UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR THE
TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 000-31171
ADVANCED PRECISION TECHNOLOGY, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0455378
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2271-D South Vasco Road, Livermore, CA 94550
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(Address of principal executive offices)
(925) 447-6900
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(Issuer's telephone number)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of June 11, 2001, the issuer had outstanding 54,351,977 shares of Common
Stock, par value $0.001 per share.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited financial statements of Advanced Precision Technology,
Inc., a Nevada corporation (the "Company"), as of March 31, 2001, were
prepared by Management and commence on the following page. In the opinion of
Management, the financial statements fairly present the financial condition of
the Company.
2
ADVANCED PRECISION TECHNOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
Balance Sheet
March 31, 2001 F-2
Statement of Operations -
Three Months Ended March 31, 2001
and 2000 and Cumulative During
Development Stage F-3
Statement of Cash Flows -
Three Months Ended March 31, 2001
and 2000 and Cumulative During
Development Stage F-4
Note to Financial Statements F-5
3
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED BALANCE SHEET
MARCH 31, 2001
ASSETS
CURRENT ASSETS:
Cash $ 549,339
Investment - Certificates of Deposit 250,000
Inventory 107,335
Prepaid expenses 20,132
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Total Current Assets 926,806
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION OF $178,567 351,590
PATENTS, NET OF ACCUMULATED AMORTIZATION OF $326,380 1,040,473
OTHER ASSETS 13,685
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$2,332,554
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 49,848
Due to stockholder 1,439
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Total Current Liabilities 51,287
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STOCKHOLDERS' EQUITY:
12% cumulative convertible redeemable
preferred stock, $100 par value;
25,000,000 shares authorized;
1,250 shares issued and outstanding 125,000
Common stock, $.001 par value;
100,000,000 shares authorized,
54,351,977 issued and outstanding 54,351
Additional paid-in capital 6,331,159
Deficit accumulated during development stage (4,229,243)
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2,281,267
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$2,332,554
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F-2
4
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENT OF OPERATIONS
Cumulative
During
Development Stage
3 Months Ended May 23, 1994
March 31, (Inception) to
2001 2000 March 31, 2001
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REVENUES $ 82,478
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EXPENSES:
Cost of revenues 28,049
Cost of reverse acquisition 17,995
Research and development $ 51,831 $ 37,987 1,457,965
Marketing 31,388 20,620 636,928
General and administrative 192,774 131,477 1,677,370
Depreciation and amortization 36,054 30,823 510,544
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Total Expenses 312,047 220,907 4,328,851
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INTEREST INCOME 5,707 17,130
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NET LOSS $ (306,340) $ (220,907) $ (4,229,243)
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LESS:
Cumulative preferred stock
dividend 15,000 15,000
NET LOSS TO COMMON SHAREHOLDERS $ (321,340) $ (235,907)
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LOSS PER COMMON SHARE,
BASIC AND DILUTED $ (.01) $ (.01)
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WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, BASIC AND DILUTED 54,052,030 37,401,981
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F-3
5
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENT OF CASH FLOWS
Cumulative
During
Development Stage
3 Months Ended May 23, 1994
March 31, (Inception) to
2001 2000 March 31, 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (306,340) $ (220,907) $ (4,229,243)
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and amortization 36,054 30,823 510,544
Common stock issued for services 363,553
Reverse acquisition 17,955
Changes in assets and liabilities:
Inventory (9,916) (6,462) (107,335)
Prepaid expenses 11,032 2,600 (20,132)
Other assets (1,351) (19,282)
Accounts payable (32,524) (27,470) 49,848
Accrued expenses (19,499) 88,706
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Net cash used in operating activities (322,544) (132,710) (3,434,052)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Certificate of Deposit (250,000)
Property and equipment (20,262) (35,654) (521,657)
Patents (620) (179,573)
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Net cash used in investing activities (20,882) (35,654) (951,230)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 237,065 3,259,502
Net proceeds from notes payable 114,131 1,497,500
Advances (payment) from/to stockholders (3,304) (58,376) 1,439
Contribution of capital 176,180
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Net cash provided by financing activities (3,304) 292,820 4,934,621
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NET INCREASE IN CASH AND CASH EQUIVALENTS (346,730) 124,456 549,339
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 896,069 70,371
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 549,339 $ 194,827 $ 549,339
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION :
Non cash investing and financing
activities:
Issuance of common stock for purchases 25,000 107,500
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Conversion of notes payable to
common stock $ 379,000
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F-4
6
ADVANCED PRECISION TECHNOLOGY, INC.
(A DEVELOPMENT COMPANY)
NOTE TO FINANCIAL STATEMENTS
Note 1. In the opinion of the management of Advanced Precision Technology,
Inc., the unaudited financial statements of Advanced Precision Technology,
Inc., for the interim periods shown include all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the
financial position at March 31, 2001, and the results of operations and cash
flows for the periods then ended. The results of operations for the interim
periods shown may not be indicative of the results that may be expected for
the fiscal year.
Note 2.During the year 2000, the Company issued 12,568,930 shares of its
common stock for $2,371,666 of cash, to pay off loans of $379,000 and loan
fees of $50,400, the cost of patents of $109,500 and consulting services of
$54,900.
F-5
7
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation.
Over the next 12 months, the Company plans to enter the identity
verification market through manufacturing and directly distributing the
Company's high quality fingerprint capture product to established vendors
selling fingerprint capture to major government agencies and other large-scale
identification programs. In support of this strategic plan, the Company has
developed ongoing relationships by demonstrating in person and providing
product to test, with leading industry experts, integrators, end users and
consultants. Over the past 24 months, the Company has expended approximately
$500,000 on research and development.
The Company has established new corporate offices and is in the process
of establishing production capabilities in a 9,686 square foot facility it has
leased in Livermore, California. The Company believes that its location,
access to trained scientific and manufacturing personnel, and proximity to
affordable housing will assist in achieving the Company's business plan.
The Company has and will continue to invest significant capital
expenditures in equipment, internal systems, and personnel to meet these
anticipated demands. The Company is setting up clean room facilities with
extensive optical equipment including lasers, optical tables, and film
processing workstations for the manufacture of the HOE's. The Company is
installing computer networks, desks, phone systems, and workstations for the
internal operations. The Company is setting up manufacturing cells with
fixtures, tools and related equipment and ordering parts for an initial 2000
unit build. The Company has hired an Office Manager, Production Manager,
Holographers, Quality Control Specialists and Assemblers to build the team to
assist in achieving the Company's business plan.
The Company also hired Arthur Korn on a part time advisory basis in late
July 2000 as its Chief Financial Officer. Prior to July 2000, Mr. Korn had
been the Company's outside independent auditor. Mr. Korn's primary job
functions are to assist the President on accounting, auditing, employee
benefit, and public reporting procedures. The Company has not hired a full
time Chief Financial Officer and does not intend to in the near future. Mr.
Korn has no "policy making functions" within the Company.
Feldman Sherb & Co., CPA ("Feldman, Sherb") was retained as the Company's
independent auditor by the Company's President in late 2000. The retention of
Feldman, Sherb was approved by the Company's Board of Director's on March 16,
2001.
Major Markets of Interest
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The Company is currently seeking or intends to seek sales contracts to
the following general categories of potential customers and applications: (1)
Law Enforcement Agencies, including the FBI, state, county and municipal
jurisdictions; (2) Civil Markets, including United States Immigration,
passport, military, state driver licenses, welfare fraud deterrence and
benefit entitlement; (3) Commercial Markets, including access control of
physical sites, access control of computers and databases, and security in
support of card based financial systems; and (4) International Markets,
including countries with national ID programs, border control, voter
registration, social benefits, and national health.
Market Entry Strategy
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Over the next 12 months, the Company's plan includes establishing
strategic partnerships with established vendors including Value Added
Resellers/Distributors (VARs), Original Equipment Manufacturers (OEMs), and
System Integrators (SIs). Relationships with VARs would include nonexclusive
arrangements for target markets of interest wherein selected channel partners
have established relationships with large potential segments or higher margin
"niche" markets. Relationships with OEMs would involve ATMs, point of sale,
time clocks, transit turnstiles, access control, and healthcare information
system vendors. SIs would include large scale system providers such as IBM,
EDS, NEC, Unisys and similar companies.
The Company developed its APrinT HoloPass fingerprint capture devices,
which utilize high image quality by design and multi-channel distribution
system based upon the marketing experience and insights gained from over five
years of industry participation and internal market research. The Company's
products have been engineered to provide high quality, consistent images, and
to achieve compliance with the strictest government and industry standards at
relatively low cost. Government standards include "FBI IQS EFTS" and
"ANSI/NIST", each of which is described below.
American National Standards Institute/National Institute of Standards and
Technology (ANSI/NIST) and Federal Bureau of Investigation Image Quality
Standards for the Electronic Fingerprint Transmission Standards, are standards
set forth by the respective agencies and include Geometric accuracy,
resolution, modulation transfer functions and grayscale as some of their
requirements. Some government bids require them, and the Company plans to
meet those standards. Currently there is no government agency providing
certification for single-digit devices claiming to meet those standards.
By licensing and/or marketing under non-exclusive strategic agreements
with major corporations that are serving diverse target market segments, the
Company expects to reduce the higher business risks associated with
over-dependence on a single industry, or a single large customer, or a
specific geographic region. In addition, the Company plans to work with
established security vendors in the access control/physical security
application markets in an effort to better access major corporations,
colleges, airports, hospitals, laboratories, government facilities, and
computer networks.
These strategic relationships will not only provide the Company with
distribution outlets and generate demand for the Company's product, but will
also allow the Company to integrate software, hardware, and services provided
by the Company into its offerings to others, possibly creating additional
opportunities for revenues and profits.
The Company is continuing to ship no charge units (which cost the
Company approximately $500) to major fingerprint software algorithm vendors,
integrators, and vendors with existing government contracts. The Company is
doing extensive travel to meet with major federal agencies, participate in
major trade events and standards committees, and discuss potential
distribution arrangements for the soon to be built units. The Company is
seeking purchase orders for delivery starting in the first quarter of 2001.
The Company believes this strategy will complement the Company's product
marketing efforts with end users and system integrators for large scale
fingerprint capture/verification applications such as law enforcement,
military ID, driver licenses, passports, voter registration programs, computer
security/commerce and proposed electronic benefits transfer programs by state
and federal agencies.
The Company has integrated its proprietary fingerprint capture devices
with complementary software for enrollment and verification. Separately, it
also developed proprietary technology for transfer of captured fingerprints
into "smart" cards, for subsequent verification of the user's fingerprint at
the time the "smart" card is used. By meeting high government standards and by
initially focusing on market segments that are currently purchasing
fingerprint identity verification products, the Company expects to
conclusively establish its technology as one of the standards for the
industry.
The Company's primary focus is existing government, industrial, and
commercial market segments requiring rapid, high-quality fingerprint
enrollment and identity verification in one-to-one and one-to-many
applications. One-to-one applications include security access systems that
use an individual's unique fingerprint pattern to enter restricted access
locations, to access a specific computer or data, or "smart cards".
One-to-many applications include fingerprint identity verification database
comparisons for corporate employees, military personnel, suspected criminals,
prospective handgun purchasers, recipients of government welfare or
entitlement benefits, state licensed drivers, and foreign countries'
fingerprint identification programs.
The Company's marketing strategy consists of market penetration through
price performance leadership. The Company anticipates that it will be selling
direct or through current market suppliers, system integrators, value-added
resellers, and international agents. The Company intends to support its
marketing strategy with quality collateral material, targeted advertising, and
publicity campaigns.
The Company is establishing its corporate office and production facility
to meet the anticipated demands of these marketing efforts. The Company is
investing over $250,000 in capital equipment and facilities to enable this
effort. The Company intends to significantly increase the number of its
employees by adding quality personnel in the areas of operations, assembly,
testing, engineering, and administration.
The Company plans to do additional research and development into
improving and reducing the cost of all key components in the HoloPass device.
Additional projects are planned to add digital output, internal logic, and
wireless operations to the HoloPass product.
The Company anticipates that its current funding will last for 12
months, and hopes to be operating profitably by the end of such 12 month
period. The Company has placed funds into relative term certificates of
deposit and secured lines of credit.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Change in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
The Company filed a report on Form 8-k on January 8, 2001 reporting
that the Company had retained Feldman, Sherb as its independent accountants.
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.
Dated: June 8, 2001 ADVANCED PRECISION TECHNOLOGY, INC.
/S/ BRUCE A. PASTORIUS
By:__________________________________
BRUCE A. PASTORIUS
Chairman, Chief Executive Officer
and President
/S/ JAMES D. HOMER
By:__________________________________
JAMES D. HOMER
Secretary and Director