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U.S. SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, DC
20549
FORM 10-QSB
(Mark
One)
[X] Quarterly report under Section 13 or 15(d)
of the Securities Exchange Act
of 1934
For
the quarterly period ended March 31, 2001
[_] Transition report under Section 13 or 15(d)
of the Securities Exchange Act
For
the transition period from _______ to _______
Commission
file number 0-25177
Advanced Engine
Technologies, Inc.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as
Specified in Its Charter)
Colorado 84-1358194
---------------------------------
--------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11150 W. Olympic Boulevard, Suite
1050 Los Angeles, CA 90064
------------------------------------------------------------
(Address of Principal Executive Offices)
(310)
914-1849
------------------------------------------------
(Issuer's Telephone Number,
Including Area Code)
_______________________________________________________________
(Former Name, Former Address and
Former Fiscal Year, if Changed
Since Last
Report)
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 ___
---
APPLICABLE ONLY TO ISSUERS
INVOLVED IN
BANKRUPTCY PROCEEDINGS
DURING THE
PRECEDING FIVE
YEARS
Check whether the registrant filed all
documents and reports required to be
filed
by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities
under a plan confirmed by a court.
Yes ___ No ___
APPLICABLE ONLY TO
CORPORATE ISSUERS
State the number of shares outstanding of
each of the issuer's classes of
common
equity, as of the latest practicable date:
33,150,000 shares of common stock, $0.001
par value per share, as of March
31,
2001.
Transitional Small Business Disclosure
Format (check one):
Yes No x
-2-
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND
MARCH 31, 2001 (UNAUDITED) AND
FOR THE THREE AND NINE MONTHS ENDED
MARCH 31, 2001 AND 2000
(UNAUDITED)
-3-
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
June 30,
2000 and March 31, 2001 (unaudited)
================================================================================
Page
FINANCIAL
STATEMENTS
Balance Sheets 5
Statements of Operations 6
Statements of Cash Flows 7
- 8
Notes to Financial Statements 9 - 14
-4-
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
June 30, 2000 and March 31, 2001 (unaudited)
--------------------------------------------------------------------------------
ASSETS
March 31, June 30,
2001 2000
--------------- ----------------
(unaudited)
Current
assets
Cash and cash equivalents
$ 455,932 $
1,026,990
Due from related parties
43,295 22,768
Prepaid expenses
5,192 26,000
---------------
----------------
Total current assets
504,419 1,075,758
Property
and equipment, net
64,156 87,684
Patent
rights, net of accumulated amortization of $291,482
(unaudited) and $177,353
1,230,237 1,344,365
Patent,
copyrights, and designs, net of accumulated
amortization of $20,417 (unaudited) and
$13,854
23,333 29,896
---------------
----------------
Total assets $
1,822,145 $ 2,537,703
===============
================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current
liabilities
Accounts payable and accrued
expenses
$ 101,943 $
120,359
---------------
----------------
Total current liabilities 101,943 120,359
---------------
----------------
Commitments
and contingencies
Stockholders'
equity
Common stock, $0.001 par value
50,000,000 shares authorized
33,150,000 (unaudited) and 22,950,000
shares
issued and outstanding
33,150 22,950
Subscription receivable
(10,000,000) -
Additional paid-in capital
16,231,100 5,941,300
Deficit accumulated during the
development stage (4,544,048) (3,546,906)
---------------
----------------
Total stockholders'
equity 1,720,202 2,417,344
---------------
----------------
Total liabilities and
stockholders' equity $ 1,822,145 $ 2,537,703
===============
================
The
accompanying notes are an integral part of these financial statements.
-5-
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March
31, 2001 and 2000 (unaudited) and
for the Period from September 23, 1996
(Inception) to March 31, 2001
(unaudited)
--------------------------------------------------------------------------------
For the
Period from
For
the For
the September 23,
Three Months
Ended Nine Months
Ended 1996
March
31, March 31, (Inception) to
---------------------------- ---------------------------- March 31,
2001 2000 2001
2000 2001
------------ ------------ ------------
------------ ------------
(unaudited)
(unaudited) (unaudited) (unaudited) (unaudited)
Expenses
Operating $
206,744 $ 139,105
$ 601,215 $
872,561 $ 2,399,646
Research and
development 48,523
476,863 435,335 476,863 2,301,711
------------ ------------ ------------
------------ ------------
Total expenses 255,267 615,968
1,036,550 1,349,424 4,701,357
------------ ------------ ------------
------------ ------------
Loss
from
operations (255,267) (615,968) (1,036,550)
(1,349,424) (4,701,357)
Other
income
Interest income 8,336
30,628 39,407 49,319 157,308
------------ ------------ ------------ ------------ ------------
Net
loss $ (246,931)
$ (585,340) $
(997,143) $ (1,300,105) $ (4,544,049)
============ ============ ============
============ ============
Basic
and diluted
loss per share $ (0.01) $
(0.03) $ (0.03)
$ (0.06) $
(0.20)
============ ============ ============
============ ============
Weighted-average
shares
outstanding 33,150,000
22,937,500 30,667,518 22,829,166 23,004,070
============ ============ ============
============ ============
The
accompanying notes are an integral part of these financial statements.
-6-
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH
FLOWS
For the Three and Nine Months Ended March
31, 2001 and 2000 (unaudited) and
for
the Period from September 23, 1996 (Inception) to March 31, 2001 (unaudited)
--------------------------------------------------------------------------------
For the
Period from
For
the For
the September 23,
Three
Months Ended Nine
Months Ended 1996
March 31,
March 31, (Inception)
to
---------------------------------
---------------------------------
March 31,
2001 2000 2001
2000 2001
--------------- --------------- ----------------
--------------- ----------------
(unaudited)
(unaudited)
(unaudited) (unaudited) (unaudited)
Cash
flows from
operating
activities
Net loss $ (246,931) $ (585,340) $
(997,143) $ (1,300,105) $ (4,544,049)
Adjustments to
reconcile net loss to
net cash used in
operating activities
Depreciation and
amortization 48,569
49,687 144,220 149,061 382,064
Issuance of
common stock
for assets and
services
- 87,500 300,000 387,500
1,264,250
(Increase)
decrease in
Due from related
parties (22,295)
(19,664) (17,295) (19,664) (43,295)
Prepaid expenses - (1,000)
17,576 7,216 (5,192)
Increase
(decrease) in
Accounts
payable and
accrued
expenses (35,238) -
(18,416) (2,881) 101,943
---------- ---------- ----------
---------- ----------
Net
cash used in
operating
activities (255,895) (468,817) (571,058)
(778,873) (2,844,279)
---------- ---------- ----------
---------- ----------
The
accompanying notes are an integral part of these financial statements.
-7-
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
For the Three and Nine Months Ended March 31,
2001 and 2000 (unaudited) and
for the Period from September 23, 1996
(Inception) to March 31, 2001
(unaudited)
--------------------------------------------------------------------------------
For the
Period from
For the For the September 23,
Three Months
Ended Nine Months
Ended 1996
March
31, March
31, (Inception) to
-----------------------------
-----------------------------
March 31,
2001 2000 2001
2000 2001
------------ ------------ -------------
------------
------------
(unaudited) (unaudited) (unaudited)
(unaudited) (unaudited)
Cash
flows from
investing
activities
Purchase of
intangible asset $
- $ - $ - $ (96,592) $ (1,565,469)
Purchase of property
and equipment -
(12,332) - (18,099) (134,320)
------------- ------------ -------------
------------ ------------
Net
cash used in
investing
activities - (12,332) -
(114,691) (1,699,789)
------------- ------------ -------------
------------ ------------
Cash
flows from
financing
activities
Proceeds from
issuance of
common stock -
- - 2,000,000 5,000,000
------------- ------------ -------------
------------ ------------
Net
cash provided by
financing
activities - - -
2,000,000 5,000,000
------------- ------------ -------------
------------ ------------
Net
increase (decrease)
in
cash (255,895) (481,149) (571,058)
1,106,436 455,932
Cash,
beginning of
period 711,827 2,149,380 1,026,990
561,795 -
------------- ------------
------------- ------------ ------------
Cash,
end of period $ 455,932
$ 1,668,231 $ 455,932
$ 1,668,231 $
455,932
============= ============ =============
============ ============
The
accompanying notes are an integral part of these financial statements.
-8-
ADVANCED
ENGINE TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
March
31, 2001
NOTE
1 - DESCRIPTION OF BUSINESS
Advanced Engine Technologies, Inc. (the
"Company") was incorporated under
the
laws of Colorado and began operations on September 23, 1996. The Company was
formed
to acquire the rights to manufacture, distribute, and market an OX2
combustion
engine throughout the United States, Canada, and Mexico. On October
18,
1996, the Company entered into a contract with OX2 Engine (Distribution), a
company
incorporated in the laws of the Republic of Vanuatu, whereby the Company
acquired
the rights to manufacture, distribute, and market the OX2 combustion
engine.
Performance under this contract required the Company to immediately
issue
20,000,000 shares of its common stock, plus an additional 19,000,000
shares
upon the completion of certain emission tests. In December 1999, both
parties
agreed to cancel the requirement to issue the additional 19,000,000
shares.
As of June 30, 1998, OX2 Engine (Distribution) owned approximately 62%
of
the Company's outstanding shares.
In October 1996, the Company issued
600,000 shares of its common stock
to
one of its founders in exchange for his services in organizing the Company.
The
transaction was recorded at the estimated fair market value of the services
provided
($6,000), as this was more readily determinable than the fair market
value
of the stock.
In addition, in October 1996, the
Company entered into a contract with
OX2
Engine (Distribution), whereby the Company acquired the rights to
manufacture,
distribute, and market the OX2 combustion engine in the United
States,
Canada, and Mexico for the life of the worldwide patent. As part of this
contract,
the Company issued 20,000,000 shares of its common stock to OX2 Engine
(Distribution)
and was to issue an additional 19,000,000 upon the completion of
emission
tests. The Company was also to pay a royalty of 15% of the gross
proceeds
of its revenue. In December 1998, both parties agreed to rescind and
terminate
the requirement to issue the additional 19,000,000 shares. In May
1999,
the Company acquired the worldwide patent and manufacturing rights to the
OX2
engine in a four-party agreement between the Company, OX2 Engine
(Distribution),
OX2 (Intellectual Property), and Advanced Engine Technology PTY
Ltd.
The Company has assumed responsibility for patent maintenance and
enforcement,
as well as engine development, manufacturing, marketing and sales
activities.
A dispute arose related to the shares
originally owned by OX2 Engine
(Distribution).
As a result, two lawsuits were filed which included the Company
as a
defendant. The suits seek to have the disputed shares surrendered to the
Company
and the stock records amended to reflect OX2 Engine (Distribution) as
the
beneficial owner of these shares. In August 2000, the Company accepted the
surrender
of 10,713,238 shares of its common stock, which it subsequently
deposited
with the court. As a result, the Company's legal counsel expects the
Company
to be dismissed from the litigation.
In May 1999, the Company acquired the
worldwide patent rights for the OX2
engine
pursuant to a written agreement with OX2 Engine (Distribution), OX2
(Intellectual
Property), and Advanced Engine Technology PTY Ltd. The Company
has
assumed responsibility for worldwide patent maintenance and enforcement, as
well
as engine development, manufacturing, marketing, and sales activities.
As of March 31, 2001, the Company's
operations consisted of marketing,
testing,
and developing the OX2 combustion engine for commercial applications
and
raising any necessary capital investments. Management does not expect to
generate
significant sales revenue during the year ending June 30, 2001.
Accordingly,
planned principal operations have not commenced, and the Company is
a
development stage enterprise.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going
Concern Issues
--------------------
In connection with its June 30, 2000
financial statements, the Company
received
a report from its independent auditors that included an explanatory
paragraph
which described the Company's uncertainty to continue as a going
concern.
These consolidated
-9-
ADVANCED
ENGINE TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
March
31, 2001
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
financial
statements contemplate the ability to continue as such and do not
include
any adjustments that might result from this uncertainty.
Interim
Unaudited Financial Information
---------------------------------------
The unaudited financial information
furnished herein reflects all
adjustments,
consisting only of normal recurring adjustments, which in the
opinion
of management, are necessary to fairly state the Company's financial
position,
the results of operations, and cash flows for the periods presented.
The
results of operations for the nine months ended March 31, 2001 are not
necessarily
indicative of results for the entire fiscal year ending June 30,
2001.
The information with respect to the
nine months ended March 31, 2001
and
2000 is unaudited.
Development
Stage Enterprise
----------------------------
The Company is a development stage
company as defined in Statement of
Financial
Accounting Standards ("SFAS") No. 7, "Accounting and Reporting
by
Development
Stage Enterprises." The Company is devoting substantially all of its
present
efforts to establish a new business, and its planned principal
operations
have not yet commenced. All losses accumulated since inception have
been
considered as part of the Company's development stage activities.
Comprehensive
Income
--------------------
The Company utilizes SFAS No. 130,
"Reporting Comprehensive Income."
This
statement establishes standards for reporting comprehensive income and its
components
in a financial statement. Comprehensive income as defined includes
all
changes in equity (net assets) during a period from non-owner sources.
Examples
of items to be included in comprehensive income, which are excluded
from
net income, include foreign currency translation adjustments and unrealized
gains
and losses on available-for-sale securities. Comprehensive income is not
presented
in the Company's financial statements since the Company did not have
any
of the items of comprehensive income in any period presented.
Impairment
of Long-Lived Assets
-------------------------------
The Company reviews long-lived assets
to be held and used for
impairment
whenever events or changes in circumstances indicate that the
carrying
amount of an asset
-10-
ADVANCED
ENGINE TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
March
31, 2001
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
may
not be recoverable. If the sum of the expected future cash flows
(undiscounted
and without interest charges) is less than the carrying amount of
the
asset, the Company would recognize an impairment loss based on the estimated
fair
value of the asset.
Stock-Based
Compensation
------------------------
SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes and
encourages
the use of the fair value based method of accounting for stock-based
compensation
arrangements under which compensation cost is determined using the
fair
value of stock-based compensation determined as of the date of grant and is
recognized
over the periods in which the related services are rendered. The
statement
also permits companies to elect to continue using the current implicit
value
accounting method specified in Accounting Principles Bulletin ("APB")
Opinion
No. 25, "Accounting for Stock Issued to Employees," to account for
stock
-based
compensation issued to employees. The Company has elected to use the
intrinsic
value based method and has disclosed the pro forma effect of using the
fair
value based method to account for its stock-based compensation.
Income
Taxes
------------
The Company uses the asset and liability
method of accounting for income
taxes.
The asset and liability method accounts for deferred income taxes by
applying
enacted statutory rates in effect for periods in which the difference
between
the book value and the tax bases of assets and liabilities are scheduled
to
reverse. The resulting deferred tax asset or liability is adjusted to reflect
changes
in tax laws or rates. Because the Company has incurred losses from
operations,
no benefit is realized for the tax effect of the net operating loss
carryforward
and software development costs capitalized for tax purposes due to
the
uncertainty of its realization.
Loss
per Share
--------------
Basic loss per share is computed by
dividing loss available to common
stockholders
by the weighted-average number of common shares outstanding.
Diluted
loss per share is computed similar to basic loss per share except that
the
denominator is increased to include the number of additional common shares
that
would have been outstanding if the potential common shares had been issued
and
if the additional common shares were dilutive. Because the Company has
incurred
net losses, basic and diluted loss per share are the same.
-11-
ADVANCED
ENGINE TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
March
31, 2001
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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,
as well as the reported amounts of revenues and expenses during the
reporting
period. Actual results could differ from those estimates.
NOTE
3 - STOCKHOLDERS' EQUITY
The Company offered 1,000,000 shares
of its common stock at $1 per
share
in an offering memorandum pursuant to Rule 504 of Regulation D of the
Securities
Act of 1933. The Company sold 499,200 shares as of June 30, 1997 and
500,800
during the year ended June 30, 1998. As of June 30, 1997, the Company
had
stock subscribed in the amount of $74,000 that was recorded as a receivable
and
subsequently received during the year ended June 30, 1998.
On August 6, 1998, the Company
entered into a joint venture agreement
with
Carroll Shelby under which the Company was to issue 300,000 shares of
restricted
common stock in exchange for services related to possible future
applications
of the engine in a street vehicle that utilizes the OX2 combustion
engine.
These shares were issued in November 1998. They were valued at $525,000
and
expensed as research and development costs. In addition, the Company will
issue
an additional 250,000 shares upon completion of additional tasks relating
to
applications in a vehicle utilizing the OX2 combustion engine. Subsequent to
this
transaction, Carroll Shelby was appointed to the Board of Directors.
In November 1998, the Company issued
25,000 shares of restricted stock
to
purchase patents, copyrights, designs, and prototypes to be used with the
Company's
technology. This transaction was valued at $43,750 and recorded as an
intangible
asset.
In April 1999, the Company issued
400,000 shares of common stock for
$2,000,000
in a private placement. During the third quarter of 1999, the Company
issued
an additional 400,000 shares of common stock to the same party for
$2,000,000
in a private placement.
In June 1999, the Company agreed to
issue 1,000,000 shares of its
common
stock to the University of California Riverside Foundation. The stock is
to
be issued in five annual installments of $200,000 shares each. The first and
second
installments were
-12-
ADVANCED
ENGINE TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
March
31, 2001
NOTE
3 - STOCKHOLDERS' EQUITY (Continued)
issued
in July 1999 and 2000. The donated stock is to provide an endowment for
research
funds for the College of Engineering Center for Environmental Research
and
Technology.
In January 2000, the Company issued
25,000 shares of common stock in
exchange
for services related to the performance testing of the OX2 engine. This
transaction
was valued at $87,500 and was charged to expense.
In August 2000, the Company entered
into a subscription agreement with
a
current shareholder to issue 10,000,000 shares at $1 per share in a private
placement.
On September 6, 2000, the Company issued the stock under subscription
in
exchange for an irrevocable letter of credit in the amount of $10,000,000.
The
Board of Directors may draw on this letter of credit at its discretion. No
interest
is being earned at March 31, 2001.
In addition, in August 2000, the
Company adopted a stock option plan
and
reserved 5,000,000 shares for the plan. As of March 31, 2001, no stock
options
had been granted.
NOTE
4 - RELATED PARTY TRANSACTIONS
The Company paid consulting fees to
its former President, who is also a
stockholder
and former director, in the amount of $293,503 (unaudited) for the
period
from September 23, 1996 (inception) to March 31, 2001, including $29,945
(unaudited)
for the three months ended March 31, 2001, and $3,200 (unaudited)
and
$69,725 (unaudited) for the nine months ended March 31, 2001 and 2000,
respectively.
The Company paid administrative fees
and reimbursed expenses to a
company
that is owned by one of its stockholders in the amount of $117,693
(unaudited)
for the period from September 23, 1996 (inception) to March 31,
2001,
including $10,871 (unaudited) for the three months ended March 31, 2000,
and
$16,123 (unaudited) and $35,820 (unaudited) for the nine months ended March
31,
2001 and 2000, respectively.
The Company has paid research and
development costs and rent to a
company
owned by its current President in the amount of $262,621 (unaudited) for
the
period from September 23, 1996 (inception) to March 31, 2001, including
$97,608
(unaudited) for the three months ended March 31, 2001, and $138,184
(unaudited)
for the nine months ended March 31, 2001. In addition, starting in
May
2000, a monthly salary of $5,000 is paid to the President, who is also a
stockholder
and director.
-13-
ADVANCED
ENGINE TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
March
31, 2001
NOTE
4 - RELATED PARTY TRANSACTIONS (Continued)
The Company has paid or accrued legal
fees and reimbursed expenses,
including
rent, to a company that is owned by its Secretary in the amount of
$314,531
(unaudited) for the period from September 23, 1996 (inception) to March
31,
2001, including $26,944 (unaudited) for the three months ended March 31,
2001,
and $123,547 (unaudited) for the nine months ended March 31, 2001.
The Company has paid for services to
a company that is a stockholder in
the
amount of $71,956 (unaudited) for the period from September 23, 1996
(inception)
to March 31, 2001.
In May 2000, the Company paid engine
development costs to an individual
who
is a stockholder of OX2 in the amount of $300,000.
The Company has an outstanding
receivable from its Secretary relating
to
the cost of building out office space which the Company now uses as its
corporate
headquarters. The Company determined that it did not require as much
office
space as it originally belieived it needed, but this determination was
not
made until after the cost had been incurred. Under these circumstances, the
Company's
Board agreed with its Secretary that the Company would receive a pro
rata
reimbursement of such costs. The receivable reflects this reimbursement,
and
at March 31, 2001 is $21,000.
The Company has an outstanding
receivable from a company owned by its
current
President. The receivable at March 31, 2001 was $22,295 (unaudited).
-14-
Item 2. Management's
Discussion and Analysis or Plan of Operation.
Cautionary
Statement
--------------------
You should read the following
discussion and analysis in conjunction
with
the Financial Statements and related Notes thereto contained elsewhere in
this
Form 10-QSB ("Report"). The information in this Report is not a
complete
description
of our business or the risks associated with an investment in our
common
stock. We urge you to carefully review and consider the various
disclosures
made by us in this Report and in our other reports filed with the
SEC,
including our Annual Report on Securities and Exchange Commission
("SEC")
Form
10-KSB for the year ended June 30, 2000.
The section entitled "Risk Factors" set forth in this
Report and
similar
discussions in our Annual Report on Form 10-KSB for the year ended June
30,
2000 and in our other SEC filings, discuss some of the important risk
factors
that may affect our business, results of operations and financial
condition.
You should carefully consider those risks, in addition to the other
information
in this Report and in our other filings with the SEC, before
deciding
to invest in our company or to maintain or increase your investment.
This Report 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. These statements are not
guarantees
of future performance and are subject to certain risks, uncertainties
and
assumptions that are difficult to predict. Therefore, our actual results
could
differ materially and adversely from those expressed in any
forward-looking
statements as a result of various factors. 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.
Overview
--------
Advanced Engine Technologies, Inc.
("we," "us" or the "Company") was
formed
to develop and commercialize the OX2 internal combustion 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.
Based on its design, we believe our
OX2 engine prototype will be
fuel-efficient,
lightweight, low-emission, multi-fueled and smaller and less
expensive
than conventional internal combustion engines. We also believe that it
will
not have the complex manufacture/production requirements of conventional
internal
combustion engines.
-15-
At the present time only a prototype
of the OX2 internal combustion
engine,
plus additional parts that can be used for engine development or for the
building
of additional prototypes, has been built. The development and testing
of
the prototype are ongoing. 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.
Plan
of Operation
-----------------
We plan to continue the research and
development of our OX2 engine
prototype
during the 2001 fiscal year. We currently have an agreement with
Steven
Manthey, the inventor of the OX2 engine, which provides that Mr. Manthey
will
continue to develop and maintain the OX2 engine prototype. We have an
agreement
with the University of California, Riverside ("UCR"), which provides
that
it will continue to conduct research and development on the OX2 engine
prototype,
in conjunction with us. The research and development at UCR are being
conducted
under the guidance of Dr. Joseph Norbeck (of the CE-CERT program at
UCR)
and Dr. Roberta Nichols, one of our consultants. We are also conducting
research
and development activities in Gardena, California.
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.
Such
marketing activities include demonstrations to prospective original
equipment
manufacturers of products using internal combustion engines and the
development
of additional joint venture partners to assist in marketing the
engine.
In the shorter term, our plans are to
develop an engine for stationary
generator
applications, and in the longer term, we plan to develop an engine for
automobile
and/or aircraft applications.
We expect that our cash flow
requirements to fund general operations in
2001
will total approximately $1,500,000, including outside consulting fees and
expenditures
for equipment. We expect to fund these costs with our cash or cash
equivalent
reserves, which were $455,932 as of March 31, 2001. The Company also
has
available a $10,000,000 Letter of Credit that can be drawn upon at any time
at
the discretion of the Board of Directors. Our cost estimates do not include
provisions
for any contingencies or unexpected expenses that may arise or any
unanticipated
increases in costs. As a result, our cash reserves may not be
adequate
to cover the actual costs of operations in the 2001 fiscal year, in
which
event we will be required to raise additional capital. Historically, we
have
obtained cash through private placements of securities.
Our net loss since inception
(September 23, 1996) is $4,544,049.
Currently, there are no signed
contracts that will produce revenue, and
we
can provide no assurance that management will be successful in negotiating
these
contracts.
-16-
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 are still in progress and are
being conducted in conjunction with
UCR.
Until further testing, research and development have 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, 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 than
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
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
-17-
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. 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
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 have been completed, we
will not have a finished product
to introduce to the market. Thus, if we are unable to 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 March 31,
2001, of $4,544,049. 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 currently have
-------------------------------------------------------
no signed contracts that will produce
revenue, and we do not have an
estimate as to when we
-18-
will be entering into such contracts.
Furthermore, we cannot provide
assurance that management will be
successful in negotiating such contracts.
. 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 a shareholder
vote. As of March 31, 2001,
--------------------------------------------
approximately 74.884% 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.
None.
Item 2. Changes in
Securities and Use of Proceeds.
None.
Item 3. Defaults Upon
Senior Securities.
None.
Item 4. Submission of
Matters to a Vote of Security Holders.
None.
None.
Item 6. Exhibits and
Reports on Form 8-K.
None.
-19-
SIGNATURES
In accordance with the requirements
of the Exchange Act, the registrant
caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Advanced
Engine Technologies, Inc.
----------------------------------
(Registrant)
Date: May 21, 2001 By: /s/ Carroll Shelby
------------ ------------------------------
Carroll Shelby, President
Date: May 21, 2001 By: /s/ M. Neil Cummings
------------ ------------------------------
M. Neil Cummings, Secretary
-20-
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