UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to _________
Commission file Number 333-106299
ADVANCED SPORTS TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 65-1139235
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
2 Briar Lane, Natick, Massachusetts 01760
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(Address of principal executive offices)
(508) 647-4065
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(Issuer's telephone number)
Check whether the issuer: (1) filed all documents 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 |X| No |_|
The number of shares of the registrant's common stock, par value $0.0001 per
share, outstanding as of November 8, 2005 was 33,175,009 shares assuming
conversion of all CardioBioMedical Corporation common shares into registrant's
common stock.
PART I - FINANCIAL INFORMATION
Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2005 (unaudited) 1
Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2005 and 2004 and for the period from
May 28, 2003 (inception) to September 30, 2005 (unaudited) 2 Condensed 2
Consolidated Statement of Stockholders' Deficiency for the period
from May 28, 2003 (inception) to September 30, 2005 (unaudited) 3
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2005 and 2004 and for the period from
May 28, 2003 (inception) to September 30, 2005 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 14
Item 3. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Certifications 20
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30,
2005
-------------
ASSETS
CURRENT ASSETS
Cash $ 1,088
-------------
Total Current Assets 1,088
-------------
PROPERTY AND EQUIPMENT, NET 20,937
OTHER ASSETS
License, net 143,238
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TOTAL ASSETS $ 165,263
=============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 92,107
Due to related party, current portion 50,000
Loans payable - officer and stockholder 61,140
-------------
Total Current Liabilities 203,247
DUE TO RELATED PARTY, NET OF CURRENT PORTION 260,000
-------------
TOTAL LIABILITIES 463,247
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STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.0001 par value, 20,000,000 shares authorized,
none issued and outstanding --
Common stock, $0.0001 par value, 100,000,000 shares authorized,
33,175,009 shares issued and outstanding 3,319
Additional paid-in capital 3,485,172
Accumulated deficit during development stage (3,786,475)
-------------
Total Stockholders' Deficiency (297,984)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 165,263
=============
See accompanying notes to consolidated financial statements.
- 1 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period
from
For the Three For the Three For the Nine For the Nine May 28, 2003
Months Ended Months Ended Months Ended Months Ended (Inception) To
September 30, September 30, September 30, September 30, September 30,
2005 2004 2005 2004 2005
------------- ------------- ------------- ------------- --------------
OPERATING EXPENSES
Stock issued for services $ 150,000 $ -- $ 150,000 $ -- $ 1,682,500
General and administrative 4,677 5,482 17,666 22,163 71,498
Depreciation and amortization 35,243 32,526 98,025 92,331 293,766
Royalties 25,000 12,813 150,000 53,438 353,438
Professional fees 24,702 474 29,552 12,483 257,575
Research and development 49,075 27,962 126,647 110,769 203,887
------------- ------------- ------------- ------------- --------------
Total Operating Expenses 288,697 79,257 571,890 291,184 2,862,664
------------- ------------- ------------- ------------- --------------
NET LOSS FROM OPERATIONS (288,697) (79,257) (571,890) (291,184) (2,862,664)
OTHER INCOME (EXPENSE)
Interest expense (890) -- (1,266) -- (1,266)
Interest income 2 896 110 2,109 2,788
Loss on termination of exclusive rights (924,421) -- (924,421) -- (924,421)
------------- ------------- ------------- ------------- --------------
Total Other Income (Expense) (925,309) 896 (925,577) 2,109 (922,899)
------------- ------------- ------------- ------------- --------------
LOSS FROM OPERATIONS (1,214,006) (78,361) (1,497,467) (289,075) (3,785,563)
Provision for Income Taxes -- (456) -- (456) (912)
------------- ------------- ------------- ------------- --------------
NET LOSS $ (1,214,006) $ (78,817) $ (1,497,467) $ (289,531) $ (3,786,475)
============= ============= ============= ============= ==============
Net loss per share - basic and diluted $ (0.05) $ -- $ (0.07) $ -- $ (0.17)
============= ============= ============= ============= ==============
Weighted average number of shares
outstanding during the
period - basic and diluted 22,921,884 22,077,509 22,362,060 22,077,509 22,173,651
============= ============= ============= ============= ==============
See accompanying notes to consolidated financial statements.
- 2 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLDIATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM MAY 28, 2003 (INCEPTION) TO SEPTEMBER 30, 2005
(UNAUDITED)
Accumulated
Additional Deficit During
Preferred Stock Common Stock Paid-In Development
Shares Amount Shares Amount Capital Stage Total
--------- ----------- ----------- ----------- ----------- ---------------- -----------
Common stock issued to
founders for cash
($0.10 per share) -- $ -- 2,500 $ 1 $ 249 $ -- $ 250
Common stock issued for
license ($0.10 per share) -- -- 16,500,000 1,650 1,648,350 -- 1,650,000
Common stock issued to
officer as compensation
($0.10 per share) -- -- 7,125,000 713 711,787 -- 712,500
Common stock issued for
cash ($0.10 per share) -- -- 800,000 80 79,920 -- 80,000
Common stock issued for
cash ($0.45 per share) -- -- 277,778 28 124,972 -- 125,000
Common stock issued to
consultant for services
($0.10 per share) -- -- 8,200,000 820 819,180 -- 820,000
Net loss for the period
from May 28, 2003
(inception) to December
31, 2003 -- -- -- -- -- (1,737,805) (1,737,805)
--------- ----------- ----------- ----------- ----------- ---------------- -----------
Balance, December 31, 2003 -- -- 32,905,278 3,292 3,384,458 (1,737,805) 1,649,945
See accompanying notes to consolidated financial statements.
- 3 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLDIATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM MAY 28, 2003 (INCEPTION) TO SEPTEMBER 30, 2005
(UNAUDITED)
Accumulated
Additional Deficit During
Preferred Stock Common Stock Paid-In Development
Shares Amount Shares Amount Capital Stage Total
-------- -------- ----------- ----------- ----------- -------------- -----------
Common stock issued
for cash ($0.45
per share) -- -- 672,231 67 302,436 -- 302,503
Net loss, 2004 -- -- -- -- -- (551,203) (551,203)
-------- -------- ----------- ----------- ----------- -------------- -----------
Balance, December
31, 2004 -- -- 33,577,509 3,359 3,686,894 (2,289,008) 1,401,245
Cancellation of common
stock issued for
exclusive license
($0.03 per share) -- -- (16,500,000) (1,650) (493,350) -- (495,000)
Shares issued for
services ($0.03
per share) -- -- 5,000,000 500 149,500 -- 150,000
Shares issued in
reverse merger -- -- 11,097,500 1,110 (1,110) -- --
Warrants issued for
license -- -- -- -- 143,238 -- 143,238
Net loss for the nine
months ended September
30, 2005 -- -- -- -- -- (1,497,467) (1,497,467)
-------- -------- ----------- ----------- ----------- -------------- -----------
BALANCE, SEPTEMBER 30, 2005 -- $ -- 33,175,009 $ 3,319 $ 3,485,172 $ (3,786,475) $ (297,984)
======== ======== =========== =========== =========== ============== ===========
See accompanying notes to consolidated financial statements.
- 4 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLDIATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period
from
For the Nine For the Nine May 28, 2003
Months Ended Months Ended (Inception) To
September 30, September 30, September 30,
2005 2004 2005
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,497,467) $ (289,531) $ (3,786,475)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock issued for services 150,000 -- 1,682,500
Depreciation and amortization 98,025 92,331 293,766
Loss on termination of exclusive rights 924,421 -- 924,421
Changes in operating assets and liabilities:
Increase in accounts payable and accrued expenses 82,280 (3,369) 92,107
Increase in accrued royalty expenses 150,000 2,812 303,438
Increase in accounts payable - related party -- (22,750) 57,250
------------- ------------- --------------
Net Cash Used In Operating Activities (92,741) (220,507) (432,993)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (820) (34,812)
Purchase of license rights -- -- (100,000)
------------- ------------- --------------
Net Cash Used In Investing Activities -- (820) (134,812)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 302,503 507,753
Due to stockholder 45,727 -- 61,140
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Net Cash Provided By Financing Activities 45,727 302,503 568,893
------------- ------------- --------------
NET INCREASE (DECREASE) IN CASH (47,014) 81,176 1,088
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 48,102 45,606 --
------------- ------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,088 $ 126,782 $ 1,088
============= ============= ==============
See accompanying notes to consolidated financial statements.
- 5 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLDIATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period
from
For the Nine For the Nine May 28, 2003
Months Ended Months Ended (Inception) To
September 30, September 30, September 30,
2005 2004 2005
---------------- ---------------- ---------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for income taxes $ -- $ 456 $ 912
================ ================ ==============
Cash paid for interest $ 1,266 $ -- $ --
================ ================ ==============
See accompanying notes to consolidated financial statements.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During 2003, CardioBioMedical Corporation issued 16,500,000
shares of its common stock with a fair value of $1,650,000 for the license
rights to the bio-cybernetic and frequency analysis technologies.
During 2005, CBM cancelled 16,500,000 shares of its common stock with a
fair value of $495,000 for the termination of the exclusive rights to the
bio-cybernetic and frequency analysis technologies.
During 2005, CBM issued warrants to purchase 6,500,000 of its common
shares at $0.01 for rights to the bio-cybernetic and frequency analysis
technologies valued at $143,238, which warrants were exchanged for a warrant to
purchase Advanced Sports Technologies, Inc. common stock in connection with the
merger as discussed in the notes hereto.
- 6 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization
Advanced Sports Technologies, Inc. ("AST") is a Florida corporation
incorporated on August 9, 2001. AST was focused on developing and marketing
premium-quality, premium-priced, branded fitness and exercise equipment to the
home fitness equipment market. CardioBioMedical Corporation ("CBM"), now a
wholly-owned subsidiary of AST, is a Delaware corporation incorporated on May
28, 2003. CBM was formed to commercialize, in licensed territories, devices
incorporating proprietary technology for the early diagnosis of coronary artery
disease.
On September 23, 2005, a merger between AST and CBM was effected
pursuant to the terms of an Agreement and Plan of Merger, dated September 23,
2005 (the "Merger Agreement"), among AST, AST Acquisition Sub, Inc., a newly
formed Delaware corporation and wholly-owned subsidiary of AST ("Sub"), and CBM.
Pursuant to the Merger Agreement, Sub was merged with and into CBM, with CBM as
the surviving entity. CBM thereafter continued under the CardioBioMedical
Corporation name as a subsidiary of AST, and the separate existence of Sub
ceased as of the effective time of the Merger, which was September 23, 2005.
The Merger Agreement provided for the issuance by AST to the
stockholders of CBM of up to an aggregate 22,077,509 shares of AST common stock
and the issuance to a warrant holder of CBM of a warrant to purchase 6,500,000
shares of common stock of AST at an exercise price of $0.01 per share. At the
effective time of the Merger and without any action on the part of CBM
stockholders, each share of CBM common stock (except for shares held in treasury
and dissenting shares) was converted into the right to receive one share of AST
common stock. All shares of CBM common stock (including all shares held in
treasury) and warrants to purchase such stock were deemed to be no longer
outstanding and automatically cancelled and retired. The shares of AST common
stock and the warrant to purchase such shares issued in connection with the
merger are restricted securities and bear a restricted legend. As a result of
the Merger Agreement, the transaction was treated for accounting purposes as a
recapitalization by the accounting acquirer, CBM.
Accordingly, the financial statements included in this quarterly report
on Form 10-QSB include the following:
(1) The balance sheet consists of the net assets of the accounting
acquirer, CBM, at historical cost and the net assets of the accounting acquiree,
AST, at historical cost.
(2) The statements of operations include the operations of CBM for the
periods presented and the operations of AST from the date of the merger.
(B) Basis of Presentation
The accompanying condensed consolidated financial statements include
the accounts of AST and its wholly-owned subsidiary. All significant
inter-company accounts and transactions have been eliminated in consolidation.
Certain amounts appearing in the prior year's footnote disclosures have been
re-classified to conform to the current year's presentation.
- 7 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying interim period financial statements are unaudited. It
is management's opinion, however, that all such financial statements reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the results for the interim periods presented and in order to
make the financial statements not misleading. The results for the interim
periods are not necessarily indicative of the results to be expected for the
fiscal year ending December 31, 2005.
Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission, although the company believes the
disclosures herein are adequate to make the information presented not
misleading.
(C) Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
(D) Income Taxes
The company accounts for income taxes under SFAS No. 109, Accounting
for Income Taxes ("SFAS No. 109"). Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is established when necessary
to reduce net tax deferred assets to the amount expected to be realized.
(E) Loss Per Share
Basic loss per share is computed by dividing the net loss (the
numerator) by the weighted average number of common shares outstanding (the
denominator) during the period. Shares issued during the period and shares
reacquired during the period are weighted for the portion of the period that
they were outstanding. The computation of diluted loss per share is similar to
the computation of basic loss per share except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued (e.g. upon
exercise of stock options). Potentially dilutive common shares are not included
in the computation of diluted earnings per share if they are anti-dilutive.
As of September 30, 2005, there were 6,500,000 warrants outstanding
that were not included in dilutive net loss per share, as the effect was
anti-dilutive. As of September 30, 2004, there were no common share equivalents
outstanding.
(F) Revenue Recognition
- 8 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenues from the sale of the company's products are recognized upon
delivery of the equipment and when risk of loss has been transferred to the
customer. Software license fees are recognized over the term of the license.
(G) Cash and Cash Equivalents
All highly liquid temporary cash investments with an original maturity
of three months or less are considered to be cash equivalents. There were no
cash equivalents as of the balance sheet date presented in the accompanying
financial statements.
(H) Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation is provided using the straight-line method over the
estimated useful life of the asset, typically three to five years.
(I) Business Segments
The company operates in one segment - the commercialization and
marketing of medical devices focused on the early diagnosis of coronary artery
disease - and is managed and operated as one business with a single manager.
Therefore, segment information is not presented.
(J) Goodwill and Intangible Assets
The company follows the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS No. 142"). Pursuant to SFAS No. 142, goodwill and
intangible assets acquired in a purchase business combination and determined to
have indefinite useful lives are not amortized, but instead tested for
impairment at least annually or more frequently should indicators of impairment
arise. SFAS No. 142 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 144, Accounting for Impairment or Disposal of Long-Lived Assets ("SFAS No.
144"). Intangible assets, which consist of license rights to patents, are
amortized using the straight-line method over the license rights of 15 years.
(K) Research and Development
Research and development costs are accounted for in accordance with
SFAS No. 2, Accounting for Research and Development Costs ("SFAS No. 2"). Under
SFAS No. 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third party research and development costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company sponsored research and development costs related to both present and
future products are expensed in the period incurred.
(L) Impairment of Long-Lived Assets
The company has adopted SFAS No. 144, which requires that long-lived
assets and certain identifiable intangible assets held and used by the company
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Events relating to
recoverability may include significant unfavorable changes in business
conditions, recurring losses, or a forecasted inability to achieve break-even
operating results over an extended period. The company evaluates the
recoverability of long-lived assets annually. SFAS No. 144 also requires that
assets to be disposed of be reported at the lower of the carrying amount or the
fair value less costs to sell.
- 9 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(M) Recent Accounting Pronouncements
SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43,
Chapter 4", SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions
- an amendment of FASB Statements No. 66 and 67", SFAS No. 153, "Exchanges of
Non-monetary Assets - an amendment of APB Opinion No. 29", and SFAS No. 123
(revised 2004), "Share-Based Payment", were recently issued. SFAS No. 151, 152,
153 and 123 (revised 2004) have no current applicability to the company and have
no effect on the financial statements.
NOTE 2 LOANS PAYABLE -- OFFICER AND STOCKHOLDER
During 2003, James F. Mongiardo, current President and Chief Executive
Officer of AST and CBM, advanced the company $15,413 for start-up and operating
expenses. As of September 30, 2005, total advances and loans from such officer
and a stockholder were $61,140 (See Note 4).
NOTE 3 STOCKHOLDERS' EQUITY
(A) Common Stock Issued for Cash
During 2003, CBM issued 2,500 shares of common stock to its founder for
cash of $250 ($0.10 per share).
During 2003, CBM issued 800,000 shares of common stock for cash of
$80,000 ($0.10 per share).
During 2003, CBM issued 277,778 shares of common stock for cash of
$125,000 ($0.45 per share).
During 2004, CBM issued 672,231 shares of common stock for cash of
$302,503 ($0.45 per share).
During the third quarter of 2005, the company authorized the issuance
of 22,077,509 shares of its common stock (assuming no dissenting CBM
shareholders) to the stockholders of CBM and a warrant to purchase 6,500,000
shares to a warrant holder of CBM upon completion of the merger. At the
effective time of the merger and without any action on the part of CBM
stockholders, each one share of CBM stock (except for shares held in treasury
and dissenting shares) was converted into the right to receive one share of
common stock of AST, and the CBM warrant was exchanged for an equivalent AST
warrant. Immediately prior to the merger, AST had 11,097,500 common shares
outstanding.
(B) Common Stock Issued for Services
During 2003, CBM issued 7,125,000 shares of common stock for officer
compensation valued for financial accounting purposes at $712,500 ($0.10 per
share) based upon then current cash offering prices.
- 10 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During 2003, CBM issued 16,500,000 shares of common stock for licensing
rights valued for financial accounting purposes at $1,650,000 ($0.10 per share)
based upon then-current cash offering prices. During 2005, these 16,500,000
shares of common stock were cancelled pursuant to an agreement dated September
16, 2005. Under the terms of this agreement, a nontransferable warrant for
6,500,000 common shares with an exercise price of $ .01 per share was issued,
which warrant was replaced with an AST warrant. The AST warrant is exercisable
between January 1, 2008 and December 31, 2014. The fair value of the warrant was
estimated on the grant date using the Black-Scholes option pricing model as
required by SFAS No.123 with the following assumptions: expected dividend yield
0%, volatility 1%, risk-free interest rate of return of 3.28% and expected life
of 7 years. The value of $143,238 was recorded as intangible license rights and
will be amortized over the patent life of approximately 14 years.
During 2003, the company issued 8,200,000 shares of common stock for
consulting services valued for financial accounting purposes at $820,000 ($0.10
per share) based upon then-current cash offering prices.
During the third quarter of 2005, CBM issued 5,000,000 shares of common
stock to its Chief Executive Officer and President in recognition and
consideration of his service as an officer since June 2003 and his contributions
to the progress and development of the company, for which service and
contributions he had not been compensated prior to the date of issuance of such
shares. For financial accounting purposes, these shares were valued at $150,000
($0.03 per share) based upon recent market prices of the company's stock.
NOTE 4 RELATED PARTY TRANSACTIONS
During 2003, CBM issued 7,125,000 shares of common stock to its
President for services with a fair value of $712,500.
During 2003, James F. Mongiardo, current President and Chief Executive
Officer of AST and CBM, advanced CBM $15,413 for start-up and operating
expenses. The advance is non-interest bearing, unsecured and due on demand.
During 2005 and 2004, CBM recorded royalty expenses due to a related
party of $125,000 and $40,625, respectively.
During the period January 1 through September 30, 2005, a stockholder
loaned CBM $47,459 for working capital. Subsequently, this stockholder loaned
CBM an additional $ 3,000. These loans bear interest at 8%, are unsecured and
are due on demand.
During the third quarter of 2005, CBM issued 5,000,000 shares of common
stock to its Chief Executive Officer and President in recognition and
consideration of his service as an officer and director since June 2003 and his
contributions to the progress and development of the company, for which service
and contributions he had not been compensated prior to the date of issuance of
such shares. For financial accounting purposes, these shares were valued at
$150,000 ($0.03 per share) based upon recent market prices of the company's
stock.
NOTE 5 COMMITMENTS AND CONTINGENCIES
(A) License Agreement
- 11 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During 2003, CBM acquired the North America license rights to the
bio-cybernetic and frequency analysis technologies covered by U.S. Patent
6,145,228 and copyright TXU 856-320. The license period was for the life of the
patent or for 15 years from the first sale of products developed using the
license rights. The agreement required a royalty payment of 5% of all sales
after initial sales of $3,000,000 or 50 units, minimum royalties equal to 12.5%
of all equity raised in the first year and minimum annual royalties of $250,000,
thereafter. As of September 30, 2005, no products had been sold under such
license.
On September 16, 2005, the parties entered into a new agreement
superseding the previous license agreement and certain other agreements. This
new agreement provides for the cancellation of 16,500,000 shares of common stock
owned by the inventor, the issuance to him of a nontransferable warrant to
purchase 6,500,000 shares of common stock at an exercise price of $ .01 per
share exercisable between January 1, 2008 and December 31, 2014, an agreement
that $310,000 was due him payable in quarterly installments of $ 50,000
beginning for the quarter starting July 1, 2006, and a non-exclusive license
agreement. The non-exclusive license agreement is for North America covering the
same technology/products as before with a royalty of 5% of the sale price for
each device sold to a customer within the defined territory. The minimum
royalty, beginning in 2006, is $250,000 per year, payable in installments every
two months beginning on the last day of February 2006. The license may be
cancelled at any time for failure to pay. The inventor also may license the
product in the defined territory to two other companies with certain exceptions
that expire beginning January 1, 2008. As of September 30, 2005, the company had
not sold any products under the new agreement or otherwise and had accrued
$310,000 due to the license holder. As a result of the termination of the
exclusive license agreement, the company recognized a loss on the termination of
the exclusive license agreement of $924,421.
(B) Employment Agreement
During 2003, CBM entered into an employment agreement with James F.
Mongiardo to assume the position of Chief Executive Officer and President for a
term of five years at an annual salary of $250,000 upon the company raising
$500,000 in equity financing, with additional annual increases of 10% every July
1 over the life of the agreement. The agreement also calls for the officer to
receive fringe benefits and participate in all company employment benefits as
approved by the Board of Directors. As of September 30, 2005, CBM had not raised
the minimum equity capital and no salary had been accrued or paid.
NOTE 6 GOING CONCERN
As reflected in the accompanying financial statements, the company is
in the development stage with a working capital deficiency of $202,159 and a
negative cash flow from operations of $432,993 from inception. This raises
substantial doubt about its ability to continue as a going concern. The ability
of the company to continue as a going concern is dependent on its ability to
raise additional capital and implement its business plan. The financial
statements do not include any adjustments that might be necessary if the company
is unable to continue as a going concern.
Management believes that actions presently being taken to obtain
additional funding and implement its strategic plans provide the opportunity for
the company to continue as a going concern.
NOTE 7 SUBSEQUENT EVENTS
On October 11, 2005, in connection with AST's acquisition via reverse
merger of CBM and in order to align the fiscal years of the constituent
corporations, the Board of Directors of AST determined to change the end of the
fiscal year of AST from July 31 to December 31.
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ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On October 22,2005, a stockholder loaned the company an additional $
3,000 for working capital.
On October 24, 2005, the company filed a preliminary information
statement relating to its proposed intention to change the name of AST to
CardioBioMedical Holdings, Inc. The Board, in consultation with majority
stockholders, has determined to delay implementation of such name change at this
time.
On October 3, 2005, CBM notified its shareholders of their appraisal
rights pursuant to Delaware law in connection with its merger with AST. Two
shareholders owning a total of 1,500 common shares of CBM common stock have
notified CBM of their intention to seek appraisal rights under Section 262 of
the General Corporation Law of the State of Delaware.
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ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management's Discussion and Analysis or Plan of Operation.
Certain statements contained in this discussion and analysis or
incorporated herein by reference that are not related to historical results are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements that are predictive, that depend upon
or refer to future events or conditions, and/or that include words such as
"expects," "anticipates," "intends," "plans," "believes," "estimates," "hopes,"
and similar expressions constitute forward-looking statements. In addition, any
statements concerning future financial performance (including future revenues,
earnings or growth rates), business strategies or prospects, or possible future
actions by us are also forward-looking statements.
These forward-looking statements are based on beliefs of our management
as well as current expectations, projections, assumptions and information
currently available and are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results or those
anticipated or implied by such forward-looking statements. Should one or more of
those risks or uncertainties materialize or should underlying expectations,
projections and assumptions prove incorrect, actual results may vary materially
from those described. Those events and uncertainties are difficult to predict
accurately and many are beyond our control. We assume no obligation to update
these forward-looking statements to reflect events or circumstances that occur
after the date of these statements except as specifically required by law.
Accordingly, past results and trends should not be used to anticipate future
results or trends.
Overview
AST was formed in Florida in August 2001 with the plan of becoming a
direct marketing company that developed and marketed premium-quality,
premium-priced, branded fitness and exercise equipment to the home fitness
equipment market. The company's original business plan included marketing
products directly to consumers through a variety of direct marketing channels.
As an initial step, the company licensed the rights to a portable gym
subject to patent protection in the United States, which may be marketed under
the trademark Better Buns(R). It was the company's intention for this product to
be its first direct-marketed product. AST was unsuccessful in attempting to
raise funding to pursue this goal and, in May 2005, received notice that it was
in breach of its license agreement for the Better Buns product and that the
license was being terminated. Since inception to date, AST had not generated any
revenues through the sale of the Better Buns product or otherwise, and had not
engaged in any research and development or marketing activities due to limited
funds and resources.
In September 2005, AST changed focus in connection with the merger of a
wholly-owned subsidiary of the company and CardioBioMedical Corporation, a
Delaware corporation. The subsidiary merged with and into CBM, with CBM as the
surviving corporation and becoming a subsidiary of AST. The consideration for
the merger consisted of up to 22,077,509 shares of AST common stock, $.0001 par
value, payable on a one-for-one basis to the consenting shareholders of CBM and
a warrant, exercisable beginning January 1, 2008, to purchase 6,500,000 shares
of AST common stock at a purchase price of $.01 per share payable to the sole
warrant holder of CBM in exchange for an equivalent CBM warrant. Further, the
Board of Directors accepted the resignation of Curtis Olschansky as sole
director and officer of AST and elected James F. Mongiardo to fill the vacancy
on the Board. Mr. Mongiardo was also elected to serve as Chief Executive Officer
and President of AST.
- 14 -
ADVANCED SPORTS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CBM was formed in May 2003 to commercialize devices incorporating
proprietary and patented technology relating to a new scientific technique
applying bio-cybernetic principles and frequency analysis in non-invasive
medical devices. CBM currently is a party to a license to market in the United
States, Canada and Mexico the Cardio Spectrum Diagnostic System or "CSD", a
proprietary medical device designed for the non-invasive early diagnosis of
coronary artery diseases, particularly myocardial injury caused by ischemia. The
CSD system has received 510(k) clearance from the U.S. Food and Drug
Administration to be marketed in the United States.
The new objective of the company is to establish the CSD as the
standard of care for the detection of early-stage ischemic heart disease. Our
strategy includes first establishing the device with cardiologists and then
gaining acceptance and use by other physician specialties and hospitals. We
believe critical in U.S. hospital market acceptance will be the cost savings of
the CSD in both the early detection of disease and the elimination of the need
to perform multiple and more expensive diagnostic procedures to determine a
patient's cardiac health. Results have shown that the CSD is effective at
non-invasively diagnosing coronary artery disease with more than 90% sensitivity
and specificity.
Recent Developments
On October 22, 2005, a stockholder loaned the company $ 3,000 for
working capital. The loan bears interest at 8%, is unsecured and due on demand.
On October 3, 2005, CBM notified its shareholders of their appraisal
rights pursuant to Delaware law in connection with its merger with AST. Two
shareholders owning a total of 1,500 common shares of CBM common stock have
notified CBM of their intention to seek appraisal rights under Section 262 of
the General Corporation Law of the State of Delaware.
- 15 -
Critical Accounting Policies and Changes to Accounting Policies
In preparing financial statements in conformity with accounting
principles generally accepted in the United States, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
There have been no material changes in our critical accounting
policies or critical accounting estimates since completion of CBM's first audit
on April 18, 2004 for the years ended December 31, 2004 and 2003 nor have we
adopted any accounting policy that has or will have a material impact on our
consolidated financial statements. For further discussion of our accounting
policies, see Note 1 -- Summary of Significant Accounting Policies and
Organization in the Notes to the Condensed Consolidated Financial Statements
included in this Quarterly Report on Form 10-QSB.
SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter
4", SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions - an
amendment of FASB Statements No. 66 and 67", SFAS No. 153, "Exchanges of
Non-monetary Assets - an amendment of APB Opinion No. 29", and SFAS No. 123
(revised 2004), "Share-Based Payment", were recently issued. SFAS No. 151, 152,
153 and 123 (revised 2004) have no current applicability to the company and have
no effect on the financial statements.
Going Concern
As is set forth in Note 6 to the Financial Statements, the company
is in the development stage with a working capital deficiency of $202,159 and a
negative cash flow from operations of $432,993 from inception. This raises
substantial doubt about its ability to continue as a going concern. The ability
of the company to continue as a going concern is dependent on the company's
ability to raise additional capital and implement its business plan.
Plan of Operations
Neither AST nor CBM has generated any revenues from operations or
otherwise since their inception. AST intended to generate revenue through the
sale of a licensed product, Better Buns(R) - a portable patented gym product,
but the license to such product was terminated due to AST 's failure to make
minimum royalty payments. Through September 23, 2005, AST had not been
successful in raising capital for the development, marketing or sale of any
other products. AST then adopted a new strategy through the merger with CBM.
In order to implement the new strategy of the company, it will need to
raise capital during the next 12 months. Cash on hand was $1,088 as of September
30, 2005, which amount is inadequate to fund the company's current projected
capital requirements. Total operating expenses for the company for the three
months ended September 30, 2005 were $288,697 compared to $79,257 for the same
period in 2004. For the nine months ended September 30, 2005, total operating
expenses were $571,890 compared to $291,184 for the same period in 2004. From
May 28, 2003 (inception) to September 30, 2005, total operating expenses were
$2,862,664. The company has funded operations to date in part through the sale
of equity securities and loans, although such efforts have been insufficient to
effectively pursue its business strategies.
Our capital requirements will depend on numerous factors, including but
not limited to the commitments and progress of our research and development
efforts, the progress of clinical trials, the cost of sales and marketing for
the CSD and other products, medical and business consultants and advisors, the
time and cost involved in maintaining regulatory compliance, and competing
technological and market developments. Future activities, including the
establishment of the CSD in the medical marketplace, will be subject to our
ability to raise funds.
We intend to raise capital primarily through the public or private sale
of securities (equity and/or debt), although there can be no assurance that we
will be able to obtain capital or, if such capital is available, that the terms
of any financing will be acceptable. If the company succeeds in raising capital,
such funds will be used to implement the new strategy of developing clinical
trial data to support the market introduction of the CSD in the United States,
Canada and Mexico. Payment for clinical trials includes retaining the services
of a clinical research organization, payment to the clinical research site(s)
for patients enrolled in the clinical trials, payment for the CSD unit(s) used
in these clinical trials, payment for costs associated with Institution Review
Board Approval, and preparation of marketing materials to support commercial
introduction of the CSD.
- 16 -
We intend to conduct a concentrated set of clinical trials that will
begin with physicians associated with major teaching hospitals as part of our
strategy of obtaining a CPT Code for the CSD to facilitate insurance
reimbursement. The first such trial is currently being conducted at Cedars Sinai
Medical Center in Los Angeles, California. While clinical data is being
generated to support a CPT Code application, we further intend to conduct
additional clinical trials to "seed" the market in the United States. We also
expect that use of the CSD by cardiologists at major teaching hospitals and
other opinion leaders locations will support the market introduction.
Pursuant to its new strategy, the company intends to continue to
operate as a virtual company as it attempts to raise capital over the next 12
months. The company believes such an approach will help leverage results through
better allocation of its capital by retaining as needed the diverse expertise
required to conduct clinical trials and to prepare for market introduction. The
company does not expect to significantly increase the number of employees over
the next 12 months.
The company also does not expect to purchase any plant or significant
equipment over the next 12 months given its focus on developing clinical data
and preparing for the market introduction of the CSD.
If we are unsuccessful at raising sufficient capital to fund our
operations, for whatever reason, we may be forced to seek opportunities outside
of our new corporate focus or to seek a buyer for our business or another entity
with which we could partner. Ultimately, if all of these alternatives fail, we
may be required to cease operations and seek protection from creditors under
applicable bankruptcy laws.
Off-Balance Sheet Arrangements
Neither the company nor its subsidiary is a party to any off-balance
sheet arrangements.
Item 3. Controls and Procedures.
The company maintains disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) that are
designed to ensure that information required to be disclosed in the company's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to the company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Our Chief Executive Officer and Chief Financial Officer performed an
evaluation of the effectiveness of the design and operation of the company's
disclosure controls and procedures as of the end of the period covered by this
quarterly report. Based upon that evaluation, the Chief Executive Officer and
the Chief Financial Officer concluded that the company's disclosure controls and
procedures were effective.
Such evaluation did not identify any change in the company's internal
control over financial reporting during the quarter ended September 30, 2005
that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting.
- 17 -
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In connection with the merger of AST and CBM discussed above, the Board
of Directors of AST authorized the issuance of up to 22,077,509 shares of its
common stock, $0.0001 par value (representing 66.5% of the company's issued and
outstanding shares following the merger), to the stockholders of CBM. Such
shares were to be exchanged, on a one-for-one basis, for up to 22,077,509 issued
and outstanding shares of common stock, $.01 par value, held by CBM's consenting
shareholders. The issuance of stock to U.S. stockholders was made in reliance on
the exemption from the registration requirements of the Securities Act of 1933,
as amended, pursuant to Section 4(2) thereof.
Preceding the merger, 16,500,000 shares of CBM common stock were
cancelled pursuant to an agreement dated September 16, 2005. Pursuant to the
terms of such agreement and the Merger Agreement, AST also issued a warrant to
purchase 6,500,000 shares of its common stock to a warrant holder of CBM in
exchange for a CBM warrant representing such holder's right to purchase
6,500,000 shares of CBM common stock. The warrant is not exercisable until
January 1, 2008 and will expire on December 31, 2014. The exercise price is $.01
per share and the warrant is not assignable or transferable by the holder.
For more information, see the company's current report on Form 8-K as
filed with the SEC on September 29, 2005.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On October 24, 2005, the company filed a preliminary information
statement relating to its proposed intention to change the name of the company
to "CardioBioMedical Holdings, Inc." The Board of Directors, in consultation
with majority shareholders, has determined to delay implementation of such name
change at this time.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
31 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Rule 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- 18 -
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf of the undersigned, thereunto duly
authorized.
ADVANCED SPORTS TECHNOLOGIES, INC.
----------------------------------
Date: November 15, 2005 /S/ JAMES F. MONGIARDO
----------------- ----------------------
James F. Mongiardo
Chief Executive Officer,
President, and Chief Financial Officer