<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>d50704_10q-sb.txt
<DESCRIPTION>QUARTERLY REPORT
<TEXT>
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|
<PAGE>
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS'
ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
March 31, 2002
<PAGE>
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
<PAGE>
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-
<PAGE>
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
==========
<PAGE>
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-
<PAGE>
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
<TABLE>
<CAPTION>
May 22, 1996
(Inception)
Through
2002 2001 March 31, 2002
------------- ------------ --------------
<S> <C> <C> <C>
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
============= ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
-3-
<PAGE>
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
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
------------------------- -------------------------- -------------------------
Par Par
Shares Value Shares Value Shares Cost
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
Equity (Deficit) Notes
Additional During the Receivable Total
Paid-In Development From Stockholders'
Capital Stage Officer Equity (Deficit)
---------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C>
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)
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
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
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
------------------------- ------------------------- --------------------------
Par Par
Shares Value Shares Value Shares Cost
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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)
=========== =========== =========== =========== =========== ===========
<CAPTION>
Equity (Deficit) Notes
Additional During the Receivable Total
Paid-In Development From Stockholders'
Capital Stage Officer Equity (Deficit)
----------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
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)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
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
<TABLE>
<CAPTION>
May 22, 1996
(Inception)
Through
2002 2001 March 31, 2002
--------- --------- --------------
<S> <C> <C> <C>
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)
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
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
<TABLE>
<CAPTION>
May 22, 1996
(Inception)
Through
2002 2001 March 31, 2002
--------- --------- --------------
<S> <C> <C> <C>
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
======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
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<PAGE>
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)
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</TEXT>
</DOCUMENT>