ADVANCE ENGINE TECHNOLOGIES INC.(A DEVELOPMENT STAGE COMPANY)FINANCIAL REPORT JUNE 30, 1998
ADVANCE ENGINE TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Page
Independent auditors' Report 1
Financial statements
Balance Sheet 2
Statement of Operations 3
Statement of Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Neff & Company LLP
Independent Auditors' Report
Advanced Engine Technologies, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Advanced Engine Technologies, Inc. (a subsidiary of OX@
Engine (Distribution) LTD. And a development stage company) as of June 30, 1998, and the related statements of
operations, stockholders ' equity, and cash flows for the year then ended and for the period from September
23, 1996, (inception) through June 30, 1998. These financial statements are the responsibility of
Company's Management. Our responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Advanced Engine Technologies, Inc. as of June 30,1998 and the results of its operations and its cash flows
for the year then ended and from September 23, 1996 (inception) to June 30, 1998, in conformity with generally accepted
accounting principles.
Albuquerque, New Mexico
August 28, 1998
Certified Public Accountants - 7001 Prospect Place NE - Albuquerque, NM 67110
(505) 883-6612 - Fax (505)884-3409
ADVANCE ENGINE TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
June 30, 1998
ASSETS
CURRENT ASSETS
Cash $545,435
FIXED ASSETS
Equipment and furniture 21,782
Less accumulated depreciation (1,802)
Total fixed assets 19,980
Total assets $ 565,415
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 31,283
COMMITMENTS AND CONTINDENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock-50,000,000 shares authorized,
21,600,000 issued and outstanding; $.0001 value 2,160
Additional paid-in capital 1,005,840
Deficit accumulated during the developmental stage (473,868)
Total stockholders' equity 534,132
Total liabilities and stockholders' equity $ 565,415
The Notes to the Financial Statements are an integral part of these statements
ADVANCE ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENTAL STAGE COMPANY)
STATEMENT OF OPERATIONS
Year Ended June 30, 1998 and the
Period from September 23, 1996 (Inception)
Through June 30 1998
September 23,
1996
For the Year (Inception)
Ended Through
June 30, June 30,
1998 1998
Operating Expenses $ 333,601 498,284
Income (loss) (333,601) (498,284)
Interest Income 23,966 450
Net loss $ (309,635) (473,868)
Basic net loss per share $ (.014) (.024)
Weighted average number of common shares outstanding 21,487,200 20,178,362
The Notes to the Financial Statements are an integral part of these statements
ADVANCE ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENTAL STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended June 30, 1998 and the
Period from September 23, 1996 (Inception)
Through June 30 1998
Equity
(Deficit)
Accumulated
During the
Common Stock Additional Development
Shares Amount Paid-in Capital Stage Total
Issuance of common stock
to parent corporation for
license rights (Note 3) 20,000,000 $ 2,000 - - 2,000
Issuance of common
stock for services (note 3) 600,000 60 5,940 - 6,000
Issuance of common stock
for services (note 5) 499,200 50 499,150 - 499,200
Net loss - - - (164,233) (164,233)
Balance, June 30, 1997 21,099,200 2,110 505,090 (164,233) 342,967
Issuance of common stock
for cash (note 5) 500,800 50 500,750 - 500,800
Net loss - - - (309,635) (309,635)
Balance, June 30, 1998 21,600,000 $ 2,160 1,005,840 (473,868) 534,132
The Notes to the Financial Statements are an integral part of these statements
ADVANCE ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENTAL STAGE COMPANY)
STATEMENT OF CASH FLOWS
Year Ended June 30, 1998 and the
Period from September 23, 1996 (Inception)
Through June 30 1998
September
23, 1996
(Inception)
Through
June 30, June 30,
1998 1998
Reconciliation of net losses to net cash provided by operation:
Net loss $(309,635) (473,868)
Depreciation 1,802 1,802
Issuance of common stock for services and license rights - 8,000
Changes in current assets and liabilities:
Stock subscriptions receivable 74,000 -
Accounts payable 27,228 31,283
Net cash flows applied to operating activities (206,605) 432,783
Cash flows from investing activities:
Equipment purchases (21,782) (21,782)
Cash flows from financing activities:
Issuance of common stock 500,800 1,000,000
Loan proceeds - 50,000
Loan payments (50,000) (50,000)
Net cash flow provided by financing activities 450,800 1,000,000
Net increase in cash 222,413 545,435
Cash at beginning of period 323,022 -
Cash at end of period $ 545,435 545,435
The Notes to the Financial Statements are an integral part of these statements
ADVANCE ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
NOTE 1. NATURE OF BUSINESS
Advanced Engine Technologies, Inc. (the company), a subsidiary of OX2 Engine (Distribution) Ltd., was incorporated
under the law of Colorado and began operation on September 23, 1996. The company was formed to acquire the rights to
manufacture distribute and market an OX2 Engine combustion engine throughout the United States, Canada, and Mexico.
On October 18, 1996 the Company entered into a contract with OX2 Engine (Distribution) Ltd., (OX2) a company
incorporated in the Republic of Vanuatu, whereby the Company acquired the rights to manufacture, distribute and market
the OX2 combustion engine. As part of this contract the Company issued 20,000,000 shares of its common stock and
will issue an additional 19,000,000 upon the completion of certain tests. In addition, OX2 has the right to appoint
two of the Company's three directors. As of June 30, 1998, OX2 owned approximately 62 percent of the Company's
outstanding shares. Accordingly, the accompanying financial statements represent the separated financial statements
of a subsidiary company.
As of June 30, 1998, the Company's operations consisted of obtaining capital and marketing the OX2 combustion engine.
Management does not expect to generate significant sales revenue until fiscal year 1999. Accordingly, planned principal
operations have not commenced and the Company is a developmental stage enterprise.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 is deposited in a Colorado financial institution and is
insured only up to $100,000 by the Federal Deposit Insurance Corporation.
Fixed Assets. Fixed assets are stated at cost. Depreciation expense is calculated using the straight-line method over the
estimated useful lives of the assets, which rang from 5 to 10 years.
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 o f any net operating loss carryforwards or
deductible temporary differences.
Advertising Costs. The Company expenses advertising costs as incurred. Advertising costs amounted to $41,808
for the year ended June 30, 1998 and $88,356 from September 23, 1996 (inception) to June 30, 1998.
Loss per share. Loss per share is computed on the basis of the weighted average number of common shares outstanding
during the year and does 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.
ADVANCE ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NOTE 3. RELATED PARTY TRANSACTIONS
In April 1996 the Company issued a convertible note to a director in the amount of $50,000. This note was repaid in
September of 1997.
The Company paid consulting fees to its President, who is also a shareholder in the amount of $128,698 from September
of 1996 (inception) to June 30, 1998 including $69,790 for the year ended June 30, 1998.
The Company paid administrative fees and reimbursed expenses to a company that is owned by one of its shareholders
in the amount of $18,717 from September 23, 1996 (inception) to June 30, 1998 including $15,700 for the year ended June
30, 1998.
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.
Also in October 1996, the Company entered into a contract with OX2 (Distribution) Ltd. (OX2) 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 world wide patent. As part of this contract the Company issued 20,000,000 shares of its common stock and will
issue an additional 19,000,000 upon the completion of emission tests. The Company is also to pay a royalty of 15 percent of
the gross proceeds of its revenue in its territory and 75 percent for sales outside the territory. In addition, OX2 has the
right to appoint two of the Company's three directors. As of June 30, 1998, OX2 owned approximately 62 percent of the
Company's outstanding shares and OX2 has appointed one director who is also the Company's President.
NOTE 4. INCOME TAXES
At June 30, 1998 the Company had deferred tax assets amounting to approximately $180,000. The deferred tax assets consist
primarily of the tax benefit of net operation 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 $70,000 in 1998. The net
change is due primarily to the increase in net operation loss carryforwards.
ADVANCE ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENTAL STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
NOTE 4. INCOME TAXES (CONTINUED)
At June 30, 1998 the Company had net operation loss carryforwards of approximately $450,000 available to offset future
state and federal taxable income. These carryforwards will expire in 2017 and 2018 for federal tax purposes and 2002 and
2003 for state tax purposes.
NOTE 5. COMMON STOCK
The company offered on million shares of its common stock at the price of one dollar per share in an offering memorandum
pursuant to Rule 504 Regulation D of the Securities Act of 1933. The Company sold 499,200 shares as of June 30, 1998 and
500,800 shares during fiscal year 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 in fiscal year 1998.
On August 6, 1998, the Company entered into a joint venture agreement with Carroll Shelby under which the company issued
300,000 shares of common stock in exchange for the design and production of a street vehicle that utilized the OX2
combustion engine. In addition, the Company will issue an additional 250,000 shares upon completion of the vehicle utilizing
the OX2 combustion |
