U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998 Commission file No. 0-24511
ADVANCED OPTICS ELECTRONIC, INC.
(Name of small business issuer in its charter)
NEVADA 88-0365136
(State of incorporation) (IRS Employer Identification No.)
8301 Washington NE, Suite 5, Albuquerque, New Mexico 87113
(Address of principal executive offices including zip code)
Issuer's telephone number, including area code: (505) 797-7878
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.001 par value
(Title of class)
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 __
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. _X_
The issuer's revenues for its most recent fiscal year were $178,200.
The aggregate market value of the voting stock held by non-affiliates of the
issuer on December 31, 1998 based upon the average bid and asked prices of such
stock on that date was $1,706.703. The number of issuer's shares of Common Stock
outstanding as of December 31, 1998 was 20,728,578.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Advanced Optics Electronics, Inc. (ADOT-NASDAQ BB) is a technology company based
in Albuquerque, New Mexico. Its primary focus is the development, production and
sales of its novel and innovative electronic flat panel displays. The company
maintains an R&D facility and manufacturing plant, and is engaged in building
large-scale flat panel displays utilizing its patented technology.
The Company was organized as a Nevada corporation on May 22, 1996. On November
7, 1996, the Company acquired the business and patents of PLZTech, a company
involved in the development of flat panel displays.
The Company's principal offices are located at 8301 Washington NE, Suite 5,
Albuquerque, New Mexico 87113, and its telephone number is (505) 797-7878.
Products
Advanced Optics Electronics, Inc. management has concentrated its efforts in
developing its proprietary Spatial Light Modulator (SLM) flat panel display at
the Company's facilities.
The SLM light valve works the same as a water valve controlling the water flow
in a water pipe. Here the valve is controlled electronically; the valve will
respond to an electrical input and will modulate the light passing through the
valve. By reducing the valve size (.001 inch square) and placing them in a
matrix, an SLM is formed.
The major advantages of the SLM flat panel displays are viewing quality,
affordability, customer system integrity, and remote change in seconds to reduce
advertising site maintenance.
The primary initial product, which will be marketed to users of Outdoor
Advertising Billboards, is a large-scale electronic flat panel display. The
development of AOE's product represents the first time that such display
technology is available for Outdoor Advertising Billboards.
The Company's product has benefits over traditional billboards of providing
dynamic, eye-catching ads and rapid change of image to provide for multiple
advertisers during a 24-hour period. The ability to change images from a remote
location will provide advertisers with immediate access to billboard markets.
The AOE billboard display will provide an image 13' X 36' which is approximately
the same size as existing billboards.
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The major advantages of the Advanced Optics Electronics, Inc. flat panel
displays are better viewing quality, affordability, customer system integrity,
and remote change in seconds to reduce advertising site maintenance. They are
also inexpensive to produce relative to alternative systems.
In addition, none of these technologies can be scaled (driven larger or smaller)
as well as can the Advanced Optics Electronics, Inc. solution.
Marketing
After researching various markets including laptop computers, HDTV flat screen
industries, and Outdoor Advertising/Billboards, management has decided to
concentrate its full efforts and attention on marketing to the Electronic
Outdoor Advertising/Billboards industry.
Management believes that, due to the Highway Beautification Act, the number of
billboards nationwide will not increase dramatically but should remain stable.
Advertisers will place increased focus on securing and developing prime
billboard locations. The customer base for billboards is diversifying as more
advertisers are attracted to this media. Management's market penetration
analysis is based on capturing existing sites in a stable market.
It is anticipated that the company's product and marketing strategy will create
a new segment of the outdoor advertising market while leveraging the underlying
growth and excellent fundamentals of the existing market.
Revenues will be derived from a combination of direct sales, owned and operated
billboards, leasing, licensing, and partnerships. Experienced professionals in
finance, marketing, and research are leading management.
Customers
Over the past ten years, there has been considerable consolidation in Outdoor
Advertising. The four leaders in the industry currently account for
approximately 48% of the billboard market. Media companies have been buying
billboard owners in order to offer packages of TV, radio and newly acquired
outdoor space to advertisers.
Initial customer contact will be through the company by directly communicating
with potential customers. Management is developing a marketing department to
follow through on each transaction and coordinate with manufacturing.
Competition
Advanced Optics Electronics, Inc. will compete against established forms of
electronic display technology. Management believes that its planned products
will be superior to these established products. To management's knowledge, no
other company is currently working on like products. Management nevertheless
believes that its products and technologies will be subject to substantial
competition as the market and technologies evolve.
CRT's and passive and active LCD's currently dominate the electronic display
market. Primarily large multi-national companies manufacture them. However,
these current industry leaders have hit
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very difficult technical hurdles in extending the performance of their displays
using current methods.
The Company will compete with the existing Billboard display techniques of hand
painted or printed and pasted signs. Recently, the trend has been toward
creating the art digitally, but these images are still printed on large sheets
and pasted up in the same manner as before World War I. Management believes
these forms of billboard presentations will only be viable in low density/low
traffic areas.
Approximately 65% of billboards were booked on 12-month contracts last year.
Long term contracts could potentially limit the access to desirable sites during
the start-up period. Management believes however, that the trend is to go to
shorter-term contracts with significant turnover.
Sources and availability of raw materials
The Company's major raw material PLZT. PLZT is ceramic material with
electro-optic properties. PLZT is readily available from several sources
including PRAXAIR and AURA.
Patents
The company's latest Patent Pending #9247157 relates to an Electro-Optic Light
Valve Array. This invention describes a high-density, high-resolution array of
light valves that can be selectively activated by low induced voltages to alter
a light beam passing through the array.
The present invention also relates to a process for manufacturing such a
high-density light valve array using semiconductor-type processing equipment and
techniques. This constitutes a significant improvement over prior techniques by
the use of semiconductor processing technology to further increase pixel density
and reduce activation voltage. It further offers the advantage of increased
light transmission (brightness) by a reduction in surface area.
Research and Development Activities
In fiscal 1998, which ended December 31, 1998, $148,123 was spent on research
and development activities. In 1997 $10,521 was spent on research and
development activities. The expenditures are primarily the result of costs
associated with the Company's efforts in developing its proprietary Spatial
Light Modulator (SLM) flat panel display.
Employees
As of December 31, 1998, the Company has approximately 10 full-time employees
and one part-time employee. The Company also contracted with other personnel and
subcontractors for various projects on an as-needed basis.
ITEM 2. DESCRIPTION OF PROPERTY
The company maintains a 5,000 square foot headquarters facility at 8301
Washington NE, Suite 5 in Albuquerque, New Mexico. This includes the executive
offices, research and development facility
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and manufacturing plant. The facility is in good condition with no material
defects or deferred maintenance. The facility is leased from unaffiliated third
parties under a lease that expires June 16, 2000. The lease may be extended at
the Company's option for an additional one-year term. Management believes that
its existing facility space currently under lease is sufficient for its current
activities and potential growth in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding, the adverse outcome of
which, in management's opinion, would have a material adverse effect on the
Company's operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended December 31, 1998.
There was a special meeting of the Board of Directors held on December 9, 1998
at which Harold Herman was elected as a new Director. The term for directors is
3 years. Leslie Robins and Michael Pete continued their term of office as
Directors after the meeting. The resignation of Francisco Urrea Jr. as a
Director was acknowledged and accepted in November 1998.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on the NASDAQ Bulletin Board Market
("NASDAQ") under the symbol "ADOT" during the first quarter of 1997. Prior to
that time the stock was not listed or traded on any organized market system. The
holders of the Company's Common Stock are entitled to one vote per share. The
Common Stock holders do not have preemptive rights to purchase, subscribe for,
or otherwise acquire any shares of Common Stock.
The table below sets forth the high and low bid prices for the Common Stock as
reported by NASDAQ. These over-the-counter market quotations may reflect
inter-dealer prices without retail mark-up, markdown or commission and may not
necessarily represent actual transactions.
Common Stock Bid
- --------------------------------------------------------------------------------
High Low
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Fiscal 1997:
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1st Quarter $2.50 $.25
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2nd Quarter .81 .19
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3rd Quarter 1.63 .29
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4th Quarter .88 .19
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Fiscal 1998:
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1st Quarter $.57 $.15
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2nd Quarter .30 .18
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3rd Quarter .23 .11
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4th Quarter .12 .04
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As of December 31, 1998 the Company estimates that there were approximately 250
shareholders directly and in street name. The Company has never paid cash
dividends on its Common Stock and does not anticipate paying cash dividends in
the near future.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS
Forward - Looking Statements
This Annual 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 within the Company's control and that may have a
direct bearing on operating results include, but are not limited to, the
acceptance by customers of the Company's
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products, the Company's ability to develop new products cost-effectively, the
ability of the Company to raise capital in the future, the development by
competitors of products using improved or alternative technology, the retention
of key employees and general economic conditions.
There may be other risks and circumstances that management is unable to predict.
When used in this Annual 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.
Liquidity and Capital Resources
The Company relies upon the current placement of its securities to provide
capital for its development of prototype units and manufacturing operations. The
Company's holding in BioModa, Inc will provide additional liquidity.
BioModa is a biomedical development company. The Company's ownership of BioModa,
as of December 31, 1998, was 21.93%. The Company holds options to increase this
position to 26.4%. No immediate family members of officers or directors of
Advanced Optics Electronics, Inc. are securities holders of BioModa.
It is believed that sales of securities will provide adequate capital resources
to meet the anticipated developmental stage requirements through the third
quarter of fiscal year 1999. At that time it is anticipated that sales of flat
panel displays will begin and contribute to operating revenues.
During the fiscal year ended December 31, 1998 $135,344 was spent for the
purchase of equipment. Product development expenditures were $148,123 in 1998.
Funds for operation needs, product development and capital expenditures were
provided from the sale of securities and cash reserves.
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. The term
of the lease is 3 years and is backed by the credit of the Company.
Results of Continuing Operations
Fiscal 1998 Compared to Fiscal 1997
Revenues increased 247.5% to $178,200 in 1998 from $72,000 in 1997. The increase
was due primarily to revenues from the contract in place.
Research development and technical costs increased to $148,123 in 1998 from
$10,521 in1997. The increase in these costs is due primarily to research and
development efforts.
General and administrative costs increased to $490,296 in 1998 from $73,421 in
1997 due to increases in salaries related to changes in personnel and increases
in professional fees.
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Depreciation increased to $60,037 in 1998 from $37,156 in 1997 due primarily to
depreciation expense for equipment acquired under capital leases.
Fiscal 1997 Compared to Fiscal 1996
The Company was started in 1996. Advanced Optics Electronics, Inc. was organized
as a Nevada Corporation on May 22, 1996. It acquired the business and patents of
PLZTech on November 7, 1996.
Revenues increased to $72,000 in 1997 from $0 in 1996. These revenues were
generated by a contract to provide large panel displays to a customer.
Research development and technical costs decreased to $10,521 as compared to
$30,474 in 1996.
General and Administrative costs increased to $73,421 from $17,969 in 1996. This
was due to increases in salaries related to changes in personnel and increases
in professional fees.
Amortization and Depreciation increased to $37,156 in 1997 from $3,578 in 1996.
This was due primarily to depreciation expense for equipment that was acquired
under capital leases.
Professional Expenses increased to $33,644 in 1997 from $21,739 in 1996. The
increase was the result of professional fees for engineering and legal services.
The total notes payable for the Company decreased from $44,571 in 1996 to
$25,455 in 1997. As a result of the reduction in notes, interest expense
decreased by $1,194 from $3,142 in 1996 to $1,948 in 1997.
Accounting Matters
The Financial Accounting Standards Board ("FASB") periodically issues accounting
standards, which may affect the financial accounting or disclosures of the
Company. There are no accounting standards that have been issued, but not yet
adopted by the Company, which would have a material effect on the financial
position or results of operation of the Company.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and notes thereto, together with the report thereon of
Neff and Company (the Company's accountants) dated March 12, 1999, included
elsewhere in this report, are incorporated by reference in answer to this Item
7.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth information, as of December 31, 1998, concerning the
Company's directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position Since
<S> <C> <C> <C>
Michael Pete 52 President, Treasurer, Director July 1994
Leslie S. Robins 60 Exec. Vice Pres., Secretary, Chairman November 1992
Dr. Roger A. Boggs 51 Sr. Vice President-Research June 1996
Dr. Garth W. Gobeli 70 Chief Scientist May 1998
Dr. Albert Goodman 73 Science Advisor April 1995
Harold C. Herman 73 Director December 1998
</TABLE>
Michael H. Pete is the President, Treasurer, and a Director since July 1994 to
the present. Developed and coordinated satellite transmission plans. Interface
with DOD regarding the flat panel initiative. From 1990 to 1994 President of
SEES New Mexico Inc. SEES New Mexico, Inc. was a company involved in developing
specialized computer programs for use by various governmental state agencies in
New Mexico. He worked with the Los Alamos and Sandia National R&D Laboratories
creating and implementing information management systems. From 1982 to 1990 he
was President of Phoenix Filtration Systems. Phoenix Filtration Systems was a
company that set up oil filtration systems used by the oil industry. From 1979
to 1981 he was a Technical Management Consultant in the Office of the Secretary,
DOE. From1977 to 1979 he worked as a Project Manager for the consulting firm
Booz, Allen and Hamilton. 1975 to 1977 Office director, Low Income
Weatherization Federal Energy Administration, Wash. D.C. Williams College, BA;
Stanford University, Business and private sector management.
Leslie S. Robins is the Executive Vice President, Secretary and Chairman of the
Board of Directors since January 1993 to the present. Supervised scientists and
technicians in completion of final research for end use in flat panel displays.
Developed cost estimates and time lines and manufacturing procedures for flat
panel display program, formulated patent strategy, raised interim financing.
From November 1989 to December 1992 Managing Partner of Coronado Group,
performing analysis of small technology companies. From May 1986 to June 1989 he
was Executive Vice President of Triton Productions Inc. From September 1978 to
October 1987 Managing Partner of Longview Mgmt.; investment managers for
individuals in the entertainment industry. University of Miami, BS; Harvard
University, MBA program.
Dr. Roger A. Boggs is Senior Vice President of Research from June 1996 to the
present. Polaroid Corporation, June 1974 to present. Project manager laser
media. Responsible for budget and delivery of laser ablation media for direct
digital color products. Dr. Boggs managed 15 material system and analytical
scientists in development of product applications. He led a group of nine
professionals in design of infrared dyes and acid providing compounds for
application in electrically imaged media. Led effort to invent and developed set
of three proprietary IR dyes for laser imaged, photographic three-color product.
Ph.D. Univ. Wisconsin.
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Dr. Garth Gobeli is Chief Scientist from April 1998 to the present. He has been
a science consultant to various technology companies. From 1993 to 1995 he was
the head of research for PLZTECH. From January 1990 to April 1992, Senior
Scientist at Foresight in Albuquerque, New Mexico. Dr. Gobeli was responsible
for the design, fabrication and testing of optics and illumination components
developed by Foresight. From 1989 to 1991, principal of Chromex , where Dr.
Gobeli designed and supervised prototype manufacture and marketing of imaging
spectrographs. Also, developed special analysis oriented package. Prepared and
received a number of SBIR grants. 1987 to 1988, Scientist at CVI Laser, Inc.
Responsible for developing and bringing to market double beam spectrometer. 1980
to 1987, Principal at Hanseatic Group in Albuquerque, NM where he developed
computer models for forward hedging of currencies, interest rates and portfolio
immunization. 1966 to 1979, Senior Scientist at Sandia National Labs Physical
Optics Group. From 1959 to1966, Physicist at Bell Telephone Labs, Murray Hill,
New Jersey. Gobeli holds several patents, DOD Secret Clearance, PhD Purdue
University, Physics.
Albert Goodman, Ph.D. is the Science Advisor of the Company from April 1995 to
the present. From 1992 to 1998, Dr. Goodman worked for Technologies Specialties
Inc. where he was the Vice President of Research. From 1985-1992, Dr. Goodman
worked for Advanced Sciences Inc. where he managed and monitored several defense
R&D programs. From 1981-1985, Dr. Goodman was science advisor for Kalatek
Products Inc. Dr. Goodman worked as an independent Science consultant and
adviser from 1977-1985.
Dr. Goodman worked for Hazeltine Electronic Corporation from 1945-1946 where he
analyzed and participated, in the redesign of radar components to be used by the
U.S. Navy. From 1946-1949, Dr. Goodman was with Los Alamos National Labs, which
carried out experiments on transmission of neutron beams by materials. From
1949-1956, Dr. Goodman worked for Sandia National Labs. Again from 1956-1960,
Dr. Goodman worked for Los Alamos National Labs with Van de Graaff accelerators.
Dr. Goodman returned to Sandia National Labs from 1960-1977, where he supervised
and carried out R&D efforts.
Dr. Goodman received his Ph.D. in Nuclear Physics in 1960 from the University of
New Mexico and Los Alamos Laboratories; He acquired an M.S. in Physics and
Mathematics from the University of New Mexico in 1955 and a B.S. in Physics from
the City University of New York in 1946.
Harold C. Herman is a Director since December 1998 to the present. Formerly a
senior partner of NYC law firm and supervisor in the Patent Department of Bell
Telephone Laboratories. He is a member of the NY and CA Bars. He is a general
partner of numerous limited real estate partnerships. Mr. Herman is an engineer
holding an advanced degree in mathematics.
ITEM 10. EXECUTIVE COMPENSATION
The following table discloses the annual and long-term compensation earned for
services rendered in all capacities by the Company's Chairman of the Board and
President and the Company's four other most highly compensated executive
officers for 1996, 1997 and 1998:
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
Awards
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Other Annual Restricted Securities LTIP All Other
Compensation Stock Underlying Payouts Compensation
(1) Award(s) Options
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Name and Year Salary Bonus ($) ($) (#) ($) ($)
Principal Position ($) ($)
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Pete,
President,
Director
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1996 -- -- -- -- -- -- --
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1997 $10,000 -- -- -- -- -- --
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1998 $30,000 -- -- -- -- -- --
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Leslie S. Robins,
Chairman of the
Board and Exec. VP
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1996 -- -- -- -- -- -- --
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1997 $18,000 -- -- -- -- -- --
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1998 $67,600 -- $2448 -- 315,000 -- --
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Dr. Garth Gobeli,
Chief Scientist
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1996 -- -- -- -- -- -- --
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1997 -- -- -- -- -- -- --
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1998 $68,700 -- -- -- -- -- --
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</TABLE>
(1) Other Annual Compensation for Leslie Robins was in the form of three months
of a car lease.
OPTION GRANTS IN FISCAL YEAR 1998
No options were granted in Fiscal Year 1998.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Name Shares Acquired Value Realized Number of Securities Underlying Value of Unexercised
on Exercise (#) ($) Unexercised Options at Fiscal In-the-Money Options at Fiscal
Year End Year End ($)
- --------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
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<S> <C> <C> <C> <C> <C> <C>
Michael Pete -- -- 153,954 -- -- --
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</TABLE>
The exercise price of Michael Pete's options is $.58 per share.
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LONG-TERM INCENTIVE PLANS
As of December 31, 1998 there is no long-term incentive plan.
Director Compensation
Non-employee directors of the Company received in 1998 a $1500 annual retainer
and $1500 for each board meeting attended.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENIFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1998 by (i) each
person or entity known to the Company to own beneficially five percent or more
of the Company's Common Stock, (ii) each of the Company's directors, (iii) the
Named Executive Officers, and (iv) all directors and executive officers of the
Company as a group.
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Name and Addresses (1) Number of Shares Percent Beneficially
Beneficially Owned Owned
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Leslie S. Robins 3,421,546 (2) 16.41%
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Grupo Nueve Ltd. 1,199,300 (3) 5.75%
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Francisco Urrea Jr. 400,000 (3) 1.92%
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Y. L. Hirsch 1,448,052 (4) 6.94%
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Harold Herman 200,000 (5) .96%
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Michael Pete 40,000 (6) (7) .19%
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All Directors and Officers 3,661,546 17.56%
as a group
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TOTAL SHARES OUTSTANDING 20,854,287 100%
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(1) The address of all persons who are executive officers or directors of the
Company is care of the Company, 8301 Washington NE, Building 5, Albuquerque New
Mexico 87113.
(2) Leslie S. Robins is a Director and Officer of the Company. Of this total
number, Marcia Robins who is the wife of Leslie Robins and Oliver Robins who is
the son of Leslie Robins, own 107,751 shares.
(3) The managing partner of Grupo Nueve Ltd. Partnership is Francisco Urrea Jr.
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(4) Y. L. Hirsch has recently filed a 13D form with the SEC.
(5) Harold Herman is a Director of the Company.
(6) Michael Pete is a Director and Officer of the Company.
(7) Michael Pete has options totaling 153,954 shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company issued 315,000 shares to Leslie S. Robins, an officer of the
Company, in exchange for a note receivable of $29,000. The note bears interest
at the rate of 7% with interest due semiannually and the principal due July of
2001.
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PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
Financial Statements and Financial Statement Schedules
Indexes to financial statements appear after the signature page to this Form
10-KSB.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Exhibits
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<S> <C> <C>
2 Plan of Acquisition, Reorganization, arrangement, None
liquidation, or succession
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3.1 Articles of Incorporation Incorporated by reference to Exhibit
3(i) of the Company's Registration
Statement No.1000-24511 on Form
10-SB filed June 23,1998.
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3.2 By-Laws Incorporated by reference to Exhibit
3(ii) of the Company's Registration
Statement No.1000-24511 on Form
10-SB filed June 23,1998.
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4 Instruments defining the rights of holders, Incorporated by reference to Exhibit
including Indentures 3.2
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7 Opinion re: liquidation preference Incorporated by reference to Exhibit
3.2
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10.1 Michael Pete Option Filed Herewith
Agreement
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10.2 Lease Agreement Advanced Optics Electronics, Incorporated by reference to Exhibit
Inc. and JMP Company Inc 10.2 of the Company's Registration
Statement No.1000-24511 on Form 10-SB
filed June 23,1998.
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10.3 State of Nevada Corporate Charter Incorporated by reference to Exhibit
10.3 of the Company's Registration
Statement No.1000-24511 on Form
10-SB filed June 23,1998.
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24 Power of Attorney Incorporated by reference to Exhibit
3.2
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27 Financial Data Schedule Filed Herewith
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</TABLE>
Reports on Form 8-K
During the last quarter of the 1998 fiscal year, the Company filed no reports on
Form 8-K.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report on Form 10KSB to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 23, 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)
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ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL REPORT
DECEMBER 31, 1998
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 4
Statements of Changes in Stockholders' Equity 5
Statements of Cash Flows 7
Notes to Financial Statements 8
<PAGE>
NEFF & RICCI
- ------------
LLP
Independent Auditors' Report
Board of Directors
Advanced Optics Electronics, Inc.
We have audited the balance sheet of Advanced Optics Electronics, Inc. (a
development stage company) as of December 31, 1998, and the related statements
of income, retained earnings, and cash flows for the year then ended and for the
1998 portion of the period from May 22, 1996 (inception) through December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Advanced Optics
Electronics, Inc. for the year ended December 31, 1997, and for the 1996 and
1997 portion of the period from May 22, 1996 (inception) through December 31,
1998, were audited by other auditors whose report dated February 5, 1998,
expressed an unqualified opinion on those statements.
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 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Optics Electronics,
Inc. as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended and for the 1998 portion of the period from May
22, 1996 (inception) through December 31, 1998, in conformity with generally
accepted accounting principles.
Neff & Ricci LLP
Albuquerque, New Mexico
March 12, 1999
1
<PAGE>
BALANCE SHEET
December 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 204,612
Certificate of deposit 50,000
Marketable equity securities 63,159
Costs and estimated earnings
in excess of billings on
uncompleted contract 250,200
Related party receivables 47,047
-----------
Total current assets 615,018
-----------
FIXED ASSETS, at cost
Furniture and fixtures 22,235
Computers 24,898
Technical equipment 81,055
Automobile 41,733
Equipment under capital lease 100,499
Leasehold improvements 8,595
Less accumulated depreciation (35,133)
-----------
Total fixed assets 243,882
-----------
OTHER ASSETS
Note receivable from officer 29,000
Investment in Bio Moda, Inc. 290,421
Organizational costs, net of accumulated
amortization of $42,014 63,020
Goodwill, net of accumulated amortization
of $271 4,729
Patents, net of accumulated amortization
of $29,353 212,986
Other assets 20,350
-----------
Total other assets 620,506
-----------
Total assets $ 1,479,406
===========
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 27,602
Notes payable 5,384
Accrued liabilities 7,811
Current portion of long-term debt
and capital lease obligation 31,536
-----------
Total current liabilities 72,333
-----------
Long-term portion of long-term debt
and capital lease obligation 67,387
-----------
COMMITMENTS
SHAREHOLDERS' EQUITY
Common stock, authorized 25,000,000 shares,
$.001 par value, 20,854,287 shares issued
and outstanding 20,854
Additional paid-in capital 2,232,535
Deficit accumulated during the development stage (913,703)
-----------
Total shareholders' equity 1,339,686
Total liabilities and shareholders' equity $ 1,479,406
===========
3
<PAGE>
STATEMENTS OF OPERATIONS
Years Ended December 31, 1998 and 1997,
and the Period from May 22, 1996 (Inception)
Through December 31, 1998
5/22/96
(Inception)
Through
1998 1997 12/31/98
REVENUES
Contract revenue $ 178,200 72,000 250,200
---------------------------------------
COSTS AND EXPENSES
General and administrative 490,296 86,532 620,135
Contract costs 215,472 57,688 273,140
Research and development 148,123 10,521 189,118
---------------------------------------
Total expenses 853,891 154,741 1,082,393
---------------------------------------
Operating loss (675,691) (82,741) (832,193)
---------------------------------------
OTHER INCOME AND (EXPENSES)
Interest income 851 -- 851
Unrealized gain on marketable
equity securities (6,875) -- (6,875)
Loss on Bio Moda, Inc. (68,424) -- (68,424)
Interest expense (1,972) (1,949) (7,062)
---------------------------------------
Total other expenses (76,420) (1,949) (81,510)
---------------------------------------
Net loss (752,111) (84,690) (913,703)
---------------------------------------
Loss per share $ (.055) (.014) (.113)
=======================================
Weighted average shares outstanding 13,723,302 6,156,986 8,051,835
=======================================
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from May 22, 1996 (Inception) Through
December 31, 1998
Common Stock
--------------------------
Par
Shares Value
Balance, May 22, 1996 -- $ --
Stock issued to incorporators for cash 500,000 500
Stock issued for the net assets of PLZ Tech, Inc. 4,500,000 4,500
Net loss -- --
--------------------------
Balance, December 31, 1996 5,000,000 5,000
Stock issued in public offering 2,281,212 2,281
Net loss -- --
--------------------------
Balance, December 31, 1997 7,281,212 7,281
Stock issued for cash 10,979,275 10,979
Stock issued for services 2,751,000 2,751
Stock issued in exchange for note receivable 315,000 315
Purchase and retirement of treasury stock (472,200) (472)
Net loss -- --
--------------------------
Balance, December 31, 1998 20,854,287 $ 20,854
==========================
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
Equity
(Deficit)
Accumulated
Additional During the Total
Paid-In Development Shareholders'
Capital Stage Equity
$ -- -- --
24,500 -- 25,000
281,096 -- 285,596
-- (76,902) (76,902)
-----------------------------------------
305,596 (76,902) 233,694
362,720 -- 365,001
-- (84,690) (84,690)
-----------------------------------------
668,316 (161,592) 514,005
1,281,728 -- 1,292,707
293,719 -- 296,470
28,685 -- 29,000
(39,913) -- (40,385)
-- (752,111) (752,111)
-----------------------------------------
$ 2,232,535 (913,703) 1,339,686
=========================================
6
<PAGE>
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1998 and 1997,
and the Period from May 22, 1996 (Inception) Through December 31, 1998
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
1998 1997 12/31/98
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (752,111) (84,690) (913,703)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization and depreciation expense 66,037 37,156 106,771
Unrealized loss on marketable securities 6,875 -- 6,875
Loss on Bio Moda, Inc. 68,424 -- 68,424
Issuance of common stock for services 296,470 -- 296,470
Contract receivable (178,200) (72,000) (250,200)
Other receivables (13,704) (43,693) (57,397)
Accrued liabilities and accounts payable 29,988 5,425 35,413
-----------------------------------------
Net cash applied to operating
activities (476,221) (157,802) (707,347)
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (135,334) (30,879) (178,516)
Investment in Bio Moda, Inc. (358,845) -- (358,845)
Purchase marketable securities (70,034) -- (70,034)
Purchase of certificate of deposit (50,000) -- (50,000)
Purchase of other assets (20,050) (66,727) (86,777)
-----------------------------------------
Net cash applied to investing
activities (634,263) (97,606) (744,172)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to notes payable 41,733 6,150 94,726
Payments on notes payable and capital
lease obligation (63,380) (25,267) (90,918)
Issuance of common stock 1,292,707 347,986 1,682,708
Purchase of treasury stock (30,385) -- (30,385)
-----------------------------------------
Net cash provided by financing
activities 1,240,675 328,869 1,656,131
-----------------------------------------
Net increase (decrease) in cash 130,191 73,461 204,612
Cash, beginning of period 74,421 960 --
-----------------------------------------
Cash, end of period $ 204,612 74,421 204,612
=========================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
7
<PAGE>
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.
The Company has obtained a contract to produce two outdoor advertising
billboards using its flat panel display technology. This is the first commercial
application of the Company's technology. The success of the Company will depend
on its ability to commercialize its technology and complete this contract. In
addition, the Company will be required to obtain additional capital in order to
fund the completion of the contract.
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 December 31, 1998, approximately $105,000 was not insured.
Marketable Equity Securities. The Company classifies all of its marketable
equity securities as trading securities. Trading securities are carried at fair
value with the unrealized gains and losses reported in the income statement. As
of December 31, 1998, gross unrealized gains were $24,983 and gross unrealized
losses were $31,858. Realized gains and losses were not material.
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.
Depreciation. Depreciation of property, plant and equipment is provided over the
estimated useful lives of the respective assets ranging from 3 to 10 years using
declining balance methods.
8
<PAGE>
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.
Research and Development Costs. Research and development costs are expensed as
incurred.
Advertising. Advertising costs are expensed as incurred and amounted to $15,040
in 1998.
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.
Effect of New Accounting Pronouncements. Statement of Position 98-5 Reporting
the Costs of Start-up Activities requires that organization costs be expensed.
The Company expects to apply this new accounting pronouncement effective January
1, 1999. The impact of this change in accounting principle would be to reduce
assets and increase the deficit accumulated during the development stage by
$63,020 as of December 31, 1998.
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. The
principal areas requiring estimation are revenue recognition based on the
percentage of completion method, loss reserves and the valuation of common stock
issued for services.
9
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Revenue and Cost Recognition. The Company recognized revenue on its contract in
process using the percentage-of-completion method of accounting, which is based
on the proportion of the contract cost incurred to the estimated total contract
cost. Costs incurred and estimated earnings in excess of billings represent the
revenue recognized that has not yet been billed.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies,
overhead, and equipment depreciation.
The contract to produce two outdoor advertising billboards totals $1.7 million,
with $885,000 allocated to the first unit. An estimated total loss of
approximately $23,000 in the first unit has been recognized as of December 31,
1998. The Company's estimated cost to complete as of December 31, 1998 is
$580,000 which it expects to fund with cash, billings on the contract and
additional capital.
In accordance with the contract, the Company will bill the customer when certain
milestones have been met. There were no billings as of December 31, 1998.
Adjustments to the original estimates of total contract revenue, total contract
cost, and extent of progress toward completion are often required as work
progresses under the contract and as experience is gained, even though the scope
of the work required under the contract may not change. The nature of accounting
for contracts is such that refinements of the estimating process for
continuously changing conditions and new developments are a characteristic of
the process. Accordingly, provisions for losses on contracts are made in the
period in which they become evident under the percentage-of-completion method.
Reclassifications. Certain amounts in 1997 financial statements have been
reclassified to conform with 1998 presentation.
NOTE 2. RELATED PARTY RECEIVABLES
Related party receivables at December 31, 1998, consist of the following:
Due from Bio Moda, Inc. $ 5,000
Due from officer 27,047
Note receivable from former shareholder bearing
interest at 8% and due in February, 1999 15,000
--------
$47,047
=======
The note receivable from former shareholder was issued for $10,000 in the
Company's common stock and $5,000 in cash.
10
<PAGE>
NOTE 3. INVESTMENT IN BIO MODA, INC.
During 1998 the Company increased its investment in Bio Moda, Inc. to 21.93
percent. Bio Moda, Inc. is a development stage company involved primarily in the
development of technology for the early detection of lung cancer. As a
development stage company, Bio Moda, Inc. has not had any revenues and, as of
December 31, 1998, was in the process of conducting clinical trials.
There is currently no active market for the common stock of Bio Moda, Inc. The
ultimate value of the Company's investment in Bio Moda, Inc. will depend on its
ability to complete its research and either commercialize or sell its
proprietary technology.
A summary of the financial data relative to Bio Moda, Inc. as of December 31,
1998 is as follows:
Assets:
Current assets $ 56,223
Other assets 17,000
---------
$ 73,223
=========
Liabilities and equity
Current liabilities $ 32,148
Notes payable to stockholders 84,884
Common stock 372,273
Deficit accumulated during the development stage (416,082)
---------
$ 73,223
=========
The investment in Bio Moda, Inc. is accounted for using the equity method A
summary of the investment is as follows:
Original cost, all of which exceeded book value $ 358,845
Share of net loss (51,514)
Amortization of excess of cost
over book value (16,910)
---------
Net investment $ 290,421
=========
11
<PAGE>
NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
Capital Lease Obligation. In July, 1998, the Company entered into a capital
lease agreement for equipment valued at $100,499 (net book value of $90,448 at
December 31, 1998). 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 December 31:
1999 $ 33,720
2000 33,720
2001 14,050
--------
81,490
Less amounts representing interest (15,366)
--------
$ 66,124
========
Long-Term Debt. In October 1998, the Company obtained a note payable from a bank
as part of the purchase of an automobile. The note is due in monthly
installments of principal and interest (fixed rate of 8 percent) of $817 until
October 2002. The note is secured by the automobile and the balance outstanding
at year end was $32,799.
Principal payments by year are as follows:
1999 $ 7,475
2000 8,068
2001 8,738
2002 8,518
--------
$ 32,799
========
NOTE 5. EQUITY TRANSACTIONS
The Company was initially capitalized through the issuance of 500,000 shares for
$25,000 in cash. In November 1996, the Company issued 4,500,000 shares in
exchange for the outstanding shares of PLZ Tech, Inc. The transaction was
accounted for as a purchase and net assets of $285,596, consisting primarily of
patents and equipment were recorded. In previous financial statements, the
Company did not present unclaimed shares resulting from the merger with PLZ
Tech, Inc. as outstanding shares. In the accompanying 1997 and prior financial
statements the number of shares outstanding has been restated to include these
shares.
During 1997 the Company issued 2,281,212 shares of stock in a public offing,
primarily for cash.
12
<PAGE>
NOTE 5. EQUITY TRANSACTIONS (CONTINUED)
During 1998, the Company repurchased 472,200 of its outstanding stock in
exchange for $10,000 in notes receivable and $30,385 in cash in various
transactions. This stock was subsequently retired.
The Company also issued 9,274,811 shares of common stock in exchange for
$1,292,707 in cash, net of sales commissions and other direct costs. Certain of
these sales included price maintenance agreements resulting in the issuance of
an additional 1,704,464 shares of stock in 1998.
In 1998 the Company issued 2,751,000 shares of common stock in exchange for
services from contractors, officers and others. These shares were valued at the
estimated fair market value for similar issuances of stock and amounted to
$296,470. The Company also issued 315,000 shares to an officer in exchange for a
note receivable of $29,000. The notes bears interest at the rate of 7 percent
with interest due semiannually and the principal due July, 2001.
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following are the carrying amounts and methods used by the Company in
estimating its fair value of financial instruments.
Cash and Certificates of Deposit. The carrying amounts reported in the
balance sheet approximate fair value.
Marketable Equity Securities. The fair value reported in the balance sheet
was based on current market prices.
Notes Receivable. Management estimates the fair value of notes receivable
approximates the carrying value due to their short terms.
Notes Payable. Management estimates the fair value of notes payable
approximates the carrying value due to their short terms.
Capital Lease and Long-Term Debt. Management estimates the fair value of
capital lease obligations and notes payable approximates the carrying value
due to their short terms and the fact that they were entered into recently.
13
<PAGE>
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments are
as follows at December 31, 1998:
Estimated
Carrying Fair
Amount Value
Cash and cash equivalents $204,612 204,612
Certificate of deposit 50,000 50,000
Marketable equity securities (with an
original cost of $70,034) 63,159 63,159
Notes receivable 76,047 76,047
Notes payable 5,384 5,384
Long-term debt and capital lease obligation 98,923 98,923
NOTE 7. INCOME TAXES
At December 31, 1998, the Company had deferred tax assets amounting to
approximately $320,000. 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 $270,000 in the year ending December 31, 1998. The net
change is due primarily to the increase in net operating loss carryforwards.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $800,000 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.
NOTE 8. COMMITMENTS
The Company has a non-cancelable operating lease agreement for its office and
production space. The agreement is through June 2000 with an option to renew for
one additional year.
Rent expense during 1998 and 1997 was $13,634 and $7,570, respectively.
Future minimum lease payments are as follows:
1999 $ 32,400
2000 16,200
As of December 31, 1998, there was one stock option outstanding for the purchase
of 153,954 shares at $.58 per share by an officer of the Company. The option
expires August 1, 1999. During the years ended December 31, 1997 and 1998, there
was no stock option activity.
14
PLZTech, Inc. INCENTIVE STOCK OPTION AGREEMENT, page 1 of 4
This is an agreement between PLZTech, Inc., (the "Company") and Michael H. Pete
(the "Employee") and is effective as of August 1, 1994 (the "Date of Grant").
1) Option Grant
The Company hereby grants to the Employee, subject to the conditions set forth
herein, an option to purchase from the Company all or any part of an aggregate
of Three Hundred Thousand (300,000) shares of common stock (no par value) of the
Company (the "Stock") at a purchase price of 30 cents ($.30) per share.
2) Expiration Date
This option shall expire five (5) years from the Date of Grant (the Effective
Date), which date is referred to as the "Expiration Date", and under no
circumstances can any portion of this option be exercised after the Expiration
Date.
3) Exercise of Option
Subject to the other terms and condition herein, the (percentages of) total
shares of this option shown below may be exercised on or after the indicated
periods below:
- --------------------------------------------------------------------------------
First six months from Date of Grant 16.67% 50,000 shares
- --------------------------------------------------------------------------------
Second six months from Date of Grant 16.67% 50,000 shares
- --------------------------------------------------------------------------------
Third six months from Date of Grant 16.67% 50,000 shares
- --------------------------------------------------------------------------------
Fourth six months from Date of Grant 16.67% 50,000 shares
- --------------------------------------------------------------------------------
Fifth six months from Date of Grant 16.67% 50,000 shares
- --------------------------------------------------------------------------------
Sixth six months from Date of Grant 16.67% 50,000 shares
- --------------------------------------------------------------------------------
Each exercise of any part of this option shall be pursuant to a written notice
from the Employee to the Company, specifying the number of shares for which the
option is being exercised, accompanied by full payment of the purchase price for
such shares. The purchase price shall be paid in cash, or in the discretion of
the Committee or the Board (as defined in the plan), in such other consideration
as the committee deems
<PAGE>
Stock Option Agreement between PLZTech and M. H. Pete, page 2 of 4
appropriate, including, but not limited to, common stock of the Company already
owned by the Employee, having a fair market value, as determined by the
Committee, equal to the purchase price, or a combination of cash and such other
consideration having a fair market value, as so determined, equal to the
purchase price. Notation of each partial exercise of this option shall be noted
by the Company on Schedule I hereof.
4) In addition to the stock options from this Incentive Stock Option Agreement,
there will be a second and separate Incentive Stock Option Agreement. This
Agreement will commence two years after the Company has net investment proceeds
of one million dollars. This second Incentive Stock Option Agreement will not be
initiated unless the Company has annualized revenues of four million dollars.
The Employee will have two hundred sixty-five thousand (265,000) shares of
common stock in the second Incentive Stock Option Agreement at a purchase price
of one dollar ($1.00) per share. This second Stock Option Agreement will be
entirely performanced based. The number of shares can be adjusted up or down
depending on the profitability (determined by net income) of the Company. The
targets for the first and second years of the second Stock Option Agreement are
one million and three million dollars of net income, respectively.
5) Exercise in the event of Death or Termination of Employment
a) if the Employee shall die
i) while in the employment of the Company or
ii) within three months after the termination of employment
This option may be exercised to the extent the Employee would have been entitled
to do so on the date of the Employee's death or such termination of employment,
by the person or persons to whom the Employee's rights under this option pass by
will or otherwise, or if no such person has such right, by the Employee's
executors or administrators, at any time, or from time to time, within twelve
months after the earlier of the date of termination or death of the Employee,
but in no event later than the Expiration date.
b) if the employment of the Employee by the Company is terminated
i) because of the disability of the Employee or
ii) voluntarily or involuntarily
<PAGE>
Stock Option Agreement between PLZTech and M. H. Pete, page 3 of 4
iii) by reason of the retirement of the Employee in accordance with any
Company tax-qualified plan or with consent of the Company
This option may be exercised within 45 days of the effective termination date.
6) Non-transferability
This option is not transferable other than by will or by the laws of descent and
distribution. During the lifetime of the Employee, this option may be exercised
only by the Employee.
7) Adjustment
In the event of any change in the Stock by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination
or exchange of shares, or any rights offering to purchase stock at a price
substantially below market value, or any similar change affecting the Stock, the
number and kind of shares subject to this option and their purchase shall be
adjusted appropriately consistent with such change in such manner as the
Committee may deem equitable to the Employee hereunder. Any adjustment so made
shall be final and binding on the Employee.
8) No Rights as Stockholder
The Employee shall have no rights as a stockholder with respect to any shares of
stock subject to this option prior to the date of issuance of a certificate for
such shares.
9) No right to Continued Employment
This option does not confer upon the Employee any right with respect to
continuance of employment by the Company, and shall not interfere in any way
with the right of the Company to terminate employment at any time.
10) Notices
Any notice hereunder to the Company shall be addressed to it at:
<PAGE>
Stock Option Agreement between PLZTech and M. H. Pete. Page 4 of 4
1709 Moon St., NE
Albuquerque, NM 87112
and any notice to the Employee shall be addressed to him at
801 15th Street, South, #907
Arlington, VA 22202
subject to the right of either party to designate in writing at any time some
other address.
PLZTech, Inc.
Leslie S. Robins Executive Vice President August 25, 1995
- ----------------------------------------- ---------------
By Title Date
Michael H. Pete August 25, 1995
- ----------------------------------------- ---------------
Michael H. Pete Date
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 204,612
<SECURITIES> 63,159
<RECEIVABLES> 47,047
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 615,018
<PP&E> 279,015
<DEPRECIATION> (35,133)
<TOTAL-ASSETS> 1,479,406
<CURRENT-LIABILITIES> 72,333
<BONDS> 67,387
0
0
<COMMON> 1,339,686
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,479,406
<SALES> 178,200
<TOTAL-REVENUES> 178,200
<CGS> 853,891
<TOTAL-COSTS> 853,891
<OTHER-EXPENSES> 76,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,972)
<INCOME-PRETAX> (752,111)
<INCOME-TAX> 0
<INCOME-CONTINUING> (675,691)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (752,111)
<EPS-PRIMARY> (0.055)
<EPS-DILUTED> 0
</TABLE>
