UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number: 0-5014
AEROTELESIS, INC.
----------------
(Name of Small Business Issuer in its charter)
Delaware 95-2554669
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1554 S Sepulveda Blvd. Suite 118, Los Angeles, CA 90025
(Address of principal executive offices)(Zip Code)
Issuer's telephone number: (310) 235-1727
Indicate by check mark if the registrant (1) has 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 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. x Yes ___ 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 number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at June 30, 2004
Common Stock, $.00008 83,085,945 shares
-----------------
par value Outstanding Securities
Transitional Small Business Disclosure Format (check one): Yes[] No[x]
AEROTELESIS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited financial statements are presented in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-QSB and Item 310 under subpart A of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying statements should be read in conjunction with the audited
financial statements for the year ended March 31, 2004. In the opinion of
management, all adjustments (consisting only of normal occurring accruals)
considered necessary in order to make the financial statements not misleading,
have been included. Operating results for the three months ended June 30, 2003
are not necessarily indicative of results that may be expected for the year
ending March 31, 2005. The financial statements are presented on the accrual
basis.
AEROTELESIS INC.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
Deficit
Accumulated
Preferred Common During the
Common Preferred $0.0001 $0.00008 Paid-In Development Accumulated Stockholders'
Shares Shares Par Value Par Value Capital Stage Deficit Equity
------------- ---------------------- ------------ ----------------------- ------------ -------------
Balance, April 1, 2002 5,474,826 - - 438 973,017 (979,515)# (6,060)
---------------------------------------------------------------------------------------------------------
Net Income 82,946 82,946
------------- ---------- ---------- ------------ ------------- ------------ -------------
Balance, March 31, 2003 5,474,826 - - 438 973,017 (896,569)# 76,886
---------------------------------------------------------------------------------------------------------
Prior capital replaced
by aeroTelesis (438) (16,102) (16,540)
Philippines capital
under reverse
takeover accounting
Transferred to
Additional Paid in Capital (912,671) 912,671 -
Curent capital replaced
by aeroTeles 75,000,000 6,000 1,606,225 1,612,225
Philippines capital
upon consolidation
under reverse
takeover accounting
March 1, 2004
Stock Issued for
License Agreements 200,000 16 999,984 1,000,000
March 31, 2004
Stock Issued for Debt 613,832 49 613,783 613,832
Net Loss (581,684) - (581,684)
---------------------------------------------------------------------------------------------------------
Balance, March 31, 2004 81,288,658 6,065 3,280,338 (581,684) - 2,704,719
=========================================================================================================
June 16, 2004
Stock Dividend 1,610,174 129 (129) -
June 30, 2004
Stock Issued for Debt 187,113 15 187,098 187,113
Net Loss (162,952) (162,952)
---------------------------------------------------------------------------------------------------------
Balance, March 31, 2004 83,085,945 6,209 3,467,307 (744,636) - 2,728,880
=========================================================================================================
1
AEROTELESIS, INC.
BALANCE SHEETS
(UNAUDITED)
JUNE 30 MARCH 31
2004 2004
----------- -----------
ASSETS
Current Assets:
Cash $ 19,161 $ 10,687
Accounts Receivable 23,500 --
Prepaid Expenses 975 1,463
----------- -----------
Total Current Assets 43,636 12,150
Fixed Assets:
Furniture & Equipment, net 63,042 37,239
Other Assets:
Deposit 18,468 17,832
License 2,698,781 2,698,781
----------- -----------
Total Other Assets 2,717,249 2,716,613
----------- -----------
Total Assets $ 2,823,927 $ 2,766,002
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 95,047 $ 61,283
----------- -----------
Total Current Liabilities 95,047 61,283
Commitments and Contigencies -- --
Stockholders' Equity
Preferred Stock, $.0001 par value, 2,000,000 shares -- --
authorized; none issued and outstanding
Common stock, $.00008 par value, 200,000,000 shares 6,209 6,065
authorized; 83,085,945 and 81,288,658 shares issued and
outstanding
Additional paid-in capital 3,467,307 3,280,338
Accumulated deficit during the development stage (744,636) (581,684)
----------- -----------
Total Stockholders' Equity 2,728,880 2,704,719
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,823,927 $ 2,766,002
=========== ===========
2
AEROTELESIS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30 June 30
------------ ------------
2004 2003
------------ ------------
Revenues:
Revenue $ 121,010 $ --
------------ ------------
Total revenues 121,010 --
Operating Expenses:
Legal & Professional Fees 128,900 12,553
Rent 26,261
Salaries 43,537
Travel 43,742
General and Administrative 41,522 --
------------ ------------
283,962 12,553
------------ ------------
Income (Loss) from operations (162,952) (12,553)
------------ ------------
Provision for Income Taxes:
Income Tax Benefit (Expense) -- --
Net Income (Loss) $ (162,952) $ (12,553)
============ ============
Loss per common share:
From operations $ (0.00) $ (0.00)
------------ ------------
Weighted average common shares outstanding 81,550,720 5,474,826
============ ============
3
AEROTELESIS, INC.
Statements of Cash Flows
(Unaudited)
Three Months Ended
June 30 June 30
--------- ---------
2004 2003
--------- ---------
Cash Flows from Operating Activities:
Net Income $(162,952) $ (12,553)
Adjustments to Reconcile net loss to net cash
provided by (used in) operating activities:
Changes in operating assets and liabilities:
Accounts Payable 33,764 --
Prepaid Expenses 488
Deposit (636) --
Accounts Receivable (23,500) --
--------- ---------
Net Cash provided by (used in) Operating Activities $(152,836) $ (12,553)
Cash Flows from Investing Activities:
Fixed Assets (25,803) --
--------- ---------
Net Cash provided by (used in) Investing Activities $ (25,803) $ --
Cash Flows from Financing Activities:
Common Stock 187,113 15,000
--------- ---------
Net Cash provided by (used in) Financing Activities $ 187,113 $ 15,000
Net Increase (Decrease) in cash and cash equivalents 8,474 2,447
Cash at beginning of period $ 10,687 $ 2,989
========= =========
Cash at end of period $ 19,161 $ 5,436
========= =========
Supplemental disclosure:
Total interest paid $ -- $ --
========= =========
4
AeroTelesis, Inc.
Notes to Financial Statements
June 30, 2004
NOTE 1- BASIS OF PRESENTATION
GENERAL
The consolidated unaudited interim financial statements of the Company as of
June 30, 2004 and for the three months ended June 30, 2004 and 2003, included
herein have been prepared in accordance with the instructions for Form 10QSB
under the Securities Exchange Act of 1934, as amended, and Article 10 of
Regulation S-X under the Securities Act of 1933, as amended. The March 31, 2004
Balance Sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations relating
to interim consolidated financial statements.
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
at June 30, 2004 and March 31, 2004, and the results of their operations for the
three months ended June 30, 2004 and 2003, and their cash flows for the three
months ended June 30, 2004 and 2003.
The results of operations for such periods are not necessarily indicative of
results expected for the full year or for any future period. These financial
statements should be read in conjunction with the audited financial statements
as of March 31, 2004 and related notes included in the Company's Form 10-KSB
filed with the Securities and Exchange Commission
ORGANIZATION
AeroTelesis, Inc. ("the Company") was incorporated under the laws of the State
of Delaware in 1968 for the purpose to promote and carry on any lawful business
for which a corporation may be incorporated under the laws of the State of
Delaware. The company has a total of 200,000,000 authorized common shares with a
par value of $.00008 and 2,000,000 preferred shares with a par value of $.001
per share and with 83,085,945 common shares issued and outstanding and no
preferred shares issued and outstanding as of June 30, 2004. The Company filed
an amendment of its Certificate of Incorporation with the State of Delaware to
increase the authorized shares from 20,000,000 authorized common shares to
200,000,000 authorized shares and to change its par value from $.0001 to $.00008
in March 2003. Also, on September 12, 2003, the Company approved a one-to-two
forward stock split of the common stock shares. Additionally, the Company, on
October 22, 2003, filed an amendment to the Articles of Incorporation with the
State of Delaware to change the name of the Company to AeroTelesis, Inc.
BASIS OF PREPARATION AND PRESENTATION:
The accompanying consolidated financial statements have been prepared to reflect
the legal acquisition on October 2, 2003 of aeroTelesis Philippines Inc ("ATP")
by aeroTelesis Inc.. formerly Pacific Realm Inc. ("Company") (the
"Acquisition"). The consolidated financial statements of the Company give effect
to the Acquisition under which the shareholders of ATP exchanged all of their
common shares of ATP for common shares of the Company.
Notwithstanding its legal form, the Acquisition has been accounted for as a
reverse takeover, as the former shareholders of ATP own in aggregate
approximately 90% of the common shares of the Company, and so are now the
majority shareholders of the Company. Also, as the Company was a company with
nominal net non-monetary assets, the Acquisition has been accounted for as an
5
AeroTelesis, Inc.
Notes to Financial Statements
June 30, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)
BASIS OF PREPARATION AND PRESENTATION (CON'T)
issuance of stock by the Company accompanied by a recapitalization
As required under reverse takeover accounting, these financial statements have
been issued under the name of the Company and reflect the share capital
structure of ATP. However, they reflect the financial statements of ATP and
account for the Acquisition as an acquisition of the Company by ATP. The
consolidated financial statements therefore include:
(a) a consolidated balance sheet prepared from the unaudited balance sheets
of the Company and ATP at June 30, 2004.
(b) consolidated statements of operations, cash flows and changes in
shareholders' equity (deficit) prepared from the unaudited statements
of operations, cash flows and changes in shareholders' equity (deficit)
of the Company for the three months ended June 30, 2004 and the three
months ended June 30, 2003 for ATP. The results of operations and cash
flows changes in shareholders' equity (deficit) of the Company and ATP
are included commencing October 3, 2003, the date of the Acquisition.
ACCOUNTING METHOD
The Company's financial statements are prepared using the accrual method of
accounting. Revenues are recognized when consulting engagements have been earned
and completed and expenses when incurred on the related consulting engagements.
Since the consulting engagements are usually less than one year, the Company
recognizes its revenues when the engagements are completed. This method is used
because the typical contract is completed in six months or less and does not
contain a refund provision in the contract. An engagement is considered complete
when all costs except significant items have been incurred. Revenues from time
contracts are recognized currently as the work is performed. Losses on contract
are recognized by expenses the actual expenses on the completed job.
EARNINGS PER COMMON SHARE
The Company adopted Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which simplifies the computation of earnings per share requiring the
restatement of all prior periods.
Basic earnings per share are computed on the basis of the weighted average
number of common shares outstanding during each year.
Diluted earnings per share are computed on the basis of the weighted average
number of common shares and dilutive securities outstanding. Dilutive securities
having an anti-dilutive effect on diluted earnings per share are excluded from
the calculation.
6
NOTE 2 - COMMON STOCK
The company has a total of 200,000,000 authorized common shares and 2,000,000
preferred shares with a par value of $.00008 per share and with 80,474,826
common shares issued and outstanding and no preferred shares issued and
outstanding as of June 30, 2003.
In August 2002, the Board of Directors authorized a 20 to 1 reverse split of the
Company's common stock. In January 2003, the Board of Directors authorized a 3
to 1 forward split of the Company's common stock. The result of this forward
split increased the outstanding shares from to 911,356 outstanding common shares
to 2,737,413 outstanding common shares after adjusting for fractional shares.
On September 12, 2003, the Board of Directors authorized a 1 to 2 forward split
of the Company's common stock. The result of this forward split increased the
outstanding shares from to 2,737,413 outstanding common shares to 5,474,826
outstanding common shares after adjusting for fractional shares. These financial
statements reflect this forward split of common shares.
On October 2, 2003, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with AeroTelesis Ltd. ("ATL"), a British Virgin
Islands company, whereby the Company issued 75,000,000 shares of "restricted
securities" (common stock) to ATL in exchange for, among other things, all
assets and operations of ATL's wholly-owned subsidiary, AeroTelesis Philippines,
Inc. ("ATP"), a British Virgin Islands company, in consideration of the exchange
of 100% of the issued and outstanding shares of ATP. ATL also gave a right of
first refusal to the Company to acquire operations in other developing nations,
primarily in Southeast Asia, Central and South America and the Middle East. The
shares to be issued to ATL amount to approximately 92% in the aggregate of the
post-Agreement outstanding voting securities of the Company.
In March of 2004, the Company issued 200,000 shares of common stock for the
license to use the USM technology for wireless telephony services and satellite
communication services in the Republic of Philippines..
On March 31, 2004, the Company agreed to issue 613,832 shares of common stock to
Nations Mobile Network Ltd. ("Nations"). to convert the outstanding balance of
the advances on the line of credit along with accrued interest to equity.
The Company issued a stock dividend effect June 16, 2004. A total of 1,610,174
shares were issued. The shares were recorded at par value since the retained
earnings is at a deficit.
On June 30, 2004, the Company agreed to issue 187,113 shares of common stock to
Nations Mobile Network Ltd. ("Nations"). to convert the outstanding balance of
the advances on the line of credit along with accrued interest to equity.
7
AEROTELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
NOTE 3 - LONG TERM DEBT
On September 25, 2003, the Company entered into a loan agreement with Nations
for a line of credit up to $1,000,000 for a period of twelve months as a working
capital loan. The loan agreement contained an interest provision of 7% to be
accrued quarterly. The Company issued warrants (at fair vaule on the commitment
date) to Nations for 1,000,000 shares to be used to convert the debt to common
stock at the rate of $1.00 per share. These warrants were valued using the Black
Scholes option pricing model; the relative fair value was insigificant when
granted. On June 30, 2004, the Company issued 187,113 shares of common stock for
the outstanding principle and accrued interest.
NOTE 4 - COMMITMENT AND CONTINGENCIES
The Company has not recognized any commitments or contingencies at this time.
NOTE 5 - SUBSEQUENT EVENTS
There are no other subsequent events that warrant disclosure in these financial
statements.
[ THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
8
Item 2. Management's Discussion and Analysis or Plan of Operation
Except for disclosures that report the Company's historical results, the
statements set forth in this section are forward-looking statements. Actual
results may differ materially from those projected in the forward-looking
statements. Additional information concerning factors that may cause actual
results to differ materially from those in the forward-looking statements are in
the Company's annual report on Form 10-KSB for the year ended March 31, 2004 and
in the Company's other filings with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company assumes no
obligation to update any forward-looking statements or comments on the reasons
why actual results may differ there from.
Results of Operations
The Company realized a net loss of ($162,952) from operations for the
three month period ended June 30, 2004 compared to a net loss of ($12,553) for
the three month period ended June 30, 2003. The difference in results for this
three month period as compared to the prior year is due to the Company's
increased operating expenses for the quarter compared to the prior year. For the
three month period ended June 30, 2004, the Company had revenue of approximately
$121,000, composed of consulting income compared to no revenues for the three
month period ended June 30, 2003. The net profit per share for the three month
period ended June 30, 2004 was nil per share compared to a net profit per share
of nil for the three month period ended June 30, 2003.
The Company had costs and expenses of approximately $284,000 for the three
month period ended June 30, 2004 compared to costs and expenses of approximately
$13,000 for the three month period ended June 30, 2003. The Company's expenses
consist of legal and professional fees, including consulting fees, of
approximately $129,000, rent of approximately $26,000, salary expenses of
approximately $44,000, travel expenses of approximately $44,000 and general and
administrative expenses of approximately $42,000.
The Company's assets at June 30, 2004 were $2,823,927 compared to assets
of $2,766,002 at March 31, 2004. The difference is due to the Company's
acquisition of furniture and equipment during the quarter as well as the
Company's accounts receivables for the quarter. At June 30, 2004, the Company's
current assets were comprised of cash of approximately $19,000, $975 in prepaid
expenses and accounts receivable of $23,500 compared to cash of approximately
$11,000, 1,463 in prepaid expenses at March 31, 2004. The Company's fixed assets
are furniture and equipment of approximately $63,000, the Company's Other Assets
are a deposit of $18,468 and a license of approximately $2,700,000 compared to
fixed assets that included furniture and equipment of approximately 37,000 and
Other assets that included a deposit of $17,832 and a license of approximately
$2,700,000.
The Company's liabilities at June 30, 2004 were approximately $95,000,
comprised of accounts payable. The Company's liabilities at March 31, 2004 were
approximately $61,000. The increase in liabilities is due to the Company's
increased operating expenses.
Total shareholders' (deficit) increased from ($581,684) at March 31, 2004
to ($744,636) at June 30, 2004.
During the quarter ended June 30, 2004, the Company announced and
implemented a two percent (2%) stock dividend for holders of the Company's
common stock. This resulted in the issuance of approximately 1,610,174 shares of
the Company's common stock during the quarter.
9
Liquidity and Capital Resources
As of June 30, 2004, the Company had negative working capital of
approximately ($51,000) consisting of approximately $44,000 in current assets
and $95,000 in current liabilities. The Company had negative working capital of
approximately ($49,000) at March 31, 2004 consisting of current assets of
approximately $12,000 and $61,000 in current liabilities. The Company has a line
of credit of $1,000,000 available to it to pay its operating and other expenses.
As a result, the Company believes that it has adequate working capital for its
current operations. However, the Company may seek additional sources of
financing, including seeking to raise capital, to fund its operations for the
fiscal year, If the need arises to increase the growth of the Company.
Effect of Inflation
The Company's results of operations have not been affected by inflation
and management does not expect inflation to have a significant effect on its
operations in the future.
New Accounting Pronouncements
In April 2002, the FASB approved for issuance Statements of Financial
Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of SFAS 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds
previous accounting guidance, which required all gains and losses from
extinguishment of debt be classified as an extraordinary item. Under SFAS 145
classification of debt extinguishment depends on the facts and circumstances of
the transaction. SFAS 145 is effective for fiscal years beginning after May 15,
2002 and is not expected to have a material effect on the Company's financial
position or results of its operations.
In July 2002, the FASB issued Statements of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"(SFAS
146). SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by SFAS 146
include lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal activity. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS 146
is not expected to have a material effect on the Company's financial position or
results of its operations.
In December 2002, the FASB issued Statements of Financial Accounting
Standards No. 148 "Accounting for Stock-Based Compensation--Transition and
Disclosure--an amendment of FASB Statement No. 123." This Statement amends FASB
Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The adoption of SFAS 148 is not expected to
have a material effect on the Company's financial position or results of its
operations.
10
ITEM 3. CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures by
Dr. Jagan Narayanan, chief executive officer of the Company, and Mr. Joseph
Gutierrez, chief accounting officer of the Company, as of a date within 90 days
of the filing date of this quarterly report, such officers have concluded that
the Company's disclosure controls and procedures are effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported, within the time period specified
by the Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are Inapplicable
Item No. 6 - Exhibits and Reports on Form 8-K
(a) A report on Form 8-K was filed on June 8, 2004 and was the only report on
Form 8-K filed during the three months ended June 30, 2004.
(b) Exhibits
None.
SIGNATURES
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.
AEROTELESIS, INC.
Date August 12, 2004 By /s/ Jagan Narayanan
Dr. Jagan Narayanan, CEO
By/s/ Joseph Gutierrez
Joseph Gutierrez, CFO
11