U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10QSB
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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--- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO __________
Commission file number 0-25177
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Advanced Engine Technologies, Inc.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1358194
--------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
11150 W. Olympic Blvd. Suite 1020 Los Angeles, Ca. 90064
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(310)-914-1849
--------------------------
(Issuer's telephone number, including area code)
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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. September 30, 2000 - 33,150,000
shares of common stock.
Transitional Small Business Disclosure Form Yes No x
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<PAGE>
Part I. Financial Information
Item 1. Financial Statements
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL REPORT
SEPTEMBER 30, 2000
2
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Page
ACCOUNTANTS' REPORT 4
FINANCIAL STATEMENTS
Balance Sheet 5
Statements of Operations 6
Statements of Stockholders' Equity 7
Statements of Cash Flows 9
Notes to Financial Statements 10
3
<PAGE>
NEFF & RICCI LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
7001 PROSPECT PLACE NE
ALBUQUERQUE, NM 87110
Independent Accountants' Report
Advanced Engine Technologies, Inc.
(A Development Stage Company)
We have reviewed the accompanying balance sheet of Advanced Engine Technologies,
Inc. (a development stage company) as of September 30, 2000, and the related
statements of operations, stockholders equity, and cash flows for the quarters
ended September 30, 2000 and 1999 and the period from September 23, 1996
(inception) through September 30, 2000, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of Advanced Engine
Technologies, Inc.
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 September 30, 2000 financial statements in order for
them to be in conformity with generally accepted accounting principles.
/s/ Neff & Ricci LLP
-----------------------
Albuquerque, New Mexico
November 6, 2000
4
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
September 30, 2000
See Accountants' Report.
ASSETS
Current Assets
Cash and cash equivalents $ 10,860,615
Prepaid expenses 9,706
Due from related party 26,000
------------
Total current assets 10,896,321
------------
Fixed Assets
Automobile 10,000
Furniture 12,242
Computer equipment 44,156
Manufacturing equipment and tooling 67,922
Less accumulated depreciation (53,994)
------------
Total fixed assets 80,326
------------
Other Assets
Patent rights, net of accumulated
amortization of $215,396 1,306,323
Patent, copyrights and designs, net of
accumulated amortization of $16,042 27,708
------------
Total other assets 1,334,031
------------
Total assets $ 12,310,678
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 79,181
------------
Commitments And Contingencies
Stockholders' Equity
Common stock-50,000,000 shares authorized,
33,150,000 issued and outstanding; $.001 par value $ 33,150
Additional paid-in capital 16,231,100
Deficit accumulated during the development stage (4,032,753)
------------
Total stockholders' equity 12,231,497
------------
Total liabilities and stockholders' equity $ 12,310,678
============
See Notes to Financial Statements.
5
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Quarters Ended September 30, 2000 and 1999 and the
Period From September 23, 1996 (Inception)
Through September 30, 2000
See Accountants' Report.
9/23/96
(Inception)
Through
2000 1999 9/30/00
Operating expenses $ 150,314 496,126 1,948,744
Research and development expenses 349,433 - 2,215,809
-----------------------------------------
Loss from operations (499,747) (496,126) (4,164,553)
Interest income 13,900 4,216 131,800
-----------------------------------------
Net loss $ (485,847) (491,910) (4,032,753)
=========================================
Basic net loss per share $ (.02) (.02) (.18)
========================================
Weighted average number of common
shares outstanding 27,960,000 22,625,000 21,884,800
========================================
See Notes to Financial Statements.
6
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
Quarters Ended September 30, 2000 and 1999 and the
Period From September 23, 1996 (Inception)
Through September 30, 2000
See Accountants' Report.
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Additional During the
-------------------------- Paid-in Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Issuance of common stock
to parent corporation for
license rights 20,000,000 $ 20,000 (18,000) - 2,000
Issuance of common stock
for services 600,000 600 5,400 - 6,000
Issuance of common stock
for cash 499,200 499 498,701 - 499,200
Net loss - - - (164,233) (164,233)
----------------------------------------------------------------------
Balance, June 30, 1997 21,099,200 21,099 486,101 (164,233) 342,967
Issuance of common stock
for cash 500,800 501 500,299 - 500,800
Net loss - - - (309,635) (309,635)
----------------------------------------------------------------------
Balance, June 30, 1998 21,600,000 21,600 986,400 (473,868) 534,132
Issuance of stock for assets
and services 325,000 325 568,425 - 568,750
Issuance of common stock
for cash 400,000 400 1,999,600 - 2,000,000
Net loss - - - (902,381) (902,381)
----------------------------------------------------------------------
Balance, June 30, 1999 22,325,000 22,325 3,554,425 (1,376,249) 2,200,501
----------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Quarters Ended September 30, 2000 and 1999 and the
Period From September 23, 1996 (Inception)
Through September 30, 2000
See Accountants' Report.
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Additional During the
------------------------- Paid-in Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Balance forward 22,325,000 $ 22,325 3,554,425 (1,376,249) 2,200,501
Issuance of stock for assets
and services 200,000 200 299,800 - 300,000
Issuance of stock
for cash 400,000 400 1,999,600 - 2,000,000
Net loss - - - (491,910) (491,910)
---------------------------------------------------------------------
Balance, September 30, 1999 22,925,000 22,925 5,853,825 (1,868,159) 4,008,591
Net loss - - - (222,855) (222,855)
---------------------------------------------------------------------
Balance, December 31, 1999 22,925,000 22,925 5,853,825 (2,091,014) 3,785,736
Issuance of stock for
services 25,000 25 87,475 - 87,500
Net loss - - - (585,340) (585,340)
---------------------------------------------------------------------
Balance March 31, 2000 22,950,000 22,950 5,941,300 (2,676,354) 3,287,896
Net loss (870,552) (870,552)
---------------------------------------------------------------------
Balance June 30, 2000 22,950,000 22,950 5,941,300 (3,546,906) 2,417,344
Issuance of stock
for services 200,000 200 299,800 - 300,000
Issuance of stock for cash 10,000,000 10,000 9,990,000 - 10,000,000
Net loss - - - (485,847) (485,847)
---------------------------------------------------------------------
Balance September 30, 2000 33,150,000 $ 33,150 16,231,100 (4,032,753) 12,231,497
=====================================================================
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Quarters Ended September 30, 2000 and 1999 and the
Period From September 23, 1996 (Inception)
Through September 30, 2000
See Accountants' Report.
<TABLE>
<CAPTION>
9/23/96
(Inception)
Through
2000 1999 9/30/00
<S> <C> <C> <C>
Reconciliation of net losses to net
cash provided by operations:
Net loss $ (485,847) (491,910) (4,032,753)
Depreciation and amortization 47,590 49,688 285,433
Issuance of common stock for
assets or services 300,000 300,000 1,264,250
Changes in current assets and liabilities:
Prepaid expenses 13,060 4,928 (9,708)
Accounts payable (36,178) (2,881) 79,182
Accrued payroll (5,000) - -
Due from related party - - (26,000)
----------------------------------------
Net cash flows used by
operating activities (166,375) (140,175) (2,439,596)
----------------------------------------
Cash flows from investing activities:
Fixed asset purchases - (5,767) (134,321)
Intangible asset purchases - (96,593) (1,565,468)
----------------------------------------
Net cash flows used by
investing activities - (102,360) (1,699,789)
----------------------------------------
Cash flows from financing activities:
Issuance of common stock 10,000,000 2,000,000 15,000,000
Loan proceeds - - 50,000
Loan payments - - (50,000)
----------------------------------------
Net cash flows provided by
financing activities 10,000,000 2,000,000 15,000,000
----------------------------------------
Net increase in cash 9,833,625 1,757,465 10,860,615
Cash at beginning of period 1,026,990 561,795 -
----------------------------------------
Cash at end of period $ 10,860,615 2,319,260 10,860,615
========================================
See Notes to Financial Statements.
</TABLE>
9
<PAGE>
ADVANCED ENGINE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
See Accountants' Report.
NOTE 1. NATURE OF BUSINESS
Advanced Engine Technologies, Inc. (the Company) was incorporated under the laws
of Colorado and began operations on September 23, 1996. The Company was formed
to acquire the rights to manufacture, distribute and market an OX2 Engine
(Distribution) Ltd. (OX2) combustion engine throughout the United States, Canada
and Mexico. On October 18, 1996 the Company entered into a contract with OX2, a
company incorporated in the laws of the Republic of Vanuatu, whereby the Company
acquired the rights to manufacture, distribute and market the OX2 combustion
engine. Performance under this contract required the Company to forthwith issue
20,000,000 shares of its common stock plus an additional 19,000,000 upon the
completion of certain emission tests (see Note 3). In addition, OX2 was given
the right to appoint two of the Company's directors. In December 1998, both
parties agreed to cancel the requirement to issue the additional 19,000,000
shares. As of June 30, 1998, OX2 owned approximately 62 percent of the Company's
outstanding shares.
During the year ended June 30, 1999, OX2 sold, transferred, assigned and/or
otherwise conveyed its stock to various individuals, companies, and other legal
entities, none of which individually has a controlling interest. Certain of
these legal entities have common ownership and, as a group, may have a
controlling interest in the Company.
A dispute has arisen related to the shares originally owned by OX2. As a result,
two lawsuits were filed which included the Company as a defendant. The suits
seek to have the disputed shares surrendered to the Company and the stock
records amended to reflect OX2 as the beneficial owner of these shares. In
August 2000, the Company accepted the surrender of 10,713,238 shares of its
common stock, which it subsequently deposited with the court. As a result, the
Company's legal counsel expects the Company to be dismissed from the litigation.
In May of 1999, the Company acquired the worldwide patent rights for the OX2
engine pursuant to a written agreement with OX2, OX2 (Intellectual Property) and
Advanced Engine Technology (PTY). The Company has assumed responsibility for
worldwide patent maintenance and enforcement.
As of September 30, 2000, the Company's operations consisted of marketing,
testing, and developing the OX2 combustion engine for commercial applications,
and raising any necessary capital investment. Management does not expect to
generate significant sales revenue until fiscal year 2001. Accordingly, planned
principal operations have not commenced and the Company is a development stage
enterprise.
10
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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. Cash
equivalents consist of commercial paper and other securities, along with an
irrevocable letter of credit facility in the amount of $10 million.
Fixed Assets. Fixed assets are stated at cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of the
assets, which range from 5 to 10 years.
Other Assets. Patent rights are amortized on a straight-line basis over the
remaining estimated useful life of 10 years. The patents, copyrights and designs
are amortized on a straight-line basis over the remaining estimated useful life
of 5 years. 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.
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.
Research and Development Costs. Research and development costs are expensed as
incurred.
Advertising Costs. The Company expenses advertising costs as incurred.
Advertising costs amounted to $1,330 and $48,858 for the quarters ending
September 30, 2000 and 1999, respectively and $175,830 from September 23, 1996
(inception) to September 30, 2000.
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 common stock equivalents, 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.
11
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
NOTE 3. RELATED PARTY TRANSACTIONS
The Company paid consulting fees to its former President, who is also a
shareholder and director, in the amount of $293,503 from September 23, 1996
(inception) to September 30, 2000 including $3,200 and $19,890 for the quarters
ended September 30, 2000 and 1999, respectively.
The Company paid administrative fees and reimbursed expenses to a company that
is owned by one of its shareholders in the amount of $111,197 from September 23,
1996 (inception) to September 30, 2000 including $9,627 and $15,406 for the
quarters ended September 30, 2000 and 1999, respectively.
The Company has paid research and development costs and rent to a company owned
by its current President in the amount of $136,685 from September 23, 1996
(inception) to September 30, 2000, including $12,248 for the quarter ended
September 30, 2000. Also, starting in May 2000, monthly salary of $5,000 is paid
to the President, who is also a shareholder and director.
The Company has paid or accrued legal fees and reimbursed expenses, including
rent, to a company that is owned by its Secretary/Treasurer in the amount of
$250,157 from September 23, 1996, (inception) to September 30, 2000, including
$62,172 for the quarter ended September 30, 2000.
The Company has paid for services to a company that is a shareholder in the
amount of $71,956 from September 23, 1996, (inception) to September 30, 2000.
In May 2000, the Company paid engine development costs to an individual who is a
shareholder of OX2 in the amount of $300,000.
12
<PAGE>
NOTE 3. RELATED PARTY TRANSACTIONS (CONTINUED)
In October 1996, the Company issued 600,000 shares of its common stock to one of
its founders in exchange for his services in organizing the Company. The
transaction was recorded at the estimated fair market value of the services
provided ($6,000), as this was more readily determinable than the fair market
value of the stock.
Also in October 1996, the Company entered into a contract with OX2 whereby the
Company acquired the rights to manufacture, distribute and market the OX2
combustion engine in the United States, Canada and Mexico for the life of the
world-wide patent. As part of this contract, the Company issued 20,000,000
shares of its common stock and was to issue an additional 19,000,000 upon the
completion of emission tests. In December 1998, both parties agreed to rescind
and terminate the requirement to issue the additional 19,000,000 shares. The
Company was also to pay a royalty of 15 percent of the gross proceeds of its
revenue. In addition, OX2 had the right to appoint two of the Company's
directors. As of March 31, 2000, OX2 had appointed one director who was also the
Company's President, until December 1999 when he resigned. In May 1999, the
Company acquired the worldwide patent and manufacturing rights to the OX2 engine
in a four party agreement between the Company, OX2, OX2 (Intellectual Property)
and Advanced Engine Technology (PTY). The Company has assumed responsibility for
patent maintenance and enforcement.
The Company has an outstanding receivable from one of its board members. The
receivable at September 30, 2000 is $26,000.
NOTE 4. INCOME TAXES
At September 30, 2000 the Company had deferred tax assets amounting to
approximately $1,550,000. 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 $200,000 and $212,000 for the quarters ending
September 30, 2000 and 1999, respectively. The net change is due primarily to
the increase in net operating loss carryforwards.
At September 30, 2000, the Company had net operating loss carryforwards of
approximately $3,980,000 available to offset future state and federal taxable
income. These carryforwards will expire in 2017 to 2019 for federal tax purposes
and 2002 to 2004 for state tax purposes.
13
<PAGE>
NOTE 5. COMMON STOCK
The Company offered one million shares of its common stock at the price of one
dollar per share in an offering memorandum pursuant to Rule 504 of Regulation D
of the Securities Act of 1933. The Company sold 499,200 shares as of June 30,
1997, and 500,800 during fiscal year 1998. As of June 30, 1997, the Company had
stock subscribed in the amount of $74,000 that was recorded as a receivable and
subsequently received in fiscal year 1998.
On August 6, 1998, the Company entered into a joint venture agreement with
Carroll Shelby under which the Company was to issue 300,000 shares of restricted
common stock in exchange for services related to the future production of a
street vehicle that utilizes the OX2 combustion engine. These shares were issued
in November 1998. They were valued at $525,000 and expensed as research and
development costs. In addition, the Company will issue an additional 250,000
shares upon completion of the vehicle utilizing the OX2 combustion engine.
Subsequent to this transaction, Carroll Shelby was appointed to the Board of
Directors.
In November 1998, the Company issued 25,000 shares of restricted stock to
purchase patents, copyrights, designs and prototypes to be used with the
Company's technology. This transaction was valued at $43,750 and recorded as an
intangible asset.
In April 1999, the Company issued 400,000 shares of common stock for $2,000,000
in a private placement. During the quarter ended September 30, 1999, the Company
issued an additional 400,000 shares of common stock to the same party for
$2,000,000 in a private placement.
In June 1999, the Company agreed to issue 1,000,000 shares of its common stock
to the University of California Riverside Foundation. The stock is to be issued
in five annual installments of 200,000 shares each. The first and second
installments were issued in July of 1999 and 2000. The donated stock is to
provide an endowment for research funds for the College of Engineering-Center
for Environmental Research and Technology.
In January 2000, the Company issued 25,000 shares of common stock in exchange
for services related to the performance testing of the OX2 engine. This
transaction was valued at $87,500 and was charged to expense.
14
<PAGE>
NOTE 5. COMMON STOCK (CONTINUED)
In August 2000, the Company entered into a subscription agreement with a current
shareholder to issue 10 million shares at one dollar per share in a private
placement. On September 6, 2000, the Company issued the stock under subscription
in exchange for an irrevocable letter of credit in the amount of $10,000,000.
The Board of Directors may draw on this letter of credit at its discretion.
Also in August 2000, the Company adopted a stock option plan and reserved 5
million shares for the plan. As of September 30, 2000, no stock options had been
granted.
15
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Cautionary Statement
--------------------
You should read the following discussion and analysis in conjunction
with the Financial Statements and related Notes thereto contained elsewhere in
this Report. The information in this Report is not a complete description of our
business or the risks associated with an investment in our common stock. We urge
you to carefully review and consider the various disclosures made by us in this
Report and in our other reports filed with the SEC, including our Annual Report
on Securities and Exchange Commission ("SEC") Form 10-KSB for the year ended
June 30, 2000.
The section entitled "Risk Factors" set forth in this Form 10-QSB and
similar discussions in our Annual Report on Form 10-KSB for the year ended June
30, 2000 and in our other SEC filings, discuss some of the important risk
factors that may affect our business, results of operations and financial
condition. You should carefully consider those risks, in addition to the other
information in this Report and in our other filings with the SEC, before
deciding to invest in our company or to maintain or increase your investment.
This Report contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to predict. Therefore, our actual results
could differ materially and adversely from those expressed in any
forward-looking statements as a result of various factors. Moreover, neither we
nor any other person assumes responsibility for the accuracy and completeness of
the forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this report to conform such
statements to actual results or to changes in our expectations.
Overview
--------
Advanced Engine Technologies, Inc. ("we", "us" or the "Company") was
formed to develop and commercialize the OX2 internal combustion engine. Our
focus is on the development and commercial introduction of the OX2 engine and
the subsequent licensing of the OX2 engine technology to approved manufacturers.
Based on its design, we believe our OX2 engine prototype will be fuel
efficient, light weight, low-emission, multi-fueled, and smaller and less
expensive than conventional internal combustion engines. We also believe that it
will not have the complex manufacture/production requirements of conventional
internal combustion engines.
16
<PAGE>
At the present time only a prototype of the OX2 internal combustion
engine, plus additional parts which can be used for engine development or for
the building of additional prototypes, have been built. The development and
testing of the prototype is ongoing. No OX2 engines have been manufactured for
production use, and no assurance can be given that the OX2 engine will be
successfully developed or manufactured.
Plan of Operations
------------------
We plan to continue the research and development of our OX2 engine
prototype during the 2001 fiscal year. We currently have an agreement with
Steven Manthey, the inventor of the OX2 engine, which provides that Mr. Manthey
will continue to develop and maintain the OX2 engine prototype. We have an
agreement with the University of California, Riverside ("UCR"), which provides
that it will continue to conduct research and development on the OX2 engine
prototype, in conjunction with us. The research and development at UCR is being
conducted under the guidance of Dr. Joseph Norbeck (of the CE-CERT program at
the University of California, Riverside) and Dr. Roberta Nichols, one of our
consultants. We are also conducting research and development activities in
Gardena, California
Assuming the completion of the necessary research and development
required to complete our product, and assuming the tests of our OX2 prototype
are successful, we will attempt to introduce the OX2 engine into the market.
Such marketing activities include demonstrations to prospective original
equipment manufacturers of products using internal combustion engines and the
development of additional joint venture partners to assist in marketing the
engine.
In the shorter term, our plans are to develop an engine for stationary
generator applications and, in the longer term, we plan to develop an engine for
automobile and/or aircraft applications.
We expect that our cash flow requirements to fund general operations in
2001 will total approximately $750,000 including outside consulting fees and
expenditures for equipment. We expect to fund these costs with our cash
reserves, which were $10,860,615 as of September 30, 2000. Our cost estimates do
not include provisions for any contingencies or unexpected expenses that may
arise or any unanticipated increases in costs. As a result, our cash reserves
may not be adequate to cover the actual costs of operations in the 2001 fiscal
year, in which event we will be required to raise additional capital.
Historically, we have obtained cash through private placements of securities.
Our net loss since inception (September 23, 1996) is $4,032,753.
Currently, there are no signed contracts that will produce revenue, and
we can provide no assurance that management will be successful in negotiating
these contracts.
17
<PAGE>
Risk Factors
------------
You should carefully consider the following risks and the other
information in this Report and our other filings with the SEC before you decide
to invest in us or to maintain or increase your investment. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties may also adversely impact and impair our business. If any of
the following risks actually occur, our business, results of operations, or
financial condition would likely suffer. In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
o There can be no assurance that we will be able to successfully develop the
OX2 engine. No OX2 engines have been developed or manufactured for
production use, and no assurance can be given that the OX2 engine will be
successfully developed or manufactured. Testing and development on the
engine is still in progress, and is being conducted in conjunction with
UCR. Until further testing, research and development has been completed, we
will not have a finished product for introduction into the market. We do
not have an estimated completion date for the testing, research and
development. Furthermore, the we cannot provide assurance that we will be
successful in the ultimate development of the engine for commercial
applications.
o A market for our OX2 engine may take longer to develop than anticipated or
may never develop, which would adversely affect revenues and profitability.
Our OX2 engine represents an innovation in the industry for internal
combustion engines. The size of the internal combustion engine industry
makes the introduction of changes to industry standards a complex
promotional and marketing exercise. We cannot ensure that our targeted
customers will purchase our engine. If the market for our engines fails to
develop, or develops more slowly that anticipated, we may not be able to
meet our expenses and may not achieve profitable results. In addition, we
cannot provide assurance that we will be successful with our marketing
efforts or the development of our joint ventures.
o Our cash reserves may not be adequate to cover our costs of operations. To
date, we have covered our operating losses by privately placing securities.
We expect to fund our general operations and marketing activities for 2001
with our current cash reserves, which were obtained from the sale of
securities. However, our cost estimates do not include provisions for any
contingencies, unexpected expenses or increases in costs that may arise.
o We may not be able to raise the capital we need. It is likely that we will
need to raise additional capital at some point in the future. If additional
funds are raised through the issuance of equity, our shareholders'
ownership will be diluted. There can be no assurance that additional
financing will be available on terms favorable to us, or at all. If funds
are not available or are not available on terms acceptable to us, we may
not be able to continue the development of our product, respond to our
competitors or continue our business.
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o Our business depends on the protection of our intellectual property and may
suffer if we are unable to adequately protect our intellectual property.
Currently, we have been granted one U.S. Patent for an Axial Piston Rotary
Engine. We have one patent application pending in Australia for an Axial
Piston Rotary Engine. We also have patent applications pending in countries
throughout the world. We believe that our ability to establish and maintain
our position in the market depends on these patents. We cannot provide
assurance that our patent will not be invalidated, circumvented or
challenged, that the rights granted under the patents will give us
competitive advantages or that our patent applications will be granted.
o If we are found to infringe on the intellectual property rights of others,
we may not be able to continue the development and production of our
engine, or we may have to enter into costly license or settlement
agreements. Third parties may allege infringement by us with respect to
past, current or future intellectual property rights. Any claim of
infringement, regardless of merit, could be costly, time consuming and
could require us to develop non-infringing technology or enter into
royalty, licensing or settlement agreements. These agreements could be on
terms unfavorable or unacceptable to us and could significantly harm the
development of our product, and ultimately, our business. In the future, we
may also have to enforce our patent and other intellectual property rights
through litigation. Any such enforcement could also result in substantial
costs and could materially affect our financial condition and our business.
o Our business is dependent on our relationships with other parties.
Research, development and testing of our engine is being carried out in
conjunction with UCR. Steven Manthey, the inventor of the engine, is also
actively participating in the research and development. In addition, we
have a joint venture agreement with Carroll Shelby, to further develop and
promote our engine. Completion of the research, development and testing is
essential to the success of our business. Until such testing, research and
development has been completed, we will not have a finished product to
introduce to the market. Thus, if we are unable maintain our relationships
with UCR, Steven Manthey and Carroll Shelby, our business will be adversely
affected.
o We have a history of losses. We have a history of operating losses, and an
accumulated deficit, as of September 30, 2000, of $4,032,753. Our ability
to generate revenues and profits is subject to the risks and uncertainties
encountered by development stage companies.
o Our future revenues and profitability are unpredictable. We currently have
no signed contracts that will produce revenue and we do not have an
estimate as to when we will be entering into such contracts. Furthermore,
we cannot provide assurance that management will be successful in
negotiating such contracts.
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o Rapid technological changes could adversely affect our business. The market
for internal combustion engines is characterized by rapidly changing
technology, evolving industry standards and changing customer demands.
Thus, if we are unable to adapt to rapidly changing technologies and to
adapt our product to evolving industry standards, our business will be
adversely affected.
o Our common stock is not widely traded, which may result in illiquidity and
increased volatility. Our common stock is not widely traded, and, as a
result, the prices quoted for our stock may not reflect its fair market
value. Because of the low volume of trading in our common stock, our
stockholders may find it difficult to sell their shares.
o Our principal stockholders can exercise significant control over us and
could limit the ability of our other stockholders to influence the outcome
of transactions requiring shareholder vote. As of September 30, 2000,
approximately 75.53% of our outstanding common stock is owned by our
executive officers, directors and principal stockholders. These
stockholders will have the ability to exercise influence over all matters
requiring approval by our stockholders, including the election of directors
and approval of significant corporate transactions.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
(c)
On September 6, 2000, we sold 10 million shares of our common stock to
the R.E. & M. Petersen Living Trust DTD 1/17/83. The trust paid for the shares
by establishing an irrevocable line of credit for the benefit of the Company in
the amount of $10 million, which can be drawn down at any time at the Company's
discretion.
The shares were sold in reliance on the exemptions provided by Section
4(2) of the Securities Act of 1933.
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
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Item 5. Other Information
On September 6, 2000, we sold 10 million shares of our common stock to
the R.E. & M. Petersen Living Trust DTD 1/17/83. See Item 2(c).
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits 10.6: 10 Million Share Subscription Agreement
b) Reports on Form 8-K: None
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this registration to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED ENGINE TECHNOLOGIES, INC.
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(Registrant)
By: /s/ Carroll Shelby
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Carroll Shelby, President
Date: November 10, 2000
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By: /s/ Neil Cummings
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Neil Cummings, Treasurer/Secretary
Date: November 10, 2000
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