U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For the fiscal year ended December 31, 2011
For the transition period from ___________ to _____________
Commission File Number: 000-53372
(Name of small business issuer as specified in its charter)
Registrant’s telephone number, including area code: (951) 737-1057
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: common stock, $.001 par value
Note – Checking in the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act form their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. Yes [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed fiscal quarter: $28,455,486 based upon 37,441,429 pre-split shares valued at $.76 per share]
Note - If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliate may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of December 31, 2011, there were 9,731,629 shares of our common stock were issued and outstanding.
DOCUMENTS INCORPORATE BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to securities holders for fiscal year ended December 24, 1980).
Item 1. Business
AVT, Inc. is an innovative developer, manufacturer and vending operator of technology based product dispensing solutions and equipment that is in the process of revolutionizing convenience food access and food product dispensing. With extensive experience in the vending machine industry, AVT combines vast market knowledge and strong customer relationships with best-in- class technologies to dramatically improve the values delivered to consumers.
AVT’s designs are innovative and exploit the use of integrated PCs. As a design manufacturer, creator of specialty application software and integrator of technology, our company defines the cutting edge of the vending and dispensing industry. We are positioned us as a leader and industry innovator. We currently have vending systems throughout the Los Angeles, Orange and Riverside, California counties. It is our vending operation experience over the past years that adds a distinctive advantage and contributes to our overall success as a manufacture and leader of technology based vending products
AVT, Inc. is the owner of AC Mexican Food, Inc. dba, Jalapenos. The restaurant is located in a food court of a retail mall at 20532 El Toro Road, #112, Lake Forest, CA 92692. The restaurant offers authentic Mexican food restaurant that operates from mid morning through late evening with the majority of its business being lunch and dinner patrons.
We were originally incorporated under the laws of the State of Delaware on February 25, 1969 as Infodex, Incorporated. In October, 2005, we acquired Automated Vending Technologies, Inc., a Nevada corporation and began focusing our business on vending operations. In December, 2006 we merged our operating wholly owned subsidiary into the parent company and in January of 2008, we changed our state of domicile to the State of Nevada and renamed the company to “AVT, Inc.” We operate in the State of California as “AVT Vending, Inc.”
We have a family of products which are geared towards improving the experience of consumers, establishments, and operators in the convenience food, digital signage and product dispensing industry.
Automated Express Market
We have developed and created our Automated Express Market (AEM™) system which is a Controlled Access Cabinet system. These custom built wood and steel based cabinets are PC based and designated for use in specialized locations such as hotels, Inns, c-stores, malls and retail stores that are limited in the ability to effectively sell and market food, and carry convenience items or higher priced items which are subject to pilfering. The cabinets can be merchandised to dispense more than seventy-two selections including snacks, hot meals, ice cream, alcoholic and non-alcoholic beverages as well as personal amenities such as sunscreen, toothpaste, and brushes. They can also be configured for high ticket items such as cell phones, digital cameras, mp3 players, personal electronic devises and more. The AEM™ system gives the hotel’s customers the convenience of billing directly to their room through touch screen pin technology so they do not have to carry cash or coin to make purchases. The system automatically posts the charge to the guest’s account by utilizing touch screen vending (TSV™) and multi-payment capabilities. AEM™ cabinets have multiple payment options built in that include touch screen payment technology, credit/debit acceptors and smart card readers. We are currently exploring opportunities with many limited service hotel chains in the U.S., a market that totals more than 50,000 establishments as well as c-stores and retail stores and shopping malls.
We have developed a software product called AVTi Media™ which enables an advertising medium (player) to be added to virtually any of AVT designed systems including AEM™ cabinets and all four next generation vending and product dispensing systems. By incorporating AVTi Media, we allow the consumer to view the media, advertising or hotel messaging while they make their selections. AVTi Media can generate advertising revenue for owners and operators in many settings such as conference rooms, hotel lobbies, airport terminals, restaurants, car rental outlets and surgery center waiting rooms. By having vending machines in prominent locations within major companies, the vending operator “owns” the valuable advertising space that can be used to generate advertising revenue through the Digital TV Message Board or (DTVMB) technology. Our Vending Management System software enables the management of machine inventory, repairs, collections and advertising through remote access. VMS™ enables owner/operators to reduce costs and increase profits by enabling real time access to inventory levels, system status, machine service and daily receivables with little to no machine down time.
Vending Management System™ (VMS)
Our VMS systems is another AVT developed software product that allows us to remotely view information for each machine to help plan for daily replenishment, sales statistics and alerts of systems malfunctions to operators as well as defect history for each machine by means of software error log files. This technology increases operational efficiency of vending operations and helps to prevent inventory shrinkage and skimming, both major control issues in the vending industry. A key differentiator relative to the offerings of other established players in the vending machine management space is that our VMS solution works via a DSL line cellular modem or Internet Wi-Fi and be substantially less expensive to own and operate than competing systems that do not use the internet for bi-directional transmission of vending system data. VMS currently holds a Patent pending.
Vend Sensing System (VSS)
We have developed and have a patent pending on our VSS product to provide a surefire solution for detecting all vended items.
The VSS was developed specifically to detect a vending type of product that has dropped from one of the dispensing columns directly above the sensing system and has fallen into the customer delivery bin at the base of the vending system.
The VSS is coupled directly with the vending system control electronics. The VSS circuitry is disabled until the vending system control electronics has received payment. Once payment has been received and the vending system starts the dispensing process, the control electronics enables the VSS circuitry to detect product which has been dispensed and has dropped into the delivery bin below. During this sensing period, the VSS circuitry is only enabled for the time period taken to detect that a vendible product has fallen into the delivery bin.
During the sensing period of time, the VSS circuitry uses an auto-calibrated ultrasonic beam to detect if an object of just about any size, form or shape (designed for detection of any object that can be vended) has fallen into the detectable space of the customer product delivery bin. If an object (vended product) enters the detectable vending space, the VSS circuitry detects the object and in turn sends a “detected” signal to the Control Electronics. If the VSS circuitry does not detect an object has entered the customer delivery bin space within the allotted empirical time frame, the VSS circuitry returns a command signal to the control electronics that a “no vend object detected”. It is the control electronics responsibility to determine the next appropriate action to take.
This invention for product detection provides many distinct and exciting advantages over conventional detection. First and foremost, the VSS is calibrated to “look” across the entire cross-sectional area of the delivery bin. This is a primary advantage over the conventional light beam detection method. The detection system is compatible in cost to that of traditional vending detection systems. The “self calibration mode allows the system to be able to retrofit into other vending systems with minimal modification needed.
Touch Screen Vending (TSV)
TSV (Touch Screen Vending) is our primary flagship application software product. Designed and development by AVT’s software staff several years ago, it is like most of today’s application software, constantly maintained and in continuous refinement, support and development to remain compatible with and competitive with the ever changing PCs environment. Our TSV software product is the primary foundation for ALL of AVT’s touch screen based systems like the RAM 4000 and RAM 5000 to name a few. This application software is modular by design allowing extreme flexibly by our customers allowing them to have a product that is capable providing the system owner a specific “look and Feel” coupled with dispensing their own specific products via the customizable GUI interface.
Kiosk/ Game Trader Systems
In addition to our vending machines, we have incorporated a line of computer and technology based kiosk systems. These kiosks will be deployed in conjunction with our vending systems as well as being sold as self service or control center kiosks systems. All kiosks have the ability to be fitted with digital signage which runs our media software products to be come a part of AVTi Media Network. AVT engineered the Game Trader machine that will allow customers to buy video games as well as trade used games in for cash.
Our Media Product Technology effort is focused n the design and enhancement of our AVTi Media products. The AVTi Media products are integrated into our base systems and also sold to other vending manufactures.
• AVTi Media Administer: This program is designed to manage and administer all aspects and features of our digital signage program. The Media Administrator allows a remote operator to create, manage, update and scheduled ads that will play on LCD displays which have been integrated into vending systems.
• AVTi Media Client: This program is designed be located on the vending system’s integrated PC and has the priority of playing the ad “play list.” This client software also uses prescheduled times to monitor the server to “update” the playlist as required.
• AVTI Media Server: This is a server based program which coordinates the efforts, changes and directives from the administrator program with the schedule efforts of all the multiple clients located in the field and connected via the internet. Our secondary fabrication and design efforts run concurrently with our primary efforts to support ongoing systems and to develop new products. These products are summarized as follows:
• TSV: Touch Screen Vending is an ongoing software development effort which is our primary flagship software product. This modular program is designed to evolve with the changing technologies supporting our vending and dispensing products.
• IVend: This is an ongoing development design that features a high-end dispensing center cabinet, a creative front door design which includes interactive touch screens and a variety of other supported hardware. The IVend also has its own software application program which is designed to provide a high degree of interactive and intuitive application to the user.
• Tech Store: This system is similar to our IVend system designed for middle priced systems.
• Vend Mart: This system is similar to our IVend system designed for entry level priced systems. The Vend Mart also has its own software application program, designed to provide a high degree of interactive and intuitive application to base line vending systems equipped with TSV.
In additional, we have a variety of ongoing hardware and software R&D projects which are at various stages of development. The following is a brief list of some of our non-confidential R&D efforts:
The expense of complying with environmental regulations is of minimal consequence.
Multimedia System, Method for Controlling Vending Machines
Serial Number 11-588,422
(Filed: October 27, 2006)
Conventional control of vending systems is typically done by using a system control board consisting of a PWB (printed circuit board) and a microcontroller supported by a group of discrete electronic components. These system components are used to control the various system functions of a vending machine i.e. spinning of auger motors, control of bill and coin acceptors, LED display feed back etc.
Our invention of Touch Screen Vending or TSV has redefined the conventional method of vending machine control. TSV empowers the use of a multimedia PC and a color touch LCD display to virtually control the complete operation of the vending machine. The PC stores a data base software program containing all desired products to vend with an associated color digital image of each item. A second application program displays the color image of the intended items to vend in the exact format as seen through the glass front of the vending machine. The PC also controls the collection of currency (i.e. bill acceptor, coin acceptor, credit card reader) in place of the vending machines control board. I/O (input/output) ports from the PC are used to interface to the vending machine control board and all aspects of operation of the vending machine is under complete control by a multimedia PC coupled with the touch screen LCD.
This invention for the control of vending machines provides many distinct and exciting advantages over conventional control such as the universal language of using a touch display to select desired products to vend in place of an alphanumeric keypad. The system can generate virtually any type of report to combat money or product shrinkage while providing exact control of inventory. The LCD provides a means of generating additional revenue through advertising displayed products or other services while the system in idle mode.
Vend Operating System
Claims to be amended to the Multimedia System, Method for
Controlling Vending Machines – Serial Number 11-588,420
(Filed: October 27, 2006)
Our Vend Operating System (Vend OS) is a next generation vending and product dispensing system utilizing a personal computer (PC) to drive the system components and utility software. The uniqueness in the system is based on our vending system, and uses a PC to control the vending system. The prior art in the vending industry typically uses discrete component controllers for overall system operation and control.
Our Vend OS is broken up into two sections hardware and software. The hardware consists of the following devices: Virtual Sensing System (VSS), a USB Omni-pattern scanner, a USB Magtek Card Reader, a USB Pyramid Bill Acceptor, a MDB Coinco coin machine, a 7 inch LCD screen built-in with the Nano-ITX PC, and a portable mpeg player (allowing static media files to play in a continuous loop). The software consists of the following applications: Vending Management System (VMS), Touch Screen Vending (TSV) and AVTI Digital Signage Media.
Our Vend OS is extremely flexible regarding capabilities, because the product is installed in base systems without any peripheral devices; and includes a Nano-ITX computer with freeware developed by our engineering department running as a Windows’ service allowing vending by conventional methods. This freeware allows sales data and records to be stored in a secure database and has the capability of manipulating a machine’s state remotely through internet connectivity, memory stick, cell modem or phone line.
With our Vend OS we can: manipulate product prices; turn the machine off and on, turn the compressor off and an, manipulate the change returned, manipulate the system clock, and read the machine’s state from the MDB interface and motor/auger control.
Our Nano-ITX computer includes an optional 7” touch wide screen LCD, a flash ROM that runs Microsoft Embedded System, a MDB to RS-232 interface board that connects from a VMC board to the PC serial port, motor driver printed circuit board and a PCMCIA modem that allows wireless internet connection as a typical system but control for any variety of input or out put devices are part of the scalable system.
The effects of existing or probable government regulations are minimal.
The Company currently has approximately 25 full time employees and 5 part-time employees. We also allow and utilize the services of independent contractors.
Vending Machine Manufacturing, Sales and Placements
We currently manufacture next generation refrigerated and high capacity snack machines as well as standard and customized product dispensing systems. These machines have been designed to meet or exceed our specific performance specifications and give us the ability to minimize costs traditionally associated with purchasing new equipment. The manufacturing of our own equipment also allows us to incorporate our technology into the systems during at the time of production reducing the costs associated with retrofitting units. We sell these systems directly to distributors, vending operators and end users located primarily throughout the United States, Canada and Mexico. We believe that we are currently the only manufacturing entity with this capability in the vending industry, giving us a tremendous lead and advantage over our competition.
The major competitive advantages of AVT’s next generation machines is they all have the capability of being configured with an integrated PC with customized AVT software.
The integrated PC allows for a variety of additional functions which include but are not limited to, cashless vending, remote sales management and media advertising for creating additional revenue through the sale and display of advertising play loops.
The feature of playing multiple looping advertisements yields the possibility of adding additional stream of revenue which may exceed that of the sales of vended product. Another significant advantage is the ability to plug into a standard 120 VAC household power outlet. As an operator, AVT’s experience is that the unit price of a machine and sometimes the required 220VAC circuits for the units represent major constraints to growth of a vending company.
Our next generation machines will cut machine acquisition cost by greater than 50% and eliminate expensive power outlet upgrades for establishments and operators, thereby increasing placement and sales opportunities. Through the design and manufacturing of vending and product dispensing systems using new technologies, we have become a vendor of equipment for the entire gamut of food and high priced consumer electronics and dispensed items. Our company can produce machines that are far less expensive, are less power demanding and have multi-pay options that far exceed the traditional market standard. As a result, we have the opportunity to grow both the mainstream and the specialty segment of the vending machine manufacturing and operations business, We also have the opportunity a major equipment provider to other distributors, all without a heavy capital investment.
AVT is a full service developer and manufacture of highly integrated vending and product dispensing systems. Over the past several years, AVT has assembled a integrated team of experienced engineers and qualified technicians and software programmers to develop proprietary technology based solutions. Our solutions are comprised of original and inventive technology that is integrated into a line of sophisticated self service products. At the heart of our business is our engineering, manufacturing and creatively inventive and functional application software for use on own AVT designed and manufactured systems.
Design: AVT employs a complete design team. Our engineers use creative tools such as “Solid Works” to develop and generate CAD drawings used by our local manufacturing partners as well as our OEM manufacture in China to produce our state of the art vending systems components, shipped to our 50,000 square foot facility in Corona, California for integration, assembly, final testing and deployment.
A multitude of electrical and software tools are also used to create AVT’s proprietary control boards, sensors, and firmware used by all AVT branded product.
Software Development: We also employ a complete software design and development team. Our software products are a key factor to the success, functional operation and financial position of the company. AVT owned Intellectual Property support’s our proprietary software products, which are sold as a licensed part of every system AVT sells, that can be integrated with an optional PC. We design our software products using today’s state-of-the-art high level programming environments which produce effective and efficient software programs that are highly flexibly and user friendly, while maintaining the elevated degree of complexity and inventiveness that yield a superior and competitive product.
We continue to strive to be the best in, development, product and systems manufacturing and marketing efforts. We have entered into multiple multiyear manufacturing agreements with offshore manufacturers to produce the housings for our technology based “Silo” dispensing systems and have established a line of credit to ensure payment and production of the systems.
Our goal is to gear our manufacturing and assembly efforts to meet our the production contracts over the next 12 to 24 months as well as meeting the needs of our established distributors, direct sales and the anticipated industry demand for competitively priced vending and automated dispensing systems that are energy efficient, integrated with AVT based technology, and up and coming “Green” systems requirements.
A critical focus for sales over the next 12 months will be our Product Dispensing Centers (PDCs). Our PDCs are based on AVT technology and integrate more sophisticated technology features and options such as full face large touch screen displays, receipt printers, cashless payment options and advertising displays. In addition, our PDCs systems can dispense a variety of snack items and non-food items such as cell phones, MP3 players, digital cameras, DVDs, consumer electronics and accessories. We will also focus on “Themed” systems to dispense products such as tee-shirts, promotional items, perfumes, contact lenses and just about any product our customers have a location and market for. Our “Themed” systems are of exceptional interest to our direct end customers as the products these systems dispense result in higher profit margins.
All of our vending systems are capable of the inclusion of PC hardware and LCD displays. A future goal of AVT is to complete and continue to refine application software that runs digital signage for the primary purpose of displaying paid advertisements. Each system that is equipped with a PC and LCD display becomes a “node” on a digital network. As the digital network expands, many thousands of vending systems and PDCs can be part of nationwide advertising network which we believe will interest national advertisers. Our goal is to “own” the network but not the systems. All vending system owners will have the option to join the AVT nationwide network with our AVT based advertising vending system, to share revenue for allowing advertisements from AVT’s servers to be pushed-out onto their vending system.
Future goals and system refinements will include continued software and hardware development and refinements, including even more efficient operating systems to integrate more seamlessly with the internet, becoming Wi-Fi standard and including SMS and email features. Our goal is to make the AVT solution the standard for intelligent self-service vending systems deployed throughout the US and world markets.
In addition, within the next 12 months, we will continue to work to have our common stock trading on the OTC Bulletin Board.
Costs and effects of compliance with environmental laws
The expense of complying with environmental regulations is of minimal consequence.
Number of total employees and number of full time employees.
We currently have approximately 25 full time employees and 3 part-time employees. We allow and utilize the services of independent contractors.
Item 1A. Risk Factors
Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and the other information in this Report before investing in our common stock. Our business and results of operations could be seriously harmed by any of the following risks.
We have a limited operating history and may not succeed.
We have a limited operating history and may not succeed. Our plans and businesses are “proposed” and “intended” but we may not be able to successfully implement them. Our primary business purpose is vending operations and manufacturing. We expect that unanticipated expenses, problems, and technical difficulties will occur and that they may result in material delays in the operation of our business. We may not obtain sufficient capital or achieve a significant level of operations and, even if we do, we may not be able to conduct such operations on a profitable basis.
Our common stock is a “Penny Stock” which trades on the Pink Sheets on the over-the-counter market, as a result, there are additional risks associated with stock and you may be unable to liquidate your investment in our stock quickly.
Our common stock is considered a “Penny Stock” which trades on the Pink Sheets on the over-the-counter market. As a result, there are additional risks associated with our common stock and you may be unable to liquidate your investment in our common stock quickly.
Our common stock is subject to the “Penny Stock” rules of the SEC.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
We require substantial capital requirements to finance our operations. Our inability to obtain financing will adversely impact our business.
We will require additional capital for future operations. We plan to finance anticipated ongoing expenses and capital requirements with funds generated from the following sources:
The uncertainties and risks associated with future performance and revenues will ultimately determine our liquidity and our ability to meet anticipated capital requirements. If declining prices cause our anticipated revenues to decrease, we may be limited in our ability to replace our inventory. As a result, our production and revenues would decrease over time and may not be sufficient to satisfy our projected capital expenditures. We may not be able to obtain additional financing in such a circumstance.
Our stock price has been extremely volatile and, as a result, you may not be able to resell your shares at or above the price you paid for them.
The stock price of our stock as has been extremely volatile and an active public market for our common stock may not develop or be sustained. Further, the market price of our common stock may decline below the price you paid for your shares.
Among the factors that could affect our stock price are:
We have substantial indebtedness.
As of December 31, 2011, we had outstanding indebtedness of $2,361,200 which includes $1,258,506 in convertible notes which require us to make quarterly cash interest payments. As of December 31, 2010, we had outstanding indebtedness of $2,459,317 which includes $977,702 convertible notes which require us to make quarterly cash interest payments. Our ability to meet our debt service requirements will depend upon achieving significant and sustained growth in our expected cash flow, which will be affected by our success in implementing our business strategy, prevailing economic conditions and financial, business and other factors, some of which are beyond our control. Accordingly, we cannot be certain as to whether or when we will have sufficient resources to meet our debt service obligations. If we are unable to generate sufficient cash flow to service our indebtedness, we will have to reduce or delay planned capital expenditures, sell assets, restructure or refinance our indebtedness or seek additional equity capital. We cannot assure you that any of these strategies can be effected on satisfactory terms, if at all, particularly in light of our high levels of indebtedness. In addition, the extent to which we continue to have substantial indebtedness could have significant consequences, including:
The vending industry is a competitive industry and we may not be able to compete with our competitors.
The vending industry is highly competitive. We compete in both the vending manufacturing and vending operations segment of the industry with companies that offer the same services that we do. Many of our competitors have significantly greater resources than we do. Although we believe we have an competitive advantage based upon the lower pricing of our products, a substantial decline in price could adversely affect consumer demand for our products and reduce our competitive advantage. Although we believe that there are significant barriers to entry to new competitors in the vending market due to, among other things, the substantial capital outlay required to purchase the number of machines needed to achieve competitive operating efficiencies, a competitor with significant financial resources may be able to compete with us. There can be no assurance that any competitors will not be able to raise the required capital to effectively compete with us.
In addition, we may face new competition as we seek to expand into international markets and develop new products, services and enhancements. Many of the competitors have greater experience than we do in operating in these international markets. Moreover, new products that we intend to develop, such as advertising, may subject us to competition from companies with significantly greater technological resources and experience. Many of our potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, marketing and public relations resources than we have. These competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to consumers and businesses. Our competitors might succeed in developing technologies, products or services that are more effective, less costly or more widely used than those that have been or are being developed by us or that would render our technologies or products obsolete or noncompetitive. We cannot be certain that we will be able to compete effectively with current or future competitors. Competitive pressures could seriously harm our business, financial condition and results of operations and our ability to achieve sufficient cash flow to service our indebtedness.
The success of our potential new services and products is uncertain.
We have committed, and expect to continue to commit, significant resources and capital to develop and market existing product and service enhancements and new products and services. One example is our AVTi advertising business. These products and services are relatively untested, and we cannot assure you that we will achieve market acceptance for these products and services, or other new products and services. Moreover, these and other new products and services may be subject to significant competition with offerings by potential competitors in addition to companies that compete in our coin processing business. Many of these potential competitors have significantly greater technological expertise and financial and other resources than we do. In addition, new products, services and enhancements may pose a variety of technical challenges and require us to enhance the capabilities of our network and attract additional qualified employees. The failure to develop and market new products, services or enhancements successfully could seriously harm our business, financial condition and results of operations and ability to achieve sufficient cash flow to service our indebtedness.
Our business is dependent upon continued market acceptance by consumers.
We are substantially dependent on continued market acceptance of our vending machines by consumers. Although believe that the use of vending machines in the United States is gaining better consumer acceptance, we cannot predict the future growth rate and size of this market.
We depend upon third-party manufactures and suppliers and the loss of such third-party manufactures and suppliers would seriously harm our business.
We depend, and will continue to depend, on outside parties for the manufacture of our vending machines and its key components. We intend to expand our manufacturing and such expansion may be limited by the manufacturing capacity of our third-party manufacturers and suppliers. Although we expect that our current third-party manufacturers and suppliers will be able to produce sufficient units to meet projected demand, if there is an unanticipated increase in demand for our units, we may be unable to meet such demand due to manufacturing constraints. Should our third-party manufacturers and suppliers cease making our, we would be required to locate and qualify additional suppliers. We may be unable to locate alternate manufacturers on a timely basis.
Our prior growth rates may not be indicative of our future growth rates and should not be relied upon.
You should not consider prior growth rates in our revenue to be indicative of our future operating results. The timing and amount of future revenues will depend almost entirely on our ability to obtain new vending routes and make vending machine sales. Our future operating results will depend upon many other factors, including:
- the level of product and price competition,
- our success in expanding our business network and managing our growth,
- our ability to develop and market product enhancements and new products,
- our ability to enter into and penetrate new international markets, such as Mexico and Canada,
- the timing of product enhancements, activities of and acquisitions by competitors,
- the ability to hire additional employees, and
- the timing of such hiring and the ability to control costs.
We may be unable to adequately protect or enforce our patents and proprietary rights.
Our future success depends, in part, on our ability to protect our intellectual property and maintain the proprietary nature of our technology through a combination of patents, licenses and other intellectual property arrangements, without infringing the proprietary rights of third parties. We currently have four pending patents relating to our business. We cannot assure you that these pending patents will be issued or that any of our patents will be held valid if challenged, that any pending patent applications will issue, or that other parties will not claim rights in or ownership of our patents and other proprietary rights. Moreover, patents issued to us may be circumvented or fail to provide adequate protection. Our competitors might independently develop or patent technologies that are substantially equivalent or superior to our technologies. Since patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed by others which, if issued as patents, could cover our products. We cannot be certain that others will not assert patent infringement claims or claims of misappropriation against us based on current or pending U.S. and/or foreign patents or trade secrets or that such claims will not be successful.
In addition, defending our company against these types of claims, regardless of their merits, could require us to incur substantial costs and divert the attention of key personnel. Parties making these types of claims may be able to obtain injunctive or other equitable relief which could effectively block our ability to provide our services and could result in an award of substantial damages. In the event of a successful claim of infringement, we may need or be required to obtain one or more licenses from, as well as grant one or more licenses to, others. We cannot assure you that we could obtain necessary licenses from others at a reasonable cost or at all.
We also rely on trade secrets to develop and maintain our competitive position. Although we protect our proprietary technology in part by confidentiality agreements with our employees, consultants and corporate partners, we cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our trade secrets will not otherwise become known or be discovered independently by our competitors. The failure to protect our intellectual property rights effectively or to avoid infringing the intellectual property rights of others could seriously harm our business, financial condition and results of operations and ability to achieve sufficient cash flow to service our indebtedness.
We depend upon key personnel, the loss of which could seriously harm our business.
Our performance is substantially dependent on the continued services of our executive officers and key employees. Our long-term success will depend on our ability to recruit, retain and motivate highly skilled personnel. Competition for such personnel is intense. We have at times experienced difficulties in recruiting qualified personnel, and we may experience difficulties in the future. The inability to attract and retain necessary technical and managerial personnel could seriously harm our business, financial condition and results of operations and our ability to achieve sufficient cash flow to service our indebtedness.
Our management has broad discretion over the use of capital raised.
We plan on raising capital for working capital and to help pay off the outstanding indebtedness and for general corporate purposes, including financing the Company's expansion. Thus, management will have broad discretion in allocating proceeds of any offering.
Requirements associated with being a reporting public company will require significant company resources and management attention.
We have only recently been subject to the reporting requirements of the Securities Exchange Act of 1934, or the other rules and regulations of the SEC or any securities exchange relating to public companies. We are working with independent legal, accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting. However, we cannot assure you that these and other measures we may take will be sufficient to allow us to satisfy our obligations as a public company on a timely basis.
In addition, compliance with reporting and other requirements applicable to public companies such as Sarbanes Oxley will create additional costs for us, will require the time and attention of management and will require the hiring of additional personnel and outside consultants. We cannot predict or estimate the amount of the additional costs we may incur, the timing of such costs or the degree of impact on our management's attention to these matters will have on our business.
In addition, being a reporting public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors' and officers' liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
Our estimates may prove to be inaccurate and future net cash flows are uncertain. Any significant variance from these assumptions could greatly affect our estimates.
Our estimates of both future sales and the timing of development expenditures are uncertain and may prove to be inaccurate. We also make certain assumptions regarding net cash flows and operating costs that may prove incorrect when judged against our actual experience. Any significant variance from these assumptions could greatly affect our estimates of future net cash flows and our ability to borrow under our credit facility.
Our preferred stock has rights senior to those of our common stock which could adversely affect holders of common stock.
Our charter documents give our board of directors the authority to issue series of preferred stock without a vote or action by our stockholders. The board also has the authority to determine the terms of preferred stock, including price, preferences and voting rights. The rights granted to holders of preferred stock may adversely affect the rights of holders of our common stock. Currently, our board has authorized our Series A Convertible Preferred Stock which has a liquidation preference – a pre-set distribution in the event of a liquidation – that would reduce the amount available for distribution to holders of common stock. In addition, our Series A Convertible Preferred Stock has voting rights which are superior to the voting right of the holders of our common stock. In addition, the issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock. As a result, common stockholders could be prevented from participating in transactions that would offer an optimal price for their shares.
We do not anticipate paying cash dividends on our capital stock in the foreseeable future.
We do not anticipate paying cash dividends in the foreseeable future. We currently intend to retain our future earnings, if any, to fund the growth of our business. In addition, the terms of the instruments governing our existing debt and any future debt or credit facility may preclude us from paying any dividends.
Item 1B. Unresolved Staff Comments.
Item 2. Properties
At present, we do not own any property. Our retail operation is located in a leased facility. We have local access to all commercial freight systems. The current retail facility is approximately 50,000 square feet. This facility contains are administrative, sales and manufacturing offices. The current lease runs until February 28, 2015. The retail facility is located at 341 Bonnie Circle, Suite 102, Corona, CA 92880.
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is traded on the Pink Sheets (www.pinksheets.com) under the trading symbol “AVTC.PK” The stock price of our stock as has been extremely volatile and an active public market for our common stock may not develop or be sustained. In addition, the stock market has from time to time experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These kinds of broad market fluctuations may adversely affect the market price of our common stock. For additional information, see “Risk Factors” above.
The following table sets forth the quarterly high and low sale prices of our common stock, as adjusted for the 1 for 10 reverse split occurring on March 6, 2011, and the 2 for 1 forward split occurring on June 21, 2011, for the two most recent fiscal years.
We have never declared or paid cash dividends
As of December 31, 2011, there are approximately 1,000 holders of record of our common stock.
We have never declared or paid cash dividends on our common stock. We anticipate that in the future we will retain any earnings for operation of our business. Accordingly, we do not anticipate declaring or paying any cash dividends in the foreseeable future.
On October 31, 2011, we filed our AVT, Inc. 2011 Stock Compensation Plan with the Commission. No securities have been issued under the Plan. We currently issue shares of our common stock to our officers and directors pursuant to employment and director agreements.
Item 6. Selected Financial Data.
As a smaller reporting company, we are not required to provide the information required by this item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward Looking Statements
This report contains certain forward- looking statements regarding, among other things, the anticipated financial and operating results of the Company. For this purpose, forward- looking statements are any statements contained herein that are not statements of historical fact and include, but are not limited to, those preceded by or that include the words, “estimate”, “could”, “should”, “would”, “likely”, “may”, “will”, “plan”, “intend”, “believes”, “expects”, “anticipates”, “projected”, or similar expressions. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those contemplated by the statements. The forward looking information is based on various factors and was derived using numerous assumptions. For these statements, we claim the protection of the “bespeaks caution” doctrine. All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements.
Critical Accounting Policies
The Company’s policy is to use the accrual method of accounting to prepare and present financial statements, which conform to generally accepted accounting principles. The company has elected a December 31 year-end.
The Company considers all highly liquid investments with maturities of three months or less when purchased, to be cash equivalents.
Inventories are valued at the lower of average cost.
Revenue is recognized at the time of sale upon receipt of payment.
The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.” SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Results of Operations
We have historically financed operations through a combination of cash on hand, cash provided from operations and the sale of our securities.
For the year ended December 31, 2010, we had revenues of $5,658,142 and total cost of goods and general and administrative expenses of $5,635,951 for net income of $22,191.
Our revenues increased by $4,642,252 for the year ended December 31, 2011; our general and administrative expenses also increased by $1,083,057 for the year ended December 31, 2011, primarily due to increased manufacturing product and operating expenses relating to increased restaurant expenses, insurance, payroll expenses and freight.
For the year ended December 31, 2011, our net income has increased by $1,341,832 compared to the previous year December 31, 2010.
Total revenues for the year ended December 31, 2011, were $10,300,395 compared to total revenues of $5,658,143 for the year ended December 31, 2010. The increase in revenues is due to increased manufacturing revenue of $4,642,252.
We attribute the increase of manufacturing revenues to increased sales and large order’s of our custom vending machines and retail kiosk’s.
Our general and administrative expenses increased for the year ended December 31, 2011, primarily due to increased costs of goods and operating expenses relating to increased rent for our facility, interest, advertising and payroll expenses.
We believe that we sufficient available cash and cash flow from operations to satisfy our working capital and capital expenditure requirements during the next 12 months. There can be no assurance, however, that cash and cash flow from operations will be sufficient to satisfy our working capital and capital requirements for the next 12 months or beyond.
Liquidity and Capital Resources
We have historically financed operations through a combination of cash on hand, cash provided from operations and the sale of our securities. As of December 31, 2011, we had $177,400 cash on hand.
At December 31, 2011, we had cash of $177,400 compared to cash of $278,217 at December 31, 2010. We consider this decrease in cash as insignificant for the current year.
For the year ended December 31, 2011, our inventory increased compared to our ending inventory for the year ended December 31, 2010. At December 31, 2011, we had inventory of $3,441,386 compared to $2,623,861 at December 31, 2010. This increase relates primarily to increased orders of vending machines.
The Company’s assets increased to $21,664,601 at December 31, 2011 compared to $18,829,059 at December 31, 2010. This $2,835,542 increase in assets is primarily due to receivables.
All receivable accounts are due within 60 days of delivery. Upon special approval, we allow 90 days to receive payment. Collections for past due accounts are handled internally.
At December 31, 2011, we had cash of $177,400 compared to cash of $278,217 at December 31, 2010.
The companies long term debt and notes payable as of December 31, 2011, for a total of $957,170. Are due to shareholder notes of $713,506 and have terms on an average of three years from issue date. Long term debt of $243,664 consists of equipment leases.
All receivable accounts are due within 60 days of delivery. Upon special approval, we allow 90 days to receive payment. Collections for past due accounts are handled internally. As of December 31, 2011 accounts receivable total was $4,048,947, this increase is due to new customers with large orders for machines and kiosks. Average days outstanding for December 31, 2011 is 75 days due to large detailed custom orders. December 31, 2010 our average days outstanding was 90.
Off-balance Sheet Arrangements
We maintain no significant off-balance sheet arrangements
Foreign Currency Transactions
We currently do not utilize sensitive instruments subject market risk in our operations.
Item 8. Financial Statements and Supplementary Data.
Our financial statements and related explanatory notes can be found on the “F” Pages at the end of this Report.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as of the end of the period covered by this Report on Form 10-Q, our management evaluated, with the participation of our principal executive and financial officer, the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act). Disclosure controls and procedures are defined as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on their evaluation of these disclosure controls and procedures, our chairman of the board and chief executive and financial officer has concluded that our disclosure controls and procedures are effective.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting has been designed 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 generally accepted in the United States of America. The Company's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the Company's financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting at December 31, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control--Integrated Framework. Based on that assessment under those criteria, management has determined that, at December 31, 2011, the Company's internal control over financial reporting was effective.
This Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management's report in this annual report.
Inherent Limitations of Internal Controls
Our internal control over financial reporting is designed 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. Our internal control over financial reporting includes those policies and procedures that:
Our management does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has not identified any change in our internal control over financial reporting in connection with the its evaluation of our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
The following table sets forth, as of the date of this Report, the name, age and positions of our officers and directors.
The background of our directors and executive officers is as follows:
Natalie Russell – Secretary, Chief Financial Officer and Director
Natalie Russell joined the AVT in 2001 as corporate secretary and office manager, bringing over 15 years of accounting and business operations experience. Ms. Russell currently serves as our Secretary, Chief Financial Officer, Chief Executive Officer and one of our directors. Prior to AVT she was general office manager and accounting manager at Thompson Building Materials. She was responsible for the overall company’s finance, administration, and payroll for over 150 employees. Natalie also has assisted in raising over 5 million dollars for Nu Gas Technologies in the private venture capital. Natalie holds a BS in Business Management at the American International University of CA.
James Winsor – Chief Executive Officer and Director
James Winsor is our Chief Engineering Officer and one of our Directors. Mr. Winsor is primarily responsible for our manufacturing operations and research and development having over 20 years of experience in manufacturing, project management and engineering. Mr. Winsor has been with us since 2006. Prior to working for us, Mr. Winsor was employed with Pixel Touch Inc. from February 2003 to April 2006 and for Arral Industries from February 1992 to April of 2006. Mr. Winsor has a Bachelor of Science degree from California State Polytechnic University, Pomona.
Shannon Illingworth is the founder of AVT. Over the past ten years, Mr. Illingworth has developed, led and set the course for this company that is now is producing over $10 million a year in sales. Mr. Illingworth realized a few years ago that there were untapped opportunities in the market, and that the future of the company was in integrating technology to create a new breed of automated retailing system. Accordingly, he started the process to transform AVT by investing in research and development, which subsequently created several patented and patent-pending technologies. Today, more than any other single individual, Shannon Illingworth is credited with inventing the Automated Retailing Industry. Prior to founding AVT, Mr. Illingworth was the Vice President of Sales for one of the largest resellers of wireless services in the Western United States.
Mr. Illingworth is the son of Ms. Loretta Vermette, our former director. Mr. Illingworth is the son of Jon Illingworth, sole shareholder of Worth, Inc. our majority shareholder.
Information about our Board and its Committees.
We currently do not have an audit committee although we intend to create one as the need arises. Currently, our Board of Directors serves as our audit committee.
We currently do not have a compensation committee although we intend to create one as the need arises. Currently, our Board of Directors serves as our Compensation Committee.
Effective February 3, 2009, our board of directors created an advisory board to advise the company in regard to ongoing business operations. As of the date of this Report, our chairman, Mr. Shannon Illingworth has been appointed to the Advisory Board.
Item 11. Executive Compensation
The following table sets forth the cash compensation paid to our officers and directors for services rendered, and to be rendered:
(1) Represents salary and the exercise of warrants to purchase 100,000 restricted shares of our common stock based on a value of $1.00 per share.
(2) Represents the exercise of warrants to purchase 60,000 restricted shares of our common stock based on a value of $1.00 per share.
(3) Mr. Illingworth was appointed as our Chairman on January 31, 2012.
On January 1, 2011, we entered into a 12 month employment agreement, at a compensation rate of $5,416 per month, with Natalie Russell to serve as our Secretary, Chief Financial Officer and acting President. The agreement includes the issuance of a quarterly award of a five (5) year cashless warrant to purchase up to 30,000 shares of the Company’s common stock at an exercise price of $.10 per share. The agreement automatically renews for an additional 12 month term unless terminated earlier by ether party.
On January 1, 2011, we entered into a 12 month employment agreement, at a compensation rate of $6,250 per month, with James Winsor to act as our Chief Executive Officer. The agreement includes the issuance of a quarterly award of a five (5) year cashless warrant to purchase up to 30,000 shares of the Company’s common stock at an exercise price of $.10 per share. The agreement automatically renews for an additional 12 month term unless terminated earlier by ether party. The agreement automatically renews for an additional 12 month term unless terminated earlier by ether party.
Compensation of Directors
The Company currently compensates our Chairman with issuance of a quarterly award of a five (5) year cashless warrant to purchase up to 5,000 shares of the Company’s common stock at an exercise price of $.10 per share. In the future, we may compensate our directors with cash compensation and for reasonable out-of-pocket expenses in attending board of directors meetings and for promoting our business. From time to time we may request certain members of the board of directors to perform services on our behalf. In such cases, we will compensate the directors for their services at rates no more favorable than could be obtained from unaffiliated parties.
We have not formed an independent compensation committee
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding our common stock beneficially owned as of October 10, 2011:
(iii) each of our directors; and
(iv) all executive officers and directors as a group.
This information as to beneficial ownership was furnished to the Company by or on behalf of each person named. As at December 31, 2011, there were 9,731,629 shares of our common stock issued and outstanding.
(1) Less than 1%
(2) The address is 341 Bonnie Circle, Suite 102, Corona, CA 92880
(3) The address is 2557 Old Windmill Court, Riverside, CA 92882
(4) The address is 2621 Green River Road, #77, Corona, CA 92882
(5) Loretta Vermette is one of our former directors. Includes 43,968 shares held individually, 12,334 shares held in the name of Ms. Vermette and her spouse, 50,000 shares held in the name of The Illingworth Family Trust, and 190,638 shares held in the name of The Illingworth Trust. Ms. Vermette is the Trustor and Trustee of both Trusts.
(6) Worth, Inc. is our majority shareholder. Worth, Inc. is owned by Jon Illingworth, our founder’s father.
(7) Worth, Inc. holds 523,186 shares of our common stock and 2,706,238 shares of our of our Series A Convertible Preferred Stock. Each share of our Series A Convertible Preferred may be converted into six (6) shares of our common stock. Assuming all 2,706,238 shares of Series A Convertible Preferred stock held by Worth, Inc. were converted into common stock, Worth, Inc. would hold a total of 16,760,614 shares of common stock which is greater than 170% of our issued and outstanding shares of our common stock as at October 10, 2011.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. The number of shares and the percentage beneficially owned by each individual listed above include shares that are subject to options held by that individual that are immediately exercisable or exercisable within 60 days from the date of this Report and the number of shares and the percentage beneficially owned by all officers and directors as a group includes shares subject to options held by all officers and directors as a group that are immediately exercisable or exercisable within 60 days from the date of this Report.
Item 13. Certain Relationships and Related Transactions.
Mr. Jon Illingworth is the sole officer and director of SWI Trading, Inc. Our founder, Shannon Illingworth is the son of Jon Illingworth. Neither our officers, directors, significant shareholders nor promoters are associated with SWI Trading, Inc.
Because the Company was unable to obtain loans from conventional financial institutions, we received loans from SWI Trading, Inc. As of January 1, 2008, SWI Trading, Inc. had loaned us a total of $897,318, through direct loans and a convertible promissory note for $761,168 dated November 1, 2006. The convertible promissory note was a zero interest note maturing on January 1, 2007, and replacing all preexisting debt obligations to SWI Trading, Inc. At the option of the noteholder, the note converted into restricted shares of the Company’s common stock at $.50 per share. On January 1, 2008, we entered into an agreement with SWI Trading, Inc. whereby SWI agreed to waive repayment of $500,250 of the $897,318 total owed to SWI Trading, Inc. in exchange for the issuance of $1,724,133 restricted shares of our common stock. In addition, SWI agreed to waive any claim it may have against us for interest due upon the loan, and/or unpaid compensation due for: services rendered; research and development fees; technology development fees; loan acquisition services and any other claims.
We have repaid the loans received from SWI Trading, Inc. with cash and shares of our common stock. Neither Shannon Illingworth nor SWI Trading, Inc. has received any property, contracts, options or rights to our securities relating to any SWI Trading, Inc. loans. We have not received any additional loans from SWI Trading, Inc other than stated above. However, we have been advised that SWI Trading, Inc. is willing to loan the Company additional funds in the event that such loans are necessary for our operations.
Prior to April, 2008, we identified a Mexican restaurant that was having financial difficulties and we desired to purchase the restaurant with intent of providing cash flow to the Company and supplying Mexican foods for our vending operations. Unfortunately, the Company did not have sufficient cash to purchase the restaurant and requested that SWI Trading, Inc. purchase the restaurant with the understanding that the Company would purchase the restaurant from SWI Trading, Inc. with our securities. Accordingly, the restaurant was purchased by SWI Trading, Inc. and on April 9, 2008, the Company purchased the restaurant from SWI Trading, Inc. with payment of 1,000,000 shares of our Series A Convertible Preferred stock.
On January 1, 2009, we entered into a consulting agreement with SWI Trading, Inc. whereby SWI Trading, Inc. agreed to provide us with corporate structuring services, financing consulting services, research and development and technology development services, loan acquisition services and the use of its line of credit for a monthly fee of $11,620 and 100,000 restricted shares of our common stock paid quarterly.
For purposes of this Form 10, we have considered SWI Trading, Inc. a related person due to its lending and consulting relationship with us.
Transactions with Promoters
Appointment of Auditors
Our Board of Directors selected Malcolm L. Pollard, Inc., as our auditors for the year ended December 31, 2010.
Our Board of Directors selected Hamilton PC, as our auditors for the year ended December 31, 2011
Mr. Pollard billed us $ 5,000 in audit fees during the year ended December 31, 2010.
Mr. Pollard billed us $35,600 in audit fees during the year ended December 31, 2011.
Hamilton PC, billed us $ 0 in audit fees during the year ended December 31, 2011.
We did not pay any fees to Malcolm L. Pollard, Inc. for assurance and related services that are not reported under Audit Fees above, during our fiscal years ending December 31, 2010.
We did not pay any fees to Hamilton PC, for assurance and related services that are not reported under Audit Fees above, during our fiscal years ending December 31, 2011.
Tax and All Other Fees
We did not pay any fees to Malcolm L. Pollard, Inc., for tax compliance, tax advice, tax planning or other work during our fiscal year ending December 31, 2010.
We did not pay any fees to Hamilton PC, for tax compliance, tax advice, tax planning or other work during our fiscal year ending December 31, 2011.
Pre-Approval Policies and Procedures
We have implemented pre-approval policies and procedures related to the provision of audit and non-audit services. Under these procedures, our board of directors pre-approves all services to be provided by Malcolm L. Pollard, Inc., and the estimated fees related to these services.
We have implemented pre-approval policies and procedures related to the provision of audit and non-audit services. Under these procedures, our board of directors pre-approves all services to be provided by Hamilton PC, and the estimated fees related to these services.
With respect to the audit of our financial statements as of December 31, 2010, and for the year then ended, none of the hours expended on Malcolm L. Pollard, Inc.’s engagement to audit those financial statements were attributed to work by persons other than Mr. Pollard’s full-time, permanent employees.
With respect to the audit of our financial statements as of December 31, 2011, and for the year then ended, none of the hours expended on Hamilton PC’s engagement to audit those financial statements were attributed to work by persons other than Mr. Hamilton’s full-time, permanent employees.
Item 15. Exhibits, Financial Statement Schedules.
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant on the capacities and on the dates indicated.
2121 S. Oneida St., Suite 312
Denver, CO 80224
P: (303) 548-8072
F: (888) 466-4216
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
We have audited the accompanying balance sheet of AVT, Inc. as of December 31, 2011, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of AVT, Inc. as of December 31, 2010, were audited by other auditors. Those auditors expressed an unqualified opinion on those financial statements in their report dated February 25, 2011.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AVT, Inc. as of December 31, 2011, and the result of its operations and its cash flows for periods then ended, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 12 to the financial statements, the 2010 financial statements have been restated to correct a misstatement.
/s/ Hamilton, PC
April 12, 2012
Notes to Consolidated Financial Statements
1. Accounting Policies
AVT, Inc. (the “Company”, “We” or “Our”) was originally incorporated under the laws of the State of Delaware on February 26, 1969, as Infodex, Inc., the Company was renamed to Midwest Venture Group, Inc. in March 2005. The Company then changed its name to Automated Vending Technologies, Inc. in September 2005 to better reflect our primary operations as a machine manufacturer as well as vending route distribution. In January, 2008, the Company changed its state of domicile to Nevada, at that time we became AVT, Inc.. Due to the growth of AVT’s technology foundation base, our hardware, software products, business and overall success relies on both innovative and creative designs. These systems include solutions for wireless management of remote vending, method for controlling vending machines and custom systems.
In April 2008, the Company acquired 100% of the outstanding common stock of AC Mexican Food, Inc. dba Jalapeno’s Mexican food restaurant.
In April 2008, the Company acquired 100% of the outstanding common stock of AC Mexican Food, Inc. dba Jalapeno’s Mexican food restaurant. In March, 2012, the Company sold the Jalapenos Mexican food restaurant asset to an independent 3rd party. AC Mexican Food, Inc. continues to operate by providing fresh Mexican foods to the Company’s vending machines.
Interim Financial Information
The accompanying audited consolidated financial statements of AVT, Inc. have been prepared in accordance with the United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. Operating results for the year ended December 31, 2011
The Company has incurred losses at times. The Company’s ability to meet its future obligations is dependent upon the success of its products in the market and capital resources. Until the Company’s products can generate sufficient operating revenues, the Company will be required to use its cash and cash equivalents on hand, as well as raise capital to meet its cash flow requirements including the issuance of Common Stock.
The accompanying consolidated financial statements include the accounts of the Company and it’s wholly- owned subsidiary, AC Mexican Food dba Jalapeno’s. All significant inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents represent all highly liquid investments with original maturities of three months or less. Cash equivalents are comprised of certificates of deposit. The Company maintains its cash in bank accounts, which may exceed federally insured limits at times.
Inventory consists of finished goods and vending products. The Company’s inventory is stated at the lower of cost (average cost basis) or market.
No provision for income taxes has been made for the year ended December 31, 2011 and 2010 given the Company’s losses in prior years and available net operating loss carry forwards. A benefit has not been recorded as the realization of the net operating losses is not assured and the timing in which the Company can utilize its net operating loss carry forwards in any year or in total may be limited by provisions of the Internal revenue Code regarding changes in ownership of corporations.
Fair Value of Financial Instruments
On January 1, 2008, the Company adopted SFAS No. 157 (SFAS 157), Fair Value Measurements. SFAS 157 relates to financial assets and financial liabilities.
In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis, until January 1, 2009 for calendar year-end entities.
SFAS 157 defines fair value, establishes a framework for measuring fair value in the U.S. generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in SFAS 13. SFAS 157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
2. Long- Term Debt/ Liabilities
Our current liabilities consist of payroll liabilities of $8,554, accounts payable of $782,618, investor notes of $545,000 and other current liabilities of $67,858.
Long Term Liabilities
Long term liabilities include investor notes of $713,506. We have long term equipment leases totaling $243,664.
The Notes are redeemable at the option of the holder, in whole or part, at any time from issuance date until up to twelve months from issue date, into such number of fully paid and non- assessable shares of common stock, as of such date that the Holder elects to convert by (y) a number which is 75% of the average Closing Price for the immediate preceding 10 Trading Days; or at any time from a date which is after 12 months from the Issuance Date up to a date which is 24 months from the Issuance date a number which is 85% of the average Closing Price for the immediate preceding 10 Trading Days; or at any time from a date which is after 24 months from the Issuance Date up to the Maturity Date a number which is 90% of the average Closing Price for the immediate preceding 10 Trading Days; or Mandatory Conversion at any time following the date in which the closing price of the Maker’s Common Stock exceeds $1.50 for a period of ten (10) consecutive trading day. Interest on the Notes is payable quarterly on the 15th of the following month that was earned.
3. Shareholders’ Equity
On March 2, 2011, the majority of the Company’s shareholders approved the resolution of the Company’s board of directors to amend the Company’s articles of incorporation to reverse split the Company’s common stock on a 1 for 10 basis. All fractional shares were rounded up. Shares issued prior to March 2011, have been retroactively restated to reflect the impact of the stock split. Common stock, $.001 par value: 100,000,000 shares authorized: 4,071,054 shares issued and outstanding.
As at December 31, 2010, the Company had 3,744,143 shares of its common stock issued and outstanding.
As at December 31, 2011, the Company had 9,731,629 shares of its common stock issued and outstanding.
For the quarter ended March 31, 2008, the Company’s Board of Directors cancelled all issued and outstanding shares of its Series C Convertible Preferred stock and designated 3,000,000 preferred shares as Series A Convertible Preferred Stock, $.001 par value, of which 2,033,333 shares are issued and outstanding as at December 31, 2009.
For the quarter ended June 30, 2008, 166,667 shares of our issued and outstanding Series A Convertible Preferred stock were converted into 1,000,000 shares of our common stock.
For the quarter ended June 30, 2008, we issued SWI Trading, Inc. a total of 1,000,000 shares of our Series A Convertible Preferred stock as payment for the purchase of certain assets and liabilities of AC Mexican Food, Inc., a California corporation. The Series A Convertible Stock was valued at $.001 par value.
For the quarter ended December 31, 2010, we issued Worth, Inc. a total of 244,798 shares of our Series A Convertible Preferred stock as partial payment consideration of note.
For the quarter ended March 31, 2011, we issued Worth, Inc. a total of 262,467 shares of our Series A Convertible Preferred stock as partial payment consideration of note.
For the quarter ended June 30, 2011, we issued Worth, Inc. a total of 88,889 shares of our Series A Convertible Preferred stock as partial payment consideration of note.
For the quarter ended September 30, 2011, we issued Worth, Inc. a total of 76,751 shares of our Series A Convertible Preferred stock as payment consideration on note.
For the quarter ended December 31, 2011, there were no issuances of Series A Convertible Preferred stock.
There are no previsions or circumstances that will require the company to record our Preferred Stock outside permanent equity.
Preferred Stock, $.001 par value: 3,000,000 shares authorized as Series A Convertible Preferred Stock, $.001 par value, of which 2,706,238 shares of Series A Convertible Preferred stock issued and outstanding.
The Series A Convertible Preferred Stock has the following rights and preferences:
Conversion/ Dividend Rights
Each share of the Series A Preferred Stock may be convertible, at the option of the holder thereof and subject to notice requirements described herein, at any time, into six (6) shares of our common stock. Holders of our Series A Convertible Preferred Stock will be entitled to receive dividends on the stock out of assets legally available for distribution when, as and if authorized and declared by our Board of Directors.
The holders of Series A Convertible Preferred Stock are entitled to receive, prior to the holders of the other series of the Company’s Preferred Stock and prior and in preference to any distribution of our assets or surplus funds to the holders of any other shares of stock of the Company by reason of their ownership of such stock, an amount equal to $0.37 per share with respect to each share of Series A Convertible Preferred Stock, plus all declared but unpaid dividends with respect to such share.
Accounts receivable are reported at their outstanding unpaid principle balances. The Company estimates doubtful accounts for accounts receivable and finance receivables based on historical bad debts, factors related to specific customers’ ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when management determines the balance is uncollectible and the Company ceases collection efforts. The Company offers extended payment terms to certain customers for equipment sales. The Company provides an allowance for credit losses as discussed above extended receivables are carried at their contractual amount and charged off against the allowance for credit losses when management determines that recovery is unlikely and the Company ceases collection efforts.
The Company records revenue when it is realized, or realizable, and earned. The company considers these requirements met when persuasive evidence of an arrangement exists, the products or services have been provided to the customer, the sales price is fixed or determinable and collect ability is reasonably assured.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives or the term of the lease of the related assets, whichever is shorter. Estimated useful lives generally range from 3 to 7 years.
Maintenance and repairs are charged to expense as incurred. Renewals and improvements of a major nature are capitalized.
At the time of the retirement or other disposition of property and equipment, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gains or losses are reflected in income.
Intangible assets are carried at cost and consist of patents, copyrights and certain vending route contracts. Amortization is provided on the straight-line basis over the estimated useful lives of the respective assets, ranging from five to seventeen years.
Goodwill is the excess of cost over the fair value of net assets of businesses acquired. Goodwill is not amortized but is evaluated for impairment as described below.
Impairment of Long-Lived Assets
The Company accounts for its long-lived assets in accordance with ASC 360, "Property, Plant, and Equipment". ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors. For the year end December 31, 2011 and 2010, the Company did not deem any of its long-lived assets to be impaired and thus no impairment losses were recorded.
Pursuant to Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, (SFAS 131), the Company is required to disclose certain disclosures of operating segments, as defined in SFAS 131. Management has determined that the Company has two (2) segments related to its Vending and Restaurant operations.
Earnings Per Share
Basic earnings per share is computed in accordance with FASB 128 by dividing income available to common shareholders (the numerator) by the weighted-average number of common shares (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
Basic earnings per share take into account only the actual number of outstanding common shares during the period. Diluted earnings per share take into effect the common shares actually outstanding and the impact of convertible securities, stock options, stock warrants and their equivalents.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), which replaces SFAS No. 141, Business Combinations, requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This Statement also requires the acquirer in a business combination achieved in stages to recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values.
SFAS 141(R) makes various other amendments to authoritative literature intended to provide additional guidance or to confirm the guidance in that literature to that provided in this Statement. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS 141 (R) to have a material impact on our financial statements.
In December 2007, FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS 160), which amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements.
SFAS 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries not held by the parent to be clearly identified, labeled and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. This statement also requires the amount of consolidated net income attributable to the parent and to the non-controlling interest to be clearly identified and presented on the face of the consolidated statement of income. Changes in a parent’s ownership interest while the parent retains its controlling financial interest must be accounted for consistently, and when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary must be initially measured at fair value. The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any non-controlling equity investment. The Statement also requires entities to provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners.
This Statement applies prospectively to all entities that prepare consolidated financial statements and applies prospectively for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect this to have a significant impact on its financial statements.
4. Fixed Assets - Property and Equipment
5. Intangible Assets
Our intangible assets include the development of system design, proprietary technologies, application software, and customize systems in order to maintain the high degree of market position. AVT developed proprietary software, requires a methodical approach to the design and continuous evolution, enhancement and system architecture. Our application software programs, protocols, patents, and intellectual property that pertains to the design and system architecture that are all or in part of AVT’s group of key intangible assets.
We acquired the rights to our pending Wireless Management of Remote Vending patent via payment of 3,000,000 restricted shares of the Company’s common stock valued at $1.00 per share and the rights to our pending MultiMedia System, Method for Controlling Vending Machines patent via payment of 1,000,000 restricted shares of the Company’s common stock valued at $1.00 per share.
6. Business Combination
In April 2008, we purchased 100% of the assets and liabilities of AC Mexican Food, Inc. dba Jalapenos Mexican Food, for a purchase price of 1,000,000 restricted shares of our Series A Convertible Preferred stock.
The asset was valued at $1,000,000 pursuant to the value of fixtures in the restaurant. The Series A Convertible Preferred stock was arbitrarily valued at $1.00 per share as there is no public market for the Company’s Preferred stock.
Pursuant to FASB 141, the primary purpose of the purchase was to provide an alternative stream for the Company and to provide the Company with the ability to provide Mexican fresh foods in the Company’s vending machines.
Fair Value Option
On January 1, 2008, the Company adopted SFAS No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 provides a fair value option election that allows entities to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities.
Changes in fair value are recognized in earnings as they occur for those assets and liabilities for which the election is made. The election is made on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument.
The adoption of SFAS 159 did not have a material impact on the Company’s financial statements as the Company did not elect the fair value option for any of its financial assets or liabilities.
9. Commitments and Contingencies
Indemnities and Guarantees
During the normal course of business, the Company may make certain indemnities and guarantees under which it may be required to make payments in relation to certain transactions.
These indemnities may include certain agreements with the Company’s officers, under which the Company may be required to indemnify such person for liabilities arising out of their employment relationship, agreements with financial institutions in connections with certain of the Company’s notes payable, and agreements with leasing of office space for certain actions arising during the Company tenancy. The duration of these indemnities and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated to make payments for these obligations and no liabilities have been recorded for these indemnities and guarantees in the accompanying balance sheet.
The Company has various operating lease commitments in connection with its office space and certain equipment.
The Company may be involved from time to time in claims, lawsuits, and disputes with third parties, actions involving allegations or discrimination or breach of contract actions incidental in the normal operations of the business. The Company is currently not involved in any such litigation or disputes which management believes could have a material adverse effect on its financial position or results of operations.
Except as otherwise required by law, the holders of the Company’s Series A Convertible Preferred Stock vote; (i) as a single class and shall have such number of votes as is determined by multiplying (a) the number of shares of Series A Convertible Preferred Stock held by such holder, (b) the number of issued and outstanding shares of our Series A Convertible Preferred Stock and Common Stock as of the record date for the vote, or, if no such record date is established, as of the date such vote is taken or any written consent of stockholders is solicited, and (c) 0.00000025; and (ii) the holders of our Common Stock shall have one vote per share of Common Stock held as of such date.
10. Subsequent Events
In April 2008, the Company acquired 100% of the outstanding common stock of AC Mexican Food, Inc. dba Jalapeno’s Mexican food restaurant. In March, 2012, the Company sold the Jalapenos Mexican food restaurant asset to an independent 3rd party. AC Mexican Food, Inc. continues to operate by providing fresh Mexican foods to the Company’s vending machines.
Certain prior year amounts have been reclassified to conform to the current period presentation for comparative purposes.
12. Prior Period Adjustments and Restatement of Weighted Average Shares
The previously issued financial statements for 2010 have been restated. Weighted average shares and net income per share (basic and diluted) were not properly calculated as required by GAAP. The effect of the correction is as follows: