U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 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 5, Albuquerque, New Mexico 87113
(Address of principal executive offices including zip code)
Issuer's telephone number: (505) 797-7878
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
The number of issuer's shares of Common Stock outstanding as of September 30,
2000 was 61,312,676
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
SEPTEMBER 30, 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 6
Statements of Cash Flows 10
Notes to Financial Statements 13
<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 September 30, 2000, and
the related condensed statements of operations, cash flows and changes in
stockholders' equity for the quarters and the nine months ended September 30,
2000 and 1999, and for the 2000, 1999, and 1998 portion of the period from May
22, 1996 (inception) through September 30, 2000. The 1996 and 1997 portion of
the condensed financial statements for the period from May 22, 1996 (inception)
through September 30, 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
October 20, 2000
1
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
September 30, 2000
See Accountants' Report.
ASSETS
Current Assets
Cash and cash equivalents $ 778,220
Certificates of deposit 106,684
Costs and estimated earnings
in excess of billings on
uncompleted contract 588,789
Raw materials 29,293
Due from officer and shareholder 44,493
----------
Total current assets 1,547,479
Property and Equipment, net 304,133
----------
Other Assets
Investment in Bio Moda, Inc. 156,698
Intangible assets, net 242,605
Due from officer and shareholder 199,477
Other assets 30,089
----------
Total other assets 628,869
----------
Total assets $2,480,481
==========
See Notes to Financial Statements.
2
<PAGE>
<TABLE>
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 161,038
Accrued liabilities 7,764
Current portion of long-term debt
and capital lease obligation 39,552
Allowance for loss on contract 108,414
-----------
Total current liabilities 316,768
-----------
Long-term portion of long-term debt
and capital lease obligation 334,549
-----------
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 and 160 shares in the third
quarter of 2000 1
Common, authorized 150,000,000 shares, $.001 par value
61,312,676 shares issued and 61,175,176 shares outstanding 61,313
Additional paid-in capital 8,635,792
Deficit accumulated during the development stage (6,813,368)
Treasury stock (54,574)
-----------
Total shareholders' equity 1,829,164
-----------
Total liabilities and shareholders' equity $ 2,480,481
===========
</TABLE>
3
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Quarters Ended September 30, 2000 and 1999
See Accountants' Report.
2000 1999
Revenues
Contract revenue $ 82,490 125,000
-----------------------------
Costs and Expenses
General and administrative 295,340 309,082
Contract costs 154,490 119,451
Research and development 178,821 50,611
-----------------------------
Total expenses 628,651 479,144
-----------------------------
Operating loss (546,161) (354,144)
-----------------------------
Other Income and (Expenses)
Interest income 5,113 3,959
Unrealized gain (loss) on marketable
equity securities 2,352 7,505
Loss on Bio Moda, Inc. (18,193) (9,781)
Interest expense (4,833) (39,735)
-----------------------------
Total other expenses (15,561) (38,052)
-----------------------------
Net loss (561,722) (392,196)
-----------------------------
Net loss per share $ (.01) (.01)
=============================
Weighted average shares outstanding 60,627,342 41,851,287
=============================
See Notes to Financial Statements.
4
<PAGE>
STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2000 and 1999
and the Period from May 22, 1996 (Inception)
Through September 30, 2000
See Accountants' Report.
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
2000 1999 09/30/00
<S> <C> <C> <C>
Revenues
Contract revenue $ 118,117 261,375 678,662
--------------------------------------------------------
Costs and Expenses
General and administrative 2,067,891 721,624 4,640,626
Contract costs 387,964 283,570 1,129,325
Research and development 447,448 137,051 875,595
--------------------------------------------------------
Total expenses 2,903,303 1,142,245 6,645,546
--------------------------------------------------------
Operating loss (2,785,186) (880,870) (5,966,884)
--------------------------------------------------------
Other Income and (Expenses)
Interest income 10,813 11,028 22,530
Unrealized gain (loss) on marketable
equity securities 4,194 (15,424) (29,365)
Loss on Bio Moda, Inc. (50,637) (48,309) (227,148)
Interest expense (193,368) (225,115) (389,804)
--------------------------------------------------------
Total other expenses (228,998) (277,820) (623,787)
--------------------------------------------------------
Net loss before cumulative effect
of change in accounting principle (3,014,184) (1,158,690) (6,590,671)
--------------------------------------------------------
Cumulative Effect of Change
in Accounting Principle -- (63,020) (63,020)
--------------------------------------------------------
Net loss (3,014,184) (1,221,710) (6,653,691)
--------------------------------------------------------
Net loss per share before cumulative effect
of change in accounting principle (.06) (.04) (.25)
Cumulative effect of change in
accounting principle -- -- --
--------------------------------------------------------
Net loss per share $ (.06) (.04) (.25)
========================================================
Weighted average shares outstanding 53,921,575 32,149,015 26,094,822
========================================================
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from May 22, 1996 (Inception)
Through September 30, 2000
See Accountants' Report.
<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>
See Notes to Financial Statements
6
<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> <C>
Balance, May 22, 1996 -- $ -- -- -- --
Stock issued to incorporators for cash -- -- 24,500 -- 25,000
Stock issued for the net assets of PLZ Tech, Inc. -- -- 281,096 -- 285,596
Net loss -- -- -- (76,902) (76,902)
----------------------------------------------------------------------
Balance, December 31, 1996 -- -- 305,596 (76,902) 233,694
Stock issued in public offering -- -- 362,720 -- 365,001
Net loss -- -- -- (84,690) (84,690)
----------------------------------------------------------------------
Balance, December 31, 1997 -- -- 668,316 (161,592) 514,005
Stock issued for cash -- -- 1,281,728 -- 1,292,707
Stock issued for services -- -- 293,719 -- 296,470
Stock issued in exchange for note receivable -- -- 28,685 -- 29,000
Purchase and retirement of treasury stock -- -- (39,913) -- (40,385)
Net loss -- -- -- (752,111) (752,111)
----------------------------------------------------------------------
Balance, December 31, 1998 -- -- 2,232,535 (913,703) 1,339,686
Stock issued for cash -- -- 855,101 -- 863,783
Stock issued for services -- -- 1,469,320 -- 1,486,414
Intrinsic value of beneficial conversion -- -- 174,610 -- 174,610
feature of notes payable
Fair value of warrants related to notes payable -- -- 125,000 -- 125,000
Purchase and retirement of treasury stock -- -- (10,643) -- (11,132)
Purchase of treasury stock (229,000) (41,760) -- -- (41,760)
Sale of treasury stock 85,000 11,130 24,334 -- 35,464
Net loss -- -- -- (2,725,804) (2,725,804)
----------------------------------------------------------------------
Balance, December 31, 1999 (144,000) (30,630) 4,870,257 (3,639,507) 1,246,261
Stock issued for cash -- -- 852,710 -- 853,493
Stock issued for services -- -- 1,118,441 -- 1,120,233
Purchase of treasury stock (6,500) (7,683) -- -- (7,683)
Sale of treasury stock 25,000 4,486 45,284 -- 49,770
Constructive dividends (amortization of
discount on convertible preferred stock) -- -- 42,581 (42,581) --
Net loss -- -- -- (1,501,338) (1,501,338)
----------------------------------------------------------------------
Balance, March 31, 2000 (125,500) $ (33,827) 6,929,273 (5,183,426) 1,760,736
</TABLE>
7
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
For the Period from May 22, 1996 (Inception)
Through September 30, 2000
See Accountants' Report.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------------------- -----------------------
Par Par
Shares Value Shares Value
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Exercise of stock options for note receivable 1,000,000 $ 1,000 -- $ --
Stock issued for services 1,247,970 1,248 -- --
Stock issued upon conversion of
outstanding convertible notes 9,200,000 9,200 -- --
Purchase of treasury stock -- -- -- --
Constructive dividends (amortization of
discount on convertible preferred stock) -- -- -- --
Net loss -- -- -- --
---------------------------------------------------------------
Balance, June 30, 2000 60,162,676 $ 60,163 550 $ 1
---------------------------------------------------------------
Stock issued for cash -- -- 160 --
Exercise of stock options for note receivable 850,000 850 -- --
Stock issued for services 300,000 300 -- --
Purchase of treasury stock -- -- -- --
Sale of treasury stock -- -- -- --
Intrinsic value of beneficial conversion
feature of notes payable -- -- -- --
Fair value of warrants related to notes payable -- -- -- --
Net loss -- -- -- --
---------------------------------------------------------------
Balance, September 30, 2000 61,312,676 $ 61,313 710 $ 1
</TABLE>
See Notes to Financial Statements.
8
<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> <C>
Exercise of stock options for note receivable -- $ -- 119,000 -- 120,000
Stock issued for services -- -- 384,181 -- 385,429
Stock issued upon conversion of
outstanding convertible notes -- -- 533,678 -- 542,878
Purchase of treasury stock (44,000) (33,817) -- -- (33,817)
Constructive dividends (amortization of
discount on convertible preferred stock) -- -- 117,096 (117,096) --
Net loss -- -- -- (951,124) (951,124)
------------------------------------------------------------------------
Balance, June 30, 2000 (169,500) $ (67,644) 8,083,228 (6,251,646) 1,824,102
------------------------------------------------------------------------
Stock issued for cash -- -- 160,000 -- 160,000
Exercise of stock options for note receivable -- -- 101,150 -- 102,000
Stock issued for services -- -- 90,260 -- 90,560
Purchase of treasury stock (13,000) (4,986) -- -- (4,986)
Sale of treasury stock 45,000 18,056 9,487 -- 27,543
Intrinsic value of beneficial conversion
feature of notes payable -- -- 166,667 -- 166,667
Fair value of warrants related to notes payable -- -- 25,000 -- 25,000
Net loss -- -- -- (561,722) (561,722)
------------------------------------------------------------------------
Balance, September 30, 2000 (137,500) $ (54,574) 8,635,792 (6,813,368) 1,829,164
------------------------------------------------------------------------
</TABLE>
9
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Quarters Ended September 30, 2000 and 1999
See Accountants' Report.
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(561,722) (392,196)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization and depreciation expense 26,578 53,762
Amortization of discounts on convertible notes 6,944 --
Unrealized (gain) loss on marketable securities (2,352) (7,505)
Loss on Bio Moda, Inc. 18,193 9,781
Issuance of common stock for services 90,560 175,531
Issuance of notes for services 20,000
Other receivables 45,524 (13,509)
(Increase) decrease in:
Contract receivable 7,383
(125,000)
Marketable equity securities (132) --
(Increase (decrease) in:
Allowance for loss on contract (19,843) --
Accrued liabilities and accounts payable 135,821 (19,557)
Net cash used by operating
activities (233,046) (318,693)
-------------------------
Cash Flows From Investing Activities
Purchase of equipment (13,873) (25,769)
Purchase of marketable securities (30,759) (8,836)
Purchase of certificate of deposit (3,504) (451)
Sale of marketable securities 66,825 --
-------------------------
Net cash provided (used) by investing
activities 18,689 (35,056)
-------------------------
Cash Flows From Financing Activities
Additions to notes payable 430,000 4,383
Payments on notes payable and capital
lease obligation (13,107) (2,041)
Issuance of common stock -- 240,035
Purchase of treasury stock (4,986) (7,303)
Issuance of preferred stock 160,000 --
Sale of treasury stock 27,543 --
-------------------------
Net cash (used) provided by financing
activities 599,450 235,074
-------------------------
Net (decrease) increase in cash 385,093 118,675
Cash, beginning of period 393,127 360,664
-------------------------
Cash, end of period $ 778,220 241,989
=========================
</TABLE>
See Notes to Financial Statements
10
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Nine Months Ended September 30, 2000 and 1999
and the Period from May 22, 1996 (Inception) Through
September 30, 2000
See Accountants' Report.
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
2000 1999 09/30/00
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(3,014,184) (1,221,710) (6,653,691)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization and depreciation expense 91,764 109,870 286,290
Write off of organization costs -- 63,020 63,020
Amortization of discounts on convertible notes 190,611 -- 326,143
Unrealized (gain) loss on marketable securities (4,194) 15,424 29,365
Loss on Bio Moda, Inc. 50,637 48,309 227,148
Issuance of common stock for services 1,596,222 565,488 3,379,106
Issuance of notes for services 20,000 50,000 70,000
(Increase) decrease in:
Contract receivable (28,244) (261,375) (588,789)
Marketable equity securities (421) -- (421)
Other receivables 76,554 (21,970) (3,320)
Inventory 6,000 (41,324) (29,293)
Increase (decrease) in:
Allowance for loss on contract 36,869 -- 108,414
Accrued liabilities and accounts payable (88,422) (21,446) 168,802
--------------------------------------------------
Net cash used by operating
activities (889,964) (715,714) (2,617,226)
--------------------------------------------------
Cash Flows From Investing Activities
Purchase of equipment (60,835) (86,431) (373,176)
Investment in Bio Moda, Inc. -- -- (383,845)
Sale of marketable securities 100,642 -- 100,642
Purchase of marketable securities (59,642) (19,836) (129,676)
Purchase of certificate of deposit (55,408) (55,251) (159,990)
Redemption of certificate of deposit 53,306 -- 53,306
Purchase of other assets -- (10,000) (96,427)
Proceeds from sale of Wizard Technologies, Inc. 65,000 -- --
--------------------------------------------------
Net cash used by investing
activities 43,063 (171,518) (989,166)
--------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Nine Months Ended September 30, 2000 and 1999
and the Period from May 22, 1996 (Inception) Through
September 30, 2000
See Accountants' Report.
<TABLE>
<CAPTION>
5/22/96
(Inception)
Through
2000 1999 09/30/00
<S> <C> <C> <C>
Cash Flows From Financing Activities
Additions to notes payable $ 430,000 447,383 1,002,776
Payments on notes payable and capital
lease obligation (39,586) (11,978) (161,162)
Issuance of common stock 853,493 507,639 3,399,984
Issuance of preferred stock 160,000 -- 160,000
Sale of treasury stock 77,313 -- 112,777
Purchase of treasury stock (46,486) (18,435) (129,763)
---------------------------------------------
Net cash provided by financing
activities 1,434,734 924,609 4,384,612
---------------------------------------------
Net increase in cash 587,833 37,377 778,220
Cash, beginning of period 190,387 204,612 --
---------------------------------------------
Cash, end of period $ 778,220 241,989 778,220
=============================================
</TABLE>
See Notes to Financial Statements.
12
<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. As of
September 30, 2000, completion of this contract was behind schedule. The Company
received a payment on the contract of approximately $90,000 during the quarter
ending September 30, 2000. While management believes the contract will
ultimately be completed, there can be no certainty that this will be
accomplished because the technology has not yet been used in a commercial
application. In addition, the Company may be required to obtain additional
capital in order to fund the completion of the contract.
Revenue and Cost Recognition. The Company recognizes 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.
13
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 September 30, 2000, gross
unrealized losses for the quarter were $2,352 and not considered significant to
the financial statements taken as a whole. Therefore, they have been reported in
the income statement.
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.
14
<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 $465,000 in the first unit has been recognized as of September 30,
2000. The Company's estimated cost to complete as of September 30, 2000 is
$315,000, 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. During the quarter ending September 30, 2000, the
Company billed and received approximately $90,000 on the contract.
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.
NOTE 2. RELATED PARTY RECEIVABLES
Related party receivables at September 30, 2000, consist of the following:
Due from officer $ 29,493
Note receivable from former shareholder bearing
interest at 8% and due in November, 2000 15,000
Note receivable from officer, interest at 10% due
quarterly (first quarter prepaid) and principal
due in June, 2003 97,477
Note receivable from officer, interest at 10% due
quarterly and principal due in September 2003 48,000
Note receivable from officer, interest at 10% due
quarterly and principal due in August 2003 54,000
---------
243,970
Less current portion 44,493
---------
$ 199,477
15
<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. As of September
30, 2000, the Company owned 931,253 shares of Bio Moda's total outstanding
shares of 4,650,985, and had an option to purchase an additional 187,000 shares
at .485 cents per share. Bio Moda, Inc. is a development stage company involved
primarily in the development of technology for the early detection of lung
cancer. As a development stage company, Bio Moda, Inc. has not had any revenues
and, as of September 30, 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
=========
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 (166,709)
Amortization of excess of cost
over book value (60,438)
---------
Net investment $ 156,698
=========
16
<PAGE>
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.
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.
On June 12, 2000, the Company entered into an agreement that modified the
convertible notes agreement entered into on June 3, 1999. The result of the
modified agreement was the issuance of 9,200,000 shares of the Company's common
stock upon conversion of the convertible notes plus accrued interest through
June 12, 2000, which totaled $542,878. This transaction constituted a conversion
of the outstanding convertible notes, and as such, $40,058 of unamortized
intrinsic value of the conversion feature was charged to interest expense during
the quarter. In addition, the modified agreement voided the related 12,500,000
detachable warrants, and as a result the unamortized discount of $72,917 on the
estimated fair market value of $125,000 for the warrants was charged to interest
expense during the quarter.
On September 15, 2000, the Company entered into an agreement to issue a total of
$10,000,000 in convertible notes, which bear interest at an annual rate of 8
percent. The Company has authorized
17
<PAGE>
NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION (CONTINUED)
the initial sale of $2,000,000 of the convertible notes, and has entered into a
structured facility with Purchasers in which the Purchasers shall be obligated
to purchase the remaining $8,000,000 of convertible notes. The Company's right
to require the Purchasers to purchase notes commences on the actual effective
date of the registration of the Company's securities in an amount equal to the
securities that would be convertible upon issuance of the notes. The related
agreement provides for
a limit on the amount of obligation notes that the Company may require the
Purchasers to purchase in a given month.
On September 15, 2000, the Company issued $500,000 of the initial $2,000,000 in
convertible notes, which bear interest at an annual rate of 8 percent and mature
(principal and interest) on September 15, 2003. Effective as of the issuance
date, the notes are convertible into shares of common stock at the lesser of a
25 percent discount to the average of the three lowest closing bid prices during
the thirty trading days prior to the issue date of this note and a 20 percent
discount to the average of the three lowest closing bid prices for the ninety
trading days prior to the conversion date. The notes were issued in exchange for
$430,000 in cash, 20,000 in legal services and $50,000 in commissions. The
commissions have been capitalized as debt origination costs and are being
amortized over the life of the notes.
A significant contingency required by the aforementioned convertible notes 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.
18
<PAGE>
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.
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.
During the quarter ended June 30, 2000, the Company issued 1,247,970 shares of
its common stock for services from contractors, officers and others, which were
valued at $385,429. The value of the services is included in the costs and
expenses on the Statement of Operations. The Company also repurchased 44,000
shares of its outstanding common stock for $33,817 in cash. These shares
remained in treasury at June 30, 2000, and have been recorded at cost.
Also during this quarter, an officer of the Company exercised 1,000,000 stock
options at a price of
19
<PAGE>
.12 cents per share. The Company issued a note receivable to the officer in the
amount of $120,000 for the shares. Interest for the first quarter was prepaid.
During the quarter ended September 30, 2000, the Company issued 300,000 shares
of its common stock for services from contractors, officers and others, which
were valued at $90,260. The value of the services is included in the costs and
expenses on the Statement of Operations. The Company also sold 45,000 shares of
its outstanding common stock for $27,543 in cash and repurchased 13,000 shares
of its outstanding common stock for $4,986. These shares remained in treasury at
September 30, 2000, and have been recorded at cost.
An officer of the Company exercised 850,000 stock options at a price of .12
cents per share. The Company issued note's receivable to the officer in the
amount of $102,000 for the shares.
Also, during the quarter the Company issued 160 shares of preferred stock for
$160,000 cash.
NOTE 6. STOCK PLANS
During the quarter ending September 30, 2000, the Company granted an additional
2,375,000 stock warrants to certain key employees. This results in total stock
options and warrants granted and unexercised of 10,050,000 as of September 30,
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, an officer exercised his options and
purchased 850,000 shares of common stock for $102,000 (see Notes 2 and 5).
NOTE 7. SUBSEQUENT EVENT
On November 7, 2000, the Company entered into an agreement that modified the
outstanding convertible preferred agreements entered into on March 8, 2000 and
August 2, 2000. The new agreement resulted in the exchange of outstanding
preferred stock plus additional consideration for the Company's 7.5 percent
convertible debentures due November 7, 2003. The total amount of the debentures
is $740,667, including accrued interest of $30,667. The debentures are
convertible into shares of common stock at the lessor of the stocks closing
price on March 8, 2000 and 77.5 percent of the average of the five lowest
closing bid prices for 20 days before November 2, 2000.
The intrinsic value of the conversion feature of the principal and accrued
interest was estimated to be $166,650. The convertible debentures also include
detachable warrants for the purchase of 71,000 shares of common stock.
Management has estimated the fair market value of these warrants at $3,550.
20
<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 has the potential to create a new
segment of the outdoor advertising industry. Our systems software and electronic
displays represent an innovative approach to advertising that takes advantage of
the recent technological convergence of broadcast and billboard media and the
World Wide Web.
21
<PAGE>
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. We also plan the
development of a leasing program and an Owned & Operated group.
The major advantages and features of the Display are:
o Brightest display ever available (35,000 nits)
o Widest viewing angle available
o Smallest dot pitch available for outdoor large-scale displays (8 mm
dot pitch)
o High definition picture quality
o Modular assembly (1 meter increments) for scaleable and shapeable
architectures
o True Color (24 bit)
o Full motion video (up to 120 frames per second)
o Transportable for mobile operations
o Weather resistant for outdoor applications
o Modest power requirements
o Minimum 5 year continual use lifetime
o Real-time live video feeds
o Broadcast/simulcast applications
o Supports streaming video
o Uses industry standard DVI protocol for high speed data linking and
digital video interfacing
o Satellite linkable
Proprietary Billboard software capabilities are:
o Manage and update display content remotely
o Works with all image file formats and digital video editors
o Secure Internet or WAN communications
o WEB-based status monitoring
o Provides time, temperature and other dynamic content inserts
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. During this quarter we completed our
prototype and are currently in the manufacturing process of our production
model.
We expect our principal source of revenue to be derived from sales of our
electronic display product. To date we have recognized limited revenue, but we
have developed a functioning prototype, which was completed during the quarter,
and we anticipate sales by the first quarter 2001. The company has recently set
the price for its units at $395,000 and $1,490,000
22
<PAGE>
respectively for its 2 meter x 3 meter and its 3 meter x 8 meter flat panel
displays.
The company received a revenue installment on contract in the third quarter of
approximately $90,000.
The company has just completed a marketing film to be distributed by November
30, 2000 on a national and international basis. The recipients who would receive
this film would be institutional investors and qualified potential buyers of the
flat panel displays.
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 September 30, 2000, had
an accumulated deficit of $6.8 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 September 30, 2000 and 1999
Revenue. Since our inception, we have been in the development stage and have had
only limited revenue. Revenues decreased to $82,490 in the third quarter of 2000
from $125,000 in the third 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 $178,821 in the third quarter of 2000 from $50,611
in the third 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 Aministrative. General and administrative expenses consist of
expenses for executive and administrative personnel, facilities, professional
services, travel, general corporate activities, and the depreciation and
amortization of office furniture and leasehold improvements. General and
administrative costs decreased to $295,340 in the third quarter of 2000 from
$309,082 in the third quarter of 1999. The increase was primarily due to
increased personnel, professional service fees and facility expenses. Due to the
growth of our business and continuing expansion of our staff, we expect general
and administrative costs to increase. The costs
23
<PAGE>
associated with being a publicly traded company and future strategic
acquisitions will also be a contributing factor to increases in this expense.
Other Income (Expense). Other income (expense) consists of interest and other
income and expense. Interest income increased to $5,113 in the third quarter of
2000 from $3,959 in the third quarter of 1999. The increase in interest income
was due to an increase in our average net cash and cash equivalents balance.
Depreciation decreased to $26,578 in the third quarter of 2000 from $53,762 in
the third quarter of 1999 due primarily to start-up expenses being completely
amortized.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through the private
placement of equity securities. As of September 30, 2000 we have raised net
proceeds of $3,559,984.
On September 15, 2000, the Company entered into an agreement to issue a total of
$2,000,000 in convertible notes, which bear interest at an annual rate of 8
percent. The Company has authorized the initial sale of $2,000,000 of the
convertible notes, and has been in negotiations to expand this to a $10,000,000
financing.
We have also utilized equipment loans and capital lease financing. As of
September 30, 2000 we have a balance of $65,910 on the equipment loans and
$23,363 on the capital lease. During the quarter the company secured a $50,000
loan for purchase of manufacturing equipment.
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
September 30, 2000 was approximately 20%. No immediate family members of
officers or directors of Advanced Optics Electronics, Inc. are securities
holders of BioModa with the exception of Harold Herman, who is a director of
Advanced Optics Electronics, Inc. and a small minority shareholder in BioModa.
During the quarter ended September 30, 2000 $13,873 was spent for the purchase
of equipment. Product development expenditures were $178,821 for the quarter
ended September 30, 2000. Funds for operations, product development and capital
expenditures were provided from the sale of securities and cash reserves. As of
September 30, 2000, we had approximately $778,220 of cash and cash equivalents.
24
<PAGE>
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 2001. 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.
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 third quarter of fiscal year 2000 there was an 1,150,000 increase in
shares of common stock; 850,000 shares of which were issued upon the exercise of
stock options.
Item 3. Defaults upon senior securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the Company's security holders
during the third quarter of fiscal year 2000.
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the company during the three-month period
ending September 30, 2000
25
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report on Form 10QSB to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November 9, 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)
26
