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, 1999 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 $310,345.
The aggregate market value of the voting stock held by non-affiliates of the
issuer on December 31, 1999 based upon the average bid and asked prices of such
stock on that date was $33,084,179. The number of issuer's shares of Common
Stock outstanding as of December 31, 1999 was 46,261,678.
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
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.
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.
In addition, none of these technologies can be scaled (driven larger or smaller)
as well as can the Advanced Optics Electronics, Inc. solution.
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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. The Billboard segment of the outdoor
advertising market exceeds $2 billion per year.
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. The billboard industry is experiencing
rapid consolidation through mergers and acquisitions driven by the top
providers. 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 50% of the billboard market. Media companies have been buying
billboard owners in order to offer packages of TV, radio, internet 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. Management nevertheless believes
that its products and technologies will be subject to substantial competition as
the market and technologies evolve.
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, in the future, only be viable in
low density/low traffic areas.
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Approximately half of the available billboards were booked on 12-month contracts
last year. These relatively long-term contracts could potentially limit the
company's market penetration during the start-up period. Management believes
however, that the trend is to go to shorter-term contracts and shared sites.
Research and Development Activities
In fiscal 1999, which ended December 31, 1999, $239,029 was spent on research
and development activities. In 1998, $148,123 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 flat panel
display.
Employees
As of December 31, 1999, the Company has approximately 10 full-time employees
and two part-time employees. 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 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 fiscal year ended December 31, 1999.
5
<PAGE>
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 for
each quarter within the last two fiscal years as reported by America On Line.
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
Fiscal 1998:
1st Quarter $.57 $.15
2nd Quarter .30 .18
3rd Quarter .23 .11
4th Quarter .12 .04
Fiscal 1999:
1st Quarter $.16 $.051
2nd Quarter .12 .065
3rd Quarter .49 .0825
4th Quarter .875 .25
As of December 31, 1999 the Company estimates that there were approximately 5800
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
6
<PAGE>
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 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 and Wizard, Inc. will provide additional
liquidity.
BioModa is a biomedical develop. The Company's ownership of BioModa, as of
December 31, 1999, was 20%. The biotech company presently holds patents pending
domestically and internationally in the technology for early detection of lung
cancer. BioModa Inc. has signed a mutual Letter of Intent to form a joint
venture with the Cancer Center of Sun Yat Sen University of Medical Science in
Guangzhou, China (SUMS/CC). The joint venture will develop a China-wide cancer
diagnostics business, consisting of multiple, full service diagnostic centers.
The business of the Centers will be to process patient specimens from "at risk"
populations, utilizing BioModa's patented, proprietary technology, for
diagnosing cancer in several organs of the human body. SUS/CC is the largest and
most prestigious cancer center in China, which screens and treats nearly 300,000
patients per year. The Center is a World Health Organization, Research Affiliate
and is also the Cancer Clinical Study Center for the Country of China. No
immediate family members of officers or directors of Advanced Optics
Electronics, Inc. are securities holders of BioModa.
Wizard Technologies, Inc. is a high-tech development company located in
Albuquerque, New Mexico. Its primary focus is the development and production of
switches for fiber optic telecommunications systems. No immediate family members
of officers or directors of Advanced Optics Electronics, Inc. are securities
holders of Wizard.
It is believed that sales of securities will provide adequate capital resources
to meet the anticipated developmental stage requirements through the first half
of fiscal year 2000. At that time it is anticipated that sales of displays will
begin and contribute to operating revenues.
7
<PAGE>
During the fiscal year ended December 31, 1999 $119,393 was spent for the
purchase of equipment. Product development expenditures were $239,029 in 1999.
Funds for operations, 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 1999 Compared to Fiscal 1998
Revenues increased 74% to $310,345 in 1999 from $178,200 in 1998. The increase
was due primarily to revenues from the contract in place.
Research development and technical costs increased to $239,029 in 1999 from
$148,123 in1998. The increase in these costs is due primarily to research and
development efforts.
General and administrative costs increased to $1,952,600 in 1999 from $490,296
in 1998 due to increases in salaries related to changes in personnel and
increases in professional fees.
Depreciation increased to $102,691 in 1999 from $35,133 in 1998 due primarily to
depreciation expense for equipment acquired under capital leases.
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.
Depreciation increased to $60,037 in 1998 from $37,156 in 1997 due primarily to
depreciation expense for equipment acquired under capital leases.
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
8
<PAGE>
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 February 18, 2000, 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.
9
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth information, as of December 31, 1999, concerning the
Company's directors and executive officers:
Name Age Position Since
Michael Pete 53 President, Treasurer, Director July 1994
Leslie S. Robins 61 Exec. Vice Pres., Secretary, Chairman November 1992
John J. Cousins 43 Vice President-Finance June 1999
Harold C. Herman 74 Director December 1998
Michael H. Pete, President, Director - With over 25 years of business and
professional experience, Mr. Pete has been President of ADOT and its predecessor
PLZ Tech since 1994. His prior experience included chief executive positions in
two high tech companies, project manager for Booz, Allen and as a technical
consultant for the U.S. Department of Energy.
Leslie S. Robins, Chairman and Executive Vice President of ADOT and its
predecessor PLZ Tech since late 1992. Mr. Robins has held executive positions in
investment banking and management focusing on small technology companies and the
entertainment industry.
John J. Cousins, Vice President of Finance - Mr. Cousins began his business
career as a design engineer for Ampex Corp and the American Broadcasting
Company. After receiving his MBA from the Wharton School he held several senior
financial management positions focusing on capital markets and business
development. He holds undergraduate degrees from Boston University and the
Lowell Institute School at MIT.
Harold C. Herman, Director since December 1998 to the present. Formerly a senior
partner of a 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 other most highly compensated executive officers for
1997, 1998 and 1999:
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------- Awards
--------------------------
Other Annual Restricted Securities LTIP All Other
Compensation Stock Award(s) Underlying Payouts Compensation
(1) Options
Name and Year Salary ($) Bonus ($) ($) ($) (#) ($) ($)
Principal Position
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Pete,
President,
Director
1997 $ 10,000 -- -- -- -- -- --
1998 $ 30,000 -- -- -- -- -- --
1999 $ 36,000 -- -- $ 7,350 800,000 -- --
Leslie S. Robins,
Chairman of the
Board and Exec. VP
1997 $ 18,000 -- -- -- -- -- --
1998 $ 67,600 -- $2448 -- -- --
1999 $ 109,340 -- $7,352 $ 131,915 5,000,000 -- --
John J. Cousins,
VP Finance
1997 -- -- -- -- -- -- --
1998 -- -- -- -- -- -- --
1999 $ 41,495 -- -- $ 3,375 300,000 -- --
</TABLE>
- ----------
(1) Other Annual Compensation for Leslie Robins was in the form of 12 months of
a car lease.
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
Name Number of % of Total Options Exercise Price Expiration Date
Securities Granted to ($/Sh)
Underlying Employees in
Options(O) and Fiscal Year
Warrants(W)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Pete 300,000(O) 4.35% $ 0.09 1/5/2003
Michael Pete 500,000(W) 7.25% $ 0.15 6/15/2004
Leslie Robins 2,000,000(O) 28.99% $ 0.12 2/6/2003
Leslie Robins 3,000,000(W) 43.48% $ 0.15 6/15/2004
John Cousins 300,000(O) 4.35% $ 0.15 6/28/2003
Harold Herman 150,000(O) 2.17% $ 0.09 1/5/2003
Harold Herman 350,000(W) 5.07% $ 0.15 6/15/2004
</TABLE>
11
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND OPTION VALUES AT DECEMBER 31, 1998
No options were exercised in fiscal year 1999.
<TABLE>
<CAPTION>
Name Shares Acquired Value Number of Securities Underlying Value of Unexercised
on Exercise (#) Realized ($) Unexercised Options(O) and In-the-Money Options at Fiscal
Warrants(W) at Fiscal Year End Year End ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael Pete -- -- 300,000(O) -- $ 235,500 --
Michael Pete -- -- 500,000(W) -- $ 362,500 --
Leslie Robins -- -- 2,000,000(O) -- $1,510,000 --
Leslie Robins -- -- 3,000,000(W) -- $2,175,000 --
John Cousins -- -- 300,000(O) -- $ 217,500 --
Harold Herman -- -- 150,000(O) -- $ 117,750 --
Harold Herman -- -- 350,000(W) -- $ 253,750 --
</TABLE>
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 1999 a $1500 annual retainer
and $1500 for each board meeting attended.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1999 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
- -------------------------------------------------------------------------------
John J. Cousins 150,000 (2) .11%
Harold Herman 50,000 (3) (6) .32%
Michael Pete 214,524 (4) (6) .46%
Leslie S. Robins 4,748,795 (5) (6) 10.27%
All Directors and Officers as a 5,163,319 11.16%
group
TOTAL SHARES OUTSTANDING 46,261,678 100%
- ----------
(1) The address of all persons who are executive officers or directors of the
Company is in care of the Company, 8301 Washington NE, Suite 5, Albuquerque
New Mexico 87113.
(2) John J. Cousins has options totaling 300,000 shares. If all options were
exercised Mr. Cousins would own .97% of the Company.
(3) Harold Herman is a Director of the Company and has options totaling 150,000
shares and warrants totaling 350,000. If all options and warrants were
exercised Mr. Herman would own 1.18% of the Company.
(4) Michael Pete is a Director and Officer of the Company and has options
totaling 300,000 shares. Mr. Pete has warrants totaling 500,000 shares. If
all options and warrants were exercised Mr. Pete would own 2.16% of the
Company.
(5) Leslie S. Robins has options totaling 2,000,000 shares and warrants
totaling 3,000,000 shares. If all options and warrants were exercised Mr.
Robins would own 18.65% of the Company.
(6) Warrants: There are 3,850,000 warrants outstanding.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1998 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.
13
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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
14
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ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL REPORT
DECEMBER 31, 1999
<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
CERTIFIED PUBLIC ACCOUNTANTS
7001 PROSPECT PLACE NE
ALBUQUERQUE, NM 87110
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, 1999, and the related statements
of income, retained earnings, and cash flows for the years ended December 31,
1999 and 1998, and for the 1999 and 1998 portion of the period from May 22, 1996
(inception) through December 31, 1999. 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 for the 1996 and 1997 portion of the period from May 22, 1996
(inception) through December 31, 1999, 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 1999 financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Optics Electronics,
Inc. as of December 31, 1999, and the results of its operations and its cash
flows for the years ended December 31, 1999 and 1998, and for the 1999 and 1998
portion of the period from May 22, 1996 (inception) through December 31, 1999,
in conformity with generally accepted accounting principles.
/s/ Neff & Ricci LLP
Albuquerque, New Mexico
February 18, 2000
1
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ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 190,387
Certificate of deposit 104,582
Marketable equity securities 36,474
Costs and estimated earnings
in excess of billings on
uncompleted contract 560,545
Raw materials 35,293
Due from officer and shareholder 67,494
-----------
Total current assets 994,775
-----------
FIXED ASSETS, at cost
Furniture and fixtures 28,097
Computers 35,900
Technical equipment 187,397
Automobile 43,313
Equipment under capital lease 101,359
Leasehold improvements 16,775
Less accumulated depreciation (102,691)
-----------
Total fixed assets 310,150
-----------
OTHER ASSETS
Note receivable from officer 31,030
Investment in Bio Moda, Inc. 207,334
Investment in Wizard Technologies, Inc., at cost 65,000
Debt origination costs, net of accumulated
amortization of $5,831 14,169
Goodwill, net of accumulated amortization
of $396 4,604
Patents, net of accumulated amortization
of $43,594 198,745
Other assets 30,000
-----------
Total other assets 550,882
-----------
Total assets $ 1,855,807
===========
The Notes to Financial Statements are an integral part of these statements.
2
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 64,175
Notes payable 4,726
Accrued liabilities 16,205
Current portion of long-term debt
and capital lease obligation 44,105
Allowance for loss on contract 71,545
-----------
Total current liabilities 200,756
-----------
Long-term portion of long-term debt
and capital lease obligation 408,790
-----------
COMMITMENTS
SHAREHOLDERS' EQUITY
Common stock, authorized 75,000,000 shares,
$.001 par value, 46,140,973 shares issued
and outstanding 46,141
Additional paid-in capital 4,870,257
Deficit accumulated during the development stage (3,639,507)
Treasury stock (30,630)
-----------
Total shareholders' equity 1,246,261
-----------
Total liabilities and shareholders' equity $ 1,855,807
============
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ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Years Ended December 31, 1999 and 1998,
and the Period from May 22, 1996 (Inception)
Through December 31, 1999
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
1999 1998 12/31/99
------------ ---------- ------------
<S> <C> <C> <C>
REVENUES
Contract revenue $ 310,345 178,200 560,545
------------ ---------- ------------
COSTS AND EXPENSES
General and administrative 1,952,600 490,296 2,572,735
Contract costs 468,221 215,472 741,361
Research and development 239,029 148,123 428,147
------------ ---------- ------------
Total expenses 2,659,850 853,891 3,742,243
------------ ---------- ------------
Operating loss (2,349,505) (675,691) (3,181,698)
------------ ---------- ------------
OTHER INCOME AND (EXPENSES)
Interest income 10,865 851 11,716
Unrealized gain (loss) on marketable
equity securities (26,684) (6,875) (33,559)
Loss on Bio Moda, Inc. (108,086) (68,424) (176,510)
Interest expense (189,374) (1,972) (196,436)
------------ ---------- ------------
Total other expenses (313,279) (76,420) (394,789)
------------ ---------- ------------
Net loss before cumulative effect
of change in accounting principle (2,662,784) (752,111) (3,576,487)
------------ ---------- ------------
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (63,020) -- (63,020)
------------ ---------- ------------
Net loss (2,725,804) (752,111) (3,639,507)
------------ ---------- ------------
Net loss per share before cumulative effect
of change in accounting principle (.070) (.055) (.188)
Cumulative effect of change in
accounting principle (.002) -- (.002)
------------ ---------- ------------
Net loss per share $ (.072) (.055) (.190)
============ ========== ==========
Weighted average shares outstanding 37,809,084 13,723,302 18,969,584
============ ========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
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STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from May 22, 1996 (Inception) Through
December 31, 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 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
=================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
<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
</TABLE>
6
<PAGE>
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1999 and 1998,
and the Period from May 22, 1996 (Inception) Through
December 31, 1999
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
1999 1998 12/31/99
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(2,725,804) (752,111) (3,639,507)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization and depreciation expense 87,755 66,037 194,526
Write off of organization costs 63,020 -- 63,020
Amortization of discounts on convertible notes 135,532 -- 135,532
Unrealized loss on marketable securities 26,684 6,875 33,559
Loss on Bio Moda, Inc. 108,086 68,424 176,510
Issuance of common stock for services 1,486,414 296,470 1,782,884
Issuance of notes for services 50,000 -- 50,000
Contract receivable (310,345) (178,200) (560,545)
Allowance for loss on contract 71,545 -- 71,545
Other receivables (22,477) (13,704) (79,874)
Inventory (35,293) -- (35,293)
Accrued liabilities and accounts payable 44,967 29,988 80,380
-------------------------------------------------
Net cash applied to operating
activities (1,019,916) (476,221) (1,727,263)
-------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (133,824) (135,334) (312,340)
Investment in Bio Moda, Inc. (25,000) (358,845) (383,845)
Purchase of marketable securities -- (70,034) (70,034)
Purchase of certificate of deposit (54,582) (50,000) (104,582)
Purchase of other assets (9,650) (20,050) (96,427)
Investment in Wizard Technologies, Inc. (65,000) -- (65,000)
-------------------------------------------------
Net cash applied to investing
activities (288,056) (634,263) (1,032,228)
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to notes payable 478,050 41,733 572,776
Payments on notes payable and capital
lease obligation (30,658) (63,380) (121,576)
Issuance of common stock 863,783 1,292,707 2,546,491
Sale of treasury stock 35,464 -- 35,464
Purchase of treasury stock (52,892) (30,385) (83,277)
-------------------------------------------------
Net cash provided by financing
activities 1,293,747 1,240,675 2,949,878
-------------------------------------------------
Net increase (decrease) in cash (14,225) 130,191 190,387
Cash, beginning of period 204,612 74,421 --
-------------------------------------------------
Cash, end of period $ 190,387 204,612 190,387
=================================================
</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, 1999, approximately $90,000 was not insured.
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 December 31, 1999, gross
unrealized losses were $26,684 and not considered significant to the financial
statements taken as a whole. Therefore, they have been reported in the income
statement. Realized gains and losses were not material.
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.
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. 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.
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. Certain options and
warrants outstanding were not included in the computation of loss per share
because their effect would be antidilutive.
Effect of New Accounting Pronouncements. Effective January 1, 1999, the Company
adopted Statement of Position 98-5 Reporting the Costs of Start-up Activities,
which requires that organization costs be expensed. 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, 1999.
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.
Stock-Based Compensation. As described in Note 9, the Company has elected to
follow the accounting provisions of Accounting Principles Board Opinion (APBO)
No. 25, Accounting for Stock Issued to Employees, for stock-based compensation
and to furnish the pro forma disclosures required under SFAS No. 123, Accounting
for Stock-Based Compensation.
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 $195,000 in the first unit has been recognized as of December 31,
1999. The Company's estimated cost to complete as of December 31, 1999 is
$396,000 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 December 31, 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 December 31, 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
10
<PAGE>
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 December 31, 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 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
Current liabilities $ --
Notes payable to stockholders 92,711
Common stock 760,037
Deficit accumulated during the development stage (795,038)
---------
Total liabilities and equity $ 57,710
=========
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 (134,011)
Amortization of excess of cost
over book value (42,500)
---------
Net investment $ 207,334
=========
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. The Company is applying the
cost method of accounting for the investment as there is no market value for the
stock of Wizard. The related agreement includes a provision for the Company to
increase its investment to 20 percent in 2000. The Company's decision to
increase their investment is contingent upon Wizard meeting certain progress
objectives.
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 $71,100 at
December 31, 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 December 31:
2000 $ 33,720
2001 18,674
--------
52,394
Less amounts representing interest (5,707)
--------
$ 46,687
========
Long-Term Debt. In November 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 10 percent at
December 31, 1999) of $354. The note is secured by equipment and the balance
outstanding at December 31, 1999 was $10,817.
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 December 31, 1999 was
$25,454.
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 10 percent at December 31, 1999) of
$409. The note is secured by equipment and the balance outstanding at December
31, 1999 was $10,726.
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.
12
<PAGE>
NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION (CONTINUED)
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.
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.
Principal payments for long-term debt and convertible notes for the years ending
December 31 are as follows:
2000 $ 15,500
2001 540,735
2002 14,592
---------
570,827
Less unamortized discount and interest on convertible notes (164,619)
---------
Total $ 406,208
=========
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.
13
<PAGE>
NOTE 5. EQUITY TRANSACTIONS (CONTINUED)
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 bears 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.
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.
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.
14
<PAGE>
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 December 31, 1999:
Estimated
Carrying Fair
Amount Value
Cash and cash equivalents $190,388 190,388
Certificate of deposit 104,581 104,581
Marketable equity securities (with an
original cost of $63,159) 36,474 36,474
Notes receivable 67,493 67,493
Notes payable 4,726 4,726
Long-term debt and capital lease obligation 452,897 452,897
NOTE 7. INCOME TAXES
At December 31, 1999, the Company had deferred tax assets amounting to
approximately $1,280,000. 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 $960,000 in the year ending December 31, 1999. The net
change is due primarily to the increase in net operating loss carryforwards.
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $3,200,000 available to offset future state and federal taxable
income. These carryforwards will expire in 2016 to 2019 for federal tax purposes
and 2001 to 2004 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.
15
<PAGE>
NOTE 8. COMMITMENTS (CONTINUED)
Rent expense during 1999 and 1998 was $34,600 and $13,634, respectively.
Future minimum lease payments are as follows:
2000 $16,200
NOTE 9. STOCK PLANS
During 1999, the Company started a stock-based compensation plan, which is
described below. The Company applies APB Opinion 25 and related Interpretations
in accounting for this plan. Accordingly, no compensation cost has been
recognized for its Stock Option Plan. Had compensation cost for the Company's
stock-based compensation plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the method of FASB
Statement 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below.
1999 1998
Net loss - as reported $ (2,725,804) (752,111)
Pro forma (2,940,633) (752,111)
Loss per share - as reported .072 .055
Pro forma .072 .055
On January 4, 1999, the Board of Directors of the Company adopted an Incentive
Stock Option Plan. Pursuant to the plan, up to 10,000,000 shares of common stock
of the Company may be granted as options to key employees. 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. The
Incentive Stock Option Plan expires on January 4, 2009.
During the year, 3,050,000 stock options were granted. The fair value of each
option grant for the above pro forma disclosures is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividends of $0 per year; expected volatility
ranging from 143 percent to 173 percent; risk-free interest rate ranging from
4.62 percent to 5.86 percent; and expected lives of 4 years.
16
<PAGE>
NOTE 9. STOCK PLANS (CONTINUED)
The Company also issued Stock Purchase Warrant Agreements to each of its
Directors. The total number of "warrant shares" issued under these agreements
was 3,850,000 shares, which are exercisable at any time until they expire on
June 15, 2004. The price established for the shares upon exercise is .15 cents
per share.
A summary of the common option and warrant activity for employees, directors and
officers is as follows:
Warrants Weighted
And Average
Options Option Price Exercisable
Balance, December 31, 1997 153,954 $ .58 153,954
Balance, December 31, 1998 153,954 .58 153,954
==========
Granted 6,900,000 .16
Expired (153,954) .58
----------
Balance, December 31, 1999 6,900,000 .16 6,185,000
========== ==========
The option price established for the shares upon exercise ranges from .09 cents
per share to .30 cents per share, 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.
17
<PAGE>
Indexes to financial statements appear after the signature page to this
Form 10-KSB.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Exhibits
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2 Plan of Acquisition, Reorganization, arrangement, None
liquidation, or succession
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.
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.
4 Instruments defining the rights of holders, including Incorporated by reference to Exhibit
Indentures 3.2
7 Opinion re: liquidation preference Incorporated by reference to Exhibit
3.2
10.1 Incentive Stock Option Plan Filed Herewith
10.2 Lease Agreement Advanced Optics Electronics, Inc. and JMP Incorporated by reference to Exhibit
Company Inc 10.2 of the Company's Registration
Statement No.1000-24511 on Form 10-SB
filed June 23,1998.
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.
24 Power of Attorney Incorporated by reference to Exhibit
3.2
27 Financial Data Schedule Filed Herewith
</TABLE>
Reports on Form 8-K
During the 1999 fiscal year, the Company filed no reports on Form 8-K.
<PAGE>
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 7, 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)
EXHIBIT 10.1
Advanced Optics Electronics, Inc.
1999 INCENTIVE STOCK OPTION PLAN (The "Plan")
1. Purpose of the Plan
The purpose of this Plan is to provide a means whereby Advanced Optics
Electronics, Inc. (the "Company") may, through the grant of incentive stock
options (the "Options"), within the meaning of Section 422A of the Internal
Revenue Code of 1986 as now in effect or hereafter amended, (the "Code") attract
and retain employees of the Company (including officers and directors of the
Company) who, in the judgment of the Board of Directors, who are to be
responsible for the administration of the Plan, are considered especially
important to the future of the Company ("Key Employees") .
2. Shares Subject to the Plan
Options may be granted by the Company from time to time to Key Employees to
purchase an aggregate of up to 10,000,000 shares of common stock of the Company
par value $.001 (the "Stock"), and such amount of shares shall be reserved for
Options under the Plan (subject to adjustment as provided in Section 5 (g)). The
shares issued upon exercise of the Options may be authorized and unissued shares
or shares held by the Company in its treasury. If any Option shall terminate,
expire or, with the consent of the optionee, be canceled as to any shares, new
Options may thereafter be granted covering such shares.
3. Administration of the Plan
The Plan shall be administered by the Board of Directors (the "Board"). The
Board may interpret the Plan, prescribe, amend, and rescind any rules and
regulations necessary or appropriate for the administration of the Plan, or for
the continued qualification of any Options, and make such other determinations
and take such other action as it deems necessary or advisable. Any
interpretation, determination or other action taken by the Board shall be final,
binding and conclusive.
4. Grant of Options
Subject to the provisions of the Plan, the Board shall (a) determine and
designate those Key Employees to whom Options are to be granted; (b) determine
the number of shares subject to each Option; and (c) determine the time or times
when and the manner in which each Option shall be exercisable and the duration
of the exercise period; provided, however, that (i) no Option shall be granted
after the expiration of ten years from the effective date of the Plan specified
in Section 10 below, and (ii) the aggregate fair market value (determined as of
the date an Option is granted) of all Stock for which any employee may be
granted in any calendar year shall not exceed $400,000.
<PAGE>
5. Terms and Conditions of Options
Each Option shall be evidenced by an agreement in a form approved by the Board.
Such agreement shall be subject to the following express terms and conditions
and to such other terms and conditions as the Board may deem appropriate:
(a) Option Period. Each option agreement shall specify the period for which the
Option evidenced thereby is granted and shall provide that the Option shall
expire at the end of such period. The Board may extend such period provided such
extension shall not in any way disqualify the Option as an incentive stock
option. In no case shall such period, including any extensions, exceed ten years
from the date of the grant, provided, however, that, in the case of an Option
granted to a Key Employee who, at the time of the grant, is the beneficial owner
of stock possessing more than ten (10) percent of the total combined voting
power of all classes of stock of the Company (a "Ten Percent Stockholder"), such
period, including extensions, shall not exceed five years from the date of the
grant.
(b) Option Price. The option price per share shall be determined by the Board at
the time the option is granted, and shall not be less than (i) the fair market
value per share of stock or (ii) in the case of an option granted to a Ten
percent Stockholder, One Hundred Ten Percent (110%) of the fair market value per
share of stock on the date the Option is granted, as determined by the Board.
(c) Exercise of Option. No part of any Option may be exercised until the
optionee shall have remained in the employ of the Company for such period, after
the date on which the Option is granted, as the Board may specify in the Option
agreement. The Option agreement may provide for exercising in installments.
(d) Payment of Purchase Price upon Exercise. Each option agreement shall provide
that the purchase price of the shares as to which an Option shall be exercised
shall be paid to the Company at the time of exercise either in cash, or in such
other consideration as the Board deems appropriate, including, but not limited
to, common stock of the Company already owned by the optionee, having a total
fair market value, as determined by the Board, 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.
(e) Exercise in the Event of Death or Termination of Employment.
(i) If an optionee shall die (i) while in the employment of the Company or (ii)
within three months after the termination of employment because of disability of
the optionee, the optionee's Option may be exercised to the extent the optionee
would have been entitled to do so on the date of the optionee's death or such
termination of employment, by the person or persons to whom the optionee's
rights under the Option pass by will or otherwise, or if no such person has such
right, by the optionee's executors or administrators, at any time, or from time
to time, within twelve
2
<PAGE>
months after the date of the death of the optionee but in no event after the
expiration date set forth in the option agreement.
(ii) If the employment of an optionee by the Company is terminated (a) because
of the disability of the optionee; or (b) involuntarily for other than cause; or
(c) by reason of the retirement of the optionee in accordance with any Company
tax-qualified plan or with consent of the Company, then the Optionee shall be
entitled to exercise this option, to the extent the optionee would have been
entitled to do so on the date of termination of the optionee, at any time, or
from time to time, within three months after such date of expiration date set
forth in the option agreement.
(iii) If the optionee's employment by the Company is terminated voluntarily by
the optionee, or by the Company for cause, the optionee's right to exercise this
option shall expire on the earlier of the date of termination or the expiration
date set forth in the option agreement. For this purpose, termination for cause
shall mean termination of employment by reason of the optionee's willful breach
or habitual neglect of his or her duties as an officer or employee of the
Company, or the optionee's commission of a felony, fraud or willful misconduct
that has resulted, or is likely to result, in material damage to the Company,
all as the Board in its sole discretion may determine.
(f) Non-transferability. No Option shall be transferable other than by will or
by the laws of descent and distribution. During the lifetime of the optionee, an
Option shall be exercisable only by the optionee.
(g) 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 of any similar change affecting the
Stock, then the number and kind of shares which may thereafter be optioned and
sold under the Plan and the number and kind of shares subject to option in
outstanding option agreements and the purchase price per share shall be adjusted
appropriately consistent with such change in such manner as the Board may deem
equitable to prevent substantial dilution or enlargement of the rights granted
to, or available for, participants in the Plan.
(h) No Rights as Stockholder. No optionee shall have any rights as a shareholder
with respect to any shares of stock subject to an Option prior to the date of
issuance of a certificate for such shares.
(i) No Right to Continued Employment. The Plan and any Option granted under the
plan shall not confer upon any optionee any right with respect to continuance of
employment by the Company, nor shall it interfere in any way with the right of
the Company to terminate employment at any time.
3
<PAGE>
6. Compliance with Laws and Regulations
The Plan, the grant and exercise of Options, and the obligations of the Company
to sell and deliver shares under Options, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
government agency that may be required. The Company shall not be required to
issue or deliver any certificates for shares of Stock prior to (i) the listing
of such shares on any stock exchange on which the Stock may then be listed and
(ii) the completion of any registration or qualification of such shares under
any federal or state law, or any rule or regulation of any governmental body
which the Company shall, in its sole discretion, determine to be necessary or
advisable.
7. Investment Representation
The Board may require the optionee to furnish to the Company, prior to and as a
condition precedent to the issuance of any shares hereunder, an agreement, in
such form as the Board may specify, in which the optionee represents the shares
acquired by the optionee are being acquired by the optionee are being acquired
for investment and not with a view to the sale or distribution thereof.
8. Restrictions on disposition of Shares
The Company shall have a right of first refusal, in accordance with terms to be
established by the Board, on any resale of shares of acquired by exercise of an
Option and each stock certificate shall bear a legend to that effect. All
certificates for Stock delivered under the Plan shall also be subject to
stop-transfer orders and other restrictions as the Board may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, and stock exchange upon which the stock is then listed and
any applicable state and federal securities laws, and the Board may cause a
legend to be placed on such certificates to make appropriate reference to such
restrictions. If the optionee desires to sell or transfer any Stock and receives
a bona fide offer, the optionee shall submit in writing to the Company the
identity of the offeror and all details of the terms of the offer. The Company
shall have thirty (30) days from the receipt of the terms of the offer to elect
to acquire the stock on identical terms. If the Company fails to exercise its
purchase option, the optionee shall have the right, for a period of then (10)
business days after refusal of the option or the expiration of the option
period, whichever is earlier, to sell the Stock to the original offeror on the
identical terms submitted to the Company. With respect to any Stock not sold
within the specified period, this option provision shall remain in full force
and effect. The foregoing provisions of this Section 8 shall not be effective if
and to the extent the Stock delivered under the Plan is covered by an effective
registration statement under the Securities Act of 1933, or if such provisions
are no longer required or desirable. In making such determination, the Board may
rely upon an opinion of counsel for the Company.
9. Amendment and Discontinuance
The Board may from time to time amend, suspend or discontinue the Plan,
provided, however, subject to the provisions of Section 5 (g), no action of the
Board may (i) increase the number of shares reserved for Options pursuant to
Section 2, (ii) permit the granting of any Option at an
4
<PAGE>
option price less than that determined in accordance with section 5(b), (iii)
shorten the period provided for in Section 5(c) which must elapse between the
date of granting an Option and the date on which any part of the Option may be
exercised, or (iv) permit the granting of Options which expire beyond the period
provided for in Section 5(a). Without the written consent of the optionee in
each case, no amendment or suspension of the Plan shall alter or impair any
Option previously granted under the Plan. 21
10. Effective Date of the Plan
The effective date of the Plan shall be January 4, 1999.
The Plan shall terminate ten years from January 4, 1999 and no Option shall be
granted after that date.
CONFIRMATION
I, Leslie S. Robins, secretary of Advanced Optics Electronics, Inc., certify
that on January 4, 1999, the Board of directors of Advanced Optics Electronics,
Inc. approved and adopted the foregoing Plan.
/s/ Leslie S. Robins
Leslie S. Robins, Secretary
5
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