SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
-----------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2004
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission File Number 0-230761
ADVANCED TECHNOLOGY INDUSTRIES, INC.
------------------------------------
(Exact name of small business issuer as specified in its charter)
District of Delaware 13-4000208
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Seydelstrasse 28
Berlin, Germany, D-10117
(Address of principal executive offices)
011 49 30 201-7780
(Issuer's telephone number)
KURCHATOV RESEARCH HOLDINGS, LTD.
---------------------------------
(Former name of Issuer)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 outstanding shares of the issuer's only class of common stock as
of June 18, 2004 was 70,887,270.
Transitional Small Business Disclosure Format (check one):
Yes ( ) No (X)
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
INDEX TO FORM 10-QSB
March 31, 2004
Page Nos.
---------
PART I - FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) 2
At March 31, 2004
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 3
For the Three Months Ended March 31, 2004 and 2003
For the Period from Inception (October 25, 1995) to
March 31, 2004
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (UNAUDITED) 4
For the Three Months Ended March 31, 2004
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 5-6
For the Three Months Ended March 31, 2004 and 2003
For the Period from Inception (October 25, 1995) to
March 31, 2004
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7-23
ITEM 2 - PLAN OF OPERATION 24
ITEM 3 - CONTROLS AND PROCEDURES 28
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 29
ITEM 2 - CHANGES IN SECURITIES AND PURCHASES OF EQUITY SECURITIES 29
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 29
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 29
ITEM 5 - OTHER INFORMATION 29
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 29
SIGNATURES AND REQUIRED CERTIFICATIONS 30
1
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AT MARCH 31, 2004
ASSETS
--------
Current Assets:
Cash and cash equivalents $ 22,062
Prepaid expenses and other current assets 153,323
--------------
Total Current Assets 175,385
Property and equipment, net 183,100
Note Receivable- Related Party 206,000
Due from related parties 59,946
--------------
Total Assets $ 624,431
==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current Liabilities:
Loans and notes payable $ 1,158,112
Notes payable-related party 150,000
Accrued liabilities, including $1,394,036 due
related parties 7,534,944
Due to related parties 149,073
--------------
Total Liabilities 8,992,129
--------------
Commitments and Other Matters
Stockholders' Deficiency:
Preferred stock-$.001 par value; 1,000,000 shares
authorized; -0- shares issued and outstanding --
Common stock-$.0001 par value; 100,000,000 shares
authorized; 71,349,047 shares issued and outstanding 7,137
Additional paid-in-capital 19,239,429
Accumulated other comprehensive loss (927,333)
Deficit accumulated during the development stage (26,641,931)
Receivable on sale of stock (45,000)
--------------
Total Stockholders' Deficiency (8,367,698)
--------------
Total Liabilities and Stockholders' Deficiency $ 624,431
==============
See accompanying notes to condensed consolidated financial statements.
2
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Months Ended For the Period
March 31, from Inception
------------------------------------- (October 25, 1995)
2004 2003 to March 31, 2004
----------------------------------------------------------
Revenues $ -- $ -- $ --
----------------------------------------------------------
Costs and Expenses:
Research and development 64 134,979 5,113,135
Compensatory element of stock
issuances pursuant to
consulting, professional and
other agreements 215,811 -- 6,551,776
Consulting fees 300,000 3,789 3,390,353
Other general and administrative
expenses 671,815 318,328 8,634,351
Depreciation and amortization
expense 13,994 13,994 772,564
Interest and amortization of
debt issuance costs 132,490 96,074 4,534,644
Gain on sale of marketable
securities -- -- (875,156)
Equity loss and amortization of
goodwill of unconsolidated
affiliate - Nurescell Inc. -- -- 1,660,550
Minority interest in loss of
consolidated subsidiary -- -- (323,965)
Loss on impairment of license fee -- -- 566,667
----------------------------------------------------------
TOTAL COSTS AND EXPENSES 1,334,174 567,164 30,024,919
----------------------------------------------------------
Other (Income):
Gain on sale of equipment -- -- (21,523)
Interest income (3,077) -- (11,777)
----------------------------------------------------------
Total Other (Income) (3,077) -- (33,300)
----------------------------------------------------------
Loss before extraordinary item (1,331,097) (567,164) (29,991,619)
Extraordinary item - gain on sale
of technology interest to former
affiliate, net of income taxes
of -0- -- -- 3,349,688
----------------------------------------------------------
Net Loss $ (1,331,097) $ (567,164) $ (26,641,931)
==========================================================
Basic and diluted loss per common
share $ (0.02) $ (0.01)
=====================================
Weighted average shares used in basic
and diluted loss per common share 64,120,256 49,650,593
=====================================
See accompanying notes to condensed consolidated financial statements.
3
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2004
Deficit
Accumulated Accumulated Receivable
Common Stock Additional Other During the Unearned on Total
------------------ Paid-in Comprehensive Stage Financing Sale of Stockholders' Comprehensive
Shares Amount Capital Income (Loss) Development Costs Stock (Deficiency) Loss
--------------------------------------------------------------------------------------------------------------
For the Three Months
Ended March 31, 2004
Balance- January 1,
2004 63,061,270 $6,308 $17,716,447 $(1,194,774) $(25,310,834) $ -- $ (45,000) $(8,827,853) $ --
Issuance of stock
on conversion
of loan ($.10) 1,300,000 130 129,870 -- -- -- -- 130,000 --
Issuance of stock
on conversion of
promissory note
($.19) 6,000,000 600 1,177,400 -- -- -- -- 1,178,000 --
Issuance of stock
for legal fees
($.19) 50,000 5 9,495 -- -- -- -- 9,500 --
Compensatory
issuance
of stock ($.22) 937,777 94 206,217 -- -- -- -- 206,311 --
Comprehensive Income:
Net loss -- -- -- -- (1,331,097) -- -- (1,331,097) (1,331,097)
Other comprehensive
income (loss),
net of tax: -- -- -- -- -- -- -- -- --
Foreign
currency
translation
adjustment -- -- -- 267,441 -- -- -- 267,441 267,441
--------------------------------------------------------------------------------------------------------------
Balance- March 31,
2004 71,349,047 $7,137 $19,239,429 $ (927,333) $(26,641,931) $ -- $ (45,000) $(8,367,698) $(1,063,656)
==============================================================================================================
See accompanying notes to condensed consolidated financial statements.
4
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE PERIOD
For the Three Months Ended FROM INCEPTION
March 31, (OCTOBER 25, 1995)
------------------------------- TO MARCH 31,
2004 2003 2004
-------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,331,097) $ (567,164) $(26,641,931)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity loss and amortization of goodwill of
unconsolidated affiliate - Nurescell Inc. -- -- 850,431
Writedown of equity investment in Nurescell Inc. -- -- 810,119
Expenses incurred on behalf of consolidated
affiliate applied to the purchase of license -- -- (405,432)
Extraordinary gain -- -- (3,349,688)
Loss on impairment of license fee -- -- 566,667
Gain on sale of marketable securities -- -- (875,156)
Stock-based compensation 215,811 -- 6,551,776
Acquisition of Aberdeen -- -- 650,000
Interest and amortization of debt issuance
costs 132,490 -- 4,534,644
Research and development costs -- -- 437,368
Depreciation and amortization 13,994 13,994 772,564
Gain on sale of property, plant and equipment -- -- (8,700)
Changes in Operating Assets and Liabilities:
Prepaid expenses -- 23,645 (157,153)
Notes receivable 830 -- (5,170)
Accrued liabilities 618,363 100,230 7,474,045
Cumulative translation adjustment 267,441 101,888 (927,333)
-------------------------------------------------
Net Cash Used in Operating Activities (82,168) (327,407) (9,722,949)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures -- (12,690) (485,027)
Proceeds from sale of property, plant
and equipment -- -- 8,700
Proceeds from sale of marketable securities -- -- 3,012,656
-------------------------------------------------
Net Cash (Used in) Provided by Investing
Activities -- (12,690) 2,536,329
-------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of license fee payable -- -- (594,568)
Proceeds from exercise of options -- -- 36,000
Proceeds from issuance of common stock -- -- 881,975
Offering costs -- -- (50,000)
Proceeds from loans -- 343,810 4,414,074
Repayment of loans -- -- (835,828)
Proceeds from convertible debentures -- -- 750,000
Financing costs -- -- (75,000)
Due from (to) related parties, net 97,000 (3,499) 2,318,742
Payments under capital lease obligations (762) (1,633) (36,713)
Proceeds from sale of minority interest in
Reseal, Ltd. -- -- 400,000
-------------------------------------------------
Net Cash Provided by Financing Activities 96,238 338,678 7,208,682
-------------------------------------------------
Increase (Decrease) in Cash 14,070 (1,419) 22,062
Cash - Beginning of Period 7,992 6,896 --
-------------------------------------------------
Cash - End of Period $ 22,062 $ 5,477 $ 22,062
=================================================
See accompanying notes to condensed consolidated financial statements.
5
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE PERIOD
FROM INCEPTION
For the Months Ended (OCTOBER 25,
March 31, 1995)
---------------------------------- TO MARCH 31,
2004 2003 2004
-----------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ -- $ -- $ --
=====================================================
Income taxes $ -- $ -- $ --
=====================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH AND FINANCING
ACTIVITIES:
Equipment purchased under capital lease obligations $ -- $ -- $ 58,306
=====================================================
Convertible debentures and interest assumed by
Eurotech $ -- $ -- $ 1,212,188
=====================================================
Liabilities converted to equity $ 130,000 $ -- $ 3,174,545
=====================================================
Notes payable and accrued interest converted to equity $ 1,178,000 $ -- $ 2,170,900
=====================================================
Accrued expenses converted to equity $ -- $ -- $ 129,646
=====================================================
Loans from related parties converted to equity $ -- $ -- $ 467,873
=====================================================
Note receivable under settlement agreement $ -- $ -- $ 197,000
=====================================================
Marketable securities received under settlement
agreement $ -- $ -- $ 214,887
=====================================================
Loans due related parties cancelled under settlement
agreement $ -- $ -- $ 748,969
=====================================================
See accompanying notes to condensed consolidated financial statements.
6
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS AND CONTINUING OPERATIONS
Organization and Description of Business
- ----------------------------------------
Advanced Technology Industries, Inc. ("ATI" or the "Company") was incorporated
under the laws of the State of Delaware on October 25, 1995. The Company was
organized to identify, assess and commercialize technologies introduced and
developed by scientists throughout the world with particular emphasis on
technologies originating in Russia, Germany and Israel. ATI is a
development-stage company and as such has no revenue or earnings from
operations.
The accompanying unaudited condensed consolidated financial statements include
the accounts of ATI and its subsidiaries, Cetoni Umwelttechnologie Entwicklungs
Gmbh ("Cetoni"), ATI Nuklear AG ("ATI Nuklear") (previously Nurescell AG) and
Reseal, Ltd. ("Reseal"), collectively referred to as "the Company."
Cetoni and ATI Nuklear are 100% owned subsidiaries and Reseal is a 96% owned
subsidiary.
During December of 1999, ATI acquired all of the outstanding capital stock of
Cetoni, a German-based design and engineering firm focused on developing and
patenting technologies and products for the consumer market. Cetoni is a
development-stage company and as such has had no revenue or earnings from
operations.
On August 22, 2000, the Company entered into a joint agreement with Nurescell
US, a Nevada corporation, to form a German company named Nurescell AG. At the
time of this agreement, ATI Nuklear AG was owned 51% by Nurescell US and 49% by
ATI. During June 2001, ATI acquired the remaining 51% interest in Nurescell AG
and during July 2001, Nurescell AG changed its name to ATI Nuklear AG. ATI
Nuklear is a development-stage company focused on development of nuclear waste
remediation technologies. Since inception, ATI Nuklear has had no revenues or
earnings from operations.
On June 8, 2001, ATI formed a new entity, Reseal, Ltd., which was incorporated
under the laws of the State of Delaware. Reseal is a development-stage company
organized to commercialize its proprietary "resealable" packaging systems
technology. This patented system for resealing "pop-top" cans for both soft
drinks and beer has been developed and Reseal believes it is ready for
commercial introduction. Since inception, Reseal has had no revenue or earnings
from operations.
7
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS AND CONTINUING OPERATIONS (Continued)
Organization and Description of Business (Continued)
- ----------------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the Unites States of America for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary to make the financial statements not misleading, have been
included. Operating results for the three-month period ended March 31, 2004 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 2003.
Going-Concern and Management's Plan
- -----------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the Company as a
going concern. However, as shown in the accompanying unaudited condensed
consolidated financial statements, the Company has incurred losses from
operations since inception. Management anticipates incurring substantial
additional losses in 2004. Further, the Company may incur additional losses
thereafter, depending on its ability to generate revenues from the licensing or
sale of its technologies and products, or to enter into any or a sufficient
number of joint ventures. The Company has no revenue to date. There is no
assurance that the Company can successfully commercialize any of its
technologies and products and realize any revenues therefrom. The Company's
technologies and products have never been utilized on a large-scale commercial
basis and there is no assurance that any of its technologies or products will
receive market acceptance. There is no assurance that the Company can continue
to identify and acquire new technologies. As of March 31, 2004, the Company had
an accumulated deficit since inception of $26,641,931 and a working capital
deficiency and stockholder's deficiency of approximately $8,816,744 and
$8,367,698, respectively
Management's business plan will require additional financing. To support its
operations during the three months ended March 31, 2004, the Company borrowed
monies from LTDnetwork, Inc (Note 3).
8
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS AND CONTINUING OPERATIONS (Continued)
Going-Concern and Management's Plan (Continued)
- -----------------------------------------------
While no assurance can be given, management believes the Company can raise
adequate capital to keep the Company functioning during 2004. No assurance can
be given that the Company can continue to obtain any working capital, or if
obtained, that such funding will not cause substantial dilution to shareholders
of the Company. If the Company is unable to raise additional funds, it may be
forced to change or delay its contemplated marketing and business plans.
Being a start-up stage entity, the Company is subject to all the risks inherent
in the establishment of a new enterprise and the marketing and manufacturing of
a new product, many of which risks are beyond the control of the Company. All of
the factors discussed above raise substantial doubt about the Company's ability
to continue as a going concern.
These unaudited condensed consolidated financial statements do not include any
adjustments relating to the recoverability of recorded asset amounts that might
be necessary as a result of the above uncertainty.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The unaudited condensed consolidated financial statements include the accounts
of ATI and all of its wholly-owned and its majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Investments in unconsolidated affiliates are accounted for using
the equity method when the Company owns at least 20%, but no more than 50% of
such affiliates. Under the equity method, the Company records its proportionate
shares of profits and losses based on its percentage interest in earnings.
Use of Estimates
- ----------------
The preparation of consolidated financial statements, in conformity with
accounting principles generally accepted in the United States of America,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the unaudited condensed consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
9
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Equity Method of Accounting for Unconsolidated Affiliates
- ---------------------------------------------------------
At March 31, 2004, investments in companies accounted for under the equity
method consist of the following foreign development-stage technology companies:
% Country of
Owned Operations
------- ----------
Flexitech, Ltd. ("Flexitech") 20.00% Israel
Pirocat, Ltd. ("Pirocat") 20.00% Israel
Sibconvers 50.00% Russia
Container Engineering, Ltd 50.00% Russia
The Company does not have sufficient control over management, the board of
directors or financial matters and accordingly the Company does not consolidate
such entities. The above companies do not have any revenue nor any significant
assets, liabilities, commitments and contingencies.
Impairment of Long-Lived Assets
- -------------------------------
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal On
Long-Lived Assets," the Company reviews the carrying amount of long-lived assets
on a regular basis for the existence of facts or circumstances, both internally
and externally, that suggest impairment. The Company determines if the carrying
amount of a long-lived asset is impaired based on anticipated undiscounted cash
flows before interest from the use of the asset. In the event of impairment, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair value of the asset. Fair value is determined based on appraised value of
the assets or the anticipated cash flows from the use of the asset, discounted
at a rate commensurate with the risk involved.
10
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
- --------------------
SFAS No. 130, "Accounting for Comprehensive Income," establishes standards for
reporting and disclosure of comprehensive income and its components (including
revenues, expenses, gains and losses) in a full set of general-purpose financial
statements. The items of other comprehensive income that are typically required
to be disclosed are foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on certain investments in debt and
equity securities.
Accumulated other comprehensive loss, at March 31, 2004, consists of foreign
currency translation adjustments in the amount of $927,333.
Comprehensive loss relates to foreign currency translation adjustments and
was $267,441 and $101,888, for the three months ended March 31, 2004 and 2003,
respectfully.
Stock-Based Compensation
- ------------------------
The Company accounts for stock-based compensation for employees in accordance
with Accounting Principals Board ("APB") No. 25 and Financial Interpretation
No.44. Stock and options granted to other parties in connection with providing
goods and services to the Company are accounted for under the fair value method
as prescribed by SFAS No. 123.
In December 2002, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure -
an Amendment of SFAS Statement No. 123". This statement amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS No. 148 also requires that
those effects be disclosed more prominently by specifying the form, content, and
location of those disclosures.
11
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation (Continued)
- ------------------------
The additional disclosures required by SFAS No. 148 are as follows:
March 31,
2004 2003
-----------------------------
Net loss applicable to common stockholders, as reported $(1,331,097) $ (567,164)
Add: Stock-based employee compensation expense
included in reported net loss applicable to
common stockholders -- --
Less: Total stock-based employee compensation expense
determined under the fair value-based method of
all awards 206,311 --
-----------------------------
Proforma Net Loss Applicable to Common Stockholders $(1,537,408) $ (567,164)
=============================
Net loss applicable to common stockholders per basic
and dilutive shares:
As reported $ (0.02) $ (0.01)
=============================
Proforma $ (0.02) $ (0.01)
=============================
Translation of Foreign Currencies
- ---------------------------------
The U.S. dollar is the functional currency for all of the Company's businesses,
except its operations in Germany and Russia. Foreign currency denominated assets
and liabilities for these units are translated into U.S. dollars based on
exchange rates prevailing at the end of each period presented, and revenues and
expenses are translated at average exchange rates during the period presented.
The effects of foreign exchange gains and losses arising from these translations
of assets and liabilities are included as a component of equity.
Earnings (Loss) Per Share of Common Stock
- -----------------------------------------
Basic net earnings (losses) per share of common stock are computed by dividing
earnings (losses) available to common stockholders by the weighted average
number of common shares outstanding during the periods presented.
Diluted net earnings (losses) per share reflects per share amounts that result
if dilutive common stock equivalents are converted to common stock.
Common stock equivalents, consisting of options and warrants, discussed in Note
8, were not included in the calculation of diluted loss per share because their
inclusion would have had been anti-dilutive.
12
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Business Segment
- ----------------
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," establishes standards for the way public enterprises report
information about operating segments in annual consolidated financial statements
and requires reporting of selected information about operating segments in
interim financial statements regarding products and services, geographical areas
and major customers. The Company has determined that under SFAS No. 131, it
operates in two segments (see Note 11).
13
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - MERGER AND CONVERSION AGREEMENT
Merger Agreement - LTDN
- -----------------------
On June 18, 2003, the Company entered into an agreement and Plan of Merger the
"Merger Agreement") by and among the Company, LTDnetwork, Inc., a Delaware
corporation ("LTDN") and LTDN Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of the Company ("Merger Sub"). Pursuant to the Merger
Agreement, Merger Sub will be merged with and into LTDN, and LTDN will continue
as the surviving corporation and as a wholly-owned subsidiary of the Company
(the "Merger"). As a result of the Merger, stockholders of LTDN will receive in
exchange for such stockholders shares of common stock of LTDN, such number of
shares of common stock, par value $0.0001 per share, of the Company ("Company
Common Stock") such that after the issuance of such shares of Company Common
Stock, such stockholders of LTDN will own in the aggregate at least 58% of the
outstanding shares of Company Common Stock. Such percentage of shares of Company
Common Stock to be issued to the stockholders of LTDN may be increased depending
on the amount of cash on LTDN's balance sheet and the existence of certain
liabilities of the Company, in each case at the time of the Merger.
The consummation of the Merger is contingent upon the approval and adoption by
the Company's stockholders of an amendment to the Company's Certificate of
Incorporation to increase the Company's authorized capital stock, the approval
and adoption of the Merger Agreement by LTDN's stockholders, the conversion of
the indebtedness of the Company into Company Common Stock, LTDN having at least
$5,000,000 of assets on its balance sheet at the time of the Merger (less any
funds loaned by LTDN to the Company prior to the Merger), the effectiveness of a
registration statement registering the shares of Company Common Stock to be
issued to the stockholders of LTDN and other conditions set forth in the Merger
Agreement.
Through March 31, 2004 the Company had received approximately $1,210,334 from
LTDN pursuant to an outstanding promissory note, which was secured by certain
patents relating to the resealable can. On June 19, 2003, the Company and LTDN
entered into a conversion agreement pursuant to which the Company and LTDN
agreed to convert $800,000 of the outstanding company debt held by LTDN into
8,000,000 shares of Company Common Stock, which represented approximately 14% of
the outstanding Company Common Stock. In addition, LTDN released the security
for such debt. During November, the Company and LTDN entered into a conversion
agreement pursuant to which the Company and LTDN agreed to convert $125,000 of
the outstanding Company debt held by LTDN into 1,250,000 shares of Company
Common Stock.
On March 26, 2004, the Company entered and LTDN agreed to convert $130,000 of
the outstanding debt held by LTDN into 1,300,000 shares of the Company's Common
Stock. At March 31, 2004 $155,334, including $5,334 of accrued interest, was
outstanding under such promissory note.
14
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - RESTRUCTURE AGREEMENT, ASSET PURCHASE AGREEMENT AND SUBSCRIPTION
AGREEMENT
Nurescell, Inc. Restructive Agreement
- -------------------------------------
On March 21, 2003, the Company and Nurescell Inc. ("Nurescell") entered into a
Restructure Agreement pursuant to which the Company agreed to cancel its $1
million principal promissory note and related interest due from Nurescell in
consideration of Nurescell transferring to the Company the licensed technology.
This transaction requires the approval of the shareholders of Nurescell. The
Nurescell Restructure Agreement was completed on January 21, 2004. Accordingly,
Nurescell has transferred to ATI and ATI Nuklear all rights, title and interest
in and to the Nurescell Technology in return for the cancellation by ATI and ATI
Nuklear of the ATI obligations.
Asset Purchase - Alfa Pro Products Gmbh
- ---------------------------------------
On July 11, 2003, the Company entered into an Asset Purchase Agreement with
Alfa-Pro Products Gmbh ("Alfa-Pro") and Alice Schlattl pursuant to which ATI
will purchase all of the intellectual property rights of Alfa-Pro in
consideration of cash in an amount not to exceed $90,000 and the issuance of
20,000,000 unregistered shares of Company Common Stock. In addition, the Company
has agreed to pay off certain debts of affiliates and related parties of Alfa -
Pro. The Alfa-Pro asset purchase is scheduled to close immediately prior to the
Merger with LTDN.
In May 2004, the Company reached an agreement with Alfa Pro, Alice Schlattl and
related individuals to amend the Alfa-Pro Asset Purchase Agreement to, among
other things, effect the transfer to ATI of all intellectual property that is
controlled by Alfa Pro and such other parties as soon as administratively
possible. Under the terms of the new understanding, ATI will purchase all of the
intellectual property rights of Alfa Pro and such other parties in consideration
for cash in an amount not to exceed $90,000 and the issuance of unregistered
preferred stock of ATI of the same series that is contemplated to be issued to
the stockholders of LTDN if the Merger Agreement is revised as noted above. Such
number of issued shares will represent, on an as converted basis, less than 10%
of the outstanding shares of Common Stock following the consummation of the
previously announced transaction with LTDN. In addition, ATI has agreed to pay
off certain debts of affiliates and related parties of Alfa-Pro.
ATI Nuklear Stock Subscription Agreement
- ----------------------------------------
On July 28, 2003, the Company entered into a Stock Subscription Agreement with
ATI Nuklear, Nuklear Technologies, Inc., a newly formed Delaware corporation
("Nuklear Technologies"), Hans Skrobanek, the chief executive officer and a
director of the Company, and Peter Goerke, an officer of the Company, pursuant
to which (a) in consideration for the issuance to the Company and ATI Nuklear of
4,100 and 1,000 shares, respectively, of common stock of Nuklear Technologies
("Nuklear Common Stock"), (i) the Company and ATI Nuklear will transfer certain
assets to Nuklear Technologies relating to the Russian based and/or nuclear
focused operations of the Company and ATI Nuklear and (ii) Nuclear Technologies
will assume certain liabilities of the Company and ATI Nuklear relating to such
assigned assets and (b) Hans Skrobanek and Peter Goerke will each purchase 2,450
shares of Nuclear Common Stock for an aggregate purchase price of $1.00. As part
of the reorganization, it is anticipated that the Company will pay approximately
$56,000 of existing liabilities in connection with such assumed assets and will
convert approximately $163,000 of existing liabilities in connection with such
assumed assets into Company Common Stock. Following the consummation of such
transaction, Nuklear Technologies will be a 51% owned subsidiary of the Company
with the remaining 49% being owned by Hans Skrobanek and Peter Goerke. The above
transaction has not closed as of March 31, 2004. In the event that the Stock
Subscription Agreement between ATI and Nuclear Technologies is not consummated,
ATI anticipates expending no further funds for the development of these
businesses and anticipates reevaluating the scope of such operations.
15
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - AMENDED CETONI TRANSACTION AND SETTLEMENT AGREEMENT
In October 1999, the Company acquired al of the capital stock of Cetoni, a
German company, for consideration of 5,000,000 shares of Company Common Stock.
In April 2002, the Company and the seller amended the terms of the purchase in
order to satisfy certain German regulatory requirements. Pursuant to such
agreement, the Company agreed to pay the seller $130,000 and the Company
acknowledged a prior assumption of certain obligations related to the seller in
the amount of Euros 387,304. Such liability has been previously accounted for in
the consolidated financial statements of the Company and as of the date of the
agreement was equal to approximately $195,000. In addition, as part of this
transaction, the seller orally agreed to return the 5,000,000 shares of Company
Common Stock originally issued in the 1999 transaction. A third party obtained
such shares before they were returned to the Company. In August, 2003, the
Company and such third party entered into a settlement agreement pursuant to
which such third party agreed to transfer, and to cause certain relatives and
affiliates of such third party to transfer, to the Company 2,095,000 shares of
Common Stock and approximately 1,300,000 shares of common stock (the "Settlement
Shares") of another publicly traded company valued at $214,887. The 2,095,000
common shares were surrendered and cancelled during the period December of 2003
through May 17, 2004. In addition, such third party cancelled an obligation of
the Company to pay such third party $748,969. Furthermore, such third party
executed a promissory note to pay the Company $197,000 (which equaled a then
outstanding amount existing under a previously issued promissory note payable by
the Company to the third party's wife) on or prior to August 11, 2005 and such
third party's wife agreed to extend the maturity date of her existing promissory
note until the payment by third party consultant of his promissory note. The
Company accounted for the gain of $1,160,857 related to this settlement
agreement as an increase to paid-in-capital during the quarter ended September
30, 2003.
NOTE 6 - EQUIPMENT
Equipment at March 31, 2004 consisted of the following:
Machinery and equipment $ 234,761
Transportation equipment 144,789
Office furniture and fixtures 167,675
Software 13,615
-----------
560,840
Less: Accumulated depreciation (377,740)
-----------
$ 183,100
===========
Depreciation expense for the three months ended March 31, 2004 and 2003 amounted
to $13,994 and $13,994, respectively.
16
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 - LOANS AND NOTES PAYABLE
During March 2004, the Company issued 6,000,000 shares of its restricted common
stock as payment in full of a promissory note payable in the amount of $860,000
plus $318,000 of accrued interest.
NOTE 8 - STOCKHOLDERS' DEFICIENCY
Earnings Per Share
- ------------------
Securities that could potentially dilute basic earnings per share ("EPS") in the
future that were not included in the computation of diluted EPS because to do so
would have been anti-dilutive for the periods presented consist of the
following:
Options to purchase common stock 2,351,449
Warrants to purchase common stock 1,625,000
-------------
Total as of March 31, 2004 3,976,449
=============
Substantial Issuances After March 31, 2004:
Shares issuable for payment of consulting fee 141,000
Shares issuable pursuant to conversion of accrued
liabilities 1,526,238
Shares issuable regarding proposed acquisition
of Alfa-Pro products GmbH 20,000,000
Shares issuable under a consulting agreement 65,000
Shares issuable as additional consideration for loan
incentives 60,000
Shares issued in connection of settlement of legal fees 565,000
In addition, additional shares will be issuable to LTDN at the closing of the
proposed transaction, which will increase LTDN's ownership percentage to not
less than 58% (See Note 3).
The Company has been notified by TPG Capital Corporation ("TPG") that TPG
believes it is entitled to receive an additional 1,465,671 shares of the
Company's common stock under an agreement previously executed between the
parties. The Company is investigating TPG"s claims to determine the validity of
such claims.
17
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 - STOCKHOLDERS' EQUITY
Common Stock Issuances - 2004
- -----------------------------
During March 2004, the Company issued 6,000,000 shares of its common stock as
payment in full of a promissory note payable in the amount of $860,000 plus
accrued $318,000 of accrued interest.
During March 2004, the Company entered into a Conversion Agreement with LTDN
pursuant to which LTDN converted $130,000 of debt owed to it into 1,300,000
shares of restricted Company common stock.
During March 2004, the Company issued 50,000 shares of common stock as
consideration for legal services performed by its attorneys. Shares issued under
these arrangements were valued at $9,500, which was charged to operations in the
first quarter of 2004.
During March 2004, the Company issued to an employee and officer 937,777 shares
of the Company's restricted common stock as consideration for services provided.
During March 2004, the Company agreed to issue an employee a 10-year option to
purchase 937,777 shares of the Company's common stock at an exercise price of
$0.22 per share.
NOTE 10 - COMMITMENTS AND OTHER MATTERS
Consulting Agreement - ERBC
- ---------------------------
By letter dated June 1, 1996, the Company engaged ERBC Holdings, LTD ("ERBC"),
an affiliate of the Company by virtue of common stockholders, as a consultant
for a one-year period to undertake all aspects of the Company's operations in
Russia. Pursuant to the letter agreement, the Company agreed to pay ERBC a fee
of $115,000 for the year during which it has been engaged. During June 1997, the
Company renewed the agreement with ERBC for an additional one-year period on
like terms. During June 1998, the Company renewed the agreement with ERBC for an
additional one-year term and agreed to pay ERBC a fee of $168,577 for the year
during which it has been engaged. Commencing in 2001, fees under the consulting
agreement are $240,000 per year. During April 2001, ERBC entered into an
agreement to convert $467,873 of accrued consulting fees into the Company's
common stock. Included in accrued liabilities as of March 31, 2004 is $1,015,176
related to this agreement.
Russian Contracts for Research and Development
- ----------------------------------------------
The Company is a party to a research and development agreement with a
Moscow-based State Scientific Research Institute Scientific Production Company
named Lutch pursuant to which such entity has agreed to perform various contract
research and development services related to technology obtained by the Company
from Nurescell for a total price of $985,000. As of March 31, 2004, the Company
paid $100,000 under this agreement, which has been charged to research and
development expenses during the year ended December 31, 2002. As a continued
result of limited funding, no services have been performed under this agreement.
It is uncertain when or if any services will eventually be completed under this
contract.
The Company is a party to a research and development agreement with a branch of
the Ministry of the Atomic Energy of the Russian Federation pursuant to which
such entity has agreed to perform various contract research and development
services to develop an industrial fireproof swelling cable coating for a total
price of $462,000. As a result of limited funding of this contract, the
performance of services were rescheduled to occur commencing with the quarter
ended December 31, 2003 and to be completed within one year. As a continued
result of limited funding, no services have been performed under this agreement.
18
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 - COMMITMENTS AND OTHER MATTERS (Continued)
Technology Purchase
- -------------------
In connection with an oral agreement, the Company has agreed to acquire the
rights to certain technologies now held by a German Bank, for an estimated
purchase price of $500,000 payable in cash and/or Company's common stock. This
transaction is expected to close during the year ended December 31, 2004. During
April 2004, LTDN paid $110,860 and an additional $110,860 during May 2004 to the
German bank as part of this oral agreement.
International Operations
- ------------------------
The Company has strategic alliances, collaboration agreements and licensing
agreements with entities, which are based and/or have operations in Russia and
Ukraine. Both of these countries have experienced volatile and frequently
unfavorable economic, political and social conditions. The Russian economy and
the Ukrainian economy are characterized by declining gross domestic production,
significant inflation, increasing rates of unemployment and underemployment,
unstable currencies, and high levels of governmental debt as compared to gross
domestic production. The prospects of widespread insolvencies and the collapse
of various economic sectors exist in both countries.
In view of the foregoing, the Company's business, earnings, asset values and
prospects may be materially and adversely affected by developments with respect
to inflation, interest rates, currency fluctuations, government policies, price
and wage controls, exchange control regulations, taxation, expropriation, social
instability, and other political, economic or diplomatic developments in or
affecting Russia and Ukraine. The Company has no control over such conditions
and developments, and can provide no assurance that such conditions and
developments will not adversely affect the Company's operations.
Conversion Agreements
- ---------------------
On July 15, 2003 the Company and the chief financial officer of the Company
entered into a conversion agreement pursuant to which the Company and such
employee agreed to convert $265,800 of accrued salary due to such employee into
1,526,238 shares of Company Common Stock. The Company has agreed to file a
registration statement on Form S-8 in order to register the shares being issued
to such employee. Such employee has agreed to certain restrictions on the number
of shares of Company Common Stock that may be sold over certain period of time.
As of March 31, 2004, none of these shares had been issued to such employee. The
closing of this conversion agreement is effective upon the filing of the S-8
registration statement.
Royalty Fees
- ------------
Pursuant to a Patent Maintenance and Development Contract dated May 31, 2002,
the Company agreed to pay to certain persons a royalty fee equal to 1% of the
sales revenue the Company receives from the sale of resealable cans, which are
manufactured or distributed worldwide under a license from the Company. Such
persons agreed to provide research and development services to the Company with
respect to the commercialization of the resealable can. As of March 31, 2004,
the Company had not received any revenue with respect to sales of the
reseal-able can and, therefore, as of such date, the Company had not paid any
royalty fees pursuant to such agreement.
19
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND OTHER MATTERS (Continued)
Legal Dispute
- -------------
During the quarter ended June 30, 2003, the Company has been notified that Dr.
Jurgen Lempert intended to commence legal proceeding against the Company
relating to his termination as Chief Executive Officer of ATI Nuklear. A German
court ruled the Dr. Lempert is entitled to collect $69,629. As of March 31,
2004, the Company has accrued such amounts.
A noteholder has threatened to sue the Company for repayment of an outstanding
note. To date, the Company has not been served with a lawsuit. In the event the
noteholder does sue the Company, the Company believes it has sufficient defenses
and intends to vigorously defend itself against such claims.
James Cassidy and TPG Capital have threatened litigation against the Company
regarding a purported reset provision in an agreement entered into during 1999.
To date, the Company has not been sued and is investigating the claims of
Cassidy and TPG. TPG believes it is entitled to receive an additional 1,465,671
shares of the Company's Common Stock under an agreement previously executed
between the parties. Should litigation arise, the Company believes that it has
sufficient defenses and intends to vigorously defend itself against such claims.
Dr. Alexander Kaul, former Chairman of the Supervisory Board of ATI Nuklear, has
initiated legal proceedings against the Company for monies he believes are due
him under his terminated employment contract. A German court ruled that Dr. Kaul
is entitled to collect $67,808. As of March 31, 2004, the Company has accrued
such amounts.
Peter Goerke, a former Vice President of the Company, initiated legal
proceedings against the Company for the value of his remaining employment
agreement, accrued wages and expenses. A German court ruled that Mr. Goerke is
not entitled to the remaining value of his employment contract and is only
entitled to collect $197,486. As of March 31, 2004 the Company has accrued such
amounts.
The Company is also subject to various matters of litigation during its normal
course of operations. Management believes that the eventual outcome of these
matters will not have a material adverse effect on the Company's consolidated
financial position, results of operations, or cash flows.
Lien on Star Can patents
- ------------------------
During June 2003, the Company became aware that a lien had been placed against
the patents relating to the resealable can by Paxsys Ltd., a Bermuda
corporation, in connection with a failed financing. The Company disputes the
validity of the claim and intends to take vigorous action to remedy the
situation and have the lien removed.
20
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 - COMMITMENTS AND OTHER MATTERS (Continued)
Settlement Agreements
- --------------------
During February 2004, the Company and a former consultant of ATI Nuklear reached
a settlement on amounts due to the former Director. Under the terms of the
settlement agreement, the former Director is entitled to receive cash payment of
$21,000 and 141,000 shares of the Company's common stock. As of June 15, 2004,
these shares have not been issued. This agreement has not finalized as of March
31, 2004.
During February 2004, the Company reached various settlements with consultants
for services performed. Under the settlement agreements, the consultants are to
to receive cash payments of $95,273 and 288,000 shares of the Company's common
stock. At March 31, 2004, the Company has accrued such amounts. As of June 15,
2004, these shares have not been issued.
Conversion Agreements and Future Issuances of Stock
- ---------------------------------------------------
During March 2004, the Company and 10 former Russian employees entered into a
conversion agreement whereby the employee agreed to convert $143,623 of accrued
salary into 955,925 shares of the Company's common stock. As of June 15, 2004,
these shares have not been issued. This agreement has not closed as of March 31,
2004.
International Operations
- ------------------------
The Company has strategic alliances, collaboration agreements and licensing
agreements with entities, which are based and/or have operations in Russia and
Ukraine. Both of these countries have experienced volatile and frequently
unfavorable economic, political and social conditions. The Russian economy and
the Ukrainian economy are characterized by declining gross domestic production,
significant inflation, increasing rates of unemployment and underemployment,
unstable currencies, and high levels of governmental debt as compared to gross
domestic production. The prospects of widespread insolvencies and the collapse
of various economic sectors exist in both countries.
In view of the foregoing, the Company's business, earnings, asset values and
prospects may be materially and adversely affected by developments with respect
to inflation, interest rates, currency fluctuations, government policies, price
and wage controls, exchange control regulations, taxation, expropriation, social
instability, and other political, economic or diplomatic developments in or
affecting Russia and Ukraine. The Company has no control over such conditions
and developments, and can provide no assurance that such conditions and
developments will not adversely affect the Company's operations.
NOTE 11 - SEGMENT REPORTING
The Company's business is organized on a geographic basis, and the Company's
Chief Operating Decision Maker assesses performance and allocates resources on
this basis. The information provided in the following section is representative
of the information used by the Chief Operating Decision Maker in deciding how to
allocate resources and in assessing performance.
The Company has two geographic reportable segments: U.S.A. and Germany. The
accounting policies of the segments are the same as described in the summary of
significant accounting policies. The Company evaluates segment performance based
on income (loss) before interest and extraordinary item.
21
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 - SEGMENT REPORTING (Continued)
Segment results for the three months ended March 31, 2004 and 2003 are as
follows:
U.S.A. Germany Eliminations Consolidated
------------- ------------- ------------- -------------
2004:
- ----
Loss before extra-
ordinary item $ (206,311) $(1,124,786) $ -- $(1,331,097)
============ ============ ============ ============
Depreciation and
amortization $ -- $ 13,994 $ -- $ 13,994
============ ============ ============ ============
Identifiable Assets $ 265,946 $ 358,485 $ -- $ 624,431
============ ============ ============ ============
2003:
- -----
Loss before extra-
ordinary item $ (60,000) $ (507,164) $ -- $ (567,164)
============ ============ ============ ============
Depreciation and
amortization $ -- $ 13,994 $ -- $ 13,994
============ ============ ============ ============
Identifiable Assets $ 59,946 $ 407,674 $ -- $ 467,620
============ ============ ============ ============
22
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12 - SUBSEQUENT EVENTS
Consulting Agreement
- --------------------
On April 14, 2004, the Company issued 60,000 shares of its common stock as
consideration for loan incentives.
On April 23, 2004, the Company entered into a one-year consulting agreement for
public relation services. The Consultant shall receive 65,000 shares of the
Company's common stock as compensation.
Settlement Agreement
- --------------------
On June 15, 2004 the Company entered into a settlement agreement with a law firm
previously engaged by the Company in connection with the settlement of various
claims between such parties. Such claims included a claim by such law firm that
the Company owed such law firm approximately $721,000 for legal services and
interest on the outstanding amount.
Pursuant to such settlement agreement each party provided the other with a
general release for all claims arising prior to the date of such settlement
agreement and the Company agreed to issue to such law firm 500,000 restricted
shares of Common Stock and 1,750,000 shares of Common Stock to be registered on
a Form S-8.
23
ITEM 2. PLAN OF OPERATION
FORWARD LOOKING STATEMENTS.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included elsewhere in this report on Form
10-QSB and with the annual report of Advanced Technology Industries, Inc. (the
"Company") on Form 10-KSB for the fiscal year ended December 31, 2003. This
report on Form 10-QSB contains certain statements that are "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Those statements, among other things,
include the discussions of the Company's expectations set forth below. Although
the Company believes that the expectations reflected in the forward looking
statements are reasonable, management can give no assurance that such
expectations will prove to have been correct. Generally, forward looking
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of such plans or strategies, or projections
involving anticipated revenues, expenses, earnings, levels of capital
expenditures, liquidity or indebtedness, ability to raise working capital, or
other aspects of operating results or financial position. All phases of the
operations of the Company are subject to a number of uncertainties, risks and
other influences, many of which are outside the control of the Company and any
one of which, or a combination of which, could materially affect the results of
the Company's operations and whether the forward looking statements made by the
Company ultimately prove to be accurate. These influences include, but are not
limited to the following: whether or not we can successfully commercialize the
products of our subsidiaries; whether or not we are able to acquire new,
marketable technologies; whether or not others develop products or services that
are more readily accepted than, or compete with, the products or services we
currently offer or intend to offer; political turmoil or changes in government
policies in the countries in which we do business; changes in regulations or
laws that adversely impact the ability of our subsidiary, ATI Nuklear AG, to
undertake the management of nuclear waste clean-up projects in Russia; whether
or not we are able to raise sufficient capital to fund our operations, including
funding the development of the technologies owned by our subsidiaries, and other
factors or influences that may be out of our control. Although not always the
case, forward looking statements can be identified by the use of words such as
"believes", "expects", "intends", "projects", "anticipates", "contemplates", or
"estimates".
ACQUISITIONS.
On June 18, 2003, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") by and among the Company, LTDnetwork, Inc., a Delaware
corporation ("LTDN") and LTDN Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of the Company ("Merger Sub"). Pursuant to the Merger
Agreement, Merger Sub will be merged with and into LTDN, and LTDN will continue
as the surviving corporation and as a wholly-owned subsidiary of the Company
(the "Merger"). Pursuant to the terms Merger Agreement, stockholders of LTDN
will receive in exchange for such stockholders shares of common stock of LTDN,
such number of shares of common stock, par value $0.0001 per share, of the
Company ("Common Stock") such that after the issuance of such shares of Common
Stock, such stockholders of LTDN will own in the aggregate at least 58% of the
outstanding shares of Common Stock. Such percentage of shares of Company Common
Stock to be issued to the stockholders of LTDN may be increased depending on the
amount of cash on LTDN's balance sheet and the existence of certain liabilities
of the Company, in each case at the time of the Merger.
The consummation of the Merger is contingent upon the approval and adoption by
the Company's stockholders of an amendment to the Company's Certificate of
Incorporation to increase the Company's authorized capital stock, the approval
and adoption of the Merger Agreement by LTDN's stockholders, the conversion of
the indebtedness of the Company into Common Stock, LTDN having at least
$5,000,000 on its balance sheet at the time of the Merger (less any funds loaned
by LTDN to the Company prior to the Merger), the effectiveness of a registration
statement registering the shares of Common Stock to be issued to the
stockholders of LTDN and other conditions set forth in the Merger Agreement.
The foregoing description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by the terms and conditions of the
Merger Agreement, which is filed as Exhibit 2.1 to the Company's Form 10-QSB for
the quarterly period ended June 30, 2003 and is incorporated herein by
reference.
24
ATI is currently in discussions with LTDN to revise the Merger Agreement to
provide that the shares to be issued to the stockholders of LTDN will be issued
in a private placement with the LTDN stockholders receiving registration rights
with respect to such shares. In addition, rather than issuing Common Stock to
the stockholders of LTDN, ATI and LTDN contemplate revising the Merger Agreement
to provide for the issuance of preferred stock convertible into shares of Common
Stock and the issuance of warrants to purchase shares of preferred stock or
Common Stock. It is contemplated that on the closing date the sum of the cash of
the balance sheet of LTDN plus the amount of funds loaned by LTDN to the Company
will be less than $5,000,000 and the shareholders of LTDN will receive less than
58% of the outstanding shares of Common Stock. However, it is also contemplated
that, after giving effect to the exercise of the contemplated warrants, the
aggregate shares of such preferred stock will be convertible into the same
number of shares of Common Stock that the stockholders of LTDN would have
received under the Merger Agreement before any such revisions. As a result, no
vote of ATI's stockholders would be needed prior to the consummation of the
Merger. However such a vote would be needed to increase the Company's authorized
capital stock ATI to allow for the contemplated preferred stock to convert into
Common Stock. ATI and LTDN believe that these proposed amendments will allow the
Merger to be completed on a much faster time schedule. There can be no assurance
that ATI and LTDN will agree
Alfa-Pro Products Gmbh--Acquisition of Assets.
- ----------------------------------------------
On June 28, 2003, the Company entered into an Asset Purchase Agreement (the
"Alfa-Pro Asset Purchase Agreement") with Alfa-Pro Products GmbH ("Alfa-Pro")
and Alice Schlattl pursuant to which ATI will purchase all of the intellectual
property rights of Alfa-Pro in consideration for cash in an amount not to exceed
$90,000 and the issuance of 20,000,000 unregistered shares of Common Stock (such
number of issued shares will represent less than 10% of the outstanding shares
of Common Stock following the Merger with LTDN). In addition, the Company has
agreed to pay off certain debts of affiliates and related parties of Alfa-Pro.
The Alfa-Pro asset purchase is scheduled to close immediately prior to the
Merger with LTDN.
The foregoing description of the Alfa-Pro Asset Purchase Agreement does not
purport to be complete and is qualified in its entirety by the terms and
conditions of the Alfa-Pro Asset Purchase Agreement, which is filed as Exhibit
2.3 to the Company's Form 10-QSB for the quarterly period ended June 30, 2003
and is incorporated herein by reference.
In May 2004, the Company reached an agreement with Alfa Pro, Alice Schlattl and
related individuals to amend the Alfa-Pro Asset Purchase Agreement to, among
other things, effect the transfer to ATI of all intellectual property that is
controlled by Alfa Pro and such other parties as soon as administratively
possible. Under the terms of the new understanding, ATI will purchase all of the
intellectual property rights of Alfa Pro and such other parties in consideration
for cash in an amount not to exceed $90,000 and the issuance of unregistered
preferred stock of ATI of the same series that is contemplated to be issued to
the stockholders of LTDN if the Merger Agreement is revised as noted above. Such
number of issued shares will represent, on an as converted basis, less than 10%
of the outstanding shares of Common Stock following the consummation of the
previously announced transaction with LTDN. In addition, ATI has agreed to pay
off certain debts of affiliates and related parties of Alfa-Pro.
COMPANY OPERATIONS.
GENERAL. The Company is a development stage company and its efforts have been
primarily devoted to technology identification and acquisition, research and
development and raising capital.
The Company was formed in 1995 to acquire and commercialize new or previously
existing but non-commercialized technologies, particularly those developed by
scientists and engineers in Israel, Russia, and Germany. Directly or through a
subsidiary, the Company may acquire a direct interest in these technologies, a
right to use these technologies, and/or an ownership interest in the entity
owning these technologies. The acquisition of technologies by the Company may be
made by the issuance of Common Stock or other securities, cash or other
consideration, or a combination thereof. Our principal activities include
identifying, reviewing and assessing technologies for their commercial
applicability and potential.
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During the next 12 months the Company intends to concentrate on the (i)
consummation of the Merger with LTDN pursuant to the Merger Agreement, (ii)
commercialization of products developed by RESEAL, Ltd, a 96% owned subsidiary
("RESEAL"),(iii) commercialization of products developed by Cetoni
Umwelttechnologie EntwicklungsGmbH, a wholly owned subsidiary ("Cetoni"), (iv)
if the transactions under the Alfa-Pro Asset Purchase Agreement are consummated,
commercialization of products developed from the acquired intellectual property
and (v) development of any new products created by the founder of Cetoni. In
addition, the Company also intends to substantially restructure its operations
in Russia. In connection with such reorganization, on July 28, 2003, the Company
entered into a Stock Subscription Agreement with ATI Nuklear, AG, a wholly owned
subsidiary of the Company ("Nuklear AG"), Nuclear Technologies, Inc., a wholly
owned subsidiary of the Company ("Nuclear technologies"), Hans Skrobanek, the
president and a director of the Company, and Peter Goerke, a former officer of
the Company, pursuant to which (a) in consideration for the issuance to the
Company and ATI Nuklear of 4,100 and 1,000 shares, respectively, of common stock
of Nuclear Technologies ("Nuclear Common Stock"), (i) the Company and ATI
Nuklear will transfer certain assets to Nuclear Technologies relating to the
Russian based and/or nuclear focused operations of the Company and ATI Nuklear
and (ii) Nuclear Technologies will assume certain liabilities of the Company and
ATI Nuklear relating to such assigned assets and (b) Hans Skrobanek and Peter
Goerke will each purchase 2,450 shares of Nuclear Common Stock for an aggregate
purchase price of $1.00. As part of the reorganization, it is anticipated that
the Company will pay off certain existing liabilities in connection with such
assumed assets and will convert certain existing liabilities in connection with
such assumed assets into shares of Common Stock. Following the consummation of
such transaction, Nuclear Technologies will be a 51% owned subsidiary of the
Company with the remaining 49% being owned by Hans Skrobanek and Peter Goerke.
Other than as noted above, the Company currently anticipates that Nuclear
Technologies will arrange to finance its own operations and that the Company
will not be responsible for such funding. At the current date, it is unknown
whether ATI will be successful in completing the restructuring of its Russian
and nuclear related business activities to effectively complete the proposed
transaction with Nuclear Technologies. In the event that the Stock Subscription
Agreement between ATI and Nuclear Technologies is not consummated, ATI
anticipates expending no further funds for the development of these businesses
and anticipates reevaluating the scope of such operations. There can be no
assurance that the projects contemplated by Nuclear Technologies will be
successful should the restructure be completed.
RESEAL
RESEAL was formed to hold the Company's ownership of two proprietary resealable
beverage packaging products, specifically a resealable metal beverage can and a
resealable cardboard tetra-pak package. The main emphasis of RESEAL over the
next twelve months will be on the successful commercialization of its metal
beverage packaging products.
RESEAL is preparing for the production of 10,000 machine-fabricated samples for
distribution to beverage producers who have previously expressed a high degree
of interest in the resealable beverage cans. It is anticipated that production
of those samples, marketing and general operational expenses will require less
than $450,000. RESEAL anticipates that in the event it is required to purchase
capital equipment for the full scale production of our resealable beverage cans,
an additional $2,000,000 would be required. The production of the machine
produced samples has been delayed by a failed financing, the proceeds of which
were to be used to complete this production run.
To date, RESEAL has not entered into any distribution or sales agreements. We
anticipate, based upon responses received from major beverage producers and
beverage packaging manufacturers, that RESEAL may be in a position to enter into
distribution or sales agreements within the next twelve month period. There can
be no assurance that RESEAL will enter into distribution or sales agreements, or
if entered into that the agreements will result in significant sales or revenue
to the Company. The ability to successfully commercialize the RESEAL products
and technology is heavily dependent upon our ability to raise additional funds.
We believe that RESEAL can obtain financing on favorable terms for a substantial
portion of its intended funding from the beverage producers and/or packagers,
suppliers and/or other sources. However, if financing is not available,
management believes that RESEAL will be able to obtain the necessary funds to
pay for the production, marketing and operational expenses from other sources.
An inability to raise funds to continue the commercialization of the RESEAL
products and technology would further delay their introduction to market.
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We are in discussions with a major manufacturer of aluminum cans for the
formalization of a working research and development agreement. The proposed
agreement would provide the manufacturer with a right of first refusal for any
packaging related products already developed or developed in the future by ATI,
RESEAL or Cetoni in exchange for an annual research and development retainer
paid to us by the manufacturer.
CETONI GMBH
Cetoni is a German based design and engineering firm focused on developing and
patenting technologies and products for the consumer market. Since 1995, Cetoni
has designed and patented products for the beverage, automotive accessory,
sport, healthcare, household, office and general consumer markets.
Cetoni's products are designed to fill a gap in a market where products do not
exist or to make a significant improvement over products currently serving the
target market. The markets for Cetoni's products are automotive accessory (Tool
Star, Ring Memory), healthcare (Pharmaceutical packaging), household goods
(butter dish, sugar dispenser, candy dispenser, fruit peeler and fruit peeler
with tray), sports (Power Ball and Walk and Roll), office and general consumer
markets (Light Boy, Cleaning Center). It is anticipated that Cetoni will devote
the majority of its focus during 2004 on the successful commercialization of
RESEAL's products, which it developed, and to prepare the commercialization of
the above products.
The Company plans to review the commercialization prospects of all products and
investigate the most efficient and effective paths to market for all products,
focusing our energy and attention towards the most favorable prospects.
Except for a nominal amount of revenue from the sale of Cetoni products in a
prior period, we have not generated any revenue from operations since our
inception and we have not been profitable since our inception. We will require
additional financing to continue our planned operations during the next 12-month
period. Management believes that it will be able to raise the necessary
financing to continue planned operations. We will attempt to raise this
additional capital through the public or private placement of our securities,
debt or equity financing, joint ventures, or the licensing or sale of our
technologies and products. In addition, ATI anticipates receiving funds in
connection with the Merger. The Company continues to receive periodic funding
from LTDN. While the Company anticipates that LTDN will continue to provide
financing to the Company as long as the Merger Agreement is pending, there is no
guarantee that such funding will be available. In addition, there is no
guarantee that we will be able to successfully raise the required funds for
operations or that such funds will be available on terms satisfactory to us or
that the Merger will be consummated. Any inability to raise additional funds
would require that we significantly scale back our planned operations.
Ideally, upon the commercialization of our products, and implementation of
operational cost controls, we would hope that sustainable revenues will be able
to be generated so as to avoid the necessity to raise significant funds in the
longer term. Although we believe that we will recognize additional revenues
during the next twelve months based on expressions of interest from third
parties to acquire licenses to use our technologies and purchase our products,
there can be no assurances as to when and whether we will be able to
commercialize our products and technologies and realize any revenues there from.
In addition, no assurance can be given that we can complete the development of
any technology or that, if any technology is fully developed, it can be
manufactured and marketed on a commercially viable basis. Furthermore, no
assurance can be given that any technology will receive market acceptance. Being
a development stage company, we are subject to all risks inherent in the
establishment of a developing or new business.
On June 15, 2004 the Company entered into a settlement agreement with a law firm
previously engaged by the Company in connection with the settlement of various
claims between such parties. Such claims included a claim by such law firm that
the Company owed such law firm approximately $721,000 for legal services and
interest on the outstanding amount.
Pursuant to such settlement agreement each party provided the other with a
general release for all claims arising prior to the date of such settlement
agreement and the Company agreed to issue to such law firm 500,000 restricted
shares of Common Stock and 1,750,000 shares of Common Stock to be registered on
a Form S-8.
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Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's President
and Chief Financial Officer have conducted an evaluation of the Company's
disclosure controls and procedures as of the end of the period covered by this
report. Based on their evaluation, the Company's President and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the applicable Securities and Exchange Commission rules and forms.
(b) Changes in Internal Controls and Procedures. None.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various matters of litigation during its normal course
of operations. Management believes that the eventual outcome of these matters
will not have a material adverse effect on the Company's consolidated financial
position, results of operations, or cash flows.
ITEM 2. CHANGES IN SECURITIES AND PURCHASES OF EQUITY SECURITIES.
On March 19 2004, the Company issued 6,000,000 shares of Common Stock as payment
in full of a promissory note payable in the amount of $860,000 plus accrued
$318,000 of accrued interest. Such issuance was effected pursuant to section
4(2) under the Securities Act.
On March 26, 2004, the Company entered into a Conversion Agreement with LTDN
pursuant to which LTDN converted $130,000 of debt owed to it into 1,300,000
shares of restricted Common Stock. Such issuance was effected pursuant to
section 4(2) under the Securities Act.
On March 31, 2004, the Company issued 50,000 shares of Common Stock for legal
services. Such issuance was effected pursuant to section 4(2) under the
Securities Act.
On March 12, 2004, the Company approved the issuance to an employee and officer
of 937,777 shares of restricted Common Stock as consideration for services
provided. Such issuance was effected pursuant to section 4(2) under the
Securities Act. As of June 19, 2004 such shares have not been issued.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
A noteholder has threatened to sue the Company for repayment of an outstanding
note. To date, the Company has not been served with a lawsuit. In the event the
noteholder does sue the Company, the Company believes it has sufficient defenses
and intends to vigorously defend itself against such claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 31.1 Certification of the Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect
to the registrant's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 2004.
Exhibit 31.2 Certification of the Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect
to the registrant's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 2004.
Exhibit 32 Certification of the Principal Executive Officer
and the Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, with respect to the registrant's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 2004.
(b) Reports on Form 8-K.
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCED TECHNOLOGY INDUSTRIES, INC.
Dated: June 21, 2004 By: /s/ Hans Joachim Skrobanek
----------------------------------
Hans Joachim Skrobanek, President
Dated: June 21, 2004 By: /s/ James Samuelson
----------------------------------
James Samuelson
Chief Financial Officer
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