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, 2002
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to _________
Commission file number 333-82493
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California Molecular Electronics Corp.
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(Exact name of small business is here as specified in its charter)
Arizona
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(State or other jurisdiction of incorporation or
organization)
86-0888087
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(IRS Employer Identification No.)
50 Airport Parkway, San Jose, CA 95110
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(Address of principal executive offices)
(408) 451-8404
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(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,
2002 was 5,290,821.
Transitional Small Business Disclosure Format: Yes [ ] No[X]
CALIFORNIA MOLECULAR ELECTRONICS CORP.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Page
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Balance Sheets as of September 30, 2002 and December 31, 2001. 2
Statements of Operations for the three and nine months ended
September 30, 2002 and 2001. 3
Statements of Cash Flows for the nine months ended September 30,
2002 and 2001. 4
Notes to Financial Statements. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 7
PART II. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALIFORNIA MOLECULAR ELECTRONICS CORP.
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BALANCE SHEET
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September 30 December 31
2002 2001
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(unaudited)
ASSETS
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Current assets:
Cash $ 8,040 $ 94,375
Employee advance 19,655 19,655
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Total current assets 27,695 114,030
Equipment, net 3,548 4,670
Other 1,388 1,388
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$ 32,631 $ 120,088
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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Current liabilities:
Accounts payable and accrued liabilities $ 58,454 $ 23,634
Accrued officer's compensation 195,000 136,500
Loans from officers 10,000 -
Other payable 5,000 5,000
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Total current liabilities 268,454 165,134
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Stockholders' deficit:
Preferred stock, no par value:
Authorized 10 million shares; 39,714 and 33,314
issued and outstanding at September 30, 2002
and December 31, 2001 232,420 196,381
Common stock, no par value:
Authorized 20 million shares; 5,294,281 and
5,186,886 issued and outstanding (including
4,800 treasury shares) at September 30, 2002
and December 31, 2001, respectively 2,732,282 2,341,088
Less: Treasury stock at cost; 4,800 shares at September 30,
2002 and December 31, 2001, respectively (28,800) (28,800)
Accumulated deficit (3,171,725) (2,553,715)
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(235,823) (45,046)
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$ 32,631 $ 120,088
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See accompanying notes to financial statements.
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CALIFORNIA MOLECULAR ELECTRONICS CORP.
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STATEMENT OF OPERATIONS
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(UNAUDITED)
Nine months ended September 30 Three months ended September 30
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2002 2001 2002 2001
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Revenue:
Interest income $ 158 $ 3,153 $ 11 $ 996
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158 3,153 11 996
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Expenses:
Research and development expenses 312,659 175,772 204,099 62,042
Officer's compensation donated to the Company 30,000 30,000 10,000 10,000
Selling, general and administrative expenses 274,659 294,201 85,047 103,787
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Total expenses 617,318 499,973 299,146 175,829
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Loss before state income taxes (617,160) (496,820) (299,135) (174,833)
Provision for state income taxes 850 877 - 827
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Net loss $ (618,010) $ (497,697) $ (299,135) $ (175,660)
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Basic and diluted loss per common share $ (0.12) $ (0.10) $ (0.06) $ (0.03)
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Weighted average number of common shares outstanding 5,224,158 5,127,101 5,255,974 5,140,602
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See accompanying notes to financial statements.
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CALIFORNIA MOLECULAR ELECTRONICS CORP.
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STATEMENT OF CASH FLOWS
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(UNAUDITED)
Nine months ended September 30
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2002 2001
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Operations:
Net loss $ (618,010) $ (497,697)
Items not requiring current use of cash:
Officers' compensation, donated to the Company 30,000 71,550
Depreciation 1,122 1,483
License fees in exchange for stock 150,000 -
Professional fees in exchange for stock 38,970 15,966
Other fees in exchange for option - 570
Compensation paid in stock - 6,000
Changes in other operating items:
Prepaid expenses - 8,247
Accounts payable and accrued liabilities 34,820 (4,542)
Accrued officer's compensation 58,500 -
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Cash used for operating activities (304,598) (398,423)
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Investments:
Furniture and fixtures - (1,960)
Other investment - (388)
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Cash used for investing activities - (2,348)
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Financing:
Issuance of common and preferred stock, net of stock issuance expense 208,263 453,698
Loans from officers 10,000 -
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Cash provided by financing activities 218,263 453,698
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Increase (decrease) in cash (86,335) 52,927
Cash at beginning of period 94,375 120,606
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Cash at end of period $ 8,040 $ 173,533
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Supplemental cash flow disclosures:
Taxes paid $ 850 $ 877
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Interest paid $ 354 $ 292
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See accompanying notes to financial statements.
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CALIFORNIA MOLECULAR ELECTRONICS CORP.
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NOTES TO FINANCIAL STATEMENTS
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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, 2002 are
not necessarily indicative of the operating results expected for the entire
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, 2001.
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 - Equipment:
Equipment is summarized as follows:
September 30 December 31
2002 2001
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Computer equipment $ 9,469 $ 9,469
Less - accumulated depreciation 5,921 4,799
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$ 3,548 $ 4,670
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NOTE 4 - 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, 2002 and 2001, dilutive loss per share excludes
the effect of unexercised options and warrants because the effect would have
been antidilutive.
NOTE 5 - Agreements:
On April 17, 2002, CALMEC entered into a sublicense agreement with a
company which allows the company to use certain technology licensed by CALMEC.
Under the agreement, the company shall use its best efforts to introduce
products and processes to the commercial market using the licensed technology,
and CALMEC will receive royalty payments of 10% of the net sales, as defined by
the agreement, of any product or process sold by the company which uses the
licensed technology.
On September 4, 2002, CALMEC entered into a license agreement with a
university which provides the Company with an exclusive worldwide license to
make, use or sell products using technology owned by the university. The
Company issued 25,000 shares of common stock to the university and two
individuals, the inventors of the technology. The Company reflected the
issuance of common stock in the amount of $150,000 as research and development
costs.
NOTE 6 - Loans from officers:
In July 2002, two officers of the Company each loaned $5,000 to the
Company. These loans are interest free and the officers have agreed to waive any
repayment until the Company has sufficient funds to repay the loans.
NOTE 7 - Stockholders' deficit:
During the first nine months of 2002, warrant holders converted 53,900
warrants to shares of common stock for net proceeds, after stock issuance
expenses, of $165,334. Of these 53,900 warrants converted to shares, 18,500 were
converted at $3.00 per share and 35,400 were converted at $3.50 per share.
On July 1, 2002, the Company commenced a private placement offering of its
stock. The offering allows for the sale of up to 100 "Blocks" at $10,000 per
Block. A Block consists of 1,600 shares of Series B Preferred Stock and one
Rights Package. A Rights Package consists of (1) Right A, expiring 15 days from
the purchase of the Block, to purchase 3,000 shares of CALMEC's common stock for
$10,000, (2) Right B, expiring 15 days from the exercise of Right A, to purchase
6,000 shares of CALMEC's common stock for $10,000 (available only to those who
have exercised Right A), and (3) Right C, expiring 15 days from the exercise of
Right B, to purchase 10,000 shares of CALMEC's common stock for $10,000
(available only to those who have exercised Right B). The maximum value of the
offering is $4 million, before commissions of 10 percent to be paid to broker
dealers and other offering expenses. This offering terminated effective October
31, 2002.
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On July 1, 2002, the Company's Board of Directors authorized the issuance
of up to 160,000 shares of Series B Preferred Stock in connection with the
aforementioned offering. The Series B Preferred Stock has a conversion price of
$6.25 per share and is convertible at the option of the holder into one share of
CALMEC's common stock. Except for the conversion price, the rights and
preferences of the Series B Preferred Stock are identical to CALMEC's Series A
Preferred Stock.
During the quarter ended September 30, 2002, four Blocks were sold. As a
result, the Company issued 6,400 Series B preferred shares and 22,000 common
shares for proceeds of $80,000.
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 out
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.
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The Company continues to be in the initial phase of its existence, and 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, those executive officers currently not receiving their full salaries
will begin receiving full remuneration, 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.
Operations
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Research and development ("R&D") costs were $312,659 for the nine months
ended September 30, 2002 as compared to $175,772 for the nine months ended
September 30, 2001, an increase of $136,887 or 78%. R&D costs were $204,099 for
the three months ended September 30, 2002, as compared to $62,042 for the same
period in the prior year, an increase of $142,057 or 229%. The increase was
primarily related to a license agreement entered into by the Company during the
third quarter of 2002, in which the Company issued 25,000 shares of common stock
($150,000), partially offset by a decrease in R&D related salary and wage
expense.
Officer's compensation donated to the Company was $30,000 for each of the
nine month periods ended September 30, 2002 and 2001, and $10,000 for each of
the three month periods ended September 30, 2002 and 2001.
Selling, general and administrative costs consist primarily of rent,
travel, salaries and wages and other administrative expenses, and were $274,659
for the nine months ended September 30, 2002 as compared to $294,201 for the
nine months ended September 30, 2001, a decrease of $19,542 or 7%. Selling,
general and administrative costs were $85,047 for the three months ended
September 30, 2002, as compared to $103,787 for the same period in the prior
year, a decrease of $18,740 or 18%. The decrease was primarily related to a
reduction in travel expense.
Liquidity and Capital Resources
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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. 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 July 1, 2002, allows for
the sale of up to 100 "Blocks" at $10,000 per Block. A Block consists of 1,600
shares of Series B Preferred Stock and one Rights Package. A Rights Package
consists of (1) Right A, expiring 15 days from the purchase of the Block, to
purchase 3,000 shares of CALMEC's common stock for $10,000, (2) Right B,
expiring 15 days from the exercise of Right A, to purchase 6,000 shares of
CALMEC's common stock for $10,000 (available only to those who have exercised
Right A), and (3) Right C, expiring 15 days from the exercise of Right B, to
purchase 10,000 shares of CALMEC's common stock for $10,000 (available only to
those who have exercised Right B). The maximum value of the offering is $4
million, before commissions of 10 percent to be paid to broker dealers and other
offering expenses. This offering was terminated effective October 31, 2002.
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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 existing 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
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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.
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CALIFORNIA MOLECULAR ELECTRONICS CORP.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of James Marek, Jr. Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
None.
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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: November 12, 2002
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California Molecular Electronics Corp.
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(Registrant)
/s/ James Marek, Jr.
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James Marek, Jr.
President and Chief Executive Officer
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