U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A4
General Form for Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
American Electric Automobile Company, Inc.
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(Name of Small Business Issuer in Its Charter)
Delaware 33-0727323
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
Incorporation or Organization)
7270 Woodbine Avenue, Site 200, Markham, Ontario, CANADA L3R 4B9
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(Address of Principal Executive Offices) (ZIP Code)
(905) 947-9925
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(Issuer's Telephone Number, Including Area Code)
4190 Bonita Rd., Suite 105, Bonita, CA 91902
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(Former Address, if Changed Since Last Report)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which to be
so Registered
Each Class is to be registered
___________________________
___________________________
Securities to be Registered under Section 12(g) of the Act:
Common Stock
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PART I
American Electric Automobile Company, Inc. (the "Company") is filing this Form
10-SB/A to amend and restate our Form 10-SB/A that we previously filed on
April 21, 2000. That registration statement went effective on April 27, 2000.
On May 23, 2000, we received a letter from the Staff of the Securities &
Exchange Commission ("SEC") that made comments on, and suggested revisions to,
the April 21, 2000 filing, which the Company is incorporating herein. The
Company's April 21st filing was, and this filing is, being made on a voluntary
basis so that the Company's financial information will be equally available to
all interested parties or investors, and to meet certain listing requirements
for publicly traded securities on the OTC Electronic Bulletin Board sponsored
by the National Association of Securities Dealers (NASD). Our shares of
common stock currently appear in the National Quotation Bureau Inc.'s over-
the-counter Electronic Bulletin Board, also known as the "pink sheets." Our
trading symbol is "AEAC." However, prior to our April 21st filing, there was
no significant or long-term established public trading market for our common
stock. A regular and established market may not be maintained for our common
stock, and there can also be no assurance as to the depth or liquidity of any
market for our common stock or the prices at which holders may be able to sell
our common stock. We intend to continue to report and provide disclosure
voluntarily, and intend to file periodic reports even in the event that we may
not be required to do so under the Exchange Act. The SEC maintains an
Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC.
The address of the SEC's Internet site is: http://www.sec.gov. Additionally,
the Company maintains its own Internet site at: http://www.aeaci.com.
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Certain matters discussed in this Registration Statement on Form 10-SB/A are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because
the context of the statement will include words such as the Company
"believes," "anticipates," "expects," "estimates" or words of similar meaning.
These statements represent the Company's expectations or beliefs, including,
but not limited to, statements concerning future financial and operating
results, anticipated growth in revenues and profit margins, improvements in
management personnel, the impact of governmental regulation, the widespread
acceptance, or lack of acceptance, of alternative fuel vehicles, technological
growth and developments by our competitors, statements concerning industry
performance, the Company's operations, economic performance, financial
condition, margins and growth in sales of the Company's vehicles. For this
purpose, any statements contained in this Registration Statement that are not
statements of historical fact may be deemed to be forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control, and actual results may
differ materially depending on a variety of important factors, including
uncertainty regarding the technological improvements that may be developed by
our competition, the political process related to on-going government support
and regulation of the alternative fuel vehicle industry, the degree of public
acceptance of the alternative fuel vehicles, wide variations in the price of
gasoline, competition, volatility of stock price and those factors described
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in this and other Company filings with the Securities and Exchange Commission.
Shareholders, potential investors and other readers are urged to consider
these factors in evaluating the forward-looking statements and are cautioned
not to place undue reliance on such forward-looking statements. The forward-
looking statements included herein are only made as of the date of this report
and the Company undertakes no obligation to publicly update such forward-
looking statements to reflect subsequent events or circumstances. Any such
statements are further qualified by reference to the following cautionary
statements.
The Company's business operates, or expects to operate, in highly competitive
markets and is subject to changes in general economic conditions, competition,
customer and market preferences, government regulation, the impact of tax
regulation, foreign exchange rate fluctuations, the degree of market
acceptance of products, the fluctuating price of oil, as well as other risks
and uncertainties detailed elsewhere herein.
In this Form 10SB/A Registration Statement, the following sections, among
others, contain "forward-looking statements": "Description of Business,"
"Risk Factors"; "Business"; and "Management's Discussion and Analysis of
Financial Condition and Results of Operation." Various factors and risks (not
all of which are identifiable at this time) could cause the Company's results,
performance or achievements to differ materially from that contained in the
Company's forward-looking statements, and investors are cautioned that any
forward-looking statement contained herein or elsewhere is qualified by and
subject to the warnings and cautionary statements contained above and in the
Risk Factors section of this Prospectus.
The Company does not undertake and assumes no obligation to update any
forward-looking statement that may be made from time to time by or on behalf
of the Company.
The Company has elected to follow Alternative 3 of Form 10-SB.
ITEM 1 DESCRIPTION OF BUSINESS
A. BUSINESS DEVELOPMENT
1. The Company is a development stage company engaged in the business of
converting gasoline-powered vehicles to electric and hybrid power uses. The
Company was chartered as a Delaware corporation on May 9, 1996. On June 15,
1996 the Company acquired California Electric Automobile Co., Inc., which had
been incorporated in California on November 14, 1995, ("CEAC"). The Company
purchased all of the outstanding shares of stock of CEAC from its shareholders
in a transaction which was accounted for as a tax-free exchange. The exchange
was on the basis of one share of CEAC for ten shares of the Company. As a
result, a total of 1,050,000 shares of the Company's common stock were issued
in exchange for the 105,000 shares of stock of CEAC. Of those 1,050,000
shares, 900,000 were held in escrow pending the exercise of an option held by
CEAC to purchase the assets and business of a San Diego, California-based sole
proprietorship that was doing business as San Diego Electric Automobile
Company ("SDEAC").
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2. On October 17, 1996 the Company exercised the option that it had acquired
from CEAC to purchase the assets of SDEAC. The purchase price for the SDEAC
assets was 900,000 shares of the Company's common stock.
3. RECENT CHANGE IN CONTROL AND MANAGEMENT CHANGES. The Company experienced
a significant change in its stock ownership and its management in August and
September 2000. In a report filed on Form 8-K on September 19, 2000, the
Company reported that by Letter of Agreement dated August 23, 2000, the
Company agreed to issue 3,250,000 shares of restricted common stock to Bisell
Investments Inc.("Bisell") for a total purchase price of $275,000.00, payable
in four installments over a ninety day period following the closing. On
September 13, 2000, Bisell Investments Inc. timely paid the first installment
of $75,000.00 of the purchase price to the Company and was issued slightly
over 51% of the then-issued and outstanding shares of the Company. The shares
for which payment has yet to be made are being held in escrow and may be
released to Bisell pro rata in accordance with the payments to be made at each
stage.
On September 13, 2000, pursuant to the August 23, 2000 Letter of Agreement,
the Company accepted the resignations of Edward F. Myers, Betty N. Myers and
Gary Degano as Directors and Officers of the Company, and took the following
actions: it elected Pierre Quilliam as President and CEO and appointed him to
the Board of Directors; it elected Stephen M. Cohen as Secretary and Treasurer
and appointed him to the Board of Directors; and it appointed Denise Quilliam
to the Board of Directors. Dr. Myers remains on the board of CEAC. He has
the
right to appoint three of the five directors comprising CEAC's board of
directors for the eighteen (18) months following the closing.
B. BUSINESS OF ISSUER.
1. PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS. The Company is a
development stage company engaged in the business of converting gasoline-
powered vehicles to electric and hybrid power uses. The Company accomplishes
the conversion into an electrical vehicle ("EV") by replacing the internal
combustion engine of a standard gasoline-powered vehicle with readily
obtainable commercial electric motors that are controlled by the Company's
computerized electric drive controllers. To accomplish the
conversion of a gasoline-powered vehicle into a hybrid electric-gasoline
vehicle ("HEV") , the Company is replacing the standard internal combustion
engine with a specially modified, small gasoline or methanol powered internal
combustion engine and generator, along with the battery and electric motor of
an electric vehicle.
EVs directly produce no emissions of regulated emissions, and are thus know as
zero emission vehicles ("ZEVs"). The South Coast Air Quality Management
District, which covers all or most of the counties of Los Angeles, Orange,
Riverside and San Bernardino, California, has noted numerous advantages to
EVs, including rapid acceleration that "can beat even that of sport gas-
guzzlers," and EVs' ability to avoid the usual bi-annual smog checks that
internal-combustion engine vehicles must undergo, as EVs don't burn fuel and
thus their emissions-control systems neither degrade or fail over time.
The Company intends to serve the anticipated growing need for ZEVs in
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California and elsewhere. The California Air Resources Board ("CARB") has
mandated that 10% of each manufacturer's vehicles produced for sale in
California beginning with the 2003 model year must be ZEVs. The Company has
already successfully converted five (5) vehicles from gasoline power to an EV
and thereafter sold them, each of which was subsequently licensed by the
California Department of Motor Vehicles for use on all California roads.
The Company also intends to serve the anticipated growing need for low
emission vehicles ("LEVs") through its work to develop its hybrid electric-
gasoline vehicle ("HEV"). The automotive industry has entered into a National
Low Emission Vehicle (NLEV) program, which the Environmental Protection Agency
("EPA") promulgated as a rule and which has been agreed to by all United
States vehicle manufacturers and over forty-five states, including California.
This NLEV program requires manufacturers to sell low emission vehicles
throughout the country beginning with the 2001 model year. In order to
complete its development of an HEV, the Company will need to raise substantial
additional funds. (See Risk Factors, below.)
2.A. DISTRIBUTION AND MARKETING - DOMESTIC.
The Company conducts its business domestically through its wholly owned
subsidiary, California Electric Automobile Company ("CEAC"). Through its
sales office located in San Diego County, California, CEAC has focused on the
conversion of customer-owned vehicles from gasoline power to EVs. The Company
maintains a newly updated Internet site, or URL, at www.aeaci.com, which
contains significant information about the company and its products.
Potential customers or other interested parties can contact the Company and
will receive colorful and informative brochures. The Company's downtown
San Diego facility carries signage identifying the Company and its products,
as does the demonstration vehicle that the Company's former Chairman , drives
around town. The Company has also had modest success in attracting local
newspaper coverage of its activities. The Company is also well known in the
San Diego Electric Car Association, a large organization that holds frequent
well-publicized meetings to promote the benefits of EV ownership. San Diego
is the seventh largest city in this Country.
Based on the foregoing, the Company believes that any individual within a
reasonably close geographic proximity to the Company's facility and who owns a
gasoline-powered vehicle which they desire to have converted into an EV, would
be able to find and contact CEAC and have their vehicle converted. The
Company has sufficient experience and expertise to believe it could, in the
majority of instances, replace the gasoline engine in almost any vehicle with
readily obtainable commercial electric motors that are controlled by the
Company's proprietary computerized electric drive controllers. In the
calendar year 1998, CEAC converted one 1972 VW Beetle to an EV. In calendar
year 1999, CEAC converted one 1992 Dodge Caravan to an EV for a customer, and
converted one 1998 VW Beetle for Company use as a demonstration EV.
Currently, the Company has two converted Hyundia Accent 2000, and
has no backlog.
2.B. DISTRIBUTION AND MARKETING - INTERNATIONAL.
The Company believes that there are substantial long-term opportunities for
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its EVs in China. The Chinese government, initially through the State Science
and Technology Commission (SSTC) and now through its successor, the Ministry
of Science and Technology (MOST), has actively sought the large-scale
deployment of EVs in the country. There are several reasons for this. First,
the lack of vehicle emission regulation and monitoring has led to the major
air pollution problems in the major cities. For example, about 60% of all air
pollutants in Beijing were from vehicle emissions in 1994, and even higher
rates were found in the downtown area of Shanghai and other large cities.
Second, China has only limited oil resources, and has been a net importer
since 1994. Third, the Chinese government has designated the automotive
industry as a "pillar" industry for its 5-year development plan. And fourth,
China has developed its electric generating capacity to such an extent that
there is a substantial surplus during off-peak hours, and the charging of the
batteries of EVs is viewed as an effective approach to increase utilization of
generating capacity during these off-peak hours.
To pursue those opportunities, on February 20, 1997 the Company formalized a
joint venture arrangement with China Electric Automobile, Ltd., a Hong Kong
corporation, by forming a California corporation called American Electric
Automobile Company (ASIA), Inc.("EVASIA"). EVASIA was created as a joint
venture to promote, market and, it is hoped, sell electric automobiles in
Asia. The Company owns forty-five percent (45%) of the outstanding shares of
stock of EVASIA, and China Electric Automobile, Ltd. owns the balance. The
Chair of the Company, Edward F. Myers, who was the Chairperson of the Company
until the change of control on September 13, 2000, is the President of EVASIA.
Dr. Myers is president of EVASIA and devotes approximately 10% of
his time to the activities of EVASIA.
On February 25, 1997 EVASIA signed a contract with Guangdong Vick Wei EV Co.,
Ltd. for the joint production of electric cars in Nanhai City (Nan'ao), China.
A copy of this Agreement as translated into English is attached hereto as
Exhibit 10.1. Nan'ao had joined with Shantou City, the SSTC and the Guangtong
Provincial Government to form an Electric Vehicle Pilot Demonstration
District. The contract calls for the modification of present gasoline car
production lines to electric. The contract also calls for EVASIA to be a 30%
joint venture partner in these electric auto production lines, if and when
developed by Guandong Vick Wei EV Co. As of October 1, 2000, no such
production lines had been developed.
On June 5, 1998, EVASIA completed its first prototype electric vehicle. The
vehicle was built in the Electric Vehicle Pilot Demonstration District at the
facilities of Guandong Vick Wei EV Co. The vehicle was then tested for over a
year at the Automobile Test Center in the District, along with 16 other
vehicles from manufacturers including Toyota, General Motors and Citroen.
EVASIA's vehicle, a sports utility vehicle, successfully completed those tests
in July 1999. It has already been licensed by the Police of Shantou, who have
the authority to issue automobile licenses. The license allows the vehicle to
be used on all roads in China. However, neither the Company's passing of any
tests nor the licensing of the vehicle provides any assurance that there will
be any future revenues generated by the use or sale of any of any vehicles, or
their conversion to electric power.
The Company believes there is a possibility that its test vehicle could be
selected for further testing, and possible deployment in China into
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appropriate fleets and other large-scale applications. While the competition
is intense, and involves vehicles from the largest automotive manufacturers in
the world, the Company believes it has a possibility of having its low-cost
solution selected, as the passenger vehicles provided by Toyota and GM are
larger and more expensive than the average Chinese consumer would want or
could afford. On the other hand, the likelihood of rapid implementation of
EVs is not great due to a host of issues, including the lack of both the
necessary infrastructure (e.g., charging stations) and standards for EVs.
(See Risk Factors, below.)
In addition to the conversion of gasoline-powered vehicles to electric
vehicles for the Chinese market, the Company is also pursuing development of a
hybrid electric vehicle (HEV). HEVs combine a specially modified, small
gasoline or methanol powered internal combustion engines with the battery and
electric motor of an electric vehicle. The electric motor can recharge as the
HEV is driven, thus reducing or eliminating the need for recharging equipment
or extra stops at recharging stations, as the cars can be refueled at regular
gas station HEVs have substantially increased fuel economy when compared to
regular gasoline powered vehicles. They also produce significantly lower
levels of pollution.
On February 18, 2000, EVASIA executed an Agreement with National Electric
Vehicle Running Experiment Demonstration District Management Center (Shantou
Guangxin Enterprise Science & Technology Development Company) ("SGESTDC") to
cooperate on the conversion of two vehicles into a hybrid vehicle. Exhibit
10.2 SGESTDC agreed to provide the two vehicles for conversion and EVASIA
agreed to provide the hybrid power plan. The Agreement provides that if the
conversion project is successful, the parties intend to negotiate in good
faith with each other to develop and build a automobile conversion factory in
China. As of the date hereof, the tests have not been successfully concluded,
and there have been no negotiations with regard to the building of any
automobile conversion facility in China or elsewhere.
As of the date hereof, SGESTDC has provided two Audi gliders (vehicles with
their engines removed) for EVASIA to work on in China. The Company has
currently completed development and testing of a prototype serial hybrid
Audi at the Company's California facility in San Diego. The prototype was
installed in a model of an Audi that is virtually identical to the Audis in
China. If the prototype can meet the standards set by SGESTDC, the Company
anticipates that it will then proceed to build two vehicles in China. As of
the date hereof, the testing in Chian has not yet been completed, nor has
the Company heard whether the standards against which it is testing the
prototype, even though furnished by SGESTDC, will be the final, or even the
only standards, with which it must comply. Additionally, there is no
assurance that the Company will be able successfully to complete such work due
to causes which might include, without way of limitation, the potential lack
of funds to complete such an extensive project and political issues arising in
China.
3. STATUS OF NEWLY ANNOUNCED PRODUCT.
As previously noted, on the domestic arena the Company has heretofore focused
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on converting gasoline-powered vehicles that were owned by third parties into
EVs. On July 20, 2000, the Company announced the successful road test of a
Hyundai(r) Accent which the Company had purchased for its own account and
converted into an EV. The tests, which were completed on July 18, 2000,
involved a combination of highway and city driving designed to simulate
anticipated everyday use for the vehicle. The tests were conducted by two-
time
Indianapolis 500 winner Rodger Ward, who serves as an unpaid consultant for
the Company. As of the date hereof, there have been no sales of the Hyundai
EV, and there can be no assurances that there will be any sales in the future.
4. COMPETITION.
Beginning with the 1997 model year, the electric automobile industry saw at
least three multi-national automobile manufacturers introduce their first
production model. The California Energy Commission reported that by 1999,
nearly all of the major automobile companies - Ford, General Motors, Toyota,
Chrysler and Honda - offered at least one model of an EV. Pricing for all of
these new vehicles from the major manufacturers has not been firmly
established, but the Company believes that they will be priced at
approximately $34,000, which is just below the luxury tax point.
Additionally, if past experience continues, many of these EVs will be
available only for lease, and not sale. The Company will endeavor to counter
the competitive activities of these large manufacturers by offering
remanufactured vehicles that will sell at much lower prices ($16,000 to
$27,000). Additionally, the Company will offer a new EV vehicle - the
yundai(r) Accent referred to above -- at a rate that it believes will be
competitive with EVs from the major manufacturers. However, there can be no
assurances that the Company's strategy will be effective, or that it will be
able to compete against the large advertising and marketing budgets of the
major automobile manufacturers. Additionally, the Company's experience in
obtaining the materials necessary to convert gasoline-powered vehicles into
EVs leads it to conclude that the major manufacturers offer their new EVs,
whether for sale or lease, at prices that do not fully reflect their total
costs of production. This was confirmed by the California Air Resources Board
which, in its August 7, 2000 "ZEV Program Biennial Review" noted that
"Manufacturers are not yet able to produce a competitively priced electric
vehicle without incurring significant losses on each unit leased or sold." To
the extent that the major manufacturers are pricing their EVs for sale at
below cost levels, the Company's ability to market its EVs will be severely
impeded. The Company does not have sufficient cash or cash reserves to fund
any sales at a significant loss, or at any loss.
In addition to the major manufacturers, the California Department of Energy
has reported there are many EVs being built today by small car companies, or
by people who build them in their own garages as a hobby. Some EVs are built
from kits and made to look like gasoline roadsters or sports cars. There are
also other companies that, like American Electric Automobile Company, convert
regular cars into electric vehicles by pulling out the motor and gas tank and
replacing them with electric motors and batteries. While the Company is not
aware of all companies throughout the United States that make EVs or convert
existing gasoline-powered vehicles into EVs, it is aware of the following
companies who engage in either or both of such behaviors: Mike's Auto Care of
San Mateo, CA; Solectria of Wilmington, MA; Electro Automotive of Santa
Cruz, CA
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The Company is also in the development stage of what is known as a hybrid
electric vehicle (HEVs). A hybrid vehicle is one that runs chiefly on
electric batteries, but also has a small gas or methanol burning engine along
side the batteries to charge them and provide additional power at times of
peak power demand. Mileage estimates published by the manufacturers have
ranged as high as 72 to 80 miles per gallon for these hybrid vehicles;
however, current road tests for the Toyota Prius(r), an HEV introduced in mid-
2000, indicate that it gets only 50 miles per gallon. The Company believes
that there will be both positive and negative influences upon the business
results of the Company as the result of the development and marketing of HVs
by some of the world's larger automobile manufacturers. On the positive side,
the Company believes that the emergence of the HEVs may improve the acceptance
of EVs as the general public is exposed to more environmentally aware
advertising. On the other hand, the development and deployment of such HEVs
prior to the time that the Company has been able to do so will make any
possible future introduction of HEVs by the Company more difficult. As of May
31, 2000, one manufacturer, Honda, sold or leased 754 Insight(r) hybrid
vehicles. This compares to a total of 1264 electric vehicles sold or leased
by all manufacturers in 1999. In addition to Honda, Toyota and other major
vehicle manufacturers have also announced the impending release of HEVs.
Most of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial,
marketing and other resources than we have. These competitors may thus be
able to respond more quickly to new or emerging technologies in this field,
and to devote greater resources to the development, promotion and sale of
their products than we can. Accordingly, we may not be able to compete
successfully against these competitors.
5. SOURCE AND AVAILABILITY OF RAW MATERIALS. The Company uses electrical and
hybrid engines and motors manufactured by other companies, and then modifies
them with the Company's proprietary technological know-how. These engines,
and the assemblies necessary to incorporate them into vehicles that the
Company is converting from gasoline power, have been adequately available to
the Company, and the Company has experienced no difficulty in obtaining
adequate sources of supply. Although there can be no assurance that the
Company will continue to be able to obtain adequate sources in the future, the
Company believes that it will be able to do so.
6. MAJOR CUSTOMERS. The Company is not dependent upon any one Customer.
While due to the small current volume of sales because the Company is a
development-stage company, such that each individual sale to an individual
customer represents 10% or more of the Company's sales for the year in which
such sale occurred, the Company is not dependent upon any one individual sale
for its economic livelihood.
7. PATENTS, LICENSES, LABOR CONTRACTS. The Company is not dependent upon any
patent, trademark, license, franchise, concession, royalty agreement or labor
contract. The Company has independently developed its technology, and
maintains it as proprietary internal information. The Company currently
employs less than five (5) full-time employees who perform conversion work,
prototype development and testing. The Company has never experienced a work
stoppage, and none of its employees are currently represented by a union or
any other form of collective bargaining unit. The Company believes its
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relations with its employees are excellent.
8. NEED FOR GOVERNMENTAL APPROVAL. The Company believes that there are no
special governmental approvals that currently are necessary for it to conduct
its business. The Company's activities in converting vehicles from gasoline
power to EVs or HEVs do not result in any significant modification of a
vehicle's running gear, and thus do not require the Company to obtain
governmental waivers and approvals as would be necessary, for example, if one
were to import a car manufactured in Australia, and one had to upgrade the
vehicle to change the steering wheel from the right side to the left, change
bumper heights, and certify the engine to meet current emissions standards.
To date, all vehicles that the Company has converted have passed all
California requirements for being licensed to drive on all California roads.
The Company does anticipate, however, that if it able to secure additional
financing to expand the scope of its operations, it will likely have to comply
with certain licensing provisions of California law. Among other things, if
sales volume increases, or if the Company undertakes manufacture of its own
form of vehicle, the Company may have to comply with applicable California
licenses requirements promulgated by the California Department of Motor
Vehicles, such as obtaining a license to become a vehicle dealer and/or a
vehicle manufacturer.
9. EMPLOYEES. The Company currently has no full-time employees. CEAC, its
wholly owned subsidiary, currently has three full-time employees, who devote
themselves to the development of EVs and HEVs at our downtown San Diego sales
facility located at 1055 G Street. This facility is located on a high-traffic
street with prominent signage.
ITEM 2: MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain Forward-Looking Information
This Form 10-SB contains certain "forward-looking statements" as such term is
defined in the Private Securities Litigation Reform Act of 1995 or by the
Securities and Exchange Commission in its rules, regulations and releases.
Without limiting the generality of the foregoing, words such as "may", "will",
"expect", "believe", "anticipate", "intend", "could", "estimate" or "continue"
or the negative or other variations thereof or comparable terminology are
intended to identify forward-looking statements.
RESULTS OF OPERATIONS
The following discussion refers to the twelve-month period ended December 31,
1999, the twelve-month period ended December 31, 1998, and the twelve-month
period ended December 31, 1997, respectively.
Fiscal 1998 versus Fiscal 1997
The reduced revenues were due to the reduction in funds available to the
Company to pursue an aggressive marketing policy, which included, for the most
part, a reduction in the Company's ability to participate in environmental
shows.
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During 1998 the Company incurred $45,701 in Operating Expenses compared to
$139,809 in 1997. The decrease was mainly due to the Company's effort to
reduce reliance on consulting and other general and administrative expenses.
In 1998 the Company wrote down the value of an investment in China Electric
Automobile, Ltd. by $18,750.
The Company recorded a loss of $54,404 in 1998 or $0.0191 per common share,
compared to a loss of $142,622 in 1997 or $0.06 per share, a decrease of $0.04
per share or 66%. The decrease in the amount of the loss between 1997 and
1998 was principally due to cost-cutting efforts undertaken by the Company.
For example, general and administrative expenses were reduced from $75,618 in
1997 to $39,887 in 1998. Similarly, consulting expenses were reduced from
$51,778 in 1997 to $2,000 in 1998.
Fiscal 1999 versus Fiscal 1998
During 1999, the Company had Net Revenues of $3,500 compared to $25,047. The
1998 figure includes $10,000 deposit for a conversion completed and delivered
in 1999. If this amount had been applied to 1999, the Net Revenues would have
been $13,500 in 1999 and $15,047 in 1998. These amounts reflect the work
completed and delivered in the respective years. An additional factor which
contributed to lower sales in fiscal 1999 was the departure of the individual
from whom the Company had been purchased. This individual served as a
director of the Company until May 5, 1999, and had assisted the Company in
marketing operations, principally with his attendance at trade shows.
During 1999, the Company had Consulting Expenses of $68,750 compared to $2,000
in 1998. This reflects the value of the stock as assigned by the Company's
auditors for the stock issued to Dr. Myers for his services in managing the
Company during the year.
During 1999, the Company had $37,440 in Legal and Professional Fees compared
to $3,814 in 1998. This increase was due expenses in three principle areas.
During 1999 the company engaged a consultant to develop a new business plan
($12,500), engaged a consultant to travel to China and assist the Company with
the development of the SUV test vehicle($8,000), and accounting fees for
auditing which have increased with the additional complexity of the Company's
accounting structure ($9,000). The business plan and China project were one-
time events. In as much as the Company must now have its 10-QSB filings
reviewed, this increased level of accounting expense is expected to continue.
During 1999, the Company had $43,250 in Officer Compensation compared with
$6,570 in 1998. This increase reflects an evaluation by the auditors on the
stock that the Company issued for services performed by the Officers.
LIQUIDITY AND CAPITAL RESOURCES - THE COMPANY
The Company believes that it will be in a position to increase marketing
efforts, and thus expand revenues, as the result of a contemplated financing
through the offer and sale of the Company's securities.
On December 13, 1999 the Company approved an offering of 3,000,000 (1,000,000
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new shares) shares of the Company's common stock at $0.125 per share. The
offering was to be in accordance with Regulation D rule 504. The offering was
to accredited investors only in the states of MN, PA and TX.
The offering was accomplished during January ($42,500), February ($125,000),
March ($78,750) and April ($127,500) of 2000. The offering was sold out and
closed April 21, 2000. The company subscribed a total of $372,500. As of
April 21, 2000 the Company had received $187,250 in cash and $186,250 in
notes. Future notes are due $50,000 in May, $65,000 in June and $23,750 in
July, 2000. Notes carry interest at twelve percent per annum. As was noted
in the Company's Form 10-Q for the period ending June 30, 2000, the Company
has collected less that $25,000 of the amounts due on the notes, and is
weighing its alternatives as to further procedures it can and will take.
Expenses of the offering totaled $17,468:
Legal $ 5,614
Accounting 10,928
Transfer 300
Fed Express 126
State Filings 500
Money subscribed $373,750
Expenses (17,468)
---------
Net proceeds $356,282
_____________________________
Money Received $186,875
Expenses (17,468)
---------
Money available
prior to 4/30/00 $169,407
By Letter of Agreement dated August 23, 2000, the
Company agreed to issue 3,250,000 shares of restricted common stock to Bisell
Investments Inc. for a total purchase price of $275,000.00, payable
in four installments over a ninety day period following the closing. On
September 13, 2000, Bisell Investments Inc. timely paid the first installment
of $75,000.00 of the purchase price to the Company and was issued slightly
over 51% of the then-issued and outstanding shares of the Company. The shares
for which payment has yet to be made are being held in escrow by and may be
released to Bisell pro rata in accordance with the payments to be made at each
stage.
On March 1, 2000 the Company leased a facility in San Diego, CA of
approximately 2,500 square feet. This facility is being used for prototype
development. The facility is leased from a non-affiliate of the Company at
prevailing rates for like property. The Company has also hired three new
employees, bringing the total number of full time employees to three.
If the electric automobile being developed is successful, the Company plans to
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advertise this car for sale. If sales are successful, the Company will
consider leasing additional space for production to meet sales demand.
If the stock subscribed had been fully paid on time, the Company would have
sufficient capital for the next 12 months to develop its prototypes and do
custom conversions for customers.
If the Company decides to enter full scale production (10-25 cars per month)
the Company will need additional capital. There is no assurance that this
needed capital can be raised, or raised on terms acceptable to the Company.
RISK FACTORS
1. Limited History of Operations. The Company was organized in May of 1996
and has had limited operations to date. Therefore its operations are subject
to the risks inherent in new business enterprises. The likelihood of the
success of the Company must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection
with the start up of a new business and the competitive environment in which
the Company operates. The Company has had no significant revenues to date.
2. Insufficient Operating Revenues. Time lapse to the Company's Operational
Stage will depend upon the continued availability of investment capital to
fully fund subsequent projects. If operating revenues are insufficient to
continue the Company's operations, additional funds would have to be raised
through equity or debt financing. The Company has no commitments for any
additional debt or equity financing and there can be no assurance that any
such commitments will be obtained on favorable terms, if at all.
3. Competition. Competition in the Electric Automobile Industry may be
expected to intensify. General Motors started leasing its first Electric Auto
in December 1996. Several of the other major automobile manufacturers also
have announced that they have entered or intend to enter the market.
4. Dependence on Management. Because the Company is a new business and has
no significant operating history, it will be heavily dependent upon the
services and experiences of its officers. The loss of the service of any
officer could adversely affect the conduct of the Company's business.
5. Industry and Economic Factors. The Automobile industry in which the
Company expects to operate is subject to constant changes based upon changes
in public taste as well as the condition of the general economy. Factors
beyond the control of the Company or those on whom it intends to rely could
cause the Company to fail.
6. Control of the Company. The Officers, Directors and Principal Shareholder
Group own more than 50% of the Common Shares of the Company. Therefore, the
Control Group will either control or significantly influence a voting control
of the Company. Pursuant to the laws of Delaware, a majority of all
shareholders entitled to vote an any regularly called shareholders meeting,
may act, as a majority, without notice or meeting, giving notice to other
shareholders only after such action may have been taken. While there are some
limits upon this right of the majority, Investors should understand that
Management commands a voting majority in control of the Company.
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<PAGE>
7. Dividends. The Company has paid no dividends on its Common Shares since
its inception. The Company does not anticipate paying any dividends on its
Common Stock until and unless such profit is realized and may not pay out any
dividends thereafter.
8. Unaudited Financial Statements. The interim financial statements for the
period January 1, 2000 though June 30, 2000 are unaudited but reviewed and are
contained in the 10QSB's filed by the Company with the SEC.
9. Government Regulation. The automobile industry in general is heavily
regulated both as to crash survival and motor emissions. The Company expects
to have no problems with the latter and because of the use of bodies that have
already been approved for gasoline engine use, less severe problems with the
former.
10. Potential Conflicts of Interest. The officers and directors are
associated with other firms, including others with material contractual
relationships with this Issuer, and are involved in a range of business
activities. Due to these affiliations and the fact that some officers are
expected to devote only a portion of their time to the business of the
Company, there are potential inherent conflicts of interest in their acting as
directors and as officers. Each of the officers and directors is or may
become an officer, director, controlling shareholder, partner or participant
in other entities engaged in a variety of businesses. These existing and
potential conflicts of interest are irreconcilable and could involve the
participating officers and directors in litigation brought by the Company's
shareholders or by the shareholders of other entities with which the officers
and directors are currently, or may become, affiliated. To help alleviate
this position somewhat, Management has adopted a policy of full disclosure
with respect to business transactions with any entity in which any or all of
the officers or directors are affiliated, either directly or indirectly. An
officer or director may continue any business activity in which such officer
or director engaged prior to joining the Company.
11. Going Concern. As of June 30, 2000 the company had a stockholders'
Equity of $100,254. The auditors have raised a "going concern" question on
the audit for the year ended December 31, 1999 and the quarter ended June 30,
2000.
ITEM 3: NATURE AND EXTENT OF ISSUER'S FACILITIES
Between 1996 and April 1999 the Company rented remanufacturing facilities in
Lakeside, CA from a previous officer and employee, Mr. Ron Larrea. Mr. Larrea
lost his lease on the property in the second quarter of 1999. From that time
until March of 2000, the company operated from its executive office in Bonita,
which was also the personal residence of the Company's then-Chairman, Mr.
Myers, and his wife Betty Myers. The Company was not charged any rent for
providing this service. Work on automobiles was preformed in several
professional auto garages as needed; additionally, one of the Company's
mechanics stored and/or worked on vehicles at his home garage.
On March 1, 2000, the Company leased facilities at 1055 "G" street in San
Diego, CA. for its business. The Company has a six-month lease with an option
to renew on the same terms for another six months, which it has exercised.
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<PAGE>
The property has approximately 750 square feet of industrial space under roof
and is leased from an unaffiliated party for $3,000/Mo. This space is
sufficient for the remanufacture of two automobiles simultaneously. The
property also has a large fenced concrete area of approximately 2000 square
feet sufficient for the parking and display of up to ten automobiles. The
Company deems this sufficient for its present level of operations.
Up until the Change of Control on September 13, 2000, the Company maintained
its executive offices at 4190 Bonita Road, Bonita, CA. This facility was made
available by Betty Myers, one of the Directors of the company, at no charge.
ITEM 4: SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the common stock
ownership as of August 15, 2000, of each officer, director and others known to
the Company as management or to be the beneficial owner of more than five
percent of the Company's common stock. With the sale of stock to Bisell on
September 13, 2000, and the resultant change in control, the chart below can
be used only as an historical document to show the status as of August 2000.
At such time as Bisell has fully paid for the shares and they have fully
vested, the relative securities ownership of the Company's stock will be
stated in the next Form 10-Q.
NAME AND ADDRESS SHARE PERCENTAGE
OF BENEFICIAL OWNERSHIP OWNERSHIP
OWNER
Edward F. Myers* 716,992 28.4
Chairman/Director
4190 Bonita Rd.
Bonita, CA 91902
Gary G. DeGano 72,668 2.9
President/CEO/
Director
4190 Bonita Rd.
Bonita CA 91902
Betty N. Myers* 716,992 28.4
Secretary/Director
4190 Bonita Rd.
Bonita CA 91902
Gary L. Jackson 25,334 1.0
Vice President
4190 Bonita Rd.
Bonita CA 91902
Percentages based on 2,526,584 shares outstanding on August 15, 2000.
* Betty N. Myers and Edward F. Myers are, and have been at all times relevant
hereto, husband and wife. The share ownership listed for each of them
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<PAGE>
represents the shares beneficially owned by each of them and their spouse,
collectively, as required by Item 403 of Regulation S-B. Thus, the shares
attributed to each spouse are the same shares that the other spouse is
attributing to itself, and should not be totaled together.
ITEM 5: DIRECTORS, EXECUTIVE OFFICER, PROMOTERS AND CONTROL PERSONS:
The names, ages, and respective positions of the directors and executive
officers of the Company immediately preceding the Change of Control were:
Name Age Position
Edward F. Myers 67 Chairman/CFO.
Gary G. DeGano 56 President & CEO/Director.
Betty N. Myers 62 Secretary/Director.
Gary L. Jackson 52 Vice President-Research.
Notes: 1) Edward F. Myers and Betty N. Myers are spouses.
2) Directors terms run until the end of the fiscal year, or until
their replacements are elected and qualified.
Dr. Edward F. Myers has been Chairman, and a Director of the Company since May
8, 1996 and President of California Electric Automobile Company, Inc. since
November 19, 1995. Between June 1970 to September 1991, he was president of
Extend Ventures, Inc., a public company. From March 1983 to December, 1995,
he was president of EFM Venture Group, Inc., a financial syndication firm.
Dr. Myers was a director of William Lyon College, San Diego from 1981-1985
and the Treasurer and a Trustee of Beacon College, Washington, D.C., between
1981-1983. From 1980 to 1983 he was President of Exchange Accommodation
Corporation, a company active in real estate exchanges, and was also Chairman
of the Board of Impact International, Inc. Prior to 1980 Dr. Myers was
Special Assistant to the Vice President, Cubic Corporation; Director of
Engineering, Swan Electronics, a subsidiary of Cubic Corp; President of EFM
Financial, Inc.; Director and Chairman of the Executive Committee of Microdyne
Corporation; Director of European Operations of Informatics, Inc.; Division
Manager, Computer Applications Inc.; manager of Applications research,
Stromberg-Carlson, Division of General Dynamics Corporation.
Mr. Gary G. DeGano was elected President, CEO and a Director of the Company on
August 1, 1997. Since March of 1997 he has also been President of Incremental
Data, Inc. Between 1995 and 1996 he was in charge of investor relations for
Exten Industries, Inc., a public company. From 1986 until 1994 he was
President and CEO of Sun Harbor Financial Resources Inc., whose stock was
publicly traded in the over-the-counter market, and President and CEO of Sun
Harbor Mortgage, Inc., a full service mortgage banking firm of which he was
one of the founders. Mr. DeGano has also been President of the following
corporations: American Mortgage Network, Sea Coast, Inc., Pacific Sun Escrow
Company and Sun Coast Mortgage Company.
Betty N. Myers has served as the Secretary and a Director since December 13,
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<PAGE>
1999. She also is President and a Director of EFM Venture Group, Inc., a real
estate company, as the licensed broker. She has also been President of
Exchange Accommodation Corp., an accommodating company for 1031 delayed
exchanges.
Dr. Gary L. Jackson has been Vice President of Research since December 6,
1999. Between December 5, 1996 and December 6, 1999 he was a Director of the
Company. He received his Ph.D. from the University of Arizona in 1977 in
Electrical Engineering with a Physics minor and since that time has been
employed by General Atomics, San Diego, CA. He has also contributed several
articles on electric vehicles to the Society of Automotive Engineers (SAE),
Electric Vehicle Associations of Southern California (EVAOSC) and San Diego
(EVAOSD), and has written a column, "Nuts and Volts" for the associations'
newsletters. Dr. Jackson has been active in the field of electric vehicles
for 27 years beginning with the construction of his first electric vehicle in
1969. He was a founding member and former vice-president of the local
electric vehicle chapter (EVAOSD).
The names, ages, and respective positions of the directors and executive
officers of the Company immediately subsequent to the Change of Control are:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
Pierre Quilliam 62 President/Director
Denise Quilliam 62 Director
Stephen M. Cohen 38
Secretary/Treasurer/Director
</TABLE>
Pierre Quilliam was elected President and Director of the Company on September
13, 2000. Since 1976 he has been self-employed, working in a variety of
positions in the financing and accounting arena, including general oversight
of a management consulting company. He has also worked directly with the
Canadian Government on various aspects of the Government's program to combat
desertification. Mr. Quilliam graduated from Chicago Western University with
a major in Accounting and Economics.
Denise Quilliam, who is the spouse of Pierre Quilliam, was elected a Director
of the Company on September 13, 2000. Since 1975, she has been self employed,
working at various financing and accounting positions including that of
comptroller. Mrs. Quilliam received her teacher's certificate from Ecole
Normale Marguerite Bourgeois in Montreal, Canada, in 1957.
STEPHEN M. COHEN has been Secretary, Treasurer and a Director of
the company since September 13, 2000. He attended Osgood Hall Law School in
Toronto, graduating with a Bachelor of Laws degree in 1987. He was called to
the Bar of Ontario in 1989 and has been a member of the Law Society of Upper
Canada since that time. He became a partner in the law firm of Cohen and
Associates in 1992, where he remained until 1999. From May 1999 until
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<PAGE>
May 2000, he worked as an associate of the law firm of Goldman, Sloan, Nash
and Haber in Toronto. Since May 2000, he has worked as in-house counsel for
87807 Canada Inc. and a related group of companies.
<PAGE>
ITEM 6: EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
Name & Year Salary Bonus Other Restricted Options LTIP All other
Principle ($) ($) annual stock SARs Payouts compen-
Position compen- awards ($) sation ($)
sation($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E Myers 1996 -0- -0- -0- -0- -0- -0- -0-
Chairman/ 1997 -0- -0- -0- -0- 8333 -0- -0-
Director 1998 -0- -0- -0- -0- 8333 -0- -0-
1999 -0- -0- -0- -0- 8333 -0- -0-
G DeGano 1996 -0- -0- -0- -0- -0- -0- -0-
President/ 1997 -0- -0- -0- -0- 8333 -0- -0-
CEO/Dir 1998 -0- -0- -0- -0- 8333 -0- -0-
1999 -0- -0- -0- 1200 8333 -0- -0-
B Myers 1996 -0- -0- -0- -0- -0- -0- -0-
Secretary/ 1997 -0- -0- -0- -0- -0- -0- -0-
Director 1998 -0- -0- -0- -0- -0- -0- -0-
1999 -0- -0- -0- 31,250 -0- -0- -0-
G Jackson 1996 -0- -0- -0- -0- -0- -0- -0-
Vice Pres. 1997 -0- -0- -0- -0- 8333 -0- -0-
1998 -0- -0- -0- -0- 8333 -0- -0-
1999 -0- -0- -0- 720 8333 -0- -0-
</TABLE>
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
<TABLE>
<CAPTION>
Name Number of % of Total Exercise Expiration
Securities Options/SAR of Base Date
Underlying Granted to Price
Options/SAR Employees in ($/Sh)
Granted Fiscal Year
<S> <C> <C> <C> <C>
E Myers 100,000 33.3% $0.25 5/2002
Chairman/
Director
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<PAGE>
G DeGano 100,000 33.3% $0.25 5/2002
President/
CEO/Dir
G Jackson 100,000 33.3% $0.25 5/2002
Vice Pres./
Director
</TABLE>
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
And FY-End Option/SAR Values
<TABLE>
<CAPTION>
Name Shares Value Number of Value of
Acquired Realized Unexercised Unexercised
On Exercise Securities In-the-Money
Underlying Options/SAR At FY-End
Options/SAR
At Year End
<S> <C> <C> <C> <C>
E Myers 0 0 33,333 N/A (See Note)
Chairman/
Director
G DeGano 0 0 33,333 N/A
President/
CEO/Dir
G Jackson 0 0 33,333 N/A
Vice Pres./
Director
ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 29, 1998 the Company sold 60,000 shares of common stock at $0.25 per
share to Mari Carmen Cedillo de Norby the wife of Director, Scott Norby. On
May 12, 1998 the company sold 28,000 shares of its common stock at $0.25 per
share for cash and exchanged 32,000 shares for an automobile valued at $8000
to Mari Carmen Cedillo de Norby, wife of Director Scott Norby. Mr. Norby was
a Director of the Company from June 1, 1998, until December 6, 1999. On
December 13, 1999 the Company issued 550,000 shares of the Company's common
tock to EFM Venture Group, Inc. for consulting services to the Company between
January 1, 1998 and December 13, 1999. EFM Venture Group, Inc. is controlled
by the Company's Chairman, Edward F. Myers. The Company's board valued these
shares at $0.02 per share for a total value of $11,000. These services
included work on helping to write the 15c2-11 for filing with the NASD, work
of preparation of the 10-SB for filing, assistance with work with Accountants,
auditors and Company attorneys. EFM also provided technical advice on the
design on electric car conversions.
On December 13, 1999 the Company issued 250,000 shares of its common stock to
Betty N. Myers for services to the Company between its organization in 1996
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<PAGE>
and December 13, 1999. Betty N. Myers is the wife of the Company's chairman,
Edward F. Myers. The board valued these shares at $0.02 per share for a total
value of $5,000. These services included secretarial and bookkeeping.
On December 13, 1999 the Company issued 36,000 shares of its common stock to
Gary Jackson for services to the Company. Dr. Jackson is a past Director of
the Company and presently serves as Vice President. The board valued these
shares at $0.02 per share for a total value of $720. These services included
technical advice on conversion of automobiles from gasoline to electric.
On December 13, 1999 the Company issued 60,000 shares of its common stock to
Gary G. DeGano, the Company's president, in exchange for options that Mr.
DeGano held on 250,000 shares of the Company's common stock at $0.25 per
share. The Company valued these shares at $0.02. The Board of Directors
decided to reduce the number of outstanding options to increase the company's
ability to attract additional capital.
ITEM 8: DESCRIPTION OF SECURITIES
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value of $.0001 per share. As of January 20, 2000, the Company had
outstanding 4,471,600 shares of Common Stock. There are 20,000,000 shares of
Preferred Stock authorized by the articles of incorporation. No shares of
Preferred Stock have been issued. In accordance with the company's articles f
incorporation, and the laws of the state of Delaware, preferred stock may be
issued in any number of series, the preferences for each series of which may
be determined by the company's Board of Directors.
Special meetings of the Shareholders may be called by the Officers, Directors
or upon request of holders of at least 10 percent of the outstanding voting
shares.
Holders of common Stock are entitled to one vote at any meeting of the
shareholders for each Common share they own as of the record date fixed by the
Board of Directors.
At any meeting of Shareholders, a majority of the outstanding Common Shares of
the company entitled to vote, represented in person or by proxy, constitutes a
quorum. A vote of the majority of the Common Shares represented at a meeting
will govern, even if this is substantially less than a majority of the Common
Shares outstanding.
Subject to the rights of the preferred shareholders described below, holders
of shares are entitled to receive such dividends as may be declared by the
Board of Directors out of funds legally available therefore, and upon
liquidation are entitled to participate pro rata in a distribution of assets
available for such a distribution to shareholders. There are no conversion,
preemptive or other subscription rights or privileges with respect to any
share. Reference is made to the Certificate of Incorporation and Bylaws of
the Company as well as to the applicable statutes of the State of Delaware for
a more complete description of the rights and liabilities of holders of
shares. It should be noted that the Board of Directors may amend the Bylaws
without notice to the Shareholders.
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<PAGE>
The shares of the Company do not have cumulative voting rights, which means
that the holders of more than fifty percent of the Common shares voting for
election of directors may elect all the directors if they choose to do so. In
such event, the holders of the remaining shares aggregating less than fifty
percent will not be able to elect directors.
PART II
ITEM 1 MARKET
From October 1998 the Company's common stock was traded on the OTC Bulletin
Board under the symbol "AEAM." During 1998 and the first quarter of 1999
there were no quotes.
Quarter High Bid Low Bid
2nd quarter 1999 $0.25 $0.25
3rd quarter 1999 0.3125 0.01
Starting August 1, 1999 the Company's common stock was traded under the symbol
"AEAM" by the National Quotation Bureau, LLC.
Quarter High Closing Bid Low Closing Bid
3rd quarter 1999 $0.125 $0.10
4th quarter 1999 0.10 0.10
1st quarter 2000 $1.05 $0.10
On April 5, 2000 a one for three reverse split too effect for trading.
2nd quarter 2000
April 5 to May 31, 2000 $3.00 $2.125
THE ABOVE QUOTATIONS REPRESENT PRICES BETWEEN DEALERS AND DO NOT
INCLUDE RETAIL MARKUP, MARKDOWN OR COMMISSION, AND MAY NOT
REPRESENT ACTUAL TRANSACTIONS.
On March 20, 2000, the Company's shareholders voted to consolidate the common
shares on a one for three exchange.
The Company's "new" common stock was assigned a new CUSIP number and a new
trading symbol "AEAC". Trading of the "new" shares started on April 5, 2000.
The Company had approximately 62 shareholders of record as of October 1, 2000.
"Penny Stock"
The Securities and Exchange commission has adopted rule 15g-9 which
established the definition of a "penny stock", for the purposes relevant to
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<PAGE>
the Company, as any equity security that has a market price of less than $5.00
per share or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require: (1) that a broker or dealer approve a person's
account for transactions in penny stocks: and (ii) the broker or dealer
receive from the investor a written agreement to the transaction, setting
forth the identity and quantity of the penny stock to be purchased. In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must (i) obtain financial information and investment experience
objectives of the person; and (ii) make a reasonable determination that the
transactions in penny stocks are suitable for that person and the person has
sufficient knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks. The broker or dealer
must also deliver, prior to any transaction in a penny stock, a disclosure
schedule prepared by the Commission relating to the penny stock market,
which, in highlight form, (i) sets forth the basis on which the broker or
dealer made the suitability determination; and (ii) that the broker or dealer
received a signed, written agreement from the investor prior to the
transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and the rights and
remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on
the limited market in penny stocks.
ITEM 2: LEGAL PROCEEDINGS
None
ITEM 3: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS
The Company's previous auditors, Harlen and Boettger, LLP, informed the
company in March 1999 that due to increased insurance costs, it no longer
performed audits for public companies. On March 8, 2000, the company engaged
the firm of Weinberg & Company P.A. as the company's auditors. There has been
no disagreement with the Company's accountants.
ITEM 4: RECENT SALES OF UNREGISTERED SECURITIES
Between October 21, 1996 and December 31, 1997 the Company sold 150,500 common
shares at $0.25 per share. The Company sold these shares under an exemption
from registration contained in Regulation D(504).
During 1997 the Company issued 100,000 common shares for radio time. These
shares were valued by the board of directors at $25,000. The Company also
issued 39,000 shares of common stock in exchange for outside consulting
services valued at $9,750 or $0.25 a share. The Company issued these shares
under an exemption from registration contained in Regulation D(504).
During 1998, the Company issued 32,000 restricted shares to the spouse of a
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then-Director in exchange for a 1998 VW Beetle, which the Board of Directors
valued at $8,000 based on the transferor's historical cost basis. The company
also sold that same person 28,000 shares for cash for $7,000. The company
sold these shares under an exemption from registration contained in Section
4(2) of the 1933 Securities Act as amended (non- public offering).
Between January 1, 1998 and December 31, 1998, the Company sold a total of
176,000 common shares for a total consideration of $50,001. Included within
these shares are the shares referred to in the preceding paragraph. The
Company sold these shares under exemptions from registration contained in the
securities laws, in particular Regulation D(504) and Section 4(2).
Between April 22, 1999 and November 19, 1999, the Company sold 422,200 shares
of restricted common stock at $0.125 per share. A majority of these shares
were sold to persons who were already shareholders of the Company. The
company sold these shares under an exemption from registration contained in
Section 4(2) of the 1933 Securities Act as amended (non-public offering).
In July 1999 the Company issued 100,000 shares of its common stock to David
Schuil in return for preparing a business plan for the Company. The company
issued these shares under an exemption from registration contained in Section
4(2) of the 1933 Securities Act as amended (non- public offering). These
shares were valued at $12,500.
During 1999 the Company issued 56,000 restricted common shares for services
valued by the board of directors at a total of $8,000. The Company issued
these shares under an exemption from registration contained in Section 4(2) of
the 1933 Securities Act as amended (non-public offering).
On December 13, 1999 the Company issued 550,000 shares of the Company's common
stock to EFM Venture Group, Inc. for consulting services to the Company
between January 1, 1998 and December 13, 1999. The Company issued these
shares under an exemption from registration contained in Section 4(2) of the
1933 Securities Act as amended (non-public offering). Total value was
$11,000.
On December 13, 1999 the Company issued 250,000 shares of its common stock to
Betty N. Myers for services to the Company between its organization in 1996
and December 13, 1999. The Company issued these shares under an exemption
from registration contained in Section 4(2) of the 1933 Securities Act as
amended (non-public offering). Total value was $31,250.
Services included secretarial and bookkeeping.
On December 13, 1999 the Company issued 36,000 shares of its common stock to
Gary Jackson for services to the Company. The Company issued these shares
under an exemption from registration contained in Section 4(2) of the 1933
Securities Act as amended (non-public offering). Total value was $720.
Services included technical advice on the conversion of automobiles from
gasoline to electric.
On December 13, 1999 the Company issued 60,000 shares of its common stock to
Gary G. DeGano, the Company's president, in exchange for options that Mr.
DeGano held on 250,000 shares of the Company's common stock at $0.25 per
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<PAGE>
share. The Company issued these shares under an exemption from registration
contained in Section 4(2) of the 1933 Securities Act as amended (non-public
offering).
On December 13, 1999 the Company's board of Directors approved an offering of
3,000,000 common shares at a price of $0,125 per share. The Company filed a
Form D for a 504 offering on February 15, 2000. The sales were to be made
only to accredited investors residing in the states of, PA. MN and TX. During
February and March 2000, the Company issued 690,000 shares of its common stock
for cash at $0.125 per share.
Notes:
1) All cash sales were made without underwriting discounts or commissions.
2) All values for services were established by the company's Board of
Directors.
ITEM 5: INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its shareholders for
monetary damages for breach of the fiduciary duty of care as a director,
including breaches which constitute gross negligence. However, this provision
does not eliminate or limit the liability of a director of the Company (i) for
breach of the director's duty of loyalty to the Company or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law (relating to unlawful payment of dividends or
unlawful stock repurchases or redemptions), (iv) for gaining a financial
profit of other personal advantage to which he or she was not entitled, or
(v) for breaches of a director's responsibilities under the Federal
securities laws.
The Company's by-laws provide that the Company shall indemnify its officers,
directors, employees and agents, to the extent permitted by the General
Corporation Law of Delaware.
The Company's Certificate of Incorporation and Bylaws are, in large measure,
based upon Delaware General Corporation Law Section 145, which provides that
the Company may indemnify any officer or director who was made a party to a
suit because of his position, including derivative suits, if he was acting in
good faith and in a manner he reasonably believed was in the best interest of
the Company, except, in certain circumstances, for negligence or misconduct in
the performance of his duty to the Company. If the director or officer is
successful in his suit, he is entitled to indemnification for expenses,
including attorneys' fees. Article Ten of the Company's Certificate of
Incorporation provides for indemnification of the Company's officers and
directors to the fullest extent permitted by law. Indemnification agreements
have been entered into with all officers and directors of the Company.
PART F/S
A) Audited Financial Statements for the fiscal years ended 1998 and 1999
-27-
<PAGE>
PART III
b) 2.1 Plan of Acquisition of California Electric Automobile Company,
Inc.*
3.1(i) Articles of Incorporation*
3.1(ii) By-Laws*
4.1 Instruments defining the rights of holders*
10.1 JOINT VENTURE BETWEEN GUANGDONG EV CO. LTD. AND AMERICAN
ELECTRIC
AUTOMOBILE COMPANY (ASIA). INC.
10.2 TECHICNICAL AGREEMENT FOR THE ELECTRIC STATION WAGON EV6 460
BETWEEN GUANGDONG EV CO.LTD. AND AMERICAN ELECTRIC AUTOMOBILE
COMPANY (ASIA), INC.
10.3 CONTRACT OF ELECTRIC VEHICLE COOPERATION BETWEEN
GUANGDONG EV CO.LTD. AND AMERICAN ELECTRIC AUTOMOBILE COMPANY.
(ASIA), INC.
10.4 AGREEMENT BETWEEN NATIONAL ELECTRIC VEHICLE RUNNING EXPERIMENT
DEMONSTRATION DISTRICT MANAGEMENT CENTER AND AMERICAN ELECTRIC
AUTOMOBILE COMPANY (ASIA), INC.
11.1 Computation of per share earnings 12/31/1998*
11.2 Computation of per share earnings 12/31/1999
21.1 Subsidiaries of the registrant*
* Filed by reference to a Form 10SB filed on February 23, 2000.
-28-
<PAGE>
A) Audited Financial Statements for the fiscal years ended 1998 and 1999
INDEPENDENT AUDITOR'S REPORT
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
---------
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999
PAGE 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998
PAGE 4 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIENCY) FOR THE YEARS ENDED DECEMBER 31, 1999
AND 1998
PAGE 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998
PAGES 6 - 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-29-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
American Electric Automobile Company, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of American
Electric Automobile Company, Inc. and subsidiary (a development stage company)
as of December 31, 1999 and the related consolidated statements of operations,
changes in stockholders' equity (deficiency) and cash flows for the years
ended December 31, 1999 and 1998 and for the period from June 15, 1996
(inception) to December 31, 1999. 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
audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides 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 American
Electric Automobile Company, Inc. and subsidiary (a development stage company)
as of December 31, 1999, and the results of their operations and their cash
flows for the years ended December 31, 1999 and 1998, and for the period from
June 15, 1996 (inception) to December 31, 1999 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 13 to
the consolidated financial statements, the Company is a development stage
company with continuing operating losses and a working capital deficiency of
$42,055. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans concerning this matter are
also described in Note 13. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
WEINBERG & COMPANY, P.A.
-----------------------
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 28, 2000 (except for Note 13 as to which date is September 13, 2000)
1
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<PAGE>
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 1,941
Due from related party 7,212
Inventories 15,995
--------
TOTAL CURRENT ASSETS 25,148
--------
PROPERTY & EQUIPMENT - NET 35,593
--------
OTHER ASSETS
Investments 18,750
--------
TOTAL OTHER ASSETS 18,750
--------
TOTAL ASSETS $ 79,491
------------- =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 9,910
Accounts payable - related parties 23,006
Accrued expenses 2,138
Income tax payable 4,340
Notes payable - related party 27,809
---------
TOTAL CURRENT LIABILITIES 67,203
---------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.0001 par value,
20,000,000 shares authorized,
none issued and outstanding -
Common stock, $.0001 par value,
50,000,000 shares authorized,
Common stock to be issued, $.0001 par value,
896,000 shares 90
3,575,600 shares issued and outstanding 357
Additional paid-in capital 410,113
Accumulated deficit (394,182)
---------
16,288
Less subscription receivable (4,000)
---------
TOTAL STOCKHOLDERS' DEFICIENCY 12,288
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 79,491
=========
See accompanying notes to consolidated financial statements
2
-31-
<PAGE>
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR FOR THE YEAR PERIOD FROM
ENDED ENDED JUNE 15, 1996
DECEMBER 31, DECEMBER 31, (INCEPTION) TO
1999 1998 DECEMBER 31, 1999
<S> <C> <C> <C>
NET REVENUES $ 3,500 $ 25,047 $ 64,888
COST OF REVENUES 7,352 9,657 55,313
---------- ----------- -----------------
GROSS PROFIT (LOSS) (3,852) 15,390 9,575
---------- ----------- -----------------
OPERATING EXPENSES
Consulting 68,750 2,000 122,528
Legal and professional fees 37,440 3,814 53,548
Advertising 3,065 2,854 34,527
Officers' compensation 43,250 6,570 76,965
General and administrative 22,532 30,463 85,318
---------- ----------- -----------------
TOTAL OPERATING
EXPENSES 175,037 45,701 372,886
---------- ----------- -----------------
LOSS FROM OPERATIONS (178,889) (30,311) (363,311)
---------- ----------- -----------------
OTHER EXPENSES
Interest expense 1,069 1,069 2,137
Loss on investment - 18,750 18,750
Loss of investee - 3,474 3,474
---------- ----------- -----------------
TOTAL OTHER EXPENSES 1,069 23,293 24,361
---------- ----------- -----------------
LOSS BEFORE INCOME
TAXES (179,958) (53,604) (387,672)
FEDERAL AND STATE
INCOME TAXES 1,940 800 5,450
---------- ----------- -----------------
========== =========== ==================
NET LOSS $ (181,898) $ (54,404) $ (393,122)
========== =========== ==================
Net loss per common share -
basic and diluted $ (.06) $ (.02) $ (.14)
========== =========== ==================
Weighted average shares
issued and outstanding -
basic and diluted 3,171,559 2,847,984 2,746,113
========== =========== ==================
</TABLE>
See accompanying notes to consolidated financial statements
3
-32-
<PAGE>
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM JUNE 15,1996 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK TO BE ADDITIONAL
COMMON STOCK ISSUED PAID-IN ACCUMULATED SUBSCRIPTIONS
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
------ ------ ------ ------ ------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuances of stock:
To founders for services 165,000 $ 17 - $ - $ 148 $ - $ - $ 165
To founder for cash 1,000,000 100 - - 900 - - 1,000
For investment in
China Electric 150,000 15 - - 37,485 - - 37,500
To purchase subsidiary 1,050,000 105 - - - (1,060) - (955)
For cash 40,000 4 - - 9,996 - - 10,000
Net loss, 1996 - - - - - 14,198) - (14,198)
--------- ------ ------ -------- -------- ---------- ------------- --------
BALANCE DECEMBER 31, 1996 2,405,000 241 - - 48,529 (15,258) - 33,512
Issuance of stock for
Vehicle 100,000 10 - - 24,990 - - 25,000
Issuance of stock for cash 112,000 11 - - 28,889 - - 28,900
Issuance of stock for
Services 139,000 13 - - 34,737 - - 34,750
Net loss, 1997 - - - - - (142,622) - (142,622)
--------- ------ ------ -------- -------- ---------- ------------- --------
BALANCE, DECEMBER 31, 1997 2,756,000 275 - - 137,145 (157,880) - (20,460)
Issuance of stock for
Vehicle 32,000 3 - - 7,997 - - 8,000
Issuance of stock for cash 176,000 18 - - 49,983 - - 50,001
Net loss, 1998 - - - - - (54,404) - (54,404)
--------- ------ ------ -------- -------- ---------- ------------- --------
BALANCE, DECEMBER 31, 1998 2,964,000 296 - - 195,125 (212,284) - (16,863)
Issuance of stock for cash 455,600 46 - - 56,728 - (4,000) 52,774
Issuance of stock for debt 48,000 5 - - 8,770 - - 8,775
Issuance of stock for
Services 108,000 10 896,000 90 126,400 - - 126,500
Forgiveness of debt of
related party - - - - 23,000 - - 23,000
Net loss, 1999 - - - - - (181,898) - (181,898)
------ ------ ------ -------- ---------- ----------- ------------- --------
BALANCE, DECEMBER 31, 1999 3,575,600 $ 357 896,000 $ 90 $410,023 $(394,182) $ (4,000) $12,288
------------------------- ========= ============== ======== =========== ======== =========== ========
</TABLE>
See accompanying notes to consolidated financial statements
4
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<PAGE>
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR FOR THE YEAR PERIOD FROM
ENDED ENDED JUNE 15, 1996
DECEMBER 31, DECEMBER 31, (INCEPTION) TO
1999 1998 DECEMBER 31,
1999
------------ ------------ ---------------
--
<S> <C> <C> <C>
Cash flows from
operating activities
Net loss $ (181,898) $ (54,404) $ (393,122)
Adjustments to reconcile net
loss to net cash used in
operating activities
Depreciation 7,772 7,772 21,957
Loss from investee - 3,474 3,474
Loss on investment - 18,750 18,750
Stock issued for services 126,500 - 161,416
(Increase) decrease in:
Accounts and loans receivable (1,225) (6,461) (7,686)
Inventory 16,199 (8,199) (7,995)
Payroll tax refund receivable 450 (450) -
Increase (decrease) in:
Accounts payable and
accrued expenses 9,645 (8,047) 20,877
Accounts payable
- related parties (12,282) (1,705) 60,759
Income taxes payable 1,940 750 4,340
------------ ------------ ----------------
Net cash used in operating
Activities (32,899) (48,520) (117,230)
------------ ------------ ----------------
Cash flows from
investing activities
Purchase of
California Electric - - (955)
Purchase of property
and equipment (18,688) (3,862) (22,550)
------------ ------------ ----------------
Net cash used in
investing activities (18,688) (3,862) (23,505)
------------ ------------ ----------------
Cash flows from financing
activities
Proceeds from
stock issuance 52,775 50,001 142,676
------------ ------------ ----------------
Net cash provided by
financing activities 52,775 50,001 142,676
------------ ------------ ----------------
NET INCREASE (DECREASE)
IN CASH 1,188 (2,381) 1,941
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 753 3,134 -
------------ ------------ ---------------
-
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 1,941 $ 753 $ 1,941
============ ============ =================
Cash paid during the year for:
Interest $ - $ - $
-
============ ============ =================
Income Taxes $ - $ 50 $ 50
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES FOR
1999:
During 1999 the Company issued 48,000 shares of its common stock to settle
$8,775 of accrued expenses payable to an individual (See Note 12(A)(ii)). In
addition, an individual forgave $23,000 that the Company owed him pursuant to
a settlement agreement (See Note 7).
During November 1999, the company issued 32,000 shares of its common stock for
a stock subscription receivable of $4,000.
See accompanying notes to consolidated financial statements
5
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<PAGE>
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------- ------------------------------------------
(A) Organization and Description of Business
---------------------------------------------
American Electric Automobile Company, Inc. ("AEAC") (a development stage
company), a Delaware corporation, was incorporated on May 9, 1996. On June
15, 1996, AEAC acquired all of the outstanding stock of California Electric
Automobile Co., Inc. ("CEAC"), a California corporation incorporated on
November 14, 1995 (together the "Company"). AEAC exchanged 1,050,000 shares
of its common stock, in a ratio of ten to one, for all of the outstanding
shares of CEAC. The acquisition was accounted for using the purchase method
of accounting. Under this method, the assets were recorded at their fair
market value. The excess value, $95, of the stock issued over the fair market
value of the assets acquired was written off as goodwill since it was
considered de minimis.
On October 17, 1996, CEAC purchased the net assets of San Diego Electric
Automobile Company ("SDEAC") issuing 105,000 shares of CEAC's common stock, at
which time, the Company commenced operations. On this date, the operations of
SDEAC transferred to the Company. There were no assets or liabilities
recorded or acquired as a result of this transaction.
The Company's mission is to provide environmentally sensitive, quality and
cost effective electric automotive transportation domestically with
cooperative structuring of opportunities with global partners.
The Company also has a relationship with a Chinese automobile manufacturer to
convert their present gasoline powered vehicles into electric cars and to
ultimately import these new vehicles for sale in North America (See Note 5).
(B) Principles of Consolidation
-------------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiary. All significant inter company balances and transactions have
been eliminated in consolidation
(C) Use of Estimates
--------------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reported period. Actual
results could differ from those estimates.
(D) Cash and Cash Equivalents
------------------------------
For purposes of the cash flow statements, the Company considers all highly
liquid investments with original maturities of three months or less at time of
purchase to be cash equivalents.
6
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<PAGE>
(E) Inventory
-------------
Inventory consists of vehicles held for sale, including finished goods as well
as work in process. Inventory is valued at the lower of cost or market with
cost determined under the first-in, first-out method.
(F) Property and Equipment
--------------------------
Property and equipment are stated at cost, less accumulated depreciation.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is provided using the double declining balance method over the
estimated useful lives of the assets from five to ten years.
(G) Investments
---------------
The Company accounts for investments in non-marketable equity securities in
accordance with Accounting Principles Board Opinion No. 18 ("APB 18") and
related interpretations. Under APB 18, investments in corporate joint
ventures and other common stock of less than 20% are generally accounted for
using the cost method while investments between 20% and 50% are generally
accounted for using the equity method.
Under the cost method, investments are recorded and reported at original cost
until they are partially or entirely disposed of or the original cost value
has been impaired. Under the equity method, the investment is recorded at
original cost and periodically increased (decreased) by the investor's
proportionate share of earnings (losses) of the investee and decreased by all
dividends received from the investor by the investee.
(H) Stock Options
-----------------
In accordance with Statement of Financial Accounting Standards No. 123 ("SFAS
123"), the Company has elected to account for stock options issued to
employees under Accounting Principles Board Opinion No. 25 ("APB Opinion No.
25") and related interpretations and accounts for options issued to non-
employees for services under SFAS 123 (See Note 9(C)).
(I) Concentration of Credit Risk
--------------------------------
The Company maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk or
cash and cash equivalents.
(J) Revenue Recognition
-----------------------
The Company recognizes revenue on each automobile conversion when the
completed conversion is billed and delivered to the respective customer.
7
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<PAGE>
(K) Income taxes
----------------
The Company accounts for income taxes under the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 109. "Accounting for
Income Taxes" ("Statement No.109"). Under Statement No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax basis. 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. Under Statement 109, 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.
(L) Recent Accounting Pronouncements
------------------------------------
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by statement No 137,
establishes accounting and reporting standards for derivative instruments and
related contracts and hedging activities. This statement is effective for all
fiscal quarters and fiscal years beginning after June 15, 2000. The Company
believes that its adoption of these pronouncements will not have a material
effect on the Company's financial position or results of operations.
(M) Loss Per Share
------------------
Loss per share is provided in accordance with Statement of Financial
Accounting Standard No. 128 (FAS No. 128) "Earnings Per Share". Basic loss per
share is computed by dividing earnings available to common stockholders by the
weighted average number of common shares outstanding during the period.
Diluted loss per share would reflect per share amounts that would have
resulted if dilutive potential common stock had been converted to common
stock. Due to the anti - dilutive effects of these common stock equivalents,
they were not included in the loss per share calculation. This results in the
same calculation for both basic and diluted loss per share. At December 31,
1999, there were 400,000 common stock options outstanding that could
potentially dilute future earnings per share.
(N) Reclassification
---------------------
Certain 1998 balances have been reclassified to conform to the 1999
presentation.
NOTE 2 DUE FROM RELATED PARTY
------- ----------------------
Accounts receivable - related party consists of advances made in 1999 and 1998
to AEAA for operating expenses totaling $7,212, net of equity method losses
(See Note 5) at December 31, 1999.
8
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<PAGE>
NOTE 3 INVENTORY
Inventory at December 31, 1999 consists of the following:
Finished goods - vehicle (See Note 7) $ 15,995
----------
$ 15,995
==========
NOTE 4 PROPERTY AND EQUIPMENT
------- ----------------------
Property and equipment at December 31, 1999 consists of the following:
Electronic demonstration vehicles (See Notes 7 & 8) $ 57,550
Less: accumulated depreciation (21,957)
-----------
Total property and equipment - net $ 35,593
==========
Depreciation expense was $7,772 for each of the years ended December 31, 1999
and 1998.
NOTE 5 INVESTMENTS
------- -----------
Investments at December 31, 1999 are as follows:
China Electric Automobile Company of Hong Kong, Ltd. $ 18,750
American Electric Automobile Company (ASIA), Inc. -
-----------
$ 18,750
==========
On May 18, 1996, the Company entered into an agreement with China Electric
Automobile Company of Hong Kong, Ltd. ("CEHK") in which each exchanged
approximately 5% of their outstanding common stock for the other company's
stock. The object of the relationship is the pursuit of business
opportunities and product development using the company's combined resources.
This agreement was undertaken with the intention of entering into further
business relationships as product development became more advanced. The value
of this investment was assigned based on the Company's cash offering price,
$0.25 per share, for its common stock near the date of the agreement. In
accordance with APB 18 and related interpretations (See Note 1(G)), the
investment was originally recorded at $37,500, using the cost method, and was
subsequently adjusted in 1998 to its net realizable value of $18,750. CEHK had
no material revenues or expenses through December 31, 1999.
On February 12, 1997, the Company entered into an agreement with CEHK to form
a joint venture to engage in various electric vehicle related businesses,
including design, production and trading in electric vehicles and related
parts. The joint venture, American Electric Automobile Company (Asia), Inc.
("AEAA"), a California corporation, has its common stock ownership divided
fifty-five percent to CEHK and forty-five percent to the Company. The
Company's original contribution to the joint venture was $3,000. The joint
venture agreement states that CEHK is responsible for securing AEAA a profit
generating agreement with a third party, upon which they would be entitled to
an additional five-percent of the voting stock of the Company. In accordance
with APB 18 and related interpretations (See Note 1(G)), the investment is
9
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<PAGE>
accounted for under the equity method. During 1998 the Company decreased the
value of their investment in AEAA to zero and reduced a portion of the
receivable from AEAA after accounting for their portion of the investee's loss
under the equity method. AEAA had no revenues or expenses during 1999;
therefore, no additional equity method adjustments were made to the investment
or the receivable from AEAA (See Note 2) during 1999.
During 2000, CEHK secured a contract for AEAA to produce electric vehicles in
China to be used as taxicabs.
NOTE 6 ACCRUED EXPENSES
------- ----------------
Accrued expenses at December 31, 1999 consists of the following:
Interest payable on related party note (See Note 8) $ 2,138
-----------
$ 2,138
==========
NOTE 7 ACCOUNTS PAYABLE - RELATED PARTY
------- --------------------------------
Accounts payable - related parties at December 31, 1999 are summarized as
follows:
EFM Venture Group, Inc. $ 19,206
Other directors 3,800
-----------
$ 23,006
===========
EFM Ventures Group, Inc. ("EFM") is one-third owned and operated by the
Company's chairman. The payable to EFM consists of purchases and expenses of
$9,206 paid on behalf of the Company and fees of $10,000 outstanding from a
consulting agreement (See Note 11). EFM has agreed to defer payment of these
amounts until the Company begins substantial operations and generates
sufficient cash flow, which management expects to be in the near term. The
payables to EFM are secured by a lien against two completed vehicles owned by
the Company, one of which is included in inventory and the other in property
and equipment (See Notes 3 and 4).
At December 31, 1998 the Company owed $12,415 to an officer and director of
the Company, consisting primarily of rent expense for the operating
subsidiary. The Company also incurred $3,000 in additional rent during 1999
payable to this individual. On July 23, 1999, the Company entered into a
"Settlement and Mutual Release Agreement" ("The Agreement") with the same
officer and director. The Agreement was made in order to settle a dispute
that arose with respect to the Employment Agreement the Company had with the
officer and director (See Note 12(A)(i)). The Agreement stipulated that the
officer and director place in escrow 800,000 of the 900,000 common shares that
were previously issued to him, limit his sale of the remaining shares to a
maximum of 10,000 shares in any one calendar month, submit his resignation as
an officer and director, and return all the Company's equipment, drawings,
tools etc. In addition, the Agreement canceled the non-compete obligation in
the employment agreement. In exchange, the Company would either pay the
individual $20,000 or arrange for the purchase by third parties of the common
stock placed in escrow. Subsequent to the agreement date the 560,000 shares
10
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<PAGE>
of the common stock placed in escrow was purchased by the Company's chairman
who is a principal shareholder. In addition, other directors of the Company
purchased 80,000 shares and unrelated parties purchased 160,000 shares.
Accordingly, no cash payment was made by the Company and all of the Company's
liabilities to the officer and director were considered settled pursuant to
the agreement and recorded as additional paid in capital of $23,000 from the
forgiveness of debt (consisting of $15,145 in rent and $7,585 in wages (See
Note 12(A)(i)).
NOTE 8 NOTES PAYABLE - RELATED PARTY
------- -----------------------------
(A) In January 1997, the board approved the purchase of an automobile from a
corporation, which is one-third owned by a director of the Company. The
consideration for this purchase was 100,000 shares of the Company's common
stock, valued at $0.25 per share and a note for $10,000. There is no formal
agreement between the parties and the note is secured by the automobile. The
note was originally due and payable 12 months from issuance, or January 28,
1998. As of December 31, 1999, there has been no payment on the note and
payment has been deferred until there is sufficient cash flow. The acquired
automobile was modified to an electric vehicle and is currently being used as
a demonstration vehicle (See Note 4).
(B) During 1997, a corporation, which is one-third owned by a director of
the Company, advanced the Company funds and also paid for certain expenses on
behalf of the Company. The amount totaled $17,809 and was recorded as an
accounts payable - related party at December 31, 1997. In January 1998, the
Company signed a promissory note payable to the corporation for the $17,809.
The amount is due on demand with interest of 6% beginning January 1998. No
payments were made on this note during 1999 and 1998. As of December 31,
1999, $2,138 in accrued interest on the note is included in accrued expenses
(See Note 6).
NOTE 9 STOCKHOLDERS' EQUITY
------ --------------------
(A) Preferred stock
--------------------
The Company is authorized to issue 20,000,000 shares of preferred stock with a
par value of $.0001 per share, with such designations, preferences,
limitations and relative rights as may be determined by the Board of
Directors. No preferred stock has been issued as of December 31, 1999.
(B) Common stock
-----------------
The Company is authorized to issue 50,000,000 shares of common stock with a
par value of $.0001 per share. At December 31, 1999 and 1998, there were
4,471,600 and 2,964,000 shares of common stock issued and outstanding,
respectively.
On January 1, 1999, the Company issued an offering circular pursuant to an
exemption with the United States Securities and Exchange Commission contained
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<PAGE>
in Regulation D, Rule 504. The offering called for 500,000 common shares at an
offering price of $1.00 per share with a minimum subscription of $1,000. No
shares were issued pursuant to this offering circular through the date of this
report and the offering was cancelled.
In January 18, 1999, the Board agreed to offer up to 500,000 shares of common
stock, pursuant to Section 4(2) of the Securities Act of 1933, as amended, at
a $0.125 per share offering price. No offering document was prepared and no
shares were issued under this offering.
During May to December 1999, the Company issued 455,600 shares of common stock
pursuant to Section 4(2) of the Securities Act of 1933, as amended, at $0.125
per share for total proceeds of $56,775.
On December 13, 1999, the Board agreed to offer up to 3,000,000 shares of
common stock, pursuant to section 4(2) of the Securities Act of 1933, as
amended, at $0.125 per share. No shares were issued under this offering in
1999, however, 690,000 shares have been issued through the date of this
report. In addition, on December 13, 1999 the Board authorized the issuance
of 346,000 shares of common stock to its officers for past services rendered
and 550,000 shares to a related party for past consulting services. The
shares were issued at $0.125 per share based upon the price of the concurrent
offering discussed above.
(C) Stock Options
------------------
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock options issued to employees. Accordingly, no
compensation cost has been recognized for options issued to employees as of
December 31, 1999 and 1998. Had compensation cost for the Company's stock-
based compensation been determined on the fair value method at the grant dates
for awards, consistent with Statement of Accounting Standards No 123,
"Accounting for Stock Based Compensation" (Statement No. 123) the Company's
net loss for the years ended December 31, 1999 and 1998 would have been
increased to the pro-forma amounts indicated below.
1999 1998
---- ----
Net loss As reported $ 181,898) $ (54,404)
Pro forma $ (186,328) $ (63,225)
Net loss per share As reported $ (0.06) $ (0.02)
Pro forma $ (0.06) $ (0.02)
The effect of applying Statement No. 123 is not likely to be representative of
the effects on reported net income (loss) for future years due to, among other
things, the effects of vesting.
The stock options term is five years from the grant date. Stock options
issued vest over a three-year period.
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For financial statement disclosure purposes, the fair market value of each
stock option grant is estimated on the date of grant using the minimum value
method, which did not differ from the fair market value computed using the
Black-Scholes method, in accordance with Statement No. 123 using the following
weighted-average assumptions: expected dividend yield 0%, risk-free interest
rate of 6.0%, volatility of zero and expected term of three years.
A summary of the Company's outstanding common stock options as of December 31,
1999 and changes during the year is presented below:
Weighted -
Number of Average
shares Exercise Price
---------- ---------------
Stock Options
-------------
Balance at beginning of period 660,000 $ 0.25
Granted - -
Exercised - -
Forfeited 260,000 0.25
---------- ---------------
Balance at end of period 400,000 $ 0.25
========== ===============
Options exercisable at end of period 400,000 $ 0.25
========== ===============
Weighted average fair value of options
granted during the period $ -
The following table summarizes information about options outstanding at
December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options exercisable
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercisable Outstanding Contractual Exercise Exercisable Exercise
Price At Year End Life Price At Year End Price
<S> <C> <C> <C> <C> <C>
$ 0.25 400,000 Years 2.27 $ 0.25 400,000 $ 0.25
</TABLE>
NOTE 10 INCOME TAXES
-------- ------------
The provision for income taxes for the years ended December 31, 1999 and 1998
consists of the minimum California franchise tax expense for CEAC of $1,940 in
1999 and $800 in 1998. Provision for income taxes is summarized as follows:
1999 1998
---- ----
Current income taxes $ 1,940 $ 800
Deferred income taxes - -
---------- ------
$ 1,940 $ 800
========== ======
The Company's tax expense differs from the "expected" tax expense (benefit)
for the years ended December 31, 1999 and 1998 (computed by applying the
applicable Federal corporate tax rate of 15% to loss before taxes) as follows:
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1999 1998
---- ----
Computed "expected" tax (benefit) $ (27,285) $ (11,850)
State income tax 1,940 800
Effect of net operating loss 27,285 11,850
---------- ----------
$ 1,940 $ 800
========== =========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1999 and 1998
are as follows:
1999 1998
---- ----
Deferred tax assets:
Net operating loss carry-forward $ 58,968 $ 31,808
---------- ----------
Total gross assets 58,968 31,808
Less valuation allowance (58,968) (31,808)
---------- ----------
Net deferred tax asset $ - $ -
========== =========
At January 1, 1999, the valuation allowance was $31,808. The net change in
the valuation allowance during the year ended December 31, 1999 was an
increase of $27,160.
As of December 31, 1999, the Company has state and federal net operating loss
carry forwards before any limitations, which expire as follows:
Year Ending December 31, State Federal
------------------------ ----------- ---------------
2001 $ 15,028 $ -
2002 142,622 -
2003 54,404 -
2004 181,898 -
2011 and thereafter through 2019 - 393,952
NOTE 11 RELATED PARTIES
-------- ---------------
In January 1997, the Company entered into a consulting agreement with a
corporation that is one-third owned by a director of the Company. The
agreement had a twelve-month term at a rate of $2,000 per month. As of
December 31, 1998, the Company owed the corporation $24,000 under this
agreement. During 1999 the Company paid $14,000 toward the amount owed. The
Company owes this corporation a total of $10,000 in consulting fees at
December 31, 1999 (See Note 7).
See Notes 2, 5, 6, 7, 8, and 12 for additional related party transactions.
14
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<PAGE>
NOTE 12 COMMITMENTS AND CONTINGENCIES
-------- -----------------------------
(A) Employment Agreements
--- --------------------
(i) The Company entered into an employment agreement with an officer and
director of the Company to provide services related to the conversion of
electric vehicles through November 1998. The Company did not make payments on
this agreement due to a lack of adequate cash flow and there was a remaining
balance owed to the individual at December 31, 1998 of $7,585. During 1999,
the payable to this officer and director was settled pursuant to a "Settlement
and Mutual Release Agreement" (See Note 7).
(ii) The Company entered into an employment agreement with an individual to
become the Company's President as of August 1, 1997. The agreement called for
payments of $1,500 per month for part-time services once the Company completed
a private placement. In addition, the agreement granted 100,000 options to
purchase the Company's common stock at $0.25 per share, and an additional
10,000 options at $0.25 per share for each month of employment. Further, the
agreement stated that within 60 days of raising $250,000 through the sale of
common stock, compensation would increase to $5,000 per month as a full time
officer and employee. The agreement also contained bonus clauses granting
additional stock options if certain criteria were met. The Company made no
cash payments on the employment agreement due to inadequate cash flow. The
total accrued balance payable to the individual at December 31, 1998 was
$8,775 for services rendered through May 1998.
On October 27, 1999, the Company entered into a "Settlement Agreement" (the
"Settlement") with the President of the Company to settle and compromise
disputed claims between the Company and the individual. The Settlement
stipulated that the Company issue 48,000 shares of its common stock valued for
financial reporting purposes at its fair market value based upon recent cash
issuances to fully pay all amounts owed to said individual at October 1, 1999.
The stock was issued in December 1999 and the liability of $8,775 was settled
at that time.
(B) Consulting Agreement
--- --------------------
In January 1999, the Company hired a consultant to prepare a professional
business plan in exchange for 100,000 shares of stock valued for financial
reporting purposes at $0.125 per share based upon the price of a concurrent
offering (see Note 9(B)). The Company recorded a consulting expense of $12,500
pursuant to SFAS 123. The business plan was completed in June 1999 and the
shares were issued to the individual in July 1999 for services rendered.
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NOTE 13 GOING CONCERN
------ -------------
The Company's financial statements for the year ended December 31, 1999 have
been prepared on a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course
of business. The Company incurred a net loss of $181,898 for the year ended
December 31, 1999 and has accumulated losses since inception of $393,122. In
addition, the Company's working capital deficiency of $42,055 at December 31,
1999 may not enable it to meet such objectives as presently structured.
The ability of the Company to continue as a going concern is dependent upon
the Company's ability to attain a satisfactory level of profitability and
obtain suitable, adequate financing. Management's plans include seeking an
equity investment as detailed in Notes 9(B) and 14(A). The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
On August 23, 2000, the Company agreed to issue 3,250,000 shares of restricted
common stock to an investor for a total purchase price of $275,000, payable in
four installments over a ninety day period following the closing. On
September 13, 2000, the Company received a payment of $75,000, and the Company
issued approximately 51% of the then issued and outstanding shares of the
Company. The shares for which payment has yet to be made are being held in
escrow by the investor's attorney, and may be released to the investor pro
rata in accordance with the payments to be made at each stage.
NOTE 14 SUBSEQUENT EVENTS
------- -----------------
(A) Stock Issuances
--- ----------------
During February and March 2000, the Company issued 690,000 shares of its
common stock for cash at $0.125 per share pursuant to an offering under
Section 4(2) of the Securities Act of 1933, as amended (See Note 9(B)).
(B) Operating Lease
--- ---------------
During February 2000, the Company entered into a lease agreement commencing
March 1, 2000 and terminating August 31, 2000 at $3,000 per month. The lease
contains an option to renew for a six-month period at the same monthly rate.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Company has duly caused this disclosure statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN ELECTRIC AUTOMOBILE COMPANY, INC.
Dated: 10/26/2000
PIERRE QUILLIAM
---------------
PIERRE QUILLIAM
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