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: March 31, 2000
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 March 31, 2000
was 48,635,411
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL REPORT
MARCH 31, 2000
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Page
INDEPENDENT ACCOUNTANTS' 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 9
<PAGE>
NEFF & RICCI LLP
- ----------------
CERTIFIED PUBLIC ACCOUNTANTS
7001 PROSPECT PLACE NE
ALBUQUERQUE, NM 87110
Independent Accountants' Report
Board of Directors
Advanced Optics Electronics, Inc.
We have reviewed the accompanying condensed balance sheet of Advanced Optics
Electronics, Inc. (a development stage company) as of March 31, 2000, and the
related condensed statements of operations, cash flows and changes in
stockholders' equity for the three month period ended March 31, 2000 and 1999,
and for the 2000, 1999, and 1998 portion of the period from May 22, 1996
(inception) through March 31, 2000. The 1996 and 1997 portion of the condensed
financial statements for the period from May 22, 1996 (inception) through March
31, 2000, were audited by other auditors whose report dated February 5, 1998,
expressed an unqualified opinion.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
/s/ Neff & Ricci LLP
Albuquerque, New Mexico
April 20, 2000
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
March 31, 2000
ASSETS
Current Assets
Cash and cash equivalents $ 719,377
Certificate of deposit 156,237
Marketable equity securities 73,143
Costs and estimated earnings
in excess of billings on
uncompleted contract 594,584
Raw materials 29,293
Due from officer and shareholder 67,494
----------
Total current assets 1,640,128
----------
Property and Equipment, net 320,486
----------
Other Assets
Investment in Bio Moda, Inc. 191,112
Intangible assets, net 211,438
Other assets 30,000
----------
Total other assets 432,550
----------
Total assets $2,393,164
==========
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current Liabilities
Accounts payable $ 12,173
Accrued liabilities 17,456
Current portion of long-term debt
and capital lease obligation 45,917
Allowance for loss on contract 89,584
-----------
Total current liabilities 165,130
-----------
Long-term portion of long-term debt
and capital lease obligation 467,298
===========
Commitments
Shareholders' Equity
Capital stock:
Preferred Series A, 7.5% cumulative, convertible into common stock at a
rate determined by dividing the purchase price of the preferred
shares by the conversion price of the common stock; $.001 par value;
authorized 10,000,000 shares, issued 550 shares
in first quarter of 2000 1
Common, authorized 75,000,000 shares, $.001 par value
48,714,706 shares issued and 48,589,206 shares outstanding 48,715
Additional paid-in capital 6,929,273
Deficit accumulated during the development stage (5,183,426)
Treasury stock (33,827)
-----------
Total shareholders' equity 1,760,736
-----------
Total liabilities and shareholders' equity $ 2,393,164
===========
</TABLE>
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Quarters Ended March 31, 2000 and 1999
and the Period from May 22, 1996 (Inception)
Through March 31, 2000
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
2000 1999 03/31/00
<S> <C> <C> <C>
Revenues
Contract revenue $ 34,039 66,375 594,584
--------------------------------------------
Costs and Expenses
General and administrative 1,206,669 106,570 3,779,404
Contract costs 111,886 85,941 853,247
Research and development 133,967 48,273 562,114
--------------------------------------------
Total expenses 1,452,522 240,784 5,194,765
--------------------------------------------
Operating loss (1,418,483) (174,409) (4,600,181)
--------------------------------------------
Other Income and (Expenses)
Interest income 2,293 1,964 14,010
Unrealized gain (loss) on marketable
equity securities 7,655 (9,968) (25,904)
Loss on Bio Moda, Inc. (16,222) (24,571) (192,733)
Interest expense (76,581) (3,299) (273,017)
--------------------------------------------
Total other expenses (82,855) (35,874) (477,644)
--------------------------------------------
Net loss before cumulative effect
of change in accounting principle (1,501,338) (210,283) (5,077,825)
--------------------------------------------
Cumulative Effect of Change
in Accounting Principle -- (63,020) (63,020)
--------------------------------------------
Net loss (1,501,338) (273,303) (5,140,845)
--------------------------------------------
Net loss per share before cumulative effect
of change in accounting principle (.03) (.01) (.23)
Cumulative effect of change in
accounting principle -- (.00) (.00)
--------------------------------------------
Net loss per share $ (.03) (.01) (.23)
============================================
Weighted average shares outstanding 48,153,762 25,252,592 22,111,342
============================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from May 22, 1996 (Inception) Through
March 31, 2000
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------------- -----------------------
Par Par
Shares Value Shares Value
<S> <C> <C> <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 8,681,624 8,682 -- --
Stock issued for services 17,094,313 17,094 -- --
Intrinsic value of beneficial conversion
feature of notes payable -- -- -- --
Fair value of warrants related to notes payable -- -- -- --
Purchase and retirement of treasury stock (489,251) (489) -- --
Purchase of treasury stock -- -- -- --
Sale of treasury stock -- -- -- --
Net loss -- -- -- --
------------------------------------------------------
Balance, December 31, 1999 46,140,973 46,141 -- --
Stock issued for cash 782,000 782 550 1
Stock issued for services 1,791,733 1,792 -- --
Purchase of treasury stock -- -- -- --
Sale of treasury stock -- -- -- --
Constructive dividends (amortization of
discount on convertible preferred stock) -- -- -- --
Net loss -- -- -- --
------------------------------------------------------
Balance, March 31, 2000 48,714,706 $ 48,715 550 $ 1
======================================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
Equity
(Deficit)
Accumulated
Treasury Stock Additional During the Total
Paid-In Development Shareholders'
Shares Cost 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
-- -- 855,101 -- 863,783
-- -- 1,469,320 -- 1,486,414
-- -- 174,610 -- 174,610
-- -- 125,000 -- 125,000
-- -- (10,643) -- (11,132)
(229,000) (41,760) -- -- (41,760)
85,000 11,130 24,334 -- 35,464
-- -- -- (2,725,804) (2,725,804)
---------------------------------------------------------------------
(144,000) (30,630) 4,870,257 (3,639,507) 1,246,261
-- -- 852,710 -- 853,493
-- -- 1,118,441 -- 1,120,233
(6,500) (7,683) -- -- (7,683)
25,000 4,486 32,080 -- 49,770
-- 42,581 (42,581) --
-- -- -- (1,501,338) (1,501,338)
---------------------------------------------------------------------
(125,500) $ (33,827) 6,929,273 (5,183,426) 1,760,736
=====================================================================
</TABLE>
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Quarters Ended March 31, 2000 and 1999
and the Period from May 22, 1996 (Inception) Through
March 31, 2000
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
2000 1999 03/31/00
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net (loss) $(1,501,338) (273,303) (5,140,845)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization and depreciation expense 27,630 23,529 222,156
Write off of organization costs -- 63,020 63,020
Amortization of discounts on convertible notes 70,691 -- 206,223
Unrealized (gain) loss on marketable securities (7,655) 9,968 25,904
Loss on Bio Moda, Inc. 16,222 24,571 192,732
Issuance of common stock for services 1,120,233 27,687 2,903,117
Issuance of notes for services -- -- 50,000
Contract receivable (34,039) (66,375) (594,584)
Marketable equity securities (131) -- (131)
Allowance for loss on contract 18,039 -- 89,584
Other receivables 31,030 (5,954) (48,844)
Inventory 6,000 (41,324) (29,293)
Accrued liabilities and accounts payable (50,751) 1,116 29,629
-----------------------------------------
Net cash used by operating
activities (304,069) (237,065) (2,031,332)
-----------------------------------------
Cash Flows From Investing Activities
Purchase of equipment (31,886) (27,605) (344,226)
Investment in Bio Moda, Inc. -- -- (383,845)
Purchase of marketable securities (28,883) -- (98,917)
Purchase of certificate of deposit (51,655) -- (156,237)
Purchase of other assets -- (10,000) (96,427)
Proceeds from sale of Wizard Technologies, Inc. 65,000 -- --
-----------------------------------------
Net cash used by investing
activities (47,424) (37,605) (1,079,652)
-----------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Quarters Ended March 31, 2000 and 1999
and the Period from May 22, 1996 (Inception) Through
March 31, 2000
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
2000 1999 03/31/00
<S> <C> <C> <C>
Cash Flows From Financing Activities
Additions to notes payable -- -- 572,776
Payments on notes payable and capital
lease obligation (15,097) (6,764) (136,673)
Issuance of common stock 853,493 154,620 3,399,984
Sale of treasury stock 49,770 -- 85,234
Purchase of treasury stock (7,683) (11,132) (90,960)
--------------------------------------
Net cash provided by financing
activities 880,483 136,724 3,830,361
--------------------------------------
Net increase (decrease) in cash 528,990 (137,946) 719,377
Cash, beginning of period 190,387 204,612 --
--------------------------------------
Cash, end of period $ 719,377 66,666 719,377
======================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The interim financial information included herein is
unaudited. Certain information and footnote disclosures normally included in the
financial statements have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC), although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and related notes contained in the
Company's annual report on Form 10-KSB for the period ended December 31, 1999.
Other than as indicated herein, there have been no significant changes from the
financial data published in that report. In the opinion of management, such
unaudited information reflects all adjustments, consisting only of normal
recurring accruals and other adjustments necessary for a fair presentation of
the unaudited information.
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 may be required to obtain additional capital in order to
fund the completion of the contract.
Liquidity. Through March 31, 2000, the Company has maintained adequate liquidity
and has sufficient cash to pay its liabilities. Yet, completion of the contract
for the first billboard is behind schedule and the first milestone for billing
was not met by March 31, 2000. Accordingly, to fund Company operations and to
complete the first billboard, additional cash from stock issuances and/or
borrowings may become necessary in the future.
Marketable Equity Securities. The Company classifies all of its marketable
equity securities as available for sale securities. Available for sale
securities are carried at fair value with the unrealized gains and losses
reported in Other Comprehensive Income. As of March 31, 2000, gross unrealized
gains for the quarter were $7,655 and not considered significant to the
financial statements taken as a whole. Therefore, they have been reported in the
income statement.
9
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Inventories. 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.
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. Certain options and
warrants outstanding were not included in the computation of loss per share
because their effect would be antidilutive. Convertible preferred stock issued
during the quarter also was not included in the computation of loss per share
because their effect would be antidilutive.
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 allowances and the valuation of common
stock issued for services.
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.
10
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 $273,000 in the first unit has been recognized as of March 31,
2000. The Company's estimated cost to complete as of March 31, 2000 is $380,000,
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 have been no billings through March 31, 2000.
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.
<PAGE>
NOTE 2. RELATED PARTY RECEIVABLES
Related party receivables at March 31, 2000, 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
==========
NOTE 3. INVESTMENTS
During 1999 Bio Moda, Inc. sold additional shares, therefore the Company's
investment in Bio Moda, Inc. decreased from 22 to 20 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 March 31, 2000, 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 unaudited financial data relative to Bio Moda, Inc. as of
December 31, 1999 is as follows:
Assets:
Current assets $ 30,730
Other assets 24,465
---------
55,195
=========
Fixed assets 2,515
---------
Total assets $ 57,710
=========
Liabilities and equity
Notes payable to stockholders $ 92,711
Common stock 760,037
Deficit accumulated during the development stage (795,038)
---------
Total liabilities and equity $ 57,710
=========
12
<PAGE>
NOTE 3. INVESTMENTS (CONTINUED)
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
Additional purchase in 1999 25,000
Share of net loss (143,836)
Amortization of excess of cost
over book value (48,897)
---------
Net investment $ 191,112
=========
In August 1999, the Company issued 200,000 shares of its common stock to Wizard
Technologies, Inc. for $88,580. The Company then purchased a 10 percent
ownership in Wizard for $65,000 with the proceeds. During the quarter ending
March 31, 2000, the Company sold back all of its shares of Wizard's common stock
to Wizard for its original investment of $65,000.
NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
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 or the time of
exercise. 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 $174,610. This has been recorded as an increase in
paid-in capital and a discount to the convertible notes payable, with related
amortization being charged to interest expense. The discount is being amortized
over a one year period, which is management's estimate of time before any
conversion will be exercised. 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.
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.
13
<PAGE>
NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
(CONTINUED)
A significant contingency required by the aforementioned convertible note and
warrant agreements is the registration of the underlying shares with the
Securities and Exchange Commission. The company is to use its best efforts to
register these shares and is in the process of preparing the registration
statement.
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 offering,
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.
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 bear interest at the rate of 7 percent
with interest due semiannually and the principal due July, 2001.
In 1999, the Company repurchased 489,251 shares of its outstanding stock for
$11,132 in cash. These shares were retired. The Company also repurchased 229,000
shares for $41,760 and resold 85,000 of these shares for $35,464. The remaining
144,000 treasury shares have been recorded at cost.
14
<PAGE>
NOTE 5. EQUITY TRANSACTIONS (CONTINUED)
The Company also sold 8,681,624 shares for $863,782 in cash, and issued
17,094,313 shares for services from contractors, officers and others, which were
valued at $1,486,414.
During the quarter ending March 31, 2000, the Company sold 782,000 shares of its
common stock for $368,495 in cash, and issued 1,791,733 shares of its common
stock for services from contractors, officers and others, which were valued at
$1,120,233. The value of the services is included in the costs and expenses on
the Statement of Operations.
Also during this quarter, the Company sold 25,000 shares of its treasury stock
for $49,770 and repurchased 6,500 shares for $7,683. The repurchased shares have
been recorded at cost.
On March 14, 2000, the Company issued 550 shares of its Series A convertible
preferred stock for $550,000. Related finders fees and attorney fees were
$65,000, and were netted against the proceeds for a net increase in cash and
equity of $485,000. Effective June 14, 2000, the shares are convertible into
shares of common stock at the lesser of 110 percent of the closing bid price of
a share of common stock on March 13, 2000 or 77.5 percent of the average of the
five lowest closing bid prices for the common stock for the twenty trading days
immediately preceding the conversion date.
Management estimated the intrinsic value of the conversion feature to be
$159,677. This has been recorded as an increase in paid-in capital and a
discount to the convertible preferred stock, with related amortization being
charged to retained earnings via constructive dividends. The discount is being
amortized over a 90 day period, which is the period from the date of issuance to
the point at which the preferred shares can be converted to common shares. The
convertible preferred stock also includes detachable warrants for the purchase
of 55,000 shares of common stock at a purchase price per share equal to 110
percent of the closing bid price for the common stock on the closing date (March
8, 2000). The warrants expire on March 8, 2005. The detachable warrants have not
been valued in the accompanying financial statements, as management estimates
their fair market value to be immaterial.
15
<PAGE>
NOTE 6. STOCK PLANS
During the quarter ending March 31, 2000, the Company granted an additional
1,375,000 stock options to certain key employees. This results in total stock
options granted and unexercised of 8,125,000 as of March 31, 2000. The shares
issued upon exercise of the options may be authorized and unissued shares or
shares held by the Company in its treasury. The exercise date of options granted
is based upon the related agreement as approved by the Board of Directors. Also
during this quarter, one key employee exercised his options and purchased
150,000 shares of common stock for $13,500.
NOTE 7. SUBSEQUENT EVENT
At the Directors' meeting held during April 2000, the Company's Directors voted
to increase the authorized shares of common stock to 150,000,000.
16
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
.
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.
OVERVIEW
Advanced Optics Electronics, Inc. is a technology company whose primary focus is
the development, production and sales of its electronic flat panel displays. The
primary initial product will be marketed to users of outdoor advertising
billboards. We believe that our product line will create a new segment of the
outdoor advertising industry where multiple ads can be displayed and changed.
This will create new and enhanced sources of revenue for billboard companies.
Our goal is to create a product line based on technology that is scalable both
in terms of size and resolution to meet a wide range of requirements related to
site, economics and use from our potential customers. The major advantages of
our flat panel displays are viewing quality,
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affordability, customer system integrity, and remote change in seconds to reduce
advertising site maintenance and increase revenues. We also plan the development
of a leasing program and an Owned & Operated group.
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. Our operating activities
have related primarily to the initial planning and development of our product
and building our operating infrastructure.
We have recognized limited revenue to date. We expect that our principal source
of revenue will be derived from sales of our electronic display product. We are
anticipating having a prototype within the next 90 days.
Our operating expenses have increased significantly since our inception, and the
rate of increase has risen since last year. This is due to increased engineering
and management staff and investments in operating infrastructure. Since our
inception we have incurred significant losses and, as of March 31, 2000, had an
accumulated deficit of $5.2 million.
RESULTS OF CONTINUING OPERATIONS
Due to our limited operating history, we believe that period-to-period
comparisons of our results of operations are not fully meaningful and should not
be relied upon as an indication of future performance.
Comparison of the Three-Month Periods Ended March 31, 2000 and 1999
Revenue. Since our inception, we have been in the development stage and have had
only limited revenue. Revenues decreased to $34,039 in the first quarter of 2000
from $66,375 in the first quarter of 1999.
Product Development. Product development expenses consist primarily of personnel
expenses, consulting fees and depreciation of the equipment associated with the
development and enhancement of our flat panel displays. Research development and
technical costs increased to $133,967 in the first quarter of 2000 from $48,273
in the first quarter of 1999. We believe that continued investment in product
development is critical to attaining our strategic objectives and, as a result,
expect product development expenses to increase significantly in future periods.
We expense product development costs as they are incurred.
General and Administrative. General and administrative expenses consist of
expenses for executive and administrative personnel, facilities, professional
services, travel and other general corporate activities, and the depreciation
and amortization of office furniture and leasehold improvements. General and
administrative costs increased to $1,206,669 in the first quarter of 2000 from
$106,570 in the first quarter of 1999. The increase was primarily due to
increased personnel, professional
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service fees and facility expenses necessary to support our growth. We expect
general and administrative costs to increase as we continue to expand our staff
and incur additional costs to support the growth of our business and the costs
of being a public company. We further expect our general and administrative
expenses to increase as we grow through strategic acquisitions.
Other Income (Expense). Other income (expense) consists of interest and other
income and expense. Interest income increased to $2,293 in the first quarter of
2000 from $1,964 in the first quarter of 1999.. The increase in interest income
was due to an increase in our average net cash and cash equivalents balance.
Depreciation increased to $27,630 in the first quarter of 2000 from $23,529 in
the first quarter of 1999. due primarily to depreciation expense for equipment
acquired under capital leases.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations since inception primarily through the private
placement of equity securities, through which we have raised net proceeds of
$3,830,361 through March 31, 2000. We have also financed our operations through
an equipment loan and capital lease financing.
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.
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
March 31, 2000, was 20%. No immediate family members of officers or directors of
Advanced Optics Electronics, Inc. are securities holders of BioModa.
During the quarter ended March 31, 2000 $31,886 was spent for the purchase of
equipment. Product development expenditures were $133,967 in 1999. Funds for
operations, product development and capital expenditures were provided from the
sale of securities and cash reserves. As of March 31, 2000, we had approximately
$875,614 of cash and cash equivalents.
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 third quarter 2000. 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 2000.
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PART II. OTHER INFORMATION
Item 1. Legal proceedings
The Company is not a party to any significant legal proceeding, the adverse
outcome of which, in management's opinion, would have a material adverse effect
on the Company's operating results. The Company is a plaintiff in a proceeding
to remedy Internet related defamation. The damages sought are not significant
relative to the current assets of the Company
Item 2. Changes in securities
During the first quarter of fiscal year 2000 there was a 2,373,733 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
The Company held its Annual Meeting on April 12, 2000. Proxies were solicited
for the meeting pursuant to Regulation 14A under the Exchange Act. On the date
of record March 6, 2000, there were 48,433,745 shares outstanding. Two proposals
were voted on:
The proposal to approve the action of the Board of Directors in appointing Neff
& Ricci CPA LLP to continue as independent auditors for 2000 received the
following votes:
- --------------------------------------------------------------------------------
For: 41,718,809 86.14%
- --------------------------------------------------------------------------------
Against: 130,750 0.27%
- --------------------------------------------------------------------------------
Abstain: 278,330 0.57%
- --------------------------------------------------------------------------------
Broker Non-votes: NA NA
- --------------------------------------------------------------------------------
The foregoing proposal was approved and accordingly ratified.
The proposal to approve an amendment to the Company's Articles of Incorporation
and By-Laws to increase the authorized shares of common stock from 75,000,000 to
150,000,000 received the following votes:
- --------------------------------------------------------------------------------
For: 39,834,584 82.25%
- --------------------------------------------------------------------------------
Against: 2,158,890 4.46%
- --------------------------------------------------------------------------------
Abstain: 134,415 0.28%
- --------------------------------------------------------------------------------
Broker Non-votes: NA NA
- --------------------------------------------------------------------------------
The foregoing proposal was approved and accordingly ratified.
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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: May 11, 2000
ADVANCED OPTICS ELECTRONICS, INC.
BY:/s/John J. Cousins
---------------
John J. Cousins
Vice President of Finance
(Principal Accounting Officer)
BY:/s/Leslie S. Robins
----------------
Leslie S. Robins
Executive Vice President
(Principal Executive Officer)
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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 March 31, 2000
22
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