ -- --% $ -- --%
=========== ==== =========== ==== =========== ====
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The net
change in the total valuation allowance for the years ended December 31,
2000, 1999 and 1998 was an increase of $2,476,000, $527,000 and $1,255,000,
respectively. The tax benefit assumed using the federal statutory tax rate
of 34% has been reduced to an actual benefit of zero due principally to the
aforementioned valuation allowance.
At December 31, 2000, the Company had federal and state net operating loss
tax carryforwards of approximately $23,500,000. The net operating loss
carryforwards expire in various amounts starting in 2008 and 2001 for
federal and state tax purposes, respectively. The Tax Reform Act of 1986
contains provisions which limit the ability to utilize net operating loss
carryforwards in the case of certain events including significant changes
in ownership interests. If the Company's net operating loss carryforwards
are limited, and the Company has taxable income which exceeds the
permissible yearly net operating loss carryforward, the Company would incur
a federal income tax liability even though net operating loss carryforwards
would be available in future years.
F-25
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(12) License Agreement
On May 14, 1998, Optex entered into a Development and License Agreement
(the Agreement) with Bausch & Lomb to complete the development of Catarex,
a cataract-removal technology owned by Optex. Under the terms of the
Agreement, Optex and Bausch & Lomb intend jointly to complete the final
design and development of the Catarex System. Bausch & Lomb was granted an
exclusive worldwide license to the Catarex technology for human ophthalmic
surgery and will assume responsibility for commercializing Catarex
globally. The Agreement is cancellable by Bausch & Lomb at any time upon
six months written notice.
The Agreement provides that Bausch & Lomb will pay Optex milestone payments
of (a) $2,500,000 upon the signing of the Agreement, (b) $4,000,000 upon
the successful completion of certain clinical trials, (c) $2,000,000 upon
receipt of regulatory approval to market the Catarex device in the United
States (this payment is creditable in full against royalties), and (d)
$1,000,000 upon receipt of regulatory approval to market the Catarex device
in Japan. Pursuant to the Agreement, Bausch & Lomb shall reimburse Optex
for its research and development expenses not to exceed $2,500,000. Bausch
& Lomb shall pay Optex a royalty of 7% of net sales and an additional 3%
royalty when certain conditions involving liquid polymer lenses are met.
During 1998, the Company received the first nonrefundable milestone payment
of $2,500,000 and recorded this amount as license revenue. In addition, the
Company recorded $1,047,511 in 1998 as a reduction of expenses related to
the reimbursement of research and development costs associated with the
Catarex device.
On September 16, 1999, the Company and Bausch & Lomb amended the Agreement
to provide for an expanded role for Optex in development of the Catarex
surgical device. Under the amended Agreement, Optex, in addition to the
basic design work provided for in the original agreement, is required to
deliver to Bausch & Lomb within a stated period Catarex devices for use in
clinical trials, and is required to assist Bausch & Lomb in connection with
development of manufacturing processes for scale-up of manufacture of the
Catarex device. Additionally, Bausch & Lomb will reimburse Optex for all
costs, including labor, professional services and materials, incurred by
Optex in delivering those Catarex devices and performing manufacturing
services, and will pay Optex a fixed profit component of 25% based upon
certain of those costs.
During 2000 and 1999, Optex recorded revenue pursuant to the amended
Agreement of $5,169,288 and $1,082,510, respectively. The revenue recorded
in 2000 and 1999 pursuant to the amended Agreement is inclusive of the
fixed profit component of 25% presented on a gross basis with the related
costs incurred presented separately as cost of development revenue on the
consolidated statement of operations. Of this amount, $192,992 and $304,752
are recorded as an account receivable at December 31, 2000 and 1999,
respectively. Prior to the amended Agreement, the research and development
expenses of the Catarex device incurred and the related reimbursement were
presented by the Company on a net basis as the reimbursement reflects a
dollar for dollar reimbursement arrangement, effectively being a
pass-through of expenses. The 1999 reimbursement received by the Company
prior to the amendment to the Agreement was
F-26
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
$1,229,068. As of December 31, 2000, the Company recorded $1,294,615 of
deferred revenue related to the amended Agreement, which represents
expenses paid in advance by Bausch & Lomb at a rate of 125% during 2000.
Revenue and related expense will be recorded as operations are incurred
during 2001. No such amounts existed at December 31, 1999.
As of December 31, 2000, Optex received reimbursement for costs, including
labor, professional services and materials, incurred by Optex in delivering
Catarex devices and performance manufacturing services totalling $5
million. The amended agreement provides that Bausch & Lomb will reimburse
Optex for such costs up to $8 million.
In connection with the revised agreement, the Company agreed to pay a bonus
to its President totaling $141,000, payable monthly through March 2001.
At December 31, 2000 and 1999, $23,502 and $117,500, respectively, were due
and were included in accounts payable and accrued expenses in the
accompanying consolidated balance sheets.
On January 31, 2001, the Company entered into an agreement to sell
substantially all of the assets of Optex (mostly intangible assets with
no book value) to Bausch & Lomb for $3,000,000 and certain future
royalties. The sale closed on March 2, 2001, on which date Optex
received $3,000,000, approximately $600,000 of which was distributed to
the minority shareholders of Optex.
(13) Commitments and Contingencies
Consulting and Research Agreements
The Company has entered into consulting agreements, under which stock
options may be issued in the foreseeable future. The agreements are
cancellable with no firm financial commitments.
Employment Agreements
The Company entered into employment agreements with four executives during
April and May, 2000. These agreements provide for the payment of signing
and year-end bonuses in 2000 totaling $225,000, and annual base salaries
aggregating $550,000. Each agreement has an initial term of three years and
can be terminated by the Company, subject to certain provisions, with the
payment of severance amounts that range from three to six months.
Proprietory Rights
The Company has an exclusive worldwide license to four U.S. patents and
corresponding foreign applications covering a group of compounds, including
CT-3. The licensor is Dr. Sumner Burstein, a professor at the University of
Massachusetts. This license extends until the expiration of the underlying
patent rights. The primary U.S. patent expires in 2012 and the new analog
patent 6,162,829 expires in 2017. The Company has the right under this
license to sublicense its rights under the license. The license requires
that the Company pay royalties of 3% to Dr. Burstein based on sales of
products and processes incorporating technology licensed under the license,
as well as 8% of any income derived from any sublicense of the licensed
technology. Furthermore, pursuant to the terms of the license, the Company
must satisfy certain other terms and conditions in order to retain the
license rights. If the Company fails to comply with certain terms of the
license, its license rights under the license could be terminated.
Operating Leases
The Company rents certain office space under operating leases which expire
in various years through 2003.
Aggregate annual lease payments for noncancellable operating leases are as
follows:
F-27
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Year ending
December 31,
---------------
2001 $ 138,000
2002 81,000
2003 26,000
---------
$ 245,000
=========
Rent expense related to operating leases for the years ended December 31,
2000, 1999 and 1998 was $161,810, $118,264 and $97,756, respectively.
Resignation of CEO
In July 1998, the CEO of the Company resigned. The Company recorded
$211,250 of expense for salary continuation through April 1999. Of this
amount, $140,833 was recorded in accrued expenses at December 31, 1998.
Pursuant to the resignation, all unvested stock options held by the CEO
vested immediately and the unexercised options expired in July 1999.
Termination of Agreement with the Trustees of the University of
Pennsylvania
On October 12, 1999, the Company and Channel announced the termination of
the license agreement dated as of June 16, 1994, between the Trustees of
the University of Pennsylvania (Penn) and Channel pursuant to which Channel
received the rights to use cyclodextrin technology. The Company and
Channel, on the one hand, and Penn, on the other hand, released each other
from any further obligations under the license agreement. The Company paid
Penn a portion of the patent costs for which Penn was seeking reimbursement
under the agreement.
F-28
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
(Unaudited)
September 30,
Assets 2001
- ---------------------------------------------------------------------------- ------------
Current assets:
Cash and cash equivalents $ 440,558
Accounts receivable --
Prepaid expenses 27,194
------------
Total current assets 467,752
Property and equipment, net 116,364
Investment in affiliate 8,351
Other assets 22,838
------------
Total assets $ 615,305
============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses $ 748,359
Deferred revenue --
------------
Total current liabilities $ 748,359
Redeemable Series B convertible preferred stock
Authorized 1,647,312 shares; 0 issued and
outstanding at September 30, 2001 --
Stockholders' equity (deficit):
Preferred stock, $.001 par value. Authorized 10,000,000
shares; 1,375,000 shares designated as Series A
convertible preferred stock --
Series A convertible preferred stock, $.001 par value
Authorized 1,375,000 shares; 350,606 shares issued and
outstanding at September 30, 2001
(liquidation preference aggregating $4,557,878 at
September 30, 2001 351
Convertible preferred stock warrants, 112,896
issued and outstanding at September 30, 2001 520,263
Common stock, $.001 par value. Authorized 50,000,000
shares; 7,201,480 shares issued and outstanding
at September 30, 2001 7,201
Common stock subscribed. 182 shares at September 30, 2001 --
Additional paid-in capital 25,502,927
Deficit accumulated during development stage (26,163,254)
------------
(132,512)
Less common stock subscriptions receivable (218)
Less treasury stock, at cost (324)
------------
Total stockholders' deficit (133,054)
------------
Total liabilities and stockholders' deficit $ 615,305
============
See accompanying notes to unaudited consolidated financial statements.
F-29
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Cumulative
period from
July 13, 1993
Nine months ended (inception) to
September 30, September 30,
-------------------------- -------------
2001 2000 2001
----------- ----------- -----------
Revenues:
Development revenue $ 2,461,922 $ 3,419,831 $ 8,713,720
License revenue -- -- 2,500,000
Grant revenue 250,000 13,009 616,659
----------- ----------- -----------
Total revenues 2,711,922 3,432,840 11,830,379
----------- ----------- -----------
Costs and expenses:
Cost of development revenue 2,082,568 2,735,865 7,084,006
Research and development 774,340 854,297 10,279,250
Acquired in-process research and development -- 2,653,382 2,653,382
General and administrative 2,333,567 1,595,463 18,236,793
Compensation expense relating to stock warrants, net
(general and administrative) 70,634 1,073,511 1,091,499
License fees -- -- 173,500
----------- ----------- -----------
Total operating expenses 5,261,109 8,912,518 39,518,430
----------- ----------- -----------
Operating loss ) (2,549,187) (5,479,678) (27,688,051)
Other (income) expense:
Interest and other income ) (40,618) (97,267) (1,291,754)
Gain on sale of Optex assets (2,569,451) -- (2,569,451)
Loss on sale of Gemini assets 334,408 -- 334,408
Interest expense -- -- 625,575
Equity in (earnings) loss of affiliate 58,993 55,615 138,267
Distribution to minority shareholders 837,274 -- 837,274
----------- ----------- -----------
Total other (income) expense (1,379,394) (41,652) (1,925,681)
----------- ----------- -----------
Net loss ) $(1,169,793) $(5,438,026) $(25,762,370)
=========== =========== ============
Imputed convertible preferred stock dividend 600,000 -- 5,931,555
Dividend paid upon repurchase of Series B 167,127 -- 400,884
Preferred stock dividend issued in preferred shares 107,449 811,514 1,390,512
----------- ----------- -----------
Net loss applicable to common shares ) $(2,044,369) $(6,249,540) $(33,485,321)
=========== =========== ============
Net loss per common share:
Basic and diluted ) $ (0.30) $ (1.14)
=========== ===========
Weighted average shares of common stock outstanding,
basic and diluted: 6,734,788 5,504,144
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
F-30
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Cumulative
period from
Nine months ended July 13, 1993
September 30, (inception) to
---------------------------- September 30,
2001 2000 2001
----------- ----------- -------------
Cash flows from operating activities:
Net loss (1,169,793) (5,438,026) (25,762,370)
Adjustments to reconcile net loss to
net cash used in operating activities:
Acquired in-process research and development -- 1,800,000 1,800,000
Expense relating to issuance of common stock and warrants 488,100 -- 786,302
Expense relating to the issuance of options -- -- 81,952
Expense related to Channel merger -- -- 657,900
Change in equity of affiliate 58,993 55,615 138,267
Compensation expense relating to stock options and warrants 70,634 1,073,511 1,299,544
Discount on notes payable - bridge financing -- -- 300,000
Depreciation 55,015 51,529 561,520
Gain on sale of Optex assets (2,569,451) -- (2,569,451)
Distribution to Optex minority shareholders 837,274 -- 837,274
Loss on sale of Gemini assets 334,408 -- 334,408
Loss on disposal of furniture and equipment -- -- 73,387
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 192,997 (700,188) --
Increase in prepaid expenses (4,595) (20,185) (27,194)
Decrease in deferred revenue (1,294,615) -- --
Increase (decrease) in accrued expenses (664,637) 519,025 121,201
Increase (decrease) in accrued interest -- -- 172,305
Increase in other assets (19,937) (2,901) (22,838)
----------- ----------- -----------
Net cash used in operating activities (3,685,607) (2,661,620) (21,217,793)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment (108,250) (137,869) (921,331)
Investment in affiliate -- (146,618) (146,618)
Proceeds from sale of Optex assets 3,000,000 -- 3,000,000
Proceeds from sale of furniture and equipment -- -- 6,100
----------- ----------- -----------
Net cash provided by (used in) investing activities 2,891,750 (284,487) 1,938,151
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants -- -- 5,500
Proceeds from exercise of stock options -- 344,597 397,098
Proceeds from issuance of demand notes payable -- -- 2,395,000
Repayment of demand notes payable -- -- (125,000)
Proceeds from the issuance of notes payable - bridge financing -- -- 1,200,000
Proceeds from issuance of warrants -- -- 300,000
Repayment of notes payable - bridge financing -- -- (1,500,000)
Repurchase of common stock -- -- (324)
Preferred stock dividend paid (987) -- (1,305)
Proceeds from the issuance of common stock -- -- 7,547,548
Proceeds from issuance of convertible preferred stock -- 828,489 11,441,672
Repurchase of convertible preferred stock (617,067) -- (1,128,875)
Distribution to Optex minority shareholders (811,114) -- (811,114)
----------- ----------- -----------
Net cash provided (used in) by financing activities (1,429,168) 1,173,086 19,720,200
----------- ----------- -----------
Net decrease in cash and cash equivalents (2,223,025) (1,773,021) 440,558
Cash and cash equivalents at beginning of period 2,663,583 3,473,321 --
----------- ----------- -----------
Cash and cash equivalents at end of period 440,558 1,700,300 440,558
=========== =========== ===========
Supplemental disclosure of noncash financing activities:
Issuance of common stock in exchange for common stock subscriptions -- -- 7,027
Conversion of demand notes payable and the related accrued
interest to common stock -- -- 2,442,304
Cashless exercise of preferred warrants -- 19,811 49,880
Conversion of preferred to common stock 409 289 2,835
Preferred stock dividend issued in shares 107,449 811,514 1,233,329
=========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
F-31
ATLANTIC TECHNOLOGY VENTURES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2001
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, the
financial statements do not include all information and footnotes required by
accounting principles generally accepted in the United States of America for
complete annual financial statements. In the opinion of management, the
accompanying financial statements reflect all adjustments, consisting of only
normal recurring adjustments, considered necessary for fair presentation.
Interim operating results are not necessarily indicative of results that may be
expected for the year ending December 31, 2001 or for any subsequent period.
These consolidated financial statements should be read in conjunction with
Atlantic Technology Ventures, Inc., and Subsidiaries' ("Atlantic") Annual Report
on Form 10-KSB/A as of and for the year ended December 31, 2000.
(2) LIQUIDITY
On November 6, 2001, Atlantic entered into an agreement with Joseph
Stevens & Company, Inc. in which Joseph Stevens agreed to act as placement agent
for a private placement of shares of Atlantic common stock. In that private
placement, the proposed purchase price of each share of Atlantic common stock
will be $0.24 and the minimum and maximum aggregate subscription amounts will be
$2,000,000 and $3,000,000, respectively. In addition, each investor will receive
a warrant to purchase one share of Atlantic common stock for every share of
Atlantic common stock purchased by that investor. The warrants will have an
exercise price of $0.29 and will be exercisable for five years from the closing
date. In connection with the offering, Atlantic will pay to Joseph Stevens a
placement fee equal to 7% of the aggregate subscription amount plus 10% of the
number of shares and warrants issued to the investors. Joseph Stevens has
informed Atlantic that as of the end of November 19, 2001, investors had placed
in escrow over $1,000,000 towards the aggregate subscription price of this
private placement, and Atlantic expects that by November 30, 2001, it will have
received commitments for at least the minimum aggregate subscription amount and
will be able to close this financing. There can, however, be no assurances that
the closing will take place by then, or at all.
Atlantic anticipates that their liquid resources, before any
proceeds from the proposed private placement, will be sufficient to finance
their anticipated needs for operating and capital expenditures at their current
level of operations for at least the next several weeks. Atlantic will attempt
to generate additional capital through a combination of collaborative
agreements, strategic alliances and equity and debt financing, and Atlantic
anticipates that the proceeds it expects to receive from the private placement
conducted through Joseph Stevens & Company, Inc. would be sufficient to finance
its anticipated needs for operating and capital expenditures at their current
level of operations for at least the next year. However, Atlantic can give no
assurance that they will receive any proceeds from the proposed private
placement or obtain funds through other sources on terms acceptable to them.
On May 7, 2001, Atlantic entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC pursuant to which Fusion Capital
agreed to purchase up to $6.0 million of our common stock. This agreement
replaced an earlier common stock purchase agreement between Atlantic and Fusion
Capital dated March 16, 2001. Fusion's obligation to purchase Atlantic shares is
subject to certain conditions, including the effectiveness of a registration
statement covering the shares to be purchased. That registration statement was
declared effective on July 6, 2001. A material contingency that may affect
Atlantic's operating plans and ability to raise funds under this agreement is
its stock price. Currently, Atlantic's stock price is below the floor price of
$0.68 specified in the Fusion Capital agreement and as a result Atlantic is
currently unable to draw funds pursuant to the Fusion Capital agreement. As the
Fusion Capital agreement is currently structured, Atlantic cannot guarantee that
it will be able to draw any funds. To date, Atlantic has not drawn funds
pursuant to this agreement. See note 11 below and see the liquidity discussion
within "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Subsequent to an oral hearing before a Nasdaq Listing Qualifications
Panel, on August 23, 2001, Atlantic's securities were delisted from the Nasdaq
Stock Market for failing to meet the minimum bid price requirements set forth in
the NASD Marketplace Rules, as Atlantic's common stock had traded for less than
$1.00 for more than 30
F-32
consecutive business days. Atlantic's common stock now trades on the OTC
Bulletin Board under the symbol "ATLC.OB". Delisting of Atlantic's common stock
from Nasdaq could have a material adverse effect on its ability to raise
additional capital, its stockholders' liquidity and the price of its common
stock.
(3) COMPUTATION OF NET LOSS PER COMMON SHARE
Basic net loss per common share is calculated by dividing net loss
applicable to common shares by the weighted-average number of common shares
outstanding for the period. Diluted net loss per common share is the same as
basic net loss per common share, as common equivalent shares from stock options,
stock warrants, stock subscriptions, and convertible preferred stock would have
an antidilutive effect because Atlantic incurred a net loss during each period
presented.
(4) RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 2001, Atlantic adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities--an amendment of SFAS No.
133" and SFAS No. 133, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities." SFAS No. 138 amends the accounting and reporting
standards of SFAS No. 133 for certain derivative instruments and certain hedging
activities. SFAS No. 133 requires a company to recognize all derivative
instruments as assets and liabilities in its balance sheet and measure them at
fair value. The adoption of these statements did not have a material impact on
Atlantic's consolidated financial position, results of operations or cash flows,
as Atlantic is currently not party to any derivative instruments.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
that all business combinations be accounted for under a single method--the
purchase method. Use of the pooling-of-interests method is no longer permitted.
SFAS No. 141 requires that the purchase method be used for business combinations
initiated after June 30, 2001. SFAS No. 142 requires that goodwill no longer be
amortized to earnings, but instead be reviewed for impairment. The amortization
of goodwill ceases upon adoption of the Statement, which for calendar year-end
companies, will be January 1, 2002. SFAS No. 142 has no financial impact on
Atlantic since Atlantic does not have any goodwill or intangible assets which
resulted from any previous business combinations.
(5) INCOME TAXES
Atlantic incurred a net loss for the nine months ended September 30,
2001. In addition, Atlantic does not expect to generated book income for the
year ended December 31, 2001; therefore, no income taxes have been reflected for
the nine months ended September 30, 2001.
(6) PREFERRED STOCK DIVIDEND
On January 16, 2001 and August 7, 2001, Atlantic's board of
directors declared payment-in-kind dividends of 0.065 of a share of Series A
convertible preferred stock for each share of Series A convertible preferred
stock held as of the record dates of February 7, 2001 and August 7, 2001
respectively. The estimated fair value of these dividends in the aggregate of
$107,449 and $811,514 were included in Atlantic's calculation of net loss per
common share for the nine-month periods ended September 30, 2001 and 2000,
respectively. The equivalent dividends for the three-and nine-month periods
ended September 30, 2000 had an estimated fair value of $152,195 and $811,514,
respectively and are recorded in the same manner.
(7) ISSUANCE OF STOCK WARRANTS
As more fully described in Note 9 to Atlantic's Annual Report on
Form 10-KSB/A as of and for the year ended December 31, 2000, on January 4,
2000, Atlantic entered into a financial advisory and consulting agreement with
Joseph Stevens & Company, Inc. pursuant to which Atlantic issued to Joseph
Stevens & Company, Inc. three warrants to purchase an aggregate of 450,000
shares of its common stock. Atlantic recorded compensation expense relating to
these stock warrants in the amounts of $1,073,511 for the nine-month period
F-33
ended September 30, 2000. No such compensation expense exists
subsequent to December 31, 2000 as the warrants are fully vested. These warrants
were still outstanding as of September 30, 2001.
On March 8, 2001, Atlantic entered into an agreement with The
Investor Relations Group, Inc. ("IRG") under which IRG will provide Atlantic
investor relations services. Pursuant to this agreement, Atlantic issued to Dian
Griesel, the principal of IRG, warrants to purchase 120,000 shares of its common
stock at an exercise price of $0.875 per share. These warrants will vest monthly
in 5,000 share increments over a 24-month period. In addition, should Atlantic's
stock price reach $2.50, Atlantic will grant Dian Griesel warrants to purchase
an additional 50,000 shares of its common stock, and should Atlantic's stock
price reach $5.00, Atlantic will grant Dian Griesel warrants to purchase a
further 50,000 shares of its common stock. As a result, Atlantic recorded
compensation expense relating to the issuance of the stock warrants to purchase
120,000 shares of $38,200 for the nine-month period ended September 30, 2001
pursuant to EITF Issue No. 96-18. Atlantic will remeasure the compensation
expense at the end of each reporting period until the final measurement date is
reached 24 months after issuance. These warrants are outstanding as of September
30, 2001.
On August 9, 2001, Atlantic entered into an agreement with Proteus
Capital Corp. ("Proteus") in which Proteus agreed to assist Atlantic with
raising additional funds. Pursuant to this agreement, Atlantic granted Proteus
warrants to purchase 100,000 shares of its common stock at $0.59 per share,
which was the average closing stock price for the two weeks ending August 17,
2001. The warrants were fully vested on the date of the agreement and were
outstanding at September 30, 2001. The term of the warrants is five years.
Atlantic recorded compensation expense relating to these stock warrants of
$45,355 for the nine months ended September 30, 2001, pursuant to EITF Issue No.
96-18.
Compensation for these warrants relates to fundraising and investor
relations services and represents a general and administrative expense.
(8) REDEEMABLE SERIES B PREFERRED SHARES
On September 28, 2000, pursuant to a convertible preferred stock and
warrants purchase agreement (the "Purchase Agreement") Atlantic issued to BH
Capital Investments, L.P. and Excalibur Limited Partnership (together, the
"Investors") for a purchase price of $2,000,000, 689,656 shares of Atlantic's
Series B convertible preferred stock and warrants to purchase 134,000 shares of
Atlantic's common stock. Half of the shares of the Series B preferred stock
(344,828 shares) and warrants to purchase half of the shares of common stock
(67,000 shares) were held in escrow, along with half of the purchase price.
On December 4, 2000, Atlantic and the Investors entered into a stock
repurchase agreement (the "Repurchase Agreement") pursuant to which Atlantic
repurchased from the investors a portion of the outstanding shares.
Pursuant to Atlantic's subsequent renegotiations with the Investors,
Atlantic was required, among other things, to redeem on March 28, 2002, all
outstanding shares of Series B preferred stock for (A) 125% of the original
issue price per share or (B) the market price of the shares of common stock into
which they are convertible, whichever is greater (the "Redemption Price").
Atlantic would have been able to at any time redeem all outstanding shares of
Series B preferred stock at the Redemption Price. As a result of the
renegotiations discussed in this paragraph, the Series B preferred stock was
considered redeemable and the remaining outstanding shares at December 31, 2000
were classified outside of permanent equity in the accompanying consolidated
balance sheet. At December 31, 2000, of the shares of Series B preferred stock
issued to the Investors, there were 206,898 shares outstanding at a carrying
amount of $2.90 per share.
Holders of shares of Atlantic's outstanding Series B preferred stock
could convert each share into shares of common stock without paying Atlantic any
cash. The conversion price per share of the Series B preferred stock was also
amended by the second amendment to the Purchase Agreement. The conversion price
per share of Series B
F-34
preferred stock on any given day is the lower of (1) $1.00 or (2) 90% of the
average of the two lowest closing bid prices on the principal market of the
common stock out of the fifteen trading days immediately prior to conversion.
The change in conversion price upon the renegotiations on January 9, 2001
resulted in a difference between the conversion price of the Series B preferred
stock and the market price of the common stock on the effective date of the
renegotiation. This amount, estimated at $600,000, was recorded as an imputed
preferred stock dividend within equity and is deducted from net loss to arrive
at net loss applicable to common shares during the nine months ended September
30, 2001.
On January 19, 2001, 41,380 shares of Series B preferred stock were
converted by the Investors into 236,422 shares of Atlantic's common stock. On
March 9, 2001, Atlantic and the Investors entered into a second stock repurchase
agreement pursuant to which Atlantic repurchased from the Investors, for an
aggregate purchase price of $617,067, all 165,518 shares of Atlantic's Series B
preferred stock held by the Investors on March 9, 2001. The carrying amount of
the 165,518 shares is equal to $480,000; therefore the amount in excess of the
carrying amount, which equals $167,127, was recorded as a dividend upon
repurchase of shares of Series B preferred stock and is deducted from net loss
to arrive at net loss applicable to common shares.
(9) DEVELOPMENT REVENUE
In accordance with an amended license and development agreement,
which was subsequently terminated as described below in note 10, Bausch & Lomb
Surgical reimbursed Atlantic's subsidiary, Optex Ophthalmologics, Inc.
("Optex"), for costs Optex incurred in developing its Catarex technology, plus a
profit component. For the nine months ended September 30, 2001, this agreement
provided $2,461,922 of development revenue, and related cost of development
revenue of $2,082,568. This agreement provided $3,419,831 of development
revenue, and related cost of development revenue of $2,735,865 for the
nine-month period ended September 30, 2000. The agreement was terminated in
March 2001 (see note 10 below).
(10) SALE OF OPTEX ASSETS
Pursuant to an asset purchase agreement dated January 31, 2001,
among Bausch & Lomb, a Bausch & Lomb affiliate, Atlantic, and Optex, on March 2,
2001, Optex sold to Bausch & Lomb substantially all of its assets (mostly
intangible assets with no book value), including all those related to the
Catarex technology. The purchase price was $3 million paid at closing (of which
approximately $564,000 has been distributed to Optex's minority shareholders).
In addition, Optex is entitled to receive additional consideration, namely $1
million once Bausch & Lomb receives regulatory approval to market the Catarex
device in Japan, royalties on net sales on the terms stated in the original
development agreement dated May 14, 1998, between Bausch & Lomb and Optex, as
amended, and minimum royalties of $90,000, $350,000, and $750,000 for the first,
second, and third years, respectively, starting on first commercial use of the
Catarex device or January 1, 2004, whichever is earlier. Optex also has the
option to repurchase the acquired assets from Bausch & Lomb at fair value if it
ceases developing the Catarex technology.
Upon the sale of Optex assets, Bausch & Lomb's development agreement
with Optex was terminated and Optex has no further involvement with Bausch &
Lomb. As a result of this transaction, Atlantic recorded a net gain on the sale
of Optex assets of $2,569,451 for the nine-month period ended September 30,
2001, net of severance payments to former Optex employees in the amount of
$240,000 as described below. The purchase price of $3,000,000 is nonrefundable
and upon the closing of the asset purchase agreement in March 2001, Optex had no
further obligation to Bausch & Lomb or with regard to the assets sold. In the
asset purchase agreement, Optex agreed to forgo future contingent payments
provided for in the earlier development agreement. Pursuant to Atlantic's
agreement with the minority shareholders of Optex, Optex has recorded a profit
distribution for the nine months ended September 30, 2001 of $837,274
representing the minority shareholders' percentage of the cumulative profit from
the Bausch & Lomb development and asset purchase agreements up to and including
proceeds from the sale of Optex' assets.
On May 9, 2001, Atlantic's board of directors, after consideration
of all the relevant facts and circumstances, including recommendation of
counsel, agreed to authorize an aggregate payment of $240,000 to three former
employees of Optex (who are now employed by Bausch & Lomb). The payments were
made on May 11, 2001, and represented the settlement of claims made by the
employees subsequent to the asset purchase agreement referred to above for
severance monies allegedly due under their employment agreement. Atlantic did
F-35
not believe these monies were due pursuant to the terms of the transaction
itself and the respective employment agreements. The board of directors elected
to acquiesce to the demands of the former employees and resolve the matter in
light of the potential future royalties from Bausch & Lomb and the importance of
these individuals to the ongoing development activities. The payment was
recorded as an expense netted against the gain on sale of Optex assets in the
September 30, 2001 consolidated statement of operations.
(11) PRIVATE PLACEMENT OF COMMON SHARES
On May 7, 2001, Atlantic entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC, pursuant to which Fusion Capital
agreed to purchase up to $6.0 million of Atlantic's common stock over a 30-month
period, subject to a six-month extension or earlier termination at Atlantic's
discretion. This agreement replaced an earlier common stock purchase agreement
between Atlantic and Fusion Capital dated March 16, 2001. Fusion's obligation to
purchase Atlantic shares is subject to certain conditions, including the
effectiveness of a registration statement covering the shares to be purchased.
That registration statement was declared effective on July 6, 2001. The selling
price of the shares will be equal to the lesser of (1) $20.00 or (2) a price
based upon the future market price of the common stock, without any fixed
discount to the market price. A material contingency that may affect Atlantic's
operating plans and ability to raise funds under this agreement is its stock
price. Currently, Atlantic's stock price is below the floor price of $0.68
specified in the Fusion Capital agreement and as a result Atlantic is currently
unable to draw funds pursuant to the Fusion Capital agreement. As the Fusion
Capital agreement is currently structured, Atlantic cannot guarantee that it
will be able to draw any funds. To date, Atlantic has not drawn funds pursuant
to this agreement. Atlantic paid a finder's fee of $120,000 in connection with
signing this agreement and subsequently was required to issue 600,000 commitment
shares to Fusion Capital; those shares had an estimated fair value of $444,000.
General and administrative expense for the nine-month period ended September 30,
2001, include amounts relating to the finder's fee and issuance of stock in the
aggregate amount of $564,000.
On August 1, 2001, Atlantic agreed to issue 35,000 shares of its
common stock to each of BH Capital Investments, L.P. and Excalibur Limited
Partnership in return for their commitment to provide Atlantic with $3.5 million
of financing in connection with an asset purchase for which Atlantic had
submitted a bid. Atlantic subsequently issued those shares, but Atlantic did not
ultimately purchase those assets. Those shares had an estimated fair value of
$44,100, which is included as a general and administrative expense for the
nine-month periods ended September 30, 2001.
(12) SALE OF GEMINI ASSETS
Pursuant to an asset purchase agreement dated April 23, 2001, among
Atlantic, Atlantic's majority-owned subsidiary Gemini Technologies, Inc., the
Cleveland Clinic Foundation ("CCF") and CCF's affiliate IFN, Inc., Gemini sold
to IFN substantially all its assets, including all those related to the 2-5A
antisense enhancing technology, for future contingent royalty payments and
withdrawal of CCF's arbitration demand against Atlantic and Gemini. The
transaction closed on May 5, 2001. This transaction was beneficial to Atlantic
since it permitted Atlantic to avoid terminating the Cleveland sublicense with
no compensation to Gemini and spared Atlantic from having to pay the substantial
shutdown costs that Gemini would likely have incurred without this asset
purchase agreement. In connection with this sale, Atlantic recorded a loss of
$334,408. This loss results from net assets sold to IFN of $136,408 and a
liability related to SBIR grant funds for research on the 2-5A antisense
technology, of approximately $198,000. Of the $198,000 accrual established upon
closing, $194,500 remains accrued at September 30, 2001.
(13) SUBSEQUENT EVENTS
In October 2001, Atlantic stopped work on CryoComm, a wholly-owned
subsidiary of Atlantic that had been developing superconducting electronics for
Internet packet switching and transport products. Discontinuing work on CryoComm
will allow Atlantic to focus on its core life-sciences technologies, although
Atlantic will continue to prosecute the patents on this technology. As part of
this restructuring, Walter Glomb's position was eliminated effective October 16,
2001, although Mr. Glomb will receive a 7% success fee if he is able to secure
funding to further develop this technology. As stated in his employment
agreement, Mr. Glomb will also receive a total of $62,500 in severance payments
due under his employment agreement over six months following his termination.
Such amounts will be recorded in the fourth quarter of 2001.
F-36
No dealer, salesman or other person has been authorized to give any information
or to make representations other than those contained in this prospectus, and if
given or made, such information or representations must not be relied upon as
having been authorized by us or the selling shareholders. Neither the delivery
of this prospectus nor any sale hereunder will, under any circumstances, create
an implication that the information herein is correct as of any time subsequent
to its date. This prospectus does not constitute an offer to or solicitation of
offers by anyone in any jurisdiction in which such an offer or solicitation is
not authorized or in which the person making such an offer is not qualified to
do so or to anyone to whom it is unlawful to make such an offer or solicitation.
17,569,967 SHARES
ATLANTIC TECHNOLOGY VENTURES, INC.
COMMON STOCK
--------------------------------
PROSPECTUS
--------------------------------
_________, 2002
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, that is one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they will have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification will be made if such person will
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought will determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
The Registrant's Restated Certificate of Incorporation provides for
indemnification of directors and officers of the Registrant to the fullest
extent permitted by the DGCL. The Registrant has obtained liability insurance
for each director and officer for certain losses arising from claims or charges
made against them while acting in their capacities as directors or officers of
the Registrant.
Item 25. Other Expenses of Issuance and Distribution.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement will be as
follows:
Total
SEC registration fee (actual) ....................................$923.84
Accounting fees and expenses ...................................$7,500.00
Legal fees and expenses........................................$10,000.00
Printing and engraving expenses.................................$1,000.00
Miscellaneous expenses..........................................$1,000.00
Item 26. Recent Sales of Unregistered Securities
Issuance to Joseph Stephens & Company, Inc.
On January 4, 2000, we entered into a Financial Advisory and Consulting
Agreement with Joseph Stevens & Company, Inc. ("Joseph Stevens"). In this
agreement, we engaged Joseph Stevens to provide us with investment banking
services from January 4, 2000 until January 4, 2001. As partial compensation for
the services to be rendered by Joseph Stevens, we issued them three warrants to
purchase an aggregate of 450,000 shares of our common stock.
The issuance of the warrants did not involve any public offering and
therefore was exempt from the registration requirements of Section 5 of the
Securities Act pursuant to Section 4(2) of the Securities Act.
II-1
The exercise price of each warrant is as follows:
=======================================================
Warrant Number No. of Shares Exercise Price
=======================================================
No. 1 150,000 $2.50
- -------------------------------------------------------
No. 2 150,000 $3.50
- -------------------------------------------------------
No. 3 150,000 $4.50
=======================================================
Each warrant may only be exercised when the market price of a share of
common stock is at least $1.00 greater than the exercise price of that warrant.
In connection with issuance of the warrants, Atlantic and Joseph Stevens entered
into a letter agreement granting Joseph Stevens registration rights in respect
of the shares of common stock issuable upon exercise of the warrants.
Issuance to TeraComm Research, Inc.
On May 12, 2000, we acquired shares of preferred stock representing a
35% ownership interest in TeraComm Research, Inc. ("TeraComm"), a privately-held
company that is developing next-generation high-speed fiberoptic communications
technologies. The purchase price for this ownership interest was $5,000,000 in
cash, 200,000 shares of our common stock, and a warrant to purchase a further
200,000 shares of our common stock. The warrants have a term of three years and
are exercisable at $8.975 per share of common stock, but only if the market
price of our common stock is $30 or more. We are accounting for the investment
in TeraComm in accordance with the equity method of accounting for investments
since we have the ability to exert significant influence over TeraComm,
including through our Board representation.
The issuance of the common stock and warrants did not involve any public
offering and therefore was exempt from the registration requirements of Section
5 of the Securities Act pursuant to Section 4(2) of the Securities Act.
On July 18, 2000, Atlantic and TeraComm amended the purchase agreement.
In the amendment, the parties agreed that the $4,000,000 balance of the
$5,000,000 cash component of the purchase price would not be due until TeraComm
achieved a specified milestone. Within ten days after TeraComm achieved that
milestone, we were required to pay TeraComm $1,000,000 and thereafter make to
TeraComm three payments of $1,000,000 at three-month intervals. If we failed to
make any of these payments, TeraComm's only recourse would be reducing
proportionately our ownership interest. Our failure to make the first $1,000,000
payment by midnight at the end of December 30, 2000 (whether or not TeraComm has
reached the milestone) would at the option of TeraComm be deemed to constitute
failure by us to timely make that payment.
When we failed to make the first $1,000,000 payment by midnight at the
end of December 30, 2000, we were deemed to have surrendered to TeraComm a
proportion of our TeraComm shares equal to the proportion of the dollar value of
the purchase price for our TeraComm shares ($6,795,000) that was represented by
the unpaid $4,000,000 of the cash portion of the purchase price. This had the
effect of reducing to 14.4% our actual ownership interest in TeraComm. However,
Atlantic continues to hold one seat on the Board of Directors and therefore
continues to have the ability to exert significant influence.
Issuance to BH Capital Investments, L.P. and Excalibur Limited Partnership
On September 28, 2000, pursuant to a convertible preferred stock and
warrants purchase agreement (the "purchase agreement"), we issued to BH Capital
Investments, L.P. and Excalibur Limited Partnership (together, the "Investors")
for a purchase price of $2,000,000, 689,656 shares of our Series B convertible
preferred stock (the "Series B preferred stock") and warrants to purchase
134,000 shares of our common stock. Half of the shares of Series B preferred
stock (344,828 shares) and warrants to purchase half of the shares of common
stock (67,000 shares) were held in escrow, along with half of the purchase
price.
On December 4, 2000, Atlantic and the Investors entered into a stock
repurchase agreement (the "stock repurchase agreement") pursuant to which we
repurchased from the Investors for $500,000 137,930 shares of Series
II-2
B preferred stock, and agreed to the release from escrow to the Investors of the
$1,000,000 purchase price of the 344,828 shares of Series B preferred stock held
in escrow. We also allowed the Investors to keep all of the warrants issued
under the purchase agreement and issued to the Investors warrants to purchase a
further 20,000 shares of our common stock at the same exercise price.
The issuance of the shares of Series B preferred stock and warrants did
not involve any public offering and therefore was exempt from registration
pursuant to Section 4(2) of the Securities Act.
The warrants are exercisable at the fixed exercise price or 110% of the
market price 180 days after the date of issuance, whichever is lower. Pursuant
to a second amendment to the purchase agreement, executed on January 9, 2001,
the fixed exercise price of the warrants was lowered from $3.19, the fixed
exercise price upon their issuance, to $1.00, the market price of our common
stock at the time of the renegotiations. Each warrant may be exercised any time
during the five years from the date of granting. The warrants may not be
exercised if doing so would result in our issuing a number of shares of common
stock in excess of the limit imposed by the rules of the Nasdaq SmallCap Market.
On January 19, 2001, 41,380 shares of Series B preferred stock were
converted by the investors into 236,422 shares of our common stock. On March 9,
2001, Atlantic and the Investors entered into stock repurchase agreement no. 2.
Pursuant to stock repurchase agreement no. 2, we repurchased from the Investors,
for an aggregate purchase price of $617,067, all 165,518 shares of our Series B
preferred stock held by the Investors. The repurchase price represented 125% of
the purchase price originally paid by the investors for the repurchased shares,
as well as an amount equal to the annual dividend on the Series B preferred
stock at a rate per share of 8% of the original purchase price. The repurchased
shares constitute all remaining outstanding shares of Series B preferred stock;
we have cancelled those shares.
Issuance to Dian Griesel
On March 8, 2001, Atlantic entered into an agreement with The Investor
Relations Group, Inc., or "IRG," under which IRG will provide Atlantic investor
relations services. Pursuant to this agreement Atlantic issued to Dian Griesel
warrants to purchase 120,000 shares of its common stock. The term of the
warrants is five years and the exercise price of the warrants is $0.875, and
they will vest in 5,000 share monthly increments over a 24 month period. In
addition, should Atlantic's stock price reach $2.50, Atlantic will grant Ms.
Griesel an additional 50,000 warrants. Should Atlantic's stock price reach
$5.00, Atlantic will grant Ms. Griesel a further 50,000 warrants. As a result,
Atlantic recorded compensation expense relating to these stock warrants of
$11,971 for the three month period ended March 31, 2001 and will remeasure the
compensation expense at the end of each reporting period until the final
measurement date is reached in 24 months.
The issuance of the warrants did not involve any public offering and
therefore was exempt from registration pursuant to Section 4(2) of the
Securities Act.
Issuance to Proteus Capital Corp.
On August 9, 2001, we entered into an agreement with Proteus Capital
Corp ("Proteus") in which Proteus agreed to assist us with raising additional
funds. Pursuant to this agreement, we granted Proteus warrants to purchase
100,000 shares of our common stock at $0.59 per share, which was the average
closing stock price for the
II-3
two weeks ending August 17, 2001. The warrants were fully vested on the date of
the agreement and were outstanding at September 30, 2001. The term of the
warrants is five years. In issuing these shares, we relied on the exemption from
registration provided by Regulation D of the Securities Act.
Issuance to BH Capital Investments, L.P. and Excalibur Limited Partnership
On August 2, 2001, Atlantic issued BH Capital Investments, L.P. and
Excalibur Limited Partnership an aggregate of 70,000 shares of Atlantic common
stock in return for their commitment to provide Atlantic with financing in
connection with an asset purchase for which Atlantic had submitted a bid.
Atlantic subsequently issued those shares, but Atlantic did not ultimately
purchase those assets. Those shares had an estimated fair value of $44,100.
The issuance of these shares of common stock did not involve any public
offering and therefore was exempt from the registration requirements of Section
5 of the Securities Act pursuant to Section 4(2) of the Securities Act.
Issuance to Certain Investors
On December 3, 2001, Atlantic issued to certain investors in a private
placement an aggregate of 8,333,318 shares of Atlantic common stock and warrants
exerciseable for a further 8,333,318 shares of Atlantic common stock. The
purchase price per share of common stock was $0.24. The term of the warrants is
five years and the per-share exercise price is $0.29.
In connection with this private placement, Atlantic issued to Joseph
Stevens on December 3, 2001, as part of their placement fee a warrant to
purchase 833,331 shares of Atlantic common stock. The term of the warrants is
five years and the per-share exercise price is $0.29.
The issuance of these shares of common stock did not involve any public
offering and therefore was exempt from the registration requirements of Section
5 of the Securities Act pursuant to Section 4(2) of the Securities Act.
Item 27. Exhibits.
The following documents are referenced or included in this report.
Exhibit No. Description
3.1(1) Certificate of Incorporation of Atlantic, as amended to date.
3.2(1) Bylaws of Atlantic, as amended to date.
3.3(5) Certificate of Designations of Series A Convertible Preferred
Stock.
3.4(6) Certificate of Increase of Series A Convertible Preferred Stock.
II-4
3.5(9) Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of Atlantic, filed on September 28,
2000.
3.6(9) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock of
Atlantic, filed on November 17, 2000.
3.7(10) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock of
Atlantic, filed on January 9, 2001.
3.8(10) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock of
Atlantic, filed on January 19, 2001.
4.2(1) Form of Unit certificate.
4.3(1) Specimen Common Stock certificate.
4.4(1) Form of Redeemable Warrant certificate.
4.5(1) Form of Redeemable Warrant Agreement by and between Atlantic and
Continental Stock Transfer & Trust Company.
4.6(1) Form of Underwriter's Warrant certificate.
4.7(1) Form of Underwriter's Warrant Agreement by and between Atlantic
and Joseph Stevens & Company, L.P.
4.8(1) Form of Subscription Agreement by and between Atlantic and the
Selling Stockholders.
4.9(1) Form of Bridge Note.
4.10(1) Form of Bridge Warrant.
4.11(2) Investors' Rights Agreement by and among Atlantic, Dreyfus Growth
and Value Funds, Inc. and Premier Strategic Growth Fund.
4.12(2) Common Stock Purchase Agreement by and among Atlantic, Dreyfus
Growth and Value Funds, Inc. and Premier Strategic Growth Fund.
10.2(1) Employment Agreement dated July 7, 1995, between Atlantic and Jon
D. Lindjord.
10.3(1) Employment Agreement dated September 21, 1995, between Atlantic
and Dr. Stephen R. Miller.
10.4(1) Employment Agreement dated September 21, 1995, between Atlantic
and Margaret A. Schalk.
10.5(1) Letter Agreement dated August 31, 1995, between Atlantic and Dr.
H. Lawrence Shaw.
10.6(1) Consulting Agreement dated January 1, 1994, between Atlantic and
John K. A. Prendergast.
10.8(1) Investors' Rights Agreement dated July 1995, between Atlantic,
Dr. Lindsay A. Rosenwald and VentureTek, L.P.
10.9(1) License and Assignment Agreement dated March 25, 1994, between
Optex Ophthalmologics, Inc., certain inventors and NeoMedix
Corporation, as amended.
10.10(1) License Agreement dated May 5, 1994, between Gemini Gene
Therapies, Inc. and the Cleveland Clinic Foundation.
II-5
10.11(1)+ License Agreement dated June 16, 1994, between Channel
Therapeutics, Inc., the University of Pennsylvania and certain
inventors, as amended.
10.12(1)+ License Agreement dated March 28, 1994, between Channel
Therapeutics, Inc. and Dr. Sumner Burstein.
10.13(1) Form of Financial Advisory and Consulting Agreement by and
between Atlantic and Joseph Stevens & Company, L.P.
10.14(1) Employment Agreement dated November 3, 1995, between Atlantic and
Shimshon Mizrachi.
10.15(3) Financial Advisory Agreement between Atlantic and Paramount dated
September 4, 1996 (effective date of April 15, 1996).
10.16(3) Financial agreement between Atlantic, Paramount and UI USA dated
June 23, 1996.
10.17(3) Consultancy agreement between Atlantic and Dr. Yuichi Iwaki dated
July 31, 1996.
10.18(3) 1995 stock option plan, as amended.
10.19(3) Warrant issued to an employee of Paramount Capital, LLC to
purchase 25,000 shares of Common Stock of Atlantic.
10.20(3) Warrant issued to an employee of Paramount Capital, LLC to
purchase 25,000 shares of Common Stock of Atlantic.
10.21(3) Warrant issued to an employee of Paramount Capital, LLC to
purchase 12,500 shares of Common Stock of Atlantic.
10.22(4) Letter Agreement between Atlantic and Paramount Capital, Inc.
dated February 26, 1997.
10.23(4) Agreement and Plan of Reorganization by and among Atlantic,
Channel Therapeutics, Inc. and New Channel, Inc. dated February
20, 1997.
10.24(4) Warrant issued to John Prendergast to purchase 37,500 shares of
Atlantic's Common Stock.
10.25(4) Warrant issued to Dian Griesel to purchase 24,000 shares of
Atlantic's Common Stock.
10.26(7) Amendment No. 1 to Development & License Agreement by and between
Optex and Bausch & Lomb Surgical, Inc. dated September 16, 1999.
10.27(8) Financial Advisory and Consulting Agreement by and between
Atlantic and Joseph Stevens & Company, Inc. dated January 4,
2000.
10.28(8) Warrant No. 1 issued to Joseph Stevens & Company, Inc. to
purchase 150,000 shares of Atlantic's Common Stock exercisable
January 4, 2000.
10.29(8) Warrant No. 2 issued to Joseph Stevens & Company, Inc. to
purchase 150,000 shares of Atlantic's Common Stock exercisable
January 4, 2001.
10.30(8) Warrant No. 3 issued to Joseph Stevens & Company, Inc. to
purchase 150,000 shares of Atlantic's Common Stock exercisable
January 4, 2002.
10.31(9) Preferred Stock Purchase Agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc.
II-6
10.32(9) Warrant Certificate issued May 12, 2000, by Atlantic to TeraComm
Research, Inc.
10.33(9) Stockholders Agreement dated May 12, 2000, among TeraComm
Research, Inc., the common stockholders of TeraComm, and
Atlantic.
10.34(9) Registration Rights Agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc. with respect to shares of
TeraComm preferred stock issued to Atlantic.
10.35(9) Registration Rights Agreement dated May 12, 2000, between
Atlantic and TeraComm Research, Inc. with respect to shares of
Atlantic common stock issued to TeraComm.
10.36(9) Employment Agreement dated as of April 10, 2000, between Atlantic
and A. Joseph Rudick.
10.37(9) Employment Agreement dated as of April 3, 2000, between Atlantic
and Frederic P. Zotos.
10.38(9) Employment Agreement dated as of April 10, 2000, between Atlantic
and Nicholas J. Rossettos, as amended.
10.39(9) Employment Agreement dated as of May 15, 2000, between Atlantic
and Walter Glomb.
10.40(9) Employment Agreement dated as of April 18, 2000, between Atlantic
and Kelly Harris.
10.41(10) Amendment dated as of July 18, 2000, to the Preferred Stock
Purchase Agreement dated May 12, 2000, between Atlantic and
TeraComm Research, Inc.
10.42(10) Convertible Preferred Stock and Warrants Purchase Agreement dated
September 28, 2000, among Atlantic, BH Capital Investments, L.P.
and Excalibur Limited Partnership.
10.43(10) Registration Rights Agreement dated September 28, 2000 among
Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.44(10) Escrow Agreement dated September 28, 2000 among Atlantic, BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.45(10) Form of Stock Purchase Warrants issued on September 28, 2000 to
BH Capital Investments, L.P., exercisable for shares of common
stock of Atlantic.
10.46(10) Form of Stock Purchase Warrants issued on September 28, 2000 to
Excalibur Limited Partnership, exercisable for shares of common
stock of Atlantic.
10.47(10) Amendment No. 1 dated October 31, 2000, to Convertible Preferred
Stock and Warrants Purchase Agreement dated September 28, 2000,
among Atlantic, BH Capital Investments, L.P., and Excalibur
Limited Partnership.
10.48(12) Stock Repurchase Agreement dated December 4, 2000, among
Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.49(14) Letter Agreement dated December 28, 2000, among Atlantic and BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.50(11) Amendment No. 2 dated January 9, 2001, to Convertible Preferred
Stock and Warrants Purchase Agreement dated September 28, 2000,
among Atlantic, BH Capital Investments, L.P., and Excalibur
Limited Partnership.
II-7
10.51(14) Amendment No. 1 dated January 9, 2001, to Registration Rights
Agreement dated September 28, 2000, among Atlantic and BH Capital
Investments, L.P. and Excalibur Limited Partnership.
10.52(11) Amendment No. 3 dated January 19, 2001, to Convertible Preferred
Stock and Warrants Purchase Agreement dated September 28, 2000,
among Atlantic, BH Capital Investments, L.P., and Excalibur
Limited Partnership.
10.53(14) Letter Agreement dated January 25, 2001, among Atlantic and BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.54(13) Stock Repurchase Agreement No. 2 dated March 9, 2001, among
Atlantic, BH Capital Investments, L.P., and Excalibur Limited
Partnership.
10.55(15) Common Stock Purchase Agreement dated March 16, 2001, between
Atlantic and Fusion Capital Fund II, LLC.
10.56(15) Warrant Certificate issued March 8, 2001, by Atlantic to Dian
Griesel.
10.57(16) Common Stock Purchase Agreement dated as of May 7, 2001, between
Atlantic and Fusion Capital Fund II, LLC.
10.58(16) Form of Registration Rights Agreement between Atlantic and Fusion
Capital Fund II, LLC.
10.59(17) Securities Purchase Agreement dated November 2, 2001, between
Atlantic and certain investors.
10.60(17) Placement Agreement dated November 6, 2001, between Joseph
Stevens & Company, Inc. and Atlantic.
21.1(1) Subsidiaries of Atlantic.
23.1* Consent of KPMG LLP.
23.2* Consent of Kramer Levin Naftalis & Frankel LLP (contained in the
opinion filed as Exhibit 5.1 hereto).
24.1* Power of Attorney (included on the signature page of this
Registration Statement).
- ------
+ Confidential treatment has been granted as to certain portions of these
exhibits.
* Filed herewith.
(1) Incorporated by reference to exhibits of Atlantic's Registration
Statement on Form SB-2, Registration #33-98478, as filed with the
Securities and Exchange Commission (the "SEC") on October 24, 1995 and
as amended by Amendment No. 1, Amendment No. 2, Amendment No.3,
Amendment No. 4 and Amendment No. 5, as filed with the Commission on
November 9, 1995, December 5, 1995, December 12, 1995, December 13, 1995
and December 14, 1995, respectively.
(2) Incorporated by reference to exhibits of Atlantic's Current Report on
Form 8-KSB, as filed with the SEC on August 30, 1996.
(3) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended September 30, 1996.
(4) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended March 31, 1996.
II-8
(5) Incorporated by reference to exhibits of Atlantic's Current Report on
Form 8-KSB, as filed with the SEC on June 9, 1997.
(6) Incorporated by reference to exhibits of Atlantic's Registration
Statement on Form S-3 (Registration No. 333-34379), as filed with the
Commission on August 26, 1997, and as amended by Amendment No. 1 as
filed with the SEC on August 28, 1997.
(7) Incorporated by reference to exhibits of Atlantic Form 10-QSB for the
period ended September 30, 1999.
(8) Incorporated by reference to exhibits of Atlantic's Form 10-KSB for the
year ended December 31, 1999.
(9) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended June 30, 2000.
(10) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended September 30, 2000.
(11) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
January 24, 2001.
(12) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
December 11, 2000.
(13) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
March 14, 2001.
(14) Incorporated by reference to exhibits of Atlantic's Form 10-KSB for the
year ended December 31, 2000 for the year ended December 31, 2000 filed
on April 17, 2001.
(15) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended March 31, 2001.
(16) Incorporated by reference to exhibits of Atlantic's Registration
Statement on Form SB-2 (Registration No. 333-61974), as filed with the
Commission on May 31, 2001, and as amended by Amendment No. 1 as filed
with the SEC on June 29, 2001.
(17) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
December 6, 2001.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement(or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
II-9
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that clauses (i) and (ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
such clauses is contained in periodic reports file with or furnished to
the Commission by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on February 14, 2002.
ATLANTIC TECHNOLOGY VENTURES, INC.
By: /s/ Frederic P. Zotos
------------------------------
Name: Frederic P. Zotos
Title: President and Chief Executive Officer
By: /s/ Nicholas J. Rossettos
------------------------------
Name: Nicholas J. Rossettos
Title: Treasurer, Secretary and Chief Financial
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Frederic P. Zotos his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Frederic P. Zotos President and Chief Executive Officer February 14, 2002
- ---------------------
Frederic P. Zotos
/s/ Nicholas J. Rossettos Treasurer, Secretary and Chief Financial February 14, 2002
- -------------------------
Nicholas J. Rossettos Officer
/s/ Steve H. Kanzer Director February 14, 2002
- -------------------
Steve H. Kanzer
/s/ Peter O. Kliem Director February 14, 2002
- -------------------
Peter O. Kliem
/s/ A. Joseph Rudick Director February 14, 2002
- --------------------
A. Joseph Rudick
/s/ David Tanen Director February 14, 2002
- ---------------
David Tanen
II-11
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1(1) Certificate of Incorporation of Atlantic, as amended to date.
3.2(1) Bylaws of Atlantic, as amended to date.
3.3(5) Certificate of Designations of Series A Convertible Preferred Stock.
3.4(6) Certificate of Increase of Series A Convertible Preferred Stock.
3.5(9) Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of Atlantic, filed on September 28,
2000.
3.6(9) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock of
Atlantic, filed on November 17, 2000.
3.7(10) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock of
Atlantic, filed on January 9, 2001.
3.8(10) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock of
Atlantic, filed on January 19, 2001.
4.2(1) Form of Unit certificate.
4.3(1) Specimen Common Stock certificate.
4.4(1) Form of Redeemable Warrant certificate.
4.5(1) Form of Redeemable Warrant Agreement by and between Atlantic and Continental
Stock Transfer & Trust Company.
4.6(1) Form of Underwriter's Warrant certificate.
4.7(1) Form of Underwriter's Warrant Agreement by and between Atlantic and Joseph
Stevens & Company, L.P.
4.8(1) Form of Subscription Agreement by and between Atlantic and the Selling
Stockholders.
4.9(1) Form of Bridge Note.
4.10(1) Form of Bridge Warrant.
4.11(2) Investors' Rights Agreement by and among Atlantic, Dreyfus Growth and Value
Funds, Inc. and Premier Strategic Growth Fund.
4.12(2) Common Stock Purchase Agreement by and among Atlantic, Dreyfus Growth and
Value Funds, Inc. and Premier Strategic Growth Fund.
10.2(1) Employment Agreement dated July 7, 1995, between Atlantic and Jon D. Lindjord.
10.3(1) Employment Agreement dated September 21, 1995, between Atlantic and Dr.
Stephen R. Miller.
10.4(1) Employment Agreement dated September 21, 1995, between Atlantic and Margaret
A. Schalk.
II-12
10.5(1) Letter Agreement dated August 31, 1995, between Atlantic and Dr. H. Lawrence
Shaw.
10.6(1) Consulting Agreement dated January 1, 1994, between Atlantic and John K. A.
Prendergast.
10.8(1) Investors' Rights Agreement dated July 1995, between Atlantic, Dr. Lindsay A.
Rosenwald and VentureTek, L.P.
10.9(1) License and Assignment Agreement dated March 25, 1994, between Optex
Ophthalmologics, Inc., certain inventors and NeoMedix Corporation, as amended.
10.10(1) License Agreement dated May 5, 1994, between Gemini Gene Therapies, Inc. and
the Cleveland Clinic Foundation.
10.11(1)+ License Agreement dated June 16, 1994, between Channel Therapeutics, Inc., the
University of Pennsylvania and certain inventors, as amended.
10.12(1)+ License Agreement dated March 28, 1994, between Channel Therapeutics, Inc. and
Dr. Sumner Burstein.
10.13(1) Form of Financial Advisory and Consulting Agreement by and between Atlantic
and Joseph Stevens & Company, L.P.
10.14(1) Employment Agreement dated November 3, 1995, between Atlantic and Shimshon
Mizrachi.
10.15(3) Financial Advisory Agreement between Atlantic and Paramount dated
September 4, 1996 (effective date of April 15, 1996).
10.16(3) Financial agreement between Atlantic, Paramount and UI USA dated June 23, 1996.
10.17(3) Consultancy agreement between Atlantic and Dr. Yuichi Iwaki dated July 31,
1996.
10.18(3) 1995 stock option plan, as amended.
10.19(3) Warrant issued to an employee of Paramount Capital, LLC to
purchase 25,000 shares of Common Stock of Atlantic.
10.20(3) Warrant issued to an employee of Paramount Capital, LLC to
purchase 25,000 shares of Common Stock of Atlantic.
10.21(3) Warrant issued to an employee of Paramount Capital, LLC to
purchase 12,500 shares of Common Stock of Atlantic.
10.22(4) Letter Agreement between Atlantic and Paramount Capital, Inc. dated February
26, 1997.
10.23(4) Agreement and Plan of Reorganization by and among Atlantic, Channel
Therapeutics, Inc. and New Channel, Inc. dated February 20, 1997.
10.24(4) Warrant issued to John Prendergast to purchase 37,500 shares of Atlantic's
Common Stock.
10.25(4) Warrant issued to Dian Griesel to purchase 24,000 shares of Atlantic's Common
Stock.
10.26(7) Amendment No. 1 to Development & License Agreement by and between Optex and
Bausch & Lomb Surgical, Inc. dated September 16, 1999.
10.27(8) Financial Advisory and Consulting Agreement by and between Atlantic and Joseph
Stevens & Company, Inc. dated January 4, 2000.
II-13
10.28(8) Warrant No. 1 issued to Joseph Stevens & Company, Inc. to purchase 150,000
shares of Atlantic's Common Stock exercisable January 4, 2000.
10.29(8) Warrant No. 2 issued to Joseph Stevens & Company, Inc. to purchase 150,000
shares of Atlantic's Common Stock exercisable January 4, 2001.
10.30(8) Warrant No. 3 issued to Joseph Stevens & Company, Inc. to purchase 150,000
shares of Atlantic's Common Stock exercisable January 4, 2002.
10.31(9) Preferred Stock Purchase Agreement dated May 12, 2000, between Atlantic and
TeraComm Research, Inc.
10.32(9) Warrant Certificate issued May 12, 2000, by Atlantic to TeraComm Research, Inc.
10.33(9) Stockholders Agreement dated May 12, 2000, among TeraComm Research, Inc., the
common stockholders of TeraComm, and Atlantic.
10.34(9) Registration Rights Agreement dated May 12, 2000, between Atlantic and
TeraComm Research, Inc. with respect to shares of TeraComm preferred stock
issued to Atlantic.
10.35(9) Registration Rights Agreement dated May 12, 2000, between Atlantic and
TeraComm Research, Inc. with respect to shares of Atlantic common stock issued
to TeraComm.
10.36(9) Employment Agreement dated as of April 10, 2000, between Atlantic and A.
Joseph Rudick.
10.37(9) Employment Agreement dated as of April 3, 2000, between Atlantic and Frederic
P. Zotos.
10.38(9) Employment Agreement dated as of April 10, 2000, between Atlantic and Nicholas
J. Rossettos, as amended.
10.39(9) Employment Agreement dated as of May 15, 2000, between Atlantic and Walter
Glomb.
10.40(9) Employment Agreement dated as of April 18, 2000, between Atlantic and Kelly
Harris.
10.41(10) Amendment dated as of July 18, 2000, to the Preferred Stock
Purchase Agreement dated May 12, 2000, between Atlantic and
TeraComm Research, Inc.
10.42(10) Convertible Preferred Stock and Warrants Purchase Agreement dated September
28, 2000, among Atlantic, BH Capital Investments, L.P. and Excalibur Limited
Partnership.
10.43(10) Registration Rights Agreement dated September 28, 2000 among Atlantic, BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.44(10) Escrow Agreement dated September 28, 2000 among Atlantic, BH Capital
Investments, L.P., and Excalibur Limited Partnership.
10.45(10) Form of Stock Purchase Warrants issued on September 28, 2000 to BH Capital
Investments, L.P., exercisable for shares of common stock of Atlantic.
10.46(10) Form of Stock Purchase Warrants issued on September 28, 2000 to
Excalibur Limited Partnership, exercisable for shares of common
stock of Atlantic.
10.47(10) Amendment No. 1 dated October 31, 2000, to Convertible Preferred Stock and
Warrants Purchase Agreement dated September 28, 2000, among Atlantic, BH
Capital Investments, L.P., and Excalibur Limited Partnership.
II-14
10.48(12) Stock Repurchase Agreement dated December 4, 2000, among Atlantic, BH Capital
Investments, L.P., and Excalibur Limited Partnership.
10.49(14) Letter Agreement dated December 28, 2000, among Atlantic and BH Capital
Investments, L.P., and Excalibur Limited Partnership.
10.50(11) Amendment No. 2 dated January 9, 2001, to Convertible Preferred Stock and
Warrants Purchase Agreement dated September 28, 2000, among Atlantic, BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.51(14) Amendment No. 1 dated January 9, 2001, to Registration Rights Agreement dated
September 28, 2000, among Atlantic and BH Capital Investments, L.P. and
Excalibur Limited Partnership.
10.52(11) Amendment No. 3 dated January 19, 2001, to Convertible Preferred Stock and
Warrants Purchase Agreement dated September 28, 2000, among Atlantic, BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.53(14) Letter Agreement dated January 25, 2001, among Atlantic and BH Capital
Investments, L.P., and Excalibur Limited Partnership.
10.54(13) Stock Repurchase Agreement No. 2 dated March 9, 2001, among Atlantic, BH
Capital Investments, L.P., and Excalibur Limited Partnership.
10.55(15) Common Stock Purchase Agreement dated March 16, 2001, between Atlantic and
Fusion Capital Fund II, LLC.
10.56(15) Warrant Certificate issued March 8, 2001, by Atlantic to Dian Griesel.
10.57(16) Common Stock Purchase Agreement dated as of May 7, 2001, between
Atlantic and Fusion Capital Fund II, LLC.
10.58(16) Form of Registration Rights Agreement between Atlantic and Fusion Capital Fund
II, LLC.
10.59(17) Securities Purchase Agreement dated November 2, 2001, between Atlantic and
certain investors.
10.60(17) Placement Agreement dated November 6, 2001, between Joseph Stevens & Company,
Inc. and Atlantic.
21.1(1) Subsidiaries of Atlantic.
23.1* Consent of KPMG LLP.
23.2* Consent of Kramer Levin Naftalis & Frankel LLP (contained in the opinion filed
as Exhibit 5.1 hereto).
24.1* Power of Attorney (included on the signature page of this Registration
Statement).
- ------
+ Confidential treatment has been granted as to certain portions of these
exhibits.
* Filed herewith.
(1) Incorporated by reference to exhibits of Atlantic's Registration
Statement on Form SB-2, Registration #33-98478, as filed with the
Securities and Exchange Commission (the "SEC") on October 24, 1995 and
as amended by Amendment No. 1, Amendment No. 2, Amendment No.3,
Amendment No. 4 and Amendment
II-15
No. 5, as filed with the Commission on November 9, 1995, December 5,
1995, December 12, 1995, December 13, 1995 and December 14, 1995,
respectively.
(2) Incorporated by reference to exhibits of Atlantic's Current Report on
Form 8-KSB, as filed with the SEC on August 30, 1996.
(3) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended September 30, 1996.
(4) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended March 31, 1996.
(5) Incorporated by reference to exhibits of Atlantic's Current Report on
Form 8-KSB, as filed with the SEC on June 9, 1997.
(6) Incorporated by reference to exhibits of Atlantic's Registration
Statement on Form S-3 (Registration No. 333-34379), as filed with the
Commission on August 26, 1997, and as amended by Amendment No. 1 as
filed with the SEC on August 28, 1997.
(7) Incorporated by reference to exhibits of Atlantic Form 10-QSB for the
period ended September 30, 1999.
(8) Incorporated by reference to exhibits of Atlantic's Form 10-KSB for the
year ended December 31, 1999.
(9) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended June 30, 2000.
(10) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended September 30, 2000.
(11) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
January 24, 2001.
(12) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
December 11, 2000.
(13) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
March 14, 2001.
(14) Incorporated by reference to exhibits of Atlantic's Form 10-KSB for the
year ended December 31, 2000 for the year ended December 31, 2000 filed
on April 17, 2001.
(15) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended March 31, 2001.
(16) Incorporated by reference to exhibits of Atlantic's Registration
Statement on Form SB-2 (Registration No. 333-61974), as filed with the
Commission on May 31, 2001, and as amended by Amendment No. 1 as filed
with the SEC on June 29, 2001.
(17) Incorporated by reference to exhibits of Atlantic's Form 8-K filed on
December 6, 2001.
II-16
Exhibit 5.1
KRAMER LEVIN NAFTALIS & FRANKEL LLP
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
TEL (212) 715-9100 47, Avenue Hoche
FAX (212) 715-8000 75008 Paris
France
February 14, 2002
Atlantic Technology Ventures, Inc.
350 Fifth Avenue
Suite 5507
New York, New York 10118
Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as counsel to Atlantic Technology Ventures, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing of a Registration Statement on Form SB-2 (the "Registration Statement")
with the Securities and Exchange Commission (the "Commission"), with respect to
the registration for resale under the Securities Act of 1933, as amended (the
"Act"), of 8,403,318 shares of the Company's common stock, par value $.001 per
share, issued by the Company to the selling shareholders named in the
Registration Statement (the "Shares") and 8,333,318 shares of the Company's
common stock issuable by the Company to the selling shareholders named in the
Registration Statement upon exercise of certain warrants (those shares, the
"Warrant Shares"; those warrants, the "Warrants").
In connection with the registration of the Shares and the Warrant
Shares, we have reviewed such documents and records as we have deemed necessary
to enable us to express an opinion on the matters covered hereby. In rendering
this opinion, we have (a) assumed (i) the genuineness of all signatures on all
documents examined by us, (ii) the authenticity of all documents submitted to us
as originals, and (iii) the conformity to original documents of all documents
submitted to us as photostatic or conformed copies and the authenticity of the
originals of such copies; and (b) relied (i) on certificates of public officials
and (ii) as to matters of fact, statements and certificates of officers and
representatives of the Company.
Based upon the foregoing, we are of the opinion that the Shares
have been validly issued, fully paid and non-assessable, and that the Warrant
Shares will, upon issuance in accordance with the Warrants for consideration
equal to or greater than the par value at the time of the issuance, be validly
issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. In giving the foregoing consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Kramer Levin Naftalis & Frankel LLP
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Atlantic Technology Ventures, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "EXPERTS" in the prospectus.
/s/ KPMG LLP
KPMG LLP
Short Hills, New Jersey
February 14, 2002