U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
Commission file No.0-24511
ADVANCED OPTICS ELECTRONICS, INC.
(Name of small business issuer as specified in its charter)
Nevada 88-0365136
(State of incorporation) (IRS Employer Identification No.)
8301 Washington NE, Suite 4, Albuquerque, New Mexico 87113
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (505) 797-7878
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No______
The number of issuer's shares of Common Stock outstanding as of September 30,
1998 was 14,130,000 Transitional Small Business Disclosure Format (check one):
Yes _X_ No ____
<PAGE>
Accountants' Report
Board of Directors
Advanced Optics Electronics, Inc.
We have compiled the accompanying balance sheet of Advanced Optics Electronics,
Inc. (a development stage company) as of September 30, 1998 and the related
statements of operations, changes in stockholders' equity and cash flows for the
quarter then ended and the period from May 22, 1996 (inception) through
September 30, 1998, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Neff & Company LLP
Albuquerque, New Mexico
November 12, 1998
1
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
September 30, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 351,194
Certificate of deposit 50,000
Contract receivable 144,000
Other receivables 48,665
-----------
Total current assets 593,859
-----------
PROPERTY AND EQUIPMENT
Furniture and fixtures 28,014
Computers 17,745
Technical equipment 75,573
Equipment under capital lease 100,850
Less accumulated depreciation (15,627)
-----------
Total property and equipment 206,555
-----------
OTHER ASSETS
Investment in Bio Moda, Inc. 318,280
Organizational costs, net of accumulated
amortization of $33,285 71,750
Goodwill, net of accumulated amortization
of $240 4,760
Patents, net of accumulated amortization
of $24,445 217,894
Other assets 350
-----------
Total other assets 613,034
-----------
Total assets $ 1,413,448
===========
See accompanying notes and accountants' report.
2
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 5,384
Accrued liabilities 16,072
Current portion of capital lease obligations 23,043
-----------
Total current liabilities 44,499
-----------
Long-term portion of capital lease obligations 48,474
-----------
SHAREHOLDERS' EQUITY
Common stock, authorized 25,000,000 shares,
$.001 par value, 14,130,000 shares issued
and outstanding 14,130
Additional paid-in capital 1,868,574
Deficit accumulated during the development stage (521,844)
Treasury stock, at cost (40,385)
-----------
Total shareholders' equity 1,320,475
-----------
Total liabilities and shareholders' equity $ 1,413,448
===========
3
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Quarter Ended September 30, 1998 and the
Period from May 22, 1996 (Inception)
Through September 30, 1998
5/22/96
Quarter (Inception)
Ended Through
9/30/98 9/30/98
REVENUES
Contract revenue $ -- 144,000
------------------------------
COSTS AND EXPENSES
General and administrative 130,769 526,799
Research and development 44,408 114,023
------------------------------
Total expenses 175,177 640,822
------------------------------
Operating income (loss) (175,177) (496,822)
OTHER EXPENSES
Loss on equity investment 7,622 16,910
Interest expense 2,297 8,112
-------------------------------
Total other expenses 9,919 25,022
-------------------------------
Net loss (185,096) (521,844)
-------------------------------
Loss per share $ (.013) (.063)
===============================
Weighted average shares outstanding 14,064,135 8,270,073
==============================
See accompanying notes and accountants' report.
4
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Quarter Ended September 30, 1998 and the
Period from May 22, 1996 (Inception) Through
September 30, 1998
Common Stock
---------------------------
Stated
Shares Value
Balance, May 22, 1996 -- $ --
Stock issued in public offering 4,499,290 4,499
Net loss -- --
---------------------------
Balance, December 31, 1996 4,499,290 4,499
Stock issued in public offering 2,656,213 2,656
Net loss -- --
---------------------------
Balance, December 31, 1997 7,155,503 7,155
Stock issued in public offering 4,894,777 4,895
Comprehensive income -- --
---------------------------
Balance, March 31, 1998 12,050,280 12,050
Stock issued in public offering 1,947,990 1,948
Purchase of treasury stock -- --
Comprehensive income (loss) -- --
---------------------------
Balance, June 30, 1998 13,998,270 13,998
Stock issued in public offering 131,730 132
Purchase of treasury stock -- --
Net loss -- --
---------------------------
Balance, September 30, 1998 14,130,000 $ 14,130
===========================
See accompanying notes and accountants' report.
5
<PAGE>
Equity
(Deficit)
Accumulated
Additional During the Total
Paid-In Development Treasury Shareholders'
Capital Stage Stock Equity
$ -- -- -- --
306,097 -- -- 310,596
-- -- -- (76,902)
------------------------------------------------------------------
306,097 (76,902) -- 233,694
362,345 -- -- 365,001
-- (84,690) -- (84,690)
------------------------------------------------------------------
668,442 (161,592) -- 514,005
786,105 -- -- 791,000
-- 176,465 -- 176,465
------------------------------------------------------------------
1,454,547 14,873 -- 1,481,470
112,004 -- -- 113,952
-- -- (18,552) (18,552)
-- (351,621) -- (351,621)
------------------------------------------------------------------
1,566,551 (336,748) (18,552) 1,225,249
302,023 -- -- 302,155
-- -- (21,833) (21,833)
-- (185,096) -- (185,096)
------------------------------------------------------------------
$ 1,868,574 (521,844) (40,385) 1,320,475
==================================================================
6
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Quarter Ended September 30, 1998 and the
Period from May 22, 1996 (Inception) Through
September 30, 1998
5/22/96
(Inception)
Through
9/30/98 9/30/98
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (185,096) (521,844)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization and depreciation expense 10,301 73,596
Loss on equity investment 7,622 16,910
Contract receivable -- (144,000)
Other receivables (3,500) (38,665)
Accrued liabilities 10,131 16,072
------------------------
Net cash applied to operating
activities (160,542) (597,931)
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (43,448) (121,382)
Investment in Bio Moda, Inc. -- (335,190)
Purchase of certificate of deposit (50,000) (50,000)
Increase in other assets -- (352,673)
-------------------------
Net cash applied to investing
activities (93,448) (859,245)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable -- 52,993
Debt repayment (8,400) (47,609)
Payments on capital lease obligation (29,333) (29,333)
Issuance of common stock 292,155 1,872,704
Purchase of treasury stock (21,833) (40,385)
-------------------------
Net cash provided by financing
activities 232,589 1,808,370
-------------------------
Net increase (decrease) in cash (21,401) 351,194
Cash, beginning of period 372,595 --
-------------------------
Cash, end of period $ 351,194 351,194
=========================
See accompanying notes and accountants' report.
7
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business. Advanced Optics Electronics, Inc. (the Company) is a
developmental stage technology company with its principal focus on the
development and production of large-scale flat panel displays. The Company is
currently continuing its research and development of this product. Upon
substantial completion of the research and development of the large flat panel
display, the Company plans to make the transition from a developmental stage
company to selling and producing this product. The market for the large-scale
flat panel will include, but not be limited to, cockpit displays, flat panel
computer monitors, and advertising billboards. Advanced Optics Electronics, Inc.
plans to focus on producing and selling the large-scale flat panel displays for
outdoor advertising billboards. Management believes that it will be in full
production by the end of 1998.
Cash and Cash Equivalents. Cash and cash equivalents include all cash balances
and highly liquid debt instruments with an original maturity of three months or
less. The Company's cash is deposited in financial institutions and is insured
only up to $100,000 by the Federal Deposit Insurance Corporation at each
institution. As of September 30, 1998, approximately $70,000 was not insured.
Equity Investment. The investment in Bio Moda, Inc. is accounted for using the
equity method. Under this method, income and losses reported by the investee are
recorded by the Company in its proportionate interest at the time they are
recognized by the investee. The original cost of the Bio Moda, Inc. investment
exceeded the Company's proportionate interest in Bio Moda's book value. This
difference is being amortized over a 15 year period.
Contract Receivable. Contract receivable consists of revenue recognized but not
yet billed. No allowance for uncollectible accounts has been recorded, as
management believes the contract to be fully collectible.
Revenue Recognition. Revenues are generally recognized when services are
rendered or products are delivered to customers. Long-term contracts are
accounted for using the percentage of completion method, with revenues
recognized in proportion that costs incurred bear to estimated total costs at
completion. Expected losses on such contracts, if any, are charged to income
currently. The Company has entered a contract to produce flat panel displays for
an outdoor advertising billboard. The amount of the contract is $1.7 million.
Management estimates that the contract will be completed in 1999.
8
<PAGE>
ADVANCED OPTICS ELECTRONICS,INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Other Assets. Organization costs are amortized on a straight-line basis over the
period to be benefited of five years. Patents are amortized on a straight-line
basis over the remaining estimated useful life of 15 years. Goodwill is
amortized over the period to be benefited, or 40 years, whichever is less. The
Company continually reviews other assets to assess recoverability from estimated
future net cash flows. To date, these reviews have not resulted in a reduction
of other assets.
Income Taxes. The Company accounts for its income taxes using the liability
method. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement carrying amounts and tax
basis of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse. The Company has provided a
valuation allowance to offset the benefit of any net operating loss
carryforwards or deductible temporary differences
Loss per share. Loss per share is computed on the basis of the weighted average
number of common shares outstanding during the year and did not include the
effect of potential common stock as their effect would be antidilutive. The
numerator for the computation is the net loss and the denominator is the
weighted average shares of common stock outstanding.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
9
<PAGE>
ADVANCED OPTICS ELECTRONICS,INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
NOTE 2. OTHER RECEIVABLES
Other receivables at September 30, 1998, consist of the following:
Due from Bio Moda, Inc. $ 5,000
Due from officer 9,672
Note receivable for officer, bearing interest
at 9% and due November 10, 1999 18,993
Note receivable from former shareholder bearing
interest at 8% and due in February, 1999 15,000
---------
$ 48,665
=========
The note receivable from former shareholder was issued for $10,000 in the
Company's common stock and $5,000 in cash.
NOTE 3. INVESTMENT IN BIO MODA, INC.
In April 1998 the Company increased its investment in Bio Moda, Inc. to 21.67
percent. Bio Moda, Inc. is a development stage company involved primarily in the
development of technology for the early detection of lung cancer.
Summary financial information as of September 30, 1998, was not available.
A summary of the financial data relative to Bio Moda, Inc. as of June 30, 1998
is as follows:
Assets:
Current assets $ 259,306
Other assets 23,525
---------
$ 282,831
=========
Liabilities and equity
Current liabilities $ 2,801
Notes payable to stockholders 85,147
Common stock 348,623
Deficit accumulated during the development stage (153,740)
---------
$ 282,831
=========
10
<PAGE>
ADVANCED OPTICS ELECTRONICS,INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
NOTE 3. INVESTMENT IN BIO MODA, INC. (CONTINUED)
The investment in Bio Moda, Inc. is accounted for using the equity method. A
summary of the investment is as follows:
Original cost $ 335,190
Share of net loss (6,772)
Amortization of excess of cost
over book value (10,138)
---------
Net investment $ 318,280
=========
The investment in Bio Moda, Inc. was reported at market value for the quarter
ended March 31, 1998. Concurrent with the change to the equity method for the
quarter ended June 30, 1998, the investment account was restored to its original
cost. At September 30, 1998, there is no difference between the deficit
accumulated during the development stage and the accumulated other comprehensive
income.
NOTE 4. LEASES
Capital Leases. In July, 1998, the Company entered into a capital lease
agreement for equipment valued at $100,850. The Company made a down payment of
$20,170. The remaining amount was financed on a lease with 36 monthly payments
of $2,810. Future minimum lease payments are as follows for the years ending
September 30:
1999 $ 33,720
2000 33,720
2001 22,480
---------
89,920
Less amounts representing interest (18,403)
---------
$ 71,517
=========
Operating Leases. The operating lease agreement is for rent of facilities for
the office and production facility. The lease agreement is $1,300 per month for
three years.
11
<PAGE>
ADVANCED OPTICS ELECTRONICS,INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
NOTE 5. INCOME TAXES
At September 30, 1998, the Company had deferred tax assets amounting to
approximately $190,000. The deferred tax assets consist primarily of the tax
benefit of net operating loss carryforwards and are fully offset by a valuation
allowance of the same amount.
The net change in the valuation allowance for deferred tax assets was an
increase of approximately $70,000 in the quarter ending September 30, 1998. The
net change is due primarily to the increase in net operating loss carryforwards.
At September 30, 1998, the Company had net operating loss carryforwards of
approximately $480,000 available to offset future state and federal taxable
income. These carryforwards will expire in 2016 to 2018 for federal tax purposes
and 2001 to 2003 for state tax purposes.
12
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Advanced Optics Electronics, Inc. is engaged primarily in research and
development of large scale flat panel displays. Results of the research and
development for flat panel displays will be the market and sale of stand alone
flat panel displays, focusing on the outdoor advertising market.
In addition Advanced Optics Electronics, Inc. hold a significant equity position
in the shares of a privately held biotech company by the name of BioModa, Inc.
Forward - Looking Statements
This Quarterly Report contains forward-looking statements about the business,
financial condition and prospects of the Company that reflect assumptions made
by management and management's beliefs based on information currently available
to it. The Company can give no assurance that the expectations indicated by such
forward-looking statements will be realized. If any of management's assumptions
should prove incorrect, or if any of the risks and uncertainties underlying such
expectations should materialize, the Company's actual results may differ
materially from those indicated by the forward-looking statements.
The key factors that are not with the Company's control and that may have a
direct bearing on operating results include, but are not limited to, the
Company's ability to develop new products cost-effectively; Maturation of the
domestic and international markets for large scale flat panel displays, the
inability of the Company to raise capital in the future is due to a world wide
recession causing the Company's product to be diminished, very large third party
entries into the flat panel display, the retention of the employees and general
economic conditions.
There may be other risks and circumstances that management is unable to predict.
When used in this Quarterly Report, words such as, "believes," "expects,"
"intends," "plans," "anticipates" "estimates" and similar expressions are
intended to identify forward-looking statements, although there may be certain
forward-looking statements not accompanied by such expressions. All
forward-looking statements are intended to be covered by the safe harbor created
by Section 21E of the Securities Exchange Act of 1934.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company relies upon current placement of its' securities to provide
liquidity for its development of prototype and manufacturing operations.
The Company is also anticipating to produce additional liquidity over the next
twelve months through the sale of part of its' holding in BioModa, Inc.
These sales of securities will provide adequate liquidity to meet adequate
requirements through the end of fiscal year 1999.
During the quarter ended September 30, 1998 approximately $ 65,000 was spent for
the purchase of equipment and property and product development costs for flat
panel displays. Funds for operation needs, product development and capital
expenditures were provided from the sale of securities and cash reserves.
Product development expenditures are expected to be approximately $ 150,000 in
1998.
In August 1998 Advanced Optics Electronics, Inc. entered into a lease agreement
for the financing of equipment for the development of its flat panel display
systems. The Company is required to repay the $101,000 in equal monthly payments
of the lease. Monthly payments on the lease are approximately $2,850.00. The
term of the lease is 3 years and is backed by the credit of the Company.
Management anticipates that the cash flow of securities sales and cash reserves
will be sufficient to meet capital requirements at least through the fiscal year
1998. The Company has no other significant commitments for capital expenditures
in fiscal 1998.
RESULTS OF CONTINUING OPERATIONS
Comparison of the Three-Month Periods Ended September 30, 1998 and 1997
Revenues were flat in the three month period September 30, 1998 as compares to
the same period the previous year. The Company will begin to market its
products, primarily the flat panel displays over the next several quarters.
Research development and technical costs increased approximately $ 19,600
dollars. The increase in these costs is due primarily to research and
development efforts.
General administrative costs increased $ 13,700 due to increases in salaries
related to changes in personnel and increases in professional fees.
14
<PAGE>
Comparison of the Nine-Month Periods Ended September 1998 and 1997
Revenues experienced a 98 percent increase or $ 144,000 in the nine month period
ended 1998. As compared to the same period for the previous year. The increase
was due primarily to additional allocation of revenues of the contract in place.
General and administrative costs increased approximately $29,000 due to the
expansion in personnel costs. Depreciation increased approximately $6,000 due
primarily to depreciation expense for equipment acquired under capital leases.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Not applicable
Item 2. Changes in securities - 131,730 increase in shares of common stock
Item 3. Defaults Upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information - Change in accountant
Neff & Company
7001 Prospect Place, NE
Albuquerque, NM
Item 6. Exhibits and Reports on Form 8-K Item 601 of S-B
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the company during the three month period
ending September 30, 1998
16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: December 31, 1998
ADVANCED OPTICS ELECTRONICS, INC.
BY:/s/Leslie S. Robins
-------------------------------
Leslie S. Robins
Chief Accounting Officer
(Principal Accounting Officer)
BY:/s/Leslie S. Robins
-------------------------------
Leslie S. Robins
Executive Vice President
(Principal Executive Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial infomration extracted from 3rd quarter
19QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 401,194
<SECURITIES> 318,280
<RECEIVABLES> 192,665
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 593,859
<PP&E> 206,555
<DEPRECIATION> 15,627
<TOTAL-ASSETS> 1,413,448
<CURRENT-LIABILITIES> 44,499
<BONDS> 0
0
0
<COMMON> 1,882,704
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,413,448
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 175,177
<OTHER-EXPENSES> 9,919
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,297
<INCOME-PRETAX> (185,096)
<INCOME-TAX> 0
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<EPS-PRIMARY> (.013)
<EPS-DILUTED> (.013)
</TABLE>
