U.S. Securities and Exchange Commission
Washington D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF
THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM_________ TO ________
COMMISSION FILE NO. 0-10841
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ENERGY OPTICS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
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NEW MEXICO 85-0273340
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
29425 C.R. 561, TAVARES, FLORIDA 32778
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(352) 742-5010
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(ISSUER'S TELEPHONE NUMBER)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
CHECK WHETHER THE ISSUER (1) HAS 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. (1) YES X NO_
(2) YES X NO_
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
CHECK WHETHER THE REGISTRANT FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE
FILED BY SECTION 12, 13 OR 15(D) OF THE EXCHANGE ACT AFTER THE DISTRIBUTION OF
SECURITIES UNDER A PLAN CONFIRMED BY COURT. YES __X__ NO ____
APPLICABLE ONLY TO CORPORATE ISSUERS
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE: 13,284,814 AS OF DECEMBER 23,
1997
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES ____ NO __X__
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Begin on next page.
-1-
<PAGE>
ENERGY OPTICS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended October 31, 1997 and 1996
CONTENTS
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet F-2
Consolidated Statements of Income F-3
Consolidated Statements of Cash Flows F-4-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 to F-12
-F 1-
<PAGE>
<TABLE>
<CAPTION>
ENERGY OPTICS, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997
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<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 37,331
Accounts receivable
Trade 1,199
Related parties - rents 27,009
Employee 900
Inventory
Finished product 18,951
Ostrich grow-out herd 507,629
Prepaid expenses 6,099
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TOTAL CURRENT ASSETS 599,118
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PROPERTY, PLANT AND EQUIPMENT
Land 525,000
Ostrich breeder herd 1,532,214
Buildings and improvements 1,356,000
Equipment, furniture and fixtures 595,952
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TOTAL PROPERTY, PLANT AND EQUIPMENT, AT COST 4,009,166
Accumulated depreciation (33,261)
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TOTAL PROPERTY, PLANT AND EQUIPMENT, NET BOOK VALUE 3,975,905
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OTHER ASSETS
Equity investment in unconsolidated 20% owned unconsolidated subsidiary 39,863
Other 6,394
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TOTAL OTHER ASSETS 46,257
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TOTAL ASSETS $4,621,280
=================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 64,725
Capitalized lease payable 23,344
Accounts payable 168,029
Accrued expenses and other liabilities 8,496
Due to stockholders and other related parties, without interest, due on demand 328,654
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TOTAL CURRENT LIABILITIES 593,248
LONG-TERM DEBT, NET OF CURRENT PORTION 194,175
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TOTAL LIABILITIES 787,423
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STOCKHOLDERS' EQUITY (NOTES 4 AND 5)
Common stock, $.001 par value, 25,000,000 shares authorized,
13,139,814 shares issued and outstanding (plus 436,000 shares in consolidated subsidiary) 13,576
Additional paid-in capital 8,402,517
Stock subscription receivable (6,500)
Deficit (5,060,667)
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TOTAL STOCKHOLDERS' EQUITY BEFORE MINORITY INTERESTS 3,348,926
Minority interests 484,931
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TOTAL STOCKHOLDERS' EQUITY 3,833,857
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,621,280
=================================================================================================================================
SEE ACCOMPANYING NOTES.
</TABLE>
-F 2-
<PAGE>
<TABLE>
<CAPTION>
ENERGY OPTICS, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
(RESTATED
NOTE 1)
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997 1996
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<S> <C> <C>
REVENUES
Sales $18,465 $ -
Cost of sales 38,283 -
- ---------------------------------------------------------------------------------------------------------------------------------
Gross loss on sales (19,818) -
Royalties 112,234 -
Rents 27,009 -
Other 3,500 -
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TOTAL NET REVENUES 122,925 -
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consulting 620,172 -
Professional 334,873 2,753
General and administrative 64,211 4,094
Salaries and related 42,062 -
Selling 30,032 -
Research and development 15,567 -
Depreciation 10,682 -
Interest 250 3,869
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TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,117,849 10,716
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LOSS BEFORE EXTRAORDINARY ITEMS (994,924) (10,716)
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EXTRAORDINARY ITEMS - GAIN ON EXTINGUISHMENT OF DEBT
Small Business Administration, net of income taxes of $47,967 (Note 2) - 91,387
Related parties, net of income taxes of $69,025 (Note 7) - 128,839
Tax benefit from utilization of net operating loss carryforward - 116,992
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TOTAL EXTRAORDINARY ITEMS - GAIN ON EXTINGUISHMENT OF DEBT - 337,218
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(LOSS) INCOME BEFORE LOSS ATTRIBUTABLE TO MINORITY INTERESTS (994,924) 326,502
LOSS ATTRIBUTABLE TO MINORITY INTERESTS 12,281 -
- ---------------------------------------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE LOSS ATTRIBUTABLE TO UNCONSOLIDATED SUBSIDIARY (982,643) 326,502
LOSS FROM UNCONSOLIDATED SUBSIDIARY (9,353) -
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NET (LOSS) INCOME $ (991,996) $ 326,502
=================================================================================================================================
=================================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(PRIMARY AND FULLY DILUTED) 13,139,814 829,095
=================================================================================================================================
=================================================================================================================================
(LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEMS
(PRIMARY AND FULLY DILUTED) (0.08) (0.01)
=================================================================================================================================
=================================================================================================================================
(LOSS) NET INCOME PER COMMON SHARE (PRIMARY AND FULLY DILUTED) (0.08) 0.39
=================================================================================================================================
=================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
-F 3-
<PAGE>
<TABLE>
<CAPTION>
ENERGY OPTICS, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(RESTATED
NOTE 1)
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (991,996) $ 326,502
Adjustments to reconcile net income (loss) to net cash used provided
by operating activities:
Depreciation and amortization, included in cost of sales 22,579 -
Depreciation and amortization, included in selling, general and
administrative 10,682 -
Loss from unconsolidated subsidiary 9,352 -
Stock exchanged for payment of operating expenses 623,172 2,260
Forgiveness of debt - (337,218)
Stock exchanged for interest on note payable - 3,743
(Increase) decrease in assets:
Accounts receivable (29,108) -
Inventory (526,580) -
Prepaid expenses (6,099) -
Increase (decrease) in liabilities:
Accounts payable 168,029 (5,238)
Accrued expenses and other liabilities 599 -
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NET CASH USED BY OPERATING ACTIVITIES (719,370) (9,951)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Disbursements
Purchase of property, plant and equipment (52,738) -
Other (6,394) -
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DISBURSEMENTS FROM INVESTING ACTIVITIES (59,132) -
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NET CASH USED BY INVESTING ACTIVITIES (59,132) -
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CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Sale of common stock 70,740 -
Sale of common stock to minority interests 394,059 -
Capital lease for equipment 37,933 -
Proceeds from related parties 328,654 14,900
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RECEIPTS FROM FINANCING ACTIVITIES 831,386 14,900
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Disbursements
Payments on capital lease for equipment (14,589) -
Payments on notes payable to stockholders/officers (1,500) -
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DISBURSEMENTS FROM FINANCING ACTIVITIES (16,089) -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 815,297 14,900
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NET INCREASE IN CASH AND EQUIVALENTS 36,795 4,949
CASH AND EQUIVALENTS - BEGINNING 536 465
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CASH AND EQUIVALENTS - ENDING $ 37,331 $ 5,414
====================================================================================================================================
=================================================================================================================================---
</TABLE>
-F 4-
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES:
<S> <C> <C>
Common stock issued for acquisition of net assets of consolidated subsidiaries $ 2,007,278 $ -
Common stock issued for acquisition of property, plant and equipment $ 1,529,815 $ -
Common stock issued for acquisition of 20% owned subsidiary $ 49,215 $ -
Common stock issued in exchange for note payable to officer/director $ - $ 55,170
Note payable issued in exchange for real estate $ 258,900 $ -
Interest paid $ 250 $ -
====================================================================================================================================
====================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
-F 5-
<PAGE>
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Energy Optics, Inc. (EOI), a New Mexico Corporation, was organized
in 1979 and has provided engineering services relating to research
and development activities for outside parties as well as internal
product development. A controlling interest (80%) of Material
Sciences, Inc. (MSI) was acquired through an EOI stock issuance in
November 1993. Quantum Research, Inc. (QRI) was incorporated in May
1994, with EOI owning 80% and the 20%-minority shareholder in MSI
owing 20%. The initial business of MSI and QRI was to include the
development and licensing of new technical products, however, these
companies have been dormant in recent years. A controlling interest
(80%) of Lean Protein Foods, Inc. (LPF) was acquired in August
1997, which has a wholly-owned subsidiary, Wildwood Ostrich Ranch,
Inc. A controlling interest (80%) of American Millennium
Corporation, a Delaware corporation, was also acquired in October
1997.
Additionally, EOI owns 27.5% of International Diagnostics, Inc.
(IDI), a New Mexico corporation, which was organized to develop and
market diagnostic applications in science, medicine and industry.
Edward N. Laughlin, former president, director and major
stockholder of EOI, controls 47% of the outstanding stock of IDI.
IDI has not engaged in any business activities since the assets of
IDI were charged-off in July 31, 1993. Additionally, a 20% interest
in Microgravity Aviation Company (MAC), a Florida corporation, was
acquired in October 1997.
At October 31, 1997, only EOI, LPF, AMC and MAC were operational.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of
Energy Optics, Inc. and its subsidiaries, Material Sciences, Inc.,
Quantum Research, Inc., Lean Protein Foods, Inc., and American
Millenium Corporation. All significant intercompany transactions
and balances of Energy Optics and subsidiaries (the Company) have
been eliminated in consolidation. The 20% interest in Microgravity
Aviation Company is accounted for using the equity method of
accounting.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers
all liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Equipment and leasehold improvements are stated at cost.
Depreciation of equipment and leasehold improvements are provided
over estimated useful lives ranging from five years to seven years,
using straight-line and declining balance methods.
INCOME TAXES
Income taxes are computed under the provisions of the Financial
Accounting Standards Board (FASB) Statement No. 109, Accounting for
Income Taxes. The Companies file separate, not consolidated income
tax returns. MSI filed a final income tax return for the year ended
December 31, 1995. QRI has not filed tax returns and has had no
significant activity.
-F 6-
<PAGE>
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT TAX AND RESEARCH TAX CREDITS
Investment tax and research tax credits are recognized as a
reduction of the provision for income taxes in the year in which
utilized.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
NET INCOME (LOSS) PER SHARE
Income (loss) per share of common stock is based on the weighted
average number of shares and common share equivalents (if dilutive)
outstanding during each period. Available stock options at October
31, 1997 and 1996, were anti-dilutive and not considered common
stock equivalents for purposes of computing income or loss per
common share. Outstanding common shares were retroactively adjusted
to give the effect to the 1 for 10 reverse stock split for the
period ended October 31, 1996.
RESTATEMENTS AND RECLASSIFICATIONS
Amounts in the prior year financial statements have been restated
to reflect corrections resulting from the audit performed for the
year ended July 31, 1997, and certain amounts have been
reclassified for comparative purposes to conform to the
presentation of the current year financial statements.
NOTE 2. BORROWINGS
The note payable to the Small Business Administration (SBA), which
matured February 1995, provided for annual interest at 8% and was
secured by cash, accounts receivable, inventories, equipment, and
patents. Lacking working capital to repay the note, in August 1996,
the Company made an offer to the SBA to compromise the outstanding
debt.
In October 1996, the SBA accepted the offer to compromise the
outstanding debt in the amount of $152,561 plus interest of
$30,792, for $4,000 plus 40,000 restricted shares of the Company's
common stock in full satisfaction of the debt. The balance in
excess of the market value of the stock issued and payment made in
the aggregate amount of $139,354 has been recognized as a gain on
extinguishment of debt and is included in the income statement for
the quarter ended October 31, 1996, as an extraordinary item, net
of related income taxes.
-F 7-
<PAGE>
NOTE 3. INCOME TAXES
At October 31, 1997, the Company has, for income tax reporting
purposes, unused credits and operating loss carryforwards, which
may be applied against future income and income tax that expire as
follows:
<TABLE>
<CAPTION>
NET
YEAR INVESTMENT RESEARCH OPERATING
EXPIRING CREDIT CREDIT LOSS
-------- --------------- ---------- ---------
<S> <C> <C> <C> <C>
1998 $ 417 $ - $ 696,127
1999 1,087 - 149,587
2000 3,836 - -
2001 - - 415,478
2003 - 2,070 236,398
2004 - 3,080 184,928
2005 - 12,393 63,564
2006 - - 199,030
2007 - - 332,429
2008 - - 394,641
2009 - - 38,252
2010 - - 24,086
2011 - - 34,539
------------- ----------- -------------
$ 5,340 $ 17,543 $ 2,769,059
============= =========== =============
</TABLE>
There have been ownership changes in the Company, as defined in
Section 382 of the Internal Revenue Code. These changes will
materially limit the Company's net operating loss carryforwards
based upon the change in control. No deferred tax assets have been
reflected in these interim financial statements as a result of a
valuation allowance which reduces any deferred tax assets to zero.
NOTE 4. COMMON STOCK
REVERSE STOCK SPLIT
On August 18, 1997, the Board of Directors authorized a 1 for 10
reverse stock split for all of the then issued and outstanding
shares of the Company's common stock. As a result of the reverse
stock split, the Company's issued and outstanding shares of common
stock were reduced from 8,778,694 to 877,869. As a requirement of
the reverse stock split, all shares were to be returned by the
existing shareholders and new shares were to be issued no later
than November 20, 1997. Any fractional shares were to be redeemed
for a cash payment based upon the average closing price of the
Company's common stock for the immediate week.
STOCK AND ASSET PURCHASE
Pursuant to a Stock and Asset Purchase Agreement, dated August 20,
1997, as amended on October 10, 1997, the Company acquired certain
assets from ABAC Services, Inc., a Nevada corporation (ABAC),
American Global Equity Services, an unincorporated business trust
located in Tavares, Florida (Ages) and three individual holders
(Holders) of common stock of Lean Protein Foods, Inc., a Delaware
corporation (LPF), in exchange for the issuance of 5,263,145 shares
of the Company's common stock.
-F 8-
<PAGE>
NOTE 4. COMMON STOCK (CONTINUED)
The assets were comprised of the following:
1. Real estate valued at $1,700,000, originally conveyed by Ages
to ABAC on August 1, 1997, in connection with an agreement for
deed signed on that date. The agreement for deed provided that
Ages will transfer certain real estate in Lake County, Florida
in fee simple, once ABAC provided 1,591,000 shares of the
Company (Energy Optics, Inc.) as a down payment and satisfies
a promissory note in the original principal amount of
$258,900, with interest payable quarterly at ten percent (10%)
per annum. Principal payments of $64,725 are payable in annual
installments on December 31st of each calendar year. The note
is without recourse to any individual and is secured solely by
the assets of ABAC. However, in the event of default, clear
title to the property could not be obtained. The Company
issued the 1,591,000 shares of its common stock to Global
Investments Ltd., Trustee, as instructed by Ages, and agreed
to accept the assignment and the financial responsibility to
satisfy the note payable. The assets were valued based upon an
independent valuation for the real estate.
2. Property and equipment valued at $88,708 was conveyed by ABAC.
As instructed by ABAC, the Company issued 634,550 shares of
its common stock to the three shareholders, officers and
directors of ABAC, who were immediately named officers and
directors of the Company (two of which subsequently resigned).
The shares issued included a portion for finding and acquiring
the other properties as described in the paragraph above.
3. A transfer of 2,800,000 shares of LPF (an 80% interest). The
total value of LPF was estimated at $2,609,800, resulting in a
value of approximately $2,087,840 being conveyed by the
Holders. The assets were valued at a negotiated amount in the
case of the common stock of LPF, whose principal asset is its
wholly-owned subsidiary, Wildwood Ostrich Ranches, Inc. The
Company issued 3,037,495 shares of its common stock to the
Holders or their assigns as a result of this portion of the
acquisition.
No affiliated relationships existed among the management or
affiliates of the Company and the management or affiliates of Ages,
ABAC or the LPF Holders at the time of acquisition.
As a result of the issuance of the 5,263,145 shares of the
Company's common stock to purchase the assets, a change in control
occurred. After the closing of the acquisition of the assets, the
original stockholders of the Company owned 877,869 shares (i.e.,
approximately 14% of the total issued and outstanding shares), and
Global Investments, Ltd., ABAC and the LPF Holders collectively
owned 5,263,145 shares (i.e., approximately 86% of the total issued
and outstanding shares). Also upon closing the acquisition of the
assets, the original Board of Directors of the Company appointed
the new members to the Board of Directors then resigned. As a
result of the change in control and acquisition of the facility,
the executive offices of the Company were moved from Las Cruces,
New Mexico to Tavares, Florida.
ACQUISITION OF AMERICAN MILLENNIUM CORPORATION
As a result of negotiations begun in July 1997, on October 9, 1997,
the Company purchased 8,000,000 shares (valued at approximately
$3,500,000) representing 80% of the issued and outstanding stock of
American Millennium Corporation (AMC), a Delaware corporation,
primarily from Global Investments, Ltd., a 30% shareholder of the
Company, in exchange for 5,100,000 shares of the Company's common
stock. The products designed by AMC have several distinct
similarities to certain of the former products developed by the
Company. Several of the commercial applications of products
developed by AMC may possibly have mutual compatibilities with
certain patented technologies developed by the Company in prior
years.
-F 9-
<PAGE>
NOTE 4. COMMON STOCK (CONTINUED)
Additionally, AMC has entered into a reseller agreement with
Orbcomm who has successfully launched the first two of its expected
26 to 28 low earth orbit (LEO) satellites scheduled to be in orbit
by fall of 1998. AMC is one of approximately thirty companies
chosen by Orbcomm as resellers to date. Since the Orbcomm LEO's are
launched from a Pegasus rocket from underneath the wing of a
McDonnell Douglas DC-10, which is considerably less expensive than
a ground based launch, AMC anticipates the ability to offer highly
competitive data transmission services. This should allow AMC to
globally expand its monitoring service to a wide range of
applications including remote oil and gas wells and offshore
platforms, as well as truck fleets and ocean going cargo ships and
individual containers aboard those vessels. The Orbcomm reseller
contract will also allow for AMC's utilization of satellite
transponder space to offer other competitively priced wireless
communications services.
AMC has other proprietary products that are under sensitive
requirements of nondisclosure by the party negotiating purchase of
the devices.
The acquisition of AMC was from related parties and was accounted
for as if it were a pooling of interests. Assets and liabilities
were reflected at the related parties' historical cost.
ACQUISITION OF MICROGRAVITY AVIATION COMPANY, INC.
The Company abandoned discussions for the acquisition of up to 40%
of the authorized stock of Casey Holdings, Inc. (CHI) in a
non-binding contract. Instead, on October 10, 1997, they acquired
2,000,000 shares (valued at approximately $531,160) representing a
20% interest in Microgravity Aviation Company (MAC) from Harto
Ltd., a 39% shareholder of the Company at that time, in exchange
for 1,000,000 shares of the Company's common stock. MAC, a Florida
corporation, is presently a subsidiary of Casey Holdings, Inc.,
(CHI) and is scheduled to operate the flight portion of a three-day
high-adventure space-flight experience package. MAC will also offer
the use of the DC-9 aircraft to the film and movie production
community as a flying film studio for producing weightless scenes
for use in movies, commercials, and corporate videos. The MAC
aircraft may also be used for conducting microgravity research
performed by universities and research companies. The executive
management and consulting staff of MAC is comprised of highly
credentialed professionals including former NASA astronauts as well
as former airline, Federal Aviation Administration (FAA), and NASA
executives. The management of MAC plans to lease a specially NASA
equipped aircraft and the effective operation of the company is
predicated upon MAC's ability to take possession of this aircraft.
As the acquisition of MAC was from a related party, the acquisition
was recorded at the related party's historical cost and is
reflected in the financial statements on the equity method.
STOCK ISSUED FOR SERVICES
In September 1997, the Company executed a two-year agreement with
Internet Stock Market, Inc. (ISM) to provide to the Company, on a
non-exclusive basis, financial and investor relations services,
public relations services and corporate communications services.
The agreement provides for a fee to ISM in the amount of $60,000
per year payable $5,000 upon execution and $5,000 the first day of
each month beginning October 1, 1997. Should the Company decide to
terminate this agreement for any reason, the Company shall give 10
days written notice to ISM. The Company further agreed to issue to
ISM warrants to purchase 150,000 shares of common stock at $.46 per
share. The warrants were exercisable for a period of five years,
and on November 7, 1997, the warrants were excercised. In
accordance with the agreement, the Company filed an S-8
registration on behalf of ISM.
On October 15, 1997, the Board of Directors authorized the issuance
of 898,800 shares of common stock under a Consultant Services Plan
as compensation for consultation services in connection with new
business opportunities, promotion of the Company to the public and
professionals, personnel recruitment, acquisition opportunities,
spin-off transactions, restructuring the capitalization of the
Company, and other matters as requested. The Consultant Services
Plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974 and is not qualified under
Sec. 401 of the Internal Revenue Code of 1986, as amended. Form S-8
was filed with the Securites and Exchange Commission on October 24,
1997, relative to this offering of stock.
-F 10-
<PAGE>
NOTE 5. STOCK OPTIONS
The Company had granted to Edward N. Laughlin, former president,
director and majority shareholder, stock options in return for
advancing working capital to the Company and providing prior year
bank loan guarantees. At July 31, 1997, there are 16,500 shares
under option at an exercise price of $2.50 per share which expire
April 5, 1999.
NOTE 6. BUSINESS ACQUISITIONS
On August 20, 1997, the Company acquired a controlling interest
(80%) in Lean Protein Foods, Inc. as part of a stock and asset
purchase transaction (see Note 4). This acquisition was accounted
for under the purchase method. On October 9, 1997, the Company
acquired a controlling interest (80%) in American Millenium
Corporation (see Note 4). This acquisition was accounted for as a
pooling of interests. The results of operations of both of the
acquired entities have been included in the accompanying statements
since the date of acquisitions.
Additionally, on October 10, 1997, the Company acquired a 20%
interest in Microgravity Aviation Corporation (Note 4). This
investment has been accounted for under the equity method of
accounting for investments.
NOTE 7. RELATED PARTY TRANSACTIONS
Notes payable to officers/stockholders, were unsecured, due on
demand and provided for annual interest at 8%. In October 1996, the
Company issued restricted shares of its common stock in partial
settlement of notes payable to Edward N. Laughlin, Molesworth and
Associates, Inc. (Gordon Molesworth) and Steven M. Ward in the
amount of 48,787 shares, 4,286 shares and 2,097 shares,
respectively. The balance of the notes payable in excess of the
market value of the stock issued totaling $159,120, including
$3,869 of unpaid accrued interest, was forgiven. This amount is
included in the income statement for the quarter ended October 31,
1996, as an extraordinary item "Gain on extinguishment of debt -
related parties", net of related income taxes.
In October 1996, the Company and Edward N. Laughlin agreed that
$38,744 in accrued rent and other expenses would be forgiven. For
the quarter ended October 31, 1996, the Company had capitalized
indebtedness of the Company resulting from unpaid accrued interest
in the amount of $18,077.
NOTE 8. OPERATING AND ECONOMIC CONDITIONS AND MANAGEMENT'S PLANS
The Company's consolidated financial statements for the fiscal
quarter ended October 31, 1997, have been prepared on a going
concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business. The Company has suffered recurring losses, consequently
there is an accumulated deficit at October 31, 1997. The
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded
assets, or the amounts or classifications of liabilities that might
be necessary in the event the Company cannot continue in existence.
Management planned for dealing with the conditions described above
and the Company pursued the acquisitions described in Note 6
"Business Acquisitions" and Note 9 "Subsequent Events". These
recent acquisitions and changes in the Company's business may
significantly affect the Company's deficiency in assets and result
in a more favorable outcome if management is successful in
implementing the changes to the Company's business.
Furthermore, the Company is in the process of completing and filing
Form SB-2 with the United States Securities and Exchange Commission
for registration and sale to the general public of approximately
1,250,000 shares of its common stock. The proceeds from the sale of
these securities would be used to continue funding the Company's
subsidiaries' developmental efforts. This registration is being
prepared on the
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NOTE 8. OPERATING AND ECONOMIC CONDITIONS AND MANAGEMENT'S PLANS (CONTINUED)
basis of a need to fund significant inventories for business
proposals that the Company has received that are subject to strict
rules of non-disclosure. Nevertheless, management is confident that
sufficient revenue potential exists in the execution of contract
proposals to warrant the issuance of additional stock for cash to
fund the operations.
NOTE 9. SUBSEQUENT EVENTS
ACQUISITION OF SPACE-X CORPORATION
On November 15, 1997, Energy Optics entered into an agreement to
exchange two million shares of Microgravity Aviation Company, Inc.
representing 20% of the authorized shares of the common stock of
MAC for 1,518,685 shares of the 10,000,000 shares issued and
outstanding of Space-X Corporation from related parties. Space-X
Corporation intends to provide simulated astronaut training to the
general public.
ACQUISITION OF THE KUPP, INC.
The Company is negotiating to purchase a controlling interest (80%)
in The Kupp, Inc., a privately-held, Florida corporation from
parties related to the Company by virtue of ownership and control.
The Kupp holds domestic and international patents on a foldable,
collapsible paper board drinking cup.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) PLAN OF OPERATION
As a result of its acquisitions in August and October 1997, the Company has
changed its narrow focus to a much broader, diverse group of operations. These
acquisitions and the Company's operating plans are summarized as follows, and
are subject to modification from time to time without notice by decision of
Management and may not reflect actual results:
LEAN PROTEIN FOODS, INC. AND SUBSIDIARY
In its August 20, 1997, transactions, the Company acquired controlling interest
in Lean Protein Foods, Inc. (LPF) which had recently purchased 100% of the
authorized stock of Wildwood Ostrich Ranch, Inc. (WWOR). LPF is a recently
formed specialty food company that has contracted with two meat plants for
processing yearling ostrich produced by WWOR. Both LPF and WWOR are development
stage enterprises. The ranch is a fully integrated facility containing a herd of
approximately 1,900 ostriches, incubation and hatching facilities, and grow-out
colony pens.
LPF has developed a line of specialty food products utilizing highly evolved
processing technologies. Marinated and wood roasted ostrich medallions, filets,
and appetizers have been developed and are being produced for sale to specialty
food distribution companies. The ostrich hides, which are a by-product of the
livestock processing, are sold to tanners for ostrich leather which is generally
recognized as highly durable and exotic.
Management believes that it has the expertise and sufficient knowledge of the
meat and specialty food industry, affiliations with distributors, restaurants,
specialty food brokers, and retail industry specialists to provide marketing
advantages to LPF that may be unavailable to other ostrich producers. Further,
management believes that it possesses certain proprietary technological
innovations in ostrich processing and an in-depth knowledge of distribution
pathways that may provide for certain advantages in market entry timing.
LPF is focused on the specialty food segment in both food service and high-end
retail for distribution of its products. It is utilizing trade shows, trade
publications, brokerage and end-user requests for product information to advance
its products into specialty food distributors' inventories. Management is
currently in discussion with a Mexican concern that is importing ostrich
livestock into Mexico from a Texas exporter with whom management has had prior
dealings. A joint venture whereby LPF would supply the Mexican company with
product for the next two to three years while the Mexican firm develops its
livestock herd is scheduled for negotiation in early 1998.
LPF intends to concentrate on expansion of its specialty food line into food
service and retail establishments through the remainder of 1997 and through
1998. Management believes that acceptable profit margins exist within the
specialty and game meat niche of this growth segment of the food category and
will focus on building brand identity for its WWOR products. While operation of
an
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agri-business is diverse in nature from the prior business of the Company,
the Company's management nevertheless believes that it has the capacity and
experience to engage in the specialty food business. Further, brand equity
appreciation can result in the value of the LPF assets being appraised in
multiples of its operating cash flow.
CASEY HOLDINGS, INC.
The Company abandoned negotiations for the acquisition of up to 40% of the
authorized stock of Casey Holdings, Inc. (CHI) in a non-binding contract.
Instead they acquired a 20% interest in Microgravity Aviation, Inc.
MICROGRAVITY AVIATION COMPANY
On October 10, 1997, the Company contracted to acquire a 20% interest in
Microgravity Aviation Company (MAC), a subsidiary of CHI that is scheduled to
operate the flight portion of a three-day simulated astronaut training package.
MAC will also offer the use of a DC-9 aircraft to the film and movie production
community as a flying film studio for producing weightless scenes for use in
movies, commercials, and corporate videos. The MAC aircraft may also be used for
conducting microgravity research performed by universities and research
companies. MAC recently produced a ten-minute video that dramatically
demonstrates the range of services offered by MAC for distribution to over 300
film and movie production companies. The executive management and consulting
staff of MAC is comprised of highly credentialed professionals including former
NASA astronauts as well as former airline, Federal Aviation Administration
(FAA), and NASA executives. The management of MAC has executed a lease of the
specially NASA equipped aircraft and the effective operation of the company is
predicated upon MAC's ability to take possession of this aircraft. Nevertheless,
management is confident that the Company's stock interest in MAC is well
represented with capable and knowledgeable management and that the risk/reward
ratio to the Company is acceptable and balanced by the Company's other business
interests. Subsequently, the Company exchanged its 20% interest in MAC for
approximately 15% of Space-X Corporation, which intends to provide simulated
astronaut training to the general public.
AMERICAN MILLENNIUM CORPORATION
On October 9, 1997, the Company contracted to purchase 80% of the issued and
outstanding stock of American Millennium Corporation (AMC). This development
stage enterprise has several distinct similarities to certain of the former
businesses of the Company. Several of the commercial applications of products
developed by AMC may possibly have mutual compatibilities with certain patented
technologies developed by the Company prior to its recent purchases. AMC has
developed a monitoring device utilizing off-the-shelf technologies that are
transparent to various radio spectrum protocols. Railroad, trucking companies,
and other companies that have a need to monitor a moving shipment of high value
cargo are able, via Global Positioning Systems (GPS), to determine exactly where
the cargo shipment is including both direction and speed. The data packet
transfer from the unit to the monitoring station then provides information on
over twenty functions pertinent to the condition of the cargo. Damage loss
claims run into the millions of dollars each year to railroad companies alone.
Location of freight is an ongoing logistical challenge for railroad companies.
This system allows the transporter to identify a problem before possible
irreparable damage or loss occurs as well
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as the ability to receive real time data transferred on the actual location of
the cargo. AMC is in the process of completing a successful rolling test with
Union Pacific Railroad (UPR) and has agreed to furnish additional UPR
refrigerated railcars with the device. UPR maintains approximately 35,000 miles
of track and has over 8,000 refrigerated railcars that could benefit from
utilization of this monitoring service. Not only is revenue available in
hardware sales of the unit itself, but also in recurring monthly residual income
from data packet transfer charges between the railcar and monitoring station. A
detailed record of conditions aboard a specific shipment can then be furnished
on disk to the customer filing a damage claim as proof of existing conditions
during the time that the shipment is in a transporter's possession.
Additionally, AMC has entered into a reseller agreement with Orbcomm who has
successfully launched the first two of its expected 26 to 28 low earth orbit
(LEO) satellites scheduled to be in orbit by fall of 1998. Orbcomm currently
receives 500-600 inquiries for reseller applications per month according to a
company spokesperson. AMC is one of approximately thirty companies chosen by
Orbcomm as resellers to date. Since the Orbcomm LEO's are launched from a
Pegasus rocket from underneath the wing of a McDonnell Douglas DC-10, launch
costs which are considerably less expensive than a ground based launch.
Therefore, AMC anticipates the ability to offer highly competitive data
transmission services. This should allow AMC to globally expand its monitoring
service to a wide range of applications including remote oil and gas wells and
offshore platforms, as well as truck fleets and ocean going cargo ships and
individual containers aboard those vessels. The Orbcomm reseller contract will
also allow for AMC's utilization of satellite transponder space to offer other
competitively priced wireless communications services.
AMC has other proprietary products that are under sensitive requirements of
nondisclosure by the party negotiating purchase of the devices. When
appropriate, AMC will release details of that joint venture proposal. The
Company believes that the 80% acquisition of AMC should add considerable value
that would be reflected in consolidated financial statements for the Company as
revenues and possible near-future earnings by AMC begin to accrue. AMC has
heretofore operated its business with moderate overhead requirements and it
represents a minimal ongoing cost to the Company relative to the revenue
potential achievable over the next six months.
RECENT BUSINESS ACTIVITY
As previously discussed, the Company negotiated with Space-X Corporation, a
Delaware corporation, to sell its 20% interest (two million shares) of
Microgravity Aviation Company, Inc. in exchange for 1,518,685 shares,
representing approximately 15% of the issued and outstanding shares of Space-X
Corporation.
Additionally, the Company is in negotiations to acquire 80% of the authorized
stock of the Kupp, Inc., a privately owned, Florida corporation. The cash and
stock transaction has been valued at $4.4 million.
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COMPANY EXPANSION INTO DIVERSE BUSINESS
Management has also identified other existing opportunities whereby it may be
able to acquire substantial interest in or controlling interest of certain
business entities that, in the opinion of management, represent potentially
viable and undervalued assets.
The Company has heretofore positioned itself as a highly technical and narrowly
focused developer of specific technologies. Having previously been less than
successful within such a narrow technical scope of business activity, management
believes that expansion of the Company's business into more diverse operations
may allow for a greater, more diverse balance and substantial appreciation of
the Company's business which management believes is in the best interests of the
shareholders. The Company has retained the services of Tatum CFO Partners, LP
(TATUM), to provide financial oversight of its business interests. In
management's opinion, TATUM is a qualified consortium of accountants, CPA's, and
former chief financial officers (CFOs) from a wide spectrum of small and large
corporations. TATUM provides financial analysis, accounting services, and
hands-on financial oversight for numerous other unrelated companies, as well.
Additionally, the Company's management either has on staff, or has access to, a
diverse group of professionals and consultants who have extensive backgrounds in
wireless technology, aerospace, engineering, agri-business, food processing,
public relations and marketing, or other fields of expertise relative to the
operation of the recently acquired companies and the Company's former business.
By the end of this fiscal year, the Company and its subsidiaries anticipate
employing 50-60 people in their operations. The Company has noted a significant
and developing trend in start-up business ventures, which have been formed by
experienced principals with accomplished professional backgrounds in various
fields. In certain cases, their management has identified significant market
opportunities, has performed research and development, and has test marketed
their products or services in order to validate the findings of market studies
indicating a viable and potentially profitable market for those particular
products or services. Management believes that its ability to provide ancillary
support to these ventures that have various needs outside of their core business
expertise, by providing them with accounting services, financial oversight,
technical support, capital formation, marketing and public relations, should
result in the negation of duplicity, a lowering of overhead to each company, and
an increase in efficiency at the operational level. Management has, to date,
contacted for acquisitions wherein there existed mutual consent that broad
financial oversight and/or direct operational control of the Company needed to
be put in place thereby enhancing the ability of the company being acquired to
concentrate on its primary product or service.
MANAGEMENT'S GOALS AND OBJECTIVES
Management will seek to identify companies that have developed substantial niche
or broad market products with significant expected revenue and profit potential.
Compatibility with the Company's present initiatives or the ability to be
integrated into the Company's asset portfolio as the result of management's
ability to provide appropriate technical, financial, and marketing support are
among the criteria used to evaluate the suitability of a potential acquisition
candidate.
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The goal of management is to provide a centralized infrastructure of support
systems, appropriate and unique to each particular business. By utilizing the
Company's management and base of consultants and experts, as well as the
financial and analytical oversight provided by TATUM, the Company believes it
can achieve profitability.
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company has had a liquidity problem. In order to maintain the Company's
viability, the Company has issued restricted stock in exchange for equity
capital and also to reduce debt. Additionally, the Company has postponed payment
and has historically relied on the Officers of the Company to serve with no
salary, and to personally pay expenses of the Company. Forgiveness of debt has
also helped the Company to continue prior to the August 20, 1997, transactions.
However, subsequent to the August 20, 1997 change in management and ensuing
acquisitions, present management is confident that certain aspects of the
business of AMC are nearing completion and that significant revenue potential
exists for likely near term cash flow sufficient to offset the present lack of
liquidity. Furthermore, management believes that it can obtain sufficient
funding to maintain the Company's overhead through either the completion and
subsequent offering of a secondary registration or announcements of revenue
pertinent to certain rules of non-disclosure presently in effect.
The fiscal quarters ended October 31, 1997 and 1996, reflected no operating
income. Loss before extraordinary items was $991,996 or $.08 per share and
$10,716 or $.01 per share for the quarters ended October 31, 1997 and 1996,
respectively. Net income of $326,502 or $.39 per share for the quarter ended
October 31, 1996, resulted from forgiveness of debt. Common shares outstanding
increased from 829,095 on October 31, 1996 to 13,139,814 on October 31, 1997.
The per share data included for 1996 has been presented after giving retroactive
effect to the 1 for 10 share reverse stock split consummated on August 18, 1997.
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
ENERGY OPTICS, INC.
DATED: December 26, 1997 By: /s/ James C. Statham
---------------------
James C. Statham, President
(Principal Executive Officer)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
DATED: December 26, 1997 By: /s/ James C. Statham
--------------------
James C. Statham, President, Director and
Chief Executive Officer
(Principal Executive Officer)
DATED: December 26, 1997 By: /s/ Mary Adkins
---------------
Mary Adkins, Secretary, Treasurer and Director
(Principal Financial Officer)
DATED: December 26, 1997 By: /s/ Shirley Harmon
------------------
Shirley Harmon, Director
</TABLE>
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