Edgar Filing: ADVANT E CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

10-Q

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, 2012

¨	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.)

2434 Esquire Dr.

Beavercreek, Ohio 45431

(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 x 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 14, 2012 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,
	2012		2011		2012		2011
Revenue	$	2,546,251		2,359,624		5,011,689		4,660,044
Cost of revenue		983,383		976,919		2,007,120		1,894,811

Gross margin		1,562,868		1,382,705		3,004,569		2,765,233
Marketing, general and administrative expenses		798,363		787,593		1,653,335		1,587,050

Operating income		764,505		595,112		1,351,234		1,178,183
Other income, net		630		914		1,440		2,041

Income before income taxes		765,135		596,026		1,352,674		1,180,224
Income tax expense		260,630		203,566		460,962		402,677

Net income	$	504,505		392,460		891,712		777,547

Earnings per share – basic and diluted	$	.008		.006		.013		.012

Weighted average shares outstanding – basic and diluted		66,722,590		66,722,590		66,722,590		66,722,590

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

ADVANT-E CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS


	June 30, 2012 (Unaudited)		December 31, 2011
Assets
Current Assets:
Cash and cash equivalents	$	4,577,425		3,459,402
Accounts receivable, net		759,465		784,239
Prepaid software maintenance costs		207,683		190,429
Prepaid expenses and deposits		87,582		107,871
Prepaid income taxes		—		1,910
Deferred income taxes		228,565		207,336

Total current assets		5,860,720		4,751,187
Software development costs, net		203,857		262,102
Property and equipment, net		168,973		171,199
Goodwill		1,474,615		1,474,615
Other intangible assets, net		117,440		159,796

Total assets	$	7,825,605		6,818,899


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	112,956		112,402
Income taxes payable		25,436		—
Accrued salaries and other expenses		225,389		205,334
Deferred revenue		852,932		748,828

Total current liabilities		1,216,713		1,066,564
Deferred income taxes		163,301		198,456

Total liabilities		1,380,014		1,265,020


Shareholders’ equity:
Common stock, $.001 par value; 100,000,000 shares authorized; 66,722,590 shares issued and outstanding		66,723		66,723
Paid-in capital		1,936,257		1,936,257
Retained earnings		4,442,611		3,550,899

Total shareholders’ equity		6,445,591		5,553,879

Total liabilities and shareholders’ equity	$	7,825,605		6,818,899

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,
	2012			2011
Cash flows from operating activities:
Net income	$	891,712			777,547
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation		56,515			79,875
Amortization of software development costs		58,245			29,122
Amortization of other intangible assets		42,356			42,357
Deferred income taxes		(56,384	)		(62,265	)
Increase (decrease) in cash and cash equivalents arising from changes in assets and liabilities:
Accounts receivable		24,774			26,564
Prepaid software maintenance costs		(17,254	)		(29,468	)
Prepaid expenses and deposits		20,289			(80,004	)
Prepaid income taxes		1,910			—
Accounts payable		554			39,279
Income taxes payable		25,436			(25,058	)
Accrued salaries and other expenses		20,055			210,372
Deferred revenue		104,104			99,252

Net cash flows from operating activities		1,172,312			1,107,573


Cash flows from investing activities:
Purchases of property and equipment		(54,289	)		(14,587	)
Software development costs		—			(40,636	)

Net cash flows from investing activities		(54,289	)		(55,223	)

Cash flows from financing activities:
Dividends paid		—			(667,226	)

Net increase in cash and cash equivalents		1,118,023			385,124
Cash and cash equivalents, beginning of period		3,459,402			2,963,172

Cash and cash equivalents, end of period	$	4,577,425			3,348,296

Supplemental disclosures of cash flow items:
Income taxes paid	$	490,000			490,000
Non-cash transactions:
Declared dividends payable no later than December 31, 2011		—			667,226

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, 2012

Note 1: Basis of Presentation, Organization and Other Matters

The accompanying unaudited interim consolidated condensed financial statements as of June 30, 2012 and for the three and six month periods ended June 30, 2012 and 2011, together with the accompanying consolidated condensed balance sheet as of December 31, 2011, 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 interim 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, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012. These unaudited interim 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 2011 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 enable its customers to send and receive business documents electronically in standard and proprietary formats. Edict Systems, Inc. specializes in providing hosted Electronic Data Interchange solutions that utilize the Internet as the primary communications method. Customers use Edict Systems, Inc. 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, Inc. 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, Inc. 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 primarily in the United States, and to a much lesser extent in some foreign geographic areas, principally Canada and to a lesser extent Mexico, Europe, and Puerto Rico.

Principles of Consolidation

The consolidated condensed 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. Management evaluates related party relationships for variable interest entity considerations.

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: Software Development costs

Software development costs at June 30, 2012 and the changes during the six months then ended are summarized as follows:


	Cost		Accumulated Amortization		Net
Balance, January 1, 2012	$	1,862,203		1,600,101		262,102
Amortization		—		58,245		58,245

Balance, June 30, 2012		1,862,203		1,658,346		203,857

Software development costs are for internal use software and for website development and related enhancements. The balance consists primarily of development costs related to the latest version of the Company’s Web EDI service. The majority of the enhancements related to this upgrade have been completed.

Note 3: Line of Credit

At June 30, 2012, the Company has a $1,500,000 bank line of credit. 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 May 25, 2013. Interest is payable monthly. Borrowings under the line of credit are guaranteed by the Company’s Chief Executive Officer. No borrowings were outstanding as of June 30, 2012 or during the six months then ended.

Note 4: Income taxes

Income tax expense consists of the following:


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Current expense	$	280,477			245,445			517,346			464,942
Deferred benefit		(19,847	)		(41,879	)		(56,384	)		(62,265	)

Total income tax expense	$	260,630			203,566			460,962			402,677

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, 2012 and 2011:


	Three Months Ended June 30, 2012
	Internet-based		Software		Reconciling Items (a)			Total Consolidated
Revenue	$	2,202,685		343,566		—			2,546,251
Income before income taxes		692,077		94,236		(21,178	)		765,135
Income tax expense (benefit)		235,792		32,040		(7,202	)		260,630
Net income		456,285		62,196		(13,976	)		504,505
Segment assets at June 30, 2012		4,156,702		2,077,193		1,591,710			7,825,605

	Three Months Ended June 30, 2011
	Internet-based		Software		Reconciling Items (a)			Total Consolidated
Revenue	$	2,025,443		346,700		(12,519	)		2,359,624
Income before income taxes		557,730		59,474		(21,178	)		596,026
Income tax expense (benefit)		190,547		20,221		(7,202	)		203,566
Net income		367,183		39,253		(13,976	)		392,460
Segment assets at June 30, 2011		3,337,492		1,794,320		1,663,126			6,794,938

The following segment information is for the six months ended June 30, 2012 and 2011:


	Six Months Ended June 30, 2012
	Internet-based		Software		Reconciling Items (a)			Total Consolidated
Revenue	$	4,312,151		699,538		—			5,011,689
Income before income taxes		1,202,611		192,419		(42,356	)		1,352,674
Income tax expense (benefit)		409,936		65,429		(14,403	)		460,962
Net Income		792,675		126,990		(27,953	)		891,712


	Six Months Ended June 30, 2011
	Internet-based		Software		Reconciling Items (a)			Total Consolidated
Revenue	$	3,969,883		702,680		(12,519	)		4,660,044
Income before income taxes		1,081,122		141,458		(42,356	)		1,180,224
Income tax expense (benefit)		368,976		48,104		(14,403	)		402,677
Net Income		712,146		93,354		(27,953	)		777,547

(a)	Reconciling items generally consist of the elimination of intersegment revenues of $12,519 for the sale of software in 2011, at cost, and goodwill, other intangible assets and related amortization in connection with the Merkur Group, Inc. acquisition.

The Company has customers located in areas outside the United States, principally in Canada and to a lesser extent in Mexico, Europe, and Puerto Rico. The Company derived approximately 4% of revenue from these customers in both the three-month and six-month periods ended June 30, 2012 and derived less than 3% of revenue in both the three-month and six-month periods ended June 30, 2011. The Company has no facilities or operations in foreign locations.

Note 6: Related Party Lease

The Company leases its corporate and administrative offices, effective November 1, 2011, from an entity owned by the Company’s CEO and majority shareholder. Payments in connection with this lease were $57,000 for base rent and $28,076 for taxes, insurance, maintenance and other expenses in the three months ended June 30, 2012, and $114,000 for base rent and $57,459 for taxes, insurance, maintenance and other expenses in the six months ended June 30, 2012.

Note 7: Recently Issued Accounting Pronouncements

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other: Testing Goodwill for Impairment.” This standard was issued to address concerns about the cost and complexity of performing the first step of the two-step goodwill impairment test required under Topic 350, “Intangibles-Goodwill and Other”. The objective of this Update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The guidance is effective for impairment tests for fiscal years beginning after December 15, 2011. 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,” “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

See Nature of Operations in Note 1 to the Consolidated Condensed Financial Statements.

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.

Revenue 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.

Revenue 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 contains multiple element arrangements, and is recognized in accordance with the provisions of ASC Topic 985-605, “Software Industry Revenue Recognition”. The multiple elements include the sale of software, hardware, professional services and software maintenance contracts. The relative selling price of each element is based on vendor-specific objective evidence, and the elements in the arrangements qualify as separate units of accounting. Revenue from the sale of software and hardware is recognized when title and risk of loss are transferred, which generally occurs upon delivery. Revenue from the sale of professional services is recognized when the services are completed, which is generally soon after the delivery of the software and hardware. Even though customers have a 30-day period in which they can return the software, historically 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 the sale of software and related products are recorded at gross, and any related purchases are included in cost of revenue.

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, “Software”. 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.

Software Maintenance Costs

Prepaid software maintenance costs represent amounts paid to the primary software supplier of Merkur Group, Inc. for providing program upgrades and software modifications to remediate programming errors during the lives of the related customer maintenance and support contracts. These costs are charged to expense over the lives of the maintenance and support contract periods, generally twelve months.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the Company’s purchase price over the fair value of the net identifiable assets of Merkur Group, Inc., acquired on July 2, 2007.

Other intangible assets, which arose from the acquisition of Merkur Group, Inc., consist of contractual vendor relationships, customer relationships, and proprietary computer software, and were initially recorded at fair values using the income or cost approach. Other intangible assets are amortized on a straight-line basis over their estimated useful lives of five to seven years.

Management assesses goodwill 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 the 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 7: Recently Issued Accounting Pronouncements in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q.

Results of Operations: Second Quarter of 2012 Compared to Second Quarter of 2011

Revenue

Revenue for the Company in second quarter of 2012 increased 8% compared to the second quarter of 2011. Revenue for Edict Systems increased 9% and revenue for Merkur Group increased 3%.


	Q2 2012				Q2 2011				Increase
	Amount		% of Total		Amount		% of Total		Amount		%
Edict Systems	$	2,202,685		87		2,025,443		86		177,242		9
Merkur Group		343,566		13		334,181		14		9,385		3

Revenue	$	2,546,251		100		2,359,624		100		186,627		8

Edict Systems Revenue

Revenue from the sale of Internet-based Electronic Data Interchange (EDI) products and services sold by Edict Systems in the second quarter of 2012 and 2011 are summarized below:


	Q2 2012				Q2 2011				Increase (Decrease)
	Amount		% of Total		Amount		% of Total		Amount			%
Web EDI
GroceryEC	$	1,464,595		66		1,388,635		69		75,960			5
AutomotiveEC		198,519		9		168,690		8		29,829			18
Other Web EDI		40,785		2		47,160		2		(6,375	)		(14	)
EnterpriseEC		432,153		20		360,946		18		71,207			20
Other products and services		66,633		3		60,012		3		6,621			11

Total	$	2,202,685		100		2,025,443		100		177,242			9

•

Revenue from GroceryEC increased by 5% due to increased volume of transactions processed.

•

Revenue from AutomotiveEC increased by 18% due to increased volume of transactions processed from existing customers and from new customers who are suppliers of a Canadian automotive company.

•

Revenue from EnterpriseEC, the Company’s value added network (VAN), increased by 20% due to increased volume of EDI transactions processed for large grocery companies and increased recurring revenue from the Company’s integration solutions. Despite this increase, pricing pressures and the availability of alternate connectivity options continue to adversely affect revenue growth for EnterpriseEC.

Merkur Group Revenue

Revenue from the sale of software-based products and services sold by Merkur Group in the second quarter of 2012 and 2011 are summarized below:


	Q2 2012				Q2 2011				Increase (Decrease)
	Amount		% of Total		Amount		% of Total		Amount			%
Software	$	42,720		12		11,998		4		30,722			256
Hardware		6,373		2		26,727		8		(20,354	)		(76	)
Professional services		38,700		11		43,300		13		(4,600	)		(11	)

		87,793		25		82,025		25		5,768			7

Maintenance contracts		233,636		68		242,048		72		(8,412	)		(3	)
On demand		18,368		6		5,599		2		12,769			228
Other		3,769		1		4,509		1		(740	)		(16	)

		255,773		75		252,156		75		3,617			1

Total	$	343,566		100		334,181		100		9,385			3

Revenue from the sale of software, hardware, and professional services totaled $87,793 in the second quarter of 2012, a 7% increase over the second quarter of 2011. Despite the slight increase, general economic conditions continue to exert a moderating effect on the sale of software and related products. Revenue from maintenance contracts declined by $8,412, or 3%, but revenue from Merkur’s on-demand solutions increased by $12,769, or 228%.

Revenue from customers in foreign locations

The Company has customers located in areas outside the United States, principally in Canada and to a lesser extent in Mexico, Europe, and Puerto Rico. The Company derived approximately 4% of revenue from these customers in the three-month period ended June 30, 2012 and derived less than 3% of revenue in the three-month period ended June 30, 2011. The Company has no facilities or operations in foreign locations.

Net income

Net income for the second quarter of 2012 compared to the second quarter of 2011 is summarized below.


							Increase
	Q2 2012			Q2 2011			Amount		%
Edict Systems	$	456,285			367,183			89,102		24
Merkur Group		62,196			39,253			22,943		58
Amortization of intangible assets, net of income tax effects		(13,976	)		(13,976	)		—		—

Net income	$	504,505			392,460			112,045		29

Net income increased primarily as a result of the following:

•

Revenue increased by $186,627 primarily from the sale of Web EDI products and services sold by Edict Systems.

•

Personnel-related costs were reduced by $28,046 due to a restructuring of some fringe benefits. This reduction will be mostly offset by fringe benefit increases in future quarters.

Partially offsetting the above increases to net income were the following:

•

Building rent and rent-related expenses for taxes, insurance, maintenance, etc. increased by $29,002 in the second quarter of 2012 compared to the same quarter last year primarily as a result of the fourth quarter 2011 relocation to a new corporate office.

•

Technical consulting expenses increased by $24,025 in the second quarter of 2012 for the ongoing process of implementing the new version of the Company’s Web EDI service.

•

Income tax expenses increased by $57,064 as a result of the increased net income in the second quarter of 2012.

Gross margin and cost of revenue

The Company’s gross margin, as a percent of revenue, increased from 59% in the second quarter of 2011 to 61% in the second quarter of 2012 primarily on the strength of increased revenue of $186,627. Cost of revenue increased slightly.

Marketing, general and administrative expenses

Marketing, general and administrative expenses increased by $10,770, or 1%, in the second quarter of 2012 compared to the second quarter of 2011 due primarily to increased building rent and rent-related expenses of $29,002, partially offset by reductions in certain other marketing and administrative expenses. Marketing, general and administrative expenses as a percent of sales were 33% and 31% in the second quarter of 2012 and 2011, respectively.

Results of Operations: Six Months Ended June 30, 2012 compared to Six Months Ended June 30, 2011

Revenue

Revenue for the Company in the first six months of 2012 increased 8% compared to the first six months of 2011. Revenue for Edict Systems increased 9% and revenue for Merkur Group increased 1%.


	Six months ended June 30, 2012				Six months ended June 30, 2011				Increase
	Amount		% of Total		Amount		% of Total		Amount		%
Edict Systems	$	4,312,151		86		3,969,883		85		342,268		9
Merkur Group		699,538		14		690,161		15		9,377		1

Revenue	$	5,011,689		100		4,660,044		100		351,645		8

Edict Systems Revenue

Revenue from the sale of Internet-based Electronic Data Interchange (EDI) products and services sold by Edict Systems in the first six months of 2012 and 2011 are summarized below:


	Six months ended June 30, 2012				Six months ended June 30, 2011				Increase (Decrease)
	Amount		% of Total		Amount		% of Total		Amount			%
Web EDI
GroceryEC	$	2,895,763		67		2,734,830		69		160,933			6
AutomotiveEC		396,445		9		329,593		8		66,852			20
Other Web EDI		79,657		2		95,369		2		(15,712	)		(16	)
EnterpriseEC		844,788		20		720,128		19		124,660			17
Other products and services		95,498		2		89,963		2		5,535			6

Total	$	4,312,151		100		3,969,883		100		342,268			9

•

Revenue from GroceryEC increased by 6% due to increased volume of transactions processed.

•

Revenue from AutomotiveEC increased by 20% due to increased volume of transactions processed from existing customers, and from new customers who are suppliers of a Canadian automotive company.

•

Revenue from EnterpriseEC, the Company’s value added network, increased by 17% due to increased volume of EDI transactions processed for large grocery companies and increased recurring revenue from the Company’s integration solutions. Despite this increase, pricing pressures and the availability of alternate connectivity options continue to adversely affect revenue growth for EnterpriseEC.

Merkur Group Revenue

Revenue from the sale of software-based products and services sold by Merkur Group in the first six months of 2012 and 2011 are summarized below:


	Six months ended June 30, 2012				Six months ended June 30, 2011				Increase (Decrease)
	Amount		% of Total		Amount		% of Total		Amount			%
Software	$	91,131		13		57,952		9		33,179			57
Hardware		20,961		3		51,707		7		(30,746	)		(59	)
Professional services		75,600		11		98,200		14		(22,600	)		(23	)

		187,692		27		207,859		30		(20,167	)		(10	)

Maintenance contracts		470,165		67		464,109		67		6,056			1
On demand		34,289		5		10,349		2		23,940			231
Other		7,392		1		7,844		1		(452	)		(6	)

		511,846		73		482,302		70		29,544			6

Total	$	699,538		100		690,161		100		9,377			1

Revenue from the sale of software and related hardware and professional services, totaled $187,692 in the first six months of 2012, a 10% decline from $207,859 in the first six months of 2011, as general economic conditions continued to dampen sales of software and related products. Revenue from maintenance contracts increased by $6,056, or 1%, and revenue from Merkur’s on-demand solutions increased by $29,940, or 231%.

Revenue from customers in foreign locations

The Company has customers located in areas outside the United States, principally in Canada and to a lesser extent in Mexico, Europe, and Puerto Rico. The Company derived approximately 4% of revenue from these customers in the six-month period ended June 30, 2012 and derived less than 3% of revenue in the six-month period ended June 30, 2011. The Company has no facilities or operations in foreign locations.

Net Income

Net income for the first six months of 2012 compared to the first six months of 2011 is summarized below:


	Six months ended June 30, 2012			Six months ended June 30, 2011			Increase
	Six months ended June 30, 2012			Six months ended June 30, 2011			Amount		%
Edict Systems	$	792,675			712,146			80,529		11
Merkur Group		126,990			93,354			33,636		36
Amortization of intangible assets, net of income tax effects		(27,953	)		(27,953	)		—		—

Net Income	$	891,712			777,547			114,165		15

Net income increased primarily as a result of increased revenue, which was partially offset by the following:

•

Building rent and rent-related expenses for taxes, insurance, maintenance, etc. increased by $61,966 in the first six months of 2012 compared to the same period last year, resulting from the fourth quarter 2011 relocation to a new corporate office.

•

The Company completed development of its new version of its Web EDI service in the first six months of 2011, when it capitalized $40,636 to Software Development Costs. No such costs were capitalized during the first six months of 2012. The Company amortized $58,245 of previously capitalized software development costs in the first six months of 2012 compared to $29,122 in the first six months of 2011. As a result, wages and salaries and amortization expenses included in Cost of Revenue were $69,759 higher in the first six months of 2012 than in the first six months of 2011.

•

Technical consulting expense increased by $56,688 in the first six months of 2012 for the ongoing process of implementing the new version of the Company’s Web EDI service.

•

Income tax expenses increased by $58,285 as a result of the increased net income in the first six months of 2012.

Gross margin and cost of revenue

The Company’s gross margin, as a percent of revenue, increased from 59% in the first six months of 2011 compared to 60% in the first six months of 2012 primarily on the strength of increased revenue of $351,645. Cost of revenue increased by only $112,309.

Marketing, general and administrative expenses

Marketing, general and administrative expenses increased by $66,285, or 4%, in the first six months of 2012 compared to the first six months of 2011, due primarily to increased building rent and rent related expenses and nonrecurring moving expenses. Marketing, general and administrative expenses as a percent of sales were 33% and 34% in the first six months of 2012 and 2011, respectively.

Liquidity and Capital Resources

The Company increased cash and cash equivalents by $1,118,023 and $385,124 in the first six months of 2012 and 2011, respectively, as the Company paid cash dividends totaling $667,226 in the first six months of 2011, but paid no dividends in the first six months of 2012.

Management believes that the Company will have sufficient financial resources to meet business requirements for the next 12 months and to fund growth and other business and financial initiatives.

Changes in Consolidated Condensed Balance Sheet from December 31, 2011 to June 30, 2012

Significant changes in the Consolidated Condensed Balance Sheet that occurred in the first six months of 2012, and that are not described elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are as follows:

•

Deferred revenue increased by $104,104 due to sales of software maintenance contracts and sales of applications designed to meet specific customer specifications for services to be performed in future periods.

ITEM 4.

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 CEO and CFO, 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, 2012.

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


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)

10.1	Commercial Lease Agreement (Ohio) between Jon Asian, LLC and Edict Systems, Inc.	Previously filed (D)

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

101.INS*	XBRL Instance Document	Submitted electronically

101.SCH*	XBRL Taxonomy Extension Schema Document	Submitted electronically

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document	Submitted electronically

101.LAB*	XBRL Taxonomy Extension Label Linkbase Document	Submitted electronically

101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document	Submitted electronically

101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document	Submitted electronically

(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.

(D)	Filed with Form 8-K on February 6, 2012.

*	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

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 14, 2012	By:	/s/ Jason K. Wadzinski

		Jason K. Wadzinski
		Chief Executive Officer
		Chairman of the Board of Directors

August 14, 2012	By:	/s/ James E. Lesch

		James E. Lesch
		Chief Financial Officer
		Principal Accounting Officer
		Member of the Board of Directors