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, 1999 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, 1999 was 25,678,550 Transitional Small Business Disclosure Format (check one): Yes ___ No _X_ NEFF & RICCI - ------------ LLP Accountants' Report Board of Directors Advanced Optics Electronics, Inc. We have compiled the accompanying balance sheet of Advanced Optics Electronics, Inc. (a development stage company) as of March 31, 1999 and the related statements of operations, changes in stockholders' equity and cash flows for the quarter then ended, the quarter ended March 31, 1998, and the period from May 22, 1996 (inception) through March 31, 1999, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them. Neff & Ricci LLP Albuquerque, New Mexico April 21, 1999 2 BALANCE SHEET March 31, 1999 ASSETS CURRENT ASSETS Cash and cash equivalents $ 66,666 Certificate of deposit 50,000 Marketable equity securities 53,191 Costs and estimated earnings in excess of billings on uncompleted contract 316,575 Raw materials inventory 41,324 Related party receivables 53,001 ----------- Total current assets 580,757 ----------- FIXED ASSETS, at cost Furniture and fixtures 25,897 Computers 29,718 Technical equipment 98,598 Automobile 43,313 Equipment under capital lease 100,499 Leasehold improvements 8,595 Less accumulated depreciation (55,067) ----------- Total fixed assets 251,553 ----------- OTHER ASSETS Note receivable from officer 29,000 Investment in Bio Moda, Inc. 265,850 Goodwill, net of accumulated amortization of $302 4,698 Patents, net of accumulated amortization of $32,917 209,422 Other assets 30,350 ----------- Total other assets 539,320 ----------- Total assets $ 1,371,630 =========== See accompanying notes and accountant's report. 3 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 27,602 Notes payable 5,384 Accrued liabilities 8,927 Current portion of long-term debt and capital lease obligation 33,331 ----------- Total current liabilities 75,244 ----------- Long-term portion of long-term debt and capital lease obligation 58,828 ----------- COMMITMENTS SHAREHOLDERS' EQUITY Common stock, authorized 75,000,000 shares, $.001 par value, 29,650,897 shares issued and outstanding 29,651 Additional paid-in capital 2,394,913 Deficit accumulated during the development stage (1,187,006) ----------- Total shareholders' equity 1,237,558 ----------- Total liabilities and shareholders' equity $ 1,371,630 =========== 4 STATEMENTS OF OPERATIONS Quarters Ended March 31, 1999 and 1998, and the Period from May 22, 1996 (Inception) Through March 31, 1999 5/22/96 (Inception) Through 1999 1998 3/31/99 REVENUES Contract revenue $ 66,375 72,000 316,575 -------------------------------------------- COSTS AND EXPENSES General and administrative 106,570 53,263 726,705 Contract costs 85,941 35,355 359,081 Research and development 48,273 6,690 237,391 -------------------------------------------- Total expenses 240,784 95,308 1,323,177 -------------------------------------------- Operating loss (174,409) (23,308) (1,006,602) -------------------------------------------- OTHER INCOME AND (EXPENSES) Interest income 1,964 -- 2,815 Unrealized gain (loss) on marketable equity securities (9,968) -- (16,843) Loss on Bio Moda, Inc. (24,571) -- (92,995) Interest expense (3,299) (247) (10,361) -------------------------------------------- Total other expenses (35,874) (247) (117,384) -------------------------------------------- Net loss before cumulative effect of change in accounting principle (210,283) (23,555) (1,123,986) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (63,020) -- (63,020) -------------------------------------------- Net loss (273,303) -- (1,187,006) -------------------------------------------- Net loss per share before cumulative effect of change in accounting principle (.008) (.002) (.117) Cumulative effect of change in accounting principle (.003) -- (.007) -------------------------------------------- Net loss per share $ (.011) (.002) (.124) ============================================ Weighted average shares outstanding 25,252,592 9,728,600 9,569,549 ============================================ See accompanying notes and accountant's report. 5 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Period from May 22, 1996 (Inception) Through March 31, 1999 Common Stock ------------------------ Par 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 3,259,180 3,259 Stock issued for services 6,026,681 6,027 Purchase and retirement of treasury stock (489,251) (489) Net loss -- -- ------------------------- Balance, March 31, 1999 29,650,897 $ 29,651 ========================= See accompanying notes and accountant's report. 6 Equity (Deficit) Accumulated Additional During the Total Paid-In Development Shareholders' 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) 1,339,686 151,361 -- 154,620 21,660 -- 27,687 (10,643) -- (11,132) -- (273,303) (273,303) --------------------------------------------- $ 2,394,913 (1,187,006) 1,237,558 ============================================= 7 STATEMENTS OF CASH FLOWS Quarters Ended March 31, 1999 and 1998, and the Period from May 22, 1996 (Inception) Through March 31, 1999 5/22/96 (Inception) Through 1999 1998 12/31/98 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (273,303) (23,555) (1,187,006) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization and depreciation expense 23,529 9,470 130,300 Write off of organization costs 63,020 -- 63,020 Unrealized loss on marketable securities 9,968 -- 16,843 Loss on Bio Moda, Inc. 24,571 -- 92,995 Issuance of common stock for services 27,687 -- 324,157 Contract receivable (66,375) (72,000) (316,575) Other receivables (5,954) (7,500) (63,351) Inventory (41,324) -- (41,324) Accrued liabilities and accounts payable 1,116 7,047 36,529 -------------------------------------- Net cash applied to operating activities (237,065) (86,538) (944,412) -------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment (27,605) (549) (206,121) Investment in Bio Moda, Inc. -- -- (358,845) Purchase of marketable securities -- (35,191) (70,034) Purchase of certificate of deposit -- -- (50,000) Purchase of other assets (10,000) -- (96,777) -------------------------------------- Net cash applied to investing activities (37,605) (35,740) (781,777) -------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Additions to notes payable -- -- 94,726 Payments on notes payable and capital lease obligation (6,764) (3,650) (97,682) Issuance of common stock 154,620 791,000 1,837,328 Purchase of treasury stock (11,132) -- (41,517) -------------------------------------- Net cash provided by financing activities 136,724 787,350 1,792,855 -------------------------------------- Net increase (decrease) in cash (137,946) 665,072 66,666 Cash, beginning of period 204,612 74,421 -- -------------------------------------- Cash, end of period $ 66,666 739,493 66,666 ====================================== See accompanying notes and accountant's report. 8 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 will be required to obtain additional capital in order to fund the completion of the contract. Cash and Cash Equivalents. Cash and cash equivalents include all cash balances and highly liquid debt instruments with an original maturity of three months or less. The Company's cash and certificates of deposit are deposited in financial institutions and are insured only up to $100,000 by the Federal Deposit Insurance Corporation at each institution. Marketable Equity Securities. The Company classifies all of its marketable equity securities as trading securities. Trading securities are carried at fair value with the unrealized gains and losses reported in the income statement. As of March 31, 1999, gross unrealized gains were $24,983 and gross unrealized losses were $41,826. Realized gains and losses were not material. 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. Depreciation. Depreciation of property, plant and equipment is provided over the estimated useful lives of the respective assets ranging from 3 to 10 years using declining balance methods. 9 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Other Assets. Organization costs were amortized on a straight-line basis over the period to be benefited of five years up until December 31, 1998. Patents are amortized on a straight-line basis over the remaining estimated useful life of 15 years. Goodwill is amortized over the period to be benefited, or 40 years, whichever is less. The Company continually reviews other assets to assess recoverability from estimated future net cash flows. To date, these reviews have not resulted in a reduction of other assets. Research and Development Costs. Research and development costs are expensed as incurred. Advertising. Advertising costs are expensed as incurred and amounted to $538 in 1999 and $1,602 in 1998. Income Taxes. The Company accounts for its income taxes using the liability method. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company has provided a valuation allowance to offset the benefit of any net operating loss carryforwards or deductible temporary differences 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. Effect of New Accounting Pronouncements. Statement of Position 98-5 Reporting the Costs of Start-up Activities requires that organization costs be expensed. The Company applied this new accounting pronouncement effective January 1, 1999. The impact of this change in accounting principle was to reduce assets and increase the deficit accumulated during the development stage by $63,020 as of December 31, 1998 and is presented as the cumulative effect of an accounting change on the statement of operations. There are no related income tax amounts. 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 reserves and the valuation of common stock issued for services. 10 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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 $23,000 in the first unit has been recognized as of March 31, 1999. The Company's estimated cost to complete as of March 31, 1999 is $495,000 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 were no billings as of March 31, 1999. 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. Reclassifications. Certain amounts in 1998 financial statements have been reclassified to conform with 1999 presentation. NOTE 2. RELATED PARTY RECEIVABLES Related party receivables at March 31, 1999, consist of the following: Due from Bio Moda, Inc. $ 5,000 Due from officer 33,001 Note receivable from former shareholder bearing interest at 8% and due in February, 1999 15,000 ------- $53,001 ======= The note receivable from former shareholder was issued for $10,000 in the Company's common stock and $5,000 in cash. 11 NOTE 3. INVESTMENT IN BIO MODA, INC. During 1998 the Company increased its investment in Bio Moda, Inc. to 21.93 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, 1999, 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 financial data relative to Bio Moda, Inc. as of December 31, 1998 is as follows: Assets: Current assets $ 56,223 Other assets 17,000 --------- $ 73,223 ========= Liabilities and equity Current liabilities $ 32,148 Notes payable to stockholders 84,884 Common stock 372,273 Deficit accumulated during the development stage (416,082) --------- $ 73,223 ========= The investment in Bio Moda, Inc. is accounted for using the equity method. A summary of the investment as of March 31, 1999 is as follows: Original cost, all of which exceeded book value $ 358,845 Share of net loss (70,104) Amortization of excess of cost over book value (22,891) --------- Net investment $ 265,850 ========= 12 NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION Capital Lease Obligation. In July, 1998, the Company entered into a capital lease agreement for equipment valued at $100,499 (net book value of $82,073 at March 31, 1999). The Company made a down payment of $20,170. The remaining amount was financed on a lease with 36 monthly payments of $2,810. Future minimum lease payments are as follows for the years ending March 31: 1999 $ 33,720 2000 33,720 2001 5,620 -------- 73,060 Less amounts representing interest (12,475) -------- $ 60,585 ======== Long-Term Debt. In October 1998, the Company obtained a note payable from a bank as part of the purchase of an automobile. The note is due in monthly installments of principal and interest (fixed rate of 8 percent) of $817 until October 2002. The note is secured by the automobile and the balance outstanding at March 31, 1999 was $31,574. Principal payments for the years ending March 31 are as follows: 2000 $ 7,475 2001 8,068 2002 8,738 2003 7,293 -------- $ 31,574 ======== 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 offing, primarily for cash. 13 NOTE 5. EQUITY TRANSACTIONS (CONTINUED) 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 bears interest at the rate of 7 percent with interest due semiannually and the principal due July, 2001. During the quarter ended March 31, 1999, the Company repurchased 489,251 shares of its outstanding stock for $11,132 in cash. These shares were retired. The Company also sold 3,259,180 shares for $154,620 in cash and issued 5,537,430 shares for services which were valued at $27,687. NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS The following are the carrying amounts and methods used by the Company in estimating its fair value of financial instruments. Cash and Certificates of Deposit. The carrying amounts reported in the balance sheet approximate fair value. Marketable Equity Securities. The fair value reported in the balance sheet was based on current market prices. Notes Receivable. Management estimates the fair value of notes receivable approximates the carrying value due to their short terms. Notes Payable. Management estimates the fair value of notes payable approximates the carrying value due to their short terms. Capital Lease and Long-Term Debt. Management estimates the fair value of capital lease obligations and notes payable approximates the carrying value due to their short terms and the fact that they were entered into recently. 14 NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The carrying amounts and fair values of the Company's financial instruments are as follows at March 31, 1999: Estimated Carrying Fair Amount Value Cash and cash equivalents $66,666 66,666 Certificate of deposit 50,000 50,000 Marketable equity securities (with an original cost of $70,034) 53,191 53,191 Notes receivable 82,001 82,001 Notes payable 5,384 5,384 Long-term debt and capital lease obligation 92,159 92,159 NOTE 7. INCOME TAXES At March 31, 1999, the Company had deferred tax assets amounting to approximately $400,000. The deferred tax assets consist primarily of the tax benefit of net operating loss carryforwards and are fully offset by a valuation allowance of the same amount. The net change in the valuation allowance for deferred tax assets was an increase of approximately $80,000 in the quarter ending March 31, 1999. The net change is due primarily to the increase in net operating loss carryforwards. At March 31, 1999, the Company had net operating loss carryforwards of approximately $1,000,000 available to offset future state and federal taxable income. These carryforwards will expire in 2016 to 2018 for federal tax purposes and 2001 to 2003 for state tax purposes. NOTE 8. COMMITMENTS The Company has a non-cancelable operating lease agreement for its office and production space. The agreement is through June 2000 with an option to renew for one additional year. Rent expense during 1998 and 1997 was $9,875 and $2,100, respectively. Future minimum lease payments for the years ending March 31, are as follows: 2000 $32,400 2001 8,100 As of March 31, 1999, there was one stock option outstanding for the purchase of 153,954 shares at $.58 per share by an officer of the Company. The option expires August 1, 1999. During the quarters ended March 31, 1998 and 1999, there was no stock option activity. 15 ADVANCED OPTICS ELECTRONICS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Advanced Optics Electronics, Inc. (ADOT-NASDAQ BB) (the "Company") is a development stage technology company based in Albuquerque, New Mexico. The Company is primarily engaged in the development, production and sales of its novel and innovative electronic flat panel displays. The result of research and development activities will be the manufacturing of large-scale flat panel displays utilizing its patented technology. These large-scale flat panel displays will be marketed and sold to the outdoor advertising billboard market. 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. Liquidity and Capital Resources The Company relies upon the purchase of its securities by investors to provide capital. Capital is required for the development of prototype units and manufacturing operations. Operating revenues from initial contracts also contribute to operating liquidity. The Company's holding of stock in BioModa, Inc will provide additional liquidity. 16 BioModa is a biomedical development company. The Company's ownership of BioModa, as of March 31, 1999, was 21.93%. The Company holds options to increase this position to 26.4%. No immediate family members of officers or directors of Advanced Optics Electronics, Inc. are securities holders of BioModa. During the quarter ended March 31, 1999 $75,878 was spent for the purchase of equipment and product development costs. Funds for operation needs, product development and capital expenditures were provided from the sale of securities and cash reserves. Product development expenditures are expected to be approximately $200,000 in fiscal 1999. 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 third quarter of fiscal year 1999. 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 1999. Results of Continuing Operations Comparison of the Three-Month Periods Ended March 31, 1999 and 1998 Revenues decreased to $66,375 in the first quarter of 1999 as compared to $72,000 in the first quarter of 1998. Research, development and technical costs increased to $48,273 in the first quarter of 1999 from $6,690 in the first quarter of 1998. The increase in these costs is due primarily to increased research and development efforts and resources. General and administrative costs increased to $106,570 in the first quarter of 1999 from $53,263 in the first quarter of 1998 due to increases in salaries related to additional personnel and increases in professional fees. Depreciation increased to $23,529 in the first quarter of 1999 from $9,470 in the first quarter of 1998 due primarily to depreciation expense for equipment acquired under capital leases. 17 PART II. OTHER INFORMATION Item 1. Legal proceedings The Company is not a party to any legal proceeding, the adverse outcome of which, in management's opinion, would have a material adverse effect on the Company's operating results. Item 2. Changes in securities During the first quarter of fiscal year 1999 there was a 4,949,972 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 There were no matters submitted to a vote of the Company's security holders during the first quarter of fiscal year 1999. 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, 1999 18 SIGNATURES In accordance with Section 13 or 15(d) 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: April 23, 1999 ADVANCED OPTICS ELECTRONICS, INC. BY: /s/Leslie S. Robins ---------------------------- Leslie S. Robins Chief Accounting Officer (Principal Accounting Officer) BY: /s/Leslie S. Robins ---------------------------- Leslie S. Robins Executive Vice President (Principal Executive Officer) 19 Appendix A to Item 601(c) of Regulation S-B Commercial and Industrial Companies Article 5 of Regulation S-X - ---------------------------------------------------------------------------------------------------------- Item Number Item Description Amount - ---------------------------------------------------------------------------------------------------------- 5-02(1) Cash and cash items $66,666 - ---------------------------------------------------------------------------------------------------------- 5-02(2) Marketable securities $53,191 - ---------------------------------------------------------------------------------------------------------- 5-02(3)(a)(1) Notes and accounts receivable-trade $53,001 - ---------------------------------------------------------------------------------------------------------- 5-02(4) Allowances for doubtful accounts N/A - ---------------------------------------------------------------------------------------------------------- 5-02(6) Inventory $41,324 - ---------------------------------------------------------------------------------------------------------- 5-02(9) Total current assets $580,757 - ---------------------------------------------------------------------------------------------------------- 5-02(13) Property, plant and equipment $251,553 - ---------------------------------------------------------------------------------------------------------- 5-02(14) Accumulated depreciation ($55,067) - ---------------------------------------------------------------------------------------------------------- 5-02(18) Total assets $1,371,630 - ---------------------------------------------------------------------------------------------------------- 5-02(21) Total current liabilities $75,244 - ---------------------------------------------------------------------------------------------------------- 5-02(22) Bonds, mortgages and similar debt $58,828 - ---------------------------------------------------------------------------------------------------------- 5-02(28) Preferred stock-mandatory redemption N/A - ---------------------------------------------------------------------------------------------------------- 5-02(29) Preferred stock-no mandatory redemption N/A - ---------------------------------------------------------------------------------------------------------- 5-02(30) Common stock $1,237,558 - ---------------------------------------------------------------------------------------------------------- 5-02(31) Other stockholder's equity N/A - ---------------------------------------------------------------------------------------------------------- 5-02(32) Total liabilities and stockholder's equity $1,371,630 - ---------------------------------------------------------------------------------------------------------- 5-03(b)1(a) Net sales of tangible products $66,375 - ---------------------------------------------------------------------------------------------------------- 5-03(b)1 Total revenues $66,375 - ---------------------------------------------------------------------------------------------------------- 5-03(b)2(a) Cost of tangible goods sold $240,784 - ---------------------------------------------------------------------------------------------------------- 5-03(b)2 Total costs and expenses applicable to sales and revenues $240,784 - ---------------------------------------------------------------------------------------------------------- 5-03(b)3 Other costs and expenses $35,874 - ---------------------------------------------------------------------------------------------------------- 5-03(b)5 Provision for doubtful accounts and notes N/A - ---------------------------------------------------------------------------------------------------------- 5-03(b)8 Interest and amortization of debt discount ($3,299) - ---------------------------------------------------------------------------------------------------------- 5-03(b)10 Income before taxes and other items ($273,303) - ---------------------------------------------------------------------------------------------------------- 5-03(b)11 Income tax expense N/A - ---------------------------------------------------------------------------------------------------------- 5-03(b)14 Income/loss continuing operations ($174,409) - ---------------------------------------------------------------------------------------------------------- 5-03(b)15 Discontinued operations N/A - ---------------------------------------------------------------------------------------------------------- 5-03(b)17 Extraordinary items N/A - ---------------------------------------------------------------------------------------------------------- 5-03(b)18 Cumulative effect-changes in accounting principals ($63,020) - ---------------------------------------------------------------------------------------------------------- 5-03(b)19 Net income or loss ($273,303) - ---------------------------------------------------------------------------------------------------------- 5-03(b)20 Earnings per share - primary ($0.011) - ---------------------------------------------------------------------------------------------------------- 5-03(b)20 Earnings per share - fully diluted N/A - ----------------------------------------------------------------------------------------------------------