10QSB 1 ten-qsb.txt 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ____________ to ____________ Commission file number 0-16341 ADVA International Inc. (Name of small business issuer in its charter) ---------------
Delaware 16-1284228 ------------------------------------------------------------- ----------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) ---------------
454 South Anderson Road Rock Hill, South Carolina 29730 803.327.6790 (Address and telephone number of principal executive offices and place of business) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the issuer filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes X No ----- ------ APPLICABLE TO CORPORATE ISSUERS The number of shares outstanding of the issuer's common stock as of August 13, 2001 is 13,185,194. ================================================================================ ADVA INTERNATIONAL INC. AND SUBSIDIARY FORM 10-QSB INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheet as of June 30, 2001 and March 31, 2001.................................... 3 Consolidated Statements of Operations for the Three Months Ended June 30, 2001 and 2000 and Cumulative Period April 2, 1998 (inception) through June 30, 2001................................... 5 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) ............................. 6 Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2001 and 2000 and Cumulative Period April 2, 1998 (inception) through June 30, 2001................................... 7 Notes to Consolidated Financial Statements........................................................... 8 Item 2. Plan of Operation............................................................................... 11 PART II. OTHER INFORMATION Item 2. Changes in Securities........................................................................... 12 Item 6. Exhibits and Reports on Form 8-K................................................................ 12 SIGNATURES.............................................................................................. 12
Forward Looking Statements When used in this Form 10-QSB, the words "may", "will", "should", "could", "expects", "plans", "intends", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of such terms and other comparable terminology are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including but not limited to economic conditions, changes in laws or regulations, our history of operating losses, limited access to capital, demand for our products and services, dilution from issuance of additional shares, newly developing technologies, loss of permits, conflicts of interest in related party transactions, regulatory matters, the occurrence of events not covered by insurance, a substantial increase in interest rates, protection of technology, lack of industry standards, raw material commodity pricing, the ability to receive bid awards, the inability to implement our growth strategy, the inability to maintain key employees, the effects of competition and our ability to obtain additional financing. Such factors, which are discussed in the "Plan of Operation" and the notes to condensed consolidated financial statements, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with undue reliance on any such forward-looking statements, which speak only as of the date made. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot and do not guarantee future results, levels of activity, performance or achievements. See "Plan of Operation". 2 Item 1. Financial Information ADVA International Inc. and Subsidiary (A Development Stage Enterprise) Consolidated Balance Sheets
June 30, March 31, 2001 2001 ------------------------------------------------------------------------------------------------------------------- (Unaudited) Assets Current assets Cash and cash equivalents $ 447,837 $ 961,483 Prepaid expenses 47,750 56,500 ------------------------------------------------------------------------------------------------------------------- Total current assets 495,587 1,017,983 Furniture and equipment, net of accumulated depreciation of $359 23,423 -- Software 219,410 200,000 Deferred financing costs, net of accumulated amortization of $267,056 and $221,155 650,444 696,345 Deposit 2,979 -- ------------------------------------------------------------------------------------------------------------------- Total assets $ 1,391,843 $ 1,914,328 ===================================================================================================================
3 ADVA International Inc. and Subsidiary (A Development Stage Enterprise) Consolidated Balance Sheet
June 30, March 31, 2001 2001 ------------------------------------------------------------------------------------------------------------------- (Unaudited) Liabilities and Stockholders' (Deficiency) Current liabilities Accrued transaction and creditor payables $ 560 $ 300,000 Accrued professional fees 295,156 147,267 Accrued interest 74,642 49,400 Accounts payable and accrued expenses, other 27,737 27,742 Due to officer 34,960 33,515 ------------------------------------------------------------------------------------------------------------------- Total current liabilities 433,055 557,924 Long-term debt 1,500,000 1,500,000 ------------------------------------------------------------------------------------------------------------------- Total liabilities 1,933,055 2,057,924 Commitments (Note 3) Stockholders' (deficiency) Class A preferred stock, no par value Authorized 4,000 shares, none issued -- -- Class B preferred stock, no par value Authorized 6,000 shares, none issued -- -- Common stock, $.001 par value Authorized 20,000,000 shares Issued and outstanding 13,185,194 shares 13,185 13,185 Additional paid-in capital 1,937,815 1,937,815 (Deficit) accumulated during the development stage (2,492,212) (2,094,596) ------------------------------------------------------------------------------------------------------------------- Total stockholders' (deficiency) (541,212) (143,596) ------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' (deficiency) $ 1,391,843 $ 1,914,328 ===================================================================================================================
See accompanying notes to consolidated financial statements. 4 ADVA International Inc. and Subsidiary (A Development Stage Enterprise) Consolidated Statements of Operations
Cumulative Period April 2, 1998 (inception) through Three months ended June 30, June 30, 2001 2000 2001 --------------------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) Sales, license fees $ -- $ -- $ 8,484 --------------------------------------------------------------------------------------------------------------------- Operating expenses Salary and employee related 50,611 27,525 398,341 General and administrative 259,824 16,424 795,981 Expenses related to mergers 20,336 108,558 985,278 --------------------------------------------------------------------------------------------------------------------- Total operating expenses 330,771 152,507 2,179,600 --------------------------------------------------------------------------------------------------------------------- (Loss) from operations (330,771) (152,507) (2,171,116) --------------------------------------------------------------------------------------------------------------------- Other income (expense) Miscellaneous income -- -- 1,305 Interest (expense), officer (1,250) -- (9,471) Interest (expense), debt (71,143) (51,629) (343,107) Interest income 5,548 3,650 30,177 --------------------------------------------------------------------------------------------------------------------- Total other (expense), net (66,845) (47,979) (321,096) --------------------------------------------------------------------------------------------------------------------- Net (loss) $ (397,616) $ (200,486) $(2,492,212) ===================================================================================================================== Basic and diluted loss per share $ (.03) $ (.02) $ (.23) ===================================================================================================================== Weighted average shares outstanding 13,185,194 11,444,899 10,842,756 =====================================================================================================================
See accompanying notes to consolidated financial statements. 5 ADVA International Inc. and Subsidiary (A Development Stage Enterprise) Consolidated Statements of Changes in Stockholders' Equity (Deficiency)
(Deficit) Accumulated Preferred Stock Common Stock Additional During the ------------------ ------------------------ Paid-In Development Shares Amount Shares Amount Capital Stage ------------------------------------------------------------------------------------------------------------------------------- Balance, April 2, 1998 (inception) -- $ -- -- $ -- $ -- $ -- Common stock issued, May 14, 1998 -- -- 1,000 10 300,990 -- Net (loss) -- -- -- -- (287,851) ------------------------------------------------------------------------------------------------------------------------------- Balance, March 31, 1999 -- -- 1,000 10 300,990 (287,851) Original issue discount arising from options granted in connection with debt, January 14, 2000 -- -- -- -- 900,000 -- Net (loss) -- -- -- -- -- (339,034) ------------------------------------------------------------------------------------------------------------------------------- Balance, March 31, 2000 -- -- 1,000 10 1,200,990 (626,885) Common stock issued, May 17, 2000 -- -- 13 -- 300,000 -- Stock options exercised, May 17, 2000 -- -- 176 2 449,998 -- Recapitalization, March 2, 2001 -- -- 13,184,005 13,173 (13,173) -- Receipt of stock subscription, March 2, 2001 -- -- -- -- -- -- Net (loss) -- -- -- -- -- (1,467,711) ------------------------------------------------------------------------------------------------------------------------------- Balance, March 31, 2001 -- -- 13,185,194 13,185 1,937,815 (2,094,596) Net (loss) (unaudited) -- -- -- -- -- (397,616) ------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 2001 (unaudited) -- $ -- 13,185,194 $ 13,185 $ 1,937,815 $ (2,492,212) ===============================================================================================================================
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Total Stock- Stock holders' Subscription Equity Receivable (Deficiency) --------------------------------------------------------------------------------- Balance, April 2, 1998 (inception) $ -- $ -- Common stock issued, May 14, 1998 (1,000) 300,000 Net (loss) -- (287,851) --------------------------------------------------------------------------------- Balance, March 31, 1999 (1,000) 12,149 Original issue discount arising from options granted in connection with debt, January 14, 2000 -- 900,000 Net (loss) -- (339,034) --------------------------------------------------------------------------------- Balance, March 31, 2000 (1,000) 573,115 Common stock issued, May 17, 2000 -- 300,000 Stock options exercised, May 17, 2000 -- 450,000 Recapitalization, March 2, 2001 -- -- Receipt of stock subscription, March 2, 2001 1,000 1,000 Net (loss) -- (1,467,711) --------------------------------------------------------------------------------- Balance, March 31, 2001 -- (143,596) Net (loss) (unaudited) -- (397,616) --------------------------------------------------------------------------------- Balance, June 30, 2001 (unaudited) $ -- $ (541,212) =================================================================================
See accompanying notes to consolidated financial statements. 6 ADVA International Inc. and Subsidiary (A Development Stage Enterprise) Consolidated Statements of Cash Flows
Cumulative Period April 2, 1998 (inception) Three months through ended June 30, June 30, 2001 2000 2001 ------------------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) Cash flows from operating activities Net (loss) $ (397,616) (200,486) $ (2,492,212) Adjustments to reconcile net (loss) to net cash (used in) operating activities Amortization of deferred finance costs 45,901 45,638 267,056 Depreciation 359 -- 359 Changes in assets and liabilities Decrease (increase) in assets Prepaid expenses 8,750 -- (47,750) Deposits (2,979) -- (2,979) (Decrease) increase in liabilities Accrued transaction and creditor payables (299,440) -- 560 Accounts payable and accrued expenses 173,126 (138,920) 397,535 ------------------------------------------------------------------------------------------------------------------- Net cash (used in) operating activities (471,899) (293,768) (1,877,431) ------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Software and related costs (19,410) -- (219,410) Purchase of furniture and equipment (23,782) -- (23,782) Repayment from (loan to) officer 1,445 (7,379) 34,960 ------------------------------------------------------------------------------------------------------------------- Net cash (used in) investing activities (41,747) (7,379) (208,232) ------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Proceeds from long-term debt, net of finance fees -- 390,000 1,482,500 Proceeds from stock issuance and subscription -- 750,000 1,051,000 ------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities -- 1,140,000 2,533,500 ------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (513,646) 838,853 447,837 Cash and cash equivalents at beginning of year 961,483 183,492 -- ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 447,837 1,022,345 $ 447,837 =================================================================================================================== Noncash activity During the year ended March 31, 2000, the Company incurred $900,000 in noncash deferred finance charges from options for common stock issued with debt. The amount was credited to additional paid-in capital. ===================================================================================================================
See accompanying notes to consolidated financial statements. 7 ADVA International Inc. and Subsidiary (A Development Stage Enterprise) Notes to Consolidated Financial Statements 1. Basis of The consolidated financial statements are Presentation unaudited and include the accounts of ADVA International Inc. ("ADVA") and its wholly owned subsidiary Global Information Group USA, Inc. ("GIG"). All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company as of June 30, 2001, and the results of its operations for the three month periods ended June 30, 2001 and 2000. The results of operations experienced for the three month period ended June 30, 2001 are not necessarily indicative of the results to be experienced for the fiscal year ended March 31, 2002. The statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying notes should therefore be read in conjunction with the Company's March 31, 2001 annual financial statements. 2. Business From April 2, 1998 (inception) to March 31, Operations 2000, the Company maintained operations in the Netherlands and in April 2000 moved all operations to the United States. The Company is in the development stage and planned principal operations have not yet commenced. The Company develops and markets 3D graphics applications software running on the Linux and UNIX operating systems. The Company's present software product is believed to be the only complete 3D solid modeling, animation and rendering system currently available on the Linux OS. The Company's software has been designed for use by digital media professionals in the production of film and video special effects, animation, computer-aided design and scientific visualization, Internet web site and print graphics, game development and virtual television. Since acquiring the software and the related source code in February 2000, the Company has been developing marketing plans for sales of the software to users in the 3D graphics applications market. The Company's success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company. 8 ADVA International Inc. and Subsidiary (A Development Stage Enterprise) Notes to Consolidated Financial Statements The Company has no significant operating history and, from April 2, 1998 (inception) to June 30, 2001, has generated a net loss of $2,492,212. This loss has been financed by proceeds from equity and debt issuances. During fiscal 2002, management intends to commence principal operations. Earnings from operations are expected to provide working capital. There can be no assurance that management will be successful in its efforts. 3. Employment In January 2000, GIG entered into an and employment agreement with the Chief Executive Consulting Officer that provides for payments of Agreements $110,000 per year along with certain other benefits in exchange for defined services to be performed by the employee. The agreement is not for a specific term and may be terminated by either party at any time. ADVA and the employee are currently in the process of negotiating a new employment agreement, which is expected to include similar provisions along with Incentive Stock Options (see Note 4) to purchase 100,000 shares of common stock which will vest in four equal annual increments starting from the date of approval by the Board of Directors. On April 19, 2001, the Board of Directors granted an Incentive Stock Option (see Note 4) to the President of GIG, who is also a Director of both ADVA and GIG, to purchase 100,000 shares of ADVA common stock in connection with an employment agreement with GIG. The Incentive Stock Option will vest in four equal annual increments starting on April 23, 2001. The exercise price will be based upon the closing price of the common stock on April 23, 2001 or $1.75 per share. On May 1, 2001, the Company entered into a one-year contractual agreement with a consultant who will act as chief financial advisor to the Company. The agreement provides for payment of $4,300 monthly and is cancelable upon 30 days notice by the consultant or the Company. The Company also granted a Non-Qualified Stock Option (see Note 4) to acquire 25,000 shares of common stock which vests in equal quarterly increments beginning August 1, 2001. 4. Stock Option The Company, subject to approval of the Plan stockholders, adopted the 2001 Stock Option Plan (the "Plan") to provide for grants of options to purchase shares of common stock to officers, key employees, directors and consultants of the Company who are eligible to participate in the Plan. 1,400,000 shares of common stock have been reserved for issuance under the Plan. 9 ADVA International Inc. and Subsidiary (A Development Stage Enterprise) Notes to Consolidated Financial Statements Options granted under the Plan will be either Incentive Stock Options or Non-Qualified Stock Options and will be granted at a price equal to the fair market value of the Company's common stock at the date of grant. In addition, no Incentive Stock Option may be granted to an employee owning directly or indirectly stock having more than 10% of the total combined voting power of all classes of stock of the Company, unless the exercise price is set at not less than 110% of the fair market value of the shares subject to such Incentive Stock Option on the date of the grant and such Incentive Stock Option expires not later than five years from the date of grant. Generally, the Incentive Stock Options and Non-Qualified Stock Options have terms of ten years from the date of grant. 20% of the options vest immediately on the date of grant. On each anniversary date of the grant, the options vest in increments of 20%. The options become fully vested and exercisable four years from the date of grant. Notwithstanding the preceding, the Board of Directors determines the terms of options granted on a case-by-case basis. See Note 3 for options granted during the quarter ending June 30, 2001 and options expected to be approved subsequently. 10 Item 2. Plan of Operations The following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-QSB. Our short-term objectives are to complete the upgrading of our line of 3D graphics products on the Linux platform with product sales to commence during the second - third quarter of fiscal year 2002 across both the Linux and UNIX platforms. We expect to be in a position to show our products at the Linux World Expo trade show in late August 2001 and commence sales via the Internet in October 2001. The success of this plan depends, in part, on our ability to forge cooperative relationships with the major hardware and software manufacturers and resellers in our market in a timely fashion. We shall also seek to sell our products worldwide directly over the Internet and via the reseller channel for Linux and UNIX-based computer solutions commencing in the above-mentioned period. We expect to introduce GIGVIZ, our CAD visualization product, on the three largest distributions of the UNIX OS: H-P UNIX, SGI Irix and SUN Solaris, within the next two to three fiscal quarters. Our long-term objectives are to generate steadily increasing revenues and obtain the capital necessary to acquire or license other promising technologies to expand our portfolio of 3D graphics products on both Linux and UNIX. We are also exploring several new technology opportunities for future development and marketing enterprises. During the quarter ended June 30, 2001 we had a loss from operations of $330,771. We funded our operating losses from inception through a combination of long-term debt and the private sale of shares of our common stock. During the year ended March 31, 2001 we generated operating losses of $1,253,445. We funded these operating losses during this period through a combination of low interest long-term debt and the private sale of shares of our common stock. Based on anticipated revenue growth during fiscal year 2002 and the above borrowings, we believe we will have sufficient funds to meet our projected cash needs through the first quarter of fiscal 2003. We believe that we will attain profitability during the second half of fiscal year 2002. However, should we realize lower than expected revenue growth or incur an unforeseen level of expenses, we will incur additional losses and we will need to obtain additional capital in order to continue operations. No assurances can be given as to the availability of such funding, or the terms thereof. We do not have any available credit, bank financing or other external sources of funding. Due to historical operating losses, our operations have not generated cash flow. In order to obtain capital, we would need to sell additional shares of common stock and/or borrow funds from private lenders. We estimate that the Company will seek to raise approximately $8-10 million over the next two years. There can be no assurance that we will be successful in attracting equity or debt funding. During fiscal year 2002, we plan to perform development work expanding our product line. The work on existing products will include product maintenance and support, de-bugging and certain enhancements. The majority of expenses anticipated in fiscal year 2002 are expected to relate to building our Internet website, marketing, sales and personnel expenses. We expect to employ a combination of hardware lending programs provided by affiliated computer manufacturers; leasing and purchasing of certain computer hardware; purchasing software licenses and leasing of office equipment and services in order to meet our technical and operational needs. 11 The total number of full time employees is anticipated to increase from two to fifteen over the remainder of fiscal year 2002. Some of our employees will divide their working time between the Rock Hill office and telecommuting from their established home offices. We also utilize several offshore programmers on a contract basis and we expect to expand our remote programming activities over the 2002 fiscal year. We expect this will take place in Europe and India, although other locations may also be utilized. ADVA recently changed its fiscal year end to March 31 to coincide with that of GIG. GIG recently relocated its corporate headquarters from New York, New York to Rock Hill, South Carolina in order to reduce costs and facilitate the expansion of its infrastructure. There was a minor increase in direct operating expenses related to this relocation, due to the increase in square footage needed for our expansion. However, we are confident that the lower cost-of-living index in the Charlotte, North Carolina metropolitan area and other factors will reduce costs relative to the cost of similar growth in the New York metropolitan area. PART II. OTHER INFORMATION Item 2. Changes in Securities. The information required to be included in Item 2 of Part II of this Form 10-QSB was previously reported on ADVA's Current Report on Form 8-K/A (Amendment No. 2) filed April 23, 2001. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None. (b) Reports on Form 8-K Filing Date Subject Matter ----------- -------------- April 23, 2001 Second Amended Current Report on Form 8-K reporting consummation of the Agreement of Stock Exchange among Issuer, Global Information Group USA, Inc ("GIG") and the stockholders of GIG. April 23, 2001 Reporting Change in Issuer's Fiscal Year from June 30 to March 31. 12 SIGNATURES In accordance with the requirements of the Exchange Act, the issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. /s/Anthony E. Mohr ------------------------------------ Anthony E. Mohr CEO and President /s/Thomas A. Kruger ------------------------------------ Thomas A. Kruger Principal Accounting Officer Date: August 13, 2001 13