UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
{X} QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
OR
{ } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For transition period from _______________ to _______________
Commission File Number: 0-17953
Advance Technologies Inc.
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 95-4755369
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 N. Longspur Drive
The Woodlands, TX 77380
(Address of Principal Executive Offices)
(310) 213-2143
(Issuer's telephone number)
-------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES { X } NO { }
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
YES { } NO { X }
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of June 30, 2006:
39,527,897 of Common shares outstanding.
Transitional Small Business Disclosure Format (check one):
YES { } NO { X }
PART I
Financial Information
ITEM 1. FINANCIAL STATEMENTS
-------------------
ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
JUNE 30, 2006 CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
TABLE OF CONTENTS
PAGE
--------
Condensed Consolidated Balance Sheets, June 30, 2006 and
September 30, 2005 4
Condensed Consolidated Statements of Operations, For the Three
and Nine Months Ended June 30, 2006 and 2005 and For the Period
From Entering Development Stage on October 1, 1985 Through
June 30, 2006 5
Condensed Consolidated Statements of Cash Flows, For the Nine
Months Ended June 30, 2006 and 2005 and For the Period From
Entering Development Stage on October 1, 1985 Through
June 30, 2006 6
Notes to the Condensed Consolidated Financial Statements 7 - 8
ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
June 30, September 30,
2006 2005
------------- -------------
(Unaudited) (Restated)
CURRENT ASSETS:
Cash $ 71,332 $ 2,934
Accounts receivable 10,800 6,600
Prepaid expenses 287 -
------------- -------------
Total Current Assets 82,419 9,534
PROPERTY AND EQUIPMENT, net 226 851
------------- -------------
TOTAL ASSETS $ 82,645 $ 10,385
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 89,308 $ 16,921
Related party loans 77,350 71,000
Liability to be settled by issuance of stock - 8,000
------------- -------------
Total Current Liabilities 166,658 95,921
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, $.001
par value, 100,000,000 shares authorized,
27,239,477 and 26,017,157 shares issued and
Outstanding, respectively 27,239 26,017
Common stock, $.001 par value, 100,000,000
shares authorized, 39,527,897 and 39,498,217
shares issued and outstanding, respectively 39,528 39,498
Capital in excess of par value 628,313 582,685
Deficit accumulated during the development
stage (779,093)
(733,736)
------------- -------------
Total Stockholders' Equity (84,013)
(85,536)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 82,645 $ 10,385
============= =============
See accompanying notes and accountant's report.
Page 4
ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period
From Entering
Development
Stage on
For the Three Months For the Nine Months October 1,
Ended June 30, Ended June 30, 1985 through
---------------------- ---------------------- June 30,
2006 2005 2006 2005 2006
---------- ---------- ---------- ---------- -------------
(Restated) (Restated) (Restated)
REVENUES:
Royalty $ 10,800 $ 6,300 $ 21,900 $ 10,500 $ 64,000
Consulting 3,107 - 3,107 2,453 70,950
Product - - - - 119,073
---------- ---------- ---------- ---------- -------------
Total Revenues 13,907 6,300 25,007 12,953 254,023
---------- ---------- ---------- ---------- -------------
COST OF GOODS SOLD - - - - 114,020
---------- ---------- ---------- ---------- -------------
GROSS PROFIT 13,907 6,300 25,007 12,953 140,003
---------- ---------- ---------- ---------- -------------
OPERATING EXPENSES:
Depreciation and
amortization 170 1,103 625 4,385 51,659
Research and
development - - - - 72,750
Other general and
administrative 26,770 6,609 65,277 30,161 840,662
---------- ---------- ---------- ---------- -------------
Total Operating
Expenses 26,940 7,712 65,902 34,546 965,071
---------- ---------- ---------- ---------- -------------
LOSS BEFORE OTHER
INCOME (EXPENSE) (13,033) (1,412) (40,895) (21,593) (825,068)
---------- ---------- ---------- ---------- -------------
OTHER INCOME (EXPENSE):
Miscellaneous income - - - - 98,000
Interest expense - - - - (23,267)
Interest expense
related party (1,543) (1,435) (4,462) (4,131) (28,758)
---------- ---------- ---------- ---------- -------------
Total Other Income
(Expense) (1,543) (1,435) (4,462) (4,131) 45,975
---------- ---------- ---------- ---------- -------------
NET LOSS $ (14,576) $ (2,847) $ (45,357) $ (25,724) $ (779,093)
========== ========== ========== ========== =============
LOSS PER COMMON
SHARE $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.13)
========== ========== ========== ========== =============
WEIGHTED-AVERAGE
SHARES OUTSTANDING 39,523,337 34,598,553 39,506,590 31,406,947 6,174,729
========== ========== ========== ========== =============
See accompanying notes and accountant's report.
Page 5
ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period
From Entering
Development
Stage on
For the Nine Months October 1,
Ended June 30, 1985 through
---------------------- June 30,
2006 2005 2006
---------- ---------- -------------
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (45,357) $ (25,724) $ (779,093)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation & amortization 625 4,385 51,659
Imputed interest 4,462 4,131 28,758
Organization Costs - - 11,331
Stock issued for services 34,418 - 445,443
(Increase) decrease in
accounts receivable (4,200) (6,300) (10,800)
(Increase) decrease in
prepaid expenses (287) - 14,393
Increase (decrease) in
accrued liabilities 72,387 2,179 148,282
---------- ---------- -------------
NET CASH USED BY OPERATING ACTIVITIES 62,048 (21,329) (90,027)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - - (39,386)
Investment in subsidiary - - 286
---------- ---------- -------------
NET CASH USED BY INVESTING ACTIVITIES - - (39,100)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid on related party loans (800) (7,500) (49,000)
Proceeds from related party loans 7,150 16,200 126,350
Proceeds from line of credit - 4,218 85,500
Proceeds from stock issuances - - 30,109
Capital contribution - 7,500 7,500
---------- ---------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,350 20,418 200,459
---------- ---------- -------------
NET INCREASE (DECREASE) IN CASH 68,398 (911) 71,332
CASH AT BEGINNING OF PERIOD 2,934 1,773 -
---------- ---------- -------------
CASH AT END OF PERIOD $ 71,332 $ 862 $ 71,332
========== ========== =============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the period ended June 30, 2006:
In October 2005, the Company issued 160,000 shares of Series A convertible
preferred stock to settle a prior year liability consisting of $2,000 in
director fees and $6,000 in salary.
For the period ended June 30, 2005:
None
See accompanying notes and accountant's report.
Page 6
ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed - Advance Technologies, Inc. and Subsidiaries ("the Company") has
elected to omit substantially all footnotes to the financial statements for the
nine months ended June 30, 2006 since there have been no material changes (other
than indicated in other footnotes) to the information previously reported by the
Company in their Annual Report filed on Form 10-KSB for the fiscal year ended
September 30, 2005.
Unaudited Information - The information furnished herein was taken from the
books and records of the Company without audit. However, such information
reflects all adjustments (normal recurring) which are, in the opinion of
management, necessary to properly reflect the results of the interim periods
presented. The information presented is not necessarily indicative of the
results from operations expected for the full fiscal year.
Reclassification Certain amounts in prior-year financial statements have
been reclassified for comparative purposes to conform with presentation in
the current-year financial statements.
Recent Accounting Standards - Statement of Financial Accounting Standards
No. 154, "Accounting Changes and Error Corrections a replacement of APB
Opinion No. 20 and FASB Statement No. 3," was recently issued and is
effective for fiscal years beginning after December 15, 2005. Had the
Company applied the provisions of SFAS No. 154, their effects on the
financial statements would not have been significant.
NOTE 2 - RESTATEMENT
Subsequent to filing their Form 10-KSB for the year ended September 30,
2005, the Company discovered that (1) their revenues had been recorded on a
cash basis rather than accrual, (2) their revenues had not been recorded
net of discounts, (3) officer and director compensation had not been
accrued, and (4) interest had not been imputed on non-interest-bearing
related party loans. The restatement had the following effects on the
amounts presented herein:
September 30, 2005 Balance Sheet
-----------------------------------------
Before After
Restatement Restatement Difference
------------- ------------- -------------
Accounts receivable $ - $ 6,600 $ 6,600
Current assets 2,934 9,534 6,600
Total assets 3,785 10,385 6,600
Liability to be settled by
issuance of stock - 8,000 8,000
Current assets 87,921 95,921 8,000
Capital in excess of par value 558,389 582,685 24,296
Retained earnings (708,040) (733,736) (25,696)
Stockholders' equity (deficit) (84,136) (85,536) (1,400)
Statement of Operations for the Three
Months Ended June 30, 2005
-----------------------------------------
Before After
Restatement Restatement Difference
------------- ------------- -------------
Royalty revenues $ 5,500 $ 6,300 $ 800
Other general and administrative
expense (12,109) (6,609) 5,500
Interest expense related party - (1,435) (1,435)
Net income (loss) (7,712) (2,847) 4,865
Net income (loss) per share (0.00) (0.00) -
Page 7
ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 RESTATEMENT (Continued)
Statement of Operations for the Nine
Months Ended June 30, 2005
-----------------------------------------
Before After
Restatement Restatement Difference
------------- ------------- -------------
Royalty revenues $ 6,400 $ 10,500 $ 4,100
Other general and administrative
expense (35,661) (30,161) 5,500
Interest expense related party - (4,131) (4,131)
Net income (loss) (31,193) (25,724) 5,469
Net income (loss) per share (0.00) (0.00) -
Statement of Operations for the Period
From Entering Development Stage on
October 1, 1985 through June 30, 2006
-----------------------------------------
Before After
Restatement Restatement Difference
------------- ------------- -------------
Royalty revenues $ 73,400 $ 64,000 $ (9,400)
Other general and administrative
expense (848,662) (840,662) 8,000
Interest expense related party - (28,758) (28,758)
Net income (loss) (748,935) (779,093) (30,158)
Net income (loss) per share (0.12) (0.13) (0.01)
NOTE 3 CAPITAL STOCK
Preferred Stock From October through December 2005, the Company issued a
total of 360,000 shares of Series A convertible preferred stock to
directors of the Company for services valued at $19,000 (approximately
$0.0528 per share) of which $8,000 was earned during the quarter ended
September 30, 2005.
In February 2006, the Company issued 100,000 shares of Series A convertible
preferred stock to a consultant for services valued at $3,900 ($0.039 per
share).
From March through June 2006, the Company issued a total of 592,000 shares
of Series A convertible preferred stock to directors of the Company for
services valued at $14,408 (approximately $0.0243 per share).
From April through June 2006, the Company issued a total of 200,000 shares
of Series A convertible preferred stock to a consultant for services valued
at $5,110 (approximately $0.0256 per share).
Conversions In April and May 2006, shareholders converted a total of
29,680 shares of Series A convertible preferred stock into 29,680 shares of
common stock.
Page 8
ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The management discussions contain certain forward-looking statements and
information that are based on the beliefs of management as well as
assumptions made by and information currently available to management. When
used in this document, the words "anticipate," "believe," "estimate,"
"expect," "intend," "will," "plan," "should," "seek," and similar
expressions, are intended to identify forward-looking statements. Such
statements reflect the current view of management regarding future events
and are subject to certain risks, uncertainties and assumptions. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual actions or results may vary materially
from those described herein as anticipated, believed, estimated, expected
or intended.
The following discussion and analysis should be read in conjunction with
the company's consolidated financial statements and related footnotes for
the quarter ended June 30, 2006. The discussion of results, causes and
trends should not be construed to imply any conclusion that such results or
trends will necessarily continue in the future.
Results of Operations
EXECUTIVE SUMMARY
(A) Advanced Technologies Inc. has been receiving sales credit from
Kollsman Inc. since 2002. The first 200 units were stipulated as "without
royalties". The next 210 units are subject to royalties, but 63% of the
income is applied to an "Advance Royalty" account. Advance Technologies
net royalty income will increase by virtue of the payment in full of the
"advance royalty" account and improving sales.
(B) The first quarter of 2006 had a 45% increase in sales over the first
Quarter of 2005. The second quarter of 2006 had a similar increase of +71%
over the second quarter of 2005, and a +125% increase in sales over last
quarter (the first quarter of 2006). These improved sales do not reflect
any sales from FedEx.
The payment in full of the "advanced Royalty" account will be achieved by
the end of 2006 or first quarter of 2007. The initial sales to the FedEx
customer will most likely occur in 2007. The revenue to the company from
Gulfstream & FedEx royalties for 2006 is expected to double the like period
of 2005. With the satisfying of the "Advance Royalty Account", net profits
will increase by 167% on same sales margins. Increases in total sales from
FedEx in 2007 should add to our over all profits.
Advance Technologies Inc. provided consultation and export sales to United
Integrated Services Inc., a Taiwan Corporation in 2006. The income from 1/2
of the sales received this quarter was $73,107.00, and the expense incurred
was $70,000.00. UIS has indicated they wish to purchase an additional 25
Cameras in August September of 2006. Since the US Department of Commerce
export license to Advance Technologies Inc. expires September 30, 2006,
there is a 50% probability that the license will expire before the sale can
be fully executed. UIS has been notified of the potential problem, and
will bear all financial risks if the sale is terminated. UIS has asked
Advance Technologies Inc. to apply for an additional export license for
future sales.
Advance Technologies Inc. is pursuing a new product (Infrared Security
System). The funds for this new venture will be obtained from investment
sources without liability to Advance Technologies Inc. Therefore, no
incurred expense or set aside provisions for future expense has been made.
(c) There are no off-balance sheet arrangements.
Page 9
MAJOR ACTIVITY
Highlights of Third Quarter
The Enhanced Vision System project continues with on going sales by
Kollsman to Gulfstream. These sales track the new aircraft deliveries by
Gulfstream. The retrofit market for Gulfstream continues at a slow rate,
but is projected to improve once the EVS II is certified and in production.
The introduction of EVS II for FedEx remains on schedule, with
certification anticipated before the end of 2006. When EVS II is placed in
production for FedEx it is expected that the Gulfstream retro-fit program
for older models of their G series aircraft, which will use the new EVS II
will increase.
United Integrated Services Inc. of Taiwan has informed ATI that they plan
on proceeding forward with the purchase and export of the final 25 units of
the NV-2000 cameras authorized under our Dept. of Commerce Export license
D326061.
Recreational Vehicle Systems Inc. has completed their incorporation filing,
and they have stated they intent to initiate operations this fall. The
degree of ATI's participation, if any, will evolve over the balance of
2006.
I-6 ACTIVITIES
ATI formed a subsidiary company to pursue the Infrared Security System
(ISS) opportunity last quarter. This wholly owned, Infrared Systems
International (ISIX or I-6) has been licensed by ATI for the intellectual
property pertaining to ISS. The ISS project requires a major effort that
encompasses advance technology in the areas of Infrared, Image Processing,
Wireless conductivity, Advanced Server Design, and Security Response
Providers.
I-6 has been engaged in discussions with several corporations. These
discussions cover a broad range of topics. The key subjects are:
investments, equity considerations, technical responsibilities, and project
role. The market focus has been for applications to the small to medium
size commercial wholesalers, manufactures, and distributors. This market
segment has been projected to exceed 1/2 million units in the first five
years from start up. The launching of an effort of this magnitude will
necessitate a detailed program plan leading to the involvement of one or
more Fortune 500 companies.
Additional markets for ISS have been under discussion. In particular, the
Homeland Defense market has been the subject of interest. I-6's efforts in
this market have been limited to the licensing of one or more Defense
Corporations that specialize in HLD to take the Prime contractor role.
Application "White Papers" are being developed as a way to present the
capabilities of ISS. These proprietary application papers are prepared for
specific potential customers. These info-papers are provided under NDA's
to protect I-6 rights. Paper prepared for one or more entities are:
1. Border patrol security
2. Petrol-Chemical security for 3rd world country application.
3. Integrated 24/7 security sites
4. Energy Conservation Initiative
5. Campus Surveillance
6. Farm Security
7. Intruder Detection & Alert
8. Home (private) Security
9. Mobile Vehicle Protection (aircraft, pleasure craft, motor
homes)
Page 10
I-6 has secured the cooperation of several strategy partners for the
development of ISS. These corporations are experts in their core
technologies: Wireless mobile transport, Specialized Wireless Server
Design, Software design and coding, IR Cameras, Internet protocol, and OEM
high rate production. These organizations currently participate under
binding non-disclosure agreements. There are no commitments from I-6 for
their involvement beyond this early technical assessment phase. When
future agreements that bind I-6 to any corporation are executed, the nature
of the agreement and the participating party or parties will be announced
within proprietary and competition sensitive limits.
Advance Technologies Inc. provided consultation and export sales to United
Integrated Services Inc., a Taiwan Corporation in the third quarter of
2006. The income from the sale of 25 units was $73,109. The expense
incurred was $73,000. UIS as indicated that they will be purchasing an
additional 25 units in August of 2006. This last 25 units completes the
contract for the sale of 50 units authorized under the IS Department of
Commerce export license. UIS has expressed a desire for AVTX to apply for
an Export license for addition sales in 2007.
(c) There are no off-balance sheet arrangements.
--------------------------------------------
ATI continues to utilize the services of an SEC Attorney on retainer, and
contract for bookkeeping services on a time and material basis. This has
substantially added to our cost of ensuring that we are and remain fully
complaint to all SEC regulations.
NINE MONTHS ENDED JUNE 30, 2006 COMPARED WITH THE NINE MONTHS ENDED JUNE
30, 2005
NET SALES
Net sales for the company were approximately $25,007 for the nine month
period ending on June 30, 2006 as compared to approximately $12,953 for the
same period a year earlier. Consulting fees increased from $2,453 to
$3,107 for the same 9 month periods of time. For the three month period of
time ending on June 30, 2006 the sales was $13,907 as compared to $6,300
for the same period last year. The sales rate for EVS continues to
increase at a modest rate.
GROSS PROFIT
GROSS PROFIT was the same as NET PROFIT since royalty income and consulting
fees have NO COST OF GOODS, the gross and net profits are the same.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating expense for the nine month period ending June 30, 2006 was
$65,104 as compared to $34,546 for the same nine month period ending June
30, 2005. The operating expenses for the three months ending June 30, 2006
were $26,142 versus $7,712 in 2005. The increase in operating cost can be
attributed to increase costs associated with Oxley-Sarbanes (approximately
$8,000) and $6,000 per quarter for the President/CEO and $2,000 per quarter
for the Board of Directors (two member plus the President).
OTHER INCOME AND EXPENSE
For the nine month period this year the expense was $4,462 versus $4,131
last year in 2005.
Page 11
NET PROFIT (LOSS) BEFORE PROVISIONS FOR INCOME TAXES
The net loss for the nine month period ending June 30, 2006 was $44,559
versus $25,724 for the same period in 2005. The company's net loss for the
three months ending June 30, 2006 was $13,778 versus $2,847 for the like
period in 2005. The largest factor in the increased loss results from the
inclusion of the President and BOD compensation of $8,000 per quarter. The
compensation is in the form of preferred shares.
THREE MONTHS ENDED JUNE 30, 2006 COMPARED WITH THE THREE MONTHS ENDED JUNE,
2005:
NET SALES
The sales for the last three months ending on June 30, 2006 were $13,907 as
compared to $6,300 for the same period last year. The sales of EVS system
is increasing due to improved retrofit sales for Gulfstream aircraft. The
certification of the EVS II system by Kollsman is viewed as a positive
factor. Neither Kollsman nor Gulfstream have made any sales projections
for EVS II.
GROSS PROFIT
Gross profit is the same as Net Profit because the cost of goods for
royalties and consultant fees are zero.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The operating expense for the nine month period ending June 30, 2006 was
$65,104 versus $34,546 in the same period of 2005. The operating expense
for the three months ending June 30, 2006 was $26,142 versus the like
period in 2005 of $ 7,712. The principle cause of the increase in
operating cost is the introduction of the Compensation Plan in fall of 2005
for the President & BOD. The plan provides the equivalent of $8,000 per
quarter of Preferred Shares.
OTHER INCOME AND EXPENSE
For the nine month period ending June 30, 2006 the interest expense was $
4,462 versus $ 4,131 for the like period in 2005. For the three months
ending June 30, 2006 the interest expense was $1,543 versus like period of
$1,435.
NET PROFIT (LOSS) BEFORE PROVISON FOR INCOME TAXES
The net loss for the nine month period ending June 30, 2006 was $44,559
versus $25,724 for the like period in 2005. The loss for the last three
months ending June 30, 2006 was $13,778 versus $2,847. The President and
BOD compensation accounted for $18,000 debit for nine months which included
$6,000 loss for last three months.
LIQUIDITY AND CAPITAL RESOURCES
The company's primary source of revenues is from royalties from our EVS
licensee Kollsman. Our Royalties reported as revenues are net royalties
with the gross revenue at 2.27 times the reported royalties. The reduction
to net royalties is caused by the repayment of advance royalties as
specified in the Kollsman License Agreement. Based upon current sales, the
advance royalties will be fully paid (currently 62% has been paid) by the
end of 2006. This will cause our net income to jump by a factor of 2.67 on
the same number of sales in 2007.
The other source of income comes from our Agent agreement with United
Integrated Service Co. LTD, Taiwan. The collaboration with UIS has allowed
our company to be coupled into the Far East market. This Agent
relationship in 2006 will add between 4 and 6 thousand dollars to our net
earnings annually. $3,107 was earned this quarter, and a similar amount is
projected for next quarter. UIS has asked that we apply for another export
license for 2007 sales. The small profit margin reflects the low risk
nature of the transaction.
Page 12
The company has formed a wholly owned subsidiary called I-6. The Infrared
Security System has been licensed to I-6. Under terms of the license I-6
has issued a promissory note to the company for $100,000. This note when
collected will defer internal expenses, the most notable being for a patent
attorney to complete the ISS patent filed last November 6, 2005.
The Board of Directors has offered I-6 a twenty-four month buy-back option
for the ISS intellectual property. The option is for $100,000,000. The
option offer has been received and acknowledged by I-6 and their Board of
Directors. The option will provide protection to the company against any
potential hostile take over of ATI.
The company income has not been sufficient for meeting our expenses; as a
result our short term debt has increased slightly. I-6 expects to receive
all investment funds from ISS Associates for considerations limited to the
ISS venture. The company stands to benefit through the success of I-6, but
is structured to be insolated from any liability. And with the "Hostile
take over provisions", the company is adequately protected. Investments by
I-6 will be separately reported, but will be included as part of Advance
Technologies Inc. for the immediate future.
OPERATIONS
The Company operated at a substantial loss over the last nine months
($44,559). This loss is directly attributed to the Executive compensation
package of $24,000. Since the compensation is in the form of preferred
shares, the impact on cash flow and cash reserves is minimized. Since the
preferred shares do not enter the market "float" and the shares represent
less than 0.7% of the combined preferred and common share base, the
compensation package as minimum impact on the Company.
The Oxley-Sarbanes has added substantially to our direct cost. We estimate
that our cost of meeting the new standards as between 8-12 thousand
dollars.
INVESTING
The company made no investments during this reporting period.
FINANCING
The company believes that no additional financing will be required, and
present interim financing will meet all of our short term needs as required
until royalties will cover all of our expenses.
Additional funding if required for I-6 will be secured using I-6 collateral
as the sole security for any such obligation. This insulates Advance
Technologies Inc and their shareholders from any debt or obligation that is
incurred by I-6 in pursue of the Infrared Security Market.
Item 3. Controls and Procedures
The President/CEO/CFO maintains direct control over all financial
proceeding of the company.
The President reviews all expenditures and reconciles the all income and
expenses through the Corporate Bank account. The President is the only
person authorized for this account. This procedure has been used since the
original company was established in 1993.
The President maintains budget control, and the Board of Directors
authorizes any new expenses.
PART II OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended June 30, 2006, the Company issued or approved
the issuance of an aggregate of 444,000 shares of AVTX Preferred Stock to
four directors or employees of the Company in consideration for services
provided to the Company. The transactions were non-public offerings of
securities exempt from registration under the Securities Act of 1933, as
amended, by virtue of Section 4(2) thereof.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
31.1 Certification of President, Chief Executive Officer and Chief
Financial Officer Pursuant to Rule 13-14 or Rule 15-14 of the Securities
and Exchange Act of 1934 as adopted pursuant to Section 906 of The
Sarbanes-Oxley act of 2002.
32.1 Certification of President, Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 2, 2006 Advance Technologies, Inc.
(Registrant)
By:/s/ GARY E. BALL
---------------------------------------
Gary E. Ball
President and Director
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