UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31 2005 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For transition period from _______________ to _______________ Commission File Number: 0-17953 Advance Technologies Inc. (Exact Name of Small Business Issuer as Specified in its Charter) Nevada 95-4755369 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15 N. Longspur Drive The Woodlands, TX 77380 (Address of Principal Executive Offices) (310) 213-2143 (Issuer's telephone number) ------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [ X ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of December 31, 2005: 39,498,217 of Common & 26,177,157 of Preferred. Transitional Small Business Disclosure Format (check one): YES [ x ] NO [ ] INFORMATION REQUIRED IN ANNUAL REPORTS OF TRANSITIONAL SMALL BUSINESS ISSUERS PART I Financial Information ITEM 1. FINANCIAL STATEMENT ------------------- ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS ------ December 31, September 30, 2005 2005 ------------- ------------- (Restated) CURRENT ASSETS: Cash $ - $ 2,934 Accounts receivable 6,300 6,600 Prepaid expenses 478 - ------------- ------------- Total Current Assets 6,778 9,534 PROPERTY AND EQUIPMENT, net 565 851 ------------- ------------- TOTAL ASSETS $ 7,343 $ 10,385 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- CURRENT LIABILITIES: Bank overdraft $ 83 $ - Accounts payable 14,337 16,921 Notes payable - officer 71,750 71,000 Liability to be settled by issuance of stock - 8,000 ------------- ------------- Total Current Liabilities 86,170 95,921 STOCKHOLDERS' EQUITY (DEFICIT): Series A convertible preferred stock, $.001 par value, 100,000,000 shares authorized, 26,337,157 and 26,017,157 shares issued and Outstanding, respectively 26,337 26,017 Common stock, $.001 par value, 100,000,000 shares authorized, 39,498,217 and 39,498,217 shares issued and outstanding, respectively 39,498 39,498 Additional paid-in capital 574,069 558,389 Deficit accumulated during the development stage (718,731) (709,440) ------------- ------------- Total Stockholders' Equity (Deficit) (78,827) (85,536) ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 7,343 $ 10,385 ============= ============= See accompanying notes. Page 2 ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Period From Entering Development Stage on For the Three Months October 1, Ended December 31, 1985 through ---------------------------- December 31, 2005 2004 2005 -------------- ------------- ------------- (Restated) (Restated) REVENUES: Royalty $ 6,300 $ 900 $ 48,400 Consulting - - 67,843 Product - - 119,073 -------------- ------------- ------------- Total Revenues 6,300 900 235,316 COST OF GOODS SOLD - - 114,020 -------------- ------------- ------------- GROSS PROFIT 6,300 900 121,296 OPERATING EXPENSES: Depreciation and amortization 286 1,614 51,320 Research and development - - 72,750 Other general and administrative 15,305 15,309 790,690 -------------- ------------- ------------- Total Operating Expenses 15,591 16,923 914,760 OPERATING INCOME (LOSS) (9,291) (16,023) (793,464) -------------- ------------- ------------- OTHER INCOME (EXPENSE): Miscellaneous income - - 98,000 Interest expense - - (23,267) -------------- ------------- ------------- Total Other Income (Expense) - - 74,733 -------------- ------------- ------------- NET INCOME (LOSS) $ (9,291) $ (16,023) $ (718,731) ============== ============= ============= NET INCOME (LOSS) PER SHARE $ (0.00) $ (0.00) $ (0.13) ============== ============= ============= WEIGHTED-AVERAGE SHARES OUTSTANDING 39,498,217 28,319,416 5,358,905 ============== ============= ============= See accompanying notes. Page 3 ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Period From Entering Development Stage on For the Three Months October 1, Ended December 31, 1985 through ---------------------------- December 31, 2005 2004 2005 -------------- ------------- ------------- (Restated) (Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (9,291) $ (16,023) $ (718,731) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation & Amortization 286 1,614 51,320 Organization Costs - - 11,331 Stock issued for services 8,000 - 419,025 (Increase) decrease in accounts receivable 300 (900) (6,300) (Increase) decrease in prepaid expenses (478) - 14,202 Increase (decrease) in accrued liabilities (2,584) 8,700 73,311 -------------- ------------- ------------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (3,767) (6,609) (155,842) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment - - (39,386) Investment in subsidiary - - 286 -------------- ------------- ------------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES - - (39,100) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bank overdraft 83 - 83 Cash paid on loan from officer - - (48,200) Proceeds from loan from officer 750 - 119,950 Proceeds from line of credit - - 85,500 Proceeds from Issuance of Stock - - 30,109 Capital contribution - 7,500 7,500 -------------- ------------- ------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 833 7,500 194,942 -------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH (2,934) 891 - CASH AT BEGINNING OF PERIOD 2,934 1,773 - -------------- ------------- ------------- CASH AT END OF PERIOD - 2,664 - ============== ============= ============= SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for: Interest $ - $ - $ - Income taxes $ - $ - $ - SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES: In October and December 2005, the Company issued 320,000 shares of Series A convertible preferred stock to pay $4,000 in director fees and $12,000 in salary. See accompanying notes. Page 4 ADVANCE TECHNOLOGIES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS GENERAL Advance Technologies, Inc. and Subsidiary (the Company) has elected to omit substantially all footnotes to the financial statements for the three months ended December 31, 2005 since there have been no material changes (other than indicated in other footnotes) to the information previously reported by the Company in their Annual Report filed on Form 10-KSB for the fiscal year ended September 30, 2005. UNAUDITED INFORMATION The information furnished herein was taken from the books and records of the Company without audit. However, such information reflects all adjustments which are, in the opinion of management, necessary to properly reflect the results of the interim period presented. The information presented is not necessarily indicative of the results from operations expected for the full fiscal year. RESTATEMENT Subsequent to filing its Form 10-KSB for the year ended September 30, 2005, the Company discovered that (1) its revenues had been recorded on a cash basis rather than accrual, (2) its revenues had not been recorded net of discounts, and (3) officer and director compensation had not been accrued. Shortly, the Company intends to file an amended Form 10-KSB for the year ended September 30, 2005. The restatement had the following effects on the amounts presented herein: September 30, 2005 Balance Sheet ----------------------------------------- Before After Restatement Restatement Difference ------------- ------------- ------------- Accounts receivable $ - $ 6,600 $ 6,600 Current assets 2,934 9,534 6,600 Total assets 3,785 10,385 6,600 Liability to be settled by issuance of stock - 8,000 8,000 Current assets 87,921 95,921 8,000 Retained earnings (708,040) (709,440) (1,400) Stockholders' equity (deficit) (84,136) (85,536) (1,400) Statement of Operations for the Three Months Ended December 31, 2004 ----------------------------------------- Before After Restatement Restatement Difference ------------- ------------- ------------- Royalty revenues $ - $ 900 $ 900 Total revenues - 900 900 Other general and administrative expense 15,309 15,309 - Operating income (loss) (16,923) (16,023) 900 Net income (loss) (16,923) (16,023) 900 Net income (loss) per share (0.00) (0.00) - Page 5 Statement of Operations for the Period from Entering Development Stage on October 1, 1985 through December 31, 2005 ----------------------------------------- Before After Restatement Restatement Difference ------------- ------------- ------------- Royalty revenues $ 57,800 $ 48,400 $ (9,400) Total revenues 244,716 235,316 (9,400) Other general and administrative expense 798,690 790,690 (8,000) Operating income (loss) (792,064) (793,464) (1,400) Net income (loss) (717,331) (718,731) (1,400) Net income (loss) per share (0.13) (0.13) - ITEM 2. MANAGEMENT & DISCUSSIONS ------------------------ MAJOR ACTIVITY Highlights of First Quarter The NBAA annual show in October allowed Kollsman to put on display their new initiatives in Enhanced Vision and related markets. Advance Technologies Inc. directs the interested reader to Kollsman.com PR's releases. At the same time Gulfstream unveiled their plans for a smaller light weight Corporate Business Jet aimed for a smaller passenger market. We refer the reader to the Press Releases at Gulfstream.com. The Niteagle program took an important step forward with the signing of a license agreement with a new Nevada corporation (RVS). AVTX will be providing RVS support under the terms of the agreement. The ATI-RVS License agreement is incorporated in this quarterly report as Exhibit 33. ATI has secured a provisional patent application for our new Infrared Security System (ISS) project. With the protection of our intellectual property ATI has been contacting parties which may have an interest in active participation. All contacts to date are preliminary and confidential. Enhanced Vision System (EVS) Enhance Vision System, our first project; has entered production. Advance Technologies benefits through a license agreement with Kollsman Inc. Kollsman has issued a detailed report of all sales and deliveries through December 31, 2005. The EVS market continues to develop on schedule. Sales are increasing but at a modest rate. The agreement between Kollsman and FedEx is proceeding with the EVS being slated for operation on all of FedEx's wide-body aircraft. See Kollsman.com for additional details. NITEAGLE The NITEAGLE Project will be transferred to RVS in early 2006 under the terms of the ATI-RVS License Agreement. OTHER DEVELOPMENT ACTIVITIES Advance Technologies Inc. continues development activities on new Infrared systems for commercial markets. These projects cannot be forecast with any degree of certainty and all strategic partnerships or business arrangements remain confidential until such time as a formal announcement is appropriate without compromising the development plan and/or the application market. Page 6 Recreational Vehicles Systems (RVS) Advanced Technologies signed a licensing agreement with Recreational Vehicle Systems (RVS), a Nevada Corporation. Under terms of the agreement Adv-Tech will provide technical know-how and development support to RVS to develop an Infrared Imaging System for the license field of Recreational Vehicles. In consideration for our technical support and certain licensed technical property rights ATI will receive a royalty on each unit sold. No sales are projected before late 2006 or early 2007. The terms of the agreement specify $300.00 per system sold for a period of ten years initiated by the first sale. Medical Systems The sale of 50 NVS cameras to United Integrated Services (UIS, a Taiwan Corporation) under an export license granted by the United States Commerce Department is still pending. UIS as indicated their desire to complete this sale before the export license expires in June 2006. We believe there is less than a 50% chance that UIS will be able to comply with the license requirements prior to the expiration date. Revenue impact is negligible. Infrared Security System (ISS) A provisional patent pending has been obtained for our Infrared Security System. This protection for our intellectual property rights will allow us to aggressively engage in discussion with potential partners and customers. Preliminary discussions have been initiated. OPERATIONS In 2006 Advance Technologies will be establishing our headquarters in Woodland Texas. The Board of Directors has instructed the CEO to initiate a review of our operations to ascertain our future needs. Our primary source of future income will be through our licensing agreements. Our development activities are being conducted in concert with strategic partners, relying upon their capital resources. Recommendations on how to best optimize shareholder value will be formulated and presented to the Board in the near future. The development activity at Adv-Tech has shifted from internal hardware based R&D activity to external technical marketing with potential partners. This shift has been created by Infrared Imaging Cameras and Systems moving from high technology to more of a commodity or production component. The system application and embedded application software represents most of the future opportunities for Advance Technologies. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES. (a) Directors and Executive Officers ------------------------ ------- ------------------------------- Name Age Position ------------------------ ------- ------------------------------- Gary E. Ball 68 CEO, President, and Director ------------------------ ------- ------------------------------- Gary L. Bane 67 Director (1) ------------------------ ------- ------------------------------- James Watson 57 Director (2) ------------------------ ------- ------------------------------- (1) Became a director on October 1, 2004. (2) Became a director on January 1, 2005. Page 7 (b) Qualifications Mr. James Watson has joined Advance Technologies Board of Directors. Mr. Watson's extensive experience as Director of Marketing for Western Airlines will provide valuable sight into marketing issues affecting the entry of EVS into the passenger segment of commercial aviation. Mr.Watson's term with the Board will begin January 1, 2005. Mr. JAMES R. WATSON Sales, Marketing and General Management Executive with over twenty- five years experience in managing a wide range of marketing, sales and operations functions designed to create or expand domestic and international sales opportunities. CALIFORNIA MANUFACTURING TECHNOLOGY CONSULTING, Gardena, California, 1999-Present, Vice President Operations 2001-Present He was responsible for marketing, sales, consulting services and the development of delivery tools and services. Re-directed the organization from a service to industry "Go to Market" strategy by establishing teams for the Aerospace & Defense and Distribution industry. In the past Mr. Watson was Vice President of Passenger & Cargo sales for WESTERN AIRLINES, Los Angeles, California. He was responsible for managing over 1100 people in sales programs, field sales, reservations and advertising with a budget in excess of $150 million. GARY E. BALL Age 68, residing in The Woodlands, Texas is married. He attended California State University at Long Beach graduated with a BSEE and MSEE, went on to perform Graduate Studies at University of Southern California. Was Program Manager for Hughes Aircraft where he developed the Infrared Enhanced Vision System reporting to the President of EDSG. Was a member of NATO NIAG study group on Aircraft Integration. He has authored several articles for trade publications, the last 9 years he has provided consulting services to 10 U.S. and foreign corporations in the field of IR technology. Gary L. Bane Age 67, Mr. Bane has been employed as an independent consultant for the last seven years after retiring from Boeing Marine Systems. Mr. Bane has BS and MS degrees from the University of Southern California in engineering and management fields. Mr. Bane belongs to several government committees involved in Ocean engineering and related fields. Mr. Bane has a large consulting practice in his field of Marine Engineering. Mr. Bane consults with Boeing and several other Marine engineering firms. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. ----------------------------------------- There has been no legal proceeding involving Advance Technologies Inc. Item 9. REMUNERATION OF DIRECTORS AND OFFICERS. --------------------------------------- Effective October 1, 2005 the previously approved Executive compensation plan was put into effect. Under the provision of the plan preferred shares of AVTX were issued to the CEO/President of AVTX and the Board of Directors. The issuing of these shares (160,000 Class B shares) to the Board of Directors and the Chief Operating Officer/President of Advance Technologies Inc. increased the outstanding shares of Class B to 26,177,157. This action is in accordance with the proposed and accepted Executive Compensation Plan. Page 8 Item 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS. --------------------------------------------------------------- Title of Name and address class of owner Amount owned Percent of class --------- ---------------- ------------ ---------------- Common Gary Ball 7,800,000 12% --------- ---------------- ------------ ---------------- Common Wendy Ball 7,800,000 12% --------- ---------------- ------------ ---------------- Common Gary L. Bane 1,200,000 2% --------- ---------------- ------------ ---------------- Preferred Jim Watson 20,000 ~ --------- ---------------- ------------ ---------------- PERSONS HOLDING WARRANTS, OPTIONS OR OTHER RIGHTS. -------------------------------------------------- No other person is known to hold 10% or more of a class of equity securities of AVTX. ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS. ----------------------------------------------------------- Gary Ball has provided office space for the executive offices of AVTX, for which Mr. Ball has received $0.00 monthly compensation. PART II ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS. ---------------------------------------------------------------- Advance Technologies Inc. is traded under the symbol of AVTX on the NASDAQ BB. The high and low share prices for the last two fiscal years by are: Common Stock Bid Price Low High Fiscal Year 2004 First Quarter .02 .09 Second Quarter .04 .08 Third Quarter .03 .05 Fourth Quarter .02 .03 Fiscal Year 2005 First Quarter .02 .04 Second Quarter .03 .09 Third Quarter .04 .08 Fourth Quarter .03 .06 SHAREHOLDERS OF AVTX Common Stock, (39,498,217 shares) there was 1,023 shareholders listed by Pacific Stock Transfer Company, our agent of record on December 31, 2005. Preferred Stock, (26,177,157) there were 128 shareholders listed by Pacific Stock Transfer Company, our agent of record on December 31, 2005. Page 9 DIVIDENDS There have been no dividends paid to shareholders in the last two years. EQUITY COMPENSATION PLANS The Equity Compensation paid to key employees, directors and/or Executive Officers in the last two years was 160,000 shares, October 15, 2005. ITEM 2. DESCRIPTION OF EXHIBITS ----------------------- See Item 2 of Part III, below. ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS --------------------------------------------- Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ---------------------------------------------------- Not applicable. ITEM 5. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. -------------------------------------------------- The Board of Directors, all Officers, and major shareholders of 10% or more of Advance Technologies Inc. are in compliance with all reporting requirements of the exchange act. Page 10 PART III ITEM 1. INDEX TO EXHIBITS Exhibit Number Description Page Number ------- ------------------------------------------------- ----------- 2.1 Articles of Incorporation (1) 2.2 Amendment to Articles of Incorporation filed on November 10, 1975(1) 2.3 Amendment to Articles of Incorporation filed on December 6, 1982(1) 2.4 Amended Bylaws (1) 3.1 See Articles of Incorporation, as Amended (1) 6.1 License Agreement dated July 1997 with Kollsman, Inc. (1) 31.1 Certification of President, Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 13 32.1 Certification of President, Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13-14 or Rule 15-14 of the Securities and Exchange Act of 1934 as adopted pursuant to Section 906 of The Sarbanes-Oxley act of 2002. 15 33.1 License Agreement with Infrared Vision Sensor System 16 (1) Incorporated by reference to the exhibits to Registrant's Registration Statement on Form 10-SB filed on August 30, 1999, File Number 000-27175. ITEM 2. DESCRIPTION OF EXHIBITS. ------------------------ The Exhibits follow the Signature Page. Page 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 12, 2006 Advance Technologies, Inc. (Registrant) By:/s/ GARY E. BALL --------------------------------------- Gary E. Ball President and Director Page 12