UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
----------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
COMMISSION FILE NUMBER: 0-30983
ADVANT-E CORPORATION
--------------------
(Name of Small Business Issuer in its Charter)
DELAWARE 88-0339012
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2680 Indian Ripple Rd.
DAYTON, OH 45440
---------------------------------
(Address of principal executive offices)
937-429-4288
---------------------------------
(Issuer's telephone number, including area code)
Name, address and fiscal year of registrant have not changed since last report.
As of October 31, 2003 the issuer had 5,661,002 outstanding shares of Common
Stock, $.001 Par Value.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANT-E CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September December
30, 31,
2003 2002
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 184,256 98,740
Accounts receivable, net 194,855 157,655
Prepaid expenses 20,362 46,817
Deferred income taxes 21,170 40,600
--------- ---------
Total current assets 420,643 343,812
--------- ---------
SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $509,708 at September 30, 2003
and $294,767 at December 31, 2002 530,771 634,956
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $140,120 at September 30, 2003
and $103,460 at December 31, 2002 163,110 171,589
OTHER ASSETS
Deferred income taxes 79,046 79,046
Deposits 6,583 6,583
--------- ---------
85,629 85,629
--------- ---------
Total assets $ 1,200,153 1,235,986
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 59,963 158,320
Accrued interest 74,206 118,025
Other accrued expenses 93,255 49,600
Deferred revenue 114,236 93,893
Bank note payable 8,521 14,097
Convertible subordinated notes payable, net 750,000 729,621
8% demand notes payable to shareholder 45,000 45,000
--------- ---------
Total current liabilities 1,145,181 1,208,556
--------- ---------
LONG-TERM LIABILITIES
Bank note payable, less current maturities - 4,797
--------- ---------
Total liabilities 1,145,181 1,213,353
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; 20,000,000
shares authorized; 5,661,002 issued and
outstanding 5,661 5,661
Paid-in capital 850,459 850,459
Accumulated deficit (801,148) (833,487)
--------- ---------
Total shareholders' equity 54,972 22,633
--------- ---------
Total liabilities and shareholders' equity $ 1,200,153 1,235,986
========= =========
The accompanying notes are an integral part of the financial statements.
ADVANT-E CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
REVENUES
Internet products and services $ 722,411 478,361 1,987,852 1,205,877
Software and license fees 37,454 68,049 136,499 235,220
------- ------- --------- ---------
Total revenues 759,865 546,410 2,124,351 1,441,097
------- ------- --------- ---------
OPERATING EXPENSES
Production 27,191 38,658 86,910 107,543
Salaries and benefits 338,667 281,346 1,108,673 757,057
General and administrative 136,502 132,089 486,032 325,533
Depreciation 13,814 5,889 36,660 20,691
Amortization of software
development costs 75,061 53,282 214,942 111,594
Interest 33,003 97,322 139,365 256,302
------- ------- --------- ---------
Total operating expenses 624,238 608,586 2,072,582 1,578,720
------- ------- --------- ---------
INCOME (LOSS) BEFORE TAXES 135,627 ( 62,176) 51,769 ( 137,623)
INCOME TAXES 27,485 1,200 19,430 8,610
------- ------- --------- --------
NET INCOME (LOSS) $ 108,142 ( 63,376) 32,339 ( 146,233)
======= ======= ========= ========
EARNINGS (LOSS) PER SHARE
Basic $ 0.02 (0.01) 0.01 (0.03)
==== ==== ==== ====
Diluted 0.02 (0.01) 0.01 (0.03)
==== ==== ==== ====
AVERAGE SHARES OUTSTANDING
Basic 5,661,002 5,661,002 5,661,002 5,661,002
========= ========= ========= =========
Diluted 5,908,532 5,661,002 5,745,797 5,661,002
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
ADVANT-E CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 32,339 (146,233)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 36,660 20,691
Amortization of software development costs 214,942 111,594
Deferred income taxes 19,430 8,610
Amortization of note discount resulting
from valuation of warrants and beneficial
conversion features 45,379 180,680
Increase (decrease) in cash arising from
changes in assets and liabilities:
Accounts receivable (37,200) (73,682)
Prepaid expenses 26,455 18,256
Accounts payable (98,357) 12,415
Accrued interest (43,819) 62,708
Other accrued expenses 43,655 43,982
Deferred revenue 20,343 (15,677)
Deposits - ( 6,584)
------- -------
Net cash provided by operating activities 259,827 216,760
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment ( 28,181) ( 69,742)
Software development costs (110,757) (276,901)
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Net cash used in investing activities (138,938) (346,643)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible subordinated notes - 250,000
Payments on convertible subordinated notes ( 25,000) -
Payments on bank loans ( 10,373) (58,115)
------ --------
Net cash provided by (used in)
financing activities ( 35,373) 191,885
------ -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 85,516 62,002
Cash and cash equivalents, beginning of period 98,740 180,679
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 184,256 242,681
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ITEMS
Interest paid $ 137,804 12,759
Non-cash transactions
Fair value of warrants issued with
convertible subordinated notes - 27,500
Value of beneficial conversion feature of
convertible subordinated notes - 52,000
The accompanying notes are an integral part of the financial statements.
ADVANT-E CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Common Stock
----------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- ------ -------- -------- ------
Balance, January 1, 2002 5,661,002 $ 5,661 763,287 (525,953) 242,995
Net loss (307,534) (307,534)
Warrants issued with 10%
convertible subordinated
notes 27,500 27,500
Beneficial conversion
feature of 10% convertible
subordinated notes 52,500 52,500
Beneficial conversion
feature of extension
of 15% convertible
subordinated notes 7,172 7,172
--------- ----- ------- ------- -------
Balance December 31, 2002 5,661,002 5,661 850,459 (833,487) 22,633
Net income 32,339 32,339
--------- ----- ------- ------- ------
Balance September 30, 2003 5,661,002 $ 5,661 850,459 (801,148) 54,972
========= ===== ======= ======= ======
The accompanying notes are an integral part of the financial statements.
ADVANT-E CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Advant-e Corporation and its wholly-owned subsidiary Edict
Systems, Inc. (the "Company").
The statements have been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and the instructions
to Form 10-QSB. Accordingly, they do not include all of the information and
notes to financial statements required by U.S. generally accepted accounting
principles for complete financial statements. In the opinion of management,
the unaudited consolidated financial statements include all adjustments
considered necessary for a fair presentation of financial position, results
of operations, and cash flows for the interim periods.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Results of operations for the three months and for the nine months ended
September 30, 2003 are not necessarily indicative of the results to be
expected for the full year ending December 31, 2003. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements, accounting policies, and financial notes
thereto included in Advant-e Corporation's 2002 Form 10-KSB filed with the
Securities and Exchange Commission.
NOTE 2 - OPERATIONS AND MANAGEMENT'S INTENT
Prior to the quarter ended September 30, 2003, the Company incurred substantial
operating losses. The Company reported net income for the current quarter
ended September 30, 2003, and generated positive cash flow from operations in
the nine-month period ended September 30, 2003 and in the year ended December
31, 2002. This improvement in 2003 results were, in part, due to certain cost
saving initiatives implemented in the third quarter of 2003 that included
modest workforce and salary reductions and reductions in general and
administrative expenses including travel, professional fees and other expenses.
Management believes that current cash and cash equivalents and cash that may
be generated from operations in the ensuing year will be sufficient to meet
the anticipated capital expenditure requirements and cash interest
requirements, provided that the maturity date of certain subordinated notes
is extended, the terms modified, or replacement capital is obtained as
discussed below. Such projections are based on historical trends related to
growth of revenue from existing customers and new customer acquisition, and
anticipated revenue growth from EnterpriseEC. The projections also include
anticipated cash requirements to provide continuing customer support,
installation, sales and marketing, product development and enhancement,
and general overhead.
To achieve these projections, the Company anticipates the need to maintain
existing capital levels. The Company has completed negotiations with most
holders of its convertible subordinated notes, and is currently negotiating,
with certain other holders of its subordinated notes to obtain extensions of
the due dates of the notes, which were primarily due in the third quarter of
2003 or which are due in the fourth quarter of 2003. Substantially all of
the note holders agreed to extend the maturity dates of their notes to January
5, 2004 provided the Company pays all accrued interest before due dates ranging
from September 22, 2003 to December 17, 2003. The Company, to date, has made
all such interest payments. Those interest payments were contemplated in the
Company's cash flow projections. Management also expects that, if the
Company's financial and operating results in the last two quarters of 2003 are
satisfactory to the note holders, some, if not all, of the note holders will
further extend the maturity dates, convert the notes into the Company's common
stock pursuant to the note agreements, or modify the terms of the notes.
In addition, the Company is pursuing additional sources of capital to replace
the convertible subordinated notes in the event that the note holders request
payment.
Any projections of future cash needs and cash flows are subject to substantial
uncertainty.
NOTE 3 - INCOME TAX BENEFIT
Income tax benefits consist solely of deferred tax benefits.
The following is a reconciliation of income taxes to the amount computed at the
statutory rate of 34% for the nine months and three months ended September 30,
2003:
Nine months ended
September 30, 2003
------------------
Income taxes at expected statutory rate $ 17,601
Amount attributable to lower rates used
to calculate deferred income tax assets and
expected to apply when tax benefits are
realized, and state income taxes (13,599)
Non-deductible interest on debt discount
amortization 15,428
------
Income taxes applicable to income
before taxes 19,430
======
Three months ended
September 30, 2003
------------------
Income taxes at expected statutory rate 46,113
Amount attributable to lower rates used
to calculate deferred income tax assets and
expected to apply when tax benefits are
realized, and state income taxes (19,238)
Non-deductible interest on debt discount
amortization 610
------
Income taxes applicable to income
before taxes $ 27,485
======
The net deferred tax asset arises principally from net operating loss
carryforwards, capitalization of software development costs (net of
accumulated amortization) for financial reporting purposes that have been
charged to expenses when incurred for income tax purposes, and use of the
cash basis for income tax purposes.
Management has recognized no valuation allowance for the net deferred tax asset
because it believes that it is more likely than not that future taxable income
will result in realization of such assets. This amount, however, could be
reduced in the near term if estimates of future taxable income during the net
operating loss carryforward period are reduced. The Company's net operating
loss carryforwards, of approximately $1.0 million, begin to expire in 2020.
NOTE 4 - EARNINGS (LOSS) PER SHARE
The reconciliation of the numerators and denominators of the basic and diluted
earnings per share calculations for the nine months and the three months ended
September 30, 2003 follows:
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Nine months ended
September 30, 2003
----------------------------------
Basic Earnings Per Share:
Net income available to common
shareholders 32,339 5,661,002 0.01
Effect of dilutive securities:
Warrants attached to convertible
subordinated notes - 84,795 0.00
Diluted earnings per share:
Net income available to common
shareholders plus assumed
exercise of warrants 32,339 5,745,797 0.01
Three months ended
September 30, 2003
---------------------------------
Basic Earnings Per Share:
Net income available to common
shareholders 108,142 5,661,002 0.02
Effect of dilutive securities:
Warrants attached to convertible
subordinated notes - 245,397 -
Warrants granted in exchange for
services - 2,133 -
Diluted earnings per share:
Net income available to common
shareholders plus assumed
exercise of warrants 108,142 5,908,532 0.02
In both the three-month and the nine-month periods ended September 30, 2003 the
beneficial conversion features of the Company's convertible subordinated notes
are excluded from the calculation of diluted earnings per share because the
effects are antidilutive.
In both the three-month and the nine-month periods ended September 30, 2002
the numerator and the denominator used in the calculation of diluted
earnings (loss) per share are the same as those used in the calculation of
basic earnings (loss) per share. This occurs because the exercise prices of
the warrants attached to the Company's convertible subordinated notes and the
exercise price of warrants to purchase 20,000 shares issued in 2001 in
exchange for services are greater than the average market price of the
Company's shares during both periods, and the beneficial conversion features
of the Company's convertible subordinated notes are antidilutive.
NOTE 5 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board in January 2003 issued FASB
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities.
The objective of this interpretation is to provide guidance on how to identify
a variable interest entity (VIE) and determine when the assets, liabilities,
noncontrolling interests, and results of operations of a VIE need to be
included in a company's consolidated financial statements. A company that
holds variable interests in an entity will need to consolidate the entity if
the company's interest in the VIE is such that the company will absorb a
majority of the VIEs expected losses and/or receive a majority of the entity's
expected residual returns, if they occur. FIN 46 also requires additional
disclosures by primary beneficiaries and other significant variable interest
holders. FIN 46 is applicable immediately for variable interest entities
created after January 31, 2003. For variable interest entities created prior
to January 31, 2003, the provisions of FIN 46 are applicable to public
companies no later than the first interim period ending after December 15,
2003. The Company has no such variable interest entities covered by the
provisions of FIN 46. As a result, FIN 46 has no effect on the Company's
financial position or results of operations.
The Financial Accounting Standards Board in April 2003 issued SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
This statement amends and clarifies financial accounting and reporting for
derivative instruments and for hedging activities under FASB Statement No. 133.
This statement clarifies under what circumstances a contract with an initial
net investment meets the characteristic of a derivative, clarifies when a
derivative contains a financing component, amends the definition of an
underlying instrument relative to Guarantees, and amends certain other existing
pronouncements so as to result in more consistent reporting of contracts as
either derivatives or hybrid instruments. The statement is effective,
generally, for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The Company has had no
transactions that are covered by the provisions of SFAS No. 149. As a result,
SFAS No. 149 has no effect on the Company's financial position or results of
operations.
The Financial Accounting Standards Board in May 2003 issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of
Liabilities and Equity." This statement requires that an issuer classify
certain defined financial instruments as liabilities, many of which were
previously classified as equity or between the liabilities section and the
equity section of the statement of financial position. This statement requires
classification as liabilities any financial instruments that are issued in the
form of shares that are mandatorily redeemable; that embody an obligation to
repurchase the issuer's equity shares; that embody an obligation that issuer
must or may settle by issuing a variable number of its equity shares if at
inception the monetary value of the obligation is based on either a fixed
monetary amount, variations in something other than the fair value of the
issuer's equity shares, or variations inversely related to changes in the fair
value of the issuer's equity shares. The statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the
issuance date of this Statement and still existing at the beginning of the
interim period of adoption. The Company has had no transactions that are
covered by the provisions of SFAS No. 150. As a result, SFAS No. 150 has no
effect on the Company's financial position or results of operations.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements, including statements
regarding the expectations of future operations. For this purpose, any
statements contained in this Form 10-QSB that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate," or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors, many of which are not within the Company's
control. These factors include, but are not limited to, economic conditions
generally and in the industries in which the Company may participate,
competition within chosen industry, including competition from much larger
competitors, technological advances, and the failure to successfully develop
business relationships. In light of these risks and uncertainties, you are
cautioned not to place undue reliance on these forward looking statements. The
Company acknowledges that the safe harbor contained in the Litigation Reform
Act of 1995 is not applicable to the disclosure in this Form 10-QSB.
This item should be read in conjunction with "Item 1. Financial Statements"
and other items contained elsewhere in this report.
OVERVIEW
The Company, via its wholly-owned subsidiary Edict Systems, Inc. is a provider
of business-to-business ("B2B") electronic commerce ("e-commerce") products and
services, offering comprehensive, standards-based and proprietary solutions for
businesses of all sizes. The Company develops, markets, and supports B2B e-
commerce software products and provides Internet-based communication and e-
commerce data processing services that help businesses process reoccurring
transactions required in the electronic procurement of goods and services and
other B2B relationships.
The Company's software products enable businesses to engage in e-commerce with
one another by allowing companies to fully integrate e-commerce data into their
business infrastructure and operations as well as allowing smaller companies
the ability to manually process electronic transactions.
The Company also provides consultative services for its customers, generally
small and medium-sized suppliers to large buying organizations wherein it acts
as a liaison between the buyers and their suppliers to interface with the buyer
on behalf of the Company's customers. Customers consist of businesses across a
number of industries throughout the United States and Canada.
Revenue recognition policies with respect to Internet-based subscription fees--
The Company recognizes as revenues one-time Account Activation Fees ($100 per
new customer), Trading Partner Setup Fees ($50 per partner for web-EDI) and
interconnect Setup Fees ($50 per interconnect) after the Company performs
consultative work required in order to establish the electronic trading
partnership between the customer and their desired trading partner.
The Company recognizes monthly subscription fees of $25 per month per customer
($45 if the Customer does not pay by credit card) upon the completion of one
month of services provided. These fees are non-refundable. The Company
recognizes transaction fees (document processing fees) upon completion of the
processed transactions; these transactions are billed or charged to a
customer's credit card once per month at the end of a monthly period. These
fees are non-refundable and are only billed after services are provided.
Time periods of these web-EDI agreements can be cancelled at any time by
customers with 30-days prior written notice. EnterpriseEC agreements can be
cancelled at any time during the first year with 90-days prior written notice
and in subsequent years with 30-days prior written notice.
Periodically customers do cancel the service, usually because they no longer
need to process EDI documents electronically. Other customers may have their
accounts deactivated for non-payment per the terms of the services agreement.
Such sales returns and allowances are minimal - less than one-half of one per
cent of sales.
Revenues from sales of Formula_One and BCLM software products are recognized
when the software is shipped to the customer. Recurring license and
maintenance fees relating to software products are billed annually and
recognized as revenue ratably as earned over the 1-year license period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Revenues of $759,865 in the third quarter of 2003 (Q3 2003) increased by
$213,455 (39%) over revenues in the third quarter of 2002 (Q3 2002).
Revenues from Internet-based subscription services increased by $244,050
(51%) in Q3 2003. Revenues from software and license fees decreased by
$30,595 (45%) in Q3 2003. The increase in revenues from Internet-based
subscription services and the decline in revenues from software and license
fees reflects the Company's continuing shift of its focus from software sales
to Internet-based subscription services. The increase in Internet-based
revenues reflects the Company's continuing marketing efforts and customer
acceptance of the Company's Internet-based services, primarily web-EDI
concentrated in the grocery industry and EnterprisEC.
Operating expenses of $624,238 in Q3 2003 increased by $15,652 (3%)from Q3
2002. Production expenses decreased by $11,467 (30%) primarily due to
reduced leased software expenses. Salaries and benefits increased by $57,321
(20%) due to additional personnel to improve the effectiveness and efficiency
of our product development and technical support functions, salary increases
for key personnel, commission increases for key sales personnel and less
development costs capitalized; these increases were partially offset by the
Company's cost-cutting measures initiated in July 2003 and by personnel
reductions.
General and administrative expenses increased by $4,413 (3%) due primarily
to increased costs of the Company's newly leased (beginning October 1, 2002)
general offices and expenses associated with non-compete agreements; these
increases were partially offset by reduced professional services resulting from
the Company's cost reduction measures initiated in July 2003. Depreciation
expense increased by $7,925 (134%) due primarily to the Company's capital
expenditures in the fourth quarter of 2002 to increase its computer processing
capacity and to purchase furniture and equipment for the Company's newly leased
offices. Amortization of software development costs increased by $21,779 (41%)
due primarily to amortization of EnterpriseEC software development costs which
did not begin until mid-third quarter in 2002. Interest expense decreased by
$64,319 (66%) because the discount related to the 15% convertible subordinated
notes issued in 2001 was substantially amortized to expense in 2002.
The income tax expense of $27,485 in Q3 2003 is computed at an approximate
effective tax rate of 20%--the rate at which deferred tax assets are expected
to be realized. Income tax expense of $1,200 in Q3 2002 reflects the effect of
the non-deductibility for income tax purposes of the non-cash interest expense
associated with the convertible subordinated notes issued in 2001 and 2002.
The Company reports net income in Q3 2003 of $108,142 compared to the net loss
in Q3 2002 of $63,376.
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND JUNE 30, 2003
Shown below are comparative results of operations for the quarters ended
September 30, 2003 and June 30, 2003:
Three Months Ended
September 30, June 30,
2003 2003
---- ----
REVENUES
Internet products and services $ 722,411 655,497
Software and license fees 37,454 59,611
------- -------
Total revenues 759,865 715,108
------- -------
OPERATING EXPENSES
Production 27,191 31,981
Salaries and benefits 338,667 383,541
General and administrative 136,502 163,410
Depreciation 13,814 13,510
Amortization of software
development costs 75,061 71,617
Interest 33,003 53,076
------- -------
Total operating expenses 624,238 717,135
------- -------
INCOME (LOSS) BEFORE TAXES 135,627 ( 2,027)
INCOME TAXES 27,485 3,952
------ -------
NET INCOME (LOSS) $ 108,142 ( 5,979)
======= =======
Revenues in Q3 2003 increased by $44,757 (6%) over revenues in the second
quarter of 2003 (Q2 2003). Revenues from Internet-based subscription services
increased by $66,914(10%). Revenues from software and license fees decreased
by $22,157 (37%). The increase in revenues from Internet-based
subscription services (primarily from grocery industry web-EDI and
EnterpriseEC) and the decline in revenues from software and license
fees reflects the Company's continuing shift of its focus from software
sales to Internet-based subscription services.
Total operating expenses in Q3 2003 decreased by $92,897 (13%) from Q2 2003
due in large part to reductions in expenditures from the Company's cost
reduction initiatives beginning July 2003. These initiatives included
personnel reductions in development, customer service and sales, across the
board payroll salary reductions, adoption of a lower cost health care plan
together with increased employee contribution to its cost, reduced reliance on
outside consultants for marketing and promotion, reductions in legal and
accounting professional services, and reduced travel and entertainment.
Interest expense declined because debt discount related the valuation of
warrants and beneficial conversion features of the 10% convertible subordinated
notes was fully charged to expense in Q2 2003.
The income tax expense of $27,485 in Q3 2003 is computed at an approximate
effective tax rate of 20%--the rate at which deferred tax assets are expected
to be utilized. Income tax expense of $3,952 in Q2 2003 reflects the effect
of the non-deductibility for income tax purposes of the non-cash interest
expense associated with the convertible subordinated notes.
The Company reports net income in Q3 2003 of $108,142 compared to the net loss
in Q2 2003 of $5,979.
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Revenues in the first nine months of 2003 increased by $683,254 (47%) over
revenues in the first nine months of 2002. Revenues from Internet-based
subscription services increased by $781,975 (65%). Revenues from software and
license fees decreased by $98,721 (42%). The increase in revenues from
Internet-based subscription services (primarily from grocery industry web-EDI
and EnterpriseEC) and the decline in revenues from software and license fees
reflects the Company's continuing shift of its focus from software sales to
Internet-based subscription services.
Operating expenses increased by $493,862 (31%). Salaries and benefits
increased by $351,616 (46%) due to additional personnel to maintain and support
our Internet-based subscription services; to improve the effectiveness and
efficiency of our product development and technical support functions; for
salary increases for key personnel; and ratably less development cost
capitalized. These increases were partially offset by personnel reductions.
General and administrative expenses increased by $160,499 (49%) due to
increased costs associated with marketing web-EDI and EnterpriseEC services,
increased costs of the Company's new general offices, and expenses related to
non-compete agreements. Depreciation expense increased by $15,969 (77%)
resulting primarily from the Company's capital expenditures in the fourth
quarter of 2002 to increase its computer processing capacity and to purchase
furniture and equipment for the Company's newly leased offices. Amortization
of software development costs increased by $103,348 due primarily to
amortization of EnterpriseEC software development costs. Interest expense
decreased by $116,937 because the discount related to the 15% convertible
subordinated notes was substantially amortized to expense in 2002 and the
discount related to the 10% convertible subordinated notes was fully-amortized
to expense at the end of the second quarter of 2003.
Interest expense in the first nine months of 2003 included $45,379 in non-cash
charges associated primarily with the issuance of warrants and the beneficial
conversion feature of the convertible subordinated notes issued in 2002.
The income tax expense of $19,430 in 2003 is computed at an approximate
effective tax rate of 20%--the rate at which deferred tax assets are expected
to be utilized. Income tax expense of $8,610 in 2002 reflects the effects of
the non-deductibility for income tax purposes of the non-cash interest expense
associated with the convertible subordinated notes issued in 2001 and 2002.
The Company reports net income in the nine months ended September 30, 2003 of
$32,339 compared to the net loss in the nine months ended September 30, 2002 of
$146,233.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The following table sets forth the cost and accumulated amortization of the
products comprising the Software Development Costs asset at September 30, 2003:
Accumulated
Product Cost Amortization Net
------- ---- ------------ ---
GroceryEC (Web EDI) 428,260 310,228 118,032
Web EDI enhancements 141,558 22,983 118,575
EnterpriseEC 470,661 176,497 294,164
------- ------- -------
Total $1,040,479 509,708 530,771
========= ======= =======
GroceryEC (WebEDI) is currently generating cash flow and is the Company's
largest and primary source of revenue. Sales of EnterpriseEC continue to grow
in 2003. Based on our current marketplace analysis and marketing efforts we
expect EnterpriseEC product revenues and cash flows to continue to increase.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the quarter ended September 30, 2003, the Company incurred substantial
operating losses. The Company reported net income for the current quarter
ended September 30, 2003, and generated positive cash flow from operations in
the nine-month period ended September 30, 2003 and in the year ended December
31, 2002. This improvement in 2003 results were, in part, due to certain cost
saving initiatives implemented in the third quarter of 2003 that included
modest workforce and salary reductions and reductions in general and
administrative expenses including travel, professional fees and other expenses.
Management believes that current cash and cash equivalents and cash that may
be generated from operations in the ensuing year will be sufficient to meet
the anticipated capital expenditure requirements and cash interest
requirements, provided that the maturity date of certain subordinated notes
is extended, the terms modified, or replacement capital is obtained as
discussed below. Such projections are based on historical trends related to
growth of revenue from existing customers and new customer acquisition, and
anticipated revenue growth from EnterpriseEC. The projections also include
anticipated cash requirements to provide continuing customer support,
installation, sales and marketing, product development and enhancement,
and general overhead.
To achieve these projections, the Company anticipates the need to maintain
existing capital levels. The Company has completed negotiations with most
holders of its convertible subordinated notes, and is currently negotiating,
with certain other holders of its subordinated notes to obtain extensions of
the due dates of the notes, which were primarily due in the third quarter of
2003 or which are due in the fourth quarter of 2003. Substantially all of the
note holders agreed to extend the maturity dates of their notes to January 5,
2004 provided the Company pays all accrued interest before due dates ranging
from September 22, 2003 to December 17, 2003. The Company, to date, has made
all such interest payments. Those interest payments were contemplated in the
Company's cash flow projections. Management also expects that, if the
Company's financial and operating results in the last two quarters of 2003 are
satisfactory to the note holders, some, if not all, of the note holders will
further extend the maturity dates, convert the notes into the Company's common
stock pursuant to the note agreements, or modify the terms of the notes.
In addition, the Company is pursuing additional sources of capital to replace
the convertible subordinated notes in the event that the note holders request
payment.
Any projections of future cash needs and cash flows are subject to substantial
uncertainty.
CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 2002 TO SEPTEMBER 30, 2003
Accounts receivable at September 30, 2003 increased by $37, 200 (24%),
reflecting the Company' s growth in revenues in 2003. Software development
costs decreased by $104,185 as additions of $110,757 were more than offset by
amortization of those costs of $214,942. The Company amortizes its software
development costs using the straight-line method over three years.
The Company produced $259,827 cash from operations in the nine months ended
December 31, 2003. As a result, during that period the Company reduced its
accounts payable by $98,357, reduced accrued interest by $43,819 primarily
resulting from payments of $129,084 to the holders of the Company's convertible
subordinated debt net of additional interest expense on those notes of $86,063,
and increased its Cash balance at September 30, 2003 by $85,516.
Other accrued expenses, which consists primarily of salaries, payroll taxes,
and property taxes, increased by $43,655 due primarily to the timing of the
final payrolls in the quarter. Deferred revenue increased $20,343 as the
Company received prepayments from two customers for future services of $46,041,
which were offset by reduced deferred license fees of $25,698. The balance of
deferred license fees is expected to continue to decline due to the Company's
continuing shift of its focus from software sales, including resulting license
fees for the use of the software, to Internet-based subscription services.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board in January 2003 issued FASB
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities.
The objective of this interpretation is to provide guidance on how to identify
a variable interest entity (VIE) and determine when the assets, liabilities,
noncontrolling interests, and results of operations of a VIE need to be
included in a company's consolidated financial statements. A company that
holds variable interests in an entity will need to consolidate the entity if
the company's interest in the VIE is such that the company will absorb a
majority of the VIEs expected losses and/or receive a majority of the entity's
expected residual returns, if they occur. FIN 46 also requires additional
disclosures by primary beneficiaries and other significant variable interest
holders. FIN 46 is applicable immediately for variable interest entities
created after January 31, 2003. For variable interest entities created prior
to January 31, 2003, the provisions of FIN 46 are applicable to public
companies no later than the first interim period ending after December 15,
2003. The Company has no such variable interest entities covered by the
provisions of FIN 46. As a result, FIN 46 has no effect on the Company's
financial position or results of operations.
The Financial Accounting Standards Board in April 2003 issued SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
This statement amends and clarifies financial accounting and reporting for
derivative instruments and for hedging activities under FASB Statement No. 133.
This statement clarifies under what circumstances a contract with an initial
net investment meets the characteristic of a derivative, clarifies when a
derivative contains a financing component, amends the definition of an
underlying instrument relative to Guarantees, and amends certain other existing
pronouncements so as to result in more consistent reporting of contracts as
either derivatives or hybrid instruments. The statement is effective,
generally, for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The Company has had no
transactions that are covered by the provisions of SFAS No. 149. As a result,
SFAS No. 149 has no effect on the Company's financial position or results of
operations.
The Financial Accounting Standards Board in May 2003 issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of
Liabilities and Equity." This statement requires that an issuer classify
certain defined financial instruments as liabilities, many of which were
previously classified as equity or between the liabilities section and the
equity section of the statement of financial position. This statement requires
classification as liabilities any financial instruments that are issued in the
form of shares that are mandatorily redeemable; that embody an obligation to
repurchase the issuer's equity shares; that embody an obligation that issuer
must or may settle by issuing a variable number of its equity shares if at
inception the monetary value of the obligation is based on either a fixed
monetary amount, variations in something other than the fair value of the
issuer's equity shares, or variations inversely related to changes in the fair
value of the issuer's equity shares. The statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the
issuance date of this Statement and still existing at the beginning of the
interim period of adoption. The Company has had no transactions that are
covered by the provisions of SFAS No. 150. As a result, SFAS No. 150 has no
effect on the Company's financial position or results of operations.
ITEM 3. CONTROLS AND PROCEDURES
a) Disclosure controls and procedures. The Chief Executive Officer and the
Chief Financial Officer have carried out an evaluation of the effectiveness of
Advant-e's disclosure controls and procedures that ensure that information
relating to Advant-e required to be disclosed by Advant-e in the reports that
it files or submits under the Securities and Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. Based
upon this evaluation, these officers have concluded, that as of September 30,
2003, Advant-e's disclosure controls and procedures were adequate.
b) Changes in internal control over financial reporting. During the period
covered by this report, there were no changes in Advant-e's internal control
over financial reporting that have materially affected, or are reasonably
likely to materially affect, Advant-e's internal control over financial
reporting.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently subject to any legal proceedings. The Company may
from time to time become a party to various legal proceedings arising in the
ordinary course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders of the Company during the third
quarter of the 2003 fiscal year or through the date of filing this report.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Method
Number Description of Filing
-------- ----------- ---------
2 Plan of acquisition, reorganization, arrangement, N/A
liquidation, or succession
3(a)(i) Amended Certificate of Incorporation Previously
Filed*
3(a)(ii) By-laws Previously
Filed**
4.1 Instruments defining the rights of security Previously
holders including indentures Filed*
4.2 Convertible Subordinated Note Previously
Filed***
4.3 Convertible Subordinated Note with warrant to
purchase common shares issued on September Previously
27, 2001 Filed*****
4.4 10% Convertible Subordinated Note Previously
Filed******
10.1 Lease Agreement, dated as of January 1, 2000, Previously
between Jason K. Wadzinski and EDICT Systems, Inc. Filed**
10.2 Stock Purchase Agreement, dated April 10, 2000, Previously
among Twilight Productions, Ltd., Halter Financial Filed**
Group, Inc. and Art Howard Beroff
10.3 Software Term License Agreement, including Previously
Amendment No. 1, dated as of April 18, 2001 Filed****
between Cyclone Commerce, Inc. and Edict Systems
Inc.
10.4 Lease, dated as of July 30, 2002, between Fritz J. Previously
Russ and Dolores H. Russ and Edict Systems, Inc. Filed*******
11 Statement re: computation of per share earnings Filed
Herewith
15 Letter on unaudited interim financial information N/A
18 Letter on change in accounting principles N/A
19 Report furnished to security holder N/A
22 Published report regarding matters submitted N/A
to vote
23 Consent of experts and counsel N/A
24 Power of attorney N/A
31 Certifications Filed
Herewith
32 Certification pursuant to 18 U.S.C. Section 1350, Filed
as adopted pursuant to Section 906 of the Sarbanes- Herewith
Oxley Act of 2002
* Filed with Amendment No. 2 to Form 10-SB filed as of October 13, 2000
** Filed with Amendment No. 1 to Form 10-SB filed as of July 17, 2000
*** In substantially the form filed with Form 10-QSB for the quarter ended
March 31, 2001 filed as of May 9, 2001
**** Filed with Form 10-QSB for the quarter ended June 30, 2001 filed as of
August 14, 2001
***** In substantially the form filed with Form 10-QSB for the quarter ended
September 30, 2001 filed as of November 14, 2001
******In substantially the form filed with Form 10-QSB for the quarter ended
September 30, 2002 filed as of December 16, 2002
*******In substantially the form filed with Form 10-QSB for the quarter ended
March 31, 2003 filed as of May 14, 2003
(b) Reports on Form 8-K
The Company filed Form 8-K on July 24, 2003 to announce that on the same date
the Company issued a press release announcing its financial results for the
quarter ending June 30, 2003 and for the six months ending June 30, 2003. The
press release included the Company's Consolidated Balance Sheets at June 30,
2003 and December 31, 2002, the Consolidated Statements of Operations for the
three months and the six months ended June 30, 2003 and 2002, respectively, and
the Consolidated Statements of Cash Flows for the six months ended June 30,
2003 and 2002, respectively. The text of the press release including the above
described financial statements was attached as an exhibit to the Form 8-K.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Advant-e Corporation
--------------------
(Registrant)
November 12, 2003 By: /s/ Jason K. Wadzinski
----------------------
Jason K. Wadzinski
Chief Executive Officer
November 12, 2003 By: /s/ John F. Sheffs
----------------------
John F. Sheffs
Treasurer
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Per share earnings are computed and displayed on the Consolidated Statement of
Operations for the nine months and three months ended September 30, 2003 and
2002 and included in Item 1 of this Form.
Average shares used in the computation of per share earnings for the Statement
of Operations presentations include the following shares issued for basic and
diluted per share earnings:
Date and Description # shares # shares
--------------------- ----------------------- ------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Basic:
Outstanding at beginning
of period 5,661,002 5,661,002 5,661,002 5,661,002
Diluted:
Warrants attached to convertible
subordinated notes 245,397 - 84,795 -
Warrants issued for services 2,133 - - -
--------- --------- --------- ---------
5,908,532 5,661,002 5,745,797 5,661,002
========= ========= ========= =========
In both the three month and the nine month periods ended September 30, 2002
the numerator and the denominator used in the calculation of diluted earnings
(loss) per share are the same as those used in the calculation of basic
earnings (loss) per share. This occurs because the exercise prices of the
warrants attached to the Company's convertible subordinated notes and the
exercise price of warrants to purchase 20,000 shares issued in 2001 in
exchange for services are greater than the average market price of the
Company's shares during both periods, and the beneficial conversion features
of the Company's convertible subordinated notes are anti-dilutive.
If the 15% convertible subordinated notes convertible to common shares at $1.06
per share that are outstanding at September 30, 2003 are converted at maturity,
there would be 540,814 outstanding and weighted average common shares included
in the calculation of diluted earnings per share for the nine months and the
three months ended September 30, 2003.
If the 10% Convertible Subordinated Notes convertible to common shares at $1.10
per share that are outstanding at September 30, 2003 are converted at maturity,
there would be 227,462 outstanding and weighted average common shares included
in the calculation of diluted earnings per share for the nine months and the
three months ended September 30, 2003.
If the 15% and the 10% notes are converted at maturity, there would be 909,937
additional outstanding common shares at September 30, 2002, 884,979 additional
weighted average common shares for the three months ended September 30, 2002,
and 732,517 additional weighted average common shares for the nine months ended
September 30, 2002.
Warrants to purchase 20,000 shares of the Company's common stock at $1.48 per
share were outstanding during the nine months and the three months ended
September 30, 2003 and 2002. They were not included in the computation of
diluted EPS in the periods in 2002 because the warrants' exercise price was
greater than the average market price of the common shares during the period
the warrants were outstanding. The warrants are exercisable during the period
from June 25, 2002 to June 25, 2006.
EXHIBIT 31 - CERTIFICATIONS
I, Jason K. Wadzinski, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Advant-e
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the period covered by this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize, and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: November 12, 2003 By: /s/ Jason K. Wadzinski
------------------------
Jason K. Wadzinski
Chief Executive Officer
I, James E. Lesch, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Advant-e
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the period covered by this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize, and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: November 12, 2003 By: /s/ James E. Lesch
------------------------
James E. Lesch
Director of Accounting
EXHIBIT 32 - SECTION 1350 CERTIFICATIONS
Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Advant-e
Corporation (the "Company"), hereby certifies that the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2003 (the "Report")
fully complies with the requirements of Section 13(a) or 15(d), as applicable,
of the Securities Exchange Act of 1934 and that the information contained in
the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Dated: November 12, 2003 By: /s/ Jason K. Wadzinski
------------------------
Jason K. Wadzinski
Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Advant-e
Corporation (the "Company"), hereby certifies that the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2003 (the "Report")
fully complies with the requirements of Section 13(a) or 15(d), as applicable,
of the Securities Exchange Act of 1934 and that the information contained in
the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Dated: November 12, 2003 By: /s/ James E. Lesch
------------------------
James E. Lesch
Director of Accounting