UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
----------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
COMMISSION FILE NUMBER: 0-30983
ADVANT-E CORPORATION
--------------------
(Name of Small Business Issuer in its Charter)
DELAWARE 88-0339012
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2680 Indian Ripple Rd.
DAYTON, OH 45440
---------------------------------
(Address of principal executive offices)
937-429-4288
---------------------------------
(Issuer's telephone number, including area code)
Name, address and fiscal year of registrant have not changed since last report.
As of July 31, 2003 the issuer had 5,661,002 outstanding shares of Common
Stock, $.001 Par Value.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANT-E CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June December
30, 31,
2003 2002
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 126,887 98,740
Accounts receivable, net 175,267 157,655
Prepaid expenses 37,151 46,817
Deferred income taxes 48,655 40,600
--------- ---------
Total current assets 387,960 343,812
--------- ---------
SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $434,648 at June 30, 2003
and $294,767 at December 31, 2002 578,241 634,956
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $126,305 at June 30, 2003
and $103,460 at December 31, 2002 170,826 171,589
OTHER ASSETS
Deferred income taxes 79,046 79,046
Deposits 6,583 6,583
--------- ---------
85,629 85,629
--------- ---------
Total assets $ 1,222,656 1,235,986
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 134,067 158,320
Accrued interest 167,065 118,025
Other accrued expenses 67,105 49,600
Deferred revenue 77,355 93,893
Bank note payable 12,027 14,097
Convertible subordinated notes payable, net 773,207 729,621
8% demand notes payable to shareholder 45,000 45,000
--------- ---------
Total current liabilities 1,275,826 1,208,556
--------- ---------
LONG-TERM LIABILITIES
Bank note payable, less current maturities - 4,797
--------- ---------
Total liabilities 1,275,826 1,213,353
--------- ---------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value; 20,000,000
shares authorized; 5,661,002 issued and
outstanding 5,661 5,661
Paid-in capital 850,459 850,459
Accumulated deficit (909,290) (833,487)
--------- ---------
Total shareholders' equity (deficit) (53,170) 22,633
--------- ---------
Total liabilities and shareholders'
equity (deficit) $ 1,222,656 1,235,986
========= =========
The accompanying notes are an integral part of the financial statements.
ADVANT-E CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
REVENUES
Internet products and services $ 655,497 383,507 1,265,441 727,516
Software and license fees 59,611 107,930 99,045 167,171
------- ------- --------- -------
Total revenues 715,108 491,437 1,364,486 894,687
------- ------- --------- -------
OPERATING EXPENSES
Production 31,981 36,327 59,719 68,885
Salaries and benefits 383,541 245,536 770,006 475,711
General and administrative 163,410 123,110 349,530 193,444
Depreciation 13,510 8,100 22,846 14,802
Amortization of software
development costs 71,617 31,168 139,881 58,312
Interest 53,076 73,830 106,362 158,980
------- ------- --------- -------
Total operating expenses 717,135 518,071 1,448,344 970,134
------- ------- --------- -------
LOSS BEFORE TAXES ( 2,027) (26,634) (83,858) (75,447)
INCOME TAXES (BENEFIT) 3,952 4,815 ( 8,055) 7,410
----- ----- --------- -------
NET LOSS $ ( 5,979) (31,449) (75,803) (82,857)
======= ======= ========= =======
LOSS PER SHARE
Basic and diluted $ (0.00) (0.01) (0.01) (0.01)
==== ==== ==== ====
AVERAGE SHARES OUTSTANDING
Basic and diluted 5,661,002 5,661,002 5,661,002 5,661,002
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
ADVANT-E CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (75,803) (82,857)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 22,846 14,802
Amortization of software development costs 139,881 58,312
Deferred income taxes (benefit) ( 8,055) 7,410
Amortization of note discount resulting
From valuation of warrants and beneficial
conversion features 43,586 112,505
Increase (decrease) in cash arising from
changes in assets and liabilities:
Accounts receivable (17,612) (83,534)
Prepaid expenses 9,666 35,777
Accounts payable (24,253) 50,766
Accrued interest 49,040 41,175
Other accrued expenses 17,505 1,390
Deferred revenue (16,538) 1,789
------- -------
Net cash provided by
operating activities 140,263 157,535
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment ( 22,083) ( 11,592)
Software development costs ( 83,166) (181,917)
------- -------
Net cash used in investing activities (105,249) (193,509)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on bank loans (6,867) (43,592)
------- --------
Net cash used in financing activities (6,867) (43,592)
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 28,147 (79,566)
Cash and cash equivalents, beginning of period 98,740 180,679
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 126,887 101,113
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ITEMS
Interest paid $ 12,382 5,299
The accompanying notes are an integral part of the financial statements.
ADVANT-E CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
Common Stock
----------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- ------ -------- -------- ------
Balance, January 1, 2002 5,661,002 $ 5,661 763,287 (525,953) 242,995
Net loss (307,534) (307,534)
Warrants issued with 10%
convertible subordinated
notes 27,500 27,500
Beneficial conversion
feature of 10% convertible
subordinated notes 52,500 52,500
Beneficial conversion
feature of extension
of 15% convertible
subordinated notes 7,172 7,172
--------- ----- ------- ------- -------
Balance December 31, 2002 5,661,002 5,661 850,459 (833,487) 22,633
Net loss (75,803) (75,803)
--------- ----- ------- ------- ------
Balance June 30, 2003 5,661,002 $ 5,661 850,459 (909,290) (53,170)
========= ===== ======= ======= ======
The accompanying notes are an integral part of the financial statements.
ADVANT-E CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Advant-E Corporation and its wholly-owned subsidiary Edict
Systems, Inc.
The statements have been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and the instructions
to Form 10-QSB. Accordingly, they do not include all of the information and
notes to financial statements required by U.S. generally accepted accounting
principles for complete financial statements. In the opinion of management,
the unaudited consolidated financial statements include all adjustments
considered necessary for a fair presentation of financial position, results
of operations, and cash flows for the interim periods.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Results of operations for the three months and for the six months ended June
30, 2003 are not necessarily indicative of the results to be expected for the
full year ending December 31, 2003. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements, accounting policies, and financial notes thereto included in
Advant-E Corporation's 2002 Form 10-KSB filed with the Securities and Exchange
Commission.
NOTE 2 - OPERATIONS AND MANAGEMENT'S INTENT
The Company has incurred substantial operating losses to date. During the year
ended December 31, 2002 and the six-month period ended June 30, 2003, the
Company generated positive cash flow from operations. On July 1, 2003 the
Company implemented certain cost savings initiatives that included modest
workforce and salary reductions. Management believes that current cash and
cash equivalents and cash that may be generated from operations in the
ensuing year will be sufficient to meet the anticipated capital expenditure
requirements and cash interest requirements, provided that the maturity date of
certain subordinated notes is extended as discussed below. Such projections
are based on historical trends related to growth of revenue from existing
customers and new customer acquisition, and anticipated revenue growth from
EnterpriseEC. The projections also include anticipated cash requirements to
provide continuing customer support, installation, sales and marketing, product
development and enhancement, and general overhead.
To achieve these projections, the Company anticipates the need to maintain
existing capital levels. The Company is currently negotiating with certain
holders of its subordinated notes to obtain extensions of the due dates of the
notes, which are primarily due in the third and fourth quarters of 2003. On
June 30, 2003 the largest single note holder agreed to extend the maturity date
of its $250,000 15% note to January 5, 2004 provided the Company pays all
accrued interest before September 22, 2003. These interest payments are
contemplated in the Company's cash flow projections. Management is negotiating
with the other note holders to also extend the maturity dates on their notes to
January 5, 2004. Management also expects that, if the Company's financial and
operating results in the last two quarters of 2003 are satisfactory to the note
holders, some, if not all, of the note holders will further extend the maturity
dates. Additionally, the Company is currently pursuing other potential sources
of available capital.
If such extensions are not obtained, the Company may be forced to raise
additional capital from new sources, issue new shares, or reduce current
overhead. Any projections of future cash needs and cash flows are subject
to substantial uncertainty.
NOTE 3 - INCOME TAX BENEFIT
Income tax benefits consist solely of deferred tax benefits.
The following is a reconciliation of the income tax expense (benefit) for
federal income tax to the amount computed at the statutory rate of 34% for the
six months and three months ended June 30, 2003:
Six months ended
June 30, 2003
----------------
Tax benefit at expected statutory rate $ (28,512)
Amount attributable to lower graduated rates expected
to apply when tax benefits are expected to be
realized, and state income taxes 5,641
Non-deductible interest on debt discount amortization 14,816
------
Federal income tax benefit applicable to loss
before income tax (8,055)
======
Three months ended
June 30, 2003
------------------
Tax benefit at expected statutory rate (689)
Amount attributable to lower graduated rates expected
to apply when tax benefits are expected to be
realized, and state income taxes (2,769)
Non-deductible interest on debt discount amortization 7,410
-----
Federal income tax applicable to loss before
income tax $ 3,952
=====
The net deferred tax asset arises principally from net operating loss
carryforwards, capitalization of software development costs (net of
accumulated amortization) for financial reporting purposes that have been
charged to expenses when incurred for income tax purposes, and use of the
cash basis for income tax purposes.
Management has recognized no valuation allowance for the net deferred tax asset
because it believes that it is more likely than not that future taxable income
will result in realization of such assets. This amount, however, could be
reduced in the near term if estimates of future taxable income during the net
operating loss carryforward period are reduced. The Company's net operating
loss carryforwards, of approximately $1.1 million, begin to expire in 2020.
NOTE 4 - EARNINGS (LOSS) PER SHARE
Both the numerator and the denominator used in the calculation of diluted
earnings (loss) per share are the same as those used in the calculation of
basic earnings (loss) per share for the six months and the three months ended
June 30, 2003 and 2002, respectively. This occurs because the effect of the
Company's dilutive securities, the detachable warrants and beneficial
conversion features of the convertible subordinated notes, are anti-dilutive.
Warrants to purchase 20,000 shares of the Company's common stock at $1.48 per
share were outstanding at June 30, 2003 and 2002 but were not included in
the computation of diluted earnings per share because the warrants' exercise
price was greater than the average market price of the common shares during
the periods the warrants were outstanding. The warrants are exercisable during
the period from June 25, 2002 to June 25, 2006. No warrants have been
exercised.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements, including statements
regarding the expectations of future operations. For this purpose, any
statements contained in this Form 10-QSB that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate," or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors, many of which are not within the Company's
control. These factors include, but are not limited to, economic conditions
generally and in the industries in which the Company may participate,
competition within chosen industry, including competition from much larger
competitors, technological advances, and the failure to successfully develop
business relationships. In light of these risks and uncertainties, you are
cautioned not to place undue reliance on these forward looking statements. The
Company acknowledges that the safe harbor contained in the Litigation Reform
Act of 1995 is not applicable to the disclosure in this Form 10-QSB.
This item should be read in conjunction with "Item 1. Financial Statements"
and other items contained elsewhere in this report.
OVERVIEW
The Company, via its wholly-owned subsidiary Edict Systems, Inc. is a provider
of business-to-business ("B2B") electronic commerce ("e-commerce") products and
services, offering comprehensive, standards-based and proprietary solutions for
businesses of all sizes. The Company develops, markets, and supports B2B e-
commerce software products and provides Internet-based communication and e-
commerce data processing services that help businesses process reoccurring
transactions required in the electronic procurement of goods and services and
other B2B relationships.
The Company's software products enable businesses to engage in e-commerce with
one another by allowing companies to fully integrate e-commerce data into their
business infrastructure and operations as well as allowing smaller companies
the ability to manually process electronic transactions.
The Company also provides consultative services for its customers, generally
small and medium sized suppliers to large buying organizations wherein it acts
as a liaison between the buyers and their suppliers to interface with the buyer
on behalf of the Company's customers. Customers consist of businesses across a
number of industries throughout the United States and Canada.
Revenue recognition policies with respect to Internet-based subscription fees--
The Company recognizes as revenues one-time Account Activation Fees ($100 per
new customer), Trading Partner Setup Fees ($50 per partner for web-EDI) and
interconnect Setup Fees ($50 per interconnect) after the Company performs
consultative work required in order to establish the electronic trading
partnership between the customer and their desired trading partner.
The Company recognizes monthly subscription fees of $25 per month per customer
($45 if the Customer does not pay by credit card) upon the completion of one
month of services provided. These fees are non-refundable. The Company
recognizes transaction fees (document processing fees) upon completion of the
processed transactions; these transactions are billed or charged to a
customer's credit card once per month at the end of a monthly period. These
fees are non-refundable and are only billed after services are provided.
Time periods of these web-EDI agreements can be cancelled at any time by
customers with 30-days prior written notice. EnterpriseEC agreements can be
cancelled at any time during the first year with 90-days prior written notice
and in subsequent years with 30-days prior written notice.
Periodically customers do cancel the service, usually because they no longer
need to process EDI documents electronically. Other customers may have their
accounts deactivated for non-payment per the terms of the services agreement.
Such sales returns and allowances are minimal - less than one-half of one per
cent of sales.
Revenues from sales of Formula_One and BCLM software products are recognized
when the software is shipped to the customer. Recurring license and
maintenance fees relating to software products are billed annually and
recognized as revenue ratably as earned over the 1-year license period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
Revenues of $715,108 in the second quarter of 2003 (Q2 2003) increased by
$223,671 (46%) over revenues in the second quarter of 2002 (Q2 2002) of
$491,437. Revenues from Internet-based subscription services increased from
$383,507 in Q2 2002 to $655,497 in Q2 2003 (71% increase). Revenues from
software and license fees decreased from $107,930 in Q2 2002 to $59,611 in Q2
2003 (45% decrease). The increase in revenues from Internet-based subscription
services and the decline in revenues from software and license fees reflects
the Company's continuing shift of its primary focus from EDI and bar coding
software to Internet-based subscription services. The increase in Internet-
based revenues reflects the Company's continuing marketing efforts and customer
acceptance in the marketplace of the Company's Internet-based services.
Operating expenses of $717,135 in Q2 2003 increased by $199,064 from Q2 2002.
Salaries and benefits increased by $138,005 due to additional personnel to
market our Internet-based subscription services and to improve the
effectiveness and efficiency of our product development and technical support
functions, salary increases for key personnel, and ratably less development
cost capitalized. These increases were partially offset by personnel
reductions in our development department. General and administrative
expenses increased by $40,300 due to increased costs associated with marketing
web-EDI and EnterpriseEC services, increased costs of the Company's new
general offices, and expenses associated with non-compete agreements.
Amortization of software development costs increased by $40,449 due primarily
to amortization of EnterpriseEC software development costs. Interest expense
decreased by $20,754 because the discount related to the 15% convertible
subordinated notes issued in 2001 was substantially amortized to expense in
2002.
Interest expense in Q2 2003 included $21,793 in non-cash charges associated
primarily with the issuance of warrants and the beneficial conversion feature
of the convertible subordinated notes issued in 2002.
The income tax expense of $3,952 in Q2 2003 and $4,815 in Q2 2002 resulted
from the non-deductibility for income tax purposes of the non-cash interest
expense associated with the convertible subordinated notes issued in 2001
and 2002.
The Company reports a net loss in Q2 2003 of $5,979 ($0.00 per common share)
compared to the net loss in Q2 2002 of $31,449 ($0.01 per common share).
THREE MONTHS ENDED JUNE 30, 2003 AND MARCH 31, 2003
Shown below are comparative results of operations for the quarters ended June
30, 2003 and March 31, 2003:
Three Months Ended
June 30, March 31,
2003 2003
---- ----
REVENUES
Internet products and services $ 655,497 609,944
Software and license fees 59,611 39,434
------- -------
Total revenues 715,108 649,378
------- -------
OPERATING EXPENSES
Production 31,981 27,738
Salaries and benefits 383,541 386,465
General and administrative 163,410 186,120
Depreciation 13,510 9,336
Amortization of software
development costs 71,617 68,264
Interest 53,076 53,286
------- -------
Total operating expenses 717,135 731,209
------- -------
LOSS BEFORE TAXES ( 2,027) (81,831)
INCOME TAXES (BENEFIT) 3,952 (12,007)
----- -------
NET LOSS $ ( 5,979) (69,824)
======= =======
Revenues of $715,108 in the second quarter of 2003 (Q2 2003) increased by
$65,730 (10%) over revenues in the first quarter of 2003 (Q1 2003) of
$649,378. The increase resulted primarily from increases in sales of web-EDI
services and EnterpriseEC services and software and license fees.
Operating expenses of $717,135 in Q2 2003 decreased by $14,074 from Q1 2003
due primarily to reductions in expenditures for professional services.
Salaries and benefits of $383,541 in Q2 2003 were down slightly from $386,465
in Q1 2003.
Interest expense in both quarters included $21,793 in non-cash charges
associated primarily with the issuance of warrants and the beneficial
conversion feature of the convertible subordinated notes issued in 2002.
The income tax expense of $3,952 in Q2 2003 resulted from the non-deductibility
for income tax purposes of the non-cash interest expense associated primarily
with the convertible subordinated notes issued in 2002.
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
Revenues of $1,364,486 in the first six months of 2003 increased by
$469,799 (53%) over revenues in the first six months of 2002 of
$894,687. Revenues from Internet-based subscription services increased from
$727,516 in the first six months of 2002 to $1,265,441 in the first six months
of 2003 (74% increase). Revenues from software and license fees decreased
from $167,171 in the first six months of 2002 to $99,045 in the first six
months of 2003 (41% decrease). The increase in revenues from Internet-based
subscription services and the decline in revenues from software and license
fees reflect the Company's continuing shift of its primary focus from EDI and
bar coding software to Internet-based subscription services.
Operating expenses of $1,448,344 in the first six months of 2003 increased by
$478,210 from the first six months of 2002. Salaries and benefits increased
by $294,295 due to additional personnel to maintain, support and market our
Internet-based subscription services; to improve the effectiveness and
efficiency of our product development and technical support functions; for
salary increases for key personnel; and ratably less development cost
capitalized. These increases were partially offset by personnel reductions
reductions in our development department. General and administrative
expenses increased by $156,086 due to increased costs associated with marketing
web-EDI and EnterpriseEC services, increased costs of the Company's new general
offices, and expenses related to non-compete agreements. Amortization of
software development costs increased by $81,569 due primarily to amortization
of EnterpriseEC software development costs. Interest expense decreased by
$52,618 because the discount related to the 15% convertible subordinated notes
issued in 2001 was substantially amortized to expense in 2002.
Interest expense in the first six months of 2003 included $43,586 in non-cash
charges associated primarily with the issuance of warrants and the beneficial
conversion feature of the convertible subordinated notes issued in 2002.
The Company reports a net loss in the first six months of 2003 of $75,803
($0.01 per common share) compared to the net loss in the first six months of
2002 of $82,857 ($0.01 per common share).
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The following table sets forth the cost and accumulated amortization of the
products comprising the Software Development Costs asset at June 30, 2003:
Accumulated
Product Cost Amortization Net
------- ---- ------------ ---
Bar Code Label Module
(BCLM) Software $ 32,670 32,670 -
Formula_One for Windows
Software 128,486 128,486 -
GroceryEC (Web EDI) 428,260 285,036 143,224
Web EDI enhancements 113,968 12,336 101,632
EnterpriseEC 470,661 137,276 333,385
------- ------- -------
Total 1,174,045 595,804 578,241
Less: fully amortized
BCLM and Formula_One
for Windows software (161,156) (161,156) -
--------- -------- -------
$ 1,012,889 434,648 578,241
======== ======= =======
Bar Code Label Module (BCLM) and Formula_One for Windows currently generate a
small amount of positive cash flow, but were the primary revenue source before
2001. GroceryEC is currently generating positive cash flow and is the
Company's largest and primary source of revenue. Sales of EnterpriseEC
totaled $41,177 in Q2 2003 and $ 74,689 in the first six months of 2003.
Based on our marketplace analysis and marketing efforts we expect EnterpriseEC
to ramp up in 2003 to produce positive cash flow by the end of 2003
or early in 2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred substantial operating losses to date. During the year
ended December 31, 2002 and the six-month period ended June 30, 2003, the
Company generated positive cash flow from operations. On July 1, 2003 the
Company implemented certain cost savings initiatives that included modest
workforce and salary reductions. Management believes that current cash and
cash equivalents and cash that may be generated from operations in the ensuing
year will be sufficient to meet the anticipated capital expenditure
requirements and cash interest requirements, provided that the maturity date of
certain subordinated notes is extended as discussed below. Such projections
are based on historical trends related to growth of revenue from existing
customers and new customer acquisition, and anticipated revenue growth from
EnterpriseEC. The projections also include anticipated cash requirements to
provide continuing customer support, installation, sales and marketing, product
development and enhancement, and general overhead.
To achieve these projections, the Company anticipates the need to maintain
existing capital levels. The Company is currently negotiating with certain
holders of its subordinated notes to obtain extensions of the due dates of the
notes, which are primarily due in the third and fourth quarters of 2003. On
June 30, 2003 the largest single note holder agreed to extend the maturity date
of its $250,000 15% note to January 5, 2004 provided the Company pays all
accrued interest before September 22, 2003. These interest payments are
contemplated in the Company's cash flow projections. Management is negotiating
with the other note holders to also extend the maturity dates on their notes to
January 5, 2004. Management also expects that, if the Company's financial and
operating results in the last two quarters of 2003 are satisfactory to the note
holders, some, if not all, of the note holders will further extend the maturity
dates. Additionally, the Company is currently pursuing other potential sources
of available capital.
If such extensions are not obtained, the Company may be forced to raise
additional capital from new sources, issue new shares, or reduce current
overhead. Any projections of future cash needs and cash flows are subject
to substantial uncertainty.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board in April 2003 issued SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
This statement amends and clarifies financial accounting and reporting for
derivative instruments and for hedging activities under FASB Statement No.
133. This statement clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative, clarifies
when a derivative contains a financing component, amends the definition of an
underlying instrument relative to Guarantees, and amends certain other
existing pronouncements so as to result in more consistent reporting of
contracts as either derivatives or hybrid instruments. The statement is
effective, generally, for contracts entered into or modified after June 30,
2003 and for hedging relationships designated after June 30, 2003. The
Company has had no transactions that are covered by the provisions of SFAS
No. 149. As a result, SFAS No. 149 has no effect on the Company's financial
position or results of operations.
The Financial Accounting Standards Board in May 2003 issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of
Liabilities and Equity." This statement requires that an issuer classify
certain defined financial instruments as liabilities, many of which were
previously classified as equity or between the liabilities section and the
equity section of the statement of financial position. This statement requires
classification as liabilities any financial instruments that are issued in the
form of shares that are mandatorily redeemable; that embody an obligation to
repurchase the issuer's equity shares; that embody an obligation that issuer
must or may settle by issuing a variable number of its equity shares if at
inception the monetary value of the obligation is based on either a fixed
monetary amount, variations in something other than the fair value of the
issuer's equity shares, or variations inversely related to changes in the fair
value of the issuer's equity shares. The statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the
issuance date of this Statement and still existing at the beginning of the
interim period of adoption. The Company has had no transactions that are
covered by the provisions of SFAS No. 150. As a result, SFAS No. 150 has no
effect on the Company's financial position or results of operations.
ITEM 3. CONTROLS AND PROCEDURES
a) Disclosure controls and procedures. The Chief Executive Officer and the
Chief Financial Officer have carried out an evaluation of the effectiveness of
Advant-e's disclosure controls and procedures that ensure that information
relating to Advant-e required to be disclosed by Advant-e in the reports that
it files or submits under the Securities and Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. Based
upon this evaluation, these officers have concluded, that as of June 30, 2003,
Advant-e's disclosure controls and procedures were adequate.
b) Changes in internal control over financial reporting. During the period
covered by this report, there were no changes in Advant-e's internal control
over financial reporting that have materially affected, or are reasonably
likely to materially affect, Advant-e's internal control over financial
reporting.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently subject to any legal proceedings. The Company may
from time to time become a party to various legal proceedings arising in the
ordinary course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders of the Company during the second
quarter of the 2003 fiscal year or through the date of filing this report.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Method
Number Description of Filing
-------- ----------- ---------
2 Plan of acquisition, reorganization, arrangement, N/A
liquidation, or succession
3(a)(i) Amended Certificate of Incorporation Previously
Filed*
3(a)(ii) By-laws Previously
Filed**
4.1 Instruments defining the rights of security Previously
holders including indentures Filed*
4.2 Convertible Subordinated Note Previously
Filed***
4.3 Convertible Subordinated Note with warrant to
purchase common shares issued on September Previously
27, 2001 Filed*****
4.4 10% Convertible Subordinated Note Previously
Filed******
10.1 Lease Agreement, dated as of January 1, 2000, Previously
between Jason K. Wadzinski and EDICT Systems, Inc. Filed**
10.2 Stock Purchase Agreement, dated April 10, 2000, Previously
among Twilight Productions, Ltd., Halter Financial Filed**
Group, Inc. and Art Howard Beroff
10.3 Software Term License Agreement, including Previously
Amendment No. 1, dated as of April 18, 2001 Filed****
between Cyclone Commerce, Inc. and Edict Systems
Inc.
10.4 Lease, dated as of July 30, 2002, between Fritz J. Previously
Russ and Dolores H. Russ and Edict Systems, Inc. Filed*******
11 Statement re: computation of per share earnings Filed
Herewith
15 Letter on unaudited interim financial information N/A
18 Letter on change in accounting principles N/A
19 Report furnished to security holder N/A
22 Published report regarding matters submitted N/A
to vote
23 Consent of experts and counsel N/A
24 Power of attorney N/A
31 Certifications Filed
herewith
32 Certification pursuant to 18 U.S.C. Section 1350, Filed
as adopted pursuant to Section 906 of the Sarbanes- Herewith
Oxley Act of 2002
* Filed with Amendment No. 2 to Form 10-SB filed as of October 13, 2000
** Filed with Amendment No. 1 to Form 10-SB filed as of July 17, 2000
*** In substantially the form filed with Form 10-QSB for the quarter ended
March 31, 2001 filed as of May 9, 2001
**** Filed with Form 10-QSB for the quarter ended June 30, 2001 filed as of
August 14, 2001
***** In substantially the form filed with Form 10-QSB for the quarter ended
September 30, 2001 filed as of November 14, 2001
******In substantially the form filed with Form 10-QSB for the quarter ended
September 30, 2002 filed as of December 16, 2002
*******In substantially the form filed with Form 10-QSB for the quarter ended
March 31, 2003 filed as of May 14, 2003
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with 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, thereunto duly authorized.
Advant-e Corporation
--------------------
(Registrant)
August 14, 2003 By: /s/ Jason K. Wadzinski
----------------------
Jason K. Wadzinski
Chief Executive Officer
August 14, 2003 By: /s/ John F. Sheffs
----------------------
John F. Sheffs
Treasurer
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Per share earnings are computed and displayed on the Consolidated Statement of
Operations for the six months and three months ended June 30, 2003 and 2002 and
included in Item 1 of this Form.
Average shares used in the computation of per share earnings for the Statement
of Operations presentations include the following shares issued for basic and
diluted per share earnings:
Date and Description # shares # shares
--------------------- ----------------------- ------------------
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Basic and diluted:
Outstanding at beginning and end
of period 5,661,002 5,661,002 5,661,002 5,661,002
========= ========= ========= =========
The calculation of both basic and diluted loss per share for the six months and
three months ended June 30, 2003 and 2002 are the same because the Company's
convertible subordinated notes are anti-dilutive and the Company's outstanding
warrants for the purchase of additional shares of the Company's common shares
resulted in no change to the numerator or denominator.
If the 15% convertible subordinated notes convertible to common shares at $1.06
per share that are outstanding at June 30, 2003 are converted at maturity,
there would be 655,012 additional outstanding and weighted average common
shares included in the calculation of diluted earnings per share for the six
months and the three months ended June 30, 2003.
If the 10% Convertible Subordinated Notes convertible to common shares at $1.10
per share that are outstanding at June 30, 2003 are converted at maturity,
there would be 255,555 additional outstanding and weighted average common
shares included in the calculation of diluted earnings per share for the
six months and the three months ended June 30, 2003.
If the 15% Convertible Subordinated Notes convertible to common shares at
$1.06 per share that are outstanding at June 30, 2002 are converted at
maturity, there would be 655,012 additional outstanding and weighted average
common shares included in the calculation of diluted earnings per share for
the six months and the three months ended June 30, 2002.
Warrants to purchase 20,000 shares of the Company's common stock at $1.48 per
share were outstanding during the six months and the three months ended June
30, 2003 and 2002 but were not included in the computation of diluted EPS
because the warrants' exercise price was greater than the average market price
of the common shares during the period the warrants were outstanding. The
warrants are exercisable during the period from June 25, 2002 to June 25,
2006.
EXHIBIT 31 - CERTIFICATIONS
I, Jason K. Wadzinski, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Advant-e
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the period covered by this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize, and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: August 14, 2003 By: /s/ Jason K. Wadzinski
------------------------
Jason K. Wadzinski
Chief Executive Officer
I, James E. Lesch, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Advant-e
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the period covered by this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize, and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: August 14, 2003 By: /s/ James E. Lesch
------------------------
James E. Lesch
Director of Accounting
EXHIBIT 32 - SECTION 1350 CERTIFICATIONS
Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Advant-e
Corporation (the "Company"), hereby certifies that the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2003 (the "Report") fully
complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and that the information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: August 14, 2003 By: /s/ Jason K. Wadzinski
------------------------
Jason K. Wadzinski
Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Advant-e
Corporation (the "Company"), hereby certifies that the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2003 (the "Report") fully
complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and that the information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: August 14, 2003 By: /s/ James E. Lesch
------------------------
James E. Lesch
Director of Accounting