U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
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 including 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,
1999 was 42,541,431
Transitional Small Business Disclosure Format (check one): Yes ____ No X
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
BALANCE SHEET (Unaudited)
September 30, 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 241,989
Certificate of deposit 105,251
Marketable equity securities 67,571
Costs and estimated earnings
in excess of billings on
uncompleted contract 511,575
Raw materials inventory 41,324
Related party receivables 67,494
-----------
Total current assets 1,035,204
-----------
FIXED ASSETS, at cost
Furniture and fixtures 26,856
Computers 34,096
Technical equipment 143,047
Automobile 43,313
Equipment under capital lease 101,359
Leasehold improvements 16,775
Less accumulated depreciation (102,691)
-----------
Total fixed assets 262,755
-----------
OTHER ASSETS
Note receivable from officer 30,523
Investment in Bio Moda, Inc. 242,112
Investment in Wizard Technologies, Inc. 110,000
Goodwill, net of accumulated amortization
of $365 4,635
Patents, net of accumulated amortization
of $40,045 202,294
Note origination costs, net of accumulated
amortization of $3,332 16,668
Other assets 30,000
-----------
Total other assets 636,232
-----------
Total assets $ 1,934,191
===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 7,726
Accrued liabilities 13,967
Current portion of long-term debt
and capital lease obligation 39,321
-----------
Total current liabilities 61,014
-----------
Long-term portion of long-term debt
and capital lease obligation 465,509
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, authorized 75,000,000 shares,
$.001 par value, 42,667,140 shares issued
and outstanding 42,667
Additional paid-in capital 3,507,717
Deficit accumulated during the development stage (2,135,413)
Treasury stock at cost, 72,400 shares (7,303)
-----------
Total shareholders' equity 1,407,668
-----------
Total liabilities and shareholders' equity $ 1,934,191
===========
3
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (Unaudited)
Quarters Ended September 30, 1999 and 1998
1999 1998
REVENUES
Contract revenue $ 125,000 --
-----------------------------
COSTS AND EXPENSES
General and administrative 309,082 103,355
Contract costs 119,451 59,560
Research and development 50,611 12,262
-----------------------------
Total expenses 479,144 175,177
-----------------------------
Operating loss (354,144) (175,177)
-----------------------------
OTHER INCOME AND (EXPENSES)
Interest income 3,959 --
Unrealized gain (loss) on marketable
equity securities 7,505 --
Loss on Bio Moda, Inc. (9,781) (7,622)
Interest expense (39,735) (2,297)
-----------------------------
Total other expenses (38,052) (9,919)
-----------------------------
Net loss (392,196) (185,096)
-----------------------------
Net loss per share $ (.009) (.013)
=============================
Weighted average shares outstanding 41,851,287 14,064,135
=============================
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
STATEMENTS OF OPERATIONS (CONTINUED)
Nine Months Ended September 30, 1999 and 1998,
and the Period from May 22, 1996 (Inception)
Through September 30, 1999
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
1999 1998 9/30/99
<S> <C> <C> <C>
REVENUES
Contract revenue $ 261,375 72,000 511,575
--------------------------------------------------------
COSTS AND EXPENSES
General and administrative 721,624 236,046 1,341,759
Contract costs 283,570 147,394 556,710
Research and development 137,051 28,880 326,169
--------------------------------------------------------
Total expenses 1,142,245 412,320 2,224,638
--------------------------------------------------------
Operating loss (880,870) (340,320) (1,713,063)
--------------------------------------------------------
OTHER INCOME AND (EXPENSES)
Interest income 11,028 -- 11,879
Unrealized gain (loss) on marketable
equity securities (15,424) -- (22,299)
Loss on Bio Moda, Inc. (48,309) (16,910) (116,733)
Interest expense (225,115) (3,022) (232,177)
--------------------------------------------------------
Total other expenses (277,820) (19,932) (359,330)
--------------------------------------------------------
Net loss before cumulative effect
of change in accounting principle (1,158,690) (360,252) (2,072,393)
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (63,020) -- (63,020)
--------------------------------------------------------
Net loss $ (1,221,710) (360,252) (2,135,413)
========================================================
Net loss per share before cumulative effect
of change in accounting principle $ (.036) (.029) (.169)
Cumulative effect of change in
accounting principle (.002) -- (.005)
--------------------------------------------------------
Net loss per share $ (.038) (.029) (.174)
========================================================
Weighted average shares outstanding 32,149,015 12,272,337 13,647,698
========================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
For the Period from May 22, 1996 (Inception) Through
September 30, 1999
<TABLE>
<CAPTION>
Common Stock
Par
Shares Value
<S> <C> <C>
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
Stock issued for cash 3,259,180 3,259
Stock issued for services 6,026,681 6,027
Purchase and retirement of treasury stock (489,251) (489)
Net loss -- --
Balance, March 31, 1999 29,650,897 29,651
Stock issued for cash 1,437,050 1,437
Stock issued for services 3,947,488 3,947
Net loss -- --
-----------------------------------
Balance, June 30, 1999, as previously reported 35,035,435 35,035
Restatement for debentures and warrants -- --
-----------------------------------
Balance, June 30, 1999, restated 35,035,435 35,035
Stock issued for cash 1,675,705 1,676
Stock issued for services 5,556,000 5,556
Stock issued for equity investment 400,000 400
Purchase of treasury stock -- --
Net loss -- --
-----------------------------------
Balance, September 30, 1999 42,667,140 $ 42,667
===================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Equity
(Deficit)
Treasury Stock Accumulated
-------------- Additional During the Total
Par Paid-In Development Shareholders'
Shares Value Capital Stage Equity
<S> <C> <C> <C> <C>
$ -- -- -- -- --
-- -- 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
-- -- 151,361 -- 154,620
-- -- 21,660 -- 27,687
-- -- (10,643) -- (11,132)
-- -- -- (273,303) (273,303)
---------------------------------------------------------------------------------------------------------------
-- -- 2,394,913 (1,187,006) 1,237,558
-- -- 111,547 -- 112,984
-- -- 187,137 -- 191,084
-- -- -- (379,817) (379,817)
---------------------------------------------------------------------------------------------------------------
-- -- 2,693,597 (1,566,823) 1,161,809
-- -- 296,186 (176,394) 119,792
---------------------------------------------------------------------------------------------------------------
-- -- 2,989,783 (1,743,217) 1,281,601
-- -- 238,359 -- 240,035
-- -- 169,975 -- 175,531
-- -- 109,600 -- 110,000
(72,400) (7,303) -- -- (7,303)
-- -- -- (392,196) (392,196)
---------------------------------------------------------------------------------------------------------------
$ (72,400) (7,303) 3,507,717 (2,135,413) 1,407,668
===============================================================================================================
</TABLE>
7
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (Unaudited)
Quarters Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(392,196) (185,096)
Adjustments to reconcile net loss to net cash
applied to operating activities:
Amortization and depreciation expense 53,762 10,301
Unrealized (gain) loss on marketable securities (7,505) --
Loss on Bio Moda, Inc. 9,781 7,622
Issuance of common stock for services 175,531 --
Contract receivable (125,000) --
Other receivables (13,509) (3,500)
Accrued liabilities and accounts payable (19,557) 10,131
--------------------------------
Net cash applied to operating
activities (318,693) (160,542)
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (25,769) (43,448)
Purchase of marketable securities (8,836) --
Purchase of certificate of deposit (451) (50,000)
--------------------------------
Net cash applied to investing
activities (35,056) (93,448)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to notes payable 4,383 --
Payments on notes payable and capital
lease obligation (2,041) (37,733)
Issuance of common stock 240,035 292,155
Purchase of treasury stock (7,303) (21,833)
--------------------------------
Net cash provided by financing
activities 235,074 232,589
--------------------------------
Net increase (decrease) in cash (118,675) (21,401)
Cash, beginning of period 360,664 372,595
--------------------------------
Cash, end of period $ 241,989 351,194
================================
Interest paid $ 2,736 2,297
================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
Nine Months Ended September 30, 1999 and 1998,
and the Period from May 22, 1996 (Inception) Through
September 30, 1999
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
1999 1998 9/30/99
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,221,710) (360,252) (2,135,413)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization and depreciation expense 109,870 32,862 216,641
Write off of organization costs 63,020 -- 63,020
Unrealized loss on marketable securities 15,424 -- 22,299
Loss on Bio Moda, Inc. 48,309 16,910 116,733
Issuance of common stock for services 565,488 -- 861,958
Issuance of notes payable for services 50,000 -- 50,000
Contract receivable (261,375) (72,000) (511,575)
Other receivables (21,970) 4,679 (79,367)
Inventory (41,324) -- (41,324)
Accrued liabilities and accounts payable (21,446) 10,647 13,967
-----------------------------------------------
Net cash applied to operating
activities (715,714) (367,154) (1,423,061)
-----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (86,431) (78,200) (264,947)
Investment in Bio Moda, Inc. -- (300,000) (358,845)
Purchase of marketable securities (19,836) (35,191) (89,870)
Purchase of certificate of deposit (55,251) (50,000) (105,251)
Purchase of other assets (10,000) -- (96,777)
-----------------------------------------------
Net cash applied to investing
activities (171,518) (463,391) (915,690)
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to notes payable 447,383 -- 542,109
Payments on notes payable and capital
lease obligation (11,978) (49,404) (102,896)
Issuance of common stock 507,639 1,197,107 2,190,347
Purchase of treasury stock (18,435) (40,385) (48,820)
-----------------------------------------------
Net cash provided by financing
activities 924,609 1,107,318 2,580,740
-----------------------------------------------
Net increase (decrease) in cash 37,377 276,773 241,989
Cash, beginning of period 204,612 74,421 --
-----------------------------------------------
Cash, end of period $ 241,989 351,194 241,989
===============================================
Interest paid $ 11,722 3,022 18,784
===============================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
9
<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, which is currently the only industry segment it
operates in.
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 and certificates of deposit are deposited in financial
institutions and are insured only up to $100,000 by the Federal Deposit
Insurance Corporation.
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 September 30, 1999, gross unrealized gains were $24,983 and gross unrealized
losses were $47,281. Realized gains and losses were not material.
Inventory. Inventory consists of raw materials and is carried at the lower of
cost (specific identification) or market.
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
straight line and declining balance methods.
10
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Other Assets. Organization costs were amortized on a straight-line basis over
the period to be benefited of five years up until December 31, 1998. 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. Debt origination costs are amortized over the life of the
related notes payable. 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.
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 applied this new accounting pronouncement effective January 1, 1999.
The impact of this change in accounting principle was to reduce assets and
increase the deficit accumulated during the development stage by $63,020 as of
December 31, 1998 and is presented as the cumulative effect of an accounting
change on the statement of operations. There are no related income tax amounts.
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.
11
<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 $45,000 in the first unit has been recognized as of September 30,
1999. The Company's estimated cost to complete as of September 30, 1999 is
approximately $375,000 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 September 30, 1999.
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 1998 financial statements have been
reclassified to conform with 1999 presentation.
NOTE 2. RELATED PARTY RECEIVABLES
Related party receivables at September 30, 1999, consist of the following:
Due from officer $ 52,494
Note receivable from former shareholder bearing
interest at 8% and due in June, 2000 15,000
---------------
$ 67,494
===============
The note receivable from former shareholder was issued for $10,000 in the
Company's common stock and $5,000 in cash.
12
<PAGE>
NOTE 3. EQUITY INVESTMENTS
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
September 30, 1999, 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:
<TABLE>
<CAPTION>
<S> <C>
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 as of September 30, 1999 is as follows:
Original cost, all of which exceeded book value $ 358,845
Share of net loss (81,880)
Amortization of excess of cost
over book value (34,853)
---------
Net investment $ 242,112
=========
</TABLE>
In September 1999, the Company issued 400,000 shares of its common stock in
exchange for a 25 percent ownership in Wizard Technologies, Inc. The transaction
was valued at the estimated fair value of $110,000. The Company has not applied
the equity method to this investment as financial statements for Wizard
Technologies, Inc. are not available. Wizard Technologies, Inc. is a development
stage company with a fiber optics switch design.
13
<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 $71,185 at
September 30, 1999). 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 June 30:
2000 $ 33,720
2001 33,720
---------------
67,440
Less amounts representing interest (11,051)
---------------
$ 56,389
===============
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 September 30, 1999 was $27,359.
In April 1999, the Company obtained a note payable from a bank to purchase
equipment. The note is due in 36 monthly installments of principal and interest
(bank index rate plus 1.5 percent which was 9.75 percent at September 30, 1999)
of $409. The note is secured by equipment and the balance outstanding at
September 30, 1999 was $11,759.
Convertible Notes. On June 3, 1999, the Company issued $500,000 in convertible
notes which bear interest at an annual rate of 8 percent and mature (principal
and interest) on May 31, 2001. Effective August 1, 1999, the notes are
convertible into shares of common stock at a 25 percent discount to the closing
bid price of a share of common stock at the time of conversion The notes were
issued in exchange for $430,000 in cash $50,000 in legal services and $20,000 in
commissions. The commissions have been capitalized as debt origination costs and
are being amortized over the life of the notes. The notes are unsecured.
The intrinsic value of the conversion feature of the principal and accrued
interest was estimated to be $171,186. This should have been included as
interest expense in the quarter ended June 30, 1999, and is included in the
restatement in the accompanying Statements of Changes in Stockholders' Equity.
The convertible notes also include detachable warrants for the purchase of
12,500,000 shares of common stock at the lower of 75 percent of the closing bid
price of a share of common stock at the time of exercise or September 1, 1999.
The warrants expire on June 3, 2002. Management estimates that approximately
half the warrants will be exercised prior to expiration.
14
<PAGE>
NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
(CONTINUED)
Management estimated the fair market value of these warrants at $125,000 and
recorded this amount as an increase in paid-in capital and a discount to the
convertible notes payable. The discount is being amortized over the two year
life of the notes. The discount of $125,000 is included in the restatement of
paid-in capital along with the related discount amortization of $5,208 at June
30, 1999.
The effect of the restatements described above was to increase the net loss for
the quarter ended June 30, 1999, by $176,394 to $556,211.
A significant contingency regained by the convertible notes and warrants
agreements is the registration of the underlying shares with the Securities and
Exchange Commission. The company is to use its best efforts to affect the
registration of these shares and is in the process of preparing the registration
statement.
Principal payments for long-term debt and convertible notes for the years ending
September 30 are as follows:
2000 $ 11,927
2001 526,527
2002 11,812
2003 2,410
----------------
$ 552,676
================
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.
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.
15
<PAGE>
NOTE 5. EQUITY TRANSACTIONS (CONTINUED)
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.
During the quarter ended March 31, 1999, the Company repurchased 489,251 shares
of its outstanding stock for $11,132 in cash. These shares were retired. The
Company also sold 3,259,180 shares for $154,620 in cash and issued 6,026,681
shares for services which were valued at $27,687.
During the quarter ended June 30, 1999, the Company sold 1,437,050 shares of
common stock for $112,984 in cash and issued 3,947,488 shares in exchange for
services from officers and directors.
During the quarter ended September 30, 1999, the Company sold 1,675,705 shares
of common stock for $240,035 and issued 5,956,000 shares in exchange for
services from officers, directors and others valued at $175,531. The Company
also repurchased 72,400 shares for $7,303.
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.
16
<PAGE>
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
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.
The carrying amounts and fair values of the Company's financial instruments are
as follows at September 30, 1999:
Estimated
Carrying Fair
Amount Value
Cash and cash equivalents $241,989 241,989
Certificate of deposit 105,251 105,251
Marketable equity securities (with an
original cost of $89,869) 67,571 67,571
Notes receivable 30,523 30,523
Notes payable 7,726 7,726
Long-term debt and capital lease obligation 504,830 609,065
NOTE 7. INCOME TAXES
At September 30, 1999, the Company had deferred tax assets amounting to
approximately $760,000. 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 $170,000 in the quarter ending September 30, 1999 and
$480,000 for the nine months ending September 30, 1999. The net change is due
primarily to the increase in net operating loss carryforwards.
At September 30, 1999, the Company had net operating loss carryforwards of
approximately $1,900,000 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.
17
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
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 the quarters ending September 30, 1999 and 1998 was $8,150
and $3,900, respectively. For the nine months then ended it was $18,025 and
$6,000, respectively.
Future minimum lease payments for the years ending June 30, are as follows:
2000 $ 32,400
A summary of the common stock option and warrant activity for employees,
directors and officers is as follows:
<TABLE>
<CAPTION>
Warrants Weighted
And Average
Options Option Price Exercisable
<S> <C> <C> <C>
Balance, December 31, 1997 and 1998 $ 153,954 .58 153,954
===========
Granted 6,600,000 .14
Expired (153,954) .58
-----------
Balance, September 30, 1999 $ 6,600,000 .14 5,500,000
=========== ===========
</TABLE>
The options in 1999 range in exercise price from .09 to .15 and expire from
January 2003 to June 2004, with a weighted average expiration date of November
2003. The options vest over a one year period and the warrants are exercisable
immediately.
18
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Advanced Optics Electronics, Inc. (ADOT-NASDAQ BB) (the "Company") is a
development stage technology company based in Albuquerque, New Mexico. The
Company is primarily engaged in the development, production and sales of its
novel and innovative electronic flat panel displays. The result of research and
development activities will be the manufacturing of large-scale flat panel
displays utilizing its patented technology. These large-scale flat panel
displays will be marketed and sold to the outdoor advertising billboard market.
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 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 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 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.
Liquidity and Capital Resources
The Company relies upon the purchase of its securities by investors to provide
capital. Capital is required for the development of prototype units and
manufacturing operations. Operating revenues from initial contracts also
contribute to operating liquidity. The Company's holding of stock in BioModa,
Inc will eventually provide additional liquidity.
19
<PAGE>
BioModa is a biomedical development company primarily involved in the
development of technology for the early detection of lung cancer. The Company's
ownership of BioModa, as of September 30, 1999, was 21.93%. No immediate family
members of officers or directors of Advanced Optics Electronics, Inc. are
securities holders of BioModa.
During the quarter, the Company acquired a minority ownership interest in Wizard
Technologies, Inc. (WTI). WTI is a high-tech development company dedicated to
the development and production of switches for fiber optic systems. The
Company's ownership interest with options totals 25%. Management expects WTI to
contribute to the Company through incorporating WTI's innovative products into
its core display products and as an investment.
During the nine months ended September 30, 1999 $218,670 was spent for the
purchase of equipment and product development costs. 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 $250,000 in fiscal 1999.
Management believes that sales of securities, cash reserves and contract revenue
will provide adequate liquidity and capital resources to meet the anticipated
development stage requirements through the end of the first quarter. At that
time it is anticipated that sales of flat panel displays will begin and
contribute to operating revenues. It is anticipated that these sales will
provide the additional capital resources to fund the proportionately higher
working capital requirements of production and sales initiatives. The Company
currently has no other significant commitments for capital expenditures in 1999.
Results of Continuing Operations
Comparison of the Nine-Month Periods Ended September 30, 1999 and 1998
Revenues increased to $261,375 in the first nine months of 1999 as compared to
$72,000 in the first nine months of 1998.
Research, development and technical costs increased to $137,051 in the first
nine months of 1999 from $28,880 in the first months of 1998. The increase in
these costs is due primarily to increased research and development efforts and
resources.
General and administrative costs increased to $721,624 in the first nine months
of 1999 from $236,046 in the first nine months of 1998 due to increases in
salaries related to additional personnel and increases in professional fees.
Depreciation increased to $102,691 in the first nine months of 1999 from $15,627
in the first nine months of 1998 due primarily to depreciation expense for
equipment purchased and acquired under capital leases and other technical
equipment.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. 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 2. Changes in securities
During the third quarter of fiscal year 1999 there was a 7,631,705 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
There were no matters submitted to a vote of the Company's security holders
during the third quarter of fiscal year 1999.
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(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, 1999
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report on Form 10QSB to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November 11, 1999
ADVANCED OPTICS ELECTRONICS, INC.
BY:/s/Leslie S. Robins
-------------------
Leslie S. Robins
Executive Vice President
(Principal Executive Officer)
BY:/s/John J. Cousins
------------------
John J. Cousins
Vice President of Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Appendix A to Item 601(c) of Regulation S-B
Commercial and Industrial Companies
Article 5 of Regulation S-X
</LEGEND>
<CIK> 0001020657
<NAME> Advanced Optics Electronics, Inc.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> $347,240
<SECURITIES> $67,571
<RECEIVABLES> $67,494
<ALLOWANCES> 0
<INVENTORY> $41,324
<CURRENT-ASSETS> $1,035,204
<PP&E> $262,755
<DEPRECIATION> ($102,691)
<TOTAL-ASSETS> $1,934,191
<CURRENT-LIABILITIES> $61,014
<BONDS> $465,509
0
0
<COMMON> $1,407,668
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> $1,934,191
<SALES> $261,375
<TOTAL-REVENUES> $261,375
<CGS> $1,142,245
<TOTAL-COSTS> $1,142,245
<OTHER-EXPENSES> $277,820
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> ($225,115)
<INCOME-PRETAX> ($1,221,710)
<INCOME-TAX> 0
<INCOME-CONTINUING> ($1,158,690)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> ($63,020)
<NET-INCOME> ($1,221,710)
<EPS-BASIC> (0.038)
<EPS-DILUTED> 0
</TABLE>
