UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 31, 2000
ADVANTAGE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA
(STATE OR OTHER JURISDICTION OF INCORPORATION)
000-29717 93-1244440
(COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
1324 S. Mary Avenue, Sunnyvale, CA 94087
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(408) 746-9960
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
Go Fathom Group, Inc.
24351 Pasto Road, Suite B
Dana Point, CA 92629
(949) 489-2400
(FORMER NAME, ADDRESS AND TELEPHONE NUMBER)
1
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to a Stock Exchange Agreement (the "Exchange Agreement") dated
as of March 31, 2000 between MRC Legal Services Corporation, a California
Corporation, which entity is the controlling shareholder of Go Fathom Group,
Inc. ("Go Fathom"), a Delaware corporation, and Advantage Technologies, Inc., a
Nevada corporation ("Advantage" or the "Company"), approximately 80.0% (800,000
shares) of the outstanding shares of common stock of Go Fathom Group, Inc. were
exchanged for 1,155,000 shares of common stock of Advantage in a transaction
which Advantage became the parent corporation of Go Fathom.
The Exchange Agreement was adopted by the unanimous consent of the Board of
Directors of Go Fathom on March 31, 2000. The Exchange Agreement was adopted
by the unanimous consent of the Board of Directors of Advantage on March 31,
2000. No approval of the shareholders of Advantage or Go Fathom is required
under applicable state corporate law.
Prior to the merger, Go Fathom had 1,000,000 shares of common stock
outstanding of which 800,000 shares were exchanged for 1,155,000 shares
of common stock of Advantage. By virtue of the exchange, Advantage acquired
80.0% of the issued and outstanding common stock of Go Fathom. Certain
consultants were issued an additional 1,540,000 shares and $100,000 cash
pursuant to a Consulting Agreement.
Prior to the effectiveness of the Exchange Agreement, effective on
February 17, 2000, Advantage had an aggregate of 24,159,240 shares of common
stock, par value $0.001, issued and outstanding.
Upon effectiveness of the acquisition, Advantage had an aggregate of
26,854,240 shares of common stock outstanding.
The officers of Advantage continue as officers of Advantage subsequent
to the Exchange Agreement. See "Management" below. The officers, directors,
and by-laws of Advantage will continue without change.
A copy of the Exchange Agreement is attached hereto as an exhibit. The
foregoing description is modified by such reference.
(b) The following table sets forth certain information regarding
beneficial ownership of the common stock as of February 17, 2000 (prior to the
issuance of 1,155,000 shares pursuant to the Exchange Agreement and 1,540,000
shares pursuant to the Consulting Agreement) by each individual who is known
to the Company, as of the date of this filing, to be the beneficial owner
of more than five percent of any class of Advantage's voting securities.
2
This table describes the current ownership of the Company's outstanding
Common Stock by (i) each of our officers and directors; (ii) each person who is
known by us to own more than 5% of the Company's outstanding Common Stock; and
(iii) all of our officers and directors as a group:
Title of Class Name and Address of Amount and Percent of
- -------------- ------------------- -------------------- ----------
Beneficial Owner Nature of Beneficial Class
---------------- -------------------- -----
Owner
-----
Common Stock George J. Bentley 1,804,086 7.5 %
2600 Lunada Lane
Alamo, CA 94507
Common Stock Keith E. Avinger 1,463,659 6.1 %
1382 Antwerp Lane
San Jose, CA 95118
Common Stock Kenney F. Noel 2,128,020 8.9 %
7145 Dublin Meadows St.
Dublin, CA 94568
Common Stock Vijay V. Marathe 1,463,659 6.1 %
20015 Puente Court
Saratoga, CA 95070
Common Stock Alfonso Reyes 1,317,294 5.5 %
2529 Home Crest Dr.
San Jose, CA 95148
Common Stock Corinna A. Stolp -0- 0 %
1017 El Camino Real
PMB # 475
Redwood City, CA 94063
Common Stock Yoshi Iwagami -0- 0%
1881 Firebrick Terrace
Union City, CA 94587
Common Stock Matthew L. Dodson -0- 0%
645 El Dorado Ave., #107
Oakland, CA 94611
Common Stock Galileo, SA 1,800,000 7.5 %
APDO 342
San Jose, Costa Rica 1000
Common Stock Triparoo, SA 1,800,000 7.5 %
APDO 342
San Jose, Costa Rica 1000
Common Stock EuroCarib Consultants, Inc. 1,800,000 7.5 %
PO Box 10697
Kings Court Bay Street
Nassau, Bahamas
Common Stock Middlegate Investments, Inc. 1,800,000 7.5 %
Bahamas Financial Centre
PO Box N 5484
Nassau, Bahamas
- ----------------------
All officers and directors
as a group ( 5 persons) 5,395,765 22.3 %
3
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Exchange Agreement
was negotiated between representatives of the shareholders of Go Fathom
and the management of Advantage.
In evaluating Advantage as a candidate for the proposed acquisition,
Go Fathom used criteria such as the value of the assets of Advantage, its
present stock price as set forth on the over-the-counter bulletin board, its
computer business and other anticipated operations, and Advantage's business
name and reputation. The shareholders of Go Fathom determined that the
consideration for the merger was reasonable.
(b) Advantage intends to continue its historical businesses and proposed
businesses as set forth more fully immediately below.
DESCRIPTION OF BUSINESS.
HISTORY
Advantage Technologies, Inc. (the"Company") was originally organized as
a Nevada corporation on September 21, 1993 under the name Logistics Distribution
Systems International Group, Inc. Under the Company's management at that time,
of which our current management was not a part, the Company's original business
was to investigate for possible acquisition various business opportunities. The
current management of the Company is not aware of what business, if any, was
carried at that time. On November 8, 1995, the Company's name was changed to
Vortices, Inc. Under the then current management, the Company's business was the
development and marketing of flight simulators to the arcade game market.
On April 21, 1998, the Company merged with Simulator Systems, Inc., a
Nevada corporation, which was the surviving corporation of a prior merger on
April 15, 1997 between Simulator Systems, Inc. and Marksmanship Training
Centers, Inc., an Oregon corporation.
After the merger with Simulator Systems, Inc., the business of the
Company became the development and marketing of a computerized rifle/pistol
simulator which uses real weapons to provide the user with an accurate and
realistic shooting experience with the use of live ammunition. The user aims a
weapon at a video display screen and fires at a target on the screen. The system
also allows the user to obtain a computer printout of shots fired indicating
accuracy.
On April 5, 1999, the Company changed its name to Casino Pirata.com
Ltd. In February, 1999, the Company entered into agreements with WorldNet
Casinos.com, Inc. pursuant to which the Company owned and operated an Internet
gaming website.
On September 24, 1999, the Company entered into a Share Exchange
Agreement and Plan of Reorganization with Advantage Systems, Inc., a California
corporation, doing business as American Computer. Pursuant to that Agreement,
the Company acquired all of the issued and outstanding common stock of American
Computer, which became a wholly-owned subsidiary of the Company. American
Computer is a second-tier vendor and marketer of personal computers.
American Computer was originally formed in 1985. It was originally
known as American Cash Register, Inc., which was later shortened to ACR, Inc.
and then expanded to American Computer Research, Inc. In 1996, Advantage
Systems, Inc. acquired the name, phone and customer lists, inventory, and other
assets from American Computer Research, Inc. and commenced business as American
Computer.
On November 18, 1999, the Company changed its name to Advantage
Technologies, Inc. On December 1, 1999, the Company conveyed its interest in its
Internet gaming website to a newly- formed wholly owned subsidiary operating
under the name Casino Pirata.com Ltd.
4
The Company is organized as a holding company with two wholly-owned
subsidiaries: Advantage Systems, Inc. and Casino Pirata.com Ltd.
BUSINESS AND OPERATING PLAN
ADVANTAGE SYSTEMS, INC.
At the present time. the Company's principal business activity will be
that of its wholly-owned subsidiary, Advantage Systems, Inc. ("ASI"). Under the
trade name of American Computer, ASI is a second-tier vendor and marketer of
personal computers. ASI builds high-quality, well-configured, top-of-the-line
computers that are reliable and competitively priced. ASI has the opportunity to
leverage its current self-sustaining position and realize substantial increases
in revenues and profits by expanding its direct sales programs targeting
high-growth segments - small- to medium-sized business, small office/home office
and mainstream corporate information technology and aggressively scaling-up its
already effective "just-in-time" component sourcing and assembly operations.
The total U.S. market for personal computers is projected to reach
$59.6 billion in 1999 and $65.0 billion in 2000, fueled by the Internet,
interactive applications, and demand for low-cost, network-ready multimedia
machines. The bulk of the personal computer business is conducted in the direct
sales channel and through the World Wide Web to which information technology
purchasing managers and technology-savvy consumers refer when seeking product
information, vendors, and pricing. Second-tier vendors account for about 45
percent of PCs sold, or $31.5 billion in the U.S. The Company believes this
could grow to over $120 billion by the year 2000, and ASI is now moving quickly
to capture market share where each percent of the business is worth more than $1
billion.
In pursuit of these objectives ASI has assembled an experienced
management team with a record of success in various technology enterprises.
Kenney Noel, Vice President of Purchasing, is responsible for ASI's
"just-in-time" purchasing model as well as all vendor relationships. Alfonso
Reyes, has been in Sales and Marketing for more than ten years and the
electronics industry over four years. George Bentley, Vice President Marketing
and E-Commerce, founded a successful information technology company and has
managed product development, manufacturing, sales, and installation for over
thirty seven years.
ASI builds a wide variety of personal computers for resale under the
American Computer name. Six basic systems are currently offered ranging from
low-end AMD K6-2 3D 350 MHz processors at $819 for first-time users to
sophisticated Intel Pentium 550 MHz Quad Xeon network servers priced up to
$14,999. With each basic system, customers can specify processor speed according
to price/performance needs. All systems include the latest microprocessors from
Intel and American Micro Devices, as well as graphics, multimedia, and
networking technologies; video and sound cards, color monitors, CD-ROM drives,
DVD-ROM drives, and onboard fax/modems.
5
Products
ASI builds and markets high-quality personal computer systems for
corporate networked environments, as well as standalone systems for a wide
variety of applications. Overall, the existing product line under our own brand
name - American Computer - is in the introductory stage. The technology in our
products consists of the latest multimedia sound and video, and Internet/network
connectivity running primarily Windows 98 and NT platforms. Six basic products
are currently offered:
o An entry level system called the STUDENT is available in AMD
K6-2-3D 350 MHz through AMD K7 Athelon 550 MHz models, ranging in price
from $819 to $1,249. All versions include 64 MB RAM, 6.0 GB hard drive,
15-inch color monitor, 8 MB video card 56kbs voice/fax/modem, 44x
CD-ROM drive, 32-bit sound card, 120-watt speakers, keyboard, mouse,
and Microsoft Windows 98 software.
o The SCHOLAR product line is available in Intel Pentium III 450
through 600 MHz models, as well as AMD K7-500 and K7-550 models. All
versions include 64 MB RAM, 10.0 GB hard drive, 17-inch color monitor,
and upgraded versions of the STUDENT feature set. Prices range from
$1,019 to $1,269.
o The GRADUATE product line features Intel technology throughout,
13.0 GB hard drive, 8 MB 3-D video card, 44x CD-ROM drive, and 128-bit
SoundBlaster sound card, all in a mini-tower case. It is considered a
robust system for mature users and offers Pentium III, and AMD K7
versions running at speeds up to 550 MHz. Prices range from $1,379 to
$2,079.
o The PRO-FORMER system series offers most leading-edge
technologies. A favorite of software developers and state-of-the-art
consumers, it is available in the same versions as the GRADUATE at
prices ranging from $1,719 to $2,499 with 128 MB RAM, 18.0 GB hard
drive, 17-inch color monitor, 44x CD-ROM drive, 16 MB 3-D video card,
and 256-bit SoundBlaster sound card in a mini-tower case.
o The CAD-PRO II system is configured for engineering and CAD
markets, with various Dual Pentium III versions including MMX
technology. Prices range from $2,599 to $3,499 with all versions
including 256 MB RAM, 18.0 GB hard drive, 21-inch color monitor, and
other upgraded features, including bundled MS Windows NT 4.
o The NETWORK SERVE series is intended as an application or data
server expandable to accommodate 100-plus simultaneous users. It offers
very fast processing of extremely large data files and astronomical
calculations. The NETWORK SERVER comes in single, dual, and quadruple
Pentium III and Xeon versions ranging in price from $3,099 to $16,599.
All versions feature minimum 256 MB RAM, five 9.0 GB hard drives,
14-inch color monitor, 8 MB video card, an Intel 10/100 Ethernet card,
5 Kbs fax/modem, 44x CD-ROM drive, all in a full tower case. The
company also offers a version with up to four Pentium Pro 200s for less
than $15,000.
6
ASI also sells top-quality name-brand systems for Compaq Computers as a
Value Added Reseller. To date sales have been nominal in this relationship which
is less than three months old. However, management feels this will uniquely
position the company to compete at all levels of Network and Web design,
configuration, sales, and installation.
We plan to follow these products with extensions to our line which
include network servers targeted at Internet Service Providers; thin-client PCs
targeting corporate, education, and government markets; and high-quality laptop
computers with extensive multimedia and Internet connectivity features.
ASI also offers high-quality laptop computers, and has positioned
itself to develop a revenue stream from this highly lucrative $21.5B market.
Research estimates anticipate a growth rate of 17.0% through the year 2000. ASI
will assemble units with ASI-specified components in accordance with market
opportunities.
A critical factor in the production of our products includes our
unique "just-in-time" approach to supply and inventory, which guarantees us the
flexibility we need to face this competitive and rapidly changing market. Our
business model is unique because if provides a method for assembling the best
configuration of final product at a competitive price., provides for a
continuous supply of product without the attendant inventory burden, and takes
advantage of known and proven marketing methodologies as a major component of
its overall business model.
ASI averaged 50 systems sold per month over the last twelve months.
All components are new and fully warranted by the original manufacturer, with
direct component costs running 80 percent for systems, 70 percent for
off-the-shelf sales. Using TechData, Ingram Micro, Ameriquest, Merisel, and
other national distributors for sourcing insures availability of product at the
lowest possible price on terms favorable to our operation.
With sales increasing, ASI will purchase desktops and laptops at
higher volume pricing direct from original (white boxes) manufacturers. Pricing
will then be relatively flexible versus the competition, and ASI will be better
positioned to control volume and maximize profits. The company will also realize
significant technical support, warranty, and return merchandise authorization
(RMA) advantages, will be able to acquire components at times when smaller
integrators - our primary competition - cannot, and will be better insulated
against temporary price swings during periods of product scarcity.
Marketing
ASI relies primarily on telemarketing and customer referral to
advertise its products for sale and secondarily on the world wide web. This form
of advertising results in approximately 20 to 50 systems sales per month
directly and 5 to 15 systems per month as referral business.
7
The estimated worldwide installed base of x586 or older systems is
approximately 125,000,000 units, and those units will be replaced starting in
2000 as totally new chip technologies, operating systems, and software are
introduced. Due to its small size, flexibility of operations, and extensive
network of suppliers, Advantage Systems is strategically positioned to quickly
integrate and bring to market products configured with any new technologies, and
therefore capture a major share of the first-adopter market.
Our target market will be the small to medium sized business and Small
Office-Home Office where there is a real need for suppliers who can design and
install a networked environment. Traditionally they will buy both the lower-end
PC, where price is the primary factor, and the high-end PC, where component
technology is the primary factor.
ASI is basing its strategy on prior experience, as well as research
from national trade magazines that provide pricing analysis for specific market
segments and data on average system configurations within specific price ranges.
By following this research, as well as data collected from its own sales
records, ASI is able to optimize configuration and pricing of its systems in
positioning versus competition.
Our target markets do not have substantial seasonal components.
Historically, sales are relatively constant throughout the year, with the
exception of some downturn from December 20 to January 20 according to industry
studies. Our marketing plan will concentrate on generating direct sales through
telemarketing with known response potential. ASI will be using telemarketing as
its primary advertising vehicle and it's website, www.ampcomp.net as a secondary
sales tool. This marketing and sales strategy will drive our primary revenue
engine.
Competition
ASI competes directly with "second-tier" vendors - emerging companies
in the direct marketing channel. These are companies that are now established,
have good management teams, are generally well financed, and are moving up to
compete with the Top 5: Dell, Gateway, Compaq, IBM, and Micron. Their strengths
are size and adaptability. Their weakness is in their inability to manage the
increased pressure of financing and rapid growth, causing strained credit lines
and supplier relationships, and resulting in loss of focus.
Because of increased competition from the internet in the form of
auction houses and direct sellers whose business models and sales strategies
call for selling systems at or below cost, most companies in the "second-tier"
have been required to completely re-evaluate the way they do business. ASI has
not been exempt from this re-evaluation process.
The management of ASI believes that to survive and thrive there has to
be a value-add component to the offerings of a company in addition to price and
quality. Service is clearly the additional component. It comes in the form of
"build to order" systems, short delivery dates, flexibility of configuration,
price, and performance. All these things are offered in some degree by the
competition. We believe that the real value add has to be around the concept of
a one stop solution. A place where a customer's hardware needs can be assessed,
priced competitively, and
8
delivered quickly, where operating software and networking can be engineered
into the equation, including cabling and installation. A place where a customer
can not only get computers, but a place that can design your website and have
you doing e-business in a short period of time. It is ASI's intent to be a full
service, one stop shop.
ASI's competitive advantage stems from the broad financial,
manufacturing, and marketing and sales experience of the management team. The
overall quality of our products; our consistently competitive pricing; the
strategic advantage of our "just-in-time" components sourcing; the flexible
setup envisioned for our assembly operations; and our willingness to embrace
change and go where the market is going.
Due to the competitive nature of the computer industry in general,
ASI, like it's competitors, has had to look to other avenues for sales of it's
systems outside the traditional print media/direct sales format. ASI has earned
the designation from Microsoft Corporation to advertise and hold itself out to
be a Microsoft Certified Solutions Provider. This has opened up new revenue
potential to ASI in the areas of customer based solutions for networking
installation and management, internet and intranet communications, website
development and hosting, as well as hardware sales and maintenance.
Because of the open architecture of the IBM PC clone, ASI is able to
compete technically as well as price wise with the biggest to the smallest names
in the industry. The latest components are available to ASI as quickly as they
are to Compaq, Dell, Gateway and others. With only a slight increase in monthly
volume, AST could become eligible to buy direct from many manufacturers, thereby
improving its ability to compete.
Strategy
ASI's market strategy is to become established as a leading one stop
supplier of solutions for information and communications technology which
include IBM PC Clones and related components and peripherals which allow end
users to perform the task they specify efficiently utilizing the latest
technology at very competitive prices. To do this, we will leverage its core
competencies, knowledge and expertise in the industry, to achieve market
penetration and gain a reasonable and growing market share.
ASI will need to identify, develop, and train telesales people which
reach its pre-identified target market with a direct sells campaign that is
effective and conveys the concept of American as a quality alternative to the
established system integrators who do not offer the full suite of services found
at ASI.
In order to be competitive, ASI will need to improve its sourcing so
as to maximize quality and minimize costs. Products will need to continue to be
delivered on time, with costs controlled, marketing budgets managed and assets
safeguarded. In addition, personnel with a variety of skills and experience will
have to be recruited, trained, and retained.
9
Technology
At present, ASI neither owns nor licenses any technology with respect
to its products or services.
CASINO PIRATA. COM
Through its wholly-owned subsidiary, the Company operates an Internet gaming
site under the name Casino Pirata.com. The website address is
www.casinopirata.com. The gaming site is operated through a license agreement
with WorldNet Gaming, Inc. WorldNet Casinos.com, Inc. ("WorldNet") maintains its
headquarters in San Jose, Costa Rica and its U.S. marketing office in Fort
Lauderdale, Florida. WorldNet is in the business of developing JAVA(R) based
online casino software and licensing "turn-key" Internet casinos. In addition,
WorldNet operates two of its own Internet casinos.
The Company has a five (5) year license from WorldNet pursuant to a Software
License Agreement dated April 19, 1999. The Company paid WorldNet $150,000.00
for the license rights The license includes the following games: blackjack;
slots; pai-gow; video porker; roulette; instant bingo; and baccarat. Under the
license, WorldNet provides management services; technical support; marketing;
account and billing back office suite to view real-time sales; software
upgrades. For these services, WorldNet receives a management fee of 30% of the
net win.
WorldNet uses Internet proprietary encoding and processing technology, which
allows for security for financial transactions via the Internet. This technology
acts as an international currency converter and a secure Internet transaction
gateway to financial institutions for on-line merchants. SSL Internet Protocol
is used to provide privacy and reliability between he communicating
applications. SSL uses 12b bit encryption which ensures server and client
authentication through encrypted algorithms and cryptographic keys. WorldNet
also provides an additional level of security with an Address Verification
System validation, which validates submitted addresses with the casino player's
registered address to mitigate the use of stolen credit cards. Each casino
player registers on the website and is issued a unique Personal Identification
Number. WorldNet accepts both MasterCard and VISA credit cards.
To date the company has not received any income from this operation.
For all practical purposes, access to this site is open to the public, but
basically, only individuals with credit cards can gamble immediately. An
individual could mail in a check or money order and after some period of time an
account could be opened on their behalf, thus allowing them to wager up to the
amount of the credit in their account.
There does appear to be traffic to the website and some wagering
activity. Accounting information submitted to management by WorldNet Gaming,
Inc, while raw, incomplete, and unsubstantiated indicates some revenues and
traffic into the site on a monthly basis. However, all of the hardware,
software, and other elements of business control are in the hands of the
Franchisor WorldNet Gaming, Inc. To date management of WorldNet Gaming, Inc has
been
10
unwilling to allow access to the original source records or to the financial
institution with which WorldNet Gaming, Inc operates through.
Financial control of the entire operation is through a special banking
relationship known as a Master Merchant Account Agreement. The Master Merchant
Account Agreement, which accommodates credit card transactions, appears to be a
wrap-around of an existing Master Merchant Account Agreement between WorldNet
Gaming, Inc and an as yet undisclosed foreign bank. The company has tried
unsuccessfully to obtain original source account documents from WorldNet Gaming,
Inc. Without access to these, determination of financial gain or loss is
impossible. Management has considered other legal remedies, however, WorldNet
Gaming, Inc. and all of their resources are located outside the United States of
America.
Therefore it is the view of management, at this time, that the
franchise agreement with WorldNet Gaming, Inc has no future economic value.
Management is in discussions with WorldNet Gaming, Inc and others for the
possibility of obtaining it's own software and Master Merchant Account Agreement
operated at it's own URL on it's own hardware. There are numerous hurdles to
overcome in this regard but the main ones are locating a financial institution
amenable to entering into a Master Merchant Account Agreement with
CasinoPirata.com for a gaming website, and raising the approximate $1,000,000
necessary to acquire software and hardware with which to setup a site in a host
country.
SIMULATOR SYSTEMS - EXCALIBORE
------------------------------
Through the Company's merger, when it was known as Simulator Systems, Inc, with
Marksmanship Training Centers, Inc. ("Marksmanship"), the Company acquired the
interest of Marksmanship in the development and marketing of an interactive
rifle/pistol simulator designed to improve marksmanship skills. The first
generation product was known as "Excalibore".
The product is a computerized system which uses real weapons to
provide the user with an accurate and realistic shooting experience without the
use of live ammunition. The user aims a weapon at a video display screen and
fires at a target on the screen which is chosen from a menu which includes full
and half-size silhouettes, both stationary or pop-up and a variety of
bull's-eyes.
The user can select firing ranges from 25 yards to 1,000 yards. A
camera device mounted on the barrel of the weapon "sees" the target through the
sights of the weapon in the same manner as the target is seen by the user. When
a shot is fired, the system instantaneously matches the information derived from
the camera alignment (the sight) to the corresponding pixel address on the
screen (the target) Algorithms compensate for distance and environmental
factors. The instant feedback on where the short hit or missed the target shows
the user how to adjust on subsequent shots.
Actual modified pistols and rifles are used so that the weight and
trigger action are real. Simulated recoil and sound lend authenticity to the
firing experience. To provide a close simulation of actual weapons fire, the
Excalibore has recoil action which is adjustable to the
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specific weapon attached. Earphones provide the actual sound of a weapon firing
and a printer records how far the shots hit or missed the target. The Excalibore
is compact in design and can be operated in a six by six foot area using
standard AC current.
Although the management of the Company when it was known as Simulator
Systems, Inc. aggressively attempted to market the Excalibore system to a
variety of users, including the U.S. armed forces, the Company's current
management has decided to cease further marketing efforts at this time.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
REVIEW OF OPERATING RESULTS
---------------------------
The following discussion should be read together with the financial
statements and the accompanying notes to the financial statements.
Operations of the Company for the year ended September 30, 1999
resulted in a net ordinary loss. One segment of the business, Advantage Systems,
dba American Computer, had net income from operations for the period, but this
was more than offset by the losses incurred in other segments of the Company.
Most of those losses are attributable to business segments which have
been abandoned and discontinued by management, specifically the franchise
relationship with WorldNet Gaming and the Excalibore system. While the Company's
present management can not be assured that there will be no future losses of the
type realized in the current period, management believes these losses were do to
a failure by the Company's previous management to investigate business basics
before undertaking the WorldNet Gaming franchise and the Excalibore system.
Management believes that the business plan it has developed for it's
primary business segment, Advantage Systems, Inc., is practical and executable
on a profitable basis in fiscal year 2000. However, management can make no
assurances of profitability. Additionally, management will have to raise
significant working capital to achieve these goals. The only practicable way
management can do this is through the sale of the Company's stock for which
there may be no market.
Our business plan calls for us to :
o Identify and acquire profitable new business segments by trading company stock
o Attempt to raise working capital from sale of company stock
o Execute on the business plans developed for the current owned business
segments
o Vigilantly manage costs and expenses so to as remain competitive
12
CAPITAL NEEDS AND FUTURE REQUIREMENTS
-------------------------------------
The formation of Advantage Technologies, Inc was undertaken for a
number of reasons. These will be fully discussed in the course of the text of
this treatment. The primary reason is, as is customary, to segregate diverse
business segments into independently functioning operating units for economic,
managerial, and legal reasons. The initial and immediate focus of Advantage
Technologies, Inc.'s management will be towards its two principal wholly owned
subsidiaries. These are the wellspring from which future successes will depend.
It is also the intent of management to identify and acquire additional
operating entities on an ongoing basis. The candidates for acquisition which
management will attempt to locate will be primarily new, startup type entities
with technology oriented products with uses by large demographic users.
Because of Management's proximity to the San Francisco Bay Area and the
nature of one of it's principal subsidiary's business as a systems integrator,
management believes that many such acquisition opportunities will present
themselves. While it would not be in the best interest of the company to reveal
exactly the type, nature, and qualities of acquisition candidates, generally
management will be looking for acquisition candidates which have unique and
exploitable proprietary technology applicable to large demographics and
potential for vertical integration.
Management believes that what it has to offer to such candidates is
access to capital markets through its status as a publicly traded entity, as
well as its managerial depth which will be made available to exploit any
opportunities present in an acquisition candidate. Management intends all of its
acquisitions to be accomplished with very little, if any cash being exchanged.
It is the intent of company management to exchange common stock of Advantage
Technologies, Inc. for the stock of the target acquisition.
With respect to the Company's wholly owned subsidiary,
CasinoPirata.com, as reported elsewhere in this filing statement, its principal
business activity consists primarily as that of a corporate shell at this time.
There are currently no tangible assets, no income, no physical assets, and no
direct business activities of an ongoing nature in this corporation. Its
intangible assets are determined to be of no value. Management has determined
that the franchise agreement held by it and issued by WorldNet Gaming, Inc. Has
no economic value.
While the franchise itself is of no value, management strongly believes
that the fundamental underlying business concept is one of enormous business and
profit potential. The industry predictions for the gaming business and
especially the online gaming industry show tremendous growth potential on a
global basis. To date, only a few of the large Las Vegas and Atlantic City and
New Jersey gaming establishments have entered into this enormous new area of
e-commerce. Most studies show that there is a global market that is
significantly larger than
13
the one that is being exploited within the areas of the United States where
casino gambling is legal. Management is currently assessing the business
opportunity represented here to determine how to best proceed in attempting to
gain successful entry into this market.
Since involving itself in the gaming business by acquiring the
franchise with WorldNet Gaming, Inc., the company's management team has changed.
The current management team is responsible for determining that the agreement
between WorldNet Gaming, Inc. is of no value to the company. In the process of
making this determination, a number of important factors were analyzed which
gave rise to the determination of worthlessness of the franchise. These same
factors were determined to be critical for any company to be successful in the
online gaming business.
Therefore, in order for CasinoPirata.com to be successful in the
online gaming business, management has determined that the following conditions,
at a minimum, must be satisfied:
(1) A Master Merchant Account Agreement with an accredited financial
institution must be established;
(2) Proprietary gaming software must be identified and acquired. The
software has to be renderable in multiple languages;
(3) A site must be located and secured in an environment where
operating a business of this type is legal;
(4) Parameters of hardware and software requirements to support peak
demand must be determined;
(5) Technical personnel to operate the hardware and software have to
be recruited and trained and put in place. This is a twenty-four
hours a day/seven days per week/52 weeks per year business. An
attorney with experience in international gaming law must be
identified and retained;
(6) A marketing plan must be developed to drive internet traffic to
this site on a global basis and personnel acquired to accomplish
these goals;
(7) Funds sufficient to accomplish all of the above are required.
While this not an exhaustive treatment of a business model for online
gaming, these are some of the fundamentals which management has determined to be
necessary in order to go forward. Management's best estimate of the cost to
accomplish all of the above is approximately $1,000,000. Management currently
does not have sufficient working capital to undertake online gaming. At this
time, management does not have a financing plan. Management is aware that other
more established and better financed organizations with expertise in the gaming
industry are either already online or are considering entering the online gaming
industry.
14
With respect to Advantage Technologies, Inc.'s wholly owned subsidiary,
Advantage Systems, Inc, its principal business activity consists primarily as
that of a systems integrator. However, as a response to increased competition,
especially around pricing and dwindling profit margins, Advantage Systems, Inc.
has moved in the direction of a Value Added Reseller and service model. In this
model, the traditional systems integrator adds branded product lines to their
existing proprietary product lines and models, and service, related usually to
application software, operating systems software, or website development.
Advantage Systems, Inc. continues to be a systems integrator and its' sales of
computers consists primarily of its' own brand, "American Computer" systems.
However, Advantage Systems has added Compaq and Hewlett Packard to its offerings
of hardware. The company also sells a wide variety of Branded Network
connectivity products such as Intel, 3COM, CISCO, Bay Networks, SMC, Ascend, and
Asante. Advantage Systems, Inc, also has become a Microsoft Certified Solutions
Provider.
This enables the Company to advertise offerings of hardware,
installation, networking services and installation of operating systems,
including all cabling, switching devices, routers, and hubs, installations with
a solid basis and expertise, which the public wants. The profit margins in these
service and networking areas are substantially higher than from hardware. This
bundle of goods and services can be and is often separated and sold
individually, but usually one provides a doorway through which to sell the
others.
In the business model management has developed, the primary target is
the small and/or startup business. The reasons for this are that there are
numerous such businesses that need the kind of expertise and service which the
Company offers on an incremental or part-time basis. These businesses need
custom designed as well as "off-the-shelf" hardware solutions such as offered by
the Company. These businesses also need internet access and connectivity,
including category 5 cabling. Lastly, these business need website development,
consulting and design. The Company offers all of these goods and services.
In this business model, management has determined that duplication for
purposes of growth is relatively simple and straightforward. Management's'
intent is to develop the techniques we currently use to develop sales leads for
our Silicon Valley area to the point of acceptable efficiency. We anticipate
less than a year to perfect these techniques. Once we are efficient in the sales
lead generation segment, management intends to expand the outside sales force to
new communities and open outside sales offices in these newly identified areas.
15
At this time, management has determined, that all that will be needed is:
(1) The acquisition of the data relating to the demographics which we have
established;
(2) Adequate 1-800 number service;
(3) Apply the same telesales techniques for sales lead generation locale
sales office for outside sales personnel;
(4) Outside sales personnel;
(5) software and hardware installation technicians for installations.
All management, purchasing, accounting, support and customer service
will be directed from the corporate office in San Jose, California.
The Company's marketing strategy is relatively simple. We obtain
database information relative to the marketing demographic parameters, which we
have predetermined. We use professional telesales individuals coupled with a
direct mailing of collateral materials to our predetermined demographics. Once a
level of interest is established, a professional sales representative is
scheduled for an onsite interview with the prospective client where an
assessment is made of the client's requirements. Often, in this environment, our
sales people are able to offer alternatives which are more effective and at
times less expensive. Typically, we do not charge for this consulting service.
There are incremental costs associated with hiring telesales
professionals. Usually, within a short period of time after adding a telesales
professional, one or more outside sales professionals have to be added. This
results in a slight increase in overhead initially, and it is hoped a
significant increase in sales shortly thereafter. We monitor telesales and
outside sales to be sure we meet the goals we set from monthly self-assessment
sales meetings.
We are able to keep our investment in inventory low as we utilize
just-in-time purchasing and inventory techniques. The largest costs to be
financed in this model are the Accounts Receivable/ Work-in-Progress costs. We
keep this as low as possible by billing all hardware on delivery. Service work
is billed incrementally, beginning with a retainer if the job appears to be
longer than thirty days. We also, as a policy, add technical personnel on a full
time basis only when the revenue related to that aspect of business justifies
the slot. Some of the financing of operations comes from trade creditors.
Advantage Systems has been in this business for over 16 years now and we do have
favorable terms with most of our suppliers. Another source of financing
historically has been from retained profits being put back into the business. It
is estimated for every incremental $1,000,000 in gross business, an additional
$100,000 in working capital is required. Advantage Systems is projecting a
growth of $1,500,000
16
in sales for the fiscal year-end September 30, 2000. According to this model an
additional $150,000 in working capital will be required. Management expects to
meet the need in part by retaining earnings from operations. Additionally,
management expects to sell common stock to meet these and other cash flow
requirements. Management understands that there may not be a market for the
stock it expects to offer for sale.
In April 2000, the Company issued a convertible debenture in the face
amount of $750,000. The debenture was issued pursuant to the exemption from
registration provided by Rule 504 promulgated under Regulation D.
YEARS 2000 COMPLIANCE
- ---------------------
Advantage Technologies, Inc. and Advantage Systems, Inc. rely on
computers for all of the customary uses that any technology related company
would rely upon them. In addition to these concerns, the very nature of our
business put us at the front of the problem and the solution. The century date
change occurred without incident.
The Company has sold thousands of systems to the general public over
the course of the last sixteen years. While only a fraction of those could
result in any exposure to the Company in terms of warranty related problems,
none have resulted in a reported claim to the Company.
This comes as no surprise to management inasmuch as the problem was
primarily related to the BIOS (Basic Input/Output System) Programs found onboard
all motherboards of IBM PC Clones. Most highend motherboard manufacturers, as
well as most BIOS chip manufacturers, made the required corrections early in
1998. All of the legacy systems still in use older than two years could solve
the problem by going online and downloading an update patch for their BIOS from
the manufacturer well prior to December 31, 1999. To date we have had only one
system returned with a potential Y2K problem and it was resolved and returned to
the customer within 72 hours with only a small charge to the customer. We
anticipate no further material consequences as a result of the century date
change.
ACQUISITION OF GO FATHOM CONSULTING AGREEMENT
On March 31, 2000 the Company entered into a consulting agreement between the
Company and the following individual professional persons who acted as
consultants to the Company: M. Richard Cutler, Brian A. Lebrecht, Vi Bui, and
Asher Starik for services involving consultation, advice and counsel with
respect to the negotiation and completion of the stock exchange between
Advantage and Go Fathom. In addition to cash compensation, the agreement
calls for issuance of a total of 1,540,000 shares of Advantage to be
issued to the consultants together with an obligation for the Company to
register such shares on Form S-8.
PROPERTY
The Company maintains its principal administrative and executive
offices at 1324 S. Mary Ave., Sunnyvale, CA 94087 consisting of approximately
800 square feet of office space and 600 square feet of assembly and shipping
space. The Company expects this facility to be adequate for its needs for the
next six months. The Company is now looking for a facility more suited to
light-industrial assembly that will accommodate anticipated expansion in the
near future.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
17
Our Common Stock has been thinly traded in the over-the-counter market
and prices for the Common Stock are published on the OTC Bulletin Board under
the Company's original symbols of SIMM and CSIN, and VRCS at the time of its
merger with Votices, Inc. The Company's current stock symbol is ADVV. The
over-the-counter market is extremely limited and the prices for our Common Stock
quoted by brokers are not a reliable indication of the value of the Common
Stock. The following is the range of high and low bid prices for our Common
Stock since February 1997, reflected in cents per share:
Quarter Ending High Low
-------------- ---- ---
March 1997 0 13/16 0 1/16
June 1997 0 1/16 0.02
September 1997 0.02 0.01
December 1997 0 1/16 0
March 1998 0.03 0.03
June 1998 2.61 2.25
September 1998 2 3/8 1 1/2
March 1999 1 9/16 1 1/4
June 1999 1 3/8 0 9/16
September 1999 0 7/8 0 1/2
These prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual purchases and sales by
investors. The Company has never paid cash dividends on our Common Stock;
however, the Company may pay dividends in the future if earnings justify it. As
of December 1, 1999, the Company has approximately 130 shareholders of the
Company's common stock.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the names and ages of the current directors
and executive officers of Advantage who will remain so with the combined entity,
their principal offices and positions and the date each such person became a
director or executive officer.
All directors are elected annually by the shareholders and hold office
until the next annual general meeting of shareholders or until their successors
are duly elected and qualified, unless they sooner resign or cease to be
directors in accordance with the Articles of Incorporation of the Registrant.
Executive officers are appointed and serve at the pleasure of the Board
of Directors.
The following persons are the current directors and executive officers
of the Company:
Name Age Title
---- --- -----
George J. Bentley 61 President, CEO, Director
Kenney F. Noel 51 Secretary, Director
Yoshi Iwagami 36 Director
Corinna A. Stolp 29 Director
Matthew L. Dodson 27 Director
George J. Bentley has been President, Chief Executive Officer and a
director since September 1999, after the acquisition of American Computer by the
Company. He is also a director of Casino Pirata.com Ltd., the Company's
wholly-owned subsidiary. Since 1991, Mr. Bentley has been the owner of SP Group
which is involved in information technology and the development of website for
clients. Mr. Bentley received his Bachelors of Science degree from Pepperdine
College in 1964.
Kenney F. Noel has been corporate secretary and a director since
October 1999. Mr. Noel also serves as Vice President of Operations for American
Computer. He has been associated with American Computer since February 1996. Mr.
Noel is also the President of Casino Pirata.com Lt., the Company's wholly-owned
subsidiary.
Yoshi Iwagami has been a director since October 1999. Since 1994, Mr.
Iwagami has the President and majority shareholder of I. J. Corporation, a
privately-held company involved in the wholesale building materials business.
Mr. Iwagami holds a Master of Engineering Degree from the Nagoya Institute of
Technology in Japan and Masters of Business Administration from Pepperdine
University.
Corinna A. Stolp has been a director since October 1999. Since July
1997, Ms. Stolp has been involved in CAD design and a CAD analyst at Sun
Microsystems. From 1993 to 1997, she was an assistant to the President,
Lightrix, a company involved in the design and development of holographics. Ms.
Stolp received her Bachelor of Arts from Pepperdine University in 1991.
Matthew L. Dodson has been a director since October 1999. Mr. Dodson is
currently Business Metrisc Coordinator for Abar Staffing in San Francisco,
California. From 1998 to the time of his current employment, he was a Products
and Design Manager for Tenny Consulting, an internet consulting firm. From 1996
to 1998, Mr. Dodson was a store manager for the Arts Store, Inc., which is
involved in the retail creative supplies business. From 1992 to 1996, he
18
was a store manager for Mittel's Art and Frame Center. Mr. Dodson obtained his
Bachelor of Science degree in Business Administration from Pepperdine University
in 1997.
Our directors serve in their positions until the next annual meeting of
stockholders or until the directors' successors have been elected and qualified.
Our executive officers are appointed by our Board of Directors and serve at the
discretion of the Board.
EXECUTIVE COMPENSATION
At the current time, the Company has entered into an Employment
Agreement with the Company's President, and Chief Executive Officer, George J.
Bentley. The Agreement is for a term of twenty-four (24) months beginning
October 7, 1999. Mr. Bentley's base compensation is $100,000.00 per year payable
monthly. The Company may not be in a position to pay Mr. Bentley's base
compensation until such time that the Company determines that its financial
condition is such that it can pay such compensation. At the time of the
Company's acquisition of Advantage Systems, Inc. pursuant to the Share Exchange
Agreement and Plan of Reorganization dated September 24, 1999, Mr. Bentley
received an initial payment from the Company of $20,000.00.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's wholly-owned subsidiary Advantage Systems, Inc., issued a
Convertible Nonnegotiable Promissory Note dated September 24, 1999 to Kenney F.
Noel, the Company's corporate secretary, in the amount of $92,728.02. The Note
represented amounts previously loaned by Mr. Noel to Advantage Systems, Inc. The
Note is convertible into common stock of the Company at Mr. Noel's option at a
conversion price equal to the lesser of (a) 100% of the lowest of the closing
bid prices for the common stock for the five trading days immediately prior to
the date of the Note; or (b) 77.5% of the lowest of the closing bid prices for
the common stock for the five trading days immediately prior to the date of
conversion. The maturity date of the note is September 24, 2000. As of January
2, 2000, Mr. Noel has exercised his conversion rights to the extent of $
42,728.02 for an aggregate of 551,329 shares of common stock.
In February 2000, the Company issued to Mr. Noel 113,032 shares of
Common Stock in satisfaction of $8,760.00 of unpaid salary for the period
October 1, 1999 to December 31, 1999. The Common Stock was issued at a price of
$0.0775 per share in the same manner as the conversion of the Company's
Convertible Nonnegotiable Promissory Note dated September 24, 1999.
In February 2000, the Company issued to George Bentley 344,086 shares
of Common Stock in satisfaction of $ 26,666.66 of unpaid salary for the period
October 1, 1999 to December 31, 1999. The Common Stock was issued at a price of
$0.0775 per share in the same
19
manner as the shares of Common Stock were issued to Kenney Noel for Mr. Noel's
unpaid salary.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 95,000,000 shares of Common Stock. At this
time, we have 24,159,240 shares of Common Stock issued and outstanding. Each
share of Common Stock entitles the shareholder (i) to one non-cumulative vote
for each share held of record on all matters submitted to a vote of the
stockholders; (ii) to participate equally and to receive dividends as may be
declared by the Board of Directors; and, (iii) to participate pro rata in any
distribution of assets available for distribution upon liquidation of the
Company. Our stockholders have no preemptive rights to acquire additional shares
of Common Stock or any other securities. Our Common Stock is not subject to
redemption and carries no rights to purchase other securities of the Company.
Our Common Stock is non-assessable.
Potential de-listing of common stock
We may be de-listed from the OTC bulletin board. NASD Eligibility Rule 6530
issued on January 4, 1999, states that issuers who do not make current
filings pursuant to Sections 13 and 15(d) of the Securities Act of 1934 are
ineligible for listing on the OTC bulletin board. Issuers who are not current
with such filings are subject to de-listing according to a phase-in
schedule depending on each issuer's trading symbol as reported on January 4,
1999. Our trading symbol on January 4, 1999 was SIMM. Therefore, under
the phase-in schedule, our common stock is subject to de-listing on April 5,
2000. One month prior to our potential de-listing date, our common stock
had its trading symbol changed to ADVVE.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Successor Issuer Election.
Upon execution of the Exchange Agreement and delivery of the Advantage
shares to
20
the shareholders of Go Fathom, pursuant to Rule 12g-3(a) of the General Rules
and Regulations of the Securities and Exchange Commission, Advantage became the
successor issuer to Go Fathom for reporting purposes under the Securities
Exchange Act of 1934 and elected to report under the Act effective April 3,2000.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Not applicable.
ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Advantage Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Advantage
Technologies, Inc. (formerly Simulator Systems, Inc.) as of September 30, 1999
and 1998, and the related consolidated statements of operation, cash flows and
changes in stockholders' equity for each of the three years in the period ended
September 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advantage
Technologies, Inc. (formerly Simulator Systems, Inc.) as of September 30, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended September 30, 1999, in accordance with generally
accepted accounting principles.
/s/ Timothy L. Stters
TIMOTHY L. STEERS
CERTIFIED PUBLIC ACCOUNTANT, LLC
Portland, Oregon
February 1, 2000
21
2
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Consolidated Balance Sheets
September 30
--------------------------
1999 1998
---------- ----------
ASSETS
Current assets:
Cash $ 164,427 $ 2,684
Accounts receivable - trade 220,923 -
Receivable from stockholders - 57,519
Inventories 31,206 -
Prepaid expenses - 415
---------- ----------
Total current assets 416,556 60,618
Equipment, less accumulated depreciation of
$4,210 in 1998 2,635 6,777
Other assets:
Organizational costs, less accumulated
amortization of $464 in 1999 ($310 in 1998) 8,865 9,019
Deposits - 250
Goodwill, less accumulated amortization of
$6,115 in 1998 4,663,997 67,261
---------- ----------
Total other assets 4,672,862 76,530
---------- ----------
$ 5,092,053 $ 143,925
========== ==========
Continued on page 3.
22
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Consolidated Balance Sheets (continued)
September 30
--------------------------
1999 1998
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks outstanding in excess of cash $ 9,399 $ -
Accounts payable 189,522 40,572
Income taxes currently payable 10 30
Other liabilities 32,600 -
Notes payable to stockholders 122,480 -
Long term debt due within one year 12,000 -
---------- ----------
Total current liabilities 366,011 40,602
Long term debt 327,660 40,000
Convertible notes payable to stockholders 42,728 -
Stockholders' equity:
Preferred stock, $.001 stated value; authorized
5,000,000 shares - -
Common stock, $.001 par value; authorized
95,000,000 shares; issued 17,046,295 shares
in 1999 (246,295 shares in 1998); outstanding
14,546,295 shares in 1999 (246,295 shares in
1998) 14,546 246
Additional paid-in capital 5,373,175 654,975
Retained deficit (1,032,067) (591,898)
---------- -----------
Total stockholders' equity 4,355,654 63,323
---------- ----------
$ 5,092,053 $ 143,925
========== ==========
See accompanying notes.
23
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Consolidated Statements of Operations
Years ended September 30
----------------------------------------------------
1999 1998 1997
------------- ------------- -------------
Revenues $ - $ - $ -
Costs and expenses:
Marketing 6,756 3,432 7,667
General and administrative 195,724 135,415 206,885
Research and development 26,533 120,609 60,783
Non-recurring losses 211,146 - -
Interest - 1,500 2,250
----------- --------- ----------
Total costs and expenses 440,159 260,956 277,585
----------- --------- ----------
Loss before provision for income taxes (440,159) (260,956) (277,585)
Provision for income taxes 10 10 10
----------- --------- ----------
Net loss $ (440,169) $ (260,966) $ (277,595)
=========== ========= ==========
Net loss per common share $ (.101) $ (1.189) $ (1.501)
=========== ========= ==========
See accompanying notes.
24
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Consolidated Statements of Changes in Stockholders' Equity
For the period from October 1, 1996 through September 30, 1999
Preferred stock Common stock Additional Total
----------------- --------------------- paid-in Retained shareholders'
Shares Amount Shares Amount capital deficit equity(deficit)
-------- ------ ---------- --------- ----------- ------------- ---------------
Balance at October 1, 1996 - $ - 8,989,525 $ 8,990 $ 300,605 $ (53,337) $ 256,258
Effect of 50 shares for 1 share
reverse stock split - - (8,804,646) (8,805) 8,805 - -
Net loss - - - - - (277,595) (277,595)
-------- ----- ---------- ------ ---------- ----------- -------------
Balance at September 30, 1997 - - 184,879 185 309,410 (330,932) (21,337)
Shares issued for cash, net of
offering costs - - 41,127 41 177,209 - 177,250
Shares issued to stockholders for
cash and compensation - - 19,535 20 94,980 - 95,000
Shares issued in exchange for
shares of Simulator Systems, Inc. - - 754 - 73,376 - 73,376
Net loss - - - - - (260,966) (260,966)
-------- ----- ---------- ------ ---------- ----------- -------------
Balance at September 30, 1998 - - 246,295 246 654,975 (591,898) 63,323
Shares issued for cash - - 6,000,000 6,000 54,000 - 60,000
Shares issued to stockholders for
cash - - 1,000,000 1,000 9,000 - 10,000
Shares issued in exchange for
shares of Advantage Systems, Inc. - - 7,300,000 7,300 4,555,200 - 4,562,500
Capital contributed - - - - 100,000 - 100,000
Net loss - - - - - (440,169) (440,169)
-------- ----- ---------- ------ ---------- ----------- -------------
Balance at September 30, 1999 - - 14,546,295 $14,546 $ 5,373,175 $ (1,032,067) $ 4,355,654
======== ===== ========== ====== ========== =========== ============
See accompanying notes.
25
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Consolidated Statements of Cash Flows
Years ended September 30
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net loss $ (440,169) $ (260,966) $ (277,595)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,318 8,393 10,575
Deferred income taxes (186,800) (111,600) (118,800)
Allowance for deferred tax assets 186,800 111,600 118,800
Common stock issued in exchanged for
compensation - 85,500 -
Advances to stockholders' exchanged for
compensation 103,569 - -
Non-recurring losses 61,146 - -
Changes in assets and liabilities, net of
effects of purchase of Advantage
Systems, Inc. in 1999 (Simulator
Systems, Inc. in 1998):
Prepaid expenses 415 - -
Marketable equity securities - - 299,028
Accounts payable 60,284 (12,478) 3,300
Income taxes currently payable (20) 10 10
----------- ----------- -----------
(212,457) (179,541) 35,318
Cash flows from investing activities:
Decrease (Increase) in deposits 250 - (250)
Advances to stockholders (46,050) (7,820) (31,495)
Capital expenditures - (180) (357)
----------- ----------- -----------
(45,800) (8,000) (32,102)
Cash flows from financing activities:
Proceeds from long term debt 250,000 - -
Capital contributed 100,000 - -
Proceeds from common stock 70,000 209,500 -
Offering costs - (22,570) -
----------- ------------ -----------
420,000 186,750 -
----------- ----------- -----------
Net increase (decrease) in cash 161,743 (791) 3,216
Cash at beginning of year 2,684 3,475 259
----------- ----------- -----------
Cash at end of year $ 164,427 $ 2,684 $ 3,475
=========== =========== ===========
See accompanying notes.
26
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
1. Nature of business and summary of significant accounting policies
-----------------------------------------------------------------
Nature of business: Advantage Technologies, Inc. (the "Company") was
originally organized as a Nevada corporation in September 1993 under
the name Logistics Distribution Systems International Group, Inc. In
November 1995, the Company's name was changed to Vortices, Inc. and
began developing and marketing flight simulators to the arcade game
industry.
In April 1998, the Company acquired Simulator Systems, Inc. and began
developing and marketing computerized rifle/pistol simulators to the
arcade game industry. With that acquisition, the Company ceased
developing and marketing flight simulators and changed its name to
Simulator Systems, Inc.
In April 1999, the Company ceased developing and marketing computerized
rifle/pistol simulators, purchased a franchise to operate an Internet
gaming website, and changed its name to Casino Pirata.com, Ltd.
In September 1999, the Company acquired Advantage Systems, Inc., dba
American Computer. American Computer is a second-tier vendor and
marketer of personal computer products.
In December 1999, new management of the Company conveyed its Internet
gaming website franchise rights to a newly-formed, wholly owned
subsidiary and changed the name of the Company to Advantage
Technologies, Inc.
Basis of reporting: Prior to its acquisition of Advantage Systems, Inc.
the Company was engaged in the development of its products and markets
and recognized no revenues from operations. All research and
development costs were expensed as incurred in accordance with
Statement of Financial Accounting Standards No. 7.
The 1998 financial statements include the accounts of the Company and
since its acquisition on April 21, 1998 its wholly owned subsidiary
Simulator Systems, Inc. The 1999 financial statements include the
accounts of the Company and its wholly owned subsidiaries Simulator
Systems, Inc. and, since its acquisition on September 24, 1999,
Advantage Systems, Inc. All inter-company balances and transactions
have been eliminated upon consolidation.
Cash: The Company deposits their cash in financial institutions and, at
various times throughout the year, cash held in these accounts has
exceeded Federal Deposit Insurance Corporation limits. The Company has
not experienced any losses as a result of these cash concentrations.
For purposes of the statement of cash flows, the Company considers cash
equivalents to be highly liquid instruments with original due dates
within three months of the date purchased.
27
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
1. Nature of business and summary of significant accounting policies
-----------------------------------------------------------------
(continued)
-----------
Cash (continued): Supplemental disclosure of noncash investing and
financing activities is as follows:
1999 1998 1997
------------- ---------- ---------
Common stock issued in exchange for the purchase of
Advantage Systems, Inc. $ 4,562,500 $ - $ -
============ ========= =========
Common stock issued in exchange for the purchase of
Simulator Systems, Inc. $ - $ 73,376 $ -
============ ========= =========
Common stock issued in exchange for compensation $ - $ 85,500 $ -
============ ========= =========
Stockholders' advances exchanged for compensation $ 103,569 $ - $ -
============ ========= =========
Inventories: Inventories consist of finished goods and are valued at
the lower of average cost (specific identification) or market.
Equipment: Equipment is carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the
depreciable assets, which range from three to seven years.
Amortization of organizational costs: Organizational costs are being
amortized using the straight-line basis over five years.
Goodwill: Goodwill in 1999 represents the excess purchase price over
the estimated fair value of Advantage Systems, Inc. Goodwill will be
amortized using the straight-line method over seven years. Goodwill in
1998 represented the excess purchase price over estimated fair value of
Simulator Systems, Inc. and was being amortized using the straight-line
method over five years.
Impairment of long-lived assets: The Company assesses the
recoverability of long-lived assets by determining whether the
depreciation and amortization of the asset's balances over its
remaining life can be recovered through projected undiscounted, future
cash flows. The amount of impairment, if any, is measured based on fair
value and charged to operations in the period in which the impairment
is determined by management.
In April 1999 management of the Company determined they were unable to
recover their goodwill relating to the acquisition of Simulator
Systems, Inc. and charged the remaining balance of $61,146 to
operations as non-recurring losses.
28
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
1. Nature of business and summary of significant accounting policies
-----------------------------------------------------------------
(continued)
-----------
Impairment of long-lived assets (continued): In September 1999,
management of the Company determined they were unable to recover the
purchase of their Internet gaming website franchise and charged its
cost of $150,000 to operations as non-recurring losses.
Revenue recognition: Revenues are recognized when products are shipped
to customers.
Reporting comprehensive income: The Company reports and displays
comprehensive income and its components as separate amounts in the
financial statements. Comprehensive income includes all changes in
equity during a period that results from recognized transactions and
other economic events other than transactions with owners. The Company
did not carry any items required to be disclosed as other comprehensive
income in 1999, 1998 or 1997.
Stock based compensation: The Company accounts for stock based
compensation under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
defines a fair value based method of accounting for stock based
compensation. However, SFAS 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to
employees using the intrinsic method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). Entities electing to remain with the
accounting method of APB 25 must make pro forma disclosures of net
income and earnings per share, as if the fair value method of
accounting defined in SFAS 123 had been applied. The Company has
elected to account for its stock based compensation to employees under
APB 25 and has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost is recognized for the stock options.
Income taxes: Income taxes are accounted for and reported using an
asset and liability approach. Deferred income tax assets and
liabilities are provided annually for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future. Deferred income taxes are
computed based on enacted tax laws and rates applicable to the periods
in which the differences are expected to effect taxable income.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change
during the year in deferred tax assets and liabilities.
29
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
1. Nature of business and summary of significant accounting policies
-----------------------------------------------------------------
(continued)
-----------
Net loss per common share: Net loss per share is computed by dividing
net loss by the weighted average number of common shares outstanding
during the period. The weighted average number of common stock shares
outstanding was 4,356,158 for 1999 (219,720 for 1998; 184,879 for
1997). Shares issued to an escrow agent, but not outstanding, and stock
options are not considered common stock equivalents, as the affect on
net loss per share would be anti-dilutive.
Concentration risk: The Company grants credit to customers. The
Company's ability to collect receivables is affected by economic
fluctuations in the geographic areas in which it serves.
Risks and uncertainties: The process of preparing financial statements
in conformity with generally accepted accounting principles requires
the use of estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. Management of the Company has made
certain estimates and assumptions regarding the collectability of
accounts receivable, carrying values of inventories, and recoverability
of goodwill. Such estimates and assumptions primarily relate to
unsettled transactions and events as of the date of the financial
statements. Accordingly, upon settlement, actual results may differ
from estimated amounts.
2. Business combinations
On September 24, 1999, the Company entered into a "Share Exchange
Agreement and Plan of Reorganization" (the "Share Exchange Agreement")
with Advantage Technologies, Inc., dba American Computer ("American
Computer"). Pursuant to the Share Exchange Agreement the Company issued
7,300,000 shares of its common stock in exchange for 100% of the issued
and outstanding common stock of American Computer. The business
combination was accounted for in accordance with Accounting Principles
Board Opinion No. 16 as a purchase.
The value of the shares issued for American Computer was $4,562,500
($.625 per share) which represented the closing bid price of the
Company's common stock on the date of the Share Exchange Agreement. The
purchase price exceeded the fair market value of American Computer by
$4,663,997. Components of the purchase of American Computer are as
follows:
Fair value of the Company's common stock issued $ 4,562,500
30
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
2. Business combinations (continued)
--------------------------------
Fair value of American Computer:
Accounts receivable, at net realizable value $ 220,923
Inventories, at net realizable value 31,206
Equipment, at estimated value determined by
management 2,635
Checks outstanding in excess of cash (9,399)
Accounts payable (99,394)
Other liabilities (32,600)
Notes payable to stockholders (165,208)
Long term debt (49,660)
------------
Net liabilities acquired (101,497)
------------
Goodwill $ 4,663,997
============
The results of operations of American Computer are included in the
accompanying consolidated financial statements since the date of
acquisition. The following pro forma summary presents the consolidated
financial position and results of operations of the Company as if the
business combination occurred on October 1, 1997:
As of September 30
-----------------------------------
1999 1998
-------------- --------------
Current assets $ 416,557 $ 92,916
Tangible assets 428,056 109,965
Total assets 3,788,481 4,239,197
Current liabilities 366,011 190,549
Total liabilities 736,399 265,160
Total stockholders' equity 3,052,082 3,974,037
Year ended September 30
-----------------------------------
1999 1998
-------------- --------------
Net revenues $ 1,412,363 $ 1,018,192
Gross profit 320,481 155,737
Costs and expenses 1,364,886 1,185,105
Net loss (1,044,405) (1,029,368)
Loss per common share (.091) (.137)
The above amounts are based upon certain assumptions and estimates that
the Company believes are reasonable. The pro forma consolidated
financial position and results of operations do not purport to be
indicative of the results which would have been obtained had the
business combination occurred as of October 1, 1997 or which may be
obtained in the future.
31
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
2. Business combinations (continued)
--------------------------------
On April 21, 1998, the Company entered into an "Articles of Merger and
Plan of Merger" (the "Plan of Merger") with Simulator Systems, Inc.
Under the Plan of Merger the Company issued 754 shares of its common
stock in exchange for 100% of the issued and outstanding common stock
of Simulator Systems, Inc. The business combination was accounted for
in accordance with Accounting Principles Board Opinion No. 16 as a
purchase.
The value of the shares issued for Simulator Systems, Inc. was $73,376
($97.316 per share) which represented the closing bid price of the
Company's common stock on the date of the Plan of Merger. The purchase
price exceeded the fair market value of Simulator Systems, Inc. by
$73,376.
3. Notes payable to stockholders
Two stockholders, one also being an officer of the Company, advanced
working capital to the Company in exchange for notes payable. The notes
are non-interest bearing, unsecured and due September 2000.
The note payable to the officer of the Company, which aggregated
$92,728, is convertible at the option of the officer at any time in
whole or in part into shares of common stock of the Company. Shares
issued will be valued at 100% of the lowest closing bid price for the
five trading days immediately prior to September 24, 1999, the date of
the note, or 77.5% of the lowest closing bid price for the five trading
days immediately prior to the date of conversion, whichever is lessor.
Subsequent to September 30, 1999 and through February 1, 2000, this
officer has converted $42,728 of the note into 551,329 shares of common
stock of the Company. Accordingly, this amount has been classified as
long term in the accompanying consolidated balance sheet at September
30, 1999.
4. Long term debt
Long term debt consisted of the following at September 30:
1999 1998
--------- ---------
Note payable due September 2001 with
interest at 7% per annum. Any outstanding
principal and unpaid accrued interest may
be converted at any time in whole or in
part at the option of the holder into
shares of common stock of the Company.
Shares issued will be valued at 100% of the
lowest closing bid price for the five
trading days immediately prior to September
27, 1999, the date
32
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
4. Long term debt (continued)
-------------------------
1999 1998
--------- ---------
of the note, or 77.5% of the lowest closing
bid price for the five trading days
immediately prior to the date of
conversion, whichever is lessor. $ 250,000 $ -
Non-interest bearing, convertible notes
payable to individuals were due June 1996. 40,000 40,000
Note payable to a bank, due in monthly
repayments of $1,000 per month plus
interest at the bank's prime rate plus 3%
per annum. Guaranteed by two stockholders'
of the Company. 49,660 -
--------- ---------
Total long term debt 339,660 40,000
Less amount due within one year 12,000 -
--------- ---------
Long term debt $ 327,660 $ 40,000
======== =========
The holder of the $250,000 note payable has converted $194,161 of
principal and $2,236 of interest of the note into an aggregate of
1,650,614 shares of common stock of the Company through February 1,
2000.
On October 8, 1999, the holders of the $40,000 non-interest bearing
notes payable converted their entire balances into 40,000 shares of
common stock of the Company. Accordingly, these notes have been
classified as long term in the accompanying consolidated balance sheet.
Aggregate repayments of long term debt after giving affect to
conversions into common stock are as follows: $12,000 in 2001; $67,839
in 2002; $12,000 in 2003; and $1,660 in 2004.
5. Income taxes
The components of net deferred income taxes are as follows as of
September 30:
1999 1998
----------- ----------
Deferred tax assets:
Net operating losses $ 413,000 $ 251,500
Amortization of goodwill 26,900 1,600
Less allowance for deferred tax assets (439,900) (253,100)
---------- ----------
Net deferred income taxes $ - $ -
========== ==========
33
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
5. Income taxes (continued)
-----------------------
The components of the provision (benefit) for income taxes are as
follows for the years ended September 30:
1999 1998 1997
-------------- ------------- -------------
Currently payable -state $ 10 $ 10 $ 10
Deferred:
Federal (157,800) $ (94,400) $ (100,500)
State of Oregon (29,000) (17,200) (18,300)
------------ ----------- -----------
(186,800) (111,600) (118,800)
------------ ----------- -----------
Net benefit for income taxes (186,790) (111,590) (118,790)
Change in allowance for deferred tax assets 186,800 111,600 118,800
----------- ----------- -----------
Provision for income taxes $ 10 $ 10 $ 10
=========== =========== ===========
Reconciliation of income taxes computed at the federal statutory rate
to the provision (benefit) for income taxes is as follows for the years
ended September 30:
1999 1998 1997
-------------- ------------- ------------
Federal tax benefit at statutory rates $ (149,654) $ (88,728) $ (94,379)
State tax benefit, net of federal benefit (37,450) (22,967) (24,522)
Differences resulting from:
Non-deductible and other items 314 105 111
Change in allowance for deferred tax assets 186,800 111,600 118,800
------- ----------- -------
Provision for income taxes $ 10 $ 10 $ 10
=========== =========== ===========
The Company had net operating loss carryovers of approximately
$1,027,300 as of September 30, 1999 available to offset future taxable
income, if any. Utilization of the loss carryovers is further limited
in any year because the Company's ownership changed more than 50%
during 1999. If not utilized against future taxable income, the tax
loss carryovers will expire as follows: $56,400 in 2111; $295,500 in
2117; $273,600 in 2118; and $401,800 in 2119.
6. Common stock
Effective March 15, 1999, the stockholders of the Company approved a 50
shares for 1 share reverse stock split. All share amounts in the
accompanying consolidated financial statements have been restated to
reflect this reverse stock split.
34
Advantage Technologies, Inc.
(formerly Simulator Systems, Inc.)
Notes to Consolidated Financial Statements
September 30, 1999
6. Common stock (continued)
-----------------------
On October 8, 1999, the Company issued 10,000 shares of its common
stock and a vehicle in exchange for accounts payable of $5,222.
On September 27, 1999, the Company has issued to an escrow agent
2,500,000 shares of its common stock for conversion of the $250,000
note payable under the term of the agreement.
On September 27, 1999, in connection with obtaining the $250,000
convertible note payable, the Company granted options to purchase
25,000 shares of its common stock to the holders of the note. The
options may be exercised in whole or in part on or before September 27,
2002 at a purchase price per share equal to 110% of the closing bid
price of the Company's common stock on the date the share options were
issued, which was $.625 per share. The Company has reserved 25,000
shares of its common stock for issuance under this option agreement.
In March 1999, two then existing officers were granted 500,000 shares
each of common stock of the Company at a price of $.01 per share. The
price per share represented recent sales of the Company's common stock
to outsiders on the date of grant; accordingly no compensation expense
was charged to operations as a result of these share grants.
In March 1998, the same two then existing officers exercised grants
aggregating 19,535 shares of the Company's common stock. The shares
were valued at $95,000 ($4.863 per share) which represented the closing
bid price of the Company's common stock on the date of grant.
Compensation expense of $90,000 was charged to operations in 1998 as a
result of these share grants.
In February 2000, the Board of Directors of the Company approved the
issuance of 344,086 shares of its common stock to its President in
exchange for compensation expense from October 1, 1999 through January
31, 2000 aggregating approximately $26,700.
35
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Advantage Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Advantage
Technologies, Inc. as of September 30, 1999. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above present fairly,
in all material respects, the financial position of Advantage Technologies, Inc.
as of September 30, 1999 in accordance with generally accepted accounting
principles.
/s/ Timothy L. Steers
Portland, Oregon
February 1, 2000
36
ADVANTAGE TECHNOLOGIES, INC.
Consolidated Balance Sheets
(Unaudited)
December 31, September 30,
1999 1999
-------------- --------------
ASSETS
Current assets:
Cash $ 27,772 $ 164,427
Accounts receivable 68,046 220,923
Inventories 30,699 31,206
-------------- --------------
Total current assets 126,517 416,556
Net equipment 2,089 2,635
Other assets:
Net organizational costs 8,421 8,865
Goodwill, less accumulated amortization of $166,571 at December 31, 1999 4,497,426 4,663,997
-------------- --------------
Total other assets 4,505,847 4,672,862
-------------- --------------
$ 4,634,453 $ 5,092,053
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,599 $ 189,522
Other current liabilities 18,396 42,009
Notes payable to stockholders 122,480 122,480
Long term debt due within one year 18,507 12,000
-------------- --------------
Total current liabilities 184,982 366,011
Long term debt 177,142 327,660
Convertible notes payable to stockholders 42,728 42,728
Stockholders' equity:
Preferred stock, $.001 stated value; authorized 5,000,000 shares - -
Common stock, $.001 par value; authorized 95,000,000 shares;
issued 17,096,295 shares at December 31, 1999 (17,046295 shares
at September 30, 1999); outstanding 15,443,490 shares at
December 31, 1999 (14,546,295 shares at September 30, 1999) 15,443 14,546
Additional paid-in capital 5,552,764 5,373,175
Retained deficit (1,338,606) (1,032,067)
Total stockholders' equity 4,229,601 4,355,654
--------------- ------------
$ 4,634,453 $ 5,092,053
=============== ============
37
ADVANTAGE TECHNOLOGIES, INC.
Consolidated Statements of Operations
(Unaudited)
Three months ended
December 31,
--------------------
1999 1998
-------------------- ---------
Net sales $ 215,026 $ -
Cost of goods sold 189,073 -
-------------------- ---------
Gross profit 25,953 -
Selling expenses 6,808 -
General and administrative expenses 318,990 12,915
-------------------- ---------
Net loss from operations (299,845) (12,915)
Interest expense 6,694 -
-------------------- ---------
Net loss before provision for income taxes (306,539) (12,915)
Provision for income taxes - -
-------------------- ---------
Net loss $ (306,539) $(12,915)
==================== =========
Net loss per common share $ (0.08) $ (0.21)
==================== =========
38
ADVANTAGE TECHNOLOGIES, INC.
Consolidated Statements of Changes in Stockholders' Equity
For the period from October 1, 1997 through December 31, 1999
Additional Total
Preferred stock Common stock paid-in Retained shareholders'
Shares Amount Shares Amount capital deficit equity
------ ------- ---------- ------- ---------- ------------ -----------
Balance at October 1, 1998 - $ - 246,295 $ 246 $ 654,975 $ (591,898) $ 63,323
Shares issued for cash - - 6,000,000 6,000 54,000 - 60,000
Shares issued to stockholders for cash - - 1,000,000 1,000 9,000 - 10,000
Shares issued in exchange for
shares of Advantage Systems, Inc. - - 7,300,000 7,300 4,555,200 - 4,562,500
Capital contributed - - - - 100,000 - 100,000
Net loss - - - - - (440,169) (440,169)
------ ------- ---------- ------- ---------- ------------ -----------
Balance at September 30, 1999 - - 14,546,295 14,546 5,373,175 (1,032,067) 4,355,654
Shares issued in exchange for
accounts payable (unaudited) - - 50,000 50 40,078 - 40,128
Shares issued to exchange for debt
and accrued interest (unaudited) - - 847,195 847 139,511 - 140,358
Net loss (unaudited) - - - - - (306,539) (306,539)
------ ------- ---------- ------- ---------- ------------ -----------
Balance at September 30, 1999
(unaudited) - - 15,443,490 $15,443 $5,552,764 $(1,338,606) $4,229,601
====== ======= ========== ======= ========== ============ ===========
39
ADVANTAGE TECHNOLOGIES, INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three months ended
December 31,
-------------------------------
1999 1998
-------------------- ---------
Cash flows from operating activities:
Net loss $ (306,539) $(12,915)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 990 580
Amortization of goodwill 166,571 3,668
Changes in assets and liabilities:
Accounts receivable 152,877 -
Inventories 507 -
Accounts payable (123,795) 11,000
Other current liabilities (23,613) -
-------------------- ---------
(133,002) 2,333
Cash flows from investing activities -
Advances to stockholders - (4,450)
Cash flows from financing activities-
Principal payments on long-term debt (3,653) -
-------------------- ---------
Net decrease in cash (136,655) (2,117)
Cash at beginning of period 164,427 2,684
-------------------- ---------
Cash at end of period $ 27,772 $ 567
==================== =========
Supplemental disclosure of cash flow information -
Cash paid for interest $ 2,319 $ -
==================== =========
Supplemental disclosure of noncash investing and financing activities -
Common stock issued in exchange for debt and accrued interest $ 180,486 $ -
==================== =========
40
ADVANTAGE TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
1. Nature of business and summary of significant accounting policies
Nature of business: Advantage Technologies, Inc. (the "Company") was originally
organized as a Nevada corporation in September 1993 under the name Logistics
Distribution Systems International Group, Inc. In November 1995, the Company's
name was changed to Vortices, Inc. and began developing and marketing flight
simulators to the arcade game industry.
In April 1998, the Company acquired Simulator Systems, Inc. and began developing
and marketing computerized rifle/pistol simulators to the arcade game industry.
With that acquisition, the Company ceased developing and marketing flight
simulators and changed its name to Simulator Systems, Inc.
In April 1999, the Company ceased developing and marketing computerized
rifle/pistol simulators, purchased a franchise to operate an Internet gaming
website, and changed its name to Casino Pirata.com, Ltd.
In September 1999, the Company acquired Advantage Systems, Inc., dba American
Computer. American Computer is a second-tier vendor and marketer of personal
computer products.
In December 1999, new management of the Company conveyed its Internet gaming
website franchise rights to a newly-formed, wholly owned subsidiary and changed
the name of the Company to Advantage Technologies, Inc.
Interim reporting: In the opinion of management of the Company, the accompanying
consolidated financial statements contain all adjustments, consisting of only
normal recurring adjustments, except as noted elsewhere in the notes to the
consolidated financial statements, necessary to present fairly its financial
position as of December 31, 1999 and the results of its operations and cash
flows for the three months ended December 31, 1999 and 1998. These statements
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
statements should be read in conjunction with the consolidated financial
statements and footnotes of the Company for the year ended September 31, 1999.
The results of operations for the three months ended December 31, 1999 are not
necessarily indicative of the results to be expected for the full year.
Basis of consolidation: The 1998 financial statements include the accounts of
the Company. The 1999 financial statements include the accounts of the Company
and its wholly owned subsidiaries Simulator Systems, Inc. All inter-company
balances and transactions have been eliminated upon consolidation.
41
1. Nature of business and summary of significant accounting policies
(continued)
Cash: The Company deposits their cash in financial institutions and, at various
times throughout the year, cash held in these accounts has exceeded Federal
Deposit Insurance Corporation limits. The Company has not experienced any
losses as a result of these cash concentrations.
For purposes of the statement of cash flows, the Company considers cash
equivalents to be highly liquid instruments with original due dates within three
months of the date purchased.
Inventories: Inventories consist of finished goods and are valued at the lower
of average cost (specific identification) or market.
Equipment: Equipment is carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the depreciable assets,
which range from three to seven years.
Amortization of organizational costs: Organizational costs are being amortized
using the straight-line basis over five years.
Goodwill: Goodwill represents the excess purchase price over the estimated fair
value of Advantage Systems, Inc. Goodwill is being amortized using the
straight-line method over seven years.
Impairment of long-lived assets: The Company assesses the recoverability of
long-lived assets by determining whether the depreciation and amortization of
the asset's balances over its remaining life can be recovered through projected
undiscounted, future cash flows. The amount of impairment, if any, is measured
based on fair value and charged to operations in the period in which the
impairment is determined by management.
Revenue recognition: Revenues are recognized when products are shipped to
customers.
Reporting comprehensive income: The Company reports and displays comprehensive
income and its components as separate amounts in the financial statements.
Comprehensive income includes all changes in equity during a period that results
from recognized transactions and other economic events other than transactions
with owners. The Company did not carry any items required to be disclosed as
other comprehensive income for the three months ended December 31, 1999 or 1998.
42
1. Nature of business and summary of significant accounting policies
-------------------------------------------------------------------------
(continued)
Stock based compensation: The Company accounts for stock based compensation
under Statement of Financial Accounting Standards No. 123 ("SFAS 123"). SFAS
123 defines a fair value based method of accounting for stock based
compensation. However, SFAS 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to employees using
the intrinsic method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock issued to Employees". Entities
electing to remain with the accounting method of APB 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value method of
accounting defined in SFAS 123 had been applied. The Company has elected to
account for its stock based compensation to employees under APB 25.
Advertising: The Company expenses the cost of advertising as incurred as
selling expenses. Advertising expenses was $6,808 (unaudited) for the three
months ended December 31, 1999.
Income Taxes: Income taxes are provided on the liability method whereby deferred
tax assets and liabilities are recognized for the expected tax consequences of
temporary differences between the tax bases and reported amounts of assets and
liabilities. Deferred tax assets and liabilities are computed using enacted tax
rates expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities from a change in tax rates is recognized in income in the
period that includes the enactment date. The Company provides a valuation
allowance for certain deferred tax assets, if it is more likely than not that
the Company will not realize tax assets through future operations.
Net loss per common share: Net loss per share is computed by dividing net loss
by the weighted average number of common shares outstanding during the period.
The weighted average number of common stock shares outstanding was 3,694,070 for
the three months ended December 311999 (61,574 for 1998). Shares issued to an
escrow agent, but not outstanding, and stock options are not considered common
stock equivalents, as the affect on net loss per share would be anti-dilutive.
Concentration risk: The Company grants credit to customers. The Company's
ability to collect receivables is affected by economic fluctuations in the
geographic areas in which it serves.
Risks and uncertainties: The process of preparing financial statements in
conformity with generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets, liabilities,
revenues and expenses. Management of the Company has made certain estimates and
assumptions regarding the collectability of accounts receivable, carrying values
of inventories, and
43
1. Nature of business and summary of significant accounting policies
-------------------------------------------------------------------------
(continued)
recoverability of goodwill. Such estimates and assumptions primarily relate to
unsettled transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated amounts.
2. Business combinations
The following pro forma summary presents the consolidated financial position and
results of operations of the Company as if American Computer had been acquired
at the beginning of the Company's 1998 fiscal year:
(Unaudited)
Three months ended
December 31, 1998
--------------------
Net revenues $ 239,457
Gross profit 57,212
Costs and expenses 254,100
Net loss (196,888)
Net loss per common share $ (0.104)
The above amounts are based upon certain assumptions and estimates that the
Company believes are reasonable. The pro forma consolidated results of
operations do not purport to be indicative of the results which would have been
obtained had the business combination occurred as of October 1, 1998 or which
may be obtained in the future.
3. Notes payable to stockholders
Two stockholders, one also being an officer of the Company, advanced working
capital to the Company in exchange for notes payable. The notes are
non-interest bearing, unsecured and due September 2000.
The note payable to the officer of the Company, which aggregated $92,728, is
convertible at the option of the officer at any time in whole or in part into
shares of common stock of the Company. Shares issued will be valued at 100% of
the lowest closing bid price for the five trading days immediately prior to
September 24, 1999, the date of the note, or 77.5% of the lowest closing bid
price for the five trading days immediately prior to the date of conversion,
whichever is lessor.
In January 2000, this officer converted $42,728 of the note into 551,329 shares
of common stock of the Company. Accordingly, this amount has been classified as
long term in the accompanying consolidated balance sheet at December 31, 1999.
44
4. Long term debt
Long term debt consisted of the following:
(Unaudited)
December 31, September 30,
1999 1999
-------------- --------------
Note payable due September 2001 with
interest at 7% per annum. Any
outstanding principal and unpaid accrued
interest may be converted at any time in
whole or in part at the option of the holder
into shares of common stock of the
Company. Shares issued will be valued
at 100% of the lowest closing bid price for
the five trading days immediately prior to
September 27, 1999, the date of the
note, or 77.5% of the lowest closing bid
price for the five trading days immediately
prior to the date of conversion, whichever
is lessor. $ 110,839 $ 250,000
Non-interest bearing, convertible notes
payable to individuals were due June
1996. 40,000 40,000
Note payable to a bank, due in monthly
repayments of $1,901 per month including
interest at 11.5% per annum. Guaranteed
by two stockholders' of the Company. 44,810 49,660
-------------- --------------
Total long term debt 195,649 339,660
Less amount due within one year 18,507 12,000
-------------- --------------
Long term debt $ 177,142 $ 327,660
============== ==============
45
5. Common stock
On October 8, 1999, the Company issued 50,000 shares of its common stock and a
vehicle in exchange for debt of $40,128.
The Company issuance of 847,195 shares of common stock during the three months
ended December 21, 1999 in exchange for debt and accrued interest. Management
of the Company valued the shares at a weighted average price of $.166 per share,
which represented a 26.2% discount from the closing bid price of the Company's
common stock at the date of issuance. Management of the Company estimated the
value of the Company's shares granted after considering the historical trend of
the trading prices for its common stock and the limited volume of shares being
traded.
6. Subsequent events
In February 2000, the Board of Directors of the Company approved the issuance of
344,086 shares of its common stock to its President in exchange for accrued
compensation expense from October 1, 1999 through January 31, 2000.
46
ITEM 8. CHANGE IN FISCAL YEAR
Advantage as the successor issuer has a fiscal year end of September 31,
which fiscal year end will continue for the successor issuer.
EXHIBITS
Exhibit
Number Description
- ------ -----------
1.1 Stock Exchange Agreement between MRC Legal Services
Corporation and Advantage Technologies, Inc., dated as of
March 31, 2000.
1.2 Consulting Agreement dated March 31, 2000.
2.1 Articles of Merger and Plan of Merger dated April 21, 1998
between Vortices, Inc. and Simulator Systems.
2.2 Share Exchange Agreement and Plan of Reorganization dated
September 24, 1999 , and amendment thereto, between Casino
Pirata.com Ltd, Advantage Systems, Inc. and the shareholders
of Advantage Systems, Inc.
3.1 Articles of Incorporation of Advantage Technologies, Inc. and
Amendments thereto.
3.2 Articles of Incorporation of Advantage Systems, Inc.
3.3 Articles of Incorporation of CasinoPirata.com Ltd.
3.4 Bylaws of Advantage Technologies, Inc.
3.5 Bylaws of Advantage Systems, Inc.
3.6 Bylaws of Casino Pirata.com Ltd.
4 Specimen Stock Certificate
10.1 Employment Agreement between George J. Bentley and Advantage
Technologies, Inc. dated November 18, 1999, effective as of
October 7, 1999.
10.2 Software License Agreement with WorldNet Casinos.com Ltd.
dated April 19, 1999.
21 Subsidiaries
23 Auditor's Consent
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Advantage Technologies, Inc.
Date: April 3, 2000 By /s/ George J. Bentley
----------------------
George J. Bentley, President
37