-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V1KtpZ/ov9kBNxCSJcBhGgk9td/SYJYficCiU5EOoitwzMJXlHMBuIKQvhtB7laW 3I3QNFlIEQdzgSoKSTVZfQ== 0000891554-02-003265.txt : 20020515 0000891554-02-003265.hdr.sgml : 20020515 20020515131045 ACCESSION NUMBER: 0000891554-02-003265 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED OPTICS ELECTRONICS INC CENTRAL INDEX KEY: 0001020657 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 880365136 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24511 FILM NUMBER: 02650157 BUSINESS ADDRESS: STREET 1: 8301 WASHINGTON NE #4 STREET 2: STE F CITY: ALBUQUERQUE STATE: NM ZIP: 87113 BUSINESS PHONE: 5057977878 MAIL ADDRESS: STREET 1: 8301 WASHINGTON NE STREET 2: #4 CITY: ALBUQUERQUE STATE: NM ZIP: 87113 10QSB 1 d50704_10q-sb.txt QUARTERLY REPORT 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: March 31, 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 March 31, 2002 was 126,632,223 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) March 31, 2002 C O N T E N T S Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS...........................................................1 FINANCIAL STATEMENTS BALANCE SHEET......................................................2 STATEMENTS OF OPERATIONS...........................................3 STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY.....................4-5 STATEMENTS OF CASH FLOWS.........................................6-7 NOTES TO FINANCIAL STATEMENTS...................................8-14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.................15-20 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 March 31, 2002, and the related statements of operations, changes in stockholders' equity and cash flows for the three months ended March 31, 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. 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 report 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 May 10, 2002 -1- Advanced Optics Electronics, Inc. (A Development Stage Company) BALANCE SHEET (Unaudited) March 31, 2002 ASSETS CURRENT ASSETS Cash and cash equivalents $ 24,210 Costs and estimated earnings in excess of billings on uncompleted contract 1,656,375 ---------- Total current assets 1,680,585 ---------- PROPERTY AND EQUIPMENT, net 175,544 ---------- OTHER ASSETS Intangible assets, net 27,784 Investment in Bio Moda, Inc. 178,405 Other assets 65,118 Note receivable 61,868 ---------- Total other assets 333,175 ---------- Total assets $2,189,304 ========== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable $ 223,205 Accrued liabilities 101,101 Current portion of long-term debt 33,401 Allowance for loss on contract 908,000 ----------- Total current liabilities 1,265,707 ----------- LONG-TERM PORTION OF LONG-TERM DEBT 10,931 ----------- CONVERTIBLE DEBENTURES 1,504,038 ----------- STOCKHOLDERS' EQUITY (DEFICIT) Common stock - Authorized 150,000,000 shares, $0.001 par value; 126,637,223 shares issued and 126,632,223 shares outstanding 126,637 Additional paid-in capital 9,481,759 Deficit accumulated during the development stage (9,964,752) Treasury stock, at cost (170) Notes receivable from officer for exercise of stock options (234,846) ----------- Total stockholders' equity (deficit) (591,372) ----------- Total liabilities and stockholders' equity (deficit) $ 2,189,304 =========== The accompanying notes are an integral part of this financial statement. -2- Advanced Optics Electronics, Inc. (A Development Stage Company) STATEMENTS OF OPERATIONS (Unaudited) For the Three Months ended March 31, 2002 and 2001 and the period from May 22, 1996 (Inception) through March 31, 2002
May 22, 1996 (Inception) Through 2002 2001 March 31, 2002 ------------- ------------ -------------- Revenues Contract revenue $ -- $ -- $ -- ------------- ------------ ------------ Costs and expenses General and administrative (365,114) (313,859) (6,362,419) Research and development (23,601) (78,202) (1,289,685) Asset impairment -- -- (227,570) ------------- ------------ ------------ Total costs and expenses (388,715) (392,061) (7,879,674) Estimated loss on contract -- (125,000) (908,000) ------------- ------------ ------------ Operating loss (388,715) (517,061) (8,787,674) ------------- ------------ ------------ Other income (expenses) Interest income 4,704 7,195 60,660 Unrealized gain (loss) on marketable equity securities -- -- (29,368) Other investment gains -- -- 59,784 Loss on Bio Moda, Inc. -- -- (176,510) Gain (loss) on disposal of assets 10,000 6,000 5,694 Interest expense (34,050) (2,205) (970,207) ------------- ------------ ------------ Total other income (expenses) (19,346) 10,990 (1,049,947) ------------- ------------ ------------ Net loss before cumulative effect of change in accounting principle (408,061) (506,071) (9,837,621) Cumulative effect of change in accounting principle -- -- (63,020) ------------- ------------ ------------ Net loss $ (408,061) $ (506,071) $ (9,900,641) ============= ============ ============ Net loss per share before cumulative effect of change in accounting principle (0.004) $ (.008) (0.277) Cumulative effect of change in accounting principle -- -- (0.002) ------------- ------------ ------------ Net loss per share $ (0.004) $ (.008) $ (.279) ============= ============ ============ Weighted average shares outstanding 103,737,280 62,665,675 35,535,671 ============= ============ ============
The accompanying notes are an integral part of this financial statement. -3- Advanced Optics Electronics, Inc. (A Development Stage Company) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) For the period from May 22, 1996 (inception) through March 31, 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) -- -- -- -- -- -- -- -- Net loss -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 2000 61,928,175 61,928 -- -- (65,100) (54,574) 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 -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Equity (Deficit) Notes Additional During the Receivable Total Paid-In Development From Stockholders' Capital Stage Officer Equity (Deficit) ---------- ---------------- ---------- --------------- Balance, May 22, 1996 $ -- $ -- $ -- $ -- Stock issued to incorporators for cash 24,500 -- -- 25,000 Stock issued for the net assets of PLZ Tech, Inc. 281,096 -- -- 285,596 Net loss -- (76,902) -- (76,902) ---------- ---------- ---------- ---------- Balance, December 31, 1996 305,596 (76,902) -- 233,694 Stock issued for cash and services 362,720 -- -- 365,001 Net loss -- (84,690) -- (84,690) ---------- ---------- ---------- ---------- Balance, December 31, 1997 668,316 (161,592) -- 514,005 Stock issued for cash 1,281,728 -- -- 1,292,707 Stock issued for services 293,719 -- -- 296,470 Stock issued in exchange for note receivable 28,685 -- -- 29,000 Purchase and retirement of treasury stock (39,913) -- -- (40,385) Net loss -- (752,111) -- (752,111) ---------- ---------- ---------- ---------- Balance, December 31, 1998 2,232,535 (913,703) -- 1,339,686 Stock issued for cash 855,101 -- -- 863,783 Stock issued for services 1,469,320 -- -- 1,486,414 Intrinsic value of beneficial conversion feature of notes payable 174,610 -- -- 174,610 Fair value of warrants related to notes payable 125,000 -- -- 125,000 Purchase and retirement of treasury stock (10,643) -- -- (11,132) Purchase of treasury stock -- -- -- (41,760) Sale of treasury stock 24,334 -- -- 35,464 Net loss -- (2,765,862) -- (2,765,862) ---------- ---------- ---------- ---------- Balance, December 31, 1999 4,870,257 (3,679,565) -- 1,206,203 Stock issued for cash 1,012,710 -- -- 1,013,493 Stock issued for services 1,726,197 -- -- 1,730,152 Purchase of treasury stock -- -- -- (46,486) Sale of treasury stock 54,771 -- -- 77,313 Exercise of stock options for notes receivable 220,150 -- (193,427) 28,573 Amortization of discount on convertible 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 convertible debentures (641,780) -- -- (641,781) (59,583) -- -- (59,583) Net loss -- (3,827,873) -- (3,827,873) ---------- ---------- ---------- ---------- Balance, December 31, 2000 8,139,907 (7,507,438) (193,427) 446,396 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 preferred stock 143,875 -- -- 143,875 Stock issued upon debt conversion 147,008 -- -- 154,073 Net loss -- (1,985,142) -- (1,985,142) ---------- ---------- ---------- ----------
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' EQUITY - CONTINUED (Unaudited) For the period from May 22, 1996 (inception) through March 31, 2002
Common Stock Preferred Stock Treasury Stock ------------------------- ------------------------- -------------------------- Par Par Shares Value Shares Value Shares Cost ----------- ----------- ----------- ----------- ----------- ----------- 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 -- -- -- -- -- -- -- -- -- -- Net loss -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance, March 31, 2002 126,637,223 $ 126,637 -- $ -- (5,000) $ (170) =========== =========== =========== =========== =========== =========== Equity (Deficit) Notes Additional During the Receivable Total Paid-In Development From Stockholders' Capital Stage Officer Equity (Deficit) ----------- ---------------- ----------- --------------- Balance, December 31, 2001 8,909,918 (9,492,580) (193,427) (766,041) Stock issued for cash 39,961 -- -- 48,041 Stock issued for services 249,080 -- -- 263,650 Sale of treasury stock -- (64,111) -- 6,678 Purchase of treasury stock -- -- -- (170) Stock issued upon debt conversion 261,900 -- -- 283,950 Exercise of stock option for notes receivable 20,900 -- (22,000) -- -- -- (19,419) (19,419) Net loss -- (408,061) -- (408,061) ----------- ----------- ----------- ----------- Balance, March 31, 2002 $ 9,481,759 $(9,964,752) $ (234,846) $ (591,372) =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. -5- Advanced Optics Electronics, Inc. (A Development Stage Company) STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months ended March 31, 2002 and 2001 and the Period from May 22, 1996 (Inception) through March 31, 2002
May 22, 1996 (Inception) Through 2002 2001 March 31, 2002 --------- --------- -------------- Cash flows from operating activities Net loss $(408,061) $(506,071) $(9,900,641) Adjustments to reconcile net loss to net cash provided by operating activities Intrinsic value of conversion features -- -- 610,603 Amortization and depreciation expense 23,446 28,373 468,051 Write off of organization costs -- -- 63,020 Amortization of discounts on convertible notes -- -- 295,209 (Gain) loss on marketable securities -- -- 29,368 (Gain) loss on disposal of assets (10,000) (6,000) (5,694) Loss on Bio Moda, Inc. -- -- 176,510 Issuance of common stock for services 263,650 176,248 4,199,432 Issuance of notes for services -- -- 50,000 Interest accrued on convertible debentures 30,167 -- 151,383 Asset impairment -- -- 227,570 Increase in costs in excess of billings on uncompleted contract (85,811) (98,068) (1,656,375) (Increase) decrease in other assets (4,702) 9,750 (84,577) Increase (decrease) in inventory -- -- (35,293) Increase in allowance for loss on contract -- 125,000 908,000 Increase (decrease) in accrued liabilities and accounts payable 50,747 (16,977) 324,306 Other non-cash expenses -- -- 33,447 Accrued interest -- -- 30,667 --------- --------- ----------- Net cash provided by used in operating activities (140,564) (287,745) (4,115,014) --------- --------- -----------
The accompanying notes are an integral part of these financial statements. -6- Advanced Optics Electronics, Inc. (A Development Stage Company) STATEMENTS OF CASH FLOWS - CONTINUED (Unaudited) For the Three Months ended March 31, 2002 and 2001 and the Period from May 22, 1996 (Inception) through March 31, 2002
May 22, 1996 (Inception) Through 2002 2001 March 31, 2002 --------- --------- -------------- Cash flows from investing activities Purchase of equipment -- (22,126) (382,592) Investment in Bio Moda, Inc. -- -- (383,845) Proceeds from sale of Bio Moda, Inc. 11,250 -- 11,250 Proceeds from sale of intangible assets 10,000 -- 10,000 Redemption of certificates of deposit -- 54,491 107,426 Sale of marketable securities -- -- 40,665 Purchase of marketable securities -- -- (70,034) Increase in certificates of deposits -- -- (107,426) Proceeds from sale of equipment -- 23,800 23,800 Purchase of other assets -- (650) (245,579) Redemption of sale of Wizard Technologies, Inc. -- -- -- -------- --------- ----------- Net cash provided by (used in) investing activities 21,250 55,515 (996,335) -------- --------- ----------- Cash flows from financing activities Additions to notes payable -- -- 622,776 Payments on notes payable and capital lease obligations (1,889) (23,832) (225,655) Issuance of capital stock 48,041 -- 3,676,252 Collection of notes receivable from officer -- -- 28,878 Sale of treasury stock 6,679 -- 119,456 Purchase of treasury stock (170) (3,207) (146,148) Proceeds from issuance of convertible instruments -- 75,000 1,060,000 -------- --------- ----------- Net cash provided by financing activities 52,661 47,961 5,135,559 -------- --------- ----------- NET INCREASE (DECREASE) IN CASH (66,653) (184,269) 24,210 Cash and cash equivalents, beginning of period 90,863 409,287 -- -------- --------- ----------- Cash and cash equivalents, end of period $ 24,210 $ 225,018 $ 24,210 ======== ========= ===========
The accompanying notes are an integral part of these financial statements. -7- Advanced Optics Electronics, Inc. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Unaudited) March 31, 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 period ended March 31, 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. Description of Business The accompanying financial statements have been prepared in conformity with generally accepted accounting principles 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 March 31, 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. -8- Advanced Optics Electronics, Inc. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS - CONTINUED (Unaudited) March 31, 2002 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Description of Business - 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 $908,000 from production of the first unit has been recognized through March 31, 2002. The Company's estimated cost to complete as of March 31, 2002 is $49,032 which is expected to be funded with cash, billings on the contract and contributed capital. In accordance with the contract, the Company will bill the customer when certain milestones are met. Billings and collections through March 31, 2002 have totaled $89,873. 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 March 31, 2002, the Company owned 17.7% of the outstanding common stock of Bio Moda, Inc., an unconsolidated investment accounted for using the cost method. Prior to December 31, 1999, the Company's ownership was sufficient for the investment to be accounted for using the equity method. The carrying value of the investment as of March 31, 2002 is the original investment cost adjusted by the Company's proportionate interest in losses reported by the investee through December 31, 1999. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. -9- Advanced Optics Electronics, Inc. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS - CONTINUED (Unaudited) March 31, 2002 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 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 March 31, 2002, consist of the following: Due from officer $29,188 Note receivable from former shareholder, interest at 8% and due on demand 15,000 Note receivable from sale of investment and Treasury stock 17,680 ------- $61,868 ======= 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. NOTE 3. INVESTMENTS As of March 31, 2002, the Company owned 1,072,285 shares or 17.7% of the 6,050,351 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 and, as of March 31, 2002, was in the process of conducting clinical trials. 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. -10- Advanced Optics Electronics, Inc. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS - CONTINUED (Unaudited) March 31, 2002 NOTE 3. INVESTMENTS - CONTINUED 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 cost method. A summary of the investment is as follows: Original cost $ 383,845 Share of net loss (134,010) Amortization of excess of cost over book value (42,500) Sale of investment (28,930) --------- Carrying value of investment in Bio Moda, Inc. $ 178,405 ========= NOTE 4. LONG-TERM OBLIGATIONS As of March 31, 2002, the Company's long-term obligations were 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 $ 44,332 Less: Current portion (33,401) -------- $ 10,931 ======== NOTE 5. CONVERTIBLE DEBENTURES During the three months ended March 31, 2002, the Company issued 22,049,886 shares of common stock upon conversion of $283,950 of debenture principle. -11- Advanced Optics Electronics, Inc. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS - CONTINUED (Unaudited) March 31, 2002 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 March 31, 2002, the Company had a net operating loss carryforwards of approximately $9,900,000 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. -12- Advanced Optics Electronics, Inc. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS - CONTINUED (Unaudited) March 31, 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 March 31, 2002, there were 8,075,000 shares available under the Plan for future awards. No stock options were issued during the three-month period ended March 31, 2002. The Company applies APB Opinion No. 25 in its accounting for the Plan, and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under Statement of Financial Accounting Standards No. 123, the Company's net loss and loss per share would have been increased to the proforma amounts indicated as follows: Years ended December 31, 2000 1999 1998 ------------ ------------ ------------ Net loss, as reported $ (3,199,935) $ (2,725,804) $ (752,111) Proforma net loss (3,575,534) (2,940,633) (752,111) Loss per share, as reported (0.055) (0.072) (0.055) Proforma loss per share (0.061) (0.078) (0.055) The fair value of each option grant for the above proforma disclosure is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividends of $0 per year; expected volatility of 42.3 percent; risk-free interest rate of 6.0 percent; and expected lives of four years. Total stock options granted and unexercised were 3,825,000 as of March 31, 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 $0.15 to $0.41 per share. -13- Advanced Optics Electronics, Inc. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS - CONTINUED (Unaudited) March 31, 2002 NOTE 8. STOCK PLANS - CONTINUED 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 , 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 ========== =========== ========= The option price established for the shares upon exercise ranges from $0.12 to $0.34 per share, and expires through October 2004. -14- 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. -15- 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. -16- 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 third 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 March 31, 2002, had an accumulated deficit of $9,964,752. 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 March 31, 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 March 31, 2002" has been restated and is now $0. Billings and collections through March 31, 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 $23,601 in the first quarter of 2002 from $78,202 in the first 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. -17- 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 increased to $365,114 in the first quarter of 2002 from $313,859 in the first 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) increased to ($19,346) in the first quarter of 2002 from $10,990 in the first quarter of 2001 due primarily to $34,050 of Interest expense in the first quarter of 2002 attributable to interest on Convertible Debentures that were converted into common stock. Depreciation increased slightly to $23,446 in the first quarter of 2002 from $28,373 in the first quarter of 2001 due to the additions of some equipment. LIQUIDITY AND CAPITAL RESOURCES Since inception, we have funded our operations primarily through the private placement of equity securities. As of March 31, 2001 we have raised net proceeds of $5,135,559. We have also utilized equipment loans and capital lease financing. As of March 31, 2002 we have a balance of $44,332 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 March 31, 2002 was approximately 17.7%. No immediate family members of officers or directors of Advanced Optics Electronics, Inc. are securities holders of BioModa with the exception of Harold Herman, who is a director of Advanced Optics Electronics, Inc. and a small minority shareholder in BioModa. Product development expenditures were $23,601 for the quarter ended March 31, 2002. Funds for operations, product development and capital expenditures were provided from the sale of securities and cash reserves. As of March 31, 2002, we had approximately $24,210 of cash and cash equivalents. -18- 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 third 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 is not a party to any legal proceeding, the adverse outcome of which, in management's opinion, would have a material adverse effect on the Company's operating results. Item 2. Changes in securities During the first quarter of fiscal year 2002 there was a 52,199,886 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 first quarter of fiscal year 2001. Item 5. Other Information - Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K No reports on Form 8-K were filed during the first quarter of 2002. -19- 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: May 14, 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) -20- -----END PRIVACY-ENHANCED MESSAGE-----