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 JANUARY 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF
THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM_________ TO ________
COMMISSION FILE NO. 0-10841
-----------------------------------
ENERGY OPTICS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
----------------------------------------------
NEW MEXICO 85-0273340
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
29425 C.R. 561, TAVARES, FLORIDA 32778
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(352) 742-5010
(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: 12,311,814 (PLUS 565,450
SHARES IN DISPUTE) AS OF JUNE 18, 1998
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 nine months ended April 30, 1998 and 1997
(UNAUDITED)
CONTENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet F-2
Consolidated Statements of Income F-3
Consolidated Statements of Cash Flows F-4 and F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 to F-9
<PAGE>
ENERGY OPTICS, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
APRIL 30, 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 12,333
Accounts receivable
Trade 80,101
Related parties - rents 69,021
Other 10,000
Prepaid expenses 56,009
Net current assets of discontinued operations (Note 3) 398,244
- ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 625,708
- ----------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 525,000
Buildings and improvements 1,175,000
Equipment, furniture and fixtures 90,880
Transportation equipment 25,850
- ----------------------------------------------------------------------------------------------------------
TOTAL PROPERTY, PLANT AND EQUIPMENT, AT COST 1,816,730
Accumulated depreciation (32,333)
- ----------------------------------------------------------------------------------------------------------
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET BOOK VALUE 1,784,397
- ----------------------------------------------------------------------------------------------------------
OTHER ASSETS 7,717
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,417,822
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 118,984
Accrued expenses and other liabilities 49,200
Customer deposits 63,760
Due to others, without interest, due on demand (Note 6) 165,000
Due to stockholder, without interest, due on demand 22,500
Net current liabilities of discontinued operations (Note 3) 362,583
- ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 782,027
LONG-TERM LIABILITIES
Due to stockholders and other related parties, without interest, due August 1, 1999 638,876
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,420,903
- ----------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (NOTES 4 AND 5)
Common stock, $.001 par value, 25,000,000 shares authorized,
12,311,814 shares issued and outstanding 12,312
Additional paid-in capital 9,209,241
Stock subscription receivable (69,000)
Deficit (8,200,417)
- ----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY BEFORE MINORITY INTERESTS 952,136
Minority interests 44,783
- ----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 996,919
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,417,822
==========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
ENERGY OPTICS, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(RESTATED - NOTE 1)
FOR THE NINE MONTHS ENDED APRIL 30, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Sales $ 84,612 $ -
Cost of sales 48,154 -
- ----------------------------------------------------------------------------------------------------------------------------------
Gross margin 36,458 -
Rents - related parties 69,061 -
- ----------------------------------------------------------------------------------------------------------------------------------
NET REVENUES 105,519 -
- ----------------------------------------------------------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Professional 1,208,401 -
Consulting 354,558 -
General and administrative 109,748 8,880
Salaries and related taxes 129,696 4,094
Selling 28,154 -
Research and development 30,332 -
Depreciation 32,333 -
Interest 11,510 3,869
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,904,732 16,843
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER
Loss on disposal of assets (5,200) -
Minority interest in consolidated subsidiary 189,687 -
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER 184,487 -
- ----------------------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (1,614,726) (16,843)
- ----------------------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS, NET OF INCOME TAXES
Loss from operations of discontinued operations, net of income taxes of $0 (852,251) -
Estimated loss on disposition of discontinued operations, net of income taxes of $0 (2,162,428) -
Loss from discontinued operations attributable to minority interests 507,011 -
- ----------------------------------------------------------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS (2,507,668) -
- ----------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEMS (4,122,394) (16,843)
- ----------------------------------------------------------------------------------------------------------------------------------
EXTRAORDINARY ITEMS - GAIN ON EXTINGUISHMENT OF DEBT
Small Business Administration, net of income taxes of $47,967 - 91,387
Related parties, net of income taxes of $69,025 - 128,839
Tax benefit from utilization of net operating loss carryforward - 116,992
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXTRAORDINARY ITEMS - GAIN ON EXTINGUISHMENT OF DEBT - 337,218
- ----------------------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (4,122,394) $ 320,375
==================================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(PRIMARY AND FULLY DILUTED) 12,311,814 877,885
==================================================================================================================================
(LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS BEFORE LOSS FROM
DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEMS
(PRIMARY AND FULLY DILUTED) (0.13) -
==================================================================================================================================
(LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEMS
(PRIMARY AND FULLY DILUTED) (0.33) (0.02)
==================================================================================================================================
(LOSS) NET INCOME PER COMMON SHARE (PRIMARY AND FULLY DILUTED) (0.33) 0.36
==================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
ENERGY OPTICS, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(RESTATED - NOTE 1)
FOR THE NINE MONTHS ENDED APRIL 30, 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,122,394) $ 320,375
Adjustments to reconcile net income (loss) to net
cash used provided by operating activities:
Depreciation and amortization, included in selling, general and administrative 32,333 -
Loss attributable to minority interest in consolidated subsidiary 189,687 -
Loss from discontinued operations 2,507,668 -
Stock exchanged for payment of operating expenses 625,152 2,260
Loss on asset disposition 5,200 -
Forgiveness of debt - (337,218)
Stock exchanged for interest on note payable - 3,743
(Increase) decrease in assets:
Accounts receivable (159,122) -
Prepaid expenses (56,009) -
Net current assets of discontinued operations (398,244) -
Other assets (7,717) -
Increase (decrease) in liabilities:
Accounts payable 118,984 9
Customer deposits 63,760
Net current liabilities of discontinued operations 362,583 -
Accrued expenses and other liabilities 41,303 -
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (796,816) (10,831)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts
Proceeds from disposal of equipment 27,500 -
- --------------------------------------------------------------------------------------------------------------------------------
RECEIPTS FROM INVESTING ACTIVITIES 27,500 -
- --------------------------------------------------------------------------------------------------------------------------------
Disbursements
Purchase of property, plant and equipment (52,738) -
Other (9,785) -
- --------------------------------------------------------------------------------------------------------------------------------
DISBURSEMENTS FROM INVESTING ACTIVITIES (62,523) -
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (35,023) -
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Capital lease for equipment 33,349 -
Proceeds from others 165,000 -
Proceeds from related parties 661,376 14,900
- --------------------------------------------------------------------------------------------------------------------------------
RECEIPTS FROM FINANCING ACTIVITIES 859,725 14,900
- --------------------------------------------------------------------------------------------------------------------------------
Disbursements
Payments on capital lease for equipment (14,589) -
Principal payments on note payable to Small Business Administration - (4,000)
Payments on notes payable to stockholders/officers (1,500) -
- --------------------------------------------------------------------------------------------------------------------------------
DISBURSEMENTS FROM FINANCING ACTIVITIES (16,089) (4,000)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 843,636 10,900
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND EQUIVALENTS 11,797 69
CASH AND EQUIVALENTS - BEGINNING 536 465
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS - ENDING $ 12,333 $ 534
================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
ENERGY OPTICS, INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(RESTATED - NOTE 1)
FOR THE NINE MONTHS ENDED APRIL 30, 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Common stock issued for acquisition of net assets of consolidated subsidiaries $ 5,587,840 $ -
Common stock issued for acquisition of property, plant and equipment $ 1,529,808 $ -
Common stock issued for acquisition of 20% owned subsidiary $ 531,160 $ -
Common stock issued for stock subscription receivable $ 69,000 $ -
Common stock issued in exchange for note payable to officer/director $ - $ 55,170
Common stock issued for settlement of debt to Small Business Administration $ - $ 40,000
Note payable issued in exchange for real estate $ 258,900 $ -
Interest paid $ 184 $ -
================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 (79.3%)
of American Millennium Corporation, a Delaware corporation, was
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 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, however the Company
is negotiating to rescind this acquisition.
At April 30, 1998, only EOI and AMC were operational. LPF and its
subsidiary were in the process of discontinuing operations. MAC is
believed to have had no activity for the period due to lack of funding
and the acquisition of MAC is in dispute.
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 its subsidiary, Wildwood
Ostrich Ranch, 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 has been reduced to zero
as a result of a dispute (see Note 5).
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 April 30,
1998 and 1997, were anti-dilutive and not considered common stock
equivalents for purposes of computing income or loss per common share.
Outstanding common shares for the period ended April 30, 1997, were
retroactively adjusted to give effect to the 1 for 10 reverse stock
split effective August 18, 1997.
RESTATEMENTS AND RECLASSIFICATIONS
Amounts in the prior year financial statements have been restated to
reflect corrections principally resulting from the calculation of the
income from the forgiveness of debt and certain amounts have been
reclassified for comparative purposes to conform to the presentation of
the current year financial statements.
NOTE 2. COMMON STOCK
In April 1998, 72,000 shares of the Company's common stock were issued
to the Company's legal counsel under a plan for consulting services,
for which Form S-8 has been filed. The agreement calls for 6,000 shares
to be released each month for twelve months. The issuance has been
recorded at $.83 per share but may be adjusted in accordance with
certain flucuations of the market price. The unexpended portion of
these services has been recorded as prepaid expenses.
NOTE 3. DISCONTINUED OPERATIONS
The Company is in the process of liquidating its interest in LPF in
accordance with a plan adopted on January 5, 1998. As a result of this
plan, the Company will discontinue its operations in the specialty
foods business which focused on the processing and marketing of ostrich
meat.
The Company is negotiating an agreement whereby the minority
shareholders of LPF would acquire those shares owned by the Company.
LPF would continue to liquidate certain assets and pay certain of the
proceeds to the Company. Additionally, LPF would assume sole liability
for certain liabilities of LPF and the Company.
After further study and deliberation, the Company decided not to fund
further operations of MAC.
Losses incurred to date from operations and disposal of the assets of
discontinued operations including MAC and estimated losses on
disposition of discontinued operations as a result of the decisions to
terminate these operations are reflected in the current period as "Loss
From Discontinued Operations".
F-7
<PAGE>
NOTE 4. OPERATING AND ECONOMIC CONDITIONS AND MANAGEMENT'S PLANS
The Company's consolidated financial statements for the fiscal quarter
ended April 30, 1998, 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 April 30, 1998. The consolidated financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets, (except for the
charge for the estimated losses as a result of discontinued operations
of LPF and its subsidiary and the charge-off of the MAC investment) or
the amounts or classifications of liabilities that might be necessary
in the event the Company cannot continue in existence.
Management's plans for dealing with the conditions described above
include an increase in authorized shares to 60,000,000, approval to
issue stock options and preferred stock (See Note 6). Additionally, it
is anticipated that the merger with AMC, as outlined in Note 6, and
changes in the Company's business may significantly affect the
Company's deficiency in working capital and result in a more
financially favorable position.
Management intends to focus the Company's business on the
communications initiatives developed by American Millennium Corporation
(AMC). AMC has reached an agreement with Griffin Petroleum of Midland,
Texas, to provide satellite monitoring of conditions on an existing
lease operated by Griffin Petroleum. The monitoring will involve
installing a satellite transceiver that will send data reports from
various sensors to be installed on the well.
AMC currently has a reseller contract with ORBCOMM USA, L.P., a
subsidiary of ORBCOMM Global, L.P., a provider of satellite-based data
and messaging communications ervices. The non-exclusive contract allows
AMC to provide data transmission to operators of oil and gas wells,
intermodal containers, and refrigerated railcars.
To date, AMC has signed a contract with Union Pacific Railroad to
perform a rolling railcar test with a monitoring device aboard one of
its refrigerated railcars followed by installation of four
pre-production devices designed to provide the rail company with the
railcar's location, direction, and speed as well as on board
conditions. The contract calls for cellular protocol as the means of
data transmission but with provisions for installation of satellite
transceivers on the AMC equipment.
NOTE 5. MICROGRAVITY AVIATION COMPANY, INC. RECISSION
Two million shares of MAC were issued to the Company in exchange for
1,000,000 shares of EOI which were delivered to Harto, Ltd. (a
principal shareholder of the Company). However, the Company is
negotiating with Harto, Ltd. to rescind the transaction.
F-8
<PAGE>
NOTE 6. SUBSEQUENT EVENTS
The Board of Directors of EOI approved an Agreement and Plan of Merger
with American Millennium Corporation (AMC) on May 28, 1998, whereby EOI
will be the surviving corporation. EOI currently owns 8,000,000 shares
of the 10,090,500 issued and outstanding common stock of AMC. Pursuant
to this merger EOI would acquire the remaining 2,090,500 shares in
exchange for 2,090,500 shares of the EOI's common stock.
The Board of Directors of EOI further adopted an amendment to the
Articles of Incorporation to effect the following changes:
1. To change the name of EOI to American Millennium Corporation,
Inc.
2. To increase the number of authorized shares of common stock to
60,000,000.
3. To authorize the issuance of 10,000,000 shares of preferred
stock. The Board of Directors is authorized to issue such
preferred stock in five (5) series, and to establish the
number of shares to be included in each series, as well as the
preferences, limitations, conversion rights and other relative
rights of each series.
4. To authorize the Board of Directors to issue options and other
rights in the Company's stock to directors, officers and
employees of the Company without offering the same to the
stockholders in general.
5. The Board of Directors authorized the issuance of warrants to
purchase 705,000 shares of the Company's common stock to
AlphaCom. These warrants would be exercisable as follows:
235,000 exercisable at $1.25, 235,000 exercisable at $1.50 and
235,000 exercisable at $2.00. To date there has been no
issuance of these warrants and authorization is subject to
rescission by the Board of Directors.
Pursuant to approval by the Board of Directors, on June 9, 1998, the
Company listed the real estate located in Tavares, Florida for sale
with a real estate broker. The asking price for the property is
$1,700,000.
The Board of Directors of AMC authorized the issuance of its 10%
Convertible Subordinate Debenture to AlphaCom in consideration of
"loans" to date in the amount $165,000. The issuance of additional
debentures to AlphaCom have been authorized in the amount of $540,000,
in consideration for future advances to be made to AMC on or before
June 30, 1998. To date these debentures have not been issued and the
additional advances have not been received.
The Board of Directors of the Company are in the process of negotiating
contracts with Stock Brokers Relations, Inc. (SRI) and Grant Douglas
Publishing, Inc. (GDP) for sevices. In exchange for services provided
the contracts might provide that SRI and GDP could receive an aggregate
of 600,000 free trading shares and options to purchase 1,500,000
additional shares. Final contracts have not been executed.
F-9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Subsequent to the transactions and business interest of the Company outlined in
Form 10-QSB for the period ending January 31, 1998, the Company has made certain
material decisions that are reflected below. Those decisions should serve to
define the Company's direction for the near future as business initiatives
presently underway with American Millennium Corporation continue to develop.
(a) PLAN OF OPERATION
On May 28, 1998, the Board of Directors of Energy Optics, Inc. (the Company)
approved an Agreement and Plan of Merger whereby the Company and American
Millennium Corporation (AMC), a company in which the Company had an almost
eighty percent (80%) stake, were to merge with the Company and the Company being
the surviving corporation. The Agreement and Plan of Merger was subject to the
approval of the Board of Directors of AMC and its shareholders, as required by
Delaware law, AMC's domicile.
On May 28, 1998, AMC shareholder approval with respect to the Merger was
obtained from a majority of the AMC shareholders. Ultimately, one hundred
percent (100%) of the AMC shareholders approved the Merger. The Company is the
surviving corporation. Articles of Merger are being filed with the New Mexico
Corporation Commission and a Certificate of Merger is being filed with the
Secretary of State of Delaware. The Merger will be "effective" upon acceptance
for filing of the Articles of Merger and Certificate of Merger by the New Mexico
Corporation Commission and the Delaware Secretary of State, respectively, and
the filing of same.
Prior to the merger, the Company owned 8,000,000 of the 10,090,500 issued and
outstanding shares of the common stock of AMC. The remaining issued and
outstanding 2,090,500 shares of AMC not owned by the Company were acquired and
the Merger effected by exchanging the same, on a "one for one" basis for
restricted shares of the Company issued from its treasury. All shares of AMC are
to be surrendered for cancellation. The determination of the amount of
consideration for the acquisition occurred through negotiations between the
Board of Directors of the Company and the Board of Directors of AMC.
As of April 30, 1998, Securities Transfer Corporation, the Company's transfer
agent, reports that there were 12,877,222 shares of the Company's common stock
outstanding (including 565,450 shares which were to be rescinded). The Company
will issue an additional 2,090,500 shares of its "restricted" common stock to
the shareholders of AMC in exchange for their shares of common stock in AMC
which are to be canceled.
Prior to the merger AMC was a Delaware corporation incorporated on July 28,
1997. Since inception, the primary activity of AMC has been in the digital,
wireless and wireline communications business. As a result of recent
developments the Company intends to focus its efforts on the business and
initiatives previously conducted by AMC. The Company will not proceed with
development of initiatives announced in earlier press releases. With the
intended disposition of its food marketing and ranch assets, the Company's
immediate near and mid-term goals are for development of further revenues
associated with its communications business.
-2-
<PAGE>
On May 27, 1998 at a Special Meeting of Shareholders called for that purpose,
the Company's shareholders voted to amend its Articles of Incorporation as
follows:
a. The name of the corporation shall be American Millennium Corporation,
Inc.
b. The corporations's authority to issue common stock is increased to
authorize the issuance of 60,000,000 shares of common stock.
c. The corporation is authorized to issue 10,000,000 shares of preferred
stock. The Board of Directors is authorized to issue such preferred
stock in five (5) series, and to establish the number of shares to be
included in each series and the preferences, limitations, conversion
rights and other relative rights of each series.
d. The Board of Directors of the corporation shall have the authority to
issue options and other rights in the corporation's shares to
directors, officers and employees of the Company without offering the
same to shareholders generally.
Articles of Amendment to the Company's Articles of Incorporation approved by the
shareholders will be effective upon filing with the New Mexico Corporation
Commission. Upon filing of the Articles of Amendment to its Articles of
Incorporation, the Company will file a Form ID with the Securities and Exchange
Commission, notify the NASD of the Company's name change and apply for a new
"symbol", and request a new CUSIP number. Thereafter, shares bearing the
Company's new name and CUSIP number will be exchanged through the Company's
transfer agent for issued and outstanding shares bearing Energy Optics, Inc.'s
name and CUSIP number.
The Company is in the process of liquidating its interest in Lean Protein Foods,
Inc. (LPF), a company in which the Company has an eighty percent (80%) interest.
The Company notes that the continued eroding of slaughter ostrich prices, weak
demand for the meat, glutting of the hide market and the evident migration of
the ostrich business to Mexico and other countries have, in management's
opinion, significantly affected the viability of ostrich as an agribusiness. The
minority shareholders of LPF are in the process of negotiating an agreement with
the Company whereby they would acquire the shares of LPF owned by the Company.
Pursuant to the this proposal, LPF would continue to liquidate certain assets
and pay certain of the proceeds to the Company. In addition, LPF would assume
sole liability for certain liabilities of LPF and the Company. To date, no
formal binding agreement reflecting this proposal has been executed by the
parties.
AMC has entered into a NON-EXCLUSIVE Reseller Agreement with ORBCOMM USA, L.P.
(ORBCOMM) which has launched twelve (12) of its anticipated thirty-six (36) to
thirty-eight (38) low earth orbit satellites scheduled for launch and orbit over
the next year. AMC is one of approximately thirty (30) resellers chosen by
ORBCOMM to date. The Company, by virtue of its Merger with AMC succeeds to AMC's
interest in the Reseller Agreement with ORBCOMM. Eight (8) of the twelve (12)
satellites were launched from a single Pegasus rocket mounted beneath the
fuselage of a Lockheed L-1011 airliner. AMC anticipates the ability to offer
highly competitive data transmission services for potential customers defined
within its reseller contract, which include refrigerated railcars, oil and gas
platforms, and intermodal containers.
To date, AMC has a contract with Union Pacific Railroad to perform a rolling
railcar test with a monitoring device aboard one of its refrigerated railcars
followed by installation of four (4) pre-production devices designed to provide
the rail company with the railcar's location, direction, and speed as well as on
board conditions. The contract calls for cellular protocol as the means of data
transmission but with provisions for installation of satellite transceivers on
the AMC box. The contract was originally between GPS, Inc. and Southern Pacific
Railroad. AMC subsequently purchased the contract from GPS and Southern Pacific
has since merged with Union Pacific Railroad. By virtue of the Merger, the
Company succeeds to AMC's interest in this Agreement.
-3-
<PAGE>
AMC has developed proprietary products that are under sensitive requirements of
non-disclosure by the parties negotiating purchase the of these devices. To
date, AMC has received revenues from a purchaser in the form of payment for
pre-production prototypes as well as development costs associated with the
project. When appropriate, AMC will disclose details of the product itself as
well as the potential size of the market.
To accomplish its plans, including those previously undertaken by AMC, the
Company will require significant financing. Management will attempt to obtain
financing through capital investment or otherwise. No assurance or guarantee
exists that the Company will obtain future financing, by any capital investment
or otherwise, to implement its planned concentration on business or initiatives
heretofore conducted or sought to be undertaken by AMC. The Company believes
that the merger will add value that would be reflected in financial statements
for the Company as possible revenues and earnings begin to accrue.
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's consolidated financial statements 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 April
30, 1998, as well as a deficiency in working capital. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, (except for the charge for the estimated
losses as a result of discontinued operations of LPF and its subsidiary and the
charge-off of the MAC investment) or the amounts or classifications of
liabilities that might be necessary in the event the Company cannot continue in
existence.
Losses incurred to date have resulted principally from the operation and
disposal of the assets of discontinued operations including LPF and MAC, as well
as estimated losses on disposition of discontinued operations as a result of the
decisions to terminate these operations which are reflected in the current
period as "Loss From Discontinued Operations" in the financial statements.
Futhermore, the Company has incurred substantial consulting and professional
fees, paid for principally by the issuance of common stock. During the same
period in the prior fiscal year, the Company was essentially dormant and its
only principal transactions were oriented to resolving its outstanding debt, and
its negotiations successfully resulted in the forgiveness of a substantial
portion of that debt as reflected in "Extraordinary Items" in the financial
statements.
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: June 19, 1998 By: /S/ JAMES C. STATHAM
----------------------------
James C. Statham, President
-4-
<PAGE>
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.
DATED: June 19, 1998 By: /S/ STEPHEN F. WATWOOD
---------------------------------------
Stephen Watwood, Director,
Chairman of the Board and Chief
Executive Officer (Principal Executive
Officer)
DATED: June 19, 1998 By: /S/ JAMES C. STATHAM
--------------------------------------
James C. Statham, President,
Director and Chief Operations Officer
DATED: June 19, 1998 By: /S/ SHIRLEY M. HARMON
----------------------------------------
Shirley Harmon, Director
DATED: June 19, 1998 By: /S/ THOMAS W. ROBERTS
----------------------------------------
Thomas Roberts, Treasurer
(Principal Financial Officer)
DATED: June 19, 1998 By: /S/ RENEE C. RIEGLER
----------------------------------------
Renee Riegler, Secretary, Assistant
Treasurer (Corporate Secretary)
