U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002
Commission file No.0-24511
ADVANCED OPTICS ELECTRONICS, INC.
(Name of small business issuer as specified in its charter)
NEVADA 88-0365136
(State of incorporation) (IRS Employer Identification No.)
8301 WASHINGTON NE, SUITE 5, ALBUQUERQUE, NEW MEXICO 87113
(Address of principal executive offices including zip code)
Issuer's telephone number: (505) 797-7878
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
--- ---
The number of issuer's shares of Common Stock outstanding as of September 30,
2002 was 290,086,921
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
September 30, 2002
C O N T E N T S
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS........................................................1
FINANCIAL STATEMENTS
BALANCE SHEET...................................................2
STATEMENTS OF OPERATIONS......................................3-4
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT.................5-6
STATEMENTS OF CASH FLOWS.....................................7-10
NOTES TO FINANCIAL STATEMENTS...............................11-17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Advanced Optics Electronics, Inc.
We have reviewed the accompanying balance sheet of Advanced Optics Electronics,
Inc. (A Development Stage Company), as of September 30, 2002, and the related
statements of operations, changes in stockholders' deficit and cash flows for
the three-month and nine-month periods ended September 30, 2002 and 2001. These
financial statements are the responsibility of the Company's management. The
financial statements for the 1998 and 1999 portions of the period from May 22,
1996 (inception) through December 31, 1999 were audited by other auditors, whose
reports dated February 18, 2000 expressed unqualified opinions on those
statements, before restatement.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review and the reports of other accountants, we are not aware of
any material modifications that should be made to the accompanying financial
statements in order for them to be in conformity with accounting principles
generally accepted in the United States of America.
Atkinson & Co., Ltd.
Albuquerque, New Mexico
October 21, 2002
-1-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
BALANCE SHEET
(Unaudited)
September 30, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -
Costs and estimated earnings in excess of
billings on uncompleted contract 1,799,230
-------------
Total current assets 1,799,230
-------------
PROPERTY AND EQUIPMENT, net 138,111
-------------
OTHER ASSETS
Investment in Bio Moda, Inc. 72,470
Other assets 72,163
Note receivable from officer and shareholder 57,908
Intangible assets, net 19,576
-------------
Total other assets 222,117
-------------
Total assets $ 2,159,458
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft $ 3,252
Accounts payable 207,612
Accrued liabilities 132,530
Current portion of long-term debt 33,845
Allowance for loss on contract 1,093,000
-------------
Total current liabilities 1,470,239
-------------
LONG-TERM DEBT, less current portion 1,488
-------------
CONVERTIBLE DEBENTURES 1,439,284
-------------
STOCKHOLDERS' DEFICIT
Common stock - Authorized 300,000,000
shares, $.001 par value,
290,086,921 shares issued and
289,132,921 shares outstanding 290,087
Additional paid-in capital 9,813,210
Deficit accumulated during the development stage (10,613,848)
Treasury stock, at cost (6,156)
Notes receivable from officer for
exercise of stock options (234,846)
-------------
Total stockholders' deficit (751,553)
-------------
Total liabilities and stockholders' deficit $ 2,159,458
=============
The accompanying notes are an integral part of these financial statements.
-2-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months ended September 30, 2002 and 2001
2002 2001
--------------- ---------------
Revenues
Contract revenue $ - $ -
--------------- ---------------
Costs and expenses
General and administrative (180,516) (210,411)
Research and development (21,660) (78,380)
Asset impairment - -
--------------- ---------------
Total costs and expenses (202,176) (288,791)
Estimated loss on contract - -
--------------- ---------------
Operating loss (202,176) (288,791)
--------------- ---------------
Other income (expenses)
Interest income 3,370 5,511
Unrealized gain (loss) on marketable
equity securities - -
Loss on Bio Moda, Inc. (1,158) -
Interest expense (22,434) (70,206)
--------------- ---------------
Total other income (expenses) (20,222) (64,695)
--------------- ---------------
Net loss $ (222,398) $ (353,486)
=============== ===============
Net loss per share $ (.001) $ (.005)
=============== ===============
Weighted average shares outstanding 229,261,072 68,260,388
=============== ===============
The accompanying notes are an integral part of these financial statements.
-3-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS - CONTINUED
(Unaudited)
For the Nine Months ended September 30, 2002 and 2001
and the Period from May 22, 1996 (Inception)
through September 30, 2002
May 22, 1996
(Inception)
Through
September 30,
2002 2001 2002
--------------- --------------- ---------------
Revenues
Contract revenue $ - $ - $ -
Costs and expenses
General and administrative (640,881) (771,725) (6,638,186)
Research and development (68,169) (230,982) (1,334,253)
Asset impairment - (227,570) (227,570)
--------------- --------------- ---------------
Total costs and expenses (709,050) (1,230,277) (8,200,009)
Estimated loss on contract (185,000) (125,000) (1,093,000)
--------------- --------------- ---------------
Operating loss (894,050) (1,355,277) (9,293,009)
--------------- --------------- ---------------
Other income (expenses)
Interest income 11,597 20,827 67,553
Realized gain (loss) on marketable
equity securities - - (29,368)
Other investment gains - - 59,784
Loss on Bio Moda, Inc. (8,261) - (184,771)
Gain (loss) on disposal of assets 10,000 6,000 5,694
Interest expense (77,822) (126,806) (1,013,979)
--------------- --------------- ---------------
Total other income (expenses) (64,486) (99,979) (1,095,087)
--------------- --------------- ---------------
Net loss before cumulative effect of
change in accounting principle (958,536) (1,455,256) (10,388,096)
Cumulative effect of change in
accounting principle - - (63,020)
--------------- --------------- ---------------
Net loss $ (958,536) $ (1,455,256) $ (10,451,116)
=============== =============== ===============
Net loss per share before cumulative effect
of change in accounting principle $ (.005) $ (.022) $ (.222)
Cumulative effect of change in
accounting principle - - (.001)
--------------- --------------- ---------------
Net loss per share $ (.005) $ (.022) $ (.223)
=============== =============== ===============
Weighted average shares outstanding 185,462,129 66,278,396 46,848,711
=============== =============== ===============
The accompanying notes are an integral part of these financial statements.
-4-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
For the Period from May 22, 1996 (inception) through September 30, 2002
Common Stock Preferred Stock Treasury Stock
------------------------ ------------------- --------------------------
Par Par
Shares Value Shares Value Shares Cost
----------- ---------- -------- -------- ----------- -----------
BALANCE, MAY 22, 1996 - $ - - $ - - $ -
Stock issued to incorporators for cash 500,000 500 - - - -
Stock issued for the net assets of PLZ Tech, Inc. 4,500,000 4,500 - - - -
Net loss - - - - - -
----------- ---------- -------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1996 5,000,000 5,000 - - - -
Stock issued for cash and services 2,281,212 2,281 - - - -
Net loss - - - - - -
----------- ---------- -------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1997 7,281,212 7,281 - - - -
Stock issued for cash 10,979,275 10,979 - - - -
Stock issued for services 2,751,000 2,751 - - - -
Stock issued in exchange for note receivable 315,000 315 - - - -
Purchase and retirement of treasury stock (472,200) (472) - - - -
Net loss - - - - - -
----------- ---------- -------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1998 20,854,287 20,854 - - - -
Stock issued for cash 8,681,624 8,682 - - - -
Stock issued for services 17,094,313 17,094 - - - -
Intrinsic value of beneficial conversion feature
of notes payable - - - - - -
Fair value of warrants related to notes payable - - - - - -
Purchase and retirement of treasury stock (489,251) (489) - - - -
Purchase of treasury stock - - - - (229,000) (41,760)
Sale of treasury stock - - - - 85,000 11,130
Net loss - - - - - -
----------- ---------- -------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1999 46,140,973 46,141 - - (144,000) (30,630)
Stock issued for cash 782,000 782 710 1 - -
Stock issued for services 3,955,202 3,955 - - - -
Purchase of treasury stock - - - - (63,500) (46,486)
Sale of treasury stock - - - - 142,400 22,542
Exercise of stock options for notes receivable 1,850,000 1,850 - - - -
Amortization of discount on convertible
preferred stock - - - - - -
Exercise of preferred stock conversion feature 9,200,000 9,200 - - - -
Issuance of convertible debentures - - - - - -
Exchange of preferred stock for
convertible debentures - - (710) (1) - -
De-investment in Wizard Technologies - - - - - -
Net loss - - - - - -
----------- ---------- -------- -------- ----------- -----------
BALANCE, DECEMBER 31, 2000 61,928,175 61,928 - - (65,100) (54,574)
The accompanying notes are an integral part of these financial statements.
-5-
Equity (Deficit) Notes
Additional During the Receivable Total
Paid-In Development From Stockholders'
Capital Stage Officer Deficit
-------------- -------------- -------------- --------------
BALANCE, MAY 22, 1996
Stock issued to incorporators for cash $ - $ - $ - $ -
Stock issued for the net assets of PLZ Tech, Inc 24,500 - - 25,000
Net loss 281,096 - - 285,596
- (76,902) - (76,902)
-------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1996
Stock issued for cash and services 305,596 (76,902) - 233,694
Net loss 362,720 - - 365,001
- (84,690) - (84,690)
-------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1997
Stock issued for cash 668,316 (161,592) - 514,005
Stock issued for services 1,281,728 - - 1,292,707
Stock issued in exchange for note receivable 293,719 - - 296,470
Purchase and retirement of treasury stock 28,685 - - 29,000
Net loss (39,913) - - (40,385)
- (752,111) - (752,111)
-------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1998
Stock issued for cash 2,232,535 (913,703) - 1,339,686
Stock issued for services 855,101 - - 863,783
Intrinsic value of beneficial conversion feature 1,469,320 - - 1,486,414
of notes payable
Fair value of warrants related to notes payable 174,610 - - 174,610
Purchase and retirement of treasury stock 125,000 - - 125,000
Purchase of treasury stock (10,643) - - (11,132)
Sale of treasury stock - - - (41,760)
Net loss 24,334 - - 35,464
- (2,725,804) - (2,725,804)
-------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1999
Stock issued for cash 4,870,257 (3,639,507) - 1,246,261
Stock issued for services 1,012,710 - - 1,013,493
Purchase of treasury stock 1,726,197 - - 1,730,152
Sale of treasury stock - - - (46,486)
Exercise of stock options for notes receivable 54,771 - - 77,313
Amortization of discount on convertible 220,150 - (193,427) 28,573
preferred stock 159,677 - - 159,677
Exercise of preferred stock conversion feature 533,678 - - 542,878
Issuance of convertible debentures 263,830 - - 263,830
Exchange of preferred stock for (641,780) - - (641,781)
convertible debentures (59,583) - - (59,583)
De-investment in Wizard Technologies - (3,867,931) - (3,867,931)
Net loss -------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 2000 8,139,907 (7,507,438) (193,427) 446,396
The accompanying notes are an integral part of these financial statements.
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT - CONTINUED
(Unaudited)
For the Period from May 22, 1996 (inception) through September 30, 2002
Common Stock Preferred Stock Treasury Stock
-------------------------- ------------------- -------------------------
Par Par
Shares Value Shares Value Shares Cost
------------- ---------- -------- -------- ----------- -----------
Stock issued for cash 1,382,778 1,383 - - - -
Stock issued for services 10,461,498 10,461 - - - -
Purchase of treasury stock - - - - (251,700) (16,215)
Amortization of discount on convertible
preferred stock - - - - - -
Stock issued upon debt conversion 7,064,886 7,065 - - - -
Net loss - - - - - -
------------- ---------- -------- -------- ----------- -----------
Balance, December 31, 2001 80,837,337 80,837 - - (316,800) (70,789)
Stock issued for cash 8,080,000 8,080 - - - -
Stock issued for services 14,570,000 14,570 - - - -
Sale of treasury stock - - - - 316,800 70,789
Purchase of treasury stock - - - - (5,000) (170)
Stock issued upon debt conversion 22,049,886 22,050 - - - -
Exercise of stock option for notes receivable 1,100,000 1,100 - - - -
Consolidation of accrued interest with
note receivable - - - - - -
Net loss - - - - - -
------------- ---------- -------- -------- ----------- -----------
Balance, March 31, 2002 126,637,223 126,637 - - (5,000) (170)
Stock issued for services 3,410,000 3,410 - - - -
Stock issued for cash 26,220,000 26,220 - - - -
Stock issued upon debt conversion 12,168,000 12,168 - - - -
Purchase of treasury stock - - - - (660,000) (7,135)
Retroactive application of the equity method to
investment in Bio Moda, Inc. - - - - - -
Net loss - - - - - -
------------- ---------- -------- -------- ----------- -----------
Balance, June 30, 2002 168,435,223 168,435 - - (665,000) (7,305)
Stock issued for services 31,801,000 31,801 - - - -
Stock issued for cash 79,600,000 79,600 - - - -
Stock issued upon debt conversion 10,250,698 10,251 - - - -
Sale of treasury stock - - - - 191,000 2,097
Purchase of treasury stock - - - - (480,000) (948)
Net loss - - - - - -
------------- ---------- -------- -------- ----------- -----------
Balance, September 30, 2002 290,086,921 $ 290,087 - $ - (954,000) $ (6,156)
============= ========== ======== ======== =========== ===========
The accompanying notes are an integral part of these financial statements.
-6-
Equity (Deficit) Notes
Additional During the Receivable Total
Paid-In Development From Stockholders'
Capital Stage Officer Deficit
-------------- -------------- -------------- --------------
Stock issued for cash 66,844 - - 68,227
Stock issued for services 412,284 - - 422,745
Purchase of treasury stock - - - (16,215)
Amortization of discount on convertible 143,875 - - 143,875
preferred stock 147,008 - - 154,073
Stock issued upon debt conversion - (1,985,142) - (1,985,142)
Net loss -------------- -------------- -------------- --------------
8,909,918 (9,492,580) (193,427) (766,041)
Balance, December 31, 2001 39,961 - - 48,041
Stock issued for cash 249,080 - - 263,650
Stock issued for services - (64,111) - 6,678
Sale of treasury stock - - - (170)
Purchase of treasury stock 261,900 - - 283,950
Stock issued upon debt conversion 20,900 - (22,000) -
Exercise of stock option for notes receivable - - (19,419) (19,419)
Consolidation of accrued interest with - (408,061) - (408,061)
note receivable -------------- -------------- -------------- --------------
Net loss
Balance, March 31, 2002 9,481,759 (9,964,752) (234,846) (591,372)
Stock issued for services 18,260 - - 21,670
Stock issued for cash 106,171 - - 132,391
Stock issued upon debt conversion 80,518 - - 92,686
Purchase of treasury stock - - - (7,135)
Retroactive application of the equity method to
investment in Bio Moda, Inc. - (97,674) - (97,674)
Net loss - (328,077) - (328,077)
-------------- -------------- -------------- --------------
Balance, June 30, 2002 9,686,708 (10,390,503) (234,846) (777,511)
Stock issued for services 79,460 - - 111,261
Stock issued for cash 32,544 - - 112,144
Stock issued upon debt conversion 14,498 - - 24,749
Sale of treasury stock - (947) - 1,150
Purchase of treasury stock - - - (948)
Net loss - (222,398) - (222,398)
-------------- -------------- -------------- --------------
Balance, September 30, 2002 $ 9,813,210 $ (10,613,848) $ (234,846) $ (751,553)
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months ended September 30, 2002 and 2001
2002 2001
--------------- ---------------
Cash flows from operating activities
Net loss $ (222,398) $ (353,486)
Adjustments to reconcile net loss to net
cash used in operating activities
Interest on convertible debentures 25,846 -
Intrinsic value of conversion features - 68,875
Amortization and depreciation expense 22,842 23,411
Loss on Bio Moda, Inc. 1,158 -
Issuance of common stock for services 111,261 67,804
(Increase) in costs in excess of
billings on uncompleted contract (64,480) (88,333)
(Increase) in other assets (3,523) (6,374)
Increase in bank overdraft 3,252 -
(Decrease) increase in accrued
liabilities and accounts payable (427) 80,568
--------------- ---------------
Net cash used in operating activities (126,469) (207,535)
--------------- ---------------
-7-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
For the Three Months ended September 30, 2002 and 2001
2002 2001
--------------- ---------------
Cash flows from investing activities
Advances to Bio Moda, Inc. (8,670) -
Purchase of equipment - (4,149)
Collection of note receivable 17,680 -
--------------- ---------------
Net cash provided by (used in)
investing activities 9,010 (4,149)
--------------- ---------------
Cash flows from financing activities
Payments on long-term debt (5,505) (8,160)
Issuance of capital stock 112,144 28,227
Purchase of treasury stock (948) (9,488)
Sale of treasury stock 1,150 -
Proceeds from issuance of
convertible debenture - 200,000
--------------- ---------------
Net cash provided by
financing activities 106,841 210,579
--------------- ---------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (10,618) (1,105)
Cash and cash equivalents,
beginning of period 10,618 95,039
--------------- ---------------
Cash and cash equivalents,
end of period $ - $ 93,934
=============== ===============
NON-CASH INVESTING AND FINANCING TRANSACTIONS
During the three months ended September 30, 2002, $24,749 of debentures
were converted into 10,250,698 shares of the Company's common stock.
-8-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
For the Nine Months ended September 30, 2002 and 2001
and the Period from May 22, 1996 (Inception)
through September 30, 2002
May 22, 1996
(Inception)
Through
2002 2001 September 30, 2002
--------------- --------------- -------------------
Cash flows from operating activities
Net loss $ (958,536) $ (1,455,256) $ (10,451,116)
Adjustments to reconcile net loss to net
cash used in operating activities
Interest on convertible debentures 82,848 50,000 204,064
Intrinsic value of conversion features - 68,875 610,603
Amortization and depreciation expense 69,086 94,561 513,691
Write off of organization costs - - 63,020
Amortization of discounts on
convertible notes - - 295,209
Unrealized loss on
marketable securities - - 29,368
Gain on disposal of assets (10,000) (6,000) (5,694)
Loss on Bio Moda, Inc. 8,261 - 184,771
Asset impairment - 227,570 227,570
Issuance of common stock for services 396,581 329,640 4,332,363
Issuance of notes for services - - 50,000
(Increase) in costs in excess of
billings on uncompleted contract (228,666) (263,653) (1,799,230)
(Increase) in other assets (11,746) (1,745) (91,621)
(Decrease) in inventory - - (35,293)
Increase in allowance for
loss on contract 185,000 125,000 1,093,000
Increase in bank overdraft 3,252 - 3,252
Increase in accrued liabilities
and accounts payable 66,583 133,188 340,142
Increase in other non-cash expenses - - 33,447
Increase in accrued interest - - 30,667
--------------- --------------- -------------------
Net cash used in operating activities
(397,337) (697,820) (4,371,787)
--------------- --------------- -------------------
-9-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
For the Nine Months ended September 30, 2002 and 2001
and the Period from May 22, 1996 (Inception)
through September 30, 2002
May 22, 1996
(Inception)
Through
2002 2001 September 30, 2002
--------------- --------------- -------------------
Cash flows from investing activities
Proceeds from sale of intangible assets 10,000 - 10,000
Proceeds from sale of Bio MOda, Inc. stock 11,250 - 11,250
Advances to Bio Moda, Inc. (13,720) - (13,720)
Purchase of equipment - (27,885) (382,592)
Investment in Bio Moda, Inc. - - (383,845)
Sale of marketable securities - - 40,665
Purchase of marketable securities - - (70,034)
Decrease in certificate of deposits - 107,426 -
Repayment of note receivable 17,680 - 17,680
Proceeds from sale of equipment - 23,800 23,800
Purchase of other assets - (6,653) (245,579)
--------------- --------------- -------------------
Net cash provided by (used in)
investing activities 25,210 96,688 (992,375)
--------------- --------------- -------------------
Cash flows from financing activities
Additions to notes payable - - 622,776
Payments on notes payable and capital
lease obligations (10,888) (42,741) (234,654)
Issuance of capital stock 292,576 68,227 3,920,787
Collection of officer notes - - 28,878
Sale of treasury stock 7,829 - 120,606
Purchase of treasury stock (8,253) (14,707) (154,231)
Proceeds from issuance of
convertible instruments
- 275,000 1,060,000
--------------- --------------- -------------------
Net cash provided by financing activities 281,264 285,779 5,364,162
--------------- --------------- -------------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (90,863) (315,353) -
Cash and cash equivalents, beginning of period 90,863 409,287 -
--------------- --------------- -------------------
Cash and cash equivalents, end of period $ - $ 93,934 $ -
=============== =============== ===================
NON CASH INVESTING AND FINANCING TRANSACTIONS
During the nine month period ended September 30, 2002, the Company
recognized the retroactive application of the equity method to the
investment in Bio Moda, Inc. in the amount of $97,674.
During the nine month period ended September 30, 2002, $401,385 of
debentures were converted into 44,468,584 shares of the Company's common
stock.
-10-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2002
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
Notes to Interim Financial Statements
-------------------------------------
The accompanying unaudited condensed financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States of America for interim information and with the instructions to Form
10-QSB and Regulation S-B. Accordingly, they do not include all information
and footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the opinion
of management, all adjustments consisting of normal and recurring nature
considered necessary for fair presentation have been included. Results of
operations for the three-month and nine-month periods ended September 30,
2002 may not necessarily be indicative of the results that may be expected
for the year ended December 31, 2002. For further information, refer to the
Company's financial statements and footnotes included on the form 10-KSB for
the year ended December 31, 2001.
Going Concern
-------------
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
which are based on certain underlying assumptions, including the assumption
that the Company will continue as a going concern. The Company is a
development stage enterprise and has not yet earned revenues from its
planned principal operations and has a net capital deficiency. The Company's
entry into its intended operational stage is dependent upon its ability to
continue to generate sufficient working capital and to develop a market
accepted product line. The accompanying financial statements do not include
any adjustments that might result from the resolution of this uncertainty.
The Company has obtained a contract to produce two outdoor advertising
billboards using its flat panel display technology. This is the first
commercial application of the Company's technology. The success of the
Company will depend on its ability to commercialize its technology and
complete this contract. As of September 30, 2002, completion of this
contract was behind schedule.
While management believes the contract will ultimately be completed, there
can be no certainty that this will be accomplished because the technology
has not yet been used in a commercial application. In addition, the Company
may be required to obtain additional capital in order to fund the completion
of the contract.
-11-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2002
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Going Concern - Continued
-------------------------
The contract to produce two outdoor advertising billboards totals $1.7
million, with $885,000 assigned to the first unit. An estimated loss of
approximately $1,093,000 from production of the first unit has been
recognized through September 30, 2002. The Company's estimated cost to
complete as of September 30, 2002 is $88,897, which is expected to be funded
from new borrowings and contributed capital.
In accordance with the contract, the Company will bill the customer when
certain milestones are met. Billings and collections through September 30,
2002 have totaled $89,873. Due to the nature of the customer's business, and
deferments requested by customer, the Company has experienced an
unanticipated delay in delivering the first unit. The Company anticipates
additional collections, for milestones previously achieved, during the
fourth quarter of 2002. However, there is a direct relationship between the
scheduled collection on the contract and the sustained business environment
of the customer.
Adjustments to the original estimates of total contract revenues, total
contract costs, and the extent of progress toward completion are often
required as work progresses under the contract, and as experience is gained,
even though the scope of the work may not change. The nature of accounting
for contracts is such that refinements of the estimating process for
continuously changing conditions and new developments are a characteristic
of the process. Accordingly, provisions for losses on contracts are made in
the period in which they become evident. It is at least reasonably possible
that the estimate of completion costs for this contract will be further
revised in the near-term.
Investment
----------
As of September 30, 2002, the Company owned 18.6% of the outstanding common
stock of Bio Moda, Inc., an unconsolidated investment accounted for using
the equity method. For the years ended December 31, 2001 and 2000, the
Company reported its investment under the cost method since its degree of
control was not sufficient for the investment to be accounted for using the
equity method. During 2002, the Company's influence over Bio Moda, Inc.
increased such that the investment qualified for accounting under the equity
method. Losses from Bio Moda, Inc. in 2002 are recognized in the Company's
current earnings. Retroactive recognition of the Bio Moda, Inc. losses from
2001 and 2000 is recorded directly to the Company's deficit accumulated
during the development stage.
Bio Moda is currently in the securities registration process. Bio Moda has
filed a revised SB2 registration statement with the Securities and Exchange
Commission. Bio Moda is offering 5,000,000 shares at $6.00 per share (for
an aggregate offering of $30,000,000).
-12-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2002
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Investment - Continued
----------------------
The carrying value of the investment as of September 30, 2002 is the
original investment cost adjusted by the Company's proportionate interest in
losses reported by the investee through September 30, 2002.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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. The principal areas requiring estimation are
revenue recognition based on the percentage of completion method, loss
allowances and the valuation of common stock issued for services.
Stock-Based Compensation
------------------------
The Company has elected to apply the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and to
furnish the proforma disclosures required by Statement on Financial
Accounting Standards No. 123, Accounting for Stock Based Compensation.
NOTE 2. NOTES RECEIVABLE
Notes receivable at September 30, 2002, consist of the following:
Due from officer $ 29,188
Note receivable from former shareholder,
interest at 8% and due on demand 15,000
Notes receivable from Bio Moda, Inc.,
interest at 7% 13,720
-----------
$ 57,908
===========
The Company also has a note receivable from an officer totaling $234,846
which bears interest at 6% per annum, and is due in 2007. This note was
received as consideration upon exercise of stock options.
-13-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2002
NOTE 3. INVESTMENTS
As of September 30, 2002, the Company owned 1,072,285 shares or 18.6% of the
5,765,282 outstanding shares of Bio Moda, Inc.
Bio Moda, Inc. is a development stage company involved primarily in the
development of technology for the early detection of lung cancer. As a
development stage company, Bio Moda, Inc. has not had any revenues as of
September 30, 2002.
There is currently no active market for the common stock of Bio Moda, Inc.
The ultimate value of the Company's investment in Bio Moda, Inc. will depend
on its ability to complete its research and either commercialize or sell its
proprietary technology.
During the three months ended March 31, 2002, the Company sold a portion of
its interest in Bio Moda to an individual.
The investment in Bio Moda, Inc. is accounted for using the equity method. A
summary of the investment is as follows:
Original cost $ 383,845
Share of net loss (239,945)
Amortization of excess of cost over book value (42,500)
Sale of investment (28,930)
-------------
Carrying value of investment in Bio Moda, Inc. $ 72,470
=============
NOTE 4. LONG-TERM DEBT
As of September 30, 2002, the Company's long-term debt was as follows:
Notes payable to a financial institution,
due in monthly payments aggregating $3,221
through October 2003, bearing interest at bank
prime rate plus 1.5%, collateralized by
operating equipment and a vehicle $ 35,333
Less: Current portion (33,845)
-------------
$ 1,488
=============
-14-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2002
NOTE 5. CONVERTIBLE DEBENTURES
During the three months ended September 30, 2002, the Company issued
10,250,698 shares of common stock upon conversion of $24,749 of debenture
principal.
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's carrying values and methodologies for estimating the fair
values of its financial instruments are as follows:
Cash, cash equivalents, and certificates of deposit, costs in excess of
-----------------------------------------------------------------------
billings on uncompleted contract, and accounts payable. The carrying
--------------------------------------------------------
amounts reported in the accompanying balance sheet approximate fair
values.
Notes receivable. Management estimates that the carrying amounts are
-----------------
reasonable estimates of their fair values.
Long-term obligations. Notes payable to bank have variable rates that
----------------------
reflect currently available terms for similar debt, and accordingly the
carrying values are reasonable estimates of their fair values. Due to
the short-term maturity of the capital lease, management estimates that
the carrying value approximates its fair value.
Convertible debentures. Management estimates the carrying values to
-----------------------
approximate their fair values.
Notes receivable from officer. Management estimates these notes to be
-----------------------------
fully collectible, and that the carrying values are reasonable
estimates of their fair values.
NOTE 7. INCOME TAXES
As of September 30, 2002, the Company had net operating loss carryforwards
of approximately $10,400,000, which expire in varying amounts between 2016
through 2021. Realization of this potential future tax benefit is dependent
on generating sufficient taxable income prior to expiration of the loss
carryforward. The deferred tax asset related to this potential future tax
benefit has been offset by a valuation allowance in the same amount. The
amount of the deferred tax asset ultimately realizable could be increased
in the near term if estimates of future taxable income during the
carryforward period are revised.
-15-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2002
NOTE 8. STOCK PLANS
On January 4, 1999, the Company established the Incentive Stock Option Plan.
Pursuant to the Plan, up to 10,000,000 shares of the Company's common stock
may be granted as options to key employees. The shares issued upon exercise
of the options may be authorized and unissued shares or shares held by the
Company in its treasury. The exercise date of the options is based on the
related agreement as approved by the Board of Directors. The Incentive Stock
Option Plan expires on January 4, 2009. Options awarded under the Plan have
four-year terms and vest ratably over one to two year periods. As of
September 30, 2002, there were 8,075,000 shares available under the Plan for
future awards. No stock options were issued during the three-month or
nine-month period ended September 30, 2002.
Total stock options granted and unexercised were 3,825,000 as of September
30, 2002. The shares issued upon exercise of the options may be authorized
and unissued shares or shares held by the Company in its treasury. The
exercise date of options granted is based upon the related agreement as
approved by the Board of Directors.
The Company also issued Stock Purchase Warrants to key employees. The total
number of "warrant shares" issued under these agreements was 3,425,000
shares, exercisable at any time until they expire on June 15, 2004. The
price established for the shares ranges from $.15 to $.41 per share.
A summary of the common stock option and warrant activity for employees,
directors and officers is as follows:
Weighted
Warrants Average
and Exercise
Options Prices Exercisable
------------- ------------- -------------
Balance, December 31, 2001 11,100,000 $ 0.27 9,517,500
Granted 1,100,000 0.22
Exercised (1,100,000) 0.22
-------------
Balance, March 31, 2002 11,100,000 0.27 9,517,500
Granted - -
Exercised - -
-------------
-16-
Advanced Optics Electronics, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
September 30, 2002
NOTE 8. STOCK PLANS - CONTINUED
Weighted
Warrants Average
and Exercise
Options Prices Exercisable
-------------- ------------ -------------
Balance, June 30, 2002 11,100,000 0.27 9,517,500
Granted -
Exercised -
--------------
Balance, September 30, 2002 11,100,000 0.27 9,517,500
==============
The option price established for the shares upon exercise ranges from $0.12
to $0.34 per share, and expires through October 2004.
NOTE 9. SUBSEQUENT EVENT
On October 7, 2002, the Board of Directors approved an increase in the
number of authorized shares of common stock from 300,000,000 to 450,000,000
shares.
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
.
Forward - Looking Statements
- ----------------------------
This Quarterly Report contains forward-looking statements about the business,
financial condition and prospects of the Company that reflect assumptions made
by management and management's beliefs based on information currently available
to it. The Company can give no assurance that the expectations indicated by such
forward-looking statements will be realized. If any of management's assumptions
should prove incorrect, or if any of the risks and uncertainties underlying such
expectations should materialize, the Company's actual results may differ
materially from those indicated by the forward-looking statements.
The key factors that are not within the Company's control and that may have a
direct bearing on operating results include, but are not limited to, the
acceptance by customers of the Company's products, the Company's ability to
develop new products cost-effectively, the ability of the Company to raise
capital in the future, the development by competitors of products using improved
or alternative technology, the retention of key employees and general economic
conditions.
There may be other risks and circumstances that management is unable to predict.
When used in this Quarterly Report, words such as, "believes," "expects,"
"intends," "plans," "anticipates" "estimates" and similar expressions are
intended to identify forward-looking statements, although there may be certain
forward-looking statements not accompanied by such expressions. All
forward-looking statements are intended to be covered by the safe harbor created
by Section 21E of the Securities Exchange Act of 1934.
OVERVIEW
Advanced Optics Electronics, Inc. is a technology company whose primary focus is
the development, production and sales of its electronic flat panel displays. The
primary initial product will be marketed to users of outdoor advertising
billboards. We believe that our product line has the potential to create a new
segment of the outdoor advertising industry. Our systems software and electronic
displays represent an innovative approach to advertising that takes advantage of
the recent technological convergence of broadcast and billboard media and the
World Wide Web.
-18-
Our goal is to create a product line based on technology that is scalable both
in terms of size and resolution to meet a wide range of requirements related to
site, economics and use from our potential customers. We also plan the
development of a leasing program and an Owned & Operated group.
THE MAJOR ADVANTAGES AND FEATURES OF THE DISPLAY ARE:
o Brightest display ever available (35,000 nits)
o Widest viewing angle available
o Smallest dot pitch available for outdoor large-scale
displays (8 mm dot pitch)
o High definition picture quality
o Modular assembly (1 meter increments) for scaleable
and shapeable architectures
o True Color (24 bit)
o Full motion video (up to 120 frames per second)
o Transportable for mobile operations
o Weather resistant for outdoor applications
o Modest power requirements
o Minimum 5 year continual use lifetime
o Real-time live video feeds
o Broadcast/simulcast applications
o Supports streaming video
o Uses industry standard DVI protocol for high speed data linking
and digital video interfacing
o Satellite linkable
Proprietary Billboard software capabilities are:
o Manage and update display content remotely
o Works with all image file formats and digital video editors
o Secure Internet or WAN communications
o WEB-based status monitoring
o Provides time, temperature and other dynamic content inserts
The Company was organized as a Nevada corporation on May 22, 1996. On November
7, 1996, the Company acquired the business and patents of PLZTech, a company
involved in the development of flat panel displays. Our operating activities
have related primarily to the initial planning and development of our product
and building our operating infrastructure. We have completed, tested, and
measured the performance of, our prototype and are currently in the
manufacturing process of our production model.
-19-
We expect our principal source of revenue to be derived from sales of our
electronic display product. To date we have recognized limited revenue, but we
have developed a functioning prototype and we anticipate sales by the fourth
quarter 2002. The company has set the price for its units at $395,000 and
$1,490,000 respectively for its 2 meter x 3 meter and its 3 meter x 8 meter flat
panel displays.
The company has completed a marketing film that is being distributed on a
national and international basis. The recipients who receive this film are
institutional investors and qualified potential buyers of the flat panel
displays.
Our operating expenses have increased significantly since our inception, and the
rate of increase has risen since last year. This is due to increased engineering
and management staff and investments in operating infrastructure. Since our
inception we have incurred significant losses and, as of September 30, 2002, had
an accumulated deficit of $10,613,848.
RESULTS OF CONTINUING OPERATIONS
Due to our limited operating history, we believe that period-to-period
comparisons of our results of operations are not fully meaningful and should not
be relied upon as an indication of future performance.
Comparison of the Three-Month Periods Ended September 30, 2002 and 2001
- -----------------------------------------------------------------------
Revenue. During the quarter ended March 31, 2001, the Company changed the
- -------
accounting for our contract to the completed contract method. According to this
way of accounting for contracts, we are booking no revenue until the completion
of the contract. Please note that the revenue for the period "May 22, 1996
(Inception) Through June 30, 2002" has been restated and is now $0. Billings and
collections through September 30, 2002 have totaled $89,873.
Product Development. Product development expenses consist primarily of personnel
- -------------------
expenses, consulting fees and depreciation of the equipment associated with the
development and enhancement of our flat panel displays. Research development and
technical costs decreased to $21,660 in the third quarter of 2002 from $78,380
in the third quarter of 2001. These costs have been reduced in an effort to
conserve cash and meet the challenges of being a development stage company.
However, we believe that continued investment in product development is critical
to attaining our strategic objectives and, as a result, expect product
development expenses to increase significantly in future periods. We expense
product development costs as they are incurred.
-20-
General and Administrative. General and administrative expenses consist of
- ---------------------------
expenses for executive and administrative personnel, facilities, professional
services, travel, general corporate activities, and the depreciation and
amortization of office furniture and leasehold improvements. General and
administrative costs decreased to $180,516 in the third quarter of 2002 from
$210,411 in the third quarter of 2001. We expect general and administrative
costs to increase in the future as our business prospects develop and we will
require more staff. The costs associated with being a publicly traded company
and future strategic acquisitions will also be a contributing factor to
increases in this expense.
Other Income (Expense). Other income (expense) consists of interest and other
- ----------------------
income and expense. Other (expense) decreased to ($20,222) in the third quarter
of 2002 from ($64,695) in the third quarter of 2001 due primarily to comparison
with a relatively large interest expense being booked in the third quarter of
2001.
Depreciation remained relatively constant at $22,842 in the third quarter of
2002 and $23,411 in the third quarter of 2001.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through the private
placement of equity securities. As of September 30, 2002 we have raised net
proceeds of $5,364,162.
We have also utilized equipment loans and capital lease financing. As of
September 30, 2002 we have a balance of $35,333 on the equipment loans.
The Company's holding in Biomoda, Inc will provide additional liquidity. Biomoda
is a biomedical development company. The Company's ownership of Biomoda, as of
September 30, 2002 was approximately 18.6%.
The Company's relationship to its investment in Biomoda changed during the
second quarter. There is now an active leadership role in Biomoda being provided
by John Cousins and Leslie Robins. Biomoda is currently in the process of
registering securities under an SB2 that has been filed with the Securities and
Exchange Commission. The Company has gone to the equity method of reporting its
investment in Biomoda because of these recent changes in the management
relationship between the two companies.
Product development expenditures were $21,660 for the quarter ended September
30, 2002. Funds for operations, product development and capital expenditures
were provided from the sale of securities and cash reserves. As of September 30,
2002, we experienced a temporary lack of cash and cash equivalents. Within
several days of the end of the quarter we had received capital funds in the mid
five figures.
-21-
Management believes that sales of securities, cash reserves and contract revenue
will provide adequate liquidity and capital resources to meet the anticipated
development stage requirements through the end of the fourth quarter 2002. At
that time it is anticipated that sales of flat panel displays will begin and
contribute to operating revenues. It is anticipated that these sales will
provide the additional capital resources to fund the proportionately higher
working capital requirements of production and sales initiatives. The Company
currently has no other significant commitments for capital expenditures in 2002.
PART II. OTHER INFORMATION
Item 1. Legal proceedings
The company may on occasion be a party to litigation involving claims made by or
against the Company arising in the ordinary course of business. The officers and
directors know of no legal proceedings pending or contemplated by any person,
entity or governmental authority which would have a material adverse effect on
the Company.
Item 2. Changes in securities
During the third quarter of fiscal year 2002 there was a 121,651,698 increase in
shares of common stock.
Item 3. Defaults upon senior securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the Company's security holders
during the third quarter of fiscal year 2002.
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. Certification of Periodic Report by CEO and CFO
-22-
CERTIFICATION OF PERIODIC REPORT
I, Leslie S. Robins, CEO of Advanced Optics Electronics, Inc. (the "Company"),
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350 that:
(1) the (Quarterly/Annual) Report on Form (10-Q/10-K) of the Company for
the quarterly period ended September 30, 2002 (the "Report") fully
complies with the requirements of Section 13 (a) or 15 (d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Dated: November 11, 2002
/s/ Leslie S. Robins
--------------------
Leslie S. Robins
CEO
CERTIFICATION OF PERIODIC REPORT
I, John J. Cousins, CFO of Advanced Optics Electronics, Inc. (the "Company"),
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350 that:
(3) the (Quarterly/Annual) Report on Form (10-Q/10-K) of the Company for
the quarterly period ended September 30, 2002 (the "Report") fully
complies with the requirements of Section 13 (a) or 15 (d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(4) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Dated: November 11, 2002
/s/ John J. Cousins
--------------------
John J. Cousins
CFO
-23-
(b) Reports on Form 8-K
On June 17, 2002 a report on Form 8-K was filed referring to the resignation of
Harold Herman as a Director due to restrictive health challenges.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report on Form 10QSB to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November 12, 2002
ADVANCED OPTICS ELECTRONICS, INC.
BY:/s/John J. Cousins
------------------
John J. Cousins
Vice President of Finance
(Principal Accounting Officer)
BY:/s/Leslie S. Robins
-------------------
Leslie S. Robins
Executive Vice President
(Principal Executive Officer)