UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 2001
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to _________
Commission file number 333-82493
---------
California Molecular Electronics Corp.
- --------------------------------------
(Exact name of small business is here as specified in its charter)
Arizona
- -------
(State or other jurisdiction
of incorporation or organization)
86-0888087
- ----------
(IRS Employer Identification No.)
50 Airport Parkway, San Jose, CA 95110
- --------------------------------------
(Address of principal executive offices)
(408) 451-8404
- --------------
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such report(s), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock on October 26,
2001 was 5,151,586.
CALIFORNIA MOLECULAR ELECTRONICS CORP.
INDEX
PART I. FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of December 31, 2000 and September 30, 2001 2
Statements of Operations for the three and nine months ended
September 30, 2001 and 2000. 3
Statement of Stockholders' Equity for the three and nine months
ended September 30, 2001
4
Statements of Cash Flows for the nine months ended September 30,
2001 and 2000. 5
Notes to Financial Statements. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 9
PART II. OTHER INFORMATION 12
SIGNATURES 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALIFORNIA MOLECULAR ELECTRONICS CORP.
--------------------------------------
BALANCE SHEET
-------------
September 30, December 31,
2001 2000
--------------- --------------
(unaudited)
ASSETS
------
Current assets:
Cash $ 173,533 $ 120,606
Employee advance 10,000 10,000
Prepaid expenses - 8,247
--------------- --------------
Total current assets 183,533 138,853
Equipment, net 6,050 5,167
Other 1,388 1,406
--------------- --------------
$ 190,971 $ 145,426
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 18,633 $ 23,175
Other payable 5,000 5,000
--------------- --------------
Total current liabilities 23,633 28,175
--------------- --------------
Stockholders' equity:
Common stock, no par value:
Authorized 20 million shares; 5,149,136 and
5,090,123 issued and outstanding (including
4,800 treasury shares) at September 30, 2001
and December 31, 2000, respectively 2,300,248 1,937,413
Paid-in capital 570
Preferred stock, no par value:
Authorized 10 million shares; 31,314 and
none issued and outstanding at September 30, 2001
and December 31, 2000, respectively 184,381 -
Preferred stock subscribed - 2,000 shares (Note 7) 12,000 -
Stock subscription receivable (Note 7) (12,000) -
Less: Treasury stock at cost; 4,800 shares at September 30,
2001 and December 31, 2000, respectively (28,800) (28,800)
Accumulated deficit (2,289,061) (1,791,362)
--------------- --------------
167,338 117,251
--------------- --------------
$ 190,971 $ 145,426
=============== ==============
See accompanying notes to financial statements.
-2-
CALIFORNIA MOLECULAR ELECTRONICS CORP.
--------------------------------------
STATEMENT OF OPERATIONS
-----------------------
(UNAUDITED)
-----------
Nine months ended September 30, Three months ended September 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Revenue:
Grant income $ - $ 66,666 $ - $ -
Interest income 3,153 8,502 996 3,246
--------------- --------------- --------------- ---------------
3,153 75,168 996 3,246
--------------- --------------- --------------- ---------------
Expenses:
Research and development expenses 216,722 234,666 75,692 79,521
Officers' compensation donated to the Company (Note 5) 71,550 103,600 23,850 24,900
Selling, general and administrative expenses 211,701 223,037 76,287 64,762
--------------- --------------- --------------- ---------------
Total expenses 499,973 561,303 175,829 169,183
--------------- --------------- --------------- ---------------
Loss before state income taxes (496,820) (486,135) (174,833) (165,937)
Provision for state income taxes 877 1,385 827 1,335
--------------- --------------- --------------- ---------------
Net loss $ (497,697) $ (487,520) $ (175,660) $ (167,272)
=============== =============== =============== ===============
Basic and diluted loss per common share $ (0.10) $ (0.10) $ (0.03) $ (0.03)
=============== =============== =============== ===============
Weighted average number of common shares outstanding 5,127,101 5,048,181 5,140,602 5,079,218
=============== =============== =============== ===============
See accompanying notes to financial statements.
-3-
CALIFORNIA MOLECULAR ELECTRONICS CORP.
--------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
(UNAUDITED)
-----------
Common stock Preferred stock
-------------------------------- ------------------
Paid -in Treasury Accumulated
Shares Amount Capital Shares Amount Stock Deficit Total
--------- ----------- -------- ------- --------- --------- ------------ ----------
Balance at December 31, 2000 5,085,323 $1,937,413 $ - $ - $ - $(28,800) $(1,791,362) $ 117,251
Stock issued in public offering 31,232 187,392 - - - - - 187,392
Exercise of warrants 15,120 52,920 - - - - - 52,920
Stock issuance costs - (2,582) - - - - - (2,582)
Officers' compensation donated to the - 23,850 - - - - - 23,850
Company (Note 5)
Net loss - - - - - - (145,045) (145,045)
--------- ----------- -------- ------- --------- --------- ------------ ----------
Balance at March 31, 2001 5,131,675 2,198,993 - - - (28,800) (1,936,407) 233,786
Series A Preferred stock issued in - 18,250 109,500 - - 109,500
private placement offering
Exercise of warrants 7,000 28,000 - - - - - 28,000
Stock issued in exchange for services 575 3,450 - - - - 3,450
Grant of option in exchange - - 570 - - - - 570
for services
Stock issuance costs - (765) - - (1,842) - - (2,607)
Officers' compensation donated to the - 23,850 - - - - - 23,850
Company (Note 5)
Net loss - - - - - - (176,994) (176,994)
--------- ----------- -------- ------- --------- --------- ------------ ----------
Balance at June 30, 2001 5,139,250 $2,253,528 $ 570 18,250 $107,658 $(28,800) $(2,113,401) $ 219,555
========= =========== ======== ======= ========= ========= ============ ==========
Series A Preferred stock issued in - 13,064 78,384 - - 78,384
private placement offering
Exercise of warrants 2,000 5,000 - - - - - 5,000
Stock issued to an employee 1,000 6,000 - - - - 6,000
as compensation
Stock issued in exchange 2,086 12,516 - - - - 12,516
for services
Stock issuance costs - (646) - - (1,661) - - (2,307)
Officers' compensation donated - 23,850 - - - - - 23,850
to the Company (Note 5)
Net loss - - - - - - (175,660) (175,660)
--------- ----------- -------- ------- --------- --------- ------------ ----------
Balance at September 30, 2001 5,144,336 $2,300,248 $ 570 31,314 $184,381 $(28,800) $(2,289,061) $ 167,338
========= =========== ======== ======= ========= ========= ============ ==========
See accompanying notes to financial statements.
-4-
CALIFORNIA MOLECULAR ELECTRONICS CORP.
--------------------------------------
STATEMENT OF CASH FLOWS
-----------------------
(UNAUDITED)
-----------
Nine months ended September 30,
-------------------------------
2001 2000
--------------- --------------
Operations:
Net loss $ (497,697) $ (487,520)
Items not requiring current use of cash:
Officers' compensation, donated to the 71,550 103,600
Company (Note 5)
Depreciation and amortization 1,483 458
Legal fees in exchange for stock 15,966 28,386
Other fees in exchange for option 570
Compensation paid in stock 6,000
Changes in other operating items:
Grant receivable - 33,334
Prepaid expenses 8,247 (6,561)
Accounts payable and accrued liabilities (4,542) 9,090
Deferred grant income - (33,334)
--------------- --------------
Cash used for operating activities (398,423) (352,547)
--------------- --------------
Investments:
Furniture and fixtures (1,960) (4,885)
Other investment (388) (1,000)
--------------- --------------
Cash used by investing activities (2,348) (5,885)
--------------- --------------
Financing:
Issuance of common and preferred stock, net of stock
issuance expense 367,778 492,858
Exercise of common stock warrants 85,920 -
Stockholder advances - (10,000)
--------------- --------------
Cash provided by financing activities 453,698 482,858
--------------- --------------
Increase in cash 52,927 124,426
Cash at beginning of period 120,606 91,993
--------------- --------------
Cash at end of period $ 173,533 $ 216,419
=============== ==============
Supplemental cash flow disclosures:
Taxes paid $ 877 $ 1,385
=============== ==============
Interest paid $ 292 $ 156
=============== ==============
See accompanying notes to financial statements.
-5-
CALIFORNIA MOLECULAR ELECTRONICS CORP.
--------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - Basis of presentation:
The financial statements included herein for California Molecular
Electronics Corp. ("CALMEC" or the "Company") have been prepared by the Company,
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. In management's opinion, the interim financial data
presented includes all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
The results of operations for the nine months ended September 30, 2001 are
not necessarily indicative of the operating results expected for the entire
fiscal year. The financial statements included herein should be read in
conjunction with other documents the Company files from time to time with the
Securities and Exchange Commission, including the Company's Form 10-KSB for the
fiscal year ended December 31, 2000.
NOTE 2 - Use of estimates and reclassifications:
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Certain reclassifications have been made to the prior year financial
statements to conform with the current year financial statement presentation.
Such reclassifications had no effect on net income as previously reported.
NOTE 3 - Loss per share:
Basic and dilutive loss per common share is calculated by dividing the net
loss for the period by the average number of common shares outstanding. For the
nine months ended September 30, 2001 and 2000, dilutive loss per share excludes
the effect of convertible preferred stock and options, because the effect would
have been antidilutive.
NOTE 4 - Leases:
The Company had entered into a cost reimbursable contract with San Jose
State University Foundation ("Foundation") for the period from April 1, 2000
through March 31, 2001, which has been extended through March 31, 2002. The
contract includes advisory services to be provided by the San Jose State
University Department of Chemistry, facilities, supplies and equipment use. The
Foundation shall be reimbursed for costs incurred in providing the
aforementioned items not to exceed a maximum amount of $90,658 over the period
of the contract. The Company also leases office space in Arizona.
-6-
NOTE 5 - Related party transactions:
CALMEC's three officers have devoted 100% of their time to the business of
the Company since their hire in 1997. Planned annual remuneration for the three
officers is as follows: $40,000 - Chairman and Treasurer; $110,000 - President
and Chief Executive Officer; and $120,000 - Executive Vice President and
Secretary. The officers had elected to forego their salaries through December
31, 1999, and certain officers have continued to forego all or a portion of
their salaries through September 30, 2001. As required by the Securities and
Exchange Commission accounting rules, in the accompanying financial statements
the officers' unpaid salaries totaling $23,850 and $31,200 for the quarters
ended September 30, 2001 and 2000, respectively, are reflected as compensation
expense and a credit to common stock, as the Company does not intend to repay
such forfeited salaries in the future. Effective February 2000, the Executive
Vice President and Secretary began to receive a salary for his services.
Effective May 2000, the President and Chief Executive Officer ("CEO") began to
receive a portion of his salary in cash ($1,050 per week) and 250 stock options
per week with an exercise price of $6.00 per share ("Rolling Option"). When the
Board of Directors determines at some point in the future that the Company is
able to pay full cash compensation to the CEO, the CEO has a right to no longer
receive 250 stock options per week and require the Company to issue him shares
of common stock or pay him $6.00 per share, or a combination of the two, based
on the number of unexercised shares under the Rolling Option.
NOTE 6- Grant:
During the first quarter of 2000, the Company received a grant from The
National Science Foundation in the amount of $100,000, to be paid in three equal
installments. The grant was made in support of research to demonstrate the
feasibility of the unique Chiropticene molecular switch. The first installment
of $33,333 was received in January 2000, and was recognized as grant income
during the quarter ended March 31, 2000. The second installment of $33,333 was
received in April 2000, and was recognized as grant income during the quarter
ended June 30, 2000. The third and final installment of $33,334 was received in
the fourth quarter of 2000. The grant has been recognized in earnings in the
period in which the related expenditures were incurred by the Company.
NOTE 7 - Stockholders' Equity
Commencing January 26, 2001, as an inducement for warrant holders to
exercise their warrants, existing warrant holders were able to exercise their
warrants at a price of $3.50 a share before March 1, 2001 and at a price of
$4.00 a share after March 1, 2001, but before April 30, 2001. After April 30,
2001, the exercise price of the warrants returned to $5.00 a share. If a warrant
holder exercised all of their warrants prior to April 30, 2001, the Company
issued the warrant holder new warrants in the same number of shares as the
original warrant at an exercise price of $3.25 a share and expiring on November
30, 2001. Warrant holders who obtained these warrants expiring on November 30,
2001 and exercise them will be issued another and final warrant in the same
number of shares as the original warrant with an exercise price of $3.00 a share
and expiring on May 31, 2002.
-7-
On March 25, 2001, the Company commenced a private placement offering to
sell 200,000 units at $6.00 per unit. A unit is comprised of one share of
Series A Preferred Stock, one warrant for one common share exercisable through
October 31, 2001 at $2.50 per share, and one warrant to purchase an additional
common share at $3.50 per share, through April 30, 2002. During the quarter
ended September 30, 2001, the Company sold 13,064 units for $78,384, and warrant
holders exercised 2,000 warrants for $5,000.
The private placement closed on October 1, 2001. Certain investors entered
into arrangements to purchase 2,000 shares of preferred stock prior to the
closing of the private placement, but the stock had not been issued and the cash
had not been received prior to the private placement closing. This transaction
has been reflected in the accompanying financial statements as stock
subscription receivable and preferred stock subscribed in the amounts of
$12,000.
The Series A Preferred Stock has a conversion price of $6.00 per share and
is convertible at the option of the holder into one share of common stock. The
conversion price of the Series A Preferred Stock is subject to adjustment from
time to time upon certain events, such as common stock dividends. The Series A
Preferred Stock outstanding will automatically be converted into common stock at
the then effective conversion price (a) immediately upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
capital stock of the Company in which the proceeds received by the Company, net
of underwriting discounts and commissions, equal or exceed $15 million, or (b)
immediately upon the vote of a majority of the shares of the Series A Preferred
Stock outstanding on the date of such vote. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, holders of
the Series A Preferred Stock then outstanding are entitled to be paid, out of
the assets of the Company available for distribution to its stockholders, before
any payments are to be made to holders of the Company's common stock.
On May 1, 2001 the Company granted to a non-employee an option, under the
CALMEC's 1997 Stock Option Plan, to purchase 634 shares of the Company's common
stock at an exercise price of $5.10 per share, which represents 85% of the fair
market value of a share of common stock at the date of grant as determined by
the Company's Board of Directors. The fair value of the option at date of grant
totaled $570, which is reflected in selling, general and administrative expense
and additional paid-in capital on the accompanying financial statements.
During the quarter ended September 30, 2001, the Company issued 2,086
shares of common stock in exchange for professional services and 1,000 shares of
common stock as additional compensation to an employee.
-8-
CALIFORNIA MOLECULAR ELECTRONICS CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
FORWARD-LOOKING STATEMENTS
From time to time, statements made by California Molecular Electronics Corp.'s
("CALMEC" or the "Company") employees or information included in CALMEC's
filings with the Securities and Exchange Commission (including this Form 10-QSB)
may contain statements that are not historical facts, so called "forward-looking
statements," which are subject to risks and uncertainties that could cause
actual results to differ materially. Forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. When used in this Form 10-QSB, the terms "anticipates,"
"expects," "estimates," "believes," and other similar terms as they relate to
CALMEC or its management are intended to identify such forward-looking
statements. For example, statements made herein relating to acquiring
intellectual property, marketing intellectual property to potential customers,
maintaining commercial acceptance of our products, and anticipated growth of our
target markets are forward-looking statements. Because these forward-looking
statements involve risk and uncertainties, actual results could differ
materially from those expressed or implied by these forward-looking statements
for a number of reasons, including those discussed in the section entitled "Risk
Factors" of CALMEC's Form SB-2 filed with the Securities and Exchange Commission
on January 31, 2000. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. CALMEC
undertakes no obligation to update or revise these statements.
OVERVIEW
CALMEC was formed to engage primarily in the business of producing and selling
products and services related to the new technological field of molecular
electronics. Molecular electronics is the technology of using single molecules
to form components of electronic devices.
The Company continues to be in the initial phase of its existence, and through
December 31, 1999, CALMEC's three officers had elected to forego their salaries.
Commencing February 2000, the Executive Vice President and Secretary began
receiving remuneration for his services and the President and Chief Executive
Officer began to receive a portion of his salary commencing May 2000. The
Company will transition from the initial phase to the operational phase when the
Board of Directors has determined sufficient capital has been accumulated to do
so. At that time, all employees and executive officers will receive salaries,
additional space will be leased, capital equipment will be purchased, and other
operating expenses will be incurred. Prior to that time, activities will be
restricted to low cost activities that will keep the Company within its cash
resources.
-9-
In the second quarter of 1999, the Company started paying salaries to two
chemists to perform research. Also in the second quarter of 1999, CALMEC began
leasing lab space from San Jose State University for the purpose of housing
these chemists and developing Chiropticene demonstration chemistry. The lease
ran through March 31, 2000, and the Company has renegotiated with San Jose State
University to extend the lease until March 31, 2001, and then again until March
31, 2002.
On January 31, 2000, CALMEC filed a Form SB-2, Registration Statement under the
Securities Act of 1933, with the Securities and Exchange Commission ("SEC"). On
February 7, 2000, the Registration Statement became effective and CALMEC
commenced its sale of up to 1,000,000 shares of common stock at $6.00 per share.
CALMEC planned to raise $6 million with this offering, before payment of
estimated offering expenses of $50,000. Subsequent to the effective date of the
Registration Statement through February 28, 2001, CALMEC sold 120,239 shares of
its common stock, for a total aggregate price of $721,434. The Company
terminated the sale of its common stock under the Registration Statement on
February 28, 2001.
Operations
- ----------
The Company was in the development stage during 1999, and had no revenues
from operations. During the first quarter of 2000, the Company received a grant
from The National Science Foundation in the amount of $100,000, which was paid
in three equal installments. The grant supported research to demonstrate the
feasibility of the unique Chiropticene molecular switch. The first installment
of $33,333 was received in January 2000, and was recognized as grant income
during the quarter ended March 31, 2000. The second installment of $33,333 was
received in April 2000, and was recognized as grant income during the quarter
ended June 30, 2000. The third and final installment of $33,334 was recognized
during the fourth quarter of 2000. The grant has been recognized in earnings in
the period in which the related expenditures were incurred by the Company. No
income other than interest income was recorded in 2001.
Research and development ("R&D") costs were $216,722 for the nine months
ended September 30, 2001 as compared to $234,666 for the nine months ended
September 30, 2000, a decrease of $17,944 or 8%. R&D costs were $75,692 for the
three months ended September 30, 2001, as compared to $79,521 for the same
period in the prior year, a decrease of $3,829 or 5%. The decrease was
primarily related to a decrease in R&D related salary and wage expense.
Officers' compensation donated to the Company was $71,550 and $103,600 for
the nine months ended September 30, 2001 and 2000, respectively, a decrease of
$32,050 or 31%. Officers' compensation donated to the Company was $23,850 for
the three months ended September 30, 2001, as compared to $24,900 for the same
period in the prior year, a decrease of $1,050 or 4%, entirely related to the
fact that certain of the officers began receiving payment for all or a portion
of their salary during 2000.
-10-
In 1999, the Company was still considered to be in the development stage,
and costs other than R&D and Officers' compensation donated to the Company were
considered to be preoperating expenses. During the year 2000 the Company earned
revenue, and therefore is no longer considered to be in the development stage,
and costs other than R&D and Officers' compensation donated to the Company are
recorded as selling, general and administrative costs. Selling, general and
administrative costs consist primarily of rent, travel and other administrative
expenses, and were $211,701 and $223,037 for the nine months ended September 30,
2001 and 2000, respectively, a decrease of $11,336 or 5%. Selling, general and
administrative costs were $76,287 and $64,762 for the three months ended
September 30, 2001 and 2000, respectively, an increase of $11,525 or 18%. The
increase was primarily related to an increase in professional fees.
Liquidity and Capital Resources
- ----------------------------------
The full extent of CALMEC's future capital requirements and the adequacy of
its available funds will depend on many factors, not all of which can be
accurately predicted. Although no assurance can be given, the Company believes
it can continue to operate in its present status for at least the next twelve
months. After terminating its sale of common stock effective February 28, 2001
under its public offering which became effective on February 7, 2000, the
Company has undertaken additional and new activities to develop certain products
using the Company's technology. The Company is aggressively pursuing industrial
and venture capital funds, as well as a private placement offering, in order to
develop this technology. The private placement, which commenced on March 25,
2001, will attempt to sell 200,000 units at $6.00 per unit. A unit would be
comprised of one share of Series A Preferred Stock, one warrant for one common
share exercisable through October 31, 2001 at $2.50 per share, and one warrant
to purchase an additional common share at $3.50 per share, through April 30,
2002. As of September 30, 2001, the Company has sold 31,314 units for $187,884.
The private placement offering closed as of October 1, 2001.
In the event that additional capital is required, CALMEC may seek to raise
that capital through public or private equity or debt financings. Future
capital funding transactions may result in dilution to stockholders.
There can be no assurance that additional capital will be available on
favorable terms, if at all. CALMEC's inability to obtain additional capital on
acceptable terms could limit its ability to meet its plan of operation.
Hiring of employees
- ---------------------
CALMEC will transition from its initial phase to its operational phase when
its accumulated cash balances permit it to do so according to the business
judgment of management. At that time, employees currently working without pay or
for partial pay will begin receiving full compensation. Regardless of when that
time occurs, the Company has already hired and is supporting the lab work of a
chemist, and is paying one of the executive officers full compensation, and
another executive officer a portion of his compensation.
-11-
CALIFORNIA MOLECULAR ELECTRONICS CORP.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K.
None.
-12-
CALIFORNIA MOLECULAR ELECTRONICS CORP.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: October 26, 2001
- -------------------------
California Molecular Electronics Corp.
- -----------------------------------------
(Registrant)
- -----------------------------------------
James Marek, Jr.
President and Chief Executive Officer
-13-