U.S. Securities and Exchange Commission
Washington D. C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended July 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from_________ to ________
Commission File No. 0-10841
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American Millennium Corporation, Inc.
(Name of small business issuer 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) (Zip Code)
Issuer's telephone number (352) 742-5010
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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange which registered
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Common Stock, $.001 Par Value OTC
Securities registered pursuant to Section 12 (g) of the Act:
None
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. (l) Yes X
No_ (2) Yes X No_
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State the issuer's revenues for its most recent fiscal year. $306,409.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act).
Aggregate market value of the 23,728,422 shares held by non-affiliates of the
issuer as of November 10, 1998, computed by using the average of the ask and bid
prices on November 11, 1998, of $.34 and $.325 is as follows:
Average $.332/share X 23,728,422 shares = $7,877,836
The number of shares outstanding of the Company's Common Stock as of November
10, 1998, is 23,728,422. There are approximately 770 shareholders of record as
of November 10, l998.
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American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
FORM 10-KSB
TABLE OF CONTENTS
PART I PAGE
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Item 1. Description of Business 1
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Item 2. Description of Property 2
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Item 3. Legal Proceedings 3
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Item 4. Submission of Matters to a Vote of Security Holders 3
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters 3
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Item 6. Management's Discussion and Analysis or Plan of Operation 3
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Item 7. Financial Statements 4
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Item 8. Change In and Disagreements with Accountants on
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Accounting and Financial Disclosure 8
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PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
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Compliance with Section 16(a) of the Exchange Act 8
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Item 10. Executive Compensation 10
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Item 11. Security Ownership of Certain Beneficial Owners and Management 11
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Item 12. Certain Relationships and Related Transactions 12
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PART IV
Item 13. Exhibits and Reports on Form 8-K 12
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PART I
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Item 1. DESCRIPTION OF BUSINESS
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General
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American Millennium Corporation, Inc. (f/k/a) Energy Optics, Inc., a New Mexico
corporation (NASDAQ OTC: AMCI, formerly EOPT), was organized in 1979 and
developed various proprietary and patented technologies for industrial and
consumer application. The Company was not able to realize any substantial
revenue or realize any profit margins sufficient to maintain an active status
and it was unsuccessful in securing funding sufficient to aggressively market
these devices and systems. It also was unable to enlist the resources of a
partner concern necessary to take product development from the prototypical
stage into production and then properly promote and market its various products
through distribution to the end-user.
After becoming inactive and ceasing all initiatives to pursue funding for
production and marketing, the Company was de-listed from the NASDAQ Small Cap
listing. However, as an inactive over-the-counter stock, the Company's
principals nevertheless maintained the Corporation's books, kept the Company in
good standing and retained the Company's status as fully reporting to the
Securities and Exchange Commission.
In order to proceed with its acquisition strategy, the Company recognized that
it had to reduce the overwhelming debt that the Company owed. A settlement
agreement was reached to eliminate the Small Business Administration debt
(including accrued interest) by a combination of cash payments, issuance of
stock and forgiveness of debt.
The remainder of the debt has been disposed of by forgiveness of some debt and
interest and an exchange for stock. (Most of this debt was to Directors of the
Company.) With a clean slate, the Company believes that it can pursue its
research and development of products and services.
Recent Business Activity
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In June 1997, the Company's principals began discussions with an unincorporated
business organization (UBO) that owned certain assets and that had rights to
purchase or assign purchase rights of certain other assets. These discussions
resulted in the Company proposing the possibility of acquiring certain assets
from the UBO or its assigns for the purpose of re-establishing the Company as a
viable business. The Company, upon further review and due diligence, was made
aware of certain specific assets owned or assignable by the UBO including
technologies that appeared compatible with those of the Company, as well as
other diverse holdings with market potential.
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In July 1997, management entered into negotiations with the UBO for the purchase
of assets or rights to purchase assets in exchange for common stock of the
Company. On August 20, 1997, the Company acquired certain of the UBO's business
assets including the Tavares, Florida real estate, buildings, and equipment and
controlling stock interest (held by parties related to the UBO) of Lean Protein
Foods, Inc. (LPF), a specialty food company and their wholly-owned subsidiary,
Wildwood Ostrich Ranch, Inc. (WWOR) in a transaction totaling approximately $3.6
million. This transaction was subsequently amended on October 10, 1997. The
Company filed for foreign corporation registration with the State of Florida and
moved its corporate offices from New Mexico to Tavares, Florida
In September and October 1997, the Company acquired two additional business
interests from the UBO, both of which were development stage enterprises. Early
in 1998, the Company discontinued operations of LPF and on July 31, 1998, sold
its interest in LPF to LPF's minority shareholders. Management also negotiated
the recessions of both the purchase contract for a 20% stock ownership held in
Microgravity Aviation Corporation (MAC) and the contract for purchase of the
real estate in Tavares, Florida where the Company's offices are located. Harto,
Ltd. returned 1,000,000 shares of the Company's common stock in exchange for its
20% interest in MAC. In return, 270,000 shares of restricted stock were issued
to Harto, Ltd. in consideration for advances in excess of $270,000, which Harto
had made on behalf of MAC. The Company agreed to rescind the contract for
purchase of the real estate in exchange for the return of 1,000,000 shares of
registered stock as and the assumption of approximately $668,450 in debts owed
by the Company. The debts were assumed by Mali-Suisse Mining International, Ltd.
(a party related to Harto by virtue of common control) who retained 591,000 of
the original shares issued.
Under an Agreement and Plan of Merger dated May 27, 1998, the Company merged
with American Millennium Corporation (AMC), a subsidiary of which the Company
owned approximately an 80% interest, with the parent as the surviving
corporation. Upon completion of the merger, the Company changed its name to
American Millennium Corporation, Inc.
Products
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The Company intends to focus on providing hardware and software solutions to the
wireless and wireline telecommunications industries and bringing solution
oriented combinations of hardware and software to the market to facilitate
timely, accurate, and cost effective one-way and two-way delivery of information
to the rapidly expanding wireless communications industry. This will be achieved
through a variety of communications platforms including satellite, CDPD
(cellular digital packet data), cellular, various other radio frequency (RF)
protocols, and wireline.
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Marketing
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As described in Management's Discussion and Analysis, the Company believes that
a significant base of recurring revenues derived from monthly satellite and
paging monitoring charges will build value for the shareholders. The Company's
principal marketing efforts are directed toward the oil and gas, intermodal
container, and railroad industries which have a need for monitoring of high
value assets. The Company personnel work with management and engineers in the
above referenced industries in order to determine their technological needs and
cost objectives and to develop solutions for their individualized asset
monitoring requirements. Marketing efforts are performed by the Company's
personnel and outside sales service providers. The Company has, and will
continue through 1999, to market its services at industry trade shows.
Competition
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The Company believes that competition in the market consists of other Orbcomm
USA, L.P. (Orbcomm) resellers as well as other satellite service providers. The
Company also faces potential competition from other telecommunications providers
such as those described in the charts, which are part of Management's Discussion
and Analysis.
Manufacturing and Suppliers
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The Company purchases the components for its monitoring solutions from outside
suppliers and manufacturers. The Company believes that the components are
available from more than one source of supply.
Government Regulations
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As a value-added reseller for Orbcomm, PageMart, and American Mobile Satellite,
the Company's services and products are subject to the rules and regulations of
the Federal Communications Commission. The Company anticipates no problems in
obtaining the necessary certifications in a timely manner when required.
Personnel
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As of July 31, 1998, the Company had seven full time employees. The Company
believes that its relationship with its employees is satisfactory. None of the
Company's employees are covered by collective bargaining agreements.
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Item 2. DESCRIPTION OF PROPERTY
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The Company's corporate offices are located in a building that is approximately
3,500 square feet located at 29425 C.R. 561, Tavares, Florida. The office
facilities were rented under a month-to-month rental agreement from a party
related by virtue of stock ownership at a rental rate of $1,200 per month. The
Company owns furniture, fixtures and equipment used in the conduct of corporate
business with a historical cost of approximately $94,000.
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Item 3. LEGAL PROCEEDINGS
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In October 1997, The Company issued its common stock to two individuals totaling
500,000 shares under a Consultant Services Plan as compensation in connection
with promotion of the Company to the public. The Company sought to discontinue
relations based on their dissatisfaction with the quality of service, lack of
service and for other good business reasons. The Company requested that the
previously issued stock be returned at which time they discovered that the stock
had been sold. The Company has retained legal counsel to pursue the matter.
In August 1997, as part of a Stock and Asset Purchase Agreement, the Company
issued 400,000 restricted shares of common stock to each of two individuals. The
agreement was amended in October 1997, to reflect a lower valuation of the
assets to be acquired in exchange for the stock issued. Accordingly, it was
necessary to reduce the number of shares to which these two individuals were
entitled to 117,275 shares each. A letter was sent for the return of the
original shares in exchange for issuance of the appropriate number of shares.
The original shares were not returned and upon the expiration of their
restriction period, the individuals sought to have the restriction removed to
enable them to sell the shares. Since the Company believes the shares were
issued in error, the Company sought an injunction in the Circuit Court of the
Fifth Judicial Circuit, in and for Lake County, Florida to prevent the sale of
these shares. A temporary injunction was granted on October 27, 1998, upon the
filing of a surety bond in the amount of $150,000 by the Company. The case will
be heard at a later date.
The Company is a party to a pending administrative proceeding initiated by the
Securities and Exchange Commission. Although, the Commission alleged various
violations of the Securities Act of 1933 and the Securities Exchange Act of 1934
against the Company, to date the Commission has not filed suit. An informal
settlement has been reached in the matter, which, if approved by the Commission,
will not require payment of civil fees.
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Item 4. SUBMISSION OF MATERS TO VOTE OF SECURITY HOLDERS
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A special meeting of the shareholders of the Company on May 27, 1997, 9:00 a.m.
The following items were disussed and voted upon:
o Changing the name of the Company from Energy Optics, Inc. to American
Millennium Corporation, Inc.
For: 9,817,530 Against: 0 Abstain: 0
o Increasing the Company's authorized shares of common stock to 60,000,000
For: 9,817,530 Against: 0 Abstain: 0
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o Authorizing the issuance of 10,000,000 shares of Preferred Stock in five
(5) series, with the Board of Directors to establish the number of shares
to be included in each series, and the preferences, rights of conversion,
limitations and other relative rights of each series
For: 9,817,530 Against: 0 Abstain: 0
o Authorizing the Board of Directors to issue options and other rights with
respect to its shares to directors, officers and employees of the company
without offering the same to the shareholders in general
For: 9,817,530 Against: 0 Abstain: 0
o An unsolicited proxy for 100 shares voting against each measure was
presented.
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PART II
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Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLERS MATTERS
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The Company's common stock is traded on the over-the-counter market. Since May
of 1986, it has been listed in the "pink sheets". Currently, the Company is
listed on the National Association of Securities Dealers' Electronic Bulletin
Board under the symbol "AMCI," formerly EOPT. Individual systems may add other
symbols for access. The high and low bid for each of the last eight quarters
after giving retroactive effect to the 1 for 10 reverse stock split is listed
below:
FISCAL YEAR ENDED JULY 31, 1998 HIGH LOW
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First Quarter $ 2.625 $ 2.313
Second Quarter $ 1.375 $ .700
Third Quarter $ 1.450 $ 1.350
Fourth Quarter $ 1.290 $ 1.220
FISCAL YEAR ENDED JULY 31, 1997 HIGH LOW
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First Quarter $ 1.000 $ 1.000
Second Quarter $ 1.100 $ 1.000
Third Quarter $ 2.000 $ 1.800
Fourth Quarter $ 1.600 $ .100
As of November 10, 1998, there were 770 shareholders of the Company's common
stock.
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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The Company has changed its focus and will now provide hardware and software
solutions to the wireless and wireline telecommunications industries. The
business will look to bring solution oriented combinations of hardware and
software to the market to facilitate timely, accurate, and cost effective
one-way and two-way delivery of information to the rapidly expanding wireless
communications industry. The Company's various projects and operating plan are
summarized as follows, and are subject to modification from time to time without
notice by decision of Management and many not reflect actual results:
Orbcomm Reseller Contract
The Company is a value-added reseller for Orbcomm. Orbcomm is a "low earth
orbit" (LEO) satellite joint venture between Orbital Sciences, Inc. and
Teleglobe of Canada, Inc. Orbcomm has launched 28 LEOs of its proposed
"constellation" into orbit with an additional 8 to 10 satellites to be launched
later.
With the exception of satellites sent into polar orbits, Orbcomm has launched
its satellites eight at a time from a single Pegasus rocket mounted beneath the
fuselage of a Lockheed L-1011 aircraft which is flown over the Atlantic Ocean
from a NASA facility in Virginia. Once the aircraft is at the proper altitude,
the Pegasus rocket is fired into orbit and deploys the satellites.
The Company believes that the lower costs of the "Little LEOs" relative to
larger more costly satellites, along with the fixed cost of a single launch that
deploys eight satellites from one rocket, will provide competitive pricing
advantages to the Company, though there can be no assurances that this will
occur.
The Company's contract with Orbcomm allows the Company to provide remote
monitoring services to operators of oil and gas wells, intermodal containers,
and refrigerated and flatbed railcars. As an example, a railroad company can
determine where a particular refrigerated railcar with a high value load is
located by global position as well as the temperature inside the car, the
voltage output of the engine, and numerous other functions.
The data transfer industry has grown exponentially with the increasing speed and
lower costs of microprocessors that are components of computers, radio towers,
radio frequency transceivers of all types, and other radio devices developed to
scan, store, and transmit data. Industry leaders such as Bill Gates and Craig
McCaw and large technology firms such as Motorola, Boeing, Loral, Lockheed
Martin, Orbital Sciences and others have made substantial financial commitments
totaling billions of dollars to design and deploy both voice telephone and data
transmission satellite systems.
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There is nothing new or innovative about Global Positioning Systems (GPS). This
technology has been used by the military for decades and a handheld global
positioning device can be purchased at a sporting goods store for under $100.
However, the device only tells the operator's location. The ability to monitor
assets from a remote location, direction, and speed, as well as gather other
pertinent data and actually manipulate functions, is a relatively new industry.
Management believes that monitoring fixed and moving assets from afar by
satellite will become a significant growth market as indicated by the early
results in its first initiatives.
Below is information reported in the June 15, 1998, issue of Barron's that
outlines the satellite initiatives planned or currently being deployed for voice
communication and data transfer:
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Voice Telephone Systems
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Subject Lead Sponsor System Specifications Budget
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Iridium Motorola Low orbit, 65 satellites, plus 6 spares $ 4.4
Globalstar Loral, Qualcomm, Low orbit, 48 satellites, plus 8 spares 2.6
Vodafone,
AirTouch
ICO Immarsat, TRW, Medium orbit, 10 satellites, plus 2 4.5
Hughes, various spares
PTTs
Ellipso Mobile 17 satellites, most in elliptical orbit 1.4
Communications
Holdings
ECCO Constellation Low orbit, 46 satellites, plus 8 spares 3.0
Communications
ACES Pasifik Satelit 2 geosnychronous satellites 0.9
Philappine Long
Distance
Thuraya Etisalat (United 2 geosnychronous satellites 1.0
Arab Emirates)
Total Budgeted: $17.8 Billion
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Data Transmission Systems
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Subject Lead Sponsor System Specifications Budget
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Teledesic Gates, McCaw, Low orbit, 288 satellites, plus 12 $ 9.0
Motorola, Boeing, spares
Alwaleed
Skybridge Alcatel, Loral Low orbit, 80 satellites 4.2
CyberStar Loral 3 geosnychronous satellites 1.6
Astrolink Lockheed Martin 9 geosnychronous satellites 4.0
Spaceway Hughes Electronics 8 geosnychronous satellites 3.2
Orbcomm Orbital Sciences "Little LEO", 36 satellites 0.3
Total Budgeted: $22.3 Billion
Total Budgeted for Communications Satellite Industry: $40.1 Billion
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The Orbcomm "constellation" of data transmission satellites is expected to cost
$3 million, or $1.3 to $8.7 billion less to build and deploy than any of its
competitors. Even though Orbcomm is a "Little LEO" system comprised of small,
low earth orbit satellites, Management believes that the Company has certain key
competitive advantages over the larger, more costly systems, due to the
following:
1. Orbcomm has presently launched all 28 of its satellites planned for this
year. Also, according to Orbcomm officials, F.C.C. has permitted the launching
of as many as 22 additional satellites. This is significant since it means that
the Company can solicit, demonstrate capability for proof of concept, and sign
up subscribers in the present instead of in the future. Also, certain of the
systems yet to be deployed are budgeted at billions of dollars before allowing
for possible cost overruns and time delays. Management believes that the capital
structure of a less costly Orbcomm system will allow for lower, more competitive
monthly charges which will have a broad appeal to more potential subscribers.
NASA has stated in various news articles that it sees the space "industry" as
trending toward less expensive hardware that is more expendable. In the event of
a lost or malfunctioning satellite, a relatively inexpensive satellite is a much
less critical financial event than is the case with a large, expensive
satellite.
Management further believes that the rapid changes in technology currently
underway require a flexible approach in the design and deployment of data
transfer satellites. Various experts in the telecommunication industry have
predicted that gross revenues from the transfer of data will surpass revenues
from voice communications in the next several years. A constellation of small,
inexpensive satellites that can be upgraded to accommodate improvements in
technology has, in Management's opinion, a distinct cost advantage over systems
that may rely on a few geosnychronous satellites that could become less
efficient or obsolete as technology changes.
Management believes the overall competitive advantage as a reseller for the
Orbcomm system is the competitive rates it can currently charge. The cellular
telephone industry is an example of the sharp increase in the number of
subscribers who signed up for service when cellular telephone rates fell. The
demand curve trends upwards as rates trend downward. Management is currently
marketing the ability to provide accurate, low cost monitoring to the industries
defined in its reseller contract.
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Oil and Gas
The Company exhibited its remote monitoring capabilities over the Orbcomm system
at the Permian Basin International Oil Show held September 20-22, 1998 in
Odessa, Texas. At this show, the Company demonstrated, "on site", a gas
compressor located outside of the exhibition hall reporting data to a laptop
computer via Orbcomm satellites at the The Company booth inside the hall.
Company officials met with numerous high level oil and gas executives,
facilities engineers, and operators who expressed interest in further meetings
to discuss remote monitoring for their oil and gas wells.
Additionally, management has formed an alliance with Midland, Texas based Nabla,
a wholly owned subsidiary of Lufkin Industries, Inc. which is the world's
largest manufacturer of pump jacks used in the oil industry. Government
regulations require that the operators of oil leases provide a daily report of
activity at the well site including the amount of oil pumped. The petroleum
industry currently uses a cadre of technicians known within the industry as
"pumpers" whose job it is to monitor the well site on a daily basis and provide
a written report. According to IHS Energy Group of Denver, Colorado, which
monitors some 2.5 million oil and gas wells worldwide, it is not unusual for a
pumper to be weeks behind schedule in his reporting. Also, the lease operator
can be months behind schedule in getting and processing the information gathered
by the pumper. Further, depending on the remoteness of the location, a pumper
may charge the operator hundreds of dollars per month per well monitored without
the lease operator having any means to verify that the pumper has actually made
a physical visit to the site each day. At an August 1998 meeting with IHS Energy
Group officials, the Company agreed to provide them with a complete test unit
consisting of an Orbcomm satellite monitoring account and satellite transceiver.
Chairman and Chief Executive Officer, Stephen F. Watwood, was informed by IHS
that it appears that the Company and Orbcomm have the solution to their need for
efficient, single platform export of pertinent data from the well site.
Nabla has manufactured and deployed some 1,000 "pump-off controllers" at a
corresponding number of well sites. The device is fundamentally a "smart box"
with sensors that measure and report all types of data that involve the
condition of the well, the down hole pump, and volume of oil pumped. The
information is accessed via a digital readout so that the pumper gets a printout
of data required for his report from the Nabla pump-off controller.
In a June 1998 press release, the Company announced that it had come to an
agreement with Griffin Petroleum in Odessa, Texas to install the satellite
transceiver built by Torrey Science for monitoring conditions at the well on an
oil lease operated by Griffin. In August 1998, the Company and Nabla agreed to
outfit the Griffin well with a Nabla pump-off controller that will have a
transceiver installed on board. The well, once the installation is complete,
will be programmed to report daily to the Orbcomm satellite the conditions being
read by the Nabla box. Also, status error alarms are to be installed to
automatically report tank level and shutdown and other catastrophic failures
aboard the well. That data is then sent by the satellites to Orbcomm Gateway
Earth Stations located in the states of Washington, Arizona, Georgia or New
York, where it is then sent to Orbcomm's headquarters in Virginia. Orbcomm
forwards the information to the Company to post the data to a secure website on
the Internet to which both the pumper and the lease operator have access. All of
this can take place in less than 60 seconds once the satellite downloads to the
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earth station. Nabla has already installed the pump-off controller at the
Griffin Petroleum site and test messages have successfully been sent. The
on-site installation is scheduled for November of 1998.
The Company anticipates that it can provide the monitoring portion of the system
to the lease operator at a fraction of the cost currently borne by the lease
operator who is dependant on a physical visit by the pumper. It also expands a
pumper's capability to monitor many more wells and be provided with more timely,
accurate, and cost effective data.
The Company has various other initiatives underway with other oil and gas
producers as well as manufacturers of gas compressors and control panels for
those compressors. The Company will continue to market its services to those
companies for deployment of its system on a fleet basis in order to optimize
subscriber enrollment.
A similar monitoring opportunity exists for reporting conditions and system
failures on natural gas compressors that exist throughout petroleum rich areas
in the Permian Basin (Midland/Odessa, Texas); Houston, Texas; and Oklahoma City,
Oklahoma. The estimated size of this combined market is well over one million
asset sites, according to Nabla.
Railroad Cars
The Company is currently completing the testing phase of remote monitoring of a
refrigerated railcar under the provisions of a contract the Company has with
Union Pacific Railroad, the nation's largest rail company. The original contract
called for a prototype unit to be installed on a refrigerated railcar with
cellular capability for transmitting data with provisions for also installing a
satellite transceiver. For the past several months, the Company has monitored
the location of a test railcar as well as the battery voltage and refrigerated
compartment temperature. Union Pacific's main office in Omaha is notified when
any door opens, low fuel, temperature out of specified range, or engine failure
occurs. The unit reports all sensor status twice a day to Omaha where the data
is formatted into a report form and printed. The data is also downloaded to a
website via Orbcomm's low orbiting satellites.
As of August 21, 1998, Stephen F. Watwood, confirmed that the Phase One single
unit prototype test was complete. The next phase of the contract involves the
outfitting of five refrigerated railcars with pre-production models of the
Company satellite transceiver manufactured by California based Torrey Science.
Subsequent to that test, Union Pacific has indicated that it will proceed with
outfitting its refrigerated fleet in stages predicated upon a successful test
with the five units. The five cars are to be outfitted in Denver, Colorado in
early 1999.
Canadian Pacific Railroad, which recently purchased Illinois Central Railroad,
notified the Company in August of 1998 that it would be interested in holding
discussions concerning the monitoring of its refrigerated and flatbed railcars
via Orbcomm satellites. Management expects to meet with Canadian Pacific
officials during the first quarter of 1999 to schedule a test for their
railcars.
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Under the terms and conditions of its Orbcomm contract, the Company may also
monitor all other types of railcars (excluding flatbed cars that haul
automobiles and trucks). In the case of flatbed railcars that haul pipe, for
example, the Company can install a simple accelerometer tied to a satellite
transceiver to notify rail officials whenever a rail car collides with another
car. This is vital information for the rail company to know. In the case of a
flatbed car hauling pipe, heavy equipment, or drainage culverts, a movement
involving as little as one gravitational, or "g", force can cause the load to
shift eight or more inches. The shift may be visually imperceptible but
nevertheless sufficient to cause a catastrophe hundreds of miles removed from
the impact when the car rounds a bend and the load tumbles off, or in extreme
cases, causes a derailment.
Also, the ability to store a particular railcar's trip history and conditions
logged on to a disc gives the operator the ability to dispute fraudulent damage
claims and to time stamp entry violations which may indicate theft. This gives
the rail industry a technological edge over its current operating practices.
According to railroad industry sources, there are over 1.2 million railcars in
the U.S. with over 31,000 of those being refrigerated railcars. The Company is
aware of one company which has outfitted railcars with a tracking device that
also reports impacts. Based on hardware and monthly monitoring charges to the
rail company using the service, the Company believes it can equip a similar
railcar for one-fourth of the cost of the hardware and provide monitoring for
one-third of current monitoring fees currently being charged.
Intermodal Containers
The Company officials met with Information Technology officials at an intermodal
container corporation, at their request, in June of 1998 to discuss a proposal
for monitoring their intermodal containers. Information Technology operates some
100 vessels and 200,000 containers (of which 20,000 are refrigerated) globally
and some 100,000 chassis' for hauling the containers overland in North America.
They disclosed to the Company that they previously entertained two other
proposals by firms purporting to be able to solve their tracking needs of both
containers and chassis'. However, neither proposal, both which utilized
geosnychronous satellites, were either cost effective or workable, according to
that company. In their letter sent to the Company earlier this year, they stated
that, "We understand our customers' need to be able to track their containers
almost on an hourly basis, and while we can do this fairly accurately in our
port facilities, on our vessels, and on the rail system in the USA, we need to
be able to track our equipment anywhere in the world, especially inland after it
has left our port facility, or before it has arrived. Clearly, Orbcomm appears
to have some technology that we could apply to our tracing and tracking issue."
At the meeting referenced above, the Company agreed to outfit a refrigerated
container with a satellite transceiver for location of containers and chassis'.
Following that test, the Company will submit a formal proposal to them for the
monitoring of their containers and chassis fleet. The Company believes that it
can provide a cost effective solution to that company as well as other container
companies.
-11-
<PAGE>
Other Business of The Company
McLeodUSA Co-venture
As was disclosed in a July 8, 1998 press release, the Company has entered into a
co-venture with McLeodUSA on a paging application developed by the Company.
McLeodUSA (McLeod) is a Cedar Rapids, Iowa based local and long distance
telephone provider (known as a Competitive Local Exchange Carrier or CLEC) that
went public in 1996. It now offers a full range of telecommunications services
to residential and small to medium sized business customers in fourteen
Midwestern states.
McLeod is currently dependent upon the Local Exchange Carrier (LEC) to furnish
the stutter tone, for a fee, that notifies McLeod's voice mail customers of
voice messages waiting when a customer lifts the telephone receiver and hears
the tone. According to the Senior Project Engineer at McLeod who had been in
charge of the co-venture with the Company, those charges are currently running
at over $500,000 per month and are expected to increase to millions of dollars
per month as McLeod's voice mail customer base grows.
The solution, as proposed by the Company and co-developed with McLeod, called
for a small desk top paging device. When a voice message is left for a customer,
the telephone switch notifies the pager system (for whom the Company is a value
added reseller). The pager system in turn activates the pager which blinks
brightly through a portal molded into McLeod's trademarked icon, thereby
bypassing the LEC. The Company also has the capability to build in E-mail I.D.
and Caller I.D. into the same pager.
To date, the Company has delivered 150 prototype units and 50 pre-production
units to McLeod. The units, distributed among McLeod's management for testing,
have operated flawlessly, according to McLeod. The Company expects to produce
the units for McLeod upon finial specifications being submitted. According to
McLeod, their internal needs could run as high as 1.8 million units.
American Mobile Satellite
Earlier this year, Reston, Virginia based American Mobile Satellite (AMS)
(NASDAQ: SKYC) contacted the Company to see if it would become a value-added
reseller for AMS and its geosnychronous satellite system. AMS provides seamless
voice, data, and point-to-multipoint dispatch services to virtually anywhere in
North and Central America, the Carribean, and hundreds of miles of surrounding
waters. AMS is the only company authorized by the FCC to provide L-band (1.5-1.6
GHz) mobile satellite service in the U.S.
Additionally, AMS recently purchased the ARDIS two-way radio data network from
Motorola. ARDIS was the first and is still the largest nationwide data wireless
network in the country, according to AMS. It was originally built as a joint
venture between Motorola and IBM. ARDIS coverage extends to more than 90% of the
business activity in the U.S. through a network of over 1,600 radio frequency
towers for transmitting and receiving data from hand-held and mobile wireless
devices and modems. It covers the top 425 metro areas including over 10,700
cities and towns in the U.S.
-12-
<PAGE>
The Company has received a legal opinion that contracting to become an AMS
reseller does not represent a conflict of interest with Orbcomm, which prohibits
the Company from reselling the services of any other satellite service that
operates on 1 GHz or lower in radio frequency. On August 28, 1998, the Company
officially became a reseller for AMS.
Proprietary Technology Applications
The Company is also a value-added reseller for Dallas, Texas based PageMart. The
Company is currently in the process of filing for patents for certain
proprietary applications of paging technology. The Company is developing certain
proprietary technologies for the monitoring of various types of assets utilizing
Radio Frequency (RF) formats along with functions manipulations aboard those
assets. Due to the sensitive and proprietary nature of this technology as well
as the Company's intent to protect it to the extent that is possible with patent
applications, Management is unable to disclose specific aspects of the systems.
Nevertheless, Management believes that the applications are both valuable and
viable. The Company is presently in discussion with several companies regarding
licensing and/or joint venture proposals within the scope of the technologies
and their respective applications.
The Company has retained the services of Pittenger and Smith, a Denver, Colorado
based patent, trademark, and copyright law firm, to effect these applications.
In addition to Orbcomm, American Mobile Satellite, and PageMart, the Company has
strategic partnerships with Nabla, Griffin Petroleum, Trimble Navigation, Union
Pacific Railroad, SPS Technologies, Pacific Arepco, Torrey Science, and Hersey
Measurement Company.
Other Reseller Initiatives
The Company was recently contacted by Roadway Express, a large overland long
hauler fleet of semi-tractor trailer rigs. Roadway's Container Hauling Division
has requested a proposal for tracking certain of its container hauling trucks
beginning with 5,000 containers. Also requested was a solution proposal for the
tracking or location of the trailer and chassis rigs that cannot be reliably
monitored for global position via satellite platform. The Company plans to
employ the proprietary technology referenced above for location of those rigs in
the proposal.
Summary
In its role as a developer of digital, wireline, and wireless products and
solutions to the telecommunications industry, the Company is currently
presenting the uses of its technologies with leaders in various industries.
Management believes that recent technological developments allowing the
interfacing of multiple communication platforms should position the Company to
emerge as an industry leader in the field of data transfer.
-13-
<PAGE>
Management believes that a significant market exists for potential applications
of the Company's technology that involve remote monitoring and systems function
manipulations. Customers can monitor their equipment, production levels, and
track global position as well as control functions and have data reported from
the particular asset that can be downloaded onto a secure Internet website which
can then be accessed from anywhere in the world. The Company provides company
officials, such as oil engineers and railroad management, with the ability to
obtain vital information on a timely and current basis at any location by simply
using their laptop computers to log-on to a secure website. The reports can be
available in less than 60 seconds after an Orbcomm satellite flies over the
monitored site, reads, and transmits the data to an Orbcomm Earth Station.
The Company will continue to market these services to the rail, intermodal
container, and oil and gas industries with its Orbcomm reseller contract. It
will continue to market its various paging technology solutions to the
telecommunications industry with developments to be announced subsequent to
patent filings.
The ability to provide satellite monitoring for the industries defined within
the Company's reseller contract with Orbcomm means that the Company is able to
charge a specified rate per month for each asset being monitored. The charge can
range from a few dollars per month (similar to paging rates) to $100 per month,
or even more (similar to cable television rates with premium channels and
pay-per-view), depending on the amount of data and the frequency of reports
required by the owner of the asset being monitored. Valuations for
telecommunication companies via a "value per user" or "per pop" basis are well
established by such appraisal firms as Paul Kagan Associates, Inc. Management
believes that building a base of subscribers paying a monthly fee for monitoring
services will greatly enhance the book value of the Company. Further, Management
believes that as the satellite monitoring industry becomes established,
appraisals of a subscriber base of satellite customers will be valued on a par
basis with other telecommunications properties that have similar gross revenues
"per pop".
In addition to the potential of substantial hardware sales, the Company believes
that a significant base of recurring revenues derived from monthly satellite and
paging monitoring charges will build value for the shareholders and provide a
basis for independent appraisals of the Company's network of subscribers that
are comparable with other telecommunication firms with similar "per pop"
revenues.
Management also believes that building a base of monthly subscribers to its
remote monitoring and paging services will enable the Company to be valued in a
manner similar to other communications companies at substantial multiples of
revenue. Management will continue to out-source production and manufacturing and
place emphasis on capital investment into its product development and solution
resources for industries requiring data transfer and remote monitoring via
satellite, paging, or value-added, proprietary combinations thereof.
-14-
<PAGE>
The year 2000 issue results from certain computer systems and software
applications that use only two digits (rather than four) to define the
applicable year. As a result, such systems and applications may recognize a date
of "00" as 1900 instead of the intended year 2000, which could result in data
miscalculations and software failures. The Company has conducted a preliminary
assessment of its key computer systems and software application and believes
they are Year 2000 compliant. The Company is in the process of communicating
with all key suppliers, financial institutions and customers to identify and
coordinate the resolution of any Year 2000 issues that might arise. Based on the
initial assessment, the Company believes the cost of addressing the Year 2000
issue should not have a material impact on the Company's financial position or
results of operations.
To satisfy its cash requirements for the next twelve months the Company is in
the process of preparing a private offering of the Company's common stock. The
offering is being made on a "best efforts" basis with the minimum required
subscription of $100,000 (100 units) and the maximum subscription of $1,500,000
(1,500 units). This offering is being made in accordance with exemptions from
regis tration under Regulation D, Rule 506 of the Securities Act of 1933.
Additionally, the Company intends to rely on advances from related parties and
sales.
The Company has no material commitments for capital expenditures and expects no
significant changes in the number of employees.
- --------------------------------------------------------------------------------
Item 7. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of the Company are included (with an index listing all
such statements) in a separate financial section at the end of this Annual
Report on Form 10-KSB.
- --------------------------------------------------------------------------------
Item 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None.
-15-
<PAGE>
- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- --------------------------------------------------------------------------------
Executive Officers of The Company
- ---------------------------------
The executive officers of the Company who some are also directors of the Company
are as follows:
<TABLE>
<CAPTION>
Name Title/Position Age
- ---- -------------- ---
<S> <C> <C>
Stephen F. Watwood Chief Executive Officer, Chairman of the Board and Director 50
James C. Statham President, Chief Operations Officer and Director 45
Thomas W. Roberts Treasurer 49
Renee C. Riegler Secretary, Assistant Treasurer, and Assistant to the President 45
Bruce R. Bacon Vice President of Engineering, Chief Technology Officer 40
Shirley M. Harmon Director 52
</TABLE>
Stephen F. Watwood, 50, Chief Executive Officer (CEO), Chairman of the Board,
and Director. Mr. Watwood owned and operated a successful commercial and
residential construction company for 24 years where he was directly responsible
for project development, business planning, and management. During that period,
he owned a solar power technology company and was an early pioneer in designing
and installing photo-voltaic systems into remote locations. He is considered by
certain of his peers to be an expert in this technology and, to date, his early
efforts serve as the basis for the status-quo development of this technology in
Northwest Colorado. For the past two years, Mr. Watwood has provided central
leadership for the Company and its predecessor. He is directly responsible for
the Company's value-added reseller contracts with Orbcomm USA, L.P., PageMart,
and American Mobile Satellite Corporation.
Additionally, he successfully formed the co-development technology venture in
which the Company participates with McLeodUSA, an Iowa based telephone service
provider. Mr. Watwood studied structural engineering at California State
University in San Diego as well as computer science and business management at
the University of Nevada. His duties include general oversight of the business
of the Company, contract negotiations, and solution proposals for prospective
clients.
James C. Statham, 45, President, Chief Operations Officer (COO), and Director.
Mr. Statham has been an independent businessman for over 20 years. He completed
the Hotel and Restaurant Administration curriculum at Florida State University
and Leysin, Switzerland and subsequently owned and operated a restaurant from
1978 until 1989. In 1989, he formed S&H Foods, Inc., a speciality food company
that operated a food processing plant that produced a gourmet speciality product
sold to grocery chains, wholesale buying clubs, restaurants, and foodservice
suppliers. In 1993, Mr. Statham was hired to assist in capital formation for
various General Partnerships and Limited Liability Companies involved in a
number of projects including wireless telecommunications, agribusiness, and food
processing.
-16-
<PAGE>
Mr. Statham was appointed to the position of President, Chief Executive Officer,
and Chairman of the Board of the Company in September, 1997. Subsequent to a
special shareholders meeting of the Company in May of 1998, Mr. Statham
appointed Stephen F. Watwood as CEO and Chairman of the Company and was, in
turn, appointed to the position of President and COO.
Thomas W. Roberts, 49, Treasurer. Mr. Roberts is licensed as an Attorney at Law
in Ohio. From 1985 through 1996, he operated as sole practitioner of a general
law practice in the greater Cincinnati, Ohio market. His experience included
assistance to clients in commercial law, financing for business start-ups, and
contract assistance in all phases of commercial practice. During that period, he
also served on the Board of Directors of Intense Limited of Cincinnati, Ohio,
and equipment leasing company, where he assisted in normal operations including
pricing and contract decisions. Additionally, Mr. Roberts is a Certified Public
Accountant in Ohio where, during the same period, he was the owner and President
of Thomas W. Roberts, C.P.A., P.S.C., an accounting firm that specialized in
financial statement preparation, governmental audits and tax reporting,
financial analysis for business financing, project management, and investment
analysis.
Mr. Roberts has served as Independent Corporate Counsel for the Company since
September of 1997. He was appointed to the position of Treasurer in December of
1997. Mr. Roberts assists the Company in various legal and accounting matters in
the day-to-day operation of the Company's business.
Renee C. Riegler, 45, Secretary, Assistant Treasurer, and Assistant to the
President. Ms. Riegler has over 20 years of diverse experience in business,
securities, law, journalism, and administration; specializing in the management
of large volumes of information and documentation and the creation/organization
of new positions, departments, and companies. She was employed for over seven
years as a paralegal specializing in civil litigation. During her tenure as a
paralegal, she handled paralegal functions in a variety of areas of law
including corporate, administrative, condemnation, criminal, and multi-district
litigation. Ms. Riegler has over six years of experience in the financial
industry specializing in tax advantages investments. As a registered principal
with the NASD, Ms. Riegler was the vice president and designated compliance
officer for an investment banking firm with brokerage and investment advisory
subsidiaries. She holds a Bachelors of Art degree from the University of Central
Florida.
Ms. Riegler's duties include that of general oversight of corporate
administration issues, securities filings, media communications, and responding
to investor queries. She also serves as liaison between corporate clients and
prospects and the Company's Chairman and President. As assistant treasurer, she
works directly with the Company's independent accountant to insure accurate
filings of financial statements and significant event reports with the U.S.
Securities and Exchange Commission.
-17-
<PAGE>
Bruce R. Bacon, 40, Chief Technology Officer (CTO). Mr. Bacon holds a degree in
Electrical Engineering from Montana State University where he was also a
graduate research assistant in the field of semiconductor laser frequency
stability and linewidth reduction. His most recent experience is that of lead
design engineer at RadiSys Corporation where he was responsible for electrical
system architecture design, writing specifications, digital and analog circuit
design, prototype debug, design validation, and production release. He has broad
experience in field service, customer technical support, in-house technical
training, new product development, and manufacturing operations.
Mr. Bacon is directly responsible for the development and circuit design for the
pager activated voice mail notification device which is the product of the
technology co-ventured between the Company and McLeodUSA. That product expected
to be in production by late 1998. Mr. Bacon's duties as CTO include oversight of
manufacturing, field engineer for development of satellite transceivers, and
Senior Project Engineer for the Company's initiative with satellite monitoring
of rail, container, and petroleum assets in industry. Additionally, he has
conferred with management at SeaLand Corporation, PageMart, Orbcomm, and Union
Pacific Railroad, among others, on complex technical issues involving wireless
solutions proposed by the Company.
Shirley M. Harmon, 52, Director. Ms. Harmon retired from the United States
Department of Navy in 1995. She was a civilian employee with 28 years in the
financial division. She has held various positions and titles during this
employment, which include the following: Budget Analyst, and Management and
Analyst for the Ship Parts Control Center, financial evaluating and executing
various budget programs. Additional responsibilities included establishing and
maintaining payroll records for over 7,000 government employees throughout the
United States and overseas. After leaving the Department of Navy, Ms. Harmon
took a position with a private trust. Her responsibilities included the
establishment and maintenance of the trust's financial records.
-18-
<PAGE>
- --------------------------------------------------------------------------------
Item 10. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
A summary of compensation for all officers and directors serving for the fiscal
years ended July 31, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
Name of Officer Capacity in Fiscal Total Accrued
or Director Which Served Year Remuneration Not Paid
----------- ------------ ---- ------------ --------
<S> <C> <C> <C> <C>
James C. Statham President 1998 $0 $61,611
Chief Operations Officer 1997 $0 $0
Director
Stephen Watwood Chief Executive Officer 1998 $90,850 (1) $32,150
Chairman of the Board 1997 $33,000 $45,000
Director
Thomas Roberts Treasurer 1998 $1,056,400(1)(2) $29,167
1997 $0 $0
Renee Riegler Secretary 1998 $0 $30,861
Assistant Treasurer 1997 $0 $0
Bruce R. Bacon VP of Engineering 1998 $38,930(1) $0
Chief Technology Officer 1997 $0 $0
Shirley M. Harmon Director 1998 $0 $0
1997 $0 $0
</TABLE>
Total all Officers and Directors as a group (7) persons
(1) Includes the value of common stock issued for services
(2) For services rendered as independent corporate counsel prior to becoming
treasurer
- --------------------------------------------------------------------------------
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The following table sets forth information as of November 12, 1998, regarding
ownership control of the Company's common stock by each person who beneficially
owns 5% or more of the common stock of the Company, by each of the Company's
directors, and by all the officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Shares Beneficially Percent
Beneficial Owner Owned of Class
- ---------------- ----- --------
<S> <C> <C>
Bruce R. Bacon
1227 Cedar Street
Forest Grove, Oregon 97116 75,000 0.615 %
Stephen F. Watwood
1785 RCR 29
Oak Creek, Colorado 80467 1,184,716 9.709 %
-19-
<PAGE>
Thomas W. Roberts
2390 Old US Highway 44
Mount Dora, Florida 32757 380,000 3.114 %
James C. Statham
P.O. Box 211
Cedar Key, FL 32625 150,000 1.229 %
Harto (Harto) Ltd.
Victoria House, P.O. Box 1090
The Valley, Anguilla, BWI 2,657,495 21.779 %
Global Investments Ltd., Trustee
Victoria House P.O. Box 1066
The Valley, Anguilla BWI 2,472,307 20.261 %
Mali-Suisse Mining Holdings, S.A.
28 Old Brompton Road, Suite 1119
London, England SW7 3DL 3,393,076 27.808 %
All Officers, Directors, and 5% Shareholders
as a Group (7 persons) 10,312,594 84.515 %
</TABLE>
- --------------------------------------------------------------------------------
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
See footnotes 5, 8, 13 and 14 of the 1998 Financial Statements of this report.
- --------------------------------------------------------------------------------
PART IV
- --------------------------------------------------------------------------------
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(A) Financial Statements and Schedules
The following financial statements and schedules are filed with and as part of,
this Annual Report on Form 10-KSB:
Independent Auditors Report
Balance Sheets
Statements of Operations
Deficiency in Assets
Statements of Cash Flows
Notes to Financial Statements
-20-
<PAGE>
(b) List of Exhibits
The following exhibits are filed with this report:
(3.1) Articles of Incorporation, as amended to date of this report
(incorporated by reference Form 8-K filed June 11, 1998, File
No. 000-10841-D)
(27) Financial Data Schedule (filed herewith).
(B) Forms 8-K and 8 K/A filed during the last quarter of fiscal year 1998
are incorporated herein by reference as follows:
(1) 8-K June 9, 1998 - other events - Agreement and Plan of Merger
Amendment to Articles of Incorporation
-21-
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
<S> <C>
American Millennium Corporation, Inc.
DATED: November 12, 1998 By: /s/ James C. Statham
---------------------
James C. Statham, President
(Chief Operations Officer)
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: November 12, 1998 By: /s/ Stephen F. Watwood
-----------------------
Steven F. Watwood, Director, Chairman of
the Board, (Chief Executive Officer)
DATED: November 12, 1998 By: /s/ James C. Statham
--------------------
James C. Statham, President, Director and
Chief Operations Officer
DATED: November 12, 1998 By: /s/ Renee C. Riegler
--------------------
Renee C. Riegler, Secretary and Assistant
Treasurer (Corporate Secretary)
DATED: November 12, 1998 By: /s/ Thomas W. Roberts
---------------------
Thomas W. Roberts, Treasurer
(Principal Financial Officer)
DATED: November 12, 1998 By: /s/ Shirley Harmon
------------------
Shirley Harmon, Director
</TABLE>
-22-
<PAGE>
CONTENTS
INDEPENDENT AUDITOR'S REPORT F2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F3
Statements of Operations F4
Deficiency in Assets F5
Statements of Cash Flows F6
Notes to Financial Statements F7 - F16
F-1
<PAGE>
Dohan and Company 7700 North Kendall Drive, #204
Certified Public Accountants Miami, Florida 33156-7564
A Professional Association Telephone: (305) 274-1366
Facsimile: (305) 274-1366
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
American Millenium Corporation, Inc.
We have audited the accompanying balance sheets of American Millennium
Corporation, Inc. f/k/a Energy Optics, Inc. (a New Mexico Corporation) as of
July 31, 1998 and 1997, and the related statements of operations, deficiency in
assets and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Millennium
Corporation, Inc. as of July 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered recurring losses from operations,
has a working capital deficiency and has a deficiency in assets that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 11. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As more fully described in Note 4, American Millennium Corporation, Inc. has
entered into asset purchase, sales and recession contracts with Harto, Ltd.,
American Global Equity Services (a trust), Mali-Suisse Mining International,
Ltd. (all entities subject to common control with and of the Company), and
officers of the Company.
Dohan and Company, PA
Certified Public Accountants
Miami, Florida
November 6, 1998
Member:
Florida Institute of Certified Public Accountants
American Institute of Certified Public Accountants Private Companies and SEC
Practice Sections
Accounting Group International Offices in Principal Cities World-Wide
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN MILLENNIUM CORPORATION, INC.
f/k/a ENERGY OPTICS, INC.
BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------
(Restated - Note 9)
July 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,176 $ 24,076
Due from related party - 1,000
Advances to officers 65,921 -
Prepaid expenses 40,375 -
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 107,472 25,076
PROPERTY AND EQUIPMENT, NET (NOTE 2) 81,582 -
OTHER ASSETS (NOTE 4) 3,040 -
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 192,094 $ 25,076
=========================================================================================================================
LIABILITIES AND DEFICIENCY IN ASSETS
CURRENT LIABILITIES
Accounts payable $ 121,299 $ -
Accrued payroll and related taxes 166,505 -
Accrued expenses and other liabilities (Note 3) 80,012 52,896
Notes payable to officer (Note 4) - 1,500
Advances from related party 89,600
Advances from officer (Note 4) 51,178 -
Customer deposit - 75,000
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 418,994 218,996
Long-term note payable to officer (Note 4) 20,500 -
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 439,494 218,996
- -------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
DEFICIENCY IN ASSETS (NOTES 4, 7 AND 11)
Preferred stock, 10,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.001 par value, 60,000,000 shares authorized;
12,329,514 and 877,869 shares issued and outstanding for 1998 and 1997 12,330 878
Additional paid-in capital 10,157,022 4,122,784
Deficit (10,408,752) (4,311,082)
Stock subscription receivable - (6,500)
Treasury stock (Note 9) (8,000) -
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DEFICIENCY IN ASSETS (247,400) (193,920)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 192,094 $ 25,076
=========================================================================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN MILLENNIUM CORPORATION, INC.
f/k/a ENERGY OPTICS, INC.
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
(Restated - Note 9)
For the Years Ended July 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 306,409 $ -
COST OF REVENUES 100,905 -
- ----------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 205,504 -
- ----------------------------------------------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consulting 3,099,774 -
Professional 297,513 178,875
Salaries 200,357 -
Other 364,246 75,923
- ----------------------------------------------------------------------------------------------------------------------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,961,890 254,798
- ----------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (3,756,386) (254,798)
OTHER INCOME (EXPENSES) (12,614) 3,500
- ----------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (3,769,000) (251,298)
INCOME TAXES (NOTE 6) - -
- ----------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (3,769,000) (251,298)
- ----------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (NOTE 4)
Loss from operations of 80% owned discontinued subsidiary (162,617) -
Loss on disposal of 80% owned discontinued subsidiary (1,905,053) -
Loss on disposal of 20% owned equity investment (261,000) -
- ----------------------------------------------------------------------------------------------------------------------
LOSS ON DISCONTINUED OPERATIONS, NET OF INCOME TAXES (2,328,670) -
- ----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEMS (6,097,670) (251,298)
- ----------------------------------------------------------------------------------------------------------------------
EXTRAORDINARY ITEMS - GAIN ON EXTINGUISHMENT OF DEBT
Small Business Administration, net of income taxes of $47,967 (Note 10) - 91,387
Related parties, net of income taxes of $69,025 (Note 4) - 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 $ (6,097,670) $ 85,920
======================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(PRIMARY AND FULLY DILUTED) 9,528,448 85,382
======================================================================================================================
BASIC NET LOSS PER COMMON SHARE BEFORE DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEMS (PRIMARY AND FULLY DILUTED) (0.40) (2.94)
======================================================================================================================
BASIC NET (LOSS) INCOME PER COMMON SHARE
(PRIMARY AND FULLY DILUTED) (0.64) 1.01
======================================================================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN MILLENNIUM CORPORATION, INC.
f/k/a ENERGY OPTICS, INC.
DEFICIENCY IN ASSETS
- -------------------------------------------------------------------------------------------------------------------------
Common Stock Additional (Restated - Note 9)
----------------------------------- Paid-in Accumulated
Description Shares Amount Capital Deficit
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance July 31, 1996 780,815 $ 781 $ 4,025,450 $ (4,397,002)
Stock exchanged for debt (Note 10) 95,170 95 95,076 -
Stock exchanged for services and
payment of operating expenses (Note 4) 1,884 2 2,258 -
Net income for the year ended - - - 85,920
- -------------------------------------------------------------------------------------------------------------------------
Balance July 31, 1997 877,869 878 4,122,784 (4,311,082)
Stock exchanged for 80%
ownership of Lean Protein
Foods, Inc. (Note 4) 2,387,495 2,387 2,085,456 -
Stock issued for services (Note 7) 1,369,000 1,369 3,099,395 -
Stock exchanged for purchase of
assets (Note 4) 234,650 235 88,480
Exchange of stock due to merger (Note 9) 7,190,500 7,191 62,054 -
Automobiles contributed - - 19,575 -
Capitalization of related party debt (Note 4) 409,548
Stock issued in settlement of
Microaviation Gravity, Inc.
claims (Note 4) 270,000 270 269,730 -
Net loss for the year ended (6,097,670)
- -------------------------------------------------------------------------------------------------------------------------
Balance July 31, 1998 12,329,514 12,330 10,157,022 (10,408,752)
=========================================================================================================================
(RESTUBBED TABLE)
-----------------------------------------------------------
(Restated - Note 9)
Subscription Treasury Total
Receivable Stock Deficiency in Assets
- ------------------------------------------------------------------------------------------------------------------------
Balance July 31, 1996 $ (6,500.00) $ - $ (377,271)
Stock exchanged for debt (Note 10) - - 95,171
Stock exchanged for services and
payment of operating expenses (Note 4) - - 2,260
Net income for the year ended - - 85,920
- ------------------------------------------------------------------------------------------------------------------------
Balance July 31, 1997 (6,500) - (193,920)
Stock exchanged for 80%
ownership of Lean Protein
Foods, Inc. (Note 4) 2,087,843
Stock issued for services (Note 7) 6,500 3,107,264
Stock exchanged for purchase of
assets (Note 4) 88,715
Exchange of stock due to merger (Note 9) (8,000) 61,245
Automobiles contributed 19,575
Capitalization of related party debt (Note 4) 409,548
Stock issued in settlement of
Microaviation Gravity, Inc.
claims (Note 4) 270,000
Net loss for the year ended (6,097,670)
- ------------------------------------------------------------------------------------------------------------------------
Balance July 31, 1998 - (8,000) (247,400)
========================================================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN MILLENNIUM CORPORATION, INC.
f/k/a ENERGY OPTICS, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------
(Restated - Note 9)
For the Years Ended July 31, 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,097,670) $ 85,920
Adjustments to reconcile net income (loss) to net
cash used provided by operating activities:
Depreciation 14,412 -
Loss on disposal of property and equipment 13,134 -
Forgiveness of debt - (337,218)
Common stock issued and loss from discontinued operations 2,328,670 -
Common stock exchanged for services 3,100,764 3,000
Common stock exchanged for interest and operating expenses - 6,003
Increase in assets:
Prepaid expenses (40,375) -
Other assets (3,040)
Increase (decrease) in liabilities:
Accounts payable 121,299 (7,990)
Accrued payroll and related taxes 166,505 -
Accrued expenses and other liabilities 27,116 52,896
Customer deposit (75,000) 75,000
- --------------------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (444,185) (122,389)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts
Proceeds from disposal of property and equipment 2,600 -
- --------------------------------------------------------------------------------------------------------------
RECEIPTS FROM INVESTING ACTIVITIES 2,600 -
- --------------------------------------------------------------------------------------------------------------
Disbursements
Acquisition of property and equipment (3,445) -
- --------------------------------------------------------------------------------------------------------------
DISBURSEMENTS FROM INVESTING ACTIVITIES (3,445) -
- --------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (845) -
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Proceeds from advances by officer 51,178 -
Proceeds from long-term note payable to officer 20,500 -
Proceeds from related parties contributed to capital 353,843 -
Proceeds from related parties, net 49,030 106,000
Proceeds from issuance of common stock 15,000 45,000
- --------------------------------------------------------------------------------------------------------------
RECEIPTS FROM FINANCING ACTIVITIES 489,551 151,000
- --------------------------------------------------------------------------------------------------------------
Disbursements
Advances to officers (65,921) -
Advances to related party - (1,000)
Payments on note payable to officer (1,500) -
Principal payments on note payable to Small Business Administration - (4,000)
- --------------------------------------------------------------------------------------------------------------
DISBURSEMENTS FROM FINANCING ACTIVITIES (67,421) (5,000)
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 422,130 146,000
- --------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (22,900) 23,611
CASH AND CASH EQUIVALENTS - BEGINNING 24,076 465
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - ENDING $ 1,176 $ 24,076
==============================================================================================================
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest $ 417 $ -
Income taxes $ - $ -
In addition to amounts reflected above, common stock was issued for:
Settlement of debt to Small Business Administration $ - $ 40,000
Note payable to officer $ - $ 55,170
Acquire property and equipment $88,715 $ -
================================================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
Notes to Financial Statements
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
- --------
American Millennium Corporation, Inc. f/k/a Energy Optics, Inc. (Company), 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 (79.3%) of American Millennium Corporation, a Delaware
corporation, was acquired in October 1997. The remaining interest in AMC was
acquired under an Agreement and Plan of Merger dated May 27, 1998, (see Note 9)
and the companies merged, with the parent as the surviving corporation. Upon
completion of the merger, the Company changed its name to American Millennium
Corporation, Inc.
Since the merger, operations have been focused primarily on digital, wireless
and wireline communications business.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid debt instruments with an original
maturity of three months or less at the date of purchase 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 the straight-line method.
Expenditures for maintenance and repairs are charged to expense as incurred.
Major improvements are capitalized.
Income Taxes
- ------------
Income taxes are computed under the provisions of the Financial Accounting
Standards Board (FASB) Statement 109 No.(SFAS 109), Accounting for Income Taxes.
SFAS 109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
the difference in events that have been recognized in the Company's financial
statements compared to the tax returns.
Investment Tax and Research Tax Credits
- ---------------------------------------
Investment tax and research tax credits will be recognized as a reduction of the
provision for income taxes in the year in which utilized.
Concentrations of Credit Risk and Economic Dependence
- -----------------------------------------------------
The Company operates in the continental United States. The Company's ability to
collect the amounts due from customers may be affected by economic fluctuations.
The Company is economically dependent on Orbcomm USA, L.P. (Orbcomm) for whom it
is a value-added reseller. Orbcomm provides satellite service for the Company's
tracking devices.
Use of Estimates
- ----------------
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
F-7
<PAGE>
American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
Notes to Financial Statements
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications and Restatements
- ----------------------------------
Amounts in the prior year financial statements have been restated to reflect
minor corrections principally resulting from the calculation of income from the
forgiveness of debt and certain amounts have been reclassified for comparative
purposes to conform with the presentation of the current year financial
statements. Additionally, retroactive effect has been given to the merger for
purposes of comparative financial statement presentation.
Research and Development Costs
- ------------------------------
Research and development costs are expensed as incurred.
Advertising costs
- -----------------
Advertising costs are expensed as incurred.
Basic Net Loss Per Common Share
- -------------------------------
Basic net loss per common share before discontinued operations and extraordinary
items is computed by dividing the loss before discontinued operations and
extraordinary items by the weighted average number of common shares outstanding
during each period. Basic net (loss) income per common share is computed by
dividing the net (loss) income by the average number of common shares
outstanding during each period. Available stock options at July 31,1997, were
anti-dilutive and not considered common stock equivalents for purposes of
computing loss per common share.
Impairment of Long-Lived Assets
- -------------------------------
During the fiscal year ended July 31, 1998, the Company adopted FASB Statement
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". SFAS 121 requires that impairment losses
are to be recorded when long-lived assets to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. When required, impairment losses on
assets to be held and used are recognized based on the fair value of the asset.
Long-lived assets to be disposed of, if any, are reported at the lower of
carrying amount or fair value less cost to sell.
Recent Accounting Pronouncements
- --------------------------------
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a separate
full set of general-purpose financial statements.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- ------------
<S> <C> <C>
Office furniture and equipment $ 86,503 $ -
Transportation equipment 7,500 -
--------------- ------------
94,003 -
Accumulated depreciation ( 12,421) ( -)
---------------- ------------
Property and equipment,
less accumulated depreciation $ 81,582 $ -
=============== ============
</TABLE>
F-8
<PAGE>
American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
Notes to Financial Statements
NOTE 2. PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense for the year ending July 31, 1998, amounted to $14,412 and
is included other expenses in the statement of operations. There was no
depreciation for the year ended July 31, 1997.
NOTE 3. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Professional fees $ 42,000 $ 7,896
Professional fees - officer 32,150 45,000
Royalties 5,862 -
--------------- --------------
$ 80,012 $ 52,896
=============== ===============
</TABLE>
NOTE 4. RELATED PARTY TRANSACTIONS
The note payable to a former officer and stockholder for the year ended July
31,1997 of $1,500, was unsecured, due on demand and provided for annual interest
at 8%. For the year ended July 31, 1998, an officer of the Company advanced
funds to the Company and paid expenses on behalf of the Company totaling
$51,178.
For the year ended July 31,1997, advances from parties related by virtue of
common control totaled $89,600. There were further advances during the year
ended July 31, 1998, and under an Agreement to Rescind Contract for Deed, dated
July 31, 1998, (as described below) the balance of $395,148 was assumed by
Mali-Suisse Mining International, Ltd. (Mali), a stockholder in the Company.
The long-term note payable to an officer in the amount of $20,500, was
unsecured, due on June 23, 2000, 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. In October of 1996,
the Company and Edward N. Laughlin agreed that $38,744 in accrued rent and other
expenses would be forgiven. These amounts, net of income taxes, total $128,839
which is included in the statement of operations for the year ended July 31,
1997, as an extraordinary item "Gain on extinguishment of debt - related
parties".
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
(Ages), an unincorporated business trust located in Tavares, Florida, 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-9
<PAGE>
American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
Notes to Financial Statements
NOTE 4. RELATED PARTY TRANSACTIONS (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 for Ages to 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 were payable in
annual installments on December 31st of each calendar year. The note was without
recourse to any individual and was 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. (and its assigns), 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.
Agreement to Rescind Contract for Deed
- --------------------------------------
Under an Agreement to Rescind Contract for Deed, dated July 31, 1998, a portion
of the Stock and Asset Purchase Agreement described above was rescinded. Under
an assignment of rights, the real estate reverted to Mali-Suisse Mining
International, Ltd. (Mali), an affiliate of the original real estate owner and a
stockholder of the Company. The contract required that Mali return 1,000,000
shares of the Company's common stock and assume liability for approximately
$395,148 owed by the Company to a party related by virtue of common ownership,
as well as the promissory note in the amount of $258,900 plus unpaid interest in
exchange for retaining 591,000 shares of the original stock issued. Mali will
assume any claims for unpaid rent totaling $14,400 which would have accrued
resulting from their use of the real estate to house the corporate offices in
Tavares, Florida.
F-10
<PAGE>
American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
Notes to Financial Statements
NOTE 4. RELATED PARTY TRANSACTIONS (CONTINUED)
Discontinued Operations and Stock Sale
- --------------------------------------
On January 5, 1998, Lean Protein Foods, Inc. adopted a plan to discontinue its
operations in the specialty foods business which focused on the processing and
marketing of ostrich meat. As part of this plan immediate arrangements were made
to sell its equipment. Also, on January 5, 1998, LPF's subsidiary, Wildwood
Ostrich Ranch, Inc. adopted a plan to discontinue its operations as an ostrich
ranch. Immediate plans were made to begin disposal of the assets of the
Corporation including equipment and the ostrich herd. The loss of the
discontinued operation for the year ended July 31, 1998, is $162,617 as
reflected on the statements of operations under Discontinued Operations.
Under a Stock Sale Contract dated July 31, 1998, the Company agreed to sell its
stock interest in LPF to the minority shareholders of LPF (one of whom is a
director of the Company and the remainder are shareholders of the Company) in
exchange for one-third of the gross sales proceeds for a period of six months
from the date of the agreement, release from all liabilities of LPF and 30,400
shares of Archibald Bros. Fine Beverages, Inc. (ABFBI), valued at approximately
$3,040. These shares represent less than 1% ownership interest in that
closely-held corporation. The loss on the disposal of the discontinued
operations of LPF and its subsidiary for the year ended July 31, 1998, is
$1,905,053 and is reflected on the statements of operations under Discontinued
Operations.
Acquisition of American Millennium Corporation
- ----------------------------------------------
On October 9, 1997, the Company purchased, primarily from Global Investments,
Ltd., a 30% shareholder of the Company, 8,000,000 shares (valued at
approximately $3,500,000) representing approximately 80% of the issued and
outstanding stock of American Millennium Corporation (AMC), a Delaware
corporation, in exchange for 5,100,000 shares of the Company's common stock. As
the acquisition of AMC was from related parties, it was accounted for as if it
were a pooling of interests. Assets and liabilities were reflected at the
related parties' historical cost. Subsequently, the Company acquired the
remaining interest and merged with AMC.
Acquisition of Microgravity Aviation Company, Inc.
- -------------------------------------------------
On October 10, 1997, the Company negotiated a contract to acquire 2,000,000
shares (valued at approximately $531,160) representing a 20% interest in
Microgravity Aviation Company (MAC) from Harto Ltd., (Harto) 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, was scheduled to operate the flight
portion of a three-day high-adventure space-flight experience package. MAC also
planned to 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 could also have been
used for conducting microgravity research performed by universities and research
companies. The executive management and consulting staff of MAC was 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 planned to lease a specially equipped NASA aircraft and the
effective operation of that company was predicated upon MAC's ability to take
possession of this aircraft.
After further study and deliberation, the Company decided not to fund further
operations of MAC. Under an Agreement to Rescind Contract, dated July 31, 1998,
Harto agreed to rescind the transaction in exchange for 270,000 shares of common
stock in consideration for certain funds in excess of $270,000 which had been
advanced on behalf of MAC. The contract further provided that this stock is
restricted for a minimum of one year. The original 1,000,000 shares of common
stock issued to Harto are to be canceled and 270,000 shares issued.
F-11
<PAGE>
American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
Notes to Financial Statements
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial assets and note payable to
officer at July 31, 1998, approximate fair value due to the short maturity of
the instruments.
NOTE 6. INCOME TAXES
Deferred income taxes (benefits) are provided for certain income and expenses
which are recognized in different periods for tax and financial reporting
purposes. Sources of temporary differences and the resulting assets and
liabilities are as follows:
<TABLE>
<CAPTION>
1997 Current 1998
Deferred Tax Period Deferred Tax
Assets Changes Assets
------ ------- ------
<S> <C> <C> <C>
Net operating loss carryforwards $ 2,769,059 $ 5,401,542 $ 8,170,601
Applicable tax rate 34% 34% 34%
--------------- ----------- --------------
941,480 1,836,524 2,778,004
Investment credit carryforwards 5,340 ( 417) 4,923
Research credit carryforwards 17,543 - 17,543
--------------- ------------ --------------
964,363 1,836,107 2,800,470
Valuation allowance ( 964,363) ( 1,836,107) ( 2,800,470)
--------------- ------------ --------------
$ - $ - $ -
=============== ============ ==============
</TABLE>
For the year ended July 31, 1998, a $696,128 net operating loss expired, while
the Company generated, for U.S. income tax purposes, a net operating loss of
approximately $6,097,670. These loss carryforwards expire at various dates
through the year 2018.
A valuation allowance must be established to reduce deferred income tax benefits
if it is more likely than not that a portion of the deferred income tax benefits
will not be realized. It is Management's opinion that the entire deferred tax
benefit may not be recognized in future years. Therefore, a valuation allowance
equal to the deferred tax benefit has been established, resulting in no deferred
tax benefits as of the balance sheet dates.
The Company had a net operating loss carryforward of approximately $2,769,059 as
of July 31,1997. However, during the year ended July 31, 1998, there were
significant ownership changes in the Company as defined in Section 382 of the
Internal Revenue Code. As a result of these changes, the Company's ability to
utilize net operating losses available before the ownership change is restricted
to a total of approximately $148,535 per year (approximately 5.64% of the market
value of the Company at the time of the ownership change). Therefore,
substantial net operating loss carryforwards will, in all likelihood, be
eliminated in future years due to the change in ownership. The utilization of
the remaining carryforwards is dependent on the Company's ability to generate
sufficient taxable income during the carryforward periods and no further
significant changes in ownership.
NOTE 7. COMMON STOCK
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 8,779,000 to 877,900. These
financial statements reflect the retroactive effect of the reverse stock split.
F-12
<PAGE>
American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
Notes to Financial Statements
NOTE 7. COMMON STOCK (CONTINUED)
Stock Issued for Services
- --------------------------
During the year, the Company issued common stock pursuant to a Consultant
Services Plan. The 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. Forms S-8 have been filed with
the Securites and Exchange Commission relative to such issuances of stock.
Shares have been recorded using the lower of the average price on the date
issued or maximum offering price unless otherwise stated.
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 provided 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, thereafter. The Company subsequently terminated the
contract for services. Prior to cancelation of the contract, the Company agreed
to issue to a major stockholder of ISM 150,000 shares of common stock under the
Consultant Services Plan. This stock was valued at $397,500.
On October 15, 1997, the Board of Directors authorized the issuance of 898,800
shares of common stock to four individuals under the 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.
This stock was valued at $2,498,664.
In April 1998, 72,000 shares of the Company's common stock were issued to the
Company's legal counsel under the Consultant Services Plan for legal services.
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 fluctuations of the market price. The unexpended portion
of these services has been recorded as prepaid expenses. This stock was valued
at $59,760.
On May 27, 1998, the shareholders of the Company approved the increase of the
Company's authorized common stock from 25,000,000 shares to 60,000,000 shares.
Additionally, the Company authorized 10,000,000 shares of preferred stock.
In June 1998, 248,200 shares of the Company' s common stock were issued to four
individuals under the Consultant Services Plan as compensation for consultation
services in connection with new business opportunities and promotion of the
Company to the public. These shares include 10,000 shares issued to the
Company's Vice President for Engineering. As the result of a later agreement
dated October 21, 1998, 127,500 of the 225,000 shares issued to the president of
a publishing company are to be returned (See Note 13). Accordingly, only 97,500
of these shares issued have been recorded. This stock was valued at $144,840.
Related party transactions related to common stock are included in Note 4.
NOTE 8. 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 and
1998, there were 16,500 shares under option at an exercise price of $2.50 per
share which expire April 5, 1999.
F-13
<PAGE>
American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
Notes to Financial Statements
NOTE 9. BUSINESS COMBINATION
Under an Agreement and Plan of Merger dated May 27, 1998, the Company merged
with American Millennium Corporation (AMC), a subsidiary of which the Company
owned approximately an 80% interest, with the parent as the surviving
corporation. Upon completion of the merger, the Company changed its name to
American Millennium Corporation, Inc. The merger was accomplished by a
one-for-one exchange of stock between the two companies. The exchange has been
accounted for, in accordance with Accounting Principles Board Opinion No. 16, at
historical cost in a manner similar to that in pooling-of-interest accounting.
Accordingly, retroactive effect has been given to merger of the Company with AMC
for purposes of comparative financial statement presentation. The 8,000,000
shares of AMC stock owned by the Company were exchanged for the Company's own
stock which was returned to the treasury and are reflected on the balance sheet
using the par value method.
NOTE 10. GAIN ON EXTINGUISHMENT OF DEBT
A 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 year
ended July 31, 1997, as an extraordinary item, net of related income taxes.
See Note 4 for details of the extinguishment of debt to related parties.
NOTE 11. OPERATING AND ECONOMIC CONDITIONS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, conditions have limited the ability of the
Company to market its products and services at amounts sufficient to recover its
operating and administrative costs. As a result, the Company has incurred
operating losses of $3,769,000, and $251,298 for the years ending July 31, 1998
and 1997, respectively. The Company also incurred losses from discontinued
operations of $2,328,670.
In addition, the Company has used substantial working capital in its operations.
As of July 31, 1998 and 1997, current liabilities exceed current assets by
$311,522 and $193,920, respectively. Cash used by operations of the Company for
the years ended July 31, 1998 and 1997, amounted to $444,185, and $122,389,
respectively.
Management plans to raise capital through a private offering of stock as
discussed in Note 13 and through advances from related parties and sales to be
used to fund operations and marketing activities related to digital, wireless
and wireline communications endeavors.
The 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.
F-14
<PAGE>
American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
Notes to Financial Statements
NOTE 12. COMMITMENTS AND CONTENGENCIES
Litigation
- ----------
In October 1997, The Company issued its common stock to two individuals totaling
500,000 shares under a Consultant Services Plan as compensation in connection
with promotion of the Company to the public and professionals. At this time the
shares were trading between $2.50 and $3.00 per share. The Company sought to
discontinue relations based on their dissatisfaction with the quality of
service, lack of service and other good business reasons. The Company requested
that the previously issued stock be returned at which time they discovered that
the stock had been sold. The Company has retained legal counsel who has
initiated litigation against the individuals.
In August, 1997, as part of a Stock and Asset Purchase Agreement, the Company
issued 400,000 restricted shares of common stock to each of two individuals. The
agreement was amended in October, 1997, to reflect a lower valuation of the
assets to be acquired in exchange for the stock issued. Accordingly, it was
necessary to reduce the number of shares to which these two individuals were
entitled to 117,275 shares each. A letter was sent to the individuals requesting
the return of the original shares in exchange for issuance of the appropriate
number of shares. The original shares were never returned and upon the
expiration of their res triction period, the individuals sought to have the
restriction removed to enable them to sell the shares. Since the Company
believes the shares were issued in error, the Company sought an injunction to
prevent the sale of these shares. A temporary injunction was issued on October
27, 1998, upon the filing of a surety bond in the amount of $150,000 by the
Company. The case will be heard at a later date.
Rents and Leases
- ----------------
The Company occupies office facilities in Tavares, Florida under a
month-to-month rental agreement with a related party. Rent expense for the year
ended July 31, 1998, was $14,400.
A former officer of the Company leased a copy machine on behalf of the Company
in December 1997. Her successor determined that the Board of Directors had not
approved the lease and sought to have it nullified. In October 1998, the Company
received a demand letter from the lessor declaring the lease in default and
demanded all future, current and past due payments totaling $44,652. In late
October 1998 , the copier was repossessed. No contingent liability has been
recorded for this amount because management believes that they will ultimately
be successful in having the contract rescinded.
Year 2000
- ---------
The year 2000 issue results from certain computer systems and software
applications that use only two digits (rather than four) to define the
applicable year. As a result, such systems and applications may recognize a date
of "00" as 1900 instead of the intended year 2000, which could result in data
miscalculations and software failures. The Company has conducted a preliminary
assessment of its key computer systems and software application and believes
they are Year 2000 compliant. The Company is in the process of communicating
with all key suppliers, financial institutions and customers to identify and
coordinate the resolution of any Year 2000 issues that might arise. Based on the
initial assessment, the Company believes the cost of addressing the Year 2000
issue should not have a material impact on the Company's financial position or
results of operations.
Private Offering
- ----------------
The Company is in the process of preparing a private offering of the Company's
common stock. The offering is to be made on a "best efforts" basis with the
minimum required subscription of $100,000 (100 units) and the maximum
subscription of $1,500,000 (1500 units). This offering is being made in
accordance with the exemptions from registration under Regulation D, Rule 506 of
the Securities Act of 1933.
F-15
<PAGE>
American Millennium Corporation, Inc.
f/k/a Energy Optics, Inc.
Notes to Financial Statements
NOTE 12. COMMITMENTS AND CONTENGENCIES (CONTINUED)
Securities and Exchange Commission Proceeding
- ---------------------------------------------
The Company is a party to a pending administrative proceeding initiated by the
Securities and Exchange Commission. Although, the Commission alleged various
violations of the Securities Act of 1933 and the Securities Exchange Act of 1934
against the Company, to date the Commission has not filed suit. An informal
settlement has been reached in the matter which, if approved by the Commission,
will not require payment of civil fees.
NOTE 13. SUBSEQUENT EVENTS
In August 1998, 200,000 additional shares of the Company' s common stock were
issued to president of Grant Douglas Publishing, Inc. (GDP), under the
Consultant Services Plan, as compensation for consultation services in
connection with new business oportunities and promotion of the Company to the
public, Subsequent to the issuance of stock, the Company terminated the services
of GDP and negotiated on October 21, 1998, for the return of 297,500 shares of
the total 425,000 shares issued. Retroactive effect has been given to the return
of these shares (see Note 7).
A temporary injunction was issued on October 27, 1998, upon the filing of a
surety bond in the amount of $150,000 by the Company to prevent the sale of a
total of 800,000 shares of the Company's common stock. The Company continues to
pursue this matter (see Note 12).
The Company has retained the services of legal counsel in a litigation matter
against two individuals to whom it issued a total of 500,000 shares of its
common stock in October 1997, under the Consultant Services Plan as compensation
in connection with promotion of the Company to the the public (see Note 12).
On August 4, 1998, the Board of Directors approved the issuance of 313,000
additional shares of the Company's common stock to be issued under the
Consultant Services Plan as compensation for consultation services. Included in
the shares issued are 150,000 shares to be issued to the Chairman of the Board
and Chief Executive Officer, 150,000 shares to be issued to the President and
Chief Operating Officer, and 10,000 shares to be issued to the Vice President of
Engineering.
F-16
<PAGE>
U.S. Securities and Exchange Commission
INDEX TO EXHIBITS
EXHIBITS
- --------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 1998 AND 1997 IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1997
<PERIOD-START> AUG-01-1997 AUG-01-1996
<PERIOD-END> JUL-31-1998 JUL-31-1997
<CASH> 1,176 24,076
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 107,472 25,076
<PP&E> 94,003 0
<DEPRECIATION> 12,421 0
<TOTAL-ASSETS> 192,094 25,076
<CURRENT-LIABILITIES> 418,994 218,996
<BONDS> 0 0
0 0
0 0
<COMMON> 12,330 878
<OTHER-SE> (259,730) (194,798)
<TOTAL-LIABILITY-AND-EQUITY> (247,400) (193,920)
<SALES> 306,409 0
<TOTAL-REVENUES> 306,409 0
<CGS> 100,905 0
<TOTAL-COSTS> 100,905 0
<OTHER-EXPENSES> 3,961,890 254,798
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 417 0
<INCOME-PRETAX> (3,756,386) (254,798)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,769,000) (251,298)
<DISCONTINUED> (2,328,670) 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,097,670) (251,298)
<EPS-PRIMARY> (.40) (2.94)
<EPS-DILUTED> (.64) 1.01
</TABLE>
