-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E4+cLd/PNCcj4wMB9WprHTaaoGAeqizQFCOWxBPGwXJctKegP4v2j1FfW4SGDa67 X/AAPOh/ZSufcAFBXddRvA== 0000891554-00-001275.txt : 20000512 0000891554-00-001275.hdr.sgml : 20000512 ACCESSION NUMBER: 0000891554-00-001275 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED OPTICS ELECTRONICS INC CENTRAL INDEX KEY: 0001020657 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 880365136 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-24511 FILM NUMBER: 625731 BUSINESS ADDRESS: STREET 1: 8301 WASHINGTON NE #4 STREET 2: STE F CITY: ALBUQUERQUE STATE: NM ZIP: 87113 BUSINESS PHONE: 5057977878 MAIL ADDRESS: STREET 1: 8301 WASHINGTON NE STREET 2: #4 CITY: ALBUQUERQUE STATE: NM ZIP: 87113 10QSB 1 FORM 10-QSB U. S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2000 Commission file No.0-24511 ADVANCED OPTICS ELECTRONICS, INC. (Name of small business issuer as specified in its charter) Nevada 88-0365136 (State of incorporation) (IRS Employer Identification No.) 8301 Washington NE, Suite 4, Albuquerque, New Mexico 87113 (Address of principal executive offices including zip code) Issuer's telephone number: (505) 797-7878 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The number of issuer's shares of Common Stock outstanding as of March 31, 2000 was 48,635,411 Transitional Small Business Disclosure Format (check one): Yes [_] No [X] ADVANCED OPTICS ELECTRONICS, INC. (A DEVELOPMENT STAGE COMPANY) ADVANCED OPTICS ELECTRONICS, INC. (A DEVELOPMENT STAGE COMPANY) FINANCIAL REPORT MARCH 31, 2000 ADVANCED OPTICS ELECTRONICS, INC. (A DEVELOPMENT STAGE COMPANY) CONTENTS Page INDEPENDENT ACCOUNTANTS' REPORT 1 FINANCIAL STATEMENTS Balance Sheet 2 Statements of Operations 4 Statements of Changes in Stockholders' Equity 5 Statements of Cash Flows 7 Notes to Financial Statements 9 NEFF & RICCI LLP - ---------------- CERTIFIED PUBLIC ACCOUNTANTS 7001 PROSPECT PLACE NE ALBUQUERQUE, NM 87110 Independent Accountants' Report Board of Directors Advanced Optics Electronics, Inc. We have reviewed the accompanying condensed balance sheet of Advanced Optics Electronics, Inc. (a development stage company) as of March 31, 2000, and the related condensed statements of operations, cash flows and changes in stockholders' equity for the three month period ended March 31, 2000 and 1999, and for the 2000, 1999, and 1998 portion of the period from May 22, 1996 (inception) through March 31, 2000. The 1996 and 1997 portion of the condensed financial statements for the period from May 22, 1996 (inception) through March 31, 2000, were audited by other auditors whose report dated February 5, 1998, expressed an unqualified opinion. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed financial statements referred to above for them to be in conformity with generally accepted accounting principles. /s/ Neff & Ricci LLP Albuquerque, New Mexico April 20, 2000 ADVANCED OPTICS ELECTRONICS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET March 31, 2000 ASSETS Current Assets Cash and cash equivalents $ 719,377 Certificate of deposit 156,237 Marketable equity securities 73,143 Costs and estimated earnings in excess of billings on uncompleted contract 594,584 Raw materials 29,293 Due from officer and shareholder 67,494 ---------- Total current assets 1,640,128 ---------- Property and Equipment, net 320,486 ---------- Other Assets Investment in Bio Moda, Inc. 191,112 Intangible assets, net 211,438 Other assets 30,000 ---------- Total other assets 432,550 ---------- Total assets $2,393,164 ========== See Notes to Financial Statements.
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 12,173 Accrued liabilities 17,456 Current portion of long-term debt and capital lease obligation 45,917 Allowance for loss on contract 89,584 ----------- Total current liabilities 165,130 ----------- Long-term portion of long-term debt and capital lease obligation 467,298 =========== Commitments Shareholders' Equity Capital stock: Preferred Series A, 7.5% cumulative, convertible into common stock at a rate determined by dividing the purchase price of the preferred shares by the conversion price of the common stock; $.001 par value; authorized 10,000,000 shares, issued 550 shares in first quarter of 2000 1 Common, authorized 75,000,000 shares, $.001 par value 48,714,706 shares issued and 48,589,206 shares outstanding 48,715 Additional paid-in capital 6,929,273 Deficit accumulated during the development stage (5,183,426) Treasury stock (33,827) ----------- Total shareholders' equity 1,760,736 ----------- Total liabilities and shareholders' equity $ 2,393,164 ===========
ADVANCED OPTICS ELECTRONICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS Quarters Ended March 31, 2000 and 1999 and the Period from May 22, 1996 (Inception) Through March 31, 2000
5/22/96 (Inception) Through 2000 1999 03/31/00 Revenues Contract revenue $ 34,039 66,375 594,584 -------------------------------------------- Costs and Expenses General and administrative 1,206,669 106,570 3,779,404 Contract costs 111,886 85,941 853,247 Research and development 133,967 48,273 562,114 -------------------------------------------- Total expenses 1,452,522 240,784 5,194,765 -------------------------------------------- Operating loss (1,418,483) (174,409) (4,600,181) -------------------------------------------- Other Income and (Expenses) Interest income 2,293 1,964 14,010 Unrealized gain (loss) on marketable equity securities 7,655 (9,968) (25,904) Loss on Bio Moda, Inc. (16,222) (24,571) (192,733) Interest expense (76,581) (3,299) (273,017) -------------------------------------------- Total other expenses (82,855) (35,874) (477,644) -------------------------------------------- Net loss before cumulative effect of change in accounting principle (1,501,338) (210,283) (5,077,825) -------------------------------------------- Cumulative Effect of Change in Accounting Principle -- (63,020) (63,020) -------------------------------------------- Net loss (1,501,338) (273,303) (5,140,845) -------------------------------------------- Net loss per share before cumulative effect of change in accounting principle (.03) (.01) (.23) Cumulative effect of change in accounting principle -- (.00) (.00) -------------------------------------------- Net loss per share $ (.03) (.01) (.23) ============================================ Weighted average shares outstanding 48,153,762 25,252,592 22,111,342 ============================================
See Notes to Financial Statements. ADVANCED OPTICS ELECTRONICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Period from May 22, 1996 (Inception) Through March 31, 2000
Common Stock Preferred Stock ------------------------- ----------------------- Par Par Shares Value Shares Value Balance, May 22, 1996 -- $ -- -- $ -- Stock issued to incorporators for cash 500,000 500 -- -- Stock issued for the net assets of PLZ Tech, Inc. 4,500,000 4,500 -- -- Net loss -- -- -- -- ------------------------------------------------------ Balance, December 31, 1996 5,000,000 5,000 -- -- Stock issued in public offering 2,281,212 2,281 -- -- Net loss -- -- -- -- ------------------------------------------------------ Balance, December 31, 1997 7,281,212 7,281 -- -- Stock issued for cash 10,979,275 10,979 -- -- Stock issued for services 2,751,000 2,751 -- -- Stock issued in exchange for note receivable 315,000 315 -- -- Purchase and retirement of treasury stock (472,200) (472) -- -- Net loss -- -- -- -- ------------------------------------------------------ Balance, December 31, 1998 20,854,287 20,854 -- -- Stock issued for cash 8,681,624 8,682 -- -- Stock issued for services 17,094,313 17,094 -- -- Intrinsic value of beneficial conversion feature of notes payable -- -- -- -- Fair value of warrants related to notes payable -- -- -- -- Purchase and retirement of treasury stock (489,251) (489) -- -- Purchase of treasury stock -- -- -- -- Sale of treasury stock -- -- -- -- Net loss -- -- -- -- ------------------------------------------------------ Balance, December 31, 1999 46,140,973 46,141 -- -- Stock issued for cash 782,000 782 550 1 Stock issued for services 1,791,733 1,792 -- -- Purchase of treasury stock -- -- -- -- Sale of treasury stock -- -- -- -- Constructive dividends (amortization of discount on convertible preferred stock) -- -- -- -- Net loss -- -- -- -- ------------------------------------------------------ Balance, March 31, 2000 48,714,706 $ 48,715 550 $ 1 ======================================================
The Notes to Financial Statements are an integral part of these statements.
Equity (Deficit) Accumulated Treasury Stock Additional During the Total Paid-In Development Shareholders' Shares Cost Capital Stage Equity -------- ---------- --------- ----------- ----------- -- -- 24,500 -- 25,000 -- -- 281,096 -- 285,596 -- -- -- (76,902) (76,902) --------------------------------------------------------------------- -- -- 305,596 (76,902) 233,694 -- -- 362,720 -- 365,001 -- -- -- (84,690) (84,690) --------------------------------------------------------------------- -- -- 668,316 (161,592) 514,005 -- -- 1,281,728 -- 1,292,707 -- -- 293,719 -- 296,470 -- -- 28,685 -- 29,000 -- -- (39,913) -- (40,385) -- -- -- (752,111) (752,111) --------------------------------------------------------------------- -- -- 2,232,535 (913,703) 1,339,686 -- -- 855,101 -- 863,783 -- -- 1,469,320 -- 1,486,414 -- -- 174,610 -- 174,610 -- -- 125,000 -- 125,000 -- -- (10,643) -- (11,132) (229,000) (41,760) -- -- (41,760) 85,000 11,130 24,334 -- 35,464 -- -- -- (2,725,804) (2,725,804) --------------------------------------------------------------------- (144,000) (30,630) 4,870,257 (3,639,507) 1,246,261 -- -- 852,710 -- 853,493 -- -- 1,118,441 -- 1,120,233 (6,500) (7,683) -- -- (7,683) 25,000 4,486 32,080 -- 49,770 -- 42,581 (42,581) -- -- -- -- (1,501,338) (1,501,338) --------------------------------------------------------------------- (125,500) $ (33,827) 6,929,273 (5,183,426) 1,760,736 =====================================================================
ADVANCED OPTICS ELECTRONICS, INC. (A DEVELOPMENT STAGE COMPANY) ADVANCED OPTICS ELECTRONICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS For the Quarters Ended March 31, 2000 and 1999 and the Period from May 22, 1996 (Inception) Through March 31, 2000
5/22/96 (Inception) Through 2000 1999 03/31/00 Cash Flows From Operating Activities Net (loss) $(1,501,338) (273,303) (5,140,845) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization and depreciation expense 27,630 23,529 222,156 Write off of organization costs -- 63,020 63,020 Amortization of discounts on convertible notes 70,691 -- 206,223 Unrealized (gain) loss on marketable securities (7,655) 9,968 25,904 Loss on Bio Moda, Inc. 16,222 24,571 192,732 Issuance of common stock for services 1,120,233 27,687 2,903,117 Issuance of notes for services -- -- 50,000 Contract receivable (34,039) (66,375) (594,584) Marketable equity securities (131) -- (131) Allowance for loss on contract 18,039 -- 89,584 Other receivables 31,030 (5,954) (48,844) Inventory 6,000 (41,324) (29,293) Accrued liabilities and accounts payable (50,751) 1,116 29,629 ----------------------------------------- Net cash used by operating activities (304,069) (237,065) (2,031,332) ----------------------------------------- Cash Flows From Investing Activities Purchase of equipment (31,886) (27,605) (344,226) Investment in Bio Moda, Inc. -- -- (383,845) Purchase of marketable securities (28,883) -- (98,917) Purchase of certificate of deposit (51,655) -- (156,237) Purchase of other assets -- (10,000) (96,427) Proceeds from sale of Wizard Technologies, Inc. 65,000 -- -- ----------------------------------------- Net cash used by investing activities (47,424) (37,605) (1,079,652) -----------------------------------------
See Notes to Financial Statements. ADVANCED OPTICS ELECTRONICS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS For the Quarters Ended March 31, 2000 and 1999 and the Period from May 22, 1996 (Inception) Through March 31, 2000
5/22/96 (Inception) Through 2000 1999 03/31/00 Cash Flows From Financing Activities Additions to notes payable -- -- 572,776 Payments on notes payable and capital lease obligation (15,097) (6,764) (136,673) Issuance of common stock 853,493 154,620 3,399,984 Sale of treasury stock 49,770 -- 85,234 Purchase of treasury stock (7,683) (11,132) (90,960) -------------------------------------- Net cash provided by financing activities 880,483 136,724 3,830,361 -------------------------------------- Net increase (decrease) in cash 528,990 (137,946) 719,377 Cash, beginning of period 190,387 204,612 -- -------------------------------------- Cash, end of period $ 719,377 66,666 719,377 ======================================
See Notes to Financial Statements. NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation. The interim financial information included herein is unaudited. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), although the Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and related notes contained in the Company's annual report on Form 10-KSB for the period ended December 31, 1999. Other than as indicated herein, there have been no significant changes from the financial data published in that report. In the opinion of management, such unaudited information reflects all adjustments, consisting only of normal recurring accruals and other adjustments necessary for a fair presentation of the unaudited information. Description of Business. Advanced Optics Electronics, Inc. (the Company) is a developmental stage technology company with its principal focus on the development and production of large-scale flat panel displays. The Company is currently continuing its research and development of this product. Upon substantial completion of the research and development of the large flat panel display, the Company plans to make the transition from a developmental stage company to selling and producing this product. The market for the large-scale flat panel will include, but not be limited to, cockpit displays, flat panel computer monitors, and advertising billboards. Advanced Optics Electronics, Inc. plans to focus on producing and selling the large-scale flat panel displays for outdoor advertising billboards. The Company has obtained a contract to produce two outdoor advertising billboards using its flat panel display technology. This is the first commercial application of the Company's technology. The success of the Company will depend on its ability to commercialize its technology and complete this contract. In addition, the Company may be required to obtain additional capital in order to fund the completion of the contract. Liquidity. Through March 31, 2000, the Company has maintained adequate liquidity and has sufficient cash to pay its liabilities. Yet, completion of the contract for the first billboard is behind schedule and the first milestone for billing was not met by March 31, 2000. Accordingly, to fund Company operations and to complete the first billboard, additional cash from stock issuances and/or borrowings may become necessary in the future. Marketable Equity Securities. The Company classifies all of its marketable equity securities as available for sale securities. Available for sale securities are carried at fair value with the unrealized gains and losses reported in Other Comprehensive Income. As of March 31, 2000, gross unrealized gains for the quarter were $7,655 and not considered significant to the financial statements taken as a whole. Therefore, they have been reported in the income statement. 9 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Inventories. Inventory consists of raw materials and is carried at the lower of cost (specific identification) or market. Equity Investment. The investment in Bio Moda, Inc. is accounted for using the equity method. Under this method, income and losses reported by the investee are recorded by the Company in its proportionate interest at the time they are recognized by the investee. The original cost of the Bio Moda, Inc. investment exceeded the Company's proportionate interest in Bio Moda's book value. This difference is being amortized over a 15 year period. Loss Per Share. Loss per share is computed on the basis of the weighted average number of common shares outstanding during the year and did not include the effect of potential common stock as their effect would be antidilutive. The numerator for the computation is the net loss and the denominator is the weighted average shares of common stock outstanding. Certain options and warrants outstanding were not included in the computation of loss per share because their effect would be antidilutive. Convertible preferred stock issued during the quarter also was not included in the computation of loss per share because their effect would be antidilutive. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The principal areas requiring estimation are revenue recognition based on the percentage of completion method, loss allowances and the valuation of common stock issued for services. Revenue and Cost Recognition. The Company recognized revenue on its contract in process using the percentage-of-completion method of accounting, which is based on the proportion of the contract cost incurred to the estimated total contract cost. Costs incurred and estimated earnings in excess of billings represent the revenue recognized that has not yet been billed. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, overhead, and equipment depreciation. 10 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The contract to produce two outdoor advertising billboards totals $1.7 million, with $885,000 allocated to the first unit. An estimated total loss of approximately $273,000 in the first unit has been recognized as of March 31, 2000. The Company's estimated cost to complete as of March 31, 2000 is $380,000, which it expects to fund with cash, billings on the contract and additional capital. In accordance with the contract, the Company will bill the customer when certain milestones have been met. There have been no billings through March 31, 2000. Adjustments to the original estimates of total contract revenue, total contract cost, and extent of progress toward completion are often required as work progresses under the contract and as experience is gained, even though the scope of the work required under the contract may not change. The nature of accounting for contracts is such that refinements of the estimating process for continuously changing conditions and new developments are a characteristic of the process. Accordingly, provisions for losses on contracts are made in the period in which they become evident under the percentage-of-completion method. NOTE 2. RELATED PARTY RECEIVABLES Related party receivables at March 31, 2000, consist of the following: Due from officer $ 52,494 Note receivable from former shareholder bearing interest at 8% and due in June, 2000 15,000 ---------- $ 67,494 ========== NOTE 3. INVESTMENTS During 1999 Bio Moda, Inc. sold additional shares, therefore the Company's investment in Bio Moda, Inc. decreased from 22 to 20 percent. Bio Moda, Inc. is a development stage company involved primarily in the development of technology for the early detection of lung cancer. As a development stage company, Bio Moda, Inc. has not had any revenues and, as of March 31, 2000, was in the process of conducting clinical trials. There is currently no active market for the common stock of Bio Moda, Inc. The ultimate value of the Company's investment in Bio Moda, Inc. will depend on its ability to complete its research and either commercialize or sell its proprietary technology. A summary of the unaudited financial data relative to Bio Moda, Inc. as of December 31, 1999 is as follows: Assets: Current assets $ 30,730 Other assets 24,465 --------- 55,195 ========= Fixed assets 2,515 --------- Total assets $ 57,710 ========= Liabilities and equity Notes payable to stockholders $ 92,711 Common stock 760,037 Deficit accumulated during the development stage (795,038) --------- Total liabilities and equity $ 57,710 ========= 12 NOTE 3. INVESTMENTS (CONTINUED) The investment in Bio Moda, Inc. is accounted for using the equity method. A summary of the investment is as follows: Original cost, all of which exceeded book value $ 358,845 Additional purchase in 1999 25,000 Share of net loss (143,836) Amortization of excess of cost over book value (48,897) --------- Net investment $ 191,112 ========= In August 1999, the Company issued 200,000 shares of its common stock to Wizard Technologies, Inc. for $88,580. The Company then purchased a 10 percent ownership in Wizard for $65,000 with the proceeds. During the quarter ending March 31, 2000, the Company sold back all of its shares of Wizard's common stock to Wizard for its original investment of $65,000. NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION Convertible Notes. On June 3, 1999, the Company issued $500,000 in convertible notes which bear interest at an annual rate of 8 percent and mature (principal and interest) on May 31, 2001. Effective August 1, 1999, the notes are convertible into shares of common stock at a 25 percent discount to the closing bid price of a share of common stock at the time of conversion or the time of exercise. The notes were issued in exchange for $430,000 in cash, $50,000 in legal services and $20,000 in commissions. The commissions have been capitalized as debt origination costs and are being amortized over the life of the notes. The notes are unsecured. The intrinsic value of the conversion feature of the principal and accrued interest was estimated to be $174,610. This has been recorded as an increase in paid-in capital and a discount to the convertible notes payable, with related amortization being charged to interest expense. The discount is being amortized over a one year period, which is management's estimate of time before any conversion will be exercised. The convertible notes also include detachable warrants for the purchase of 12,500,000 shares of common stock at the lower of 75 percent of the closing bid price of a share of common stock at the time of exercise or September 1, 1999. The warrants expire on June 3, 2002. Management estimates that approximately half the warrants will be exercised prior to expiration. Management estimated the fair market value of these warrants at $125,000 and recorded this amount as an increase in paid-in capital and a discount to the convertible notes payable. The discount is being amortized over the two year life of the notes. 13 NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION (CONTINUED) A significant contingency required by the aforementioned convertible note and warrant agreements is the registration of the underlying shares with the Securities and Exchange Commission. The company is to use its best efforts to register these shares and is in the process of preparing the registration statement. NOTE 5. EQUITY TRANSACTIONS The Company was initially capitalized through the issuance of 500,000 shares for $25,000 in cash. In November 1996, the Company issued 4,500,000 shares in exchange for the outstanding shares of PLZ Tech, Inc. The transaction was accounted for as a purchase and net assets of $285,596, consisting primarily of patents and equipment were recorded. In previous financial statements, the Company did not present unclaimed shares resulting from the merger with PLZ Tech, Inc. as outstanding shares. In the accompanying 1997 and prior financial statements the number of shares outstanding has been restated to include these shares. During 1997, the Company issued 2,281,212 shares of stock in a public offering, primarily for cash. During 1998, the Company repurchased 472,200 of its outstanding stock in exchange for $10,000 in notes receivable and $30,385 in cash in various transactions. This stock was subsequently retired. The Company also issued 9,274,811 shares of common stock in exchange for $1,292,707 in cash, net of sales commissions and other direct costs. Certain of these sales included price maintenance agreements resulting in the issuance of an additional 1,704,464 shares of stock in 1998. In 1998, the Company issued 2,751,000 shares of common stock in exchange for services from contractors, officers and others. These shares were valued at the estimated fair market value for similar issuances of stock and amounted to $296,470. The Company also issued 315,000 shares to an officer in exchange for a note receivable of $29,000. The notes bear interest at the rate of 7 percent with interest due semiannually and the principal due July, 2001. In 1999, the Company repurchased 489,251 shares of its outstanding stock for $11,132 in cash. These shares were retired. The Company also repurchased 229,000 shares for $41,760 and resold 85,000 of these shares for $35,464. The remaining 144,000 treasury shares have been recorded at cost. 14 NOTE 5. EQUITY TRANSACTIONS (CONTINUED) The Company also sold 8,681,624 shares for $863,782 in cash, and issued 17,094,313 shares for services from contractors, officers and others, which were valued at $1,486,414. During the quarter ending March 31, 2000, the Company sold 782,000 shares of its common stock for $368,495 in cash, and issued 1,791,733 shares of its common stock for services from contractors, officers and others, which were valued at $1,120,233. The value of the services is included in the costs and expenses on the Statement of Operations. Also during this quarter, the Company sold 25,000 shares of its treasury stock for $49,770 and repurchased 6,500 shares for $7,683. The repurchased shares have been recorded at cost. On March 14, 2000, the Company issued 550 shares of its Series A convertible preferred stock for $550,000. Related finders fees and attorney fees were $65,000, and were netted against the proceeds for a net increase in cash and equity of $485,000. Effective June 14, 2000, the shares are convertible into shares of common stock at the lesser of 110 percent of the closing bid price of a share of common stock on March 13, 2000 or 77.5 percent of the average of the five lowest closing bid prices for the common stock for the twenty trading days immediately preceding the conversion date. Management estimated the intrinsic value of the conversion feature to be $159,677. This has been recorded as an increase in paid-in capital and a discount to the convertible preferred stock, with related amortization being charged to retained earnings via constructive dividends. The discount is being amortized over a 90 day period, which is the period from the date of issuance to the point at which the preferred shares can be converted to common shares. The convertible preferred stock also includes detachable warrants for the purchase of 55,000 shares of common stock at a purchase price per share equal to 110 percent of the closing bid price for the common stock on the closing date (March 8, 2000). The warrants expire on March 8, 2005. The detachable warrants have not been valued in the accompanying financial statements, as management estimates their fair market value to be immaterial. 15 NOTE 6. STOCK PLANS During the quarter ending March 31, 2000, the Company granted an additional 1,375,000 stock options to certain key employees. This results in total stock options granted and unexercised of 8,125,000 as of March 31, 2000. The shares issued upon exercise of the options may be authorized and unissued shares or shares held by the Company in its treasury. The exercise date of options granted is based upon the related agreement as approved by the Board of Directors. Also during this quarter, one key employee exercised his options and purchased 150,000 shares of common stock for $13,500. NOTE 7. SUBSEQUENT EVENT At the Directors' meeting held during April 2000, the Company's Directors voted to increase the authorized shares of common stock to 150,000,000. 16 ADVANCED OPTICS ELECTRONICS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION . Forward - Looking Statements This Quarterly Report contains forward-looking statements about the business, financial condition and prospects of the Company that reflect assumptions made by management and management's beliefs based on information currently available to it. The Company can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of management's assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, the Company's actual results may differ materially from those indicated by the forward-looking statements. The key factors that are not within the Company's control and that may have a direct bearing on operating results include, but are not limited to, the acceptance by customers of the Company's products, the Company's ability to develop new products cost-effectively, the ability of the Company to raise capital in the future, the development by competitors of products using improved or alternative technology, the retention of key employees and general economic conditions. There may be other risks and circumstances that management is unable to predict. When used in this Quarterly Report, words such as, "believes," "expects," "intends," "plans," "anticipates" "estimates" and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions. All forward-looking statements are intended to be covered by the safe harbor created by Section 21E of the Securities Exchange Act of 1934. OVERVIEW Advanced Optics Electronics, Inc. is a technology company whose primary focus is the development, production and sales of its electronic flat panel displays. The primary initial product will be marketed to users of outdoor advertising billboards. We believe that our product line will create a new segment of the outdoor advertising industry where multiple ads can be displayed and changed. This will create new and enhanced sources of revenue for billboard companies. Our goal is to create a product line based on technology that is scalable both in terms of size and resolution to meet a wide range of requirements related to site, economics and use from our potential customers. The major advantages of our flat panel displays are viewing quality, 17 affordability, customer system integrity, and remote change in seconds to reduce advertising site maintenance and increase revenues. We also plan the development of a leasing program and an Owned & Operated group. The Company was organized as a Nevada corporation on May 22, 1996. On November 7, 1996, the Company acquired the business and patents of PLZTech, a company involved in the development of flat panel displays. Our operating activities have related primarily to the initial planning and development of our product and building our operating infrastructure. We have recognized limited revenue to date. We expect that our principal source of revenue will be derived from sales of our electronic display product. We are anticipating having a prototype within the next 90 days. Our operating expenses have increased significantly since our inception, and the rate of increase has risen since last year. This is due to increased engineering and management staff and investments in operating infrastructure. Since our inception we have incurred significant losses and, as of March 31, 2000, had an accumulated deficit of $5.2 million. RESULTS OF CONTINUING OPERATIONS Due to our limited operating history, we believe that period-to-period comparisons of our results of operations are not fully meaningful and should not be relied upon as an indication of future performance. Comparison of the Three-Month Periods Ended March 31, 2000 and 1999 Revenue. Since our inception, we have been in the development stage and have had only limited revenue. Revenues decreased to $34,039 in the first quarter of 2000 from $66,375 in the first quarter of 1999. Product Development. Product development expenses consist primarily of personnel expenses, consulting fees and depreciation of the equipment associated with the development and enhancement of our flat panel displays. Research development and technical costs increased to $133,967 in the first quarter of 2000 from $48,273 in the first quarter of 1999. We believe that continued investment in product development is critical to attaining our strategic objectives and, as a result, expect product development expenses to increase significantly in future periods. We expense product development costs as they are incurred. General and Administrative. General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services, travel and other general corporate activities, and the depreciation and amortization of office furniture and leasehold improvements. General and administrative costs increased to $1,206,669 in the first quarter of 2000 from $106,570 in the first quarter of 1999. The increase was primarily due to increased personnel, professional 18 service fees and facility expenses necessary to support our growth. We expect general and administrative costs to increase as we continue to expand our staff and incur additional costs to support the growth of our business and the costs of being a public company. We further expect our general and administrative expenses to increase as we grow through strategic acquisitions. Other Income (Expense). Other income (expense) consists of interest and other income and expense. Interest income increased to $2,293 in the first quarter of 2000 from $1,964 in the first quarter of 1999.. The increase in interest income was due to an increase in our average net cash and cash equivalents balance. Depreciation increased to $27,630 in the first quarter of 2000 from $23,529 in the first quarter of 1999. due primarily to depreciation expense for equipment acquired under capital leases. LIQUIDITY AND CAPITAL RESOURCES We have funded our operations since inception primarily through the private placement of equity securities, through which we have raised net proceeds of $3,830,361 through March 31, 2000. We have also financed our operations through an equipment loan and capital lease financing. In August 1998 Advanced Optics Electronics, Inc. entered into a lease agreement for the financing of equipment for the development of its flat panel display systems. The Company is required to repay the $101,000 in equal monthly payments of the lease. Monthly payments on the lease are approximately $2,850. The term of the lease is 3 years and is backed by the credit of the Company. The Company's holding in BioModa, Inc will provide additional liquidity. BioModa is a biomedical development company. The Company's ownership of BioModa, as of March 31, 2000, was 20%. No immediate family members of officers or directors of Advanced Optics Electronics, Inc. are securities holders of BioModa. During the quarter ended March 31, 2000 $31,886 was spent for the purchase of equipment. Product development expenditures were $133,967 in 1999. Funds for operations, product development and capital expenditures were provided from the sale of securities and cash reserves. As of March 31, 2000, we had approximately $875,614 of cash and cash equivalents. Management believes that sales of securities, cash reserves and contract revenue will provide adequate liquidity and capital resources to meet the anticipated development stage requirements through the end of the third quarter 2000. At that time it is anticipated that sales of flat panel displays will begin and contribute to operating revenues. It is anticipated that these sales will provide the additional capital resources to fund the proportionately higher working capital requirements of production and sales initiatives. The Company currently has no other significant commitments for capital expenditures in 2000. 19 PART II. OTHER INFORMATION Item 1. Legal proceedings The Company is not a party to any significant legal proceeding, the adverse outcome of which, in management's opinion, would have a material adverse effect on the Company's operating results. The Company is a plaintiff in a proceeding to remedy Internet related defamation. The damages sought are not significant relative to the current assets of the Company Item 2. Changes in securities During the first quarter of fiscal year 2000 there was a 2,373,733 increase in shares of common stock. Item 3. Defaults upon senior securities - Not applicable Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting on April 12, 2000. Proxies were solicited for the meeting pursuant to Regulation 14A under the Exchange Act. On the date of record March 6, 2000, there were 48,433,745 shares outstanding. Two proposals were voted on: The proposal to approve the action of the Board of Directors in appointing Neff & Ricci CPA LLP to continue as independent auditors for 2000 received the following votes: - -------------------------------------------------------------------------------- For: 41,718,809 86.14% - -------------------------------------------------------------------------------- Against: 130,750 0.27% - -------------------------------------------------------------------------------- Abstain: 278,330 0.57% - -------------------------------------------------------------------------------- Broker Non-votes: NA NA - -------------------------------------------------------------------------------- The foregoing proposal was approved and accordingly ratified. The proposal to approve an amendment to the Company's Articles of Incorporation and By-Laws to increase the authorized shares of common stock from 75,000,000 to 150,000,000 received the following votes: - -------------------------------------------------------------------------------- For: 39,834,584 82.25% - -------------------------------------------------------------------------------- Against: 2,158,890 4.46% - -------------------------------------------------------------------------------- Abstain: 134,415 0.28% - -------------------------------------------------------------------------------- Broker Non-votes: NA NA - -------------------------------------------------------------------------------- The foregoing proposal was approved and accordingly ratified. 20 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report on Form 10QSB to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 11, 2000 ADVANCED OPTICS ELECTRONICS, INC. BY:/s/John J. Cousins --------------- John J. Cousins Vice President of Finance (Principal Accounting Officer) BY:/s/Leslie S. Robins ---------------- Leslie S. Robins Executive Vice President (Principal Executive Officer) 21 Item 5. Other Information - Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the company during the three-month period ending March 31, 2000 22 EX-27 2 FDS --
5 3-MOS Dec-31-1999 Jan-01-2000 Mar-31-1999 875,614 73,143 662,078 0 29,293 1,640,128 320,486 (124,241) 2,393,164 165,130 467,298 0 550,000 6,977,988 0 2,393,154 34,039 34,039 1,452,522 1,452,522 82,855 0 (76,581) (1,501,338) 0 (1,418,483) 0 0 (63,020) (1,501,338) (0.03) 0
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