UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: July 31, 2000 Commission File Number: 0-30783
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ACT INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Nevada 87-06263223
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4035 South 300 West, #6, Salt Lake City, UT 84107
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(Address of principal executive offices) (Zip Code)
(801) 281-3073
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer/s
classes of common stock as of the last practicable date:
Number of Shares Outstanding
Date At July 31, 2000
---- ----------------------------
Common Stock 16,619,760
<PAGE>
ACT INTERNATIONAL, INC.
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets.............................................. 3
Statements of Operations.................................... 4
Statements of Cash Flows.................................... 5
Notes of Consolidated Financial Statements (Unaudited)...... 6
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations................... 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 11
Signature Page........................................ 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ACT INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
July 31, 2000 October 31, 1999
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CURRENT ASSETS
Cash and Cash Equivalents $ 192,333 $ 1,122
Technology net of accumulated amortization
Of $37,875 429,250 467,125
---------- ----------
Total Assets $ 447,767 $ 468,247
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Related party payable $ -- $ 12,480
Commitments -- --
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value;
5,000,000 shares authorized,
no shares issued and outstanding
Common Stock, $.001 par value;
100,000,000 shares authorized
16,619,760 issued and outstanding 16,619 15,862
Additional Paid-in Capital 3,046,036 1,794,343
Accumulated Deficit (2,614,888) (1,354,438)
---------- ----------
Total Stockholders' Equity 447,767 455,767
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 447,767 $ 468,247
========== ==========
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
3
<PAGE>
<TABLE>
<CAPTION>
ACT INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months January 8,
Ended 1999 (Date of July 31, 2000
July 31, Inception) to Cumulative
2000 October 31, Amounts
(Unaudited) 2000 (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE $ -- $ -- $ --
General and administrative expenses (1,260,450) 1,354,438 (2,614,888)
------------ ------------ ------------
Loss before income taxes (1,260,450) (1,354,438) (2,614,888)
Income tax benefit -- -- --
------------ ------------ ------------
Net loss $ (1,260,450) $ (1,354,438) $ (2,614,888)
------------ ------------ ------------
Loss per share - basic and diluted $ -- $ -- $ (0.17)
------------ ------------ ------------
Weighted average common shares
Outstanding 16,214,000 15,670,000 15,915,000
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
ACT INTERNATIONAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months 1999 (Date July 31
Ended of Inception) 2000
July 31, to Cumulative
2000 October 31, Amounts
(Unaudited) 1999 (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,260,450) $(1,354,438) $(2,614,888)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization expense 37,875 37,875 75,750
Issuance of common stock for services 849,375 159,805 1,009,180
Stock option compensation expense -- 763,000 763,000
Increase (decrease) in accounts payable (12,480) 12,480 --
----------- ----------- -----------
Net Cash Used By Operating Activities (385,680) (381,278) (766,958)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES: -- -- --
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash - net 403,075 382,400 785,475
----------- ----------- -----------
Net Increase in Cash 17,395 1,122 18,517
Cash, beginning of period 1,122 -- --
----------- ----------- -----------
Cash, end of period, $ 18,517 $ 1,122 $ 18,517
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ACT INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
Organization
------------
American Coating Technologies, Inc. (The Company) was incorporated in the State
of Nevada on January 8, 1999 for the purpose of developing business
opportunities by licensing its patented low-temperature Plasma Arc Deposition
technology in semiconductor, medical, optical and industrial tool applications
and to pursue further research and patent processes.
In accordance with SFAS No. 7, the Company is considered to be in the
development stage. The Company is devoting substantially all of its efforts to
establishing a new business. No principal operations have commenced and no
significant revenues have been derived from operations.
Unaudited Financial Statements
------------------------------
In the opinion of Company's management, the accompanying unaudited financial
statements contain all normal recurring adjustments necessary to present fairly
the Company's financial position for the interim period. Results of operations
for the nine months ended July 31, 2000 are not necessarily indicative of
results to be expected for the full fiscal year ending October 31, 2000.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for annual financial statements.
Although the Company believes that the disclosures in these unaudited financial
statements are adequate to make the information presented in the interim periods
not misleading, certain information and footnote information normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission, and these financial
statements should be read in conjunction with the Company's audited annual
financial statements.
Concentration of Credit Risk
----------------------------
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Cash and Cash Equivalents
-------------------------
For purposes of this statement of cash flows, cash includes all cash and
investments with original maturities to the Company of three months or less.
Technology
----------
The technology consists of costs to acquire all legal rights to the patents of
the technology in use by the Company. Technology is amortized over a five year
period.
Income Taxes
------------
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting.
6
<PAGE>
Loss Per Share
--------------
The computation of basic earnings per common share is based on the weighted
average number of shares outstanding during the period.
The computation of diluted earning per common share is based on the weighted
average number of shares outstanding during the period plus the common stock
equivalents which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the period. Common stock equivalents are not included in the
diluted earnings per share calculation when their effect is antidilutive.
Use of Estimates in Financial Statements
----------------------------------------
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.
Actual results could differ from those estimates.
Note 2. Going Concern
The accompanying financial statements have been prepared on a going-concern
basis, which contemplates profitable operations and the satisfaction of
liabilities in the normal course of business. As shown in the statement of
operations, the Company has had no revenue from operations and reported a net
loss for the period ended October 31, 1999. These uncertainties raise
substantial doubt about the ability of the Company to continue as a going
concern.
The Company's continuation as a going concern is dependent upon its ability to
satisfactorily meet its debt obligations through securing adequate new financing
or generating sufficient cash flows from operations. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
Management has entered into a plan where it is pursuing other financing and
searching for additional business opportunities. It is not known if the Company
will be successful.
Note 3. Income Taxes
The benefit for income taxes is different from amounts, which would be provided
by applying the statutory federal income tax rate to loss before benefit for
income taxes, for the following reasons:
Federal income tax benefit at statutory rate $ 460,000
Change in valuation allowance (460,000)
---------
$ --
=========
Deferred tax assets (liabilities) consist of the following:
Net operating loss carryforward $ 460,000
Valuation allowance (460,000)
---------
$ --
=========
7
<PAGE>
At October 31, 1999, the Company has a net operating loss carryforward available
to offset future taxable income of approximately $1,350,000 which will begin to
expire in 2019. The utilization of the net operating loss carryforward is
dependent upon the tax laws in effect at the time the net operating loss
carryforward can be utilized. The Tax Reform Act of 1986 significantly limits
the annual amount that can be utilized for this carryforward as a result of a
change in ownership.
Note 4. Related Parties.
The Company has a payable due to an officer/shareholder in the amount of
$12,480. The payable is unsecured, non-interest bearing, and has no specific
repayment terms.
The Company has entered into consulting agreements with certain
officers/shareholders. The agreements require aggregate mandatory monthly
consulting fees of approximately $18,000. As of October 31, 1999 the Company had
paid approximately $81,000 under the terms of these agreements. No amounts are
due under these agreements at October 31, 1999.
The Company has entered into an Agreement with certain shareholders which
requires the Company to pay royalties of approximately 5% of gross revenues
generated from use of the Company's technology. No amounts were due or paid
during the period from January 8, 1999 (date of inception) to October 31, 1999.
This agreement also contains certain shareholder anti-dilution provisions until
the Company obtains approximately $2,000,000 in equity financing.
Note 5. Supplemental Cash Flow Disclosure.
During the period ended October 31, 1999:
- The Company did not pay any amounts related to interest and income taxes.
- The Company issued 15,300,000 shares of common stock in exchange for
technology valued at $505,000
Note 6. Preferred Stock.
The preferred stock consists of 5,000,000 shares with $0.001 par value. Upon any
dissolution or liquidation, the holders of preferred stocks shall be entitled to
receive out of the assets of the Company, the sum initially paid per share and
any dividend declared or unpaid before any payment shall be made or any assets
distributed to the common stock shareholders. All other rights and privileges
are to be determined upon an issuance of the preferred stock.
8
<PAGE>
Note 7. Stock Options.
The Company has granted stock options to certain officers, employees and
consultants of the Company to purchase shares of the Company's common stock. A
schedule of the options as of October 31, 1999 is as follows:
Exercise
Number of Price per
Options Share
---------------------------------
Outstanding at January 8, 1999
(date of inception)
Granted 1,335,000 $.0003 - .67
Exercised (270,000) .0003 - .67
Expired (630,000) .67
Canceled (435,000) .003
---------------------------------
Outstanding at October 31, 1999 --
=================================
Statement of Financial Accounting Standards No, 123, "Accounting for Stock-Based
Compensation" (SFAS 123) gives entities the choice between adopting a fair value
method or continuing to use intrinsic value method under Accounting Principles
Board (APB) Opinion No. 25 with footnote disclosures of the pro forma effects if
the fair value method has been adopted. The Company has opted for the latter
approach. During the period ended October 31, 1999, the options granted had no
value as computed under the requirements of SFAS 123 and, therefore, there would
be no pro forma effect on the operations.
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:
Expected dividend yield $ --
Expected stock price volatility --
Risk-free interest rate 5%
Expected life of options 6 months
========
Note 8. Fair Value of Financial Instruments
The Company's financial instruments consist of cash and payables. The carrying
amount of cash and payables approximates fair value because of the short-term
nature of these items.
Note 9. Subsequent Events.
In December 1999, the Company entered into an employment agreement with an
employee which expires December 2003. The agreement provides the employee with a
monthly base salary, business expense reimbursement, and eligibility for : 1) a
performance bonus; 2)stock options; and 3) other benefit programs offered by the
Company.
On June 15, 2000, the Company's shareholders approved a 3 for 1 forward stock
split. All references in the financial statements to the number of shares and
per share amounts have been retroactively restated to reflect the increased
number of shares outstanding.
During the nine months ended July 31, 2000 the Company issued approximately
248,000 shares of common stock for approximately $403,000 cash, net offering
costs in a private placement.
Item 2. Management's Discussion and Analysis or Plan of Operation.
The Company includes certain estimates, projections and other forward-looking
statements in its reports, presentations to analysts and others and other
material disseminated to the public. There can be no assurance as to future
performance and actual results may differ materially from those in the
forward-looking statements. Factors that could cause actual results to differ
materially from estimates or projections contained in forward-looking statements
include: (i) the effects of vigorous competition in the markets in which The
Company operates; (ii) the cost of entering new markets necessary to provide
products and services; (iii) the impact of any unusual items resulting from
ongoing evaluations of the Company's business strategies; (iv) unexpected
results of litigation filed against the Company: and (v) such risks and
uncertainties as are detailed from time to time in the Company's public reports,
including this Report.
9
<PAGE>
In addition to the factors described above, factors that may contribute to
future fluctuations in quarterly operating results include, but are not limited
to: (i) the development and introduction of new technologies and processes that
require additional development efforts; (ii) the introduction or enhancement of
products by ACT or its competitors; (iii) changes in the pricing policies of ACT
or its competitors; (iv) the ability of ACT to license its technologies to
licensees capable of penetrating the market and exploiting ACT's technologies in
a profitable manner; (v) increased competition; (vi) technological changes in
the coatings industry; (vii) the ability of ACT and its licensees to timely
develop, introduce and market new products and services; (vii) ACT's quality
control of products and services sold; (viii) market acceptance of new services,
products and product enhancements; (ix) customer order deferrals in anticipation
of new products and product enhancements; (x) ACT's success in expanding its
sales and marketing programs; (xi) personnel changes; and (xii) general economic
conditions.
The Company's future revenues will also be difficult to predict. Accordingly,
any significant shortfall of revenues in relation to management's expectations
or any material delay of technology licensing and customer orders would have an
immediate adverse effect on its business, operating results and financial
condition. As a result of all of the foregoing factors, management believes that
period-to-period comparisons of ACT's results of operations are not and will not
necessarily be meaningful and should not be relied upon as any indication of
future performance.
a. Plan of Operation.
The Company requires additional capital in order to continue its current and
strategic business plans. Initial working capital has been obtained by private
sale of common stock. As of July 31, 2000, the Company had cash remaining of
$18,517. The Company has financed a major part of its operating expenses by
issuing common shares for services. Due to lack of revenues, available cash can
satisfy current expenses for only two to three months while the Company
continues to pursue sufficient financing. The Company will seek additional debt
and equity financing to commence limited operations until any outstanding
warrants or options are exercised, if ever. Revenues, if any, will be utilized
to continue limited operations. The Company hopes to obtain sufficient capital
to commence limited operations by first quarter 2001. If the Company fails to
obtain additional capital, it will abandon its current business plan and pursue
alternative strategies. If a suitable alternative strategy is not available, or
pursued, the Company may not be able to continue any operations, which may
result in a total loss of your investment.
b. Results of Operations
For the period from inception to July 31, 2000, ACT had no revenues. The Company
had a cumulative net loss of $2,614,888 for the same period. ACT had general and
administrative expenses of $2,614,888 which constituted the value of common
stock issued for cash, services related to commencement of operations and stock
option compensation expense.
For the nine month period ended July 31, 2000, ACT had no revenues. The Company
had a net loss of $1,260,450 for the same period. The Company's general and
administrative expenses related to the commencement of operations for the nine
month period ended July 31, 2000 was $292,605.
10
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings.
The Company is party to the following Legal Proceedings:
(a). Brockbank v. American Coating Technologies, Inc.
(1) Name of Court: Third District Court for Salt Lake County, State of Utah
(2) Date Proceedings Began: December 10, 1999
(3) Principal Parties: Stephen W. Brockbank and ACT International, Inc.
(4) Description of Facts: Plaintiff is the former president of ACT and sued
the Company seeking certain stock payments. The Company denied any
liability and asserted counterclaims for breach of fiduciary duty,
conversion of corporate property, embezzlement, fraud and breach of
contract.
(5) Relief Sought: Plaintiff seeks issuance of 300,000 shares of common
stock; Defendant- Counterclaimant seeks damages to be proven at trial,
but believed to be in excess of $150,000.
Item 2 - Changes in Securities
(a). Material Modifications to Common Stock: On June 13, 1999, The Board of
Directors of the Company authorized a three for one forward split of the issued
and outstanding common shares. As a result, all shareholders of the Company as
of June 13, 1999 received three new common shares of the Company in exchange for
each share held by shareholders as of June 13, 1999.
(b). Limitations of Common Stock Rights. No rights related to the common voting
shares of the Company have been materially limited or qualified by the issuance
or modification of any other class of securities.
(c). Sale of Unregistered Securities.
During the incorporation phase of the Company 5.350,000 shares were
issued to four individuals and entities for the purpose of acquiring technology
and patent rights to the diamond coating process being exploited by the Company.
No underwriters were employed for the purpose of acquiring these rights and no
commissions were paid for these initial issuances of common stock..
Immediately after its inception, the Company commenced a private offering
of its securities pursuant to an exemption under Rule 504 of Regulation D as
promulgated by the U.S. Securities and Exchange Commission under the Securities
Act of 1933. As of the date of this report, the Company has raised a total of
$785,475 from 31 non-accredited investors and 4 accredited investors as defined
in Rule 501 of Regulation D. A total of $37,650 was paid in commissions and
finder's fees.
Item 6 - Exhibits and reports in Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACT INTERNATIONAL, INC.
(Registrant)
By /s/ Frederick J. Haydock
----------------------------------
President, and Director
By /s/ David Taylor
----------------------------------
Secretary and Director
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