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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)
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Delaware 16-1284228
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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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
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APPLICABLE TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's common stock as of August 13,
2001 is 13,185,194.
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ADVA INTERNATIONAL INC. AND SUBSIDIARY
FORM 10-QSB
INDEX
Page
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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
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Total current liabilities 433,055 557,924
Long-term debt 1,500,000 1,500,000
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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
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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
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Total operating expenses 330,771 152,507 2,179,600
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(Loss) from operations (330,771) (152,507) (2,171,116)
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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
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Total other (expense), net (66,845) (47,979) (321,096)
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Net (loss) $ (397,616) $ (200,486) $(2,492,212)
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Basic and diluted loss per share $ (.03) $ (.02) $ (.23)
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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)
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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)
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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)
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Balance, March 31, 2001 -- -- 13,185,194 13,185 1,937,815 (2,094,596)
Net (loss) (unaudited) -- -- -- -- -- (397,616)
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Balance, June 30, 2001 (unaudited) -- $ -- 13,185,194 $ 13,185 $ 1,937,815 $ (2,492,212)
===============================================================================================================================
[RESTUB]
Total
Stock-
Stock holders'
Subscription Equity
Receivable (Deficiency)
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Balance, April 2, 1998 (inception) $ -- $ --
Common stock issued, May 14, 1998 (1,000) 300,000
Net (loss) -- (287,851)
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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)
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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)
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Balance, March 31, 2001 -- (143,596)
Net (loss) (unaudited) -- (397,616)
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Balance, June 30, 2001 (unaudited) $ -- $ (541,212)
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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
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Net cash (used in) operating activities (471,899) (293,768) (1,877,431)
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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
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Net cash (used in) investing activities (41,747) (7,379) (208,232)
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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
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Net cash provided by financing activities -- 1,140,000 2,533,500
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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
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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
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Anthony E. Mohr
CEO and President
/s/Thomas A. Kruger
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Thomas A. Kruger
Principal Accounting Officer
Date: August 13, 2001
13