As Filed With the Securities and Exchange Commission on September 28, 2000
Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ACCORD ADVANCED TECHNOLOGIES, INC.
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(Name of Small Business Company as Specified In Its Charter as Amended)
Nevada 5098 88 0361127
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(State of (Primary Standard (I.R.S. Employer
Incorporation) Industrial Classification No.) Identification No.)
5002 S. Ash Ave, Tempe, Arizona 85282, 480 820 1400
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(Address and telephone number of Company's principal executive office
and principal place of business)
Travis Wilson
President and Chief Executive Officer
Accord Advanced Technologies, Inc.
5002 S. Ash Ave
Tempe, Arizona 85282
480 820 1400
(Name, address and telephone number of agent for service)
Copies to:
Carl P. Ranno, Esq. Robson Ferber Frost Chan & Essner, LLP
2816 East Windrose Dr. ATTN: Gregory Frost Esq.
Phoenix, Arizona 85032 530 Fifth Ave. 23rd Floor
602 493 0369 New York, NY 10036
Fax 602 493 5119 212 944 2200 - Fax 212 944 7630
Approximate Date of Commencement of Proposed Sale to the Public: From time to
time after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(C) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If the delivery of the prospectus is expected to made pursuant to Rule 434,
check the following box [ ]
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Title of Each Class Proposed Maximum Proposed Maximum
of Securities Amount to be Offering Price Aggregate Amount of
to be Offered registered (1) per Unit Offering Price Registration Fee
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Common Stock
$.0001 par value 11,739,131 $0.23 $2,700,000 $702.00
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(1) In the event of a stock split, stock dividend or similar transaction
involving common stock of the Company, in order to prevent dilution, the
number of shares registered shall be automatically increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act.
(2) Estimated solely for the purpose of determining the registration fee.
Calculated pursuant to Rule 457(c) under the Securities Act, on the basis
of the average between the bid and ask price per share as reported on said
stock by the NASD's OTC: Bulletin Board on September 13, 2000.
The Company hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Company shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 2000
ACCORD ADVANCED TECHNOLOGIES, INC
11,739,131 shares of Common Stock
SUMMARY
On June 22, 2000, the Company executed a Secured Convertible Debenture
Purchase Agreement in the amount of $1,000,000. On that same date, the Company
issued 12% Secured Convertible Debentures due June 30, 2001 in the aggregate
principal amount of $250,000, with accompanying warrants to purchase up to an
aggregate 250,000 common shares. On July 17, 2000, the Company issued to the
same investors, additional 12% Convertible Debentures due July 18, 2001 in the
aggregate principal amount of $250,000 with accompanying warrants to purchase up
an additional aggregate of 250,000 common shares. The common stock has a par
value of $.0001 per share. The debentures and warrants were purchased by two
accredited investors in a private placement transaction which was not a public
offering. The shares of common stock issuable under the terms of the convertible
debentures and the underlying warrants may be sold from time to time by the
investors subsequent to the effectiveness of this registration statement. The
Secured Convertible Debenture Purchase Agreement requires the Company to file a
registration statement within 60 days of June 22, 2000. The Company's common
stock trades on the NASD's OTC Bulletin Board under the symbol AVTI.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS
SEE "RISK FACTORS" BEGINNING ON PAGE 2
The information in this prospectus is not complete and may be changed. The
investors as identified in this prospectus may not sell the securities
underlying the convertible debenture and warrants until the registration
statement filed with the Securities and Exchange Commission, of which this
prospectus is a part, is declared effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted. Neither the Securities
and Exchange Commission nor any state securities commission has approved or
disapproved of these securities or determined if this prospectus is truthful or
complete. Any representations to the contrary is a criminal offense.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
RISK FACTORS
MARKET DEPENDENCY
The Company's sales volume is somewhat dependent upon the state of the
semiconductor industry. 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.
WORKING CAPITAL
The Company historically has had a working capital deficiency. 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. The Company believes that it will secure renewal
of a credit facility but there can be no assurances that the Company will be
successful in doing so. The Company believes, but cannot guarantee, 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 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.
RECENT OPERATING LOSSES
Although the Company was profitable this past fiscal year, the Company
experienced an operating loss in the second quarter 2000. The Company may have
periodic losses which could result in a negative impact on our operating ability
and long term stock value.
STOCK PRICE VOLATILITY
There is no assurance that a regular and sustained trading market for our
stock can be achieved. The OTC Bulletin Board experiences severe fluctuations in
terms of price and volume. In addition, our stock price and volume will be
impacted by numerous factors such as;
* Variations in quarterly earnings
* Significant customer orders
* General conditions in the semiconductor industry
* Material public announcements
* Market activity of our competitors
* Strategic alliances and mergers in which we or our competitors
are involved
2
<PAGE>
There is always the concern that the expected earnings may fall below the
level anticipated by the market makers and analysts which could severely impact
the stock price. If there would be a severe and continuing decline in our stock
price, it is possible that litigation could be instigated by our shareholders
causing significant costs to the Company. These costs could be measured in
distraction of management and loss of capital as well as the possibility of
ultimate liability.
LEVEL OF TRADING ACTIVITY BECAUSE OF "PENNY STOCK" RULES
The issuer's securities meet the definition of "penny stock" as found in
Rule 3a51-1 of the Securities Exchange Act of 1934. A "penny stock" is one
trading below $5.00, unless registered on certain national securities exchanges
or quoted on NASDAQ. The Securities and Exchange Commission has adopted rules
which established sales practice requirements for certain low price securities
("penny stock"). Unless the transaction is exempt, it shall be unlawful for a
broker or dealer to sell a penny stock to, or to effect the purchase of a penny
stock by, any person unless prior to the transaction: (i) The broker or dealer
has approved the person's account for transactions in penny stocks pursuant to
this rule and (ii) the broker or dealer has received from the person a written
agreement to the transaction setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person's account for
transactions in penny stock the broker or dealer must: (a) obtain from the
person information concerning the person's financial situation, investment
experience, and investment objectives; (b) reasonably determine that
transactions in penny stocks are suitable for that person, and that the person
has sufficient knowledge and experience in financial matters that the person
reasonably may be expected to be capable of evaluating the risks of transactions
in penny stocks; (c) deliver to the person a written statement setting forth the
basis on which the broker or dealer made the determination (i) stating in a
highlighted format that it is unlawful for the broker or dealer to affect a
transaction in penny stock unless the broker or dealer has received, prior to
the transaction, a written agreement to the transaction from the person; and
(ii) stating in a highlighted format immediately preceding the customer
signature line that (iii) the broker or dealer is required to provide the person
with the written statement; and (iv) the person should not sign and return the
written statement to the broker or dealer if it does not accurately reflect the
person's financial situation, investment experience, and investment objectives;
and (d) receive from the person a manually signed and dated copy of the written
statement. It is also required that disclosure be made as to the risks of
investing in penny stocks and the commissions payable to the broker- dealer, as
well as current price quotations and the remedies and rights available in cases
of fraud in penny stock transactions. Statements, on a monthly basis must be
sent to the investor listing recent prices for the penny stock and information
on the limited market. These rules may reduce trading activity in the secondary
market for "penny stocks" such as ours and it may be difficult for our
stockholders to sell their securities.
LOSS OF KEY EMPLOYEES COULD ADVERSELY EFFECT OUR BUSINESS
We have created incentives in terms of stock options, bonuses, commissions
and raises to maintain our key employees. The industry is very competitive and
it is crucial to the Company to attract and keep the best qualified personnel.
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.
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<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the information contained in this prospectus are forward-looking
statements. These statements include , but are not limited to, statements about
our industry, plans, objectives, expectations and other statements that are not
historical facts. Forward-looking statements are generally identified by the use
of the following words; "anticipate", "believe", "estimate", "expect", "hope",
"intend", "plan", "seek", "search" and other words which basically indicate the
future anticipation of the Company. Forward-looking statements by their nature
involve risks and uncertainties. Therefore, actual results may differ materially
from those implied or expressed by said statements. Accordingly, you should not
place undue reliance on these forward-looking statements.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock offered by the security holders.
DIVIDEND POLICY
The Company has not paid a cash dividend and does not anticipate doing so
in the foreseeable future. We intend to retain our anticipated future earnings
to reinvest in our business. It is also anticipated that any future financing
will contain provisions precluding or limiting the payment of dividends.
SELLING SECURITY HOLDERS
The following table sets forth information as of September 13, 2000 with
respect to the beneficial ownership of our common stock both before and
immediately following the offering. The table includes those who beneficially
own more than 5% of our outstanding common stock, the selling security holders
in this offering, each of the Directors and executive officers in the summary
compensation table and all directors and officers as a group.
The percentages determined in these calculations are based upon 49,655,305
of our common shares that may be issued and outstanding as of the effective date
of this registration statement The Securities and Exchange Commission's rules
were followed in determining beneficial ownership. Therefore, we have included
shares over which a person has voting or investment power. We have included
shares issuable upon exercise of outstanding options and warrants or conversion
of outstanding debentures with interest due. We have followed the Securities and
Exchange Commission Rule 13d-3(d)(i) in calculating percentage of ownership.
The number of shares being offered by the selling security holders are 200%
of the shares of common stock issuable to the selling security holders upon
conversion of the debentures including interest and the shares of common stock
issuable to selling security holders upon exercise of the issued warrants.
The number of common shares issuable upon conversion of the debentures and
to pay the interest is dependent, to a degree, on the market price of the shares
at conversion. Therefore , it is not possible to determine the exact number of
shares that need to be registered at this time. We have decided to register
11,739,131 shares of stock which will be issuable upon conversion of the
debentures, payment of interest and exercise of the warrants issued to the
selling security holders. The limitations as to conversion has not been
considered as to the following table.
4
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<TABLE>
<CAPTION>
Shares of Common
Amount of Beneficial Stock Beneficially
Ownership Prior Shares of Common Owned After this
to this offering Stock Being Offered Offering (2)
Name and Address --------------------- Pursuant to --------------------
of Beneficial Owner Number Percent this Prospectus Number Percent
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<S> <C> <C> <C> <C> <C>
Travis Wilson 20,325,000 39.5% 0 20,325,000 39.5%
5002 S Ash Ave
Tempe, AZ 85282
The Wilson Trust (1) 6,000,000 11.7% 0 6,000,000 11.7%
5002 S Ash Ave
Tempe, AZ 85282
AJW Partners, LLC (3) 2,347,832 4.5% 2,347,832 2,347,832
155 First Street Suite B
Mineola, NY 11501
New Millenium (4) 2,433,110 (5) 4.9% 9,391,305 9,391,305
Capital Partners, II LLC
155 First Street Suite B
Mineola, NY 11501
All Executive Officers 27,225,000 53.0% 0 27,225,000 53%
Directors as a Group
(2 persons)
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(1) Mr. Wilson and his family are the beneficiaries of the Wilson Trust. Mr.
Wilson therefore, is the beneficial owner of 53.% of the common stock of
the issuer and is the only control shareholder.
(2) Assumes all shares being offered pursuant to this prospectus are being
sold.
(3) Consists of 2,347,832 shares of common stock issuable upon conversion of
debentures and payment of interest and 200,000 shares of common stock
issuable upon warrant conversion.
(4) Consists of 9,391,305 shares of common stock issuable upon conversion of
debentures and payment of interest and 800,000 shares of common stock
issuable upon warrant conversion.
(5) The total number of shares is 9,391,305 however, the selling shareholder
will hold only 4.9% of the issued shares at any given time even though the
total amount that the selling shareholder is entitled to receive will be
18.3%.
All necessary amendments and supplements to this registration statement
will be prepared and filed by the Company pursuant to the rules and regulations
of the Securities Act of 1933, as amended (the Securities Act) to keep this
registration statement effective. The registration statement will be kept
effective until the first of the following occurs: the date that all shares of
the common stock offered herein may be resold in a public transaction without
volume limitations or other material restrictions without registration under the
Securities Act, including without limitation,, pursuant to Rule 144 under the
Securities Act; or the date when all shares of common stock offered herein have
been resold. The Company has agreed to pay the expenses other than broker fees
and commissions, if any, in connection with this prospectus.
5
<PAGE>
PLAN OF DISTRIBUTION
The securities are not being offered through an underwriter. The shares may
be offered for sale, from time to time, by the security holders their assigns,
successors or pledgees. The sales may be offered pursuant to this prospectus on
any stock exchange, trading facility or market wherein said securities are
traded. They may also be sold in a private transaction. All sales may be for a
fixed or negotiated price. The security holder may sell our securities in any of
the numerous transactions permitted by applicable law. Some of those methods of
sale include: short sales, ordinary broker transactions, block trades, direct
sales to a broker dealer as a principal or a partial sale through a
broker-dealer at a specific price. The selling security holder may also sell our
shares under the Securities Act Rule 144 and not under this prospectus.
The selling security holders may pledge their shares to their brokers
pursuant to margin provisions and if the selling security holder defaults on a
margin loan, the broker may from offer and sell the pledged securities. The
selling security holders may also participate in short sales against the box,
puts and calls as well as other transactions in the securities of the Company
including derivatives of the Company's securities and may sell and deliver
shares in connection with these activities.
The selling security holders may utilize the services of a broker-dealer to
participate in the sale of the subject securities which may include sales of the
securities to other broker-dealers. The broker-dealer may receive commissions or
discounts from the seller on the sale or sometimes from the purchaser if they
act as an agent for the purchaser. It is anticipated that the commissions or
discounts shall be customary for these types of transactions.
Under the Securities Act, the selling security holders and the
broker-dealers involved in the sale of our securities may be "underwriters"
therefore, any of the commissions received by these broker-dealers or agents and
any profits on the resale of the shares purchased by them may be considered
underwriting commissions or discounts.
The Company is required to pay all fees and costs associated with this
registration statement including the legal fees and disbursement of counsel of
the selling security holders.
LEGAL PROCEEDINGS
A former employee has brought a lawsuit against the Company claiming unpaid
commissions. The Company has denied any amounts due and filed a counterclaim for
damages in that the employee acted beyond his authority. The Company has entered
into a settlement agreement with GEM Management et al which calls for the
Company to make cash payments of an agreed upon amount within one year. (See
Management Discussion and Analysis)
5
<PAGE>
DIRECTORS, OFFICERS AND SIGNIFICANT EMPLOYEES
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
Rochelle Witharana, CPA 35 Controller
Glenn Graves 36 Service Manager
Dawood Abugharbieh 32 Director of Sales
All 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.
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 through 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.
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.
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.
6
<PAGE>
GLENN GRAVES is the Manager of the service division. Mr. Graves, an
electrical engineer, comes to us from Applied Materials where he spent the past
eleven years in increasingly responsible positions. His most recent assignment
was Field Service Supervisor assigned to Intel Corporation. He is responsible
for the growth of our highly profitable global service division which is
involved with service, manufacturing processes and market development.
DAWOOD ABUGHARBIEH is the Director of Sales and is responsible for all
sales and marketing for the Company. He has been involved in the industry for
the past ten years. His career includes positions with Olin Microelectronic
Materials and ChemTrace Analytical Testing and Instrumentation. His positions
included North American and Far East Sales and Marketing Manager for Olin and
Corporate Director of Business Development and Business Operations Manager of
the Northwest Operation for ChemTrace.
Mr. Abugharbieh holds a Bachelors degree in Engineering, Electrical
Engineering from Arizona State University and a Masters of Business
Administration, International Business from Western International University.
DESCRIPTION OF CONVERTIBLE DEBENTURES
On June 22, 2000, the Company executed a Secured Convertible Debenture
Purchase Agreement in the amount of $1,000,000. The securities being offered by
the selling security holders consists of shares of common stock issuable upon
conversion of one year convertible debentures and upon the exercise of three
year warrants we issued in a private offering in June and July of 2000 to the
same accredited investors. The outstanding convertible debentures have an
original value of $500,000 and carry an interest rate of 12%. We have issued
warrants to purchase an aggregate of 500,000 shares of our common stock at a
price of $.253 per underlying share.
Within thirty days following the Effective Date of this registration
statement, the Company will deliver debentures to the selling shareholders equal
to the purchase price of Five Hundred Thousand Dollars ($500,000) received by
the Company.
The debentures are convertible into common stock at the lesser of $.23 per
share or 60% of the average of the lowest three inter-day prices during the
twenty trading days immediately preceding the conversion date. The inter-day
price need not occur on consecutive trading days.
A holder may not convert debentures or receive shares of common stock as
payment of interest to the extent that such conversion and interest payment
would result in said holder or affiliate owning more than 4.99% of the then
issued and outstanding shares of our common stock. An individual holder may
waive this provision upon not less than 61 days prior notice to the Company.
Additionally, a holder may not convert debentures or receive shares of our
common stock as payment of interest to the extent such conversion or receipt of
the interest payment would result in the holder, together with any of its
affiliates, beneficially owning more than 9.99% of our issued and outstanding
shares of common stock. An individual holder may waive this provision upon not
less than 61 days prior notice to the Company. The conversion limitations do not
preclude a holder from converting and selling all or a portion of the
outstanding principal amount of the debentures that would result in the
beneficial ownership by such holder of less than the 4.99% or the 9.99%, as
applicable, of the shares of the common shares than issued and outstanding, and
then converting and selling an additional similar portion of its holdings. Over
a period of time, a holder could receive and sell common stock in excess of
4.99% or 9.99%, as the case may be, of the issued and outstanding shares and
never own more than 4.99% or 9.99% at any one time.
As security for the debentures, the Company has executed a security
agrement and a financing statement pursuant to the applicable Uniform Commercial
Code granting the security holders a second secured position in the assets of
the Company to the aggregate amount of the debentures with interest.
7
<PAGE>
The number of shares being offered by the selling security holders is equal
to 200% of the common stock issuable to the selling security holders upon
conversion of the debentures and payment of interest as well as, the shares of
common stock issuable to the selling security holders upon exercise of the
warrants issued to the selling security holders. The number of our shares that
will be ultimately issued upon conversion of the debentures and payment of
interest, cannot at this time be determined in that said number is partially
determined by the market price of our common stock at the time of conversion. We
have decided to register 11,739,131 shares of our common stock to satisfy the
required number of shares upon conversion of the debentures and exercise of the
warrants issued to the selling security holders.
If a selling security holder, prior to conversion, transfers its interest
in the debentures and warrants to a third party, the third party may not sell
the shares of common stock issuable upon conversion or exercise of the
debentures or warrants under the terms of this prospectus unless the prospectus
is amended or supplemented by us.
During the period of time the holder has our debentures and warrants
without conversion or exercise, the holder could profit from the possible rise
in the market price of our common shares without assuming the risk of ownership.
The Company can assume that the holders will convert and exercise when the
conversion and exercise price is less than the market price of our common stock.
The terms upon which we can raise capital while the debentures and warrants are
outstanding could be adversely affected.
EXPERTS
The consolidated financial statements of the Company for the December 31
year-end periods of 1998, 1999 and from December 31,1999 to June 30, 2000 have
been included in this prospectus The year-end statements have been audited and
the six month statement ending June 30, 2000 have been reviewed by our
independent auditors King Webber and Associates.
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
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 Company 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 at the time, for services rendered in connection with
the Accord SEG acquisition in the year ended December 31,1997. The Company 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
Company has also agreed to remit to Mr. Ranno fees for legal services rendered
during the last half of 1999 and consulting fees on a current basis.
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 the Company.
8
<PAGE>
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 Company 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.
DESCRIPTION OF BUSINESS
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.
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 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 Company 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 Company is approximately $250,000,000.00.
The Company 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 Company. GE Capital has
recently built a refurbishing facility. In the past GE has out sourced its
9
<PAGE>
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 Company
handles. It is not a serious competitor in the future of the Company.
The Company is much smaller than GE and Comdisco, which places the Company
in a distant third position on this type of equipment. The Company 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 Company also has the same
warranty and service as the OEM and its price is some 20% lower.
The Company 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, Maxim, Microchip, Lockheed, IDT and
Texas Instruments. In that there are numerous other prospective customers, the
Company feels that it has been dependent on a few customers and is changing that
dependency.
PATENTS
The Company's 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 late 2000 or early 2100. The process is dry, slurry-free, environmentally
safe, adaptable to standard cluster deposition/etch tools and is cost effective
with rapid planarization rates.
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 Company'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.
10
<PAGE>
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 Company 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 Company is unaware of any effect existing governmental regulations has
on its business. The Company is also unaware of any probable regulation.
The Company 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 Company has eighteen (18) full time employees; three (3) contracted
employees and two (2) independent sales representative groups.
The Company has an Internet site (http://www.accord-seg.com) and address
([email protected]).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales decreased from $1,908,044 for the six months ended June 30, 1999 to
$1,812,638 for the six months ended June 30, 2000, a decrease of $95,406 or 5%.
The sales decrease is mostly attributable to a decrease in the number of orders
that were received in the second quarter.
The gross profit decreased from $850,970 for the six months ended June 30,
1999 to $667,300 for the six month period ended June 30, 2000, a decrease of
$183,670 or 22%. 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. In addition, sales were down during this reporting period.
General and administrative expenses increased to $992,513 in the period
ended June 30, 2000, from $504,562 in the period ended June 30, 1999, an
increase of $487,951 or 49%. This increase is due to expenses related to the
addition of a service division in February 2000 and increased salary expense due
to hiring of additional technical and management personnel during the last 4
months of 1999. The increase is also due to increased costs of benefits related
to the additional personnel.
Selling and marketing expenses decreased to $177,461 in the period ended
June 30, 2000, from $351,156 in the period ended June 30, 1999, a decrease of
$173,695 or 49%. Selling and marketing expenses include sales commissions which
is a factor of the sales volume as well as whether the sales are made through
outside sales representatives or direct (inside) sales representatives. Sales
commissions for outside representatives are higher than inside. For the period
ended June 30, 2000 most sales were made by direct sales representatives. For
the period ended June 30, 1999 a significant sale was by an outside
representative. Selling and marketing expenses, as a percentage of sales, was
9.7% as of June 30, 2000 compared to 18% as of June 30, 1999.
11
<PAGE>
Interest expense increased to $340,779 in the period ended June 30, 2000,
from $30,672 in the period ended June 30, 1999, an increase of $310,107.
Approximately $60,000 of the increase is due primarily to refinancing of
equipment which occurred in March 1999. As of April 1999 the Company began
servicing a debt of $1 million on a piece of equipment. As such the period ended
June 30, 1999 only included 2 months of interest expense on this debt while the
period ended June 30, 2000 includes 6 months interest expense on this debt. The
remaining $250,000 of the increase is due to recording of interest expense
related to a Secured Convertible Debenture Agreement which the Company entered
into in June 2000. See further details on this agreement under Liquidity and
Capital Resources.
Due to the lack of profitable operations and difficulties raising
additional capital, the Company has experienced significant cash flow
difficulties in the three months ended June 30, 2000. Subsequent to December 31,
1999, the Company has borrowed approximately $500,000. The Majority of those
borrowings have been in the form of convertible debt. One half of the borrowings
were used to partially settle litigation with its former debenture holder. The
Company has had difficulties meeting its obligations. In addition, the Company
has failed to meet certain financial covenants on its bank debt as of June 30,
2000.
The Company was involved in a dispute with its original debenture holders.
The debenture holders have filed a claim against the Company. The Company has
reached a settlement with the debenture holders and will pay the debenture
holders approximately $500,000 over a period of one year. One half of the
borrowings discussed above have been designated for payment of that settlement.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has had a working capital deficiency. The Company
had a net working capital deficit of $1,232,772 at June 30, 2000 as compared to
a deficiency of $246,000 at December 31, 1999. The increase in the deficit is
due to the decrease in sales during the quarter ended June 30, 2000, as well as
a decrease in inventory due to recording of impairment losses and payables due
to legal settlements. The Company has suffered material operating losses and is
experiencing difficulties meeting its current obligations, which included some
payroll obligations. Due to lack of consistent ongoing revenue, the Company has
not had adequate working capital and since March 31, 2000, cash has mostly come
from borrowings and collections of accounts receivable. The Company is
attempting to raise sufficient equity capital to meet its current obligations
and to increase its marketing efforts to generate a higher volume of revenue.
However, there can be no assurances that it will be successful in raising
capital and achieve profitable operations.
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 expired in
May, 2000. The Company has refinanced this line of credit to a 3-year term loan
as of May 15, 2000. At June 30, 2000, the Company's annual debt service is
approximately $330,000 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 $1,646,000 at June 30, 2000. 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. The Company recorded an
impairment loss of $95,000 on one of these pieces of equipment during the period
ended June 30, 2000. In addition, the Company wrote down leasehold improvements
with a net book value of $57,000 related to this asset.
12
<PAGE>
The Company also recorded an impairment loss of $135,000 during the period
ended June 30, 2000 on inventory it held for sale. This equipment was sold in
August 2000 at book value after the write-down.
The Company does not intend to require material capital expenditures in the
short term.
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 has settled a lawsuit by a shareholder pursuant to a series of
debentures. The effect of this was a one-time charge of $500,000.
On June 22, 2000, the Company executed a Secured Convertible Debenture
Purchase Agreement in the amount of $1,000,000. On that same date, the Company
issued 12% Secured Convertible Debentures due June 30, 2001 in the aggregate
principal amount of $250,000, with accompanying warrants to purchase up to an
aggregate 250,000 common shares. On July 17, 2000, the Company issued to the
same investors, additional 12% Convertible Debentures due July 18, 2001 in the
aggregate principal amount of $250,000 with accompanying warrants to purchase up
to an additional aggregate of 250,000 common shares. The purchase price of the
shares supporting the debentures is $.23 or 60% of the average of the lowest
three inter day price during the twenty trading days immediately preceding the
conversion date. The strike price for the warrants is $.253. The debentures and
warrants were purchased by two accredited investors in a private placement
transaction which was not a public offering. The shares of common stock issuable
under the terms of the convertible debentures and the underlying warrants may be
sold from time to time by the investors subsequent to the effectiveness of a
registration statement now being prepared. The Company will register 200% of the
shares required for conversion and it is anticipated that the debentures will be
converted.
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.
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.
13
<PAGE>
TECHNOLOGICAL CHANGE. The nature of the Company's service and product is such
that 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.
FORWARD LOOKING INFORMATION
The issuer has and will continue to market all the prospective customers in
North America rather than relying on only those customers with whom it has
historically done business. The Company plans to increase its sales and
marketing presence through the use of its web site, more advertising and adding
more sales and technical personnel. The Company will also continue the
development of its patents.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company believes that the results of its operations in any
quarterly period may be impacted by factors such as delays in completion and the
shipment of products, difficulty in acquiring critical product components of
acceptable quality and in the required quantity, increased competition, the
effect of marketing efforts, growth rates in the Company's markets and adverse
changes in economic conditions. The Company's volume may be affected by changes
in conditions in the semiconductor industry.
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.
DESCRIPTION OF SECURITIES
The authorized capital stock of the issuer consists of 47,000,000
shares of Common Stock, par value $.0001 per share and 3,000,000 shares of
Preferred Stock, par value $.0001 per share however, pursuant to an amendment of
the Articles of Incorporation the authorized shares of common stock has been
increased to 100,000,000. The material terms of the capital stock of the issuer
are set forth in the following statements. However, reference is made to the
more detailed statements as found in the Company's Articles of Incorporation
with amendments and the Company Bylaws all of which are incorporated by
reference.
COMMON STOCK
Holders of common stock are entitled to one vote per each share
standing in his/her name on the books of the Company as to those matters
properly before the shareholders. There are no cumulative voting rights and a
simple majority controls. The holders of common stock will share ratably in
dividends, if any, as declared by the Board of Directors in its discretion from
funds or stock legally available. Common stock holders are entitled to share
pro-rata on all net assets, in the event of dissolution. All of the shares of
common stock are fully paid and non-assessable.
14
<PAGE>
PREFERRED STOCK
The shareholders have amended the Articles of Incorporation authorizing
3,000,000 shares of preferred stock, $.0001 par value. No shares have been
issued. Any shares of preferred issued would have priority over the common stock
with respect to dividend or liquidation rights.
The issuer is not offering preferred stock with this registration
statement nor is it offering debt securities.
There are no provisions in the Articles of Incorporation or the Bylaws
that would delay, defer or prevent a change of control. However, any future
issuance of preferred stock could have the effect of delaying or preventing a
change in control of the Company without further action by the shareholders and
could adversely affect the voting or other rights of the holders of common
stock.
HISTORICAL PRICE RANGE OF OUR COMMON STOCK
The Company's common equity is traded on the Over the Counter Market
(OTC BB) under the symbol AVTI
The high and low sales prices for each for the past two fiscal years
quarters are as follows:
Quarter High Low Close
------- ---- --- -----
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 .001 .10
3/31/00 1.34 .062 .75
6/30/00 .78 .218 .31
The closing price of our common stock on July 31, 2000 was .25.
On August 4, 2000 there were approximately 1500 shareholders of record of
our common stock including the shares held in CEDE & Co. for the benefit of
others.
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 current
employee received more than $100,000 during our fiscal year ending December 31,
1999. The Board of Directors grant, from time to time, options to key employees.
TRANSFER AGENT AND REGISTRAR
The stock and transfer agent for our common stock is Computershare Trust
Company, Inc.
15
<PAGE>
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.
MORE INFORMATION ON THE COMPANY
The issuer has electronically filed this Registration Statement as well as
its initial Form 10SB, 10 KSB and 10 QSBs with the Securities Exchange
Commission for the benefit of its shareholders and to comply with the reporting
requirements as promulgated by the commission. The SEC maintains an Internet
site that contains reports, proxy and information statements, and other
information regarding companies that file electronically with the SEC at
http://www.sec.gov . All the filings of our Company may be reviewed at said
Internet site. The Company also has an Internet site (http://www.accord-seg.com)
and address ([email protected]).
16
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 (AUDITED)
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' (Deficit) Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 2000 (UNAUDITED)
Consolidated Balance Sheet F-17
Consolidated Statements of Operations F-18
Consolidated Statements of Cash Flows F-19
17
<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, 1999 and 1998, 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Note 11 to the financial statements, third parties have made
material claims against the Company.
/s/ KING, WEBER & ASSOCIATES, P.C.
Tempe, Arizona
March 10, 2000
F-1
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 13,315 $ 157,078
Accounts receivable 759,046 6,347
Inventories 826,383 1,056,732
Prepaid expenses and other assets 43,977 22,134
Income tax refund receivable -- 6,032
Deferred income taxes 79,410 457,045
----------- -----------
Total current assets 1,722,131 1,705,368
PROPERTY, MACHINERY AND EQUIPMENT, net 1,960,709 1,998,302
DEFERRED INCOME TAXES 82,659 83,200
DEFERRED FINANCING COSTS 28,520 --
OTHER ASSETS 43,683 36,184
----------- -----------
TOTAL ASSETS $ 3,837,702 $ 3,823,054
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line of credit $ 148,750 $ --
Accounts payable 673,889 639,141
Accrued liabilities 328,086 387,079
Income taxes payable 53,348 --
Accrued warranty and installation expense 136,787 --
Customer deposits 421,853 777,602
Capital lease obligations - current portion 17,090 46,430
Note payable - current portion 187,901 102,693
----------- -----------
Total current liabilites 1,967,704 1,952,945
CAPITAL LEASE OBLIGATIONS - long-term portion 47,139 1,757,285
NOTE PAYABLE - long-term portion 988,618 205,703
----------- -----------
Total liabilities 3,003,461 3,915,933
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.0001 par value, 3,000,000 shares
authorized, none issued
Common stock, $.0001 par value, 47,000,000 share
authorized, 39,568,638 and 39,548,638 issued
and outstanding 3,957 3,955
Paid in capital 965,973 963,390
Accumulated deficit (135,689) (1,060,224)
----------- -----------
Total stockholders' equity (deficit) 834,241 (92,879)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,837,702 $ 3,823,054
=========== ===========
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, 1999 AND 1998
--------------------------------------------------------------------------------
1999 1998
----------- -----------
SALES $ 5,917,470 $ 3,940,234
COST OF SALES 3,683,453 2,865,641
----------- -----------
Gross profit 2,234,017 1,074,593
----------- -----------
OTHER (INCOME) AND EXPENSES
General and administrative expense 1,177,132 1,224,661
Selling and marketing expense 809,584 480,736
Interest expense 117,980 442,431
Impairment loss 75,000 250,000
Settlement expense -- 320,000
Other income (252,611) (7,444)
----------- -----------
Total other expense 1,927,085 2,710,384
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 306,932 (1,635,791)
INCOME TAX (PROVISION) BENEFIT (99,047) 544,080
----------- -----------
NET INCOME LOSS BEFORE EXTRAORDINARY ITEM 207,885 (1,091,711)
EXTRAORDINARY ITEM - DEBT FORGIVENESS INCOME
(net of income taxes of $341,484 and $12,047) 716,650 45,320
----------- -----------
NET INCOME (LOSS) $ 924,535 $(1,046,391)
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
1999 1998
----------- -----------
NET INCOME (LOSS) PER COMMON SHARE
Basic:
Before extraordinary item $ * $ (0.03)
Extraordinary item 0.02 *
----------- -----------
Total $ 0.02 $ (0.03)
=========== ===========
Diluted:
Before extraordinary item $ * $ (0.03)
Extraordinary item 0.02 *
----------- -----------
Total $ 0.02 $ (0.03)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 39,555,912 33,584,038
=========== ===========
Diluted 39,597,346 33,584,038
=========== ===========
----------
* Less than $0.01 per share.
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1998 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)
Stock issued as payment for legal fees 15,000 1 934 935
Stock issued for as payment for employee
compensation 5,000 1 1,649 1,650
Net income 924,535 924,535
---------- ------ --------- ----------- -----------
BALANCE DECEMBER 31, 1999 39,568,638 $3,957 $ 965,973 $ (135,689) $ 834,241
========== ====== ========= =========== ===========
</TABLE>
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, 1999 AND 1998
--------------------------------------------------------------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 924,535 $(1,046,391)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 55,993 58,211
Loss on disposal of equipment -- 4,122
Deferred income taxes 374,927 (526,001)
Issuance of stock for compensation and
services rendered 2,585 --
Impairment expense on equipment 75,000 250,000
Litigation settlement expense -- 320,000
Forgiveness of long-term debt (1,058,134) (57,367)
Changes in assets and liabilities:
Accounts receivable (752,699) 957,886
Inventory 230,349 (142,520)
Income tax payable/receivable 59,380 --
Other current assets (21,843) (11,317)
Deferred financing costs (28,520) --
Other assets (7,499) (2,990)
Accounts payable 34,748 427,536
Accrued liabilities 240,426 (41,637)
Accrued warranty and installation expense 136,787 (67,215)
Customer deposits (355,749) 69,369
----------- -----------
Net cash (used in) provided by
operating activities (89,714) 191,686
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to officer -- (7,846)
Purchase of property, machinery and equipment (22,903) (19,569)
---------- ----------
Net cash (used in) investing activities (22,903) (27,415)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on bank line of credit 148,750 --
Repayment of short-term debt -- (881,592)
Borrowings on long-term debt 950,000 --
Principal payments on long-term debt (131,877) (76,258)
Payments on capital lease obligations (1,001,268) --
Proceeds from sale of common stock -- 892,399
----------- -----------
Net cash (used in) financing activities (34,395) (65,451)
----------- -----------
(DECREASE) INCREASE IN CASH (147,012) 98,820
CASH, BEGINNING OF YEAR 157,078 58,258
----------- -----------
CASH, END OF YEAR $ 13,315 $ 157,078
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
1999 1998
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $113,719 $346,442
======== ========
Income taxes paid $ -- $ 6,032
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Debt incurred related to legal settlement $330,000
========
Equipment acquired under capital leases $ 70,497
========
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
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 years ended December 31, 1999 and December 31, 1998.
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. 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 the cost for raw materials and direct labor.
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 not yet to placed in service.
REVENUE RECOGNITION - The Company recognizes revenue when the product is
shipped and there are no remaining significant obligations on the part of the
Company. 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 ratably 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, notes payable 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.
F-8
<PAGE>
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:
1999 1998
-------- ----------
Raw materials $299,839 $ 290,122
Work in process 351,544 591,610
Finished goods 175,000 175,000
-------- ----------
Total inventory $826,383 $1,056,732
======== ==========
The Company wrote off approximately $193,000 in inventories in the year ended
December 31, 1998 because of uncertainties about the ability of the Company
to utilize or liquidate the related items.
4. PROPERTY, MACHINERY AND EQUIPMENT
Property, machinery and equipment at December 31 consist of the following:
1999 1998
---------- ----------
Test, research and demonstration equipment $ -- $1,566,354
Equipment held for sale 1,741,058 250,000
Shop equipment and tools 138,628 104,900
Computer hardware and software 142,561 81,320
Office furniture and equipment 25,355 26,628
Vehicles 7,500
7,500
Leasehold improvements 114,434 114,434
---------- ----------
Total 2,169,536 2,151,136
Less accumulated depreciation and
amortization 208,827 152,834
---------- ----------
Property, machinery and equipment - net $1,960,709 $1,998,302
========== ==========
Depreciation expense for the years ended December 31, 1999 and 1998 was $
55,993 and $58,211, respectively.
As of December 31, 1998 two assets capitalized under leases totalled
approximately $1,816,000, representing the estimated fair value of the assets
at the inception date of the leases. Management had intended to use one of
the assets, valued at $1,566,000, for a separate product line that has not
yet commenced. The other asset was originally valued at $500,000. The Company
incurred an impairment loss on this asset for the years ended December 31,
1999 and 1998 of $75,000 and $250,000, respectively. The fair value was
F-9
<PAGE>
estimated on the basis of comparable sales less costs to put the equipment in
working condition, discounted for liquidity issues. Both assets have been
idle since acquisition. As such, no depreciation has been recognized. The net
book value of these assets was $1,641,000 at December 31, 1999. The Company
intends to dispose of both assets and is seeking buyers. As discussed in Note
12, in March 1999, the Company entered into an agreement with the lessors to
purchase these two pieces of equipment under lease. The obligation under the
capital lease was restructured, reduced and refinanced with another financial
institution.
5. BANK LINE OF CREDIT
The Company obtained a $150,000 revolving line of credit with a financial
institution in 1999, of which $148,750 was drawn upon at December 31, 1999.
Interest is at the prime rate plus 2%. The rate at Deember 31, 1999 was
10.5%. The line of credit expires May 15, 2000.
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:
1999 1998
--------- ---------
Current tax provision (benefit)
Before extraordinary item $ 14,433 $ (6,032)
Extraordinary item 51,171 --
--------- ---------
$ 65,604 $ (6,032)
--------- ---------
Deferred tax provision (benefit)
Before extraordinary item 83,616 (538,048)
Extraordinary item 290,313 12,047
--------- ---------
Total deferred provision (benefit) 374,927 (526,001)
--------- ---------
Total income tax provision (benefit) $ 440,531 $(532,033)
========= =========
Approximately $134,000, $83,000 and $67,000 of the deferred tax asset at
December 31, 1999 relates to a contingent liability, equipment book and tax
bases differences for accruals and reserves, respectively. Deferred tax
assets of $674,000 less a valuation allowance of $134,000 at December 31,
1998 relate primarily to net operating loss carryforwards of $1,356,015 at
December 31, 1998 which were fully utilized in 1999.
F-10
<PAGE>
The deferred income tax benefit for the year ended December 31, 1999 relates
to the utilization of the net operating loss carryforward and the recognition
of deferred tax assets for the warranty reserve and the contingency for legal
settlement. 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
The differences between the statutory and effective tax rates is as follows:
1999 1998
----------------- -----------------
Federal statutory rates $ 464,122 34% $(556,169) (34)%
State income taxes 109,205 8% (130,863) (8)%
Utilization of operating loss
carryforwards (133,876) (13)%
Valuation allowance for operating
loss carryforwards 134,000 8%
Other 973 1% 20,999 1%
--------- ---- --------- ----
Effective rate $ 440,531 30% $(532,033) (33)%
========= ==== ========= ====
7. LEASES
Operating Leases
The Company leases its facilities under long-term operating lease that expire
in 2004. Rent expense under this lease was approximately $114,400 and $97,544
for the years ended December 31, 1999 and 1998. Minimum annual lease payments
under this agreement are as follows for years ended December 31:
2000 $102,760
2001 106,120
2002 109,480
2003 112,840
2004 106,260
--------
Total minimum lease payments $537,460
========
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 $808,715. 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 stockholder and spouse.
The Company entered into two capital leases for computer equipment and
software in 1999. As of December 31, 1999 assets capitalized under these
leases total approximately $70,497. Related depreciation expense and
accumulated depreciation was $3,070.
F-11
<PAGE>
The following represents principal payments due on these leases:
Year ended December 31:
2000 $ 28,844
2001 28,844
2002 28,228
--------
Total minimum lease payments 85,916
Less amount representing interest (21,687)
--------
Present value of minimum lease payments 64,229
Current portion 17,090
--------
Long-term portion $ 47,139
========
8. NOTES PAYABLE
Notes payable at December 31 are comprised of the following:
1999 1998
--------- ---------
Settlement of legal claim. Legal
settlement requires the full award of
$320,000 to be paid at $10,000 per month
plus interest at 10% per annum $ 211,036 $ 308,396
Note payable to bank due March 19, 2009
Original principal $1,000,000 payable in
120 monthly payments of $13,065. Interest
at prime plus 2% collateralized by
virtually all assets of the Company and
guaranteed by the Small Business
Administration and the majority 965,483 --
shareholder and spouse ---------- ---------
1,176,519 308,396
Totals
Less current portion (187,901) (102,693)
---------- ---------
Long-term portion $ 988,618 $ 205,703
========== =========
Principal payments due in years ended December 31:
2000 $ 187,901
2001 160,925
2002 81,104
2003 89,375
2004 98,489
Thereafter 558,725
----------
Total $1,176,519
==========
F-12
<PAGE>
9. EARNINGS PER SHARE
Net income (loss) per share is calculated using the weighted average number
of shares of common stock outstanding during the year. The effect of the
extraordinary item on the loss per share was $0.02 per share for the ended
December 31, 1999 and less than $0.01 for the year ended December 31, 1998.
The following presents the computation of basic and diluted earnings per
share from continuing operations:
<TABLE>
<CAPTION>
Income (Loss) Shares Per Share
----------------------- -------------------- --------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ 924,535 $(1,046,391)
Extraordinary income (716,650) (45,320)
--------- -----------
Income from continuing operations 207,885 (1,091,711)
BASIC EARNINGS (LOSS) PER SHARE
Loss available to Common Shareholders $ 207,885 $(1,091,711) 39,555,912 33,584,038 $ * $(0.03)
EFFECT OF DILUTIVE SECURITIES
EMPLOYEE STOCK OPTIONS 41,434
DILUTED EARNINGS (LOSS) PER SHARE $ 207,885 $(1,091,711) 39,597,346 33,584,038 $ * $(0.03)
</TABLE>
----------
* less than $0.01 per share
The effect of dilutive securities for the year ended December 31, 1999,
includes stock options assumed exercised for which the market value exceeds
the exercise price less shares which would have been purchased by the
Company with the related proceeds. The effect of dilutive securities in the
year ended December 31, 1999 is less than $0.01 per share. Excluded from the
total earnings per share calculation for the year ended Decemebr 31, 1999
are 110,000 options for which the option exercise price exceeds the market
value of the stock. There were no dilutive securities outstanding at
December 31, 1998.
10. COMMON STOCK ISSUED AND GRANTED
The Company periodically issues common stock for services rendered by
consultants and for compensation to employees. The value of the stock issued
during the year ended December 31, 1999, was valued at fair market value at
date of granting. The value of stock that was granted but not issued has
been netted in additional paid-in-capital.
11. CONTINGENCIES
A complaint was filed against the Company in October 1999 by certain
debenture holders alleging breach of a Debenture Purchase Agreement (the
"agreement"). The plaintiffs have pleaded a three-count action alleging 1)
breach of contract, 2) breach based on delisting from the OTC bulletin
board, and 3) unjust enrichment. The Complaint seeks damages of
approximately $372,000. The Company has denied the allegation and has filed
a counterclaim alleging that the plaintiffs intentionally breached the terms
F-13
<PAGE>
of the agreement by taking actions with the intent to drive down the stock
price thereby allowing the plaintiffs to acquire additional shares based on
the floating conversion price set forth in the agreement. The shares
associated with the debenture agreement were issued in 1998. The Company
seeks damages in an amount not less than $1,000,000 for the plaintiffs
actions.
The Company has offered to settle this matter, which was refused by the
plaintiffs. The Company is preparing for discovery to vigorously defend this
case and prosecute its counterclaim. Because of the third party's refusal of
the settlement offer, the Company intends to aggressively pursue its
counterclaim. The Company, on advice of its counsel, believes that
sufficient evidence exists in its favor, and that there is a reasonable
probability of success on the counter claim in an amount at least to what is
claimed by the third party. Therefore, no accrual has been made regarding
this matter.
The Company has entered into a dispute with a customer whereby the customer
has claimed damages of approximately $133,000. The Company disagrees with
the claims and intends to vigorously defend its position in regard to this
matter. The Company believes that it will be successful in defending this
claim.
In the year ended December 31, 1999, the Company recognized income of
approximately $210,000 related to an estimated liability for a customer
deposit. The amount is included in other income in the accompanying
statement of operations. The liability arose in 1996 on a deposit of
equipment made by a customer. Certain credits were made against the deposit
on orders made by the customer. There were uncertainties between the Company
and the customer relative to the remaining balance of the deposit. The
Company conitinues to make sales to that customer and and that customer has
made no formal claim for credit on a deposit. It is the Company's position
that it has fulfilled all obligations due the customer and has written off
the remaing $210,000 deposit balance. The Company and its counsel believe
that due to numerous issues involving this matter, the probability of the
customer sustaining any claim for that deposit is unlikely.
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 attempted to enforce a Sale Agreement for the
purchase of certain chambers. The Company filed an Answer and Counterclaim
claiming that it paid the amounts due under the agreements. The Company
settled the claim in the year ended December 31, 1998 for $320,000 that is
to be paid over 32 months (Note 8).
12. EXTRAORDINARY ITEM - DEBT FORGIVENESS INCOME
In March, 1999, the Company negotiated with certain lessors wherein it
purchased the leased assets using proceeds from a refinancing agreement with
a third party lender, resulting in debt forgiveness of $808,715 and
forgiveness of the related interest accrued of $249,419. The lease buyout
was financed with a $1,000,000 bank loan, guaranteed by the Small Business
Administration, as disclosed in Note 8.
For the year ended December 31,1998, an equipment vendor loan was converted
from trade accounts payable. The Company settled with the vendor for a
$65,000 cash. Debt forgiveness income of $57,367 was recognized in 1998, and
is classified as an extraordinary item at $45,320, net of tax.
F-14
<PAGE>
13. RELATED PARTY TRANSACTIONS
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.
14. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk are primarily accounts receivable. Approximately 63% of the
total accounts receivable balance at December 31, 1999 consists of a
receivable from one customer, which was received in full subsequent to
December 31, 1999.
15. 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 for the 401(k) plan.
The Company's expense for plan contributions was $31,302 and $34,500 for
years ended December 31, 1999 and 1998, respectively.
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 1999 and
1998, consistent with the provisions of SFAS No. 123, the Company's net
income (loss) and income (loss) per share would have been increased to the
pro forma amounts indicated below:
1999 1998
-------- ------------
Net income (loss) - as reported $720,610 $(1,046,391)
Net income (loss) - pro forma $607,827 $(1,101,791)
Income (loss) per share - as reported $ 0.02 $ (0.03)
Income (loss) per share - pro forma $ 0.02 $ (0.03)
Under the provisions of SFAS No. 123, there were 60,000 fully vested options
and 55,833 proportionately vested options for the year ended December 31,
1999, used to determine net earnings and earnings per share under a pro
forma basis. 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.
F-15
<PAGE>
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, 1999 and 1998:
1999 1998
---- ----
Dividend yield None None
Volatility 2.109 2.042
Risk free interest rate 6.00% 5.25%
Expected asset life 4 years 3 years
The summary of activity for the Company's stock options at December 31, 1999
and 1998 is presented below:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Exercise Exercise
1999 Price 1998 Price
---- ----- ---- -----
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 60,000 $4.00 0 N/A
Granted 530,000 $0.15 60,000 $4.00
Exercised 0 N/A 0 N/A
Terminated/Expired 0 N/A 0 N/A
Options outstanding at end of year 590,000 $0.55 60,000 $4.00
Options exercisable at end of year 60,000 $4.00 0 N/A
Options available for grant at end of year N/A N/A
Price per share of options outstanding $0.10-4.00 $ 4.00
Weighted average remaining contractual lives 3.5 years 3 years
Weighted Average fair value of options
granted during the year $0.10 $2.77
</TABLE>
17. MAJOR CUSTOMERS
Due to the nature of the Company's business being associated with few but
large sales transactions, significant concentrations exist. Approximately
41%, 11% and 11% of the Company's revenues were generated from three
different customers in 1999. Approximately 69% and 16% of the Company's
revenues were generated from two customers in 1998.
* * * * * *
F-16
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 (UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 27,644
Accounts receivable 57,880
Inventories 483,392
Deferred income taxes 82,361
Prepaid expenses and other assets 67,057
-----------
Total current assets 718,334
-----------
PROPERTY, MACHINERY AND EQUIPMENT, net 1,805,441
DEFERRED INCOME TAXES --
DEFERRED LOAN COSTS 26,978
DEFERRED INCOME TAXES 82,659
OTHER ASSETS 54,325
-----------
TOTAL ASSETS $ 2,687,737
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line of credit $ 144,732
Accounts payable 623,679
Accrued liabilities 315,205
Accrued warranty and installation expense 120,713
Income taxes payable 62,198
Customer deposits 57,500
Legal settlements payable-current portion 400,000
Capital lease obligations - current portion 25,517
Note payable - current portion 201,562
-----------
Total current liabilites 1,951,106
-----------
CAPITAL LEASE OBLIGATIONS - long-term portion 51,588
NOTE PAYABLE - long-term portion 1,156,683
LEGAL SETTLEMENTS PAYABLE - LONG TERM PORTION 100,000
-----------
Total liabilities 3,259,377
-----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 3,000,000
shares authorized, none issued --
Common stock, $.0001 par value, 47,000,000 share
authorized, 39,568,638, issued and outstanding 3,957
Paid in capital 1,215,973
Retained earnings (1,791,570)
-----------
Total stockholders' equity (571,640)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,687,737
===========
F-17
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES $ 1,812,638 $ 1,908,044 $ 259,500 $ 902,284
COST OF SALES 1,145,338 1,057,074 207,799 402,651
------------ ------------ ------------ ------------
Gross profit 667,300 850,970 51,701 499,633
------------ ------------ ------------ ------------
OTHER (INCOME) AND EXPENSES
General and administrative expense 992,513 504,562 517,562 235,170
Selling and marketing expense 177,461 351,156 66,097 180,202
Interest expense 340,779 30,672 308,598 (10,872)
Impairment Loss 287,100 -- 287,100 --
Loss on Legal Settlements 500,000 -- 500,000 --
Other (income) expense 25,328 (7,487) 34,147 (6,992)
------------ ------------ ------------ ------------
Total other expense 2,323,181 878,903 1,713,504 397,508
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (1,655,881) (27,933) (1,661,803) 102,125
INCOME TAX BENEFIT (PROVISION) -- 11,820 -- (39,194)
------------ ------------ ------------ ------------
NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEM (1,655,881) (16,113) (1,661,803) 62,931
EXTRAORDINARY ITEM - DEBT FORGIVENESS INCOME
(net of income taxes of $341,484) -- 716,650 -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,655,881) $ 700,537 $ (1,661,803) $ 62,931
============ ============ ============ ============
NET (LOSS) INCOME PER COMMON SHARE
Basic:
Before extraordinary item $ (0.04) $ * $ (0.04) $ *
Extraordinary item -- 0.02 -- *
------------ ------------ ------------ ------------
Total $ (0.04) $ 0.02 $ (0.04) $ *
============ ============ ============ ============
Diluted:
Before extraordinary item $ (0.04) $ * $ (0.04) $ *
Extraordinary item -- 0.02 -- *
------------ ------------ ------------ ------------
Total $ (0.04) $ 0.02 $ (0.04) $ *
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 39,568,638 39,548,638 39,568,638 39,548,638
============ ============ ============ ============
Diluted 39,568,638 39,600,592 39,568,638 39,600,592
============ ============ ============ ============
</TABLE>
* less than $0.01
F-18
<PAGE>
ACCORD ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(1,655,881) 700,537
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 37,732 29,999
Amortization of discount on convertible debenture 250,000 0
Deferred income taxes (2,951) 329,614
Forgiveness of Long Term Debt -- (1,058,134)
Impairment losses 287,100 0
Changes in assets and liabilities:
Accounts receivable 701,166 (180,976)
Inventory 207,990 (491,853)
Prepaid expenses and other assets (23,080) (6,489)
Deferred financing costs and other noncurrent assets (9,100) (19,035)
Accounts payable (50,210) (233,739)
Accrued liabilities (12,881) 18,020
Income taxes payable 8,850 --
Accrued warranty and installation expense (16,074) 181,730
Legal settlements payable 500,000 --
Customer deposits (364,353) 1,293,288
----------- -----------
Net cash provided by operating activities (141,692) 562,962
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, machinery and equipment (10,428) (293)
----------- -----------
Net cash (used in) provided by investing activities (10,428) (293)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt -- 965,000
Borrowings on convertible debenture 250,000 --
Principal payments on capital lease obligations (11,259) (995,000)
Principal payments on line of credit (4,018) --
Principal payments on long-term debt (68,274) (24,485)
----------- -----------
Net cash (used in) provided by financing activities 166,449 (54,485)
----------- -----------
INCREASE IN CASH 14,329 508,184
CASH, BEGINNING OF PERIOD 13,315 157,078
----------- -----------
CASH, END OF PERIOD $ 27,644 $ 665,262
=========== ===========
SUPPLEMENTAL INFORMATION:
Computer equipment purchased through capital lease $ 24,135 --
=========== ===========
Interest Paid $ 82,339 --
=========== ===========
</TABLE>
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
The accompanying financial statements have been prepared in accordance with
Form 10-QSB instructions and in the opinion of management contain all
adjustments (consisting of only normal and recurring accruals) necessary to
present fairly the financial position as of June 30, 2000, the results of
operations for the six months ended June 30, 2000 and 1999 and cash flows for
the six months ended June 30, 2000 and 1999. These results have been determined
on the basis of generally accepted accounting principles and practices applied
consistently with those used in the preparation of the Company's 1999 audited
consolidated financial statements included in this registration statement.
Certain information and footnote disclosure normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted for the six month period ending June 30, 2000. It
is suggested that the interim financial statements for the quarter endin June
30, 2000, be read in conjunction with the audited financial statements and notes
thereto for the years ended December 31, 1999 and 1998 included in this
registration statement.
F-20
<PAGE>
====================================== ======================================
RELIANCE SHOULD ONLY BE ON THE
INFORMATION CONTAINED IN THIS
REGISTRATION STATEMENT OR TO WHICH WE
HAVE REFERRED YOU. THE COMPANY HAS NOT ACCORD ADVANCED TECHNOLOGIES, INC.
AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION OTHER THEN CONTAINED IN
THIS DOCUMENT. THIS DOCUMENT MAY BE 11,739,131 SHARES
USED ONLY WHEN IT IS LEGAL TO SELL
THESE SECURITIES. THE INFORMATION COMMON STOCK
CONTAINED IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THE DOCUMENT.
TABLE OF CONTENTS
Page
----
Risk Factors 2
Forward-Looking Statements 4
Use of Proceeds 4
Dividend Policy 4
Selling Security Holders 4
Plan of Distribution 5 ----------
Legal Proceedings 5
Directors, Officers and Significant PROSPECTUS
Employees 6
Description of Convertible ----------
Debentures 7
Experts 8
Certain Relationships and Related
Transactions 8
Description of Business 9
Management's Description and
Analysis of Financial Condition
and Results of Operations 11
Description of Property 14
Description of Securities 14
Executive Compensation 15
Transfer Agent and Registrar 15
Changes and Disagreements with
Accountants on Accounting and
Financial Matters 16
More Information on the Company 16 ______________, 2000
Index to Financial Statements 17
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Nevada Revised Statutes sec. 78.751, a Nevada Corporation
has the power to indemnify its Directors, Officers, Employees and Agents.
Pursuant to section 12 of the issuers Articles of Incorporation, the Company
shall indemnify its Officers, Directors, Employees and Agents. Section IX of the
issuer's Bylaws specifically sets forth the Indemnification of those above
stated. Pursuant to the above the Directors and Officers liability is affected.
The Articles and Bylaws are by reference incorporated herein.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following set forth the estimated expenses in connection with this offering
as described in this Registration Statement.
Sec Registration Fee $702.00
Printing Fees *
Legal Fees and Expenses *
Accounting Fees and Expenses *
Blue Sky Fees *
Miscellaneous *
-------
Total $702.00
=======
----------
* To be provided by amendment
All of the above expenses will be paid by the Registrant
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Company has sold the following securities, which were not
registered during the past three years.
<TABLE>
<CAPTION>
Date Name Number of Shares Consideration
---- ---- ---------------- -------------
<S> <C> <C> <C>
October 31, 1997 Tantayl Inv. Grp 1,250,000 $ 37,500
October 1,1998 Tantayl Inv. Grp. 63,636 $175,000
October 9, 1998 Nismic Sales Corp. 250,000 $250,000
November 22, 1998 (1) Gem Management Ltd. 1,220,000 $380,000
November 22, 1998 (2) Gem Management Ltd 200,000 $ 2,000
November 22,1998 (3) Turbo International, Inc. 160,000 $ 50,000
November 22,1998 (4) Successways Holding Ltd 320,000 $100,000
</TABLE>
All of the above securities were issued pursuant to Rule 504 of Regulation
D promulgated under the Securities Act. All Form Ds and amendments are
incorporated by reference.
II-1
<PAGE>
The transactions noted as (1), (3) and (4) constitute a convertible
debenture and the shares were issued in support thereof. The entire Convertible
Debenture Purchase Agreement with the Escrow Agreement more fully set forth the
terms and conditions and are incorporated by reference.
The transaction noted as (2) constitutes a Warrant to Purchase Common Stock
of the issuer in favor of Gem Management Ltd. The warrant was exercised and the
underlying shares were issued pursuant to Rule 504 of Regulation D promulgated
under the Securities Act. A copy of the Warrant more fully sets forth the terms
and is incorporated .
The Company also issued 300,000 common shares each (restricted pursuant to
R 144) for the benefit of two Directors in lieu of consulting fees. The
cumulative value was $18,000. The Company also issued 600,000 shares of common
stock (restricted pursuant to R 144) as finders/consulting fees as previously
agreed before the merger to Chase Investments. The value of said transaction was
$18,000.
There have been no underwriting undertaken by the Company.
ITEM 27. EXHIBITS
Exhibit
Number Description
------ -----------
2 Agreement for Exchange of Stock and Plan of Reorganization
incorporated by reference to the Form 10-SB filed August 30,
1999.
3 Articles of Incorporation with Amendments incorporated by
reference to the Form 10-SB filed August 30, 1999.
3.1 By-Laws of the corporation incorporated by reference to the Form
10-SB filed August 30, 1999.
4.1 Long term loan Union Bank (SBA) incorporated by reference to the
Form 10-SB filed August 30, 1999.
4.2 Secured Convertible Debenture Purchase Agreement dated as of
June 22, 2000 between the investors named therein and the
registrant incorporated by reference to the Form 10-QSB filed on
September 15, 2000.
4.3 12% Convertible Debenture due June 30, 2001 by the Registrant
and in favor of New Millenium Capital Partners II, LLC
registrant incorporated by reference to the Form 10-QSB filed on
September 15, 2000.
4.4 12% Convertible Debenture due June 30, 2001 by the Registrant
and in favor of AJW Partners, LLC incorporated by reference to
the Form 10-QSB filed on September 15, 2000.
4.5 Stock Purchase Warrant dated June 22, 2000 issued by the
registrant to New Millenium Capital Partners II, LLC
incorporated by reference to the Form 10-QSB filed on September
15, 2000.
4.6 Stock Purchase Warrant dated June 22, 2000 issued by the
registrant to AJW Partners, LLC incorporated by reference to the
Form 10-QSB filed on September 15, 2000.
II-2
<PAGE>
4.7 Registration Rights Agreement dated as of June 22, 2000 between
the Registrant and the investors incorporated by reference to
the Form 10-QSB filed on September 15, 2000.
4.8 First Amendment to the Secured Convertible Debenture Purchase
Agreement dated as of July 14, 2000 between the investors named
therein and the registrant incorporated by reference to the Form
10-QSB filed on September 15, 2000.
4.9 12% Convertible Debenture due June 30, 2001 by the Registrant
and in favor of New Millenium Capital Partners II, LLC filed
with Form 10-QSB on September 15, 2000 and incorporated by
reference.
4.10 12% Convertible Debenture due June 30, 2001 by the Registrant
and in favor of AJW Partners, LLC incorporated by reference to
the Form 10-QSB filed on September 15, 2000.
4.11 Stock Purchase Warrant dated July 17, 2000 issued by the
registrant to New Millenium Capital Partners II, LLC
incorporated by reference to the Form 10-QSB filed on September
15, 2000.
4.12 Stock Purchase Warrant dated July 17, 2000 issued by the
registrant to AJW Partners, LLC incorporated by reference to the
Form 10-QSB filed on September 15, 2000.
5.1 Opinion of Robson Ferber Frost Chan & Essner, LLP*
10.1 Subscription Agreements for the Sale of Stock incorporated by
reference to the Form 10-SB filed August 30, 1999.
10.2 Contract Between Two Directors and the Issuer incorporated by
reference to the Form 10-SB filed August 30, 1999.
10.3 Lease on premises of Issuer incorporated by reference to the
Form 10-SB filed August 30, 1999.
10.4 Convertible Debenture Purchase Agreement incorporated by
reference to the Form 10-SB filed August 30, 1999.
10.5 Convertible Debenture incorporated by reference to the Form
10-SB filed August 30, 1999.
10.6 Escrow Agreement incorporated by reference to the Form 10-SB
filed August 30, 1999.
10.7 Warrant to Purchase Common Stock incorporated by reference to
the Form 10-SB filed August 30, 1999.
10.8 Computation per share earnings in financial statements
incorporated by reference to the Form 10-QSB filed on September
15, 2000.
13 The 10-QSB filed on November 15, 1999
21 Subsidiary is Accord SEG and is Incorporated in Arizona
23.1 Consent of King Webber and Associates, independent certified
public accountants as incorporated by reference to the
Form 10-KSB filed on March 31, 2000.
23.2 Consent of Robson Ferber Frost Chan & Essner, LLP. Included in
Exhibit 5.1.
27 Financial Data Schedule incorporated by reference to the Form
10-QSB filed on September 15, 2000.
----------
* Filed herewith
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a0 (3) of the
Securities Act of 1933 (the Securities Act)
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the Registration Statement; and
(iii) include any additional or changed material information on the
plan of distribution.
(2) That, for determining liability under the Securities Act, each such
post-effective amendment shall be treated as a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To file a post-effective amendment to remove from registration any of
the securities being registered that remain unsold at the termination
of the offering.
In so far as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding)is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedence, submitted to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Tempe
State of Arizona on 25th of September 2000.
Accord Advanced Technologies, Inc.
By: /s/ Travis Wilson
------------------------------------
Travis Wilson, Director and President
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Travis Wilson and Carl P. Ranno and each of them
(with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated
By: /s/ Carl P. Ranno Date September 25, 2000
------------------------------------
Carl P. Ranno Director and Secretary
By: /s/ Rochelle Witharana Date September 25, 2000
------------------------------------
Rochelle Witharana Controller
