Edgar Filing: ADVANT E CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D. C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NUMBER: 0-30983

ADVANT-E CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE

88-0339012

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

2680 Indian Ripple Rd.

Dayton, Ohio 45440

(Address of principal executive offices)

(937) 429-4288

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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 Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined by Rule12b-2 of the Exchange Act). Yes ¨ No x

As of August 10, 2010 the issuer had 66,722,590 outstanding shares of Common Stock, $.001 Par Value.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

ADVANT-E CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)


	Three Months Ended June 30,			Six Months Ended June 30,
	2010		2009	2010	2009
Revenue	$	2,343,816	2,200,958	4,537,637	4,356,250
Cost of revenue		921,566	930,171	1,855,550	1,829,830

Gross margin		1,422,250	1,270,787	2,682,087	2,526,420
Marketing, general and administrative expenses		815,838	837,504	1,674,941	1,724,789

Operating income		606,412	433,283	1,007,146	801,631
Other income, net		1,205	25,484	2,004	5,834

Income before income taxes		607,617	458,767	1,009,150	807,465
Income tax expense		207,777	147,504	345,034	261,526

Net income	$	399,840	311,263	664,116	545,939

Earnings per share – basic and diluted	$	.006	.005	.010	.008

Weighted average shares outstanding – basic and diluted		66,722,590	66,890,260	66,722,590	67,006,980

The accompanying notes are an integral part of the consolidated condensed financial statements.

ADVANT-E CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS


	June 30, 2010 (Unaudited)		December 31, 2009
Assets
Current Assets:
Cash and cash equivalents	$	2,959,670	2,713,996
Accounts receivable, net		795,345	634,055
Prepaid software maintenance costs		191,517	162,507
Prepaid expenses and deposits		47,165	75,519
Prepaid income taxes		—	39,798
Deferred income taxes		160,903	139,144

Total current assets		4,154,600	3,765,019
Software development costs, net		227,091	149,956
Property and equipment, net		271,132	312,821
Goodwill		1,474,615	1,474,615
Other intangible assets, net		286,864	329,220

Total assets	$	6,414,302	6,031,631


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	122,942	115,546
Dividend payable		667,226	1,334,452
Accrued salaries and other expenses		385,085	146,699
Income taxes payable		50,341	—
Deferred revenue		680,302	582,298

Total current liabilities		1,905,896	2,178,995
Deferred income taxes		252,678	261,024

Total liabilities		2,158,574	2,440,019


Shareholders’ equity:
Common stock, $.001 par value; 100,000,000 shares authorized; 66,722,590 shares issued and outstanding at June 30, 2010; 66,951,010 shares issued and 66,722,590 shares outstanding at December 31, 2009		66,723	66,951
Paid-in capital		1,936,257	1,964,221
Retained earnings		2,252,748	1,588,632
Treasury stock at cost, 228,420 shares at December 31, 2009		—	(28,192	)

Total shareholders’ equity		4,255,728	3,591,612

Total liabilities and shareholders’ equity	$	6,414,302	6,031,631

The accompanying notes are an integral part of the consolidated condensed financial statements.

ADVANT-E CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)


	Six Months Ended June 30,
	2010			2009
Cash flows from operating activities:
Net income	$	664,116		545,939
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation		110,020		125,716
Amortization of software development costs		30,669		40,892
Amortization of other intangible assets		42,356		42,356
Loss on disposal of property and equipment		800		—
Deferred income taxes		(30,105	)	(74,778	)
Purchases of trading securities		—		(87,591	)
Proceeds from sales of trading securities		—		123,056
Net unrealized gain on trading securities		—		(24,158	)
Net realized loss on sales of securities		—		24,082
Increase (decrease) in cash arising from changes in assets and liabilities:
Accounts receivable		(161,290	)	(111,470	)
Prepaid software maintenance costs		(29,010	)	(20,210	)
Prepaid expenses and deposits		28,354		15,258
Prepaid income taxes		39,798		(2,709	)
Accounts payable		7,396		(49,749	)
Accrued salaries and other expenses		238,386		64,163
Income taxes payable		50,341		—
Deferred revenue		98,004		30,153

Net cash flows from operating activities		1,089,835		640,950


Cash flows from investing activities:
Purchases of property and equipment		(69,131	)	(9,569	)
Software development costs		(107,804	)	—

Net cash flows from investing activities		(176,935	)	(9,569	)


Cash flows from financing activities:
Purchase of treasury shares		—		(42,190	)
Dividends paid		(667,226	)	—

Net cash flows from financing activities		(667,226	)	(42,190	)

Net increase in cash and cash equivalents		245,674		589,191
Cash and cash equivalents, beginning of period		2,713,996		2,090,005

Cash and cash equivalents, end of period	$	2,959,670		2,679,196


Supplemental disclosures of cash flow items:
Income taxes paid	$	285,000		339,013
Non-cash transaction: retirement of shares		28,192		623

The accompanying notes are an integral part of the consolidated condensed financial statements.

ADVANT-E CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

June 30, 2010

Note 1: Basis of Presentation, Organization and Other Matters

The accompanying unaudited interim consolidated condensed financial statements as of June 30, 2010 and for the three and six-month periods ended June 30, 2010 and 2009, together with the accompanying consolidated condensed balance sheet as of December 31, 2009, which has been derived from audited financial statements, have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although management believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments, which were normal and recurring in nature, considered necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods.

Results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the full year ending December 31, 2010. These unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements, accounting policies, and financial notes thereto included in Advant-e Corporation’s 2009 Form 10-K filed with the Securities and Exchange Commission.

Nature of Operations

Advant-e Corporation through its wholly-owned subsidiaries, Edict Systems, Inc. and Merkur Group, Inc. (collectively, the “Company”), develops, markets, resells, and hosts software and provides services that allow its customers to send and receive business documents electronically in standard and proprietary formats. Edict Systems specializes in providing hosted Electronic Data Interchange solutions that utilize the Internet as the primary communications method. Customers use Edict Systems solutions to connect with business partners, integrate data with internal systems, expand and manage electronic trading communities, and validate data via a hosted business rule service. Merkur Group develops and resells software, provides professional services, and provides technical maintenance and support that enables customers to automate delivery and receipt of business documents. Merkur Group provides proprietary software that integrates and connects large Supply Chain Management (SCM), Customer Relationship Management (CRM), and Enterprise Resource Planning (ERP) systems with third party software that provides multiple delivery and document capture options. Customers consist of businesses across a number of industries primarily throughout the United States, and to a much lesser extent some foreign locations, principally Canada, Mexico, and Puerto Rico.

Principles of Consolidation

The consolidated financial statements include the accounts of Advant-e Corporation and its wholly-owned subsidiaries, Edict Systems, Inc., and Merkur Group, Inc. Inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates used in preparing these financial statements include those considered in the assessment of recoverability of capitalized software development costs, the assessment of potential impairment of goodwill, the assessment of the collectability of accounts receivable and the recording of prepaid software maintenance costs and deferred revenue. A reasonable possibility exists that estimates used will change within the next year.

Note 2: Stock Split and Dividend

In 2009 the Company completed a ten-for-one stock split of the Company’s common stock, wherein shareholders of record on November 30, 2009 received on December 2, 2009 nine additional shares of stock for each share held on that date. As a result, the Company issued 60,255,909 additional shares. All references to shares and per share amounts in the accompanying consolidated condensed financial statements and notes to consolidated financial statements report the effect of the stock split retrospectively.

In 2009 the Company’s Board of Directors declared a dividend of $0.03 per share (after the aforementioned ten-for-one stock split), payable in three installments of $.01 each. The first installment was paid in December 2009 and the second installment was paid in June 2010. The third and final installment is payable by no later than December 31, 2010. The Company reported as a current liability on the accompanying consolidated condensed balance sheet the third installment totaling $667,226 ($0.01 per share).

Note 3: Line of Credit

At June 30, 2010, the Company has a $1,500,000 bank line of credit. Any borrowings under the line of credit accrue interest at the bank’s prime commercial rate, are collateralized by substantially all of the assets of the Company’s subsidiaries, and are payable in full when the line of credit expires on June 29, 2011. Interest is payable monthly. The line of credit is guaranteed by the Company’s Chief Executive Officer. No borrowings were outstanding at June 30, 2010.

Note 4: Income taxes

Income tax expense consists of the following:


	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010		2009
Current expense	$	214,501		177,244		375,139		336,304
Deferred benefit		(6,724	)	(29,740	)	(30,105	)	(74,778	)

Total income tax expense	$	207,777		147,504		345,034		261,526

The difference between total income tax expense and the amount computed at the federal statutory rate of 34% is attributable to the effects of certain non-deductible expenses in the three and six months ended June 30, 2010 and to the effect of state income taxes in the three and six months ended June 30, 2009.

Note 5: Operating Segment Information

The Company has two reportable segments: Internet-based electronic commerce document processing (Edict Systems, Inc.) and software-based electronic commerce document processing (Merkur Group, Inc.). The Company evaluates the performance of each reportable segment on income before income taxes excluding the effects of acquisition-related amortization of other intangible assets and related income taxes. The accounting policies of the segments are the same as those for the Company. The Company’s reportable segments are managed as separate business units. The following segment information is for the three months ended June 30, 2010 and 2009:


	Three Months Ended June 30, 2010
	Internet-based		Software	Reconciling Items (a)		Total Consolidated
Revenue	$	1,893,311	450,505	—		2,343,816
Income before income taxes		494,074	134,720	(21,178	)	607,616
Income tax expense		169,152	45,827	(7,202	)	207,777
Net Income		324,922	88,894	(13,976	)	399,840
Segment assets at June 30, 2010		2,949,262	1,641,267	1,823,773		6,414,302

	Three Months Ended June 30, 2009
	Internet-based		Software	Reconciling Items (a)		Total Consolidated
Revenue	$	1,759,693	441,265	—		2,200,958
Income before income taxes		376,146	103,799	(21,178	)	458,767
Income tax expense		123,200	31,506	(7,202	)	147,504
Net Income		252,946	72,293	(13,976	)	311,263
Segment assets at June 30, 2009		3,047,956	1,408,095	1,865,737		6,321,788

The following segment information is for the six months ended June 30, 2010 and 2009:


	Six Months Ended June 30, 2010
	Internet-based		Software	Reconciling Items (a)		Total Consolidated
Revenue	$	3,794,692	742,945	—		4,537,637
Income before income taxes		909,430	142,076	(42,356	)	1,009,150
Income tax expense		311,109	48,328	(14,403	)	345,034
Net Income		598,321	93,748	(27,953	)	664,116


	Six Months Ended June 30, 2009
	Internet-based		Software	Reconciling Items (a)		Total Consolidated
Revenue	$	3,480,598	875,652	—		4,356,250
Income before income taxes		696,671	153,150	(42,356	)	807,465
Income tax expense		235,763	48,444	(22,681	)	261,526
Net Income		460,908	104,706	(19,675	)	545,939

(a)	Reconciling items generally consist of goodwill, other intangible assets and related amortization in connection with the Merkur Group, Inc. acquisition.

Revenue from customers located in areas outside the United States, principally in Canada, Mexico, and Puerto Rico, totaled less than 3% of consolidated revenue in the six months ended June 30, 2010 and 2009.

Note 6: Recently Issued Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2009-13, “Multiple-Deliverable Revenue Arrangements,” which amends Accounting Standards Codification (ASC) Topic 605, “Revenue Recognition.” ASU 2009-13 amends the ASC to eliminate the residual method of allocation for multiple-deliverable revenue arrangements, and requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. The ASU also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence if available, (2) third-party evidence if vendor-specific objective evidence is not available, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available. Additionally, ASU 2009-13 expands the disclosure requirements related to a vendor’s multiple-deliverable revenue arrangements. The changes to the ASC as a result of this update are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company does not anticipate the adoption of this guidance will have a material impact on the consolidated condensed financial statements.

In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements,” which amends ASC Topic 985, “Software.” ASU 2009-14 amends the ASC to change the accounting model for revenue arrangements that include both tangible products and software elements, such that tangible products containing both software and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of software revenue guidance. The changes to the ASC as a result of this update are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company does not anticipate the adoption of this guidance will have a material impact on the consolidated condensed financial statements.

In December 2009, the FASB issued ASU 2009-17, which codifies Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R)” issued in June 2009. ASU 2009-17 requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (“VIE”), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. ASU 2009-17 was effective for annual reporting periods beginning after November 15, 2009. The adoption of this guidance had no material impact on the Company’s consolidated condensed financial statements.

ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This Form 10-Q contains forward-looking statements, including statements regarding the expectations of future operations. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within the Company’s control. These factors include, but are not limited to, economic conditions generally and in the industries in which the Company may participate, competition within the chosen industry, including competition from much larger competitors, technological advances, and the failure to successfully develop business relationships. In light of these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. This item should be read in conjunction with “Item 1. Financial Statements” and other items contained elsewhere in this report.

Products and services

Critical Accounting Policies and Estimates

Revenue recognition

The Company recognizes revenues when, in addition to other criteria, delivery has occurred or services have been rendered.

Revenues from Internet-based products and services are comprised of four components—account activation and trading partner set-up fees, monthly subscription fees, usage-based transactional fees and customer payments for the Company’s development of applications designed to meet specific customer specifications.

Revenues earned from account activation and trading partner set-up fees are recognized after the Company performs consultative work required in order to establish an electronic trading partnership between the customer and their desired trading partners. Trading partnerships, once established, require no ongoing effort on the part of the Company and customers are able to utilize the electronic trading partnerships either directly with their customers or via a service provider other than the Company.

Revenue from monthly subscription fees is recognized over the period to which the subscription applies.

Revenue from usage based transaction fees is recognized in the period in which the transactions are processed.

Revenue from customer payments for the Company’s development of applications designed to meet specific customer specifications is recognized over the contract period, generally twelve months.

Revenue from the sale of software and related products is recognized upon delivery of the software to the customer when title and risk of loss are transferred. Additionally, the Company records revenue from the sale of software and related products at gross, and the related software purchases are included in cost of sales. Customers have a 30-day period in which they can choose to accept or return the software. Historically, customer returns have not been significant.

Revenue from maintenance contracts is recognized over the life of the maintenance and support contract period, generally twelve months. Revenue from professional services is recognized upon performance of those services.

Software Development Costs

The Company accounts for the costs of computer software that it develops for internal use and costs associated with operation of its web sites in accordance with the Accounting Standards Codification (ASC) Topic 350, “Intangibles-Goodwill and Other” by capitalizing those costs. Such capitalized costs represent solely the salaries and benefits of employees working on the graphics and content development stages, or adding functionality or features. In accordance with ASC Topic 350, overhead, general and administrative and training costs are not capitalized. The Company accounts for the costs of computer software that it sells, leases and markets as a separate product in accordance with ASC Topic 985. Capitalized costs are amortized by the straight-line method over the remaining estimated economic lives of the software application, generally three years, and are reported at the lower of unamortized cost or net realizable value.

The ongoing assessment of recoverability of capitalized software development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life and changes in software and hardware technologies. Impairment of asset value is considered whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Goodwill and Other Intangible Assets

Management assesses goodwill related to the July 2, 2007 acquisition of Merkur Group, Inc. for impairment on an annual basis at year-end, and between annual tests if an event occurs or circumstances change that may more likely than not reduce the fair value of a reporting unit below its carrying value. Significant management judgment is required in assessing the impairment of goodwill, including the assignment of assets and liabilities and determination of fair value. Management uses the discounted cash flow method, which requires significant judgments and assumptions for estimates of future cash flows, growth rate, and useful life of the cash flows, and determination of the cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment, if any.

Recently Issued Accounting Pronouncements

For a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on the Company’s consolidated condensed financial statements, see Note 6: Recently Issued Accounting Pronouncements in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q.

Results of Operations: Second Quarter of 2010 Compared to Second Quarter of 2009

Revenue

Revenue for the Company in the second quarter of 2010 increased 6% compared to the second quarter of 2009. Revenue for Edict Systems increased by 8% and revenue for Merkur Group increased by 2%.


	Q2 2010			Q2 2009		Increase
	Amount		% of Total	Amount	% of Total	Amount	%
Edict Systems	$	1,893,311	81	1,759,693	80	133,618	8
Merkur Group		450,505	19	441,265	20	9,240	2

Total revenue	$	2,343,816	100	2,200,958	100	142,858	6

Edict Systems Revenue.

Revenue in the second quarter of 2010 and 2009 from the sale of Internet based Electronic Data Interchange (EDI) products and services sold by Edict Systems is summarized below:


	Q2 2010			Q2 2009		Increase (Decrease)
	Amount		% of Total	Amount	% of Total	Amount		%
Web EDI
GroceryEC	$	1,324,038	70	1,213,132	69	110,906		9
AutomotiveEC		155,461	8	133,858	7	21,603		16
Other Web EDI		49,931	3	50,620	3	(689	)	(1	)
EnterpriseEC		344,129	18	332,554	19	11,575		3
Other products and services		19,752	1	29,529	2	(9,777	)	(50	)

Total	$	1,893,311	100	1,759,693	100	133,618		8

•

Revenue from GroceryEC increased 9% in the second quarter of 2010 compared to the second quarter of 2009 due to an increase in the volume of transactions processed and due to a nominal price increase in January 2010.

•

Revenue from AutomotiveEC increased by 16% in the second quarter of 2010 compared to the second quarter of 2009 due to an increase in the volume of transactions and to the aforementioned price increase.

•

Revenue from EnterpriseEC, the Company’s value added network, increased by 3% in the second quarter of 2010 compared to the second quarter of 2009 due to increased volume of EDI transactions processed for large grocery companies. Significant pricing pressures and the availability of alternate connectivity options continue to adversely affect revenue growth for EnterpriseEC.

The Company is continuing its product development and sales and marketing efforts to increase activity in currently supported industries and to develop business in other industries, primarily health care and consumer packaged goods.

Merkur Group Revenue.

Revenue in the second quarter of 2010 and 2009 from the sale of software based products and services sold by Merkur Group is summarized below:


	Q2 2010			Q2 2009		Increase (Decrease)
	Amount		% of Total	Amount	% of Total	Amount		%
Software	$	104,804	23	117,893	28	(13,089	)	(11	)
Hardware		40,376	9	46,030	10	(5,654	)	(12	)
Maintenance contracts		219,813	49	212,847	48	6,966		3
Professional services		78,355	17	58,569	13	19,786		34
Other		7,157	2	5,926	1	1,231		21

Total	$	450,505	100	441,265	100	9,240		2

Revenue for Merkur Group increased by 2% in the second quarter of 2010 compared to the second quarter of 2009 due primarily to increased professional services revenue related to installation of software version upgrades and document processing capacity upgrades. Some customers continued to delay software purchases due to persistent doubts concerning the economic recovery and the uncertainty of future economic conditions. These postponed software decisions have a direct adverse affect on all Merkur’s revenue sources.

Merkur Group revenue in the second quarter of 2010 showed significant improvement compared to the first quarter of 2010 as revenue increased by $158,065, or 54%. This increased revenue occurred along all lines of products and services, but particularly software, hardware, and professional services.

Net income

Net income for the second quarter of 2010 compared to the second quarter of 2009 is summarized below.


						Increase
	Q2 2010			Q2 2009		Amount	%
Edict Systems	$	324,922		252,946		71,976	28
Merkur Group		88,894		72,293		16,601	23
Amortization of intangible assets, net of income tax effects		(13,976	)	(13,976	)	—	—

Total Net income	$	399,840		311,263		88,577	28

•

The increase for Edict Systems was due primarily to revenue growth described above together with no appreciable increase in overall costs and expenses.

•

The increase for Merkur Group was primarily due to workforce reductions, decreased sales commissions and profit-related bonuses, and reduced marketing expenses.

•

Merkur Group net income in the second quarter of 2010 showed substantial improvement compared to the first quarter of 2010 as net income increased by $84,039 from $4,855. The increase occurred as a result of revenue increases along all lines of products and services and reductions in certain costs and expenses.

Gross margin and cost of revenue

The Company’s gross margin, as a percent of revenue, increased from 58% in the second quarter of 2009 to 61% in the second quarter of 2010 on the strength of increased revenue coupled with a slight decline in cost of revenue.

Marketing, general and administrative expenses

Marketing, general and administrative expenses decreased by $21,666, or 3%, in the second quarter of 2010 compared to the second quarter of 2009, due primarily to reductions of sales commissions, profit-related bonuses, and certain sales and marketing expenses.

Other income, net

Other income, net declined by $24,279 in the second quarter of 2010 compared to the second quarter of 2009 because the Company reported gains on short-term investments in the second quarter of 2009 which did not occur in 2010.

Results of Operations: Six Months Ended June 30, 2010 compared to Six Months Ended June 30, 2009

Revenue

Revenue for the Company in the first six months of 2010 increased 4% compared to the first six months of 2009. Revenue for Edict Systems increased by 9% and revenue for Merkur Group decreased by 15%.


	Six months ended June 30, 2010			Six months ended June 30, 2009		Increase (Decrease)
	Amount		% of Total	Amount	% of Total	Amount		%
Edict Systems	$	3,794,692	84	3,480,598	80	314,094		9
Merkur Group		742,945	16	875,652	20	(132,707	)	(15	)

Total revenue	$	4,537,637	100	4,356,250	100	181,387		4

Edict Systems Revenue

Revenue in the first six months of 2010 and 2009 from the sale of Internet based Electronic Data Interchange (EDI) products and services sold by Edict Systems are summarized below:


	Six months ended June 30, 2010			Six months ended June 30, 2009		Increase
	Amount		% of Total	Amount	% of Total	Amount	%
Web EDI
GroceryEC	$	2,636,074	69	2,387,272	69	248,802	10
AutomotiveEC		308,352	8	280,261	8	28,091	10
Other Web EDI		100,504	3	99,995	3	509	1
EnterpriseEC		678,071	18	654,058	19	24,013	4
Other products and services		71,691	2	59,012	1	12,679	71

Total	$	3,794,692	100	3,480,598	100	314,094	9

•

Revenue from GroceryEC increased 10% in the first six months of 2010 compared to the first six months of 2009, due to an increase in the volume of transactions processed and due to a nominal price increase in January 2010.

•

Revenue from AutomotiveEC increased by 10% in the first six months of 2010 compared to the first six months of 2009 due to an increase in the volume of transactions processed and the aforementioned price increase.

•

Revenue from EnterpriseEC, the Company’s value added network, increased by 4% in the first six months of 2010 compared to the first six months of 2009 due to increased volume of EDI transactions processed for large grocery companies.

Merkur Group Revenue

Revenue in the first six months of 2010 and 2009 from the sale of software based products and services sold by Merkur Group is summarized below:


	Six months ended June 30, 2010			Six months ended June 30, 2009		Increase (Decrease)
	Amount		% of Total	Amount	% of Total	Amount		%
Software	$	124,759	17	220,582	25	(95,823	)	(43	)
Hardware		61,248	8	64,610	7	(3,362	)	(5	)
Maintenance contracts		435,613	59	440,347	50	(4,734	)	(1	)
Professional services		108,470	15	142,269	17	(33,799	)	(24	)
Other		12,855	2	7,844	1	5,011		64

Total	$	742,945	100	875,652	100	(132,707	)	(15	)

Revenue for Merkur Group decreased by 15% in the first six months of 2010 compared to the first six months of 2009 as some customers continued to delay software purchases due to persistent doubts concerning the economic recovery and the uncertainty of future economic conditions. This decrease occurred primarily in the first quarter of 2010, however, as total revenue increased slightly in the second quarter of 2010 compared to 2009.

Net Income

Net income for the first six months of 2010 compared to the first six months of 2009 is summarized below:


	Six months ended June 30, 2010			Six months ended June 30, 2009		Increase (Decrease)
	Six months ended June 30, 2010			Six months ended June 30, 2009		Amount		%
Edict Systems	$	598,321		460,908		137,413		30
Merkur Group		93,748		104,706		(10,958	)	(10	)
Amortization of intangible assets, net of income tax effects		(27,953	)	(19,675	)	(8,278	)	(42	)

Total Net Income	$	664,116		545,939		118,177		21

•

The increase for Edict Systems was due to increased revenue from all lines of products and services, partially offset by increased personnel-related expenses pertaining to the addition of customer service and marketing personnel.

•

The decline for Merkur Group was due to decreased revenue that occurred in the first quarter of 2010. Merkur partially offset the revenue decline by reductions in personnel, sales commissions, profit-related bonuses, and certain sales and marketing expenses.

Gross margin and cost of revenue

The Company’s gross margin, as a percent of revenue, increased from 58% in the first six months of 2009 to 59% in the first six months of 2010 primarily due to continuing efforts to control costs and due to growth in revenue from Edict Systems products and services which overall have a higher gross margin than Merkur’s products and services.

Marketing, general and administrative expenses

Marketing, general and administrative expenses decreased by $49,848, or 3%, in the first six months of 2010 compared to the first six months of 2009, due primarily to reductions of sales commissions, profit-related bonuses, and certain sales and marketing expenses.

Liquidity and Capital Resources

In the first six months of 2010, the Company generated net cash flows from operating activities of $1,089,835 due primarily to net income adjusted for non-cash expenses for depreciation and amortization, payment of the January 1, 2010 payroll on December 31, 2009, and increased deferred revenue related to software maintenance contracts and certain development contracts.

Management believes that the Company will have sufficient financial resources to meet business requirements during the remainder of 2010 that include payment of the final installment of the dividends declared in 2009 totaling $667,226, reported as a current liability on the June 30, 2010 consolidated condensed balance sheet.

The Company has available an unused line of credit for $1.5 million that expires on June 29, 2011.

Changes in Consolidated Condensed Balance Sheet from December 31, 2009 to June 30, 2010

Some balance sheet changes that occurred in the first six months of 2010 that are not described elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are described below:

•

Accounts receivable increased by $161,290 because software maintenance contract billings are substantially higher in 2010 than in the fourth quarter of 2009, and because relatively low revenue for Merkur in the fourth quarter of 2009 resulted in a relatively low accounts receivable balance at December 31, 2009.

•

Software development costs increased by $77,135 due to the capitalization of $107,804 of salaries, wages, and payroll taxes during the first six months of 2010 related to enhancements of the new version of Web EDI, reduced by amortization expense of $30,669 related to software development costs that were capitalized primarily in 2006 and 2007.

•

Income taxes payable increased by $50,341 and the related prepaid income taxes decreased by $39,798. These amounts resulted from applying the overpayment of income taxes at December 31, 2009 to 2010 income taxes and from the calculation methods and timing of 2010 quarterly estimated tax payments.

ITEM 4T. Controls and Procedures

Attached as exhibits to the Form 10-Q are certifications of the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the Exchange Act). These “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

The CEO and the CFO have conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Disclosure controls and procedures are designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

Based upon the controls evaluation, our CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure; and that the Company’s disclosure controls and procedures were effective during the period covered by the Company’s report on Form 10-Q for the quarterly period ended June 30, 2010.

During the period covered by this report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K


Exhibit Number	Description	Method of Filing
3(i)	Amended Certificate of Incorporation	Previously filed (A)

3(ii)	By-laws	Previously filed (B)

4	Instruments defining the rights of security holders including indentures	Previously filed (C)

31.1	Rule 13a-14(a)/15d-14(a) Certification	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification	Filed herewith

32.1	Section 1350 Certification	Filed herewith

32.2	Section 1350 Certification	Filed herewith

(A)	Filed with Form 10-K filed as of March 30, 2010

(B)	Filed with Amendment No. 1 to Form 10-SB filed as of July 17, 2000

(C)	Form of Common Stock Certificate Filed with Amendment No. 2 to Form 10-SB filed as of October 13, 2000.

Signatures

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Advant-e Corporation
	(Registrant)

August 10, 2010	By:	/s/ Jason K. Wadzinski
		Jason K. Wadzinski
		Chief Executive Officer
		Chairman of the Board of Directors

August 10, 2010	By:	/s/ James E. Lesch
		James E. Lesch
		Chief Financial Officer
		Principal Accounting Officer
		Member of the Board of Directors