UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
ACCORD ADVANCED TECHNOLOGIES, INC.
(Formally known as Investment Book Publishers, Inc)
(Name of Small Business Registrant)
0-27187
----------------------
Commission File Number
NEVADA 88-0361127
- ------------------------ ---------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number.)
5002 South Ash Avenue, Tempe, Arizona 85282
--------------------------------------------------------
(Address of Principal Executive Offices Including Zip Code)
(480) 820 1400
(Registrants Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.0001 par value
(Title of Class)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to filing requirements for the past 90 days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The registrant's revenues for its most recent fiscal year were
$5,917,470.00
Number of shares outstanding of each of the registrant's classes of
common equity, (par value $.0001) as of March 1, 2000 is 39,568,638. The closing
price of the shares on March 1, 2000 was $.687. The market value of the Common
Shares held by non-affiliates was $7,848,039.
Transitional Small Business Disclosure Format: ( ) Yes (X) No
<PAGE>
The following documents are herein incorporated by reference: (1) Form
10SB12G filed on August 30, 1999 (file No. 000-27187), is incorporated in Part
III 13(a); (2) An 8-K filed on September 3, 1999 disclosing the fact that the
registrant was deleted from trading on the OTC BB. An 8-K filed on November 4,
1999 disclosing the fact that the registrant was approved for trading on the OTC
BB. A 10QSB filed on November 15, 1999 containing the financial information for
the third quarter ending September 1999 as well as a legal proceeding instituted
against the registrant by GEM Management et al alleging a breach of contract and
damages. The information found in this paragraph (2) is incorporated in Part III
13(b)
ACCORD ADVANCED TECHNOLOGIES, INC.
INDEX
Page
----
PART I
ITEM 1. DESCRIPTION OF BUSINESS ..................................... 1
BUSINESS DEVELOPMENT ....................................... 1
BUSINESS ................................................... 1
PATENTS .................................................... 2
ITEM 2. DESCRIPTION OF PROPERTY ..................................... 4
ITEM 3. LEGAL PROCEEDINGS ........................................... 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ......... 4
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ......................................... 5
ITEM 6. MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION ............... 5
ITEM 7. FINANCIAL STATEMENTS ........................................ 9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL MATTERS ............................ 9
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ........... 10
ITEM 10 EXECUTIVE COMPENSATION ...................................... 13
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT .................................................. 13
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .............. 13
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K ............................ 15
i
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
The company originally known as Investment Book Publishers, Inc., was
incorporated in Nevada on May 22, 1996. On August 1997, Investment Book
Publishers, Inc. exchanged shares with Accord Semiconductor Equipment Group,
Inc. whereby Accord Semiconductor Equipment Group, Inc. became a wholly owned
subsidiary. Effective November 18, 1997, Investment Book Publishers changed its
name to Accord Advanced Technologies, Inc. The company trades over the counter
on the Electronic Bulletin Board under the symbol "AVTI."
There have been no bankruptcy, receivership or similar proceeding in
the company's history.
BUSINESS
Accord Advanced Technologies, Inc. (AVTI) is in the business of
providing refurbishing services and engineering consulting to semiconductor
manufacturers.
Accord Semiconductor Equipment Group, Inc., the wholly owned subsidiary
of Accord Advanced Technologies, Inc. was formed in 1993 under the name
Integrated Semiconductor Service. It is the only operating company of Accord
Advanced Technologies, Inc. This company recognized an opportunity for
full-service re-manufacturing and support of advanced semiconductor
manufacturing systems and components.
Accord Semiconductor Equipment Group, Inc (SEG) specializes in
re-manufacturing and modifying multi-chamber systems for chemical vapor
deposition (CVD), physical vapor deposition (PVD) and Etch processes. These
precision systems are responsible for transforming individual silicon wafers
into integrated-circuit (IC) products such as computer chips. Refurbishing
provides Accord SEG's customers an equally high quality alternative to new OEM
equipment and enables the customer to immediately produce its IC products at a
reduced cost due to lower manufacturing equipment costs. The company also
provides system decommissioning, commissioning, after-sales service and supplies
parts and process technology as needed by the customer Accord SEG is unique
among equipment re-manufacturers because of its ability to custom-engineer
modifications to customers' systems. The company primarily re-manufactures the
equipment of Applied Materials, the largest original equipment manufacturer
(OEM) of semiconductor manufacturing equipment in the world.
The market serviced by the company consists of all facilities in North
America (approximately 378) manufacturing integrated circuits. The registrant
has an internal marketing and sales force as well as a highly skilled technical
staff. It also has very experienced outside sales representatives. The company
utilizes trade shows, trade journal advertising and its web site along with its
technical, marketing and sales force to distribute and market its services. The
market size as identified by the registrant is approximately $250,000,000.00.
1
<PAGE>
The registrant believes it is either the only public company, or one of
very few, that concentrates solely on re-manufacturing semiconductor equipment.
Applied Materials, the OEM, has the ability to refurbish but at this time does
not sell custom upgrades which is the growth area of the registrant. GE Capital
has recently built a refurbishing facility. In the past GE has out sourced its
refurbishing work and it is not clear what type of equipment it will refurbish
in their new facility. Comdisco is a leasing company as is GE Capital. It leases
the equipment and sometimes has it refurbished when it comes off lease, usually
through the utilization of outside sources. B.E.S.T. is a privately held company
that refurbishes equipment, which is a generation older than those the
registrant handles. It is not a serious competitor in the future of the
registrant.
The registrant is much smaller than GE and Comdisco, which places the
registrant in a distant third position on this type of equipment. The registrant
has the ability to remanufacture and deliver equipment in one-third the time it
takes an OEM to manufacture and deliver a new machine. The registrant also has
the same warranty and service as the OEM and its price is some 20% lower.
The registrant does not purchase raw material. It purchases parts and
used machinery from numerous sources.
Accord SEG has completed work for such well-known companies as American
Microsystems, Honeywell, Rockwell International, Integrated Solutions, Motorola,
Intel, MRC (Sony), California Micro Devices, Eastman Kodak, National
Semiconductor, Siemens Semiconductor Group, Lockheed, IDT and Texas Instruments.
In that there are numerous other prospective customers, the registrant feels
that it has been dependent on a few customers and is changing that dependency.
PATENTS
The registrants operating subsidiary has received two patents and are
awaiting a third.
The first patent was issued on April 28, 1998 (US Patent #5,744,400)
for an ion beam process that has advantages over the existing Chemical
Mechanical Planarization.
Traditional Chemical/Mechanical Planarization employs a combination of
mechanical pressure, abrasive slurry and chemical etchant to grind flat the thin
film layers of an IC. There is potential for damage to the IC if the layers are
ground too thin or if any residue from the CMP process remains. Accord's
planarization process yields greater consistency at a lower cost than does CMP.
The Company expects to complete a prototype incorporating its new technology
during 1999 or early 2000. The process is dry, slurry-free, environmentally
safe, adaptable to standard cluster deposition/etch tools and is cost effective
with rapid planarization rates.
2
<PAGE>
CVD WAFER HANDLING SYSTEM
Every semiconductor processing system uses spare parts that are
affected by the gases and other materials within a process chamber. These
"consumable parts" must be replaced regularly; creating a potentially lucrative
market to those companies that can design and manufacture replacement parts. All
Chemical Vapor Deposition chambers in a multi-chamber processing tool use a
handling system to support and heat the wafer inside the chamber. Through a
combination of thermal stress and exposure to corrosive gases over time, these
wafer handlers fail during production and need to be replaced. The registrant's
subsidiary has developed and on September 1, 1998 received a patent on a
wafer-handling system, or susceptor (US Patent # 5,800,623). It incorporates
distinctive metallurgy to offer greater reliability and longer durability at a
significantly reduced cost.
ENVIROCLEAN CHAMBER KIT
The company through its subsidiary has a patent-pending (docket #
08/730849) product known as EnviroClean(TM) chamber upgrade kit. This product
offers a solution to concerns about greenhouse gas production in the
semiconductor industry. Greenhouse gases are believed to have a detrimental
effect on the earth's atmosphere through global warming. Semiconductor
manufacturing is currently responsible for producing a significant volume of
these gases each year. Consequently, pending legislation to curtail the
production of greenhouse gases will likely require semiconductor manufacturers
in the near future to install relatively expensive abatement systems that meet
strict emission specifications.
The company's EnviroClean kit enables semiconductor manufacturers to
retool existing multi-chamber equipment less expensively. Its technology
replaces harmful greenhouse gases with relatively benign process-gas. The
registrant may need local government approval for the use of certain gases used
in the testing of the equipment re-manufactured on its premises. To date, the
company has all the approvals necessary.
The registrant is unaware of any effect existing governmental
regulations has on its business. The registrant is also unaware of any probable
regulation. The registrant has not expended any funds for Research and
Development during the past two years.
The company complies with all environmental laws. The costs to meet
these requirements were expended when the private company moved into its present
rented facility in 1994. There has been no need for further expenditures since
that time.
The registrant has eighteen (18) full time employees; three (3)
contracted employees and two (2) independent sales representative groups.
The registrant has an Internet site (http://www.accord-seg.com) and
address ([email protected]).
3
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The issuer currently leases a 14,000 square foot building at 5002 S Ash
Ave Tempe, Arizona 85282. The monthly triple net rent is $11,135. The company
has just recently renewed the lease for an additional five-year period. The
company owns no real property and has no plans to acquire real property.
ITEM 3. LEGAL PROCEEDINGS
On October 20, 1999 the registrant was served with a complaint issued
through the U S District Court Southern District of New York wherein the
plaintiff GEM Management et al, allege that the registrant is; (1) indebted to
them in the amount of $372,048.65 for breach of contract in that it did not
deposit adequate shares in an escrow account; (2) for breach of contract in that
the registrant's stock had been de-listed from trading on the OTC BB; and (3)
unjust enrichment in the amount above claimed. The registrant has filed a denial
and a counter claim against the Plaintiffs alleging that the Plaintiffs have
breached the representations found in the contract and is requesting damages in
the amount of $1,000,000.
Management is actively taking all necessary steps to resolve these
issues which it feels are basically unfounded.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders.
4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market information. The company's common equity is traded on the
Over the Counter Market (OTC BB).
The high and low sales prices for each quarter are as follows:
Quarter High Low Close
------- ---- --- -----
12/31/97 5 1/4 4 3/4 5.00
3/31/98 4 3/8 3 5/16 4 1/8
6/30/98 5 1/8 2 5/8 2 7/8
9/30/98 15.00 6.35 9 3/8
12/31/98 1 7/16 1/2 3/4
3/31/99 1/2 1/8 1/8
6/30/99 3/8 1/16 .11
9/30/99 .25 .062 .125
12/31/99 1.00 .10 .10
There is an established trading market for the common equity being
presented in a registration statement.
(b) Holders. There are approximately 150 holders of the common equity
of the company.
(c) Dividends. There have been no cash dividends declared for the past
two fiscal years. There are no restrictions that limit the ability to pay
dividends on common equity other than the dependency on the company's revenues
and earnings and financial condition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Form 10-KSB contains certain statements that are not related to
historical results, including, without limitations, statements regarding the
company's business strategy and objectives and future financial position, are
forward looking statements within the meaning of section 27A of the securities
act and section 21E of the Exchange Act and involve risks and uncertainties.
Although the company believes that the assumptions on which these forward
looking statements are based are reasonable, there can be no assurance that such
assumptions will prove to be accurate and actual results could differ materially
from those discussed in the forward looking statements. Factors that could cause
or contribute to such differences include but are not limited to, those set
forth in the preceding paragraph, as well as those discussed elsewhere in this
report. All forward-looking statements contained in this report are qualified in
their entirety by this cautionary statement.
5
<PAGE>
OVERVIEW
The Company continues to market its primary product and service, the
reconditioning and remanufacturing of multi-chamber semiconductor equipment. The
Company achieved significant revenue growth in the year ended December 31, 1999,
and has increased its personnel levels to meet the higher demand. The Company's
sales volume is somewhat dependent upon the state of the semiconductor industry.
The Company believes that higher demand for semiconductors will reflect higher
demand for its services. The Company is vulnerable to volatility in its revenue
because the nature of its operations is such that it generates its revenue from
relatively few contracts. In any given year, revenue will be heavily
concentrated with few customers.
RESULTS OF OPERATIONS
COMPARISON OF 1999 TO 1998
Sales increased from $3,940,000 for the year ended December 31, 1998 to
$5,917,000 for the year ended December 31, 1999, an increase of $1,977,000 or
50%. The sales increase is mostly attributable to a large sale to a single
customer in 1999 for approximately $2,500,000. The Company believes that demand
for its products and services increased in late 1999 as there was a recovery in
the semiconductor industry.
The gross profit increased from $1,075,000 in the year ended December
31, 1998 to $2,234,000 in the year ended December 31, 1999, an increase of
$1,159,000 or 108%. The gross profit margin increased to approximately 38% in
1999 from 27% in 1998. The Company's gross profit margins are subject to
volatility because of the factor that each contract is unique and the cost of
the basic tool or piece of equipment for remanufacturing may vary significantly
depending on availability.
Selling and marketing expenses increased to $810,000 in the year ended
December 31, 1999, from $481,000 in the year ended December 31, 1998, an
increase of $329,000 or 68%. The Company concentrated on marketing to increase
its volume in 1999. Consequently it hired additional marketing personnel. Also,
selling and marketing expenses include sales commissions which is a factor of
the sales volume. Selling and marketing expenses as a percentage of sales was
14% in 1999 compared to 12% in 1998.
Interest expense decreased to $118,000 in the year ended December 31,
1999, from $442,000 in the year ended December 31, 1998, a decrease of $324,000
or 73%. The decrease is the due primarily to the reduction in debt associated
with the refinancing of approximately $1,800,000 in capital lease obligations
resulting in $1,058,000 in debt forgiveness. The new financing is at an interest
rate less than the prior capital lease obligations. The debt forgiveness income
of $740,000, net of income taxes, in the year ended December 31, 1999, reflects
the difference in the capital lease obligations and the negotiated buy-out of
the leases from the lessor.
The Company incurred an impairment loss of $75,000 in the year ended
December 31, 1999, compared with an impairment loss of $250,000 in the year
ended December 31, 1998. The impairment losses in both years relate to the same
piece of equipment held by the Company. The Company acquired this equipment as
part of the capital leases that were negotiated and discussed above which
resulted in debt forgiveness income. The Company intends to sell this piece of
equipment and has estimated the net realizable value at approximately $175,000
based on recent inquiries for the equipment and comparable sales.
Other income of $253,000 in the year ended December 31, 1999, relates
primarily to the settlement with a customer of a deposit held by the Company
since 1996.
6
<PAGE>
COMPARISON OF 1998 TO 1997
Sales increased from $1,358,000 for the year ended December 31, 1997 to
$3,940,000 for the year ended December 31, 1998. Sales on a pro forma basis for
the year ended December 31, 1997 were $3,829,000 assuming the acquisition of
Accord SEG occurred at the beginning of the year. The increase in revenue from
the pro forma sales in 1997 was approximately 3%.
The consolidated gross profit increased from $334,000 in 1997 to
$1,075,000 in 1998. Gross profit on a pro forma basis for the year ended
December 31, 1997 was $1,483,000 assuming the acquisition of Accord SEG occurred
at the beginning of the year. The gross margin variance is due to the price of
the equipment purchased for certain contracts being higher in 1998.
On a pro forma basis, general and administrative expenses increased
from $872,000 in 1997 to $1,225,000 in 1998. The Company wrote off approximately
$200,000 of old and slow moving inventory parts in 1998. Additionally, there was
an increase in professional fees in from $11,000 in 1997 to $98,000 in 1998. The
Company was involved in numerous legal actions in 1998.
The Company also recorded a $350,000 expense in 1998 related to the
settlement of a lawsuit.
Interest expense increase from $326,000 in 1997 on a pro forma basis to
$442,000 in 1998. The Company had greater balances outstanding on its purchase
order financing during 1998.
The Company recognized $45,000, net of income taxes, in debt
forgiveness income in 1998 related to trade payable debt that was restructured
under a long term note payable that was later forgiven by the note holder.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has had a working capital deficiency. The
Company had a net working capital deficit of $245,573 at December 31, 1999 as
compared to a deficiency of $248,000 at December 31, 1998. The Company has
attempted to secure cash deposits from customers at the time purchase orders are
submitted to assist in much of the up front costs that are incurred in
completing customer orders. The largest component of cost of sales is the cost
of acquiring the primary tool or machine. The Company may also request the
customer to purchase the used tool or machine as well as some of the parts
required for the refurbishing. The Company has historically borrowed funds from
certain purchase order lenders. In the year ended December 31, 1999, the Company
secured a $150,000 bank line of credit. The line of credit expires in May 2000.
The Company believes that it will secure renewal of that credit facility but
there can be no assurances that the Company will be successful in doing so. At
December 31, 1999, the Company's annual debt service is approximately $315,000
including capital lease obligations excluding the bank line of credit. The
Company believes that at its current operating levels it can continue to require
customer deposits and that it has several sources to obtain financing upon
obtaining a customer purchase order.
The Company is holding for sale two pieces of equipment that have been
idle since they were acquired. The Company had intended to use this equipment to
expand its product line but now has postponed those plans. The net book value of
this equipment was $1,641,000 at December 31, 1999. The Company will continue
its efforts to sell this equipment and believes that it will eventually
recognize proceeds equal to or greater than the carrying value.
7
<PAGE>
The Company has not experienced material losses on receivables from its
customers. Its customers generally are large companies with significant
resources. The Company requires final payment upon delivery, installation and
completion of testing.
The Company is attempting to raise additional debt or equity capital to
allow it to expand the current level of operations. The Company raised
approximately $900,000 in new equity in the year ended December 31, 1998. The
Company also refinanced and restructured capital leases in the year ended
December 31, 1999. The new financing is for $1,000,000 payable over a ten year
term.
The Company does not believe that significant capital expenditures will
be required in order maintain its growth projections.
The Company is a defendant in a claim filed by one of its shareholders.
See Part I Item 3. Legal Proceedings. The effect of the ultimate resolution of
this claim on liquidity and operations cannot yet be determined.
The Company may require additional capital to continue a trend of
greater volume which would require higher levels of inventory, accounts
receivable and higher operating expenses for marketing. The Company is presently
negotiating with sources for additional equity capital to allow it to expand the
current level of operations.
There can be no assurances that the Company will be successful in
obtaining such capital.
SEASONALITY
The Company's operations are not affected by seasonal fluctuation.
However, cash flows may at times be affected by fluctuations in the timing of
cash receipts from large contracts.
YEAR 2000
The Company has updated its computer hardware and software. The Company
does not believe that it will encounter significant internal year 2000 problems.
The cost of the new hardware and software was approximately $75,000.
The Company does not anticipate nor has it experienced difficulties
with customers or vendors relative to the year 2000 issue. The Company's
relationship with its customers and vendors is such that it is not materially
dependent upon their information technology systems.
8
<PAGE>
The Company discloses to its customers that the equipment it sells has
not been analyzed for year 2000 issues and that any year 2000 issues are matters
that should be addressed with the original equipment manufacturer.
OTHER
The Company noted that there were certain timing differences in interim
and quarterly information filed on Form-10SB and Form-10QSB for the periods
ended June 30, 1999, and September 30, 1999. The Company is presently analyzing
that financial information and will file amendments to those forms upon
completion of that analysis.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
ADDITIONAL FINANCING. The Company will require additional financing to
achieve growth in operations and to support its working capital requirements.
The Company may seek additional financing through private placements of debt or
equity financing.
TECHNOLOGICAL CHANGE. The nature of the Company's service and product
is such changes are continually made to the tools and machines. The Company has
been able to keep pace with those changes and hire qualified personnel that are
well trained and experienced with the design and manufacturing of the equipment.
The Company has historically hired much of its personnel from the original
equipment manufacturers.
COMPETITION. The Company faces competition from many sources, including
the original equipment manufacturers. Many of these competitors are larger and
have significantly more resources than the Company.
LAWSUIT. The Company is involved in a lawsuit for claims made by a
stockholder whom had held convertible debt, converted the debt to common stock
and alleges that the Company breached the debenture agreement. The Company
claims that the stockholder was involved in improper trading of the Company's
stock which resulted in a breach of the debenture agreement and has filed a
counter claim requesting damages in the amount of $1,000,000. The stockholder
has asked for $372,000. The effect of the ultimate resolution of this claim on
liquidity and operations cannot yet be determined. See LEGAL PROCEEDINGS.
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statement of t he Company are filed as a
part of this Annual Report. See index to the financial statements on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL MATTERS
There have been no changes of Accountants or disagreements with the
registrants Accountants on accounting and financial matters.
9
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION16(a) OF THE EXCHANGE ACT
The following is a list of the Directors, Officers and Significant
Employees of the issuer.
Name Age Positions and Offices Held
---- --- --------------------------
Travis Wilson 42 President and Director
Carl P. Ranno 60 Secretary and Director
Gerald Flanagan 61 Director
Rochelle Witharana, CPA 35 Controller
Dr. Balu Pathangey 43 Senior Member Technical Staff
All three Directors have been in office since November of 1997 and will
remain in office until the next annual meeting of the Shareholders or unless
they resign. There are no agreements that a Director will resign at the request
of another person and the above named Directors are not acting on behalf of
another person.
The following is a brief summary of each of the Directors, Officers and
Significant Employees including their business experience for the past five
years.
TRAVIS WILSON founded the subsidiary company Accord SEG in 1993.
Accordingly, his business experience for the past five years has been with the
issuer's subsidiary, which is the operating company. Prior to starting Accord
SEG Mr. Wilson was a Project Engineer with Prototech Research, Inc. where he
partnered in the design and implementation of various experimental process
platforms including a revolutionary CVD platform used for depositing a thin film
of copper on silicon substrates and the development of hardware used in CVD
Titanium Nitride process applications.
10
<PAGE>
Mr. Wilson served as tactical marketing product manager of Applied
Materials, Inc., where he managed the introduction and post-sale support of the
highly successful Precision 5000(TM), a revolutionary modularized production
semiconductor processing tool. He attended the University of California at
Hayward. His education is in electrical engineering, business administration and
marketing.
CARL P. RANNO received a degree in Economics from Xavier University in
Cincinnati, OH and his Juris Doctor from the University of Detroit School of
Law. Mr. Ranno spent many years in the practice of law, which included the
fields of litigation as well as mergers and acquisitions. He maintains his
license to practice law in the State of Michigan and is admitted to practice in
the federal courts located in Michigan, the Sixth Circuit Court of Appeals, the
US Tax Court and the US Supreme Court. Mr. Ranno advises companies as to legal
issues and as well as strategic planning and mergers and acquisitions.
From 1992 1996 he was the president of Pollution Controls International
Corp. which marketed and manufactured a patented after market automotive
environmental product. The operating subsidiary was voluntarily placed in
Bankruptcy in 1996. Ultimately, the parent merged with another company and Mr.
Ranno has no further contact with it.
GERALD L. FLANAGAN has spent 30 years in different facets of investment
banking. He was Vice President of Peacock, Hislop, Staley and Givens, a regional
investment-banking firm until 1995. Mr. Flanagan was involved with corporate
business development specializing in mergers and acquisitions, private
placements and venture capital transactions. He was on the original board and
still sits on the executive committee of the Arizona Venture Capital Conference
where he also served as its Chairman in 1994. For the past four years, Mr.
Flanagan has been very active in business consultations in the areas of finance
and mergers and acquisitions.
Mr. Flanagan holds a degree in finance from the University of Southern
California and studied marketing on a post graduate level at the University of
California, Los Angeles.
ROCHELLE WITHARANA CPA has successfully performed a broad range of
financial and management functions. After leaving Deloitte & Touche in 1990,
where she served in the audit and small business development departments, Ms.
Witharana. joined Gespac Inc. an international organization as its controller.
11
<PAGE>
She assumed the hands-on responsibility for accounting, human resources and
other operational functions. Ms Witharana has secured credit lines, introduced
new credit policies, integrated new computer systems and other benefit programs.
She is continuing those responsibilities in her present capacity at the issuer.
Ms Witharana is a CPA and holds a Bachelor of Science degree (Cum
Laude) from California State at Northridge.
DR. BALU PATHANGEY received his M.E. and Ph. D. degrees in Chemical
Engineering in 1982 and 1987, respectively, from Stevens Institute of
Technology, Hoboken, NJ. Since 1990, he has been with Microfabritech, an
interdisciplinary center at the University of Florida.
During his 8 years as a research engineer at the University, he has
designed and developed several research scale CVD, RF/DC/Ion-beam sputter
deposition, and HDP etch systems for processing thin film semiconductor,
insulator and interconnect materials. In addition, he has worked as a technical
consultant to start-up companies for design and development of prototype
environmental air/water cleaning systems using photo-oxidation technology and in
the pilot plant processing of fluorine and fluoro compounds for semiconductor
manufacturing. He is a member of AICHE, AVS, and SID and authored or co-authored
over 40 technical papers and one patent.
Dr. Pathangy is responsible for all the technical aspects of the
company.
There are no family relationships among the Directors, Officers and
Significant employees. Additionally, none of the Directors, Officers and
Significant Employees have been convicted or are subject to a pending criminal
proceeding, nor have they been subjected to any type of order barring,
suspending or otherwise limiting their involvement in any type of business,
securities or banking activities. Furthermore, none of the Directors, Officers
and Significant Employees have been found by a court of competent jurisdiction,
the Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Officers, Directors and those beneficially owning more than 10% of
small business issuer's class of equity securities registered under Section 12
of the Exchange Act, shall file reports of ownership and any change in ownership
with the Securities and Exchange Commission. Copies of these reports are to be
filed with the Company.
12
<PAGE>
Based upon a review of these reports the Company has concluded that a
Form 5 was filed by those required to file said reports covering this past
fiscal year, the only fiscal year in which the Company has been reporting. It is
also clear that said reports were not timely filed.
ITEM 10. EXECUTIVE COMPENSATION
The President of the Company received $160,438 in compensation during
fiscal year 1999. His salary was paid through the subsidiary company. No other
employee received more than $100,000. The Board of Directors grant, from time to
time, options to key employees.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth each person known by the company to be
the beneficial owner of more than 5% of the Common Shares (the only class of
voting securities) of the company all directors individually and all directors
and officers of the company as a group. Each person has sole voting and
investment power with respect to the shares as indicated.
Name and Address Amount of Beneficial Percentage
of Beneficial Owner Ownership of Class
------------------- -------------------- ----------
Travis Wilson 20,325,000 50.92%
5002 S Ash Ave
Tempe, AZ 85282
The Wilson Trust (1) 6,000,000 15.02%
5002 S Ash Ave
Tempe, AZ 85282
All Executive Officers and 28,125,000 70.43%
Directors as a Group (3 persons)
(1) Mr. Wilson and his family are the beneficiaries of the Wilson
Trust. Mr. Wilson therefore, is the beneficial owner of 65.94% of the common
stock of the issuer and is the only control shareholder.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The subsidiary company billed and received $344,302 in the fiscal year
ended December 31, 1997, for services provided to an entity with ownership that
includes the issuer's president and single largest shareholder. The subsidiary
13
<PAGE>
company also paid $4,000 to this entity for services provided to the subsidiary
by the related entity's personnel. These transactions occurred within the
subsidiary prior to the merger.
The issuer paid fees totally $18,000 in the form of common stock
(restricted pursuant to R144) for the benefit Carl P. Ranno and Gerald L.
Flanagan, both Directors, for services rendered in connection with the Accord
SEG acquisition in the year ended December 31,1997. The issuer also agreed to
pay these Directors fees for assistance in raising debt or equity capital. The
fees are 3% for debt and 10% for equity raised and are payable only upon
success. As of December 31, 1997 the total amount due these Directors was
$24,700 and they had been paid $5,000 during that fiscal year. As of December
31, 1998 the total amount due was $52,704 and they had been paid $20,296. The
issuer has also agreed to remit to Mr. Ranno fees for legal services rendered
during the last half of 1999.
On March 1, 1998 the Company entered into an agreement with two members of its
board of directors to provide assistance in raising debt or equity capital. The
fees were 10% of the amounts raised and were payable only upon success. The
agreement expired September 1, 1999. In addition, one of these individuals was
paid legal fees. Fees paid or accrued to these individuals were $10,000 and
$73,000 for the years ended December 31, 1999 and 1998 respectively. Balances
due to these individuals were $7,102 and $52,704 at December 31, 1999 and 1998
respectively.
There are no parents of this small business issuer.
Transactions with promoters consist of work performed on behalf of the
company by Jordan Richards Associates. The issuer remitted $18,000 to them for
worked performed in terms of a company profile, press releases and mailings. The
consideration was cash only.
For the year ended December 31, 1999, there were no material
underwriting discounts and commissions upon the sale of securities by the issuer
where any of the specified persons was or is to be a principal underwriter or is
a controlling person or member of a firm that was or is to be a principal
underwriter.
There were no transactions involving the purchase or sale of assets
other than in the ordinary course of business.
14
<PAGE>
ITEMS 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2 Agreement for Exchange of Stock and Plan of Reorganization
incorporated by reference in the Form 10SB filed August 30,
1999.
3 Articles of Incorporation with Amendments incorporated by
reference in the Form 10SB filed August 30, 1999.
3.1 By-Laws of the corporation filed with the Form 10 SB on August
30, 1999 and incorporated by reference
4.1 Long term loan Union Bank (SBA) filed with the Form 10 SB on
August 30, 1999 and incorporated by reference
10.1 Subscription Agreements for the Sale of Stock filed with the
Form 10 SB on August 30, 1999 and incorporated by reference
10.2 Contract Between Two Directors and the Issuer filed with the
Form 10 SB on August 30, 1999 and incorporated by reference
10.3 Lease on premises of Issuer filed with the Form 10 SB on August
30, 1999 and incorporated by reference
10.4 Convertible Debenture Purchase Agreement filed with the Form 10
SB on August 30, 1999 and incorporated by reference
10.5 Convertible Debenture filed with the Form 10 SB on August 30,
1999 and incorporated by reference
10.6 Escrow Agreement filed with the Form 10 SB on August 30, 1999
and incorporated by reference
10.7 Warrant to Purchase Common Stock filed with the Form 10 SB on
August 30, 1999 and incorporated by reference
10.8 Computation per share earnings in financial statements as filed
with the Form 10 SB on August 30, 1999 and incorporated by
reference and the 10Q SB filed on November 15,1999 and
incorporated by reference
13 The 10Q SB filed on November 15, 1999
21 Subsidiary is Accord SEG and is Incorporated in Arizona
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K during fiscal year 1999 to
the date of this report.
September 3, 1999 advising that the Company's securities had been
deleted from trading on the OTC BB.
November 4, 1999 advising that the Company has been reinstated to trade
it securities on the OTC BB.
15
<PAGE>
SIGNATURE PAGE
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ACCORD ADVANCED TECHNOLOGIES, INC.
March 30, 2000 /s/ Travis Wilson
----------------------------------------
Travis Wilson, Director and President
/s/ Carl P. Ranno
----------------------------------------
Carl P. Ranno, Director and Sec/Treas.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacity and on
the dates indicated.
March 30, 2000 /s/ Travis Wilson
----------------------------------------
Travis Wilson, Director and President
March 30, 2000 /s/ Carl P. Ranno
----------------------------------------
Carl P. Ranno, Director and Sec/Treas.
March 30, 2000 /s/ Gerald Flanagan
----------------------------------------
Gerald Flanagan, Director
16
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2 Agreement for Exchange of Stock and Plan of Reorganization
incorporated by reference in the Form 10SB filed August 30, 1999.
3 Articles of Incorporation with Amendments incorporated by reference
in the Form 10SB filed August 30, 1999.
3.1 By-Laws of the corporation filed with the Form 10 SB on August 30,
1999 and incorporated by reference
4.1 Long term loan Union Bank (SBA) filed with the Form 10 SB on August
30, 1999 and incorporated by reference
10.1 Subscription Agreements for the Sale of Stock filed with theForm10 SB
on August 30, 1999 and incorporated by reference
10.2 Contract Between Two Directors and the Issuer filed with the Form 10
SB on August 30, 1999 and incorporated by reference
10.3 Lease on premises of Issuer filed with the Form 10 SB on August 30,
1999 and incorporated by reference
10.4 Convertible Debenture Purchase Agreement filed with the Form 10 SB on
August 30, 1999 and incorporated by reference
10.5 Convertible Debenture filed with the Form 10 SB on August 30, 1999
and incorporated by reference
10.6 Escrow Agreement filed with the Form 10 SB on August 30, 1999 and
incorporated by reference
10.7 Warrant to Purchase Common Stock filed with the Form 10 SB on August
30, 1999 and incorporated by reference
10.8 Computation per share earnings in financial statements as filed with
the Form 10 SB on August 30, 1999 and incorporated by reference and
the 10Q SB filed on November 15,1999 and incorporated by reference
13 The 10Q SB filed on November 15, 1999
21 Subsidiary is Accord SEG and is Incorporated in Arizona
27 Financial Data Schedule
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997:
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' (Deficit) Equity F-4
Consolidated Statements of Cash Flows F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Accord Advanced Technologies, Inc.:
Tempe, Arizona
We have audited the accompanying consolidated balance sheets of Accord Advanced
Technologies, Inc. (the "Company"), as of December 31, 1998 and 1997, and the
related statements of operations, stockholders' (deficit) equity and cash flows
for each of the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 audit to obtain
reasonable assurance about whether the consolidated 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 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 consolidated financial position of Accord
Advanced Technologies, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
KING, WEBER & ASSOCIATES, P.C.
Tempe, Arizona
May 14, 1999
F-1
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 157,078 $ 58,258
Accounts receivable 6,347 964,233
Inventories 1,056,732 718,212
Prepaid expenses and other assets 22,134 14,915
Income tax refund receivable 6,032 --
Deferred income taxes 457,045 37,213
----------- -----------
Total current assets 1,705,368 1,792,831
PROPERTY, MACHINERY AND EQUIPMENT, net 1,998,302 2,291,066
DEFERRED INCOME TAXES 83,200 --
OTHER ASSETS 36,184 221,348
----------- -----------
TOTAL ASSETS $ 3,823,054 $ 4,305,245
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Short-term note payable $ -- $ 881,592
Accounts payable 639,141 211,605
Accrued liabilities 387,079 428,716
Accrued warranty and installation expense -- 67,215
Customer deposits 777,602 708,233
Capital lease obligations - current portion 46,430 1,291,339
Note payable - current portion 102,693 87,478
----------- -----------
Total current liabilites 1,952,945 3,676,178
CAPITAL LEASE OBLIGATIONS - long-term portion 1,757,285 512,376
NOTE PAYABLE - long-term portion 205,703 34,543
DEFERRED INCOME TAXES -- 21,035
----------- -----------
Total liabilities 3,915,933 4,244,132
----------- -----------
STOCKHOLDERS' (DEFICIT)/EQUITY:
Preferred stock, $.0001 par value,
3,000,000 shares authorized,
none issued
Common stock, $.0001 par value,
47,000,000 share authorized,
39,548,638, and 12,455,000 issued
and outstanding 3,955 1,245
Paid in capital 963,390 73,701
Accumulated deficit (1,060,224) (13,833)
----------- -----------
Total stockholders' (deficit)/equity (92,879) 61,113
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT)/EQUITY $ 3,823,054 $ 4,305,245
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ -----------
SALES $ 3,940,234 $ 1,358,004
COST OF SALES 2,865,641 1,024,068
------------ -----------
Gross profit 1,074,593 333,936
------------ -----------
OTHER (INCOME) AND EXPENSES
General and administrative expense 1,224,661 124,175
Selling and marketing expense 480,736 57,162
Interest expense 442,431 61,352
Impairment loss 250,000 --
Settlement expense 320,000 --
Other income (7,444) --
------------ -----------
Total other expense 2,710,384 242,689
------------ -----------
(LOSS) INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (1,635,791) 91,247
INCOME TAX BENEFIT (PROVISION) 544,080 (36,736)
------------ -----------
NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEM (1,091,711) 54,511
EXTRAORDINARY ITEM - DEBT FORGIVENESS INCOME
(net of income taxes of $12,047 ) 45,320 --
------------ -----------
NET (LOSS) INCOME $ (1,046,391) $ 54,511
============ ===========
NET (LOSS) INCOME PER COMMON SHARE
Basic $ (0.03) $ 0.02
============ ===========
Diluted $ (0.03) $ 0.02
============ ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 33,584,038 3,445,389
============ ===========
Diluted 33,584,038 3,445,389
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
---------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1997 4,943,000 $ 494 $ 44,256 $ (12,664) $ 32,086
Stock issued for services at $0.19 7,000 1 1,315 1,316
Reverse stock split (1 for 10) (4,455,000) (445) 446 1
Issued in business combination 9,500,000 950 (45,571) (55,680) (100,301)
Stock issued for cash at $0.03 1,250,000 125 37,375 37,500
Stock issued to consultants
for services rendered 1,200,000 120 35,880 36,000
Net income 54,511 54,511
---------- ------- --------- ----------- ----------
BALANCE DECEMBER 31, 1997 12,445,000 1,245 73,701 (13,833) 61,113
Stock split (3 for 1) 24,890,000 2,489 (2,489) 0
Stock issued for cash at $1.32 313,638 31 414,968 414,999
Stock issued for cash at $0.25 1,900,000 190 477,210 477,400
Net loss (1,046,391) (1,046,391)
---------- ------- --------- ----------- ----------
BALANCE DECEMBER 31, 1998 39,548,638 $ 3,955 $ 963,390 $(1,060,224) $ (92,879)
========== ======= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(1,046,391) $ 54,511
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation 58,211 3,530
Loss on disposal of equipment 4,122
Deferred income taxes (526,001) 32,732
Issuance of stock for compensation
and services rendered 37,316
Impairment expense on equipment 250,000
Litigation settlement expense 320,000
Forgiveness of long-term debt (57,367)
Changes in assets and liabilities:
Accounts receivable 957,886 (18,591)
Inventory (142,520) 898,107
Refundable deposits (2,990) 2,690
Other current assets (11,317) (12,290)
Accounts payable 427,536 (395,211)
Accrued liabilities (41,637) 65,933
Accrued warranty and installation expense (67,215) 13,051
Customer deposits 69,369 (775,651)
----------- ---------
Net cash provided (used in) by
operating activities 191,686 (93,873)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in purchase of subsidiary 9,600
Loan to officer (7,846)
Purchase of property, machinery and equipment (19,569)
----------- ---------
Net cash (used in) provided by
investing activities (27,415) 9,600
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on short-term debt 78,353
Repayment of short-term debt (881,592)
Proceeds from sale of common stock 892,399 37,500
Principal payments on long-term debt (76,258)
----------- ---------
Net cash (used in) provided by
financing activities (65,451) 115,853
----------- ---------
INCREASE IN CASH 98,820 31,580
CASH, BEGINNING OF YEAR 58,258 26,678
----------- ---------
CASH, END OF YEAR $ 157,078 $ 58,258
=========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $346,442 $ 57,393
======== ========
Income taxes paid $ 6,032 $ -0-
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Value of common stock issued in connection with the
acquisition of wholly owned subsidiary $ 100,301
=========
Debt for legal settlement $ 330,000
=========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Accord Advanced Technologies, Inc. (the "Company"), formally known as
Investment Book Publishing, Inc. ("IBP") was formed in 1996 and was a
development stage enterprise and had no significant operations until its
acquisition of Accord Semiconductor Equipment Group, Inc. ("Accord SEG") on
December 11, 1997. Accord SEG services, reconditions and modifies
multi-chamber semiconductor equipment. The Company's customers include many
of the major silicon wafer manufacturers in the United States and overseas.
Accord SEG became a wholly-owned subsidiary of Accord Advanced
Technologies, Inc., by the Company exchanging 9,500,000 shares of its
common stock for 100% of the common stock of Accord SEG resulting in the
shareholders of Accord SEG owning approximately 95% of Accord Advanced
Technologies, Inc. The accompanying financial statements represent the
consolidated financial position and results of operations of Accord
Advanced Technologies, Inc. and includes the accounts and results of
operations of the Company and its wholly owned subsidiary for the year
ended December 31, 1998 and the period from December 11, 1997 through
December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH includes all short-term highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, Accord SEG.
The results of operations and cash flows include that of Accord SEG for the
year ended December 31, 1998 and the period December 11, 1997 (date of
acquisition) through December 31, 1997. All significant intercompany
accounts and transactions are eliminated.
INVENTORIES consist primarily of used equipment and wafer chambers and are
stated at the lower of cost (specific identification) or market.
Work-in-process is stated at raw materials cost, direct labor and
allocations of overhead. Inventory items that have expected turnover rates
of greater than a one year operating cycle are classified as long term.
PROPERTY, MACHINERY AND EQUIPMENT is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets ranging
from 3 to 10 years. Depreciation expense is not recorded for equipment
acquired but that has yet to be placed in service.
F-7
<PAGE>
REVENUE RECOGNITION - The Company recognizes revenue when the product is
shipped. No significant obligations remain upon shipment. Costs for
installation, warranty and commissions are accrued when the corresponding
sales revenues are recognized. Payments from customers prior to shipment
are recorded as customer deposits. Revenues for service contracts are
recognized evenly over the term of the contracts.
INCOME TAXES - The Company provides for income taxes based on the
provisions of Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES, which among other things, requires that
recognition of deferred income taxes be measured by the provisions of
enacted tax laws in effect at the date of financial statements.
FINANCIAL INSTRUMENTS - Financial instruments consist primarily of cash,
accounts receivable, and obligations under accounts payable, accrued
expenses, short-term debt and capital lease instruments. The carrying
amounts of cash, accounts receivable, accounts payable, accrued expenses
and short-term debt approximate fair value because of the short maturity of
those instruments. The carrying value of the Company's capital lease
arrangements approximates fair value because the instruments were valued at
the retail cost of the equipment at the time the Company entered into the
arrangements.
USE OF ESTIMATES - The preparation of financial statements in conformity
with 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.
3. INVENTORIES
Inventories at December 31 consist of the following:
1998 1997
---------- --------
Raw materials $ 290,122 $565,297
Work in process 591,610 152,915
Finished goods 175,000 -0-
---------- --------
Current inventory 1,056,732 718,212
Slow-moving inventory -0- 196,000
---------- --------
Total inventory $1,056,732 $914,212
========== ========
Slow-moving inventories consist primarily of parts removed from larger
pieces of equipment and stored until needed for future jobs. Costs are
allocated to these items as components of the larger piece of equipment
from which they were removed. Much of this inventory has been allocated
minimum costs and management believes market value exceeds recorded costs.
Approximately $193,000 in inventories were written off in the year ended
December 31, 1998 because of uncertainties about the ability of the Company
to utilize or liquidate the related items.
F-8
<PAGE>
4. PROPERTY, MACHINERY AND EQUIPMENT
Property, machinery and equipment at December 31 consist of the following:
1998 1997
---------- ----------
Test, research and demonstration equipment $1,566,354 $2,066,354
Equipment held for sale 250,000 --
Shop equipment and tools 104,900 98,228
Computer hardware and software 81,320 68,423
Furniture, office equipment and vehicles 34,129 49,046
Leasehold improvements 114,433 114,433
---------- ----------
Total 2,151,136 2,396,484
Less accumulated depreciation and amortization 152,834 105,418
---------- ----------
Property, machinery and equipment - net $1,998,302 $2,291,066
========== ==========
Depreciation expense for the years ended December 31, 1998 and 1997 was
$58,211 and $3,530, respectively.
Certain equipment under a lease has been capitalized at approximately
$1,566,000, representing the estimated fair value of the asset at the
inception date of the lease. Management had intended to use the equipment
for a separate product line that has not yet commenced. The equipment has
not yet been placed in service. As discussed in Note 7, subsequent to
December 31, 1998, the Company entered into an agreement with the lessor to
purchase the equipment under lease and intends to either place the asset in
service or sell the equipment. The obligation under the capital lease was
restructured, reduced and refinanced with another financial institution.
The Company incurred an impairment loss of $250,000 related to one piece of
equipment under a second capital lease. The equipment has never been used
in operations and the Company intends to dispose of the equipment and is
seeking a buyer. The equipment was written down from its original cost of
$500,000 to its estimated net realizable value of $250,000. The fair value
was estimated on the basis of comparable sales less costs to put the
equipment in working condition and discounted for liquidity issues.
5. SHORT-TERM DEBT
Short-term debt at December 31, 1997 consisted of advances from a finance
company associated with certain customer purchase orders. Advances were
arranged on a specific purchase order basis. The advances were
collateralized by the related inventory and customer accounts receivable
and payments received for the order. Advances were fully repaid upon
receipt of payment from customer. Financing fees were charged based on the
total value of the purchase order and period of time in which the advances
were outstanding. The effective rate on financing fees charged in 1997 was
243% which was based on actual amounts advanced. Financing fees under this
arrangement for the year ended December 31, 1998 and the period December
11, 1997 to December 31, 1997 were $275,090 and $9,023, respectively. Total
fees paid under this arrangement by Accord SEG for the period January 1,
1997 to December 10, 1997 were $155,319.
F-9
<PAGE>
6. INCOME TAXES
The Company recognizes deferred income taxes for the differences between
financial accounting and tax bases of assets and liabilities. Income taxes
for the years ended December 31, consisted of the following:
1998 1997
--------- -------
Current tax (benefit) provision $ (6,032) $ 4,004
--------- -------
Deferred tax (benefit) provision
Before extraordinary item (538,048) 32,732
Extraordinary item 12,047 --
--------- -------
Total deferred (benefit) provision (526,001) 4,004
--------- -------
Total income tax (benefit) provision $(532,033) $36,736
========= =======
A deferred tax liability of $ $21,035 at December 31, 1997, relates
primarily to the difference in the financial accounting and tax bases of
property and equipment. Deferred tax assets of $674,000 less a valuation
allowance of $134,000, and $37,213 at December 31, 1998 and 1997
respectively, relate to net operating loss carryforwards of $1,356,015 at
December 31, 1998 and $167,000 at December 31, 1998. State net operating
loss carryforwards of $167,000 expire in 2001. The balance of the net
operating loss carryforwards expire from 2003 through 2018. Approximately
$83,000 and $30,000 of the net deferred tax asset at December 31, 1998
relate to equipment book and tax bases differences and accrued compensation
respectively.
Deferred income taxes for the year ended December 31, 1998 relate to
temporary differences for the net operating loss carryforward, net of the
establishment of a valuation allowance of $134,000, and book and tax
differences for the impairment loss. For the year ended December 31, 1997
deferred income taxes relate primarily to depreciation differences.
The differences between the statutory and effective tax rates is as
follows:
1998 1997
---------------- ---------------
Federal statutory rates $(556,169) (34)% $ 19,274 21%
State income taxes (130,863) (8)% 7,300 8%
Valuation allowance for
operating loss carryforwards 134,000 8%
Difference due to filing of
unconsolidated returns 15,860 17%
Other 20,999 1% (5,698) (6)%
--------- --- -------- ---
Effective rate $(532,033) (33)% $ 36,736 40%
========= === ======== ===
7. LEASES
OPERATING LEASES
The Company leases its facilities and certain office equipment under
long-term operating leases that expire in 1999. Rent expense under these
leases was approximately $97,544 and $5,880 for the year ended December 31,
1998 and the period December 11, 1997 through December 31, 1997. Minimum
annual lease payments under these agreements are $60,987 for the year ended
December 31, 1999.
F-10
<PAGE>
CAPITAL LEASES
Accord SEG entered into two capital leases for equipment in 1996. In March,
1999, the Company purchased the leased assets and was released from all
related encumbrances. This transaction resulted in a forgiveness of lease
debt of $803,715. The purchase was financed with a 10-year bank loan for
$1,000,000 guaranteed by the Small Business Administration and personally
guaranteed by the majority stock owner and spouse.
The following represents principal payments due on the bank loan obtained
to refinance these leased assets (see Note 15):
Year ended December 31:
1999 $ 46,430
2000 66,183
2001 73,078
2002 80,691
2003 89,098
thereafter 644,520
----------
Total principal payments on bank loan 1,000,000
Add: amount of lease principal forgiven 803,715
----------
Present value of minimum lease payments $1,803,715
Current portion 46,430
----------
Long-term portion $1,757,285
==========
The loan is collateralized by the equipment and virtually all assets of the
Company. The interest rate on the bank loan is prime plus 2%.
Assets capitalized under the capital leases total approximately $2,066,000.
A $1,566,000 asset is held as property and equipment as the intent of
management is to use it to produce a certain product line. No depreciation
has yet been recognized on this asset as it has been idle since
acquisition. One of the assets, capitalized at $500,000 less a $250,000
impairment loss, was reclassified as property, machinery and equipment held
for sale in the year ended December 31, 1998. The Company intends to market
and sell the asset (see Note 4).
8. BUSINESS COMBINATION
On December 11, 1997, the Company acquired 100% of the issued and
outstanding common stock of Accord SEG. The Company issued 9,500,000 shares
of its common stock in the transaction resulting in the shareholders of
Accord SEG then owning approximately 95% of the Company. The acquisition
was accounted for under the purchase method of accounting. Due to the
controlling ownership of Accord SEG effectively remaining with the same
shareholders after the acquisition, the purchase is recorded at the net
deficit book value of Accord SEG at the time of the purchase. The deficit
value of Accord SEG's assets less liabilities was $(100,301) at December
11, 1997. The operating results of Accord SEG are included in the
accompanying consolidated financial statements for the period December 11,
1997 through December 31, 1997. The following summarizes unaudited pro
forma financial information assuming that the acquisition of Accord SEG
occurred on January 1, 1997:
F-11
<PAGE>
Net Sales $3,828,945
Net Earnings $ 48,125
Earnings per Share Less than $0.01 per share
The pro forma financial information is presented for informational purposes
only and may not necessarily reflect the results had Accord SEG actually
been acquired on January 1, 1997, nor is this information indicative of the
future consolidated results.
9. NOTES PAYABLE
Notes payable at December 31 are comprised of the following:
1998 1997
--------- ---------
Note payable to equipment vendor,
uncollateralized, monthly principal payments
of $8,314 plus interest at 10% per annum $ 122,021
Settlement of legal claim. Legal settlement
$ 308,396
--------- ---------
Totals 308,396 122,021
Less current portion (102,693) (87,478)
--------- ---------
Long-term portion $ 205,703 $ 34,543
========= =========
The equipment vendor loan was converted from trade accounts payable. The
Company settled with the vendor for a $65,000 cash payment in the year
ended December 31, 1998. The balance of $57,021 was recorded as debt
forgiveness income and is classified as an extraordinary item.
Principal payments due in years ended December 31:
1999 $102,693
2000 120,000
2001 85,703
--------
Total $308,396
========
10. EARNINGS PER SHARE
Net income per share is calculated using the weighted average number of
shares of common stock outstanding during the year. The Company has adopted
SFAS No. 128 Earnings Per Share. The effect of the extraordinary item on
the loss per share was less than $0.01 per share.
F-12
<PAGE>
<TABLE>
<CAPTION>
Per
Income/Loss Shares Share
----------------- ----------------- ---------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net (Loss) Income ($1,046,391) $54,511
BASIC (LOSS) EARNINGS PER SHARE:
Income available to Common
Shareholders ($1,046,391) $ 54,511 33,584,038 3,445,389 $ (0.03) $ 0.02
EFFECT OF DILUTIVE SECURITIES N/A N/A
DILUTED (LOSS) EARNINGS PER SHARE ($1,046,391) $ 54,511 33,584,038 3,445,389 $ (0.03) $ 0.02
</TABLE>
There were no dilutive securities outstanding at December 31, 1998 and
1997.
11. COMMON STOCK ISSUED FOR SERVICES RENDERED
During 1997, the Company issued shares of restricted common stock as
payment for professional services rendered. The Company issued 1,207,000
shares as payment for professional services rendered, valued at $37,316.
The transactions were valued at the accrued and unpaid amounts of
consulting fees payable.
12. RELATED PARTY TRANSACTIONS
The Company paid fees of $36,000 in the form of common stock to an entity
owned by two members of its board of directors as compensation for services
rendered in connection with the Accord SEG acquisition in the year ended
December 31, 1997. The Company also has entered into an agreement with
these individuals to provide fees for assistance in raising debt or equity
capital. The fees are 10% of the amounts raised and payable only upon
success. Fees paid or accrued to these individuals were $73,000 and $5,000
for the years ended December 31, 1998 and 1997 respectively. Balances due
to these individuals were $52,704 and $24,700 at December 31, 1998 and 1997
respectively.
The Company billed and received $344,302 in the year ended December 31,
1997, for services provided to an entity with ownership that includes the
Company's president and single largest shareholder. The Company also paid
$4,000 to this entity for services provided to the Company by the related
entity's personnel. These transactions occurred within Accord SEG prior to
the acquisition.
13. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The total
accounts receivable balance at December 31, 1997 is due from one customer.
Full payment was received subsequent to December 31, 1997.
F-11
<PAGE>
14. EMPLOYEE BENEFIT PLAN
The Company provides benefits through 401(k) and SEP profit sharing plans
for all full time employees who have completed six months of service and
are at least 21 years of age. Contributions to SEP plan are at the
discretion of the Board of Directors. The Company contributes 25% of
elective employee contributions up to 6% of the individual's compensation.
The Company has accrued plan contributions of $34,500 and $16,668 at
December 31, 1998 and 1997, respectively. Contributions of $1,553 were
expensed for the period December 11, 1997 through December 31, 1997.
15. SUBSEQUENT EVENTS
As discussed in Note 7, subsequent to December 31, 1998, the Company
restructured two capital leases through the acquisition of $1,000,000 in
bank financing and settlements with the lessor. As a result of this
restructuring, debt forgiveness income of $803,715 was recognized 1999.
16. EMPLOYEE STOCK OPTIONS
The Company issues stock options from time to time to executives and key
employees. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," and continues to account for stock based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Accordingly, no compensation cost has been recognized for the
stock options granted. Had compensation cost for the Company's stock
options been determined based on the fair value at the grant date for
awards in 1998 and 1997, consistent with the provisions of SFAS No. 123,
the Company's net loss and loss per share would have been increased to the
pro forma amounts indicated below:
1998 1997
---- ----
Net (Loss) Income - as reported $ (1,046,391) $ 54,511
Net (Loss) Income - pro forma $ (1,101,791) $ 54,511
(Loss) Income per share - as reported $ (0.03) $ 0.02
(Loss) Income per share - pro forma $ (0.03) $ 0.02
Under the provisions of SFAS No. 123, there were no fully vested options
and 20,000 proportionately vested options for the year ended December 31,
1998, used to determine net earnings and earnings per share under a pro
forma basis. There were no options to consider for the year ended December
31, 1997.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for
years ended December 31, 1998:
Dividend yield None
Volatility 2.042
Risk free interest rate 5.25%
Expected asset life 3 years
F-14
<PAGE>
The summary of activity for the Company's stock options at December 31,
1998 is presented below:
Weighted
Average
Exercise
Price
-----
Options outstanding at beginning of year 0 N/A
Granted 60,000 $4.00
Exercised 0 N/A
Terminated/Expired 0 N/A
Options outstanding at end of year 60,000 $4.00
Options exercisable at end of year 0 N/A
Options available for grant at end of year N/A
Price per share of options outstanding $ 4.00
Weighted average remaining contractual lives 3 years
Weighted Average fair value of options granted
during the year $2.77
The 60,000 options were granted to a single employee and are not
exercisable until 1999 when the employee completes six months of service.
17. MAJOR CUSTOMERS
Due the nature of the Company's business being associated with few but
large sales transactions, significant concentrations exist. The
concentration is more pronounced in the consolidated results for 1997 due
to the short period of time in which the results of Accord SEG are
included. Approximately 69% and 16% of the Company's revenues were
generated from two customers in 1998. Approximately 82% of the Company's
revenues were generated from three different customers in 1997, including
45% from one customer.
18. SETTLEMENT EXPENSE
On August 19, 1997, Comdisco, Inc. ("Comdisco") filed a complaint with the
Court attempting to enforce a Purchase and Remarketing Agreement with the
Company. The complaint also attempts to enforce a Sale Agreement for the
purchase of certain chambers. Comdisco was claiming principal due of
$260,000 plus interest of approximately $51,000 as of December 31,
1997.The Company filed an Answer and Counterclaim claiming that it paid
the amounts due under the agreements. The Company's counterclaim alleges
interference with certain contractual arrangements and claims damages in
an amount exceeding $500,000. The Company settled the claim in the year
ended December 31, 1998 for $320,000 that is to be paid over 32 months.
* * * * * *
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1999 AND 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,315
<SECURITIES> 0
<RECEIVABLES> 759,046
<ALLOWANCES> 0
<INVENTORY> 826,383
<CURRENT-ASSETS> 1,853,206
<PP&E> 2,169,536
<DEPRECIATION> (208,827)
<TOTAL-ASSETS> 3,968,777
<CURRENT-LIABILITIES> 2,302,704
<BONDS> 1,240,748
0
0
<COMMON> 3,957
<OTHER-SE> 626,359
<TOTAL-LIABILITY-AND-EQUITY> 3,968,777
<SALES> 5,917,470
<TOTAL-REVENUES> 5,917,470
<CGS> 3,683,453
<TOTAL-COSTS> 3,683,453
<OTHER-EXPENSES> 2,262,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117,980
<INCOME-PRETAX> (28,068)
<INCOME-TAX> 8,432
<INCOME-CONTINUING> (19,636)
<DISCONTINUED> 0
<EXTRAORDINARY> 740,246
<CHANGES> 0
<NET-INCOME> 720,610
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
