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Advanced Engine Technologies,
Inc.
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB/A
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 2000
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OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
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Commission file number 0-25177
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ADVANCED ENGINE TECHNOLOGIES, INC.
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(Name of Small Business Issuer in Its Charter)
Colorado 84-1358194
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11150 W. Olympic Blvd. Suite 1050 Los Angeles Ca. 90064
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(Address of Principal Executive Offices) (Zip Code)
(310) 914-9599
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(Issuer's Telephone Number)
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Securities to be registered under Section 12(b) of the Act:
Title of Each Class to be so Name of Each Exchange on Which
Registered Each Class is to be Registered
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) , and (2)
has been subject to such filing requirements for past 90 days.
Yes X No ________
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year.___$-0-______
The aggregate market value of the common equity held by non-affiliates
computed by reference to the price at which the common equity was sold, or the
average bid and asked price of such common equity ($2.125 per share) as of May
2, 2000 was $17,240,137.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 22,950,000 common shares as
of June 30, 2000
Transitional Small Business Disclosure Format (check one):
Yes X No ________
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The registrant hereby files this Annual Report on Form 10-KSB/A to amend Items
1, 6 and 7 of its Annual Report on Form 10-KSB for the year ended June 30, 2000
to include restated financial statements. No other items in the registrant's
Annual Report on Form 10-KSB for the year ended June 30, 2000 are amended.
PART I
Item 1. Description of Business
Forward-Looking Statements
This document contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this report to conform such
statements to actual results or to changes in our expectations.
Readers are also urged to carefully review and consider the various
disclosures made by us which attempt to advise interested parties of the factors
which affect our business, including without limitation the disclosures made
under the caption "Management's Discussion and Analysis of Financial Condition
or Plan of Operation" and under the caption "Risk Factors" included herein.
General
Advanced Engine Technologies, Inc. ("we", "us" or the "Company") was
incorporated and commenced operations on September 23, 1996. We were formed to
develop and commercialize the OX2 internal combustion engine, a
state-of-the-art, uniquely designed engine. Our focus is on the development and
commercial introduction of the OX2 engine and the subsequent licensing of the
OX2 engine technology to approved manufacturers.
In 1996, we entered into an exclusive sub-licensing agreement with OX2
Engine (Distribution) Ltd. ("OX2"), pursuant to which we acquired the right to
manufacture, distribute and market the OX2 engine in the North American Free
Trade Agreement countries (presently the United States, Canada and Mexico). OX2
licensed the technology from OX2 Intellectual Property, Inc., a foreign
corporation that was assigned the technology from the original patent holders.
The sub-license was for the longer of (1) life of the patent or (2) twenty
years. In May 1999, we acquired the worldwide patent rights for the OX2 engine
from OX2 in exchange for $1.5 million. We will take responsibility for patent
maintenance and for future research and development on the engine.
We have spent $1,041,376 for the fiscal year ended June 30, 2000 and
$525, 000 for the fiscal year ended June 30, 1999, on research and development
for the OX2 engine. On July 15, 1998, we entered into a joint venture agreement
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with Carroll Shelby, our president, to further develop the OX2 engine for use in
a standard application for motor vehicles and promote the OX2 engine to the
automotive industry.
Our Product
At the present time only a prototype of the OX2 internal combustion
engine, plus additional parts which can be used for engine development or for
the building of additional prototypes, have been built. No OX2 engines have been
manufactured for production use, and no assurance can be given that the OX2
engine will be successfully developed or manufactured.
The OX2 engine prototype is designed to be fuel efficient, lightweight,
low-emission, multi-fueled, and smaller and more inexpensive than conventional
internal combustion engines. We also believe that it will not have the complex
manufacture/production requirements of conventional internal combustion engines.
The OX2 engine prototype is designed to have only six major components,
of which only three move. We believe this design will result in low set-up and
production costs and simplicity of design that will promote a high level of
quality assurance.
The major parts of the engine prototype are: (1) housing, (2) cylinder
block, (3) top piston plate, (4) lower piston plate, (5) cam track, and (6)
drive shaft. The moving parts are: (1) cylinder block, (2) top piston plate, and
(3) lower piston plate.
We expect the OX2 engine, once completed, will have several advantages
over a four stroke conventional engine. Some of these advantages are expected to
include:
. The OX2 engine prototype has only six major components,
which should result in lower set-up and production and
manufacturing costs than a typical conventional engine.
. We believe the OX2 engine prototype to have greater
effective engine capacity than a typical conventional
engine.
. The OX2 engine prototype does not use a conventional
crankshaft, which we believe will result in a leverage
advantage over a typical conventional engine.
. The OX2 engine prototype design should enable the timing
to be adjusted, which will produce a more effective burn
on the combustible fuel being used.
. The OX2 engine prototype's piston speed should remain
constant throughout the entire power stroke, thus allowing
exhaust gases to be more efficiently expelled than a typical
conventional engine.
In the short term, our plans are to complete the research and
development of the OX2 engine in order to prepare it for production and
marketing. We currently have an agreement with Steven Manthey, the inventor of
the OX2 engine, which provides that Mr. Manthey will continue to develop and
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maintain the OX2 engine prototype. We have an agreement with the University of
California, Riverside ("UCR"), which provides that they will continue to conduct
research and development on the OX2 engine prototype, in conjunction with us.
The research and development at UCR is being conducted under the guidance of Dr.
Joseph Norbeck (of the CE-CERT program at the University of California,
Riverside) and Dr. Roberta Nichols, one of our consultants. We are also
conducting research and development activities in Gardena, California.
Marketing
Assuming the completion of the necessary research and development
required to complete our product, and assuming the tests of our OX2 prototype
are successful, we will attempt to introduce the OX2 engine into the market. The
total size of the internal combustion engine industry makes the introduction of
any significant change to industry standards a complex promotional and marketing
exercise. We believe the multi-purpose nature of the OX2 engine should make it
compatible to several different market applications.
Upon completion of the OX2 engine, we expect, initially, to market it
to specialist engine manufacturers who produce stationary engines. We expect
that sub-licenses allowing the manufacture of OX2 engines, will be granted by us
only to a limited number of engine manufacturers, to achieve a manageable and
controlled market introduction.
Sources of Income
We expect to generate income in two ways: (1) we expect to receive a
licensing fee from approved manufacturers in return for the right to produce and
sell the OX2 engine; license fees will be determined by territory size and
market potential; and (2) we expect to receive a royalty payment for each engine
produced and sold. We expect royalty payments will be determined by engine
capacity and application.
Patents
We have been granted a U.S. patent for an Axial Piston Rotary Engine
(U.S. Patent No. 5,813,372). We have filed a patent application for an Axial
Piston Rotary Engine in Australia (No. PCT/AU95/00815). In addition, we have
patent applications pending in countries throughout the world.
Employees
We have one employee, our president. We are currently evaluating the
need to hire additional employees to assist in the daily operations and market
placement of our product. We also engage consultants who receive fees for their
consulting services.
Other Agreements
In June 1999, we agreed to grant 1,000,000 shares of the Company's
common stock ("Shares") to the University of California Riverside Foundation.
The stock is to be issued in five annual installments of 200,000 Shares each.
Two installments have been granted, one in July, 1999 and the other in July,
2000, for a total of 400,000 Shares. The Shares were donated to provide an
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endowment for research funds for the College of Engineering-Center for
Environmental Research and Technology. This donation is independent of the
relationship between Advanced Engine Technologies Inc., and the University of
California, Riverside for research and development of the OX2 engine.
Risk Factors
You should carefully consider the following risks and the other
information in this Report and our other filings with the SEC before you decide
to invest in us or to maintain or increase your investment. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties may also adversely impact and impair our business. If any of
the following risks actually occur, our business, results of operations, or
financial condition would likely suffer. In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
. There can be no assurance that we will be able to successfully develop the
OX2 engine. No OX2 engines have been developed or manufactured for
production use, and no assurance can be given that the OX2 engine will be
successfully developed or manufactured. Testing and development on the
engine is still in progress, and is being conducted in conjunction with
UCR. Until further testing, research and development has been completed, we
will not have a finished product for introduction into the market. We do
not have an estimated completion date for the testing, research and
development. Furthermore, the we cannot provide assurance that we will be
successful in the ultimate development of the engine for commercial
applications.
. A market for our OX2 engine may take longer to develop than anticipated or
may never develop, which would adversely affect revenues and profitability.
Our OX2 engine represents an innovation in the industry for internal
combustion engines. The size of the internal combustion engine industry
makes the introduction of changes to industry standards a complex
promotional and marketing exercise. We cannot ensure that our targeted
customers will purchase our engine. If the market for our engines fails to
develop, or develops more slowly that anticipated, we may not be able to
meet our expenses and may not achieve profitable results. In addition, we
cannot provide assurance that we will be successful with our marketing
efforts or the development of our joint ventures.
. Our cash reserves may not be adequate to cover our costs of operations. To
date, we have covered our operating losses by privately placing securities.
We expect to fund our general operations and marketing activities for 2001
with our current cash reserves, which were obtained from the sale of
securities. However, our cost estimates do not include provisions for any
contingencies, unexpected expenses or increases in costs that may arise.
. We may not be able to raise the capital we need. It is likely that we will
need to raise additional capital at some point in the future. If additional
funds are raised through the issuance of equity, our shareholders'
ownership will be diluted. There can be no assurance that additional
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financing will be available on terms favorable to us, or at all. If funds
are not available or are not available on terms acceptable to us, we may
not be able to continue the development of our product, respond to our
competitors or continue our business.
. Our business depends on the protection of our intellectual property and may
suffer if we are unable to adequately protect our intellectual property.
The success of our business depends on our ability to patent our engine.
Currently, we have been granted one U.S. Patent for an Axial Piston Rotary
Engine. We have one patent application pending in Australia for an Axial
Piston Rotary Engine. We also have patent applications pending in countries
throughout the world. We believe that our ability to establish and maintain
our position in the market depends on these patents. We cannot provide
assurance that our patent will not be invalidated, circumvented or
challenged, that the rights granted under the patents will give us
competitive advantages or that our patent applications will be granted.
. If we are found to infringe on the intellectual property rights of others,
we may not be able to continue the development and production of our
engine, or we may have to enter into costly license or settlement
agreements. Third parties may allege infringement by us with respect to
past, current or future intellectual property rights. Any claim of
infringement, regardless of merit, could be costly, time consuming and
could require us to develop non-infringing technology or enter into
royalty, licensing or settlement agreements. These agreements could be on
terms unfavorable or unacceptable to us and could significantly harm the
development of our product, and ultimately, our business. In the future, we
may also have to enforce our patent and other intellectual property rights
through litigation. Any such enforcement could also result in substantial
costs and could materially affect our financial condition and our business.
. Our business is dependent on our relationships with other parties.
Research, development and testing of our engine is being carried out in
conjunction with UCR. Steven Manthey, the inventor of the engine is also
actively participating in the research and development. In addition, we
have a joint venture agreement with Carroll Shelby, to further develop and
promote our engine. Completion of the research, development and testing is
essential to the success of our business. Until such testing, research and
development has been completed, we will not have a finished product to
introduce to the market. Thus, if we are unable maintain our relationships
with UCR, Steven Manthey and Carroll Shelby, our business will be adversely
affected.
. We have a history of losses. We have a history of operating losses, and an
accumulated deficit, as of June 30, 2000, of $4,254,906. Our ability to
generate revenues and profits is subject to the risks and uncertainties
encountered by development stage companies.
. Our future revenues and profitability are unpredictable. We are currently
have no signed contracts that will produce revenue and we do not have an
estimate as to when we will be entering into such contracts. Furthermore,
we cannot provide assurance that management will be successful in
negotiating such contracts.
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. Rapid technological changes could adversely affect our business. The market
for internal combustion engines is characterized by rapidly changing
technology, evolving industry standards and changing customer demands.
Thus, if we are unable to adapt to rapidly changing technologies and to
adapt our product to evolving industry standards, our business will be
adversely affected.
. Our common stock is not widely traded, which may result in illiquidity and
increased volatility. Our common stock is not widely traded, and, as a
result, the prices quoted for our stock may not reflect its fair market
value. Because of the low volume of trading in our common stock, our
stockholders may find it difficult to sell their shares.
. Our principal stockholders can exercise significant control over us and
could limit the ability of our other stockholders to influence the outcome
of transactions requiring shareholder vote. As of June 30, 2000,
approximately 65% of our outstanding common stock is owned by our executive
officers, directors and principal stockholders. These stockholders will
have the ability to exercise influence over all matters requiring approval
by our stockholders, including the election of directors and approval of
significant corporate transactions.
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