U. S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 
 [X]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2012[  ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from ___________ to _____________
 
 AVT, INC.
 
 Nevada

000-53372

11-3828743(State or other jurisdiction

(Commission File Number)

(IRS Employerof Incorporation)



Identification Number)341 Bonnie Circle, Suite 102Corona, CA 92880(Address of principal executive offices)(951) 737-1057(Issuer’s Telephone Number)
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X].
 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.
 
 Large accelerated filer [  ]
Accelerated filer [  ]
Non-accelerated filer  [  ]

(Do not check if smaller reporting company)
Smaller reporting company [X]
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). No [ X ]
 
 Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes ___ No ____
 
 APPLICABLE ONLY TO CORPORATE ISSUERS
 
 State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  As of November 30, 2012, there were 11,364,708 shares of our common stock were issued and outstanding.
  
  Item 1.  Financial Statements
  
 AVT, INC.TABLE OF CONTENTSPage No.Consolidated Balance Sheets - September 30, 2012 (unaudited) and December 31, 2011
2Consolidated Statements of Operations -Three Months Ended and Nine Months Ended September 30, 2012 (unaudited) and 2011 (unaudited)
3Consolidated Statements of Cash Flows - Nine months ended September 30, 2012 (unaudited) and 2011 (unaudited)
4


AVT, Inc.Consolidated Balance SheetsSeptember 30,
December 31,2012

2011Assets

(unaudited)Current assets:Cash and Cash equivalents
$
728,118
$
177,400Accounts Receivable

2,067,774

4,048,946Inventory

7,088,779

3,441,386Other Current Assets

14,718

14,718Total Current Assets

9,899,389

7,682,450Property and Equipment, Net of accumulated depreciation of $2,871,408 and $2,519,814, respectively
3,085,656

3,580,819Intangibles, net of accumulated amortization of $1,550,209 and $1,078,488, respectively
9,029,206

9,352,467Goodwill

1,048,865

1,048,865Total Assets
$
23,063,116
$
21,664,601Liabilities and Shareholders' EquityCurrent Liabilities:Accounts Payable
$
828,547
$
782,617Related Party Payable

154,770

62,239Shareholder Notes - current portion

781,000

545,000Capital Leases- current portion

110,000

146,628Other Current Liabilities

30,206

14,173Total Current Liabilities

1,904,523

1,550,657Long-term liabilities:Capital Leases, less current portion

171,723

97,036Shareholder Notes, less current portion

552,000

713,506Total Long-term Liabilities

723,723

810,542Total Liabilities

2,628,246

2,361,199Shareholders' EquityPreferred Stock , $.001 par value: Authorized Shares:  10,000,000;

2,665

2,706Series A convertible 3,000,000 shares authorized:  2,665,598 and 2,706,238, respectivelyCommon Stock, $.001 par value: Authorized shares 100,000,000;Issued and outstanding shares of Common Stock:11,294,902, and 9,731,629, respecticely
11,295

9,731Additional Paid in Capital

24,932,224

24,496,900Accumulated (Deficit)

(4,511,314)

(5,205,935)Total Shareholders' Equity

20,434,870

19,303,402Total Liabilities and Shareholders' Equity
$
23,063,116
$
21,664,601See accompanying notes.





AVT, Inc.Consolidated Statements of Operations (unaudited)3 Months ended

3 Months ended

9 Months ended

9 Months endedSeptember 30, 2012
September 30, 2011
September 30, 2012
September 30, 2011Revenues:Vending Route
$
267,624
$
265,356
$
786,876
$
731,850Manufacturing Machine Sales

3,546,134

1,773,723

9,888,308

5,021,175Non-vending

-

158,320

194,085

516,498Total revenues

3,813,758

2,197,399

10,869,269

6,269,523Cost of Vending Products

88,535

146,864

405,746

442,022Cost of Manufacturing

1,599,955

514,717

4,597,053

1,811,820Cost of Non-vending



55,745

114,764

193,179Cost of Sales

1,688,490

717,326

5,117,563

2,447,021Gross Profit

2,125,268

1,480,073

5,751,706

3,822,502Operating Expenses:General and Administrative

1,721,861

894,254

4,217,986

2,667,990Depreciation and Amortization

224,952

232,239

674,856

670,797Total Operating Expenses

1,946,813

1,126,493

4,892,842

3,338,787Other Income (Expense):Interest Expense

43,142

96,001

109,730

181,420(Loss) on Sale of Restaurant

-

-

(54,513)

-Provision for Income Taxes

-

-

-

-Total Other Income (Expense)

43,142

96,001

55,217

181,420Net Income
$
135,313
$
257,579
$
694,621
$
302,295Net income per share - basic
$
0.01
$
0.01
$
0.01
$
0.01Net income per share - diluted
$
0.01
$
0.01
$
0.01
$
0.01Weighted average shares outstanding - basic
11,182,723

7,684,443

10,612,740

12,770,299Weighted average shares outstanding - diluted
26,988,811

23,424,159

26,217,151

28,216,231See accompanying notes.











AVT, Inc.Consolidated Statements of Cash Flows (unaudited)September 30, 2012

September 30, 2011Operating activities:Net income
$
694,621
$
257,579Adjustments to reconcile net income to net cash provided by

(used in) operating activities:Depreciation and amortization

674,856

41,416Stock compensation

57,562

-Changes in operating assets and liabilities:Accounts receivable

1,981,172

611,854Inventory

(3,647,393)

(1,156,967)Accounts payable

45,930

193,582Related party payable

217,531

-Other current liabilities

39,908

(164,115)Net cash provided by (used in) operating activities

64,187

(216,651)Investing activitiesProceeds from sale of restaurant

325,000

-Purchases of property and equipment

(5,320)

139,115Net cash provided by investing activities

319,680

139,115Financing activitiesNet proceeds from issuance on shareholder notes

304,904

(18,788)Payments on capital leases

(138,053)

-Issuance of equipment leases

-

71,528Proceeds from the issuance of common stock

-

82,684Net cash provided by financing activities

166,851

135,424Net increase in cash and cash equivalents

550,718

57,888Cash and cash equivalents, beginning of year

177,400

157,631Cash and cash equivalents, end of period
$
728,118
$
215,519Supplemental disclosures of cash flow information:Cash paid for interest
$
43,142
$
116,001Income taxes
$
-
$
-Supplemental disclosures of investing and financing noncash information:Shareholder notes converted into shares of common stock
$
364,000
$
-Equipment purchased through capital leases
$
176,112
$
-Payment of related party payables through issuance of preferred stock
$
125,000
$
-Preferred shares connverted into shares of common stock
$
994
$
-Payment of interest through issuance of common stock
$
23,875
$
-See accompanying notes.





AVT, Inc.


Notes to Consolidated Financial Statements


September 30, 2012


(Unaudited)


1.   Accounting Policies


Business
 
 AVT, Inc. (the “Company”, “We” or “Our”) was originally incorporated under the laws of the State of Delaware on February 26, 1969, as Infodex, Inc.,  the Company was renamed to Midwest Venture Group, Inc. in March 2005. The Company then changed its name to Automated Vending Technologies, Inc. in September 2005 to better reflect our primary operations as a machine manufacturer as well as vending route distribution.  In January, 2008, the Company changed its state of domicile to Nevada, at that time we became AVT, Inc.  Due to the growth of AVT’s technology foundation base, our hardware, software products, business and overall success relies on both innovative and creative designs. These systems include solutions for wireless management of remote vending, method for controlling vending machines and custom systems.
 
 Interim Financial Information
 
 The consolidated balance sheet as of December 31, 2011 was derived from audited financial statements at that date, but this report does not include all information and footnotes required by U.S. GAAP for complete audited financial statements.  The interim consolidated financial statements included herein have been prepared by the Company, without audit, in accordance with the rules and regulations of the SEC pursuant to Item 210 of Regulation S-X promulgated by the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.
 
 In management’s opinion, the unaudited consolidated financial statements contained herein reflect all adjustments, that are necessary for the fair presentation of the Company’s financial position, results of operations, and cash flows on a basis consistent with that of its prior audited consolidated financial statements. However, the results of operations for interim periods may not be indicative of results to be expected for the full fiscal year. Therefore, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, including the summary of significant accounting policies, included in the Company’s Form 10-K for the year ended December 31, 2011.  Unless otherwise noted, there have been no material changes in the footnotes from those accompanying the audited consolidated financial statements contained in the Company’s Form 10-K.
 
 Use of Estimates
 
 The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes.  Actual results could differ from those estimates.
 
 Reclassifications
 
 Certain amounts presented in prior periods have been reclassified to conform with the current period presentation. The reclassifications had no effect on the Company’s net income.
 
 Cash and Cash Equivalents
 
 Cash and cash equivalents represent all highly liquid investments with original maturities of three months or less.  Cash equivalents are comprised of certificates of deposit.  The Company maintains its cash in bank accounts, which may exceed federally insured limits at times.
 
 Concentrations
 
 During the three and nine months ended September 30, 2012 and 2011, the Company had two customers which individually accounted for 10% or more of total revenue for the year.  Customer A accounted for 58% and 43%, respectively, and Customer B accounted for 12% and 39%, respectively, of total revenue.  Customer A accounted for 48% and 58%, respectively, and Customer B accounted for 23% and 27%, respectively, of accounts receivable as of September 30, 2012 and December 31, 2011.
 
 Accounts Receivable
 
 Accounts receivable are reported at their outstanding unpaid balances. The Company estimates doubtful accounts for accounts receivable and finance receivables based on historical bad debts, factors related to specific customers’ ability to pay and current economic trends.  The Company writes off accounts receivable against the allowance when management determines the balance is uncollectible and the Company ceases collection efforts.  The Company offers extended payment terms to certain customers for equipment sales. The Company provides an allowance for credit losses as discussed above extended receivables are carried at their contractual amount and charged off against the allowance for credit losses when management determines that recovery is unlikely and the Company ceases collection efforts. All accounts are considered collectible as of September 30, 2012 and December 31, 2011.  No write offs were recorded for the three and nine months ended September 30, 2012 and 2011.
 
 Revenue Recognition
 
 The Company records revenue when it is realized, or realizable, and earned.  The company considers these requirements met when persuasive evidence of an arrangement exists, the products or services have been provided to the customer, the sales price is fixed or determinable and collect ability is reasonably assured.
 
 Inventory
 
 Inventory consists of finished goods and vending products.  The Company’s inventory is stated at the lower of cost (average cost basis) or market.
 
 September 30,

2012
December 31,

2011Food products
$     60,021
$   64,221Machine inventory
3,041,865
1,505,403Parts inventory
3,986,893
1,756,998Restaurant
-
114,764$7,088,779
$3,441,386
 Property and Equipment
  September 30,

2012
December 31,

2011Machines on location
$ 1,097,358
$ 1,097,358Restaurant equipment
-
514,300Building improvements
721,610
360,070Vehicles
637,538
685,144Furniture and equipment
456,002
426,378Manufacturing Machinery
2,481,675
2,481,675Kiosk/ Other
262,866
300,366Computer and software
300,016
235,341Accumulated depreciation
(2,871,408)
(2,519,814)$3,085,656
$3,580,819
 Property and equipment are stated at cost.  Depreciation and amortization are provided using the straight-line method over the estimated useful lives or the term of the lease of the related assets, whichever is shorter. Estimated useful lives generally range from 3 to 7 years.
 
 Goodwill
 
 Goodwill is the excess of cost over the fair value of net assets of businesses acquired.  Goodwill is not amortized but is evaluated for impairment as described below.
 
 Intangible Assets
 
 Intangible assets are carried at cost and consist of patents, copyrights and certain vending route contracts. Amortization is provided on the straight-line basis over the estimated useful lives of the respective assets, ranging from five to seventeen years.
 
 Application software
 
 Our intangible assets include the development of system design, proprietary technologies, application software, and customize systems in order to maintain the high degree of market position.  AVT developed proprietary software, requires a methodical approach to the design and continuous evolution, enhancement and system architecture.  Our application software programs, protocols, patents, and intellectual property that pertains to the design and system architecture that are all or in part of AVT’s group of key intangible assets.
 
 Impairment of Long-Lived Assets
 
 The Company accounts for its long-lived assets in accordance with ASC 360, "Property, Plant, and Equipment".ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors.  For the nine months ended September 30, 2012 and year ended 2011, the Company did not deem any of its long-lived assets to be impaired and thus no impairment losses were recorded.
 
 Income Taxes
 
 No provision for income taxes has been made for the nine months ended September 30, 2012 and 2011 given the Company’s losses in prior years and available net operating loss carry forwards.  A benefit has not been recorded as the realization of the net operating losses is not assured and the timing in which the Company can utilize its net operating loss carry forwards in any year or in total may be limited by provisions of the Internal revenue Code regarding changes in ownership of corporations.
 
 Fair Value of Financial Instruments
 
 The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, and accounts payable as of September 30, 2012 and December 31, 2011. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximated their fair values at September 30, 2012 and December 31, 2011 due to their short maturities.
 
 Earnings Per Share
 
 Basic earnings per share is computed by dividing income available to common shareholders (the numerator) by the weighted-average number of common shares (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
 
 Basic earnings per share take into account only the actual number of outstanding common shares during the period.  Diluted earnings per share take into effect the common shares actually outstanding and the impact of convertible securities, stock options, stock warrants and their equivalents.
 
 Recently Adopted Accounting Standards
 
 The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (“FASB”), the SEC, and the Emerging Issues Task Force (“EITF”), to determine the impact of new pronouncements on U.S. GAAP on the Company’s financial statements.  The following are recent accounting pronouncements adopted by the Company:
 
 In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”(“ASU 2011-04”). ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. On January 1, 2012, the Company adopted ASU 2011-04 and does not anticipate that it will materially expand its consolidated financial statement footnote disclosures or have an impact on the Company’s consolidated financial position, results of operations or cash flows.
 
 In September 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income” (“ASC Topic 220”): “Presentation of Comprehensive Income” (“ASU 2011-05”), which amends current comprehensive income guidance.  This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity.  Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements.  ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011, with early adoption permitted.  On January 1, 2012, the Company adopted ASU 2011-05 and does not anticipate that it will have an impact on the Company’s consolidated financial position, results of operations or cash flows as it only requires a change in the format of the current presentation.
 
 2.   Related Party Payable
 
 A company, that is a major shareholder and related party, loans the Company funds to assist in cashflow.  There is no formal agreement between the parties. Advances totaling $365,000 were received from the related party for the nine months ended September 30, 2012. Payments totaling $89,531 were made to the related party.  A $125,000 payment was made through the issuance of shares of common stock.  At September 30, 2012 and December 31, 2011, the Company owed the related company $154,770 and $62,259, respectively.
 
 3.   Long- Term Debt
 
 Equipment  Leases
  September 30, 2012
December 31, 2011Falcon 241414
$                 -
$    9,643Falcon 21430
-
9,597De Lage
23,536
4,730Firestone 528916
0
4,980Chrysler
0
10,757Ally 28777
25,975
34,939GMAC 96864
-
16,751Ally 58335
-
9,917America Leasing
-
13,740Ally 74775
27,405
31,133Firestone 40014
67,226
97,477Firestone 537668
87,275
-Toyota 3369
23,858
-Toyota 3352
26,448
-$281,723
$243,664Current portion
(110,000)
(146,628)Longterm portion
$171,723
$97,036
 Shareholder Notes
 
 Shareholder notes consist of investor convertible promissory notes of $1,333,000.  The convertible promissory notes are convertible at the option of the holder, in whole or part, at any time from issuance date until up to twelve months from issue date, into such number of fully paid and non- assessable shares of common stock, as of such date that the holder elects to convert by (y) a number which is 75% of the average Closing Price for the immediate preceding 10 Trading Days; or at any time from a date which is after 12 months from the Issuance Date up to a date which is 24 months from the Issuance date a number which is 85% of the average Closing Price for the immediate preceding 10 Trading Days; or at any time from a date which is after 24 months from the Issuance Date up to the Maturity Date a number which is 90% of the average Closing Price for the immediate preceding 10 Trading Days.
 
 Future Maturities
 
 Capital

Leases
Shareholder

Notes2013
$110,000
$   781,0002014
103,097
50,0002015
36,313
502,0002016
14,533
-2017
11,739
-Thereafter
6,041
-$281,723
$1,333,000
 
 4.   Shareholders’ Equity
 
 Common Stock
 
 On March 2, 2011, the majority of the Company’s shareholders approved the resolution of the Company’s board of directors to amend the Company’s articles of incorporation to reverse split the Company’s common stock on a 1 for 10 basis.  All fractional shares were rounded up. Shares issued prior to March 2011, have been retroactively restated to reflect the impact of the stock split.
 
 On January 17, 2012, the Company issued 1,278 shares of common stock for interest totaling $1,500 due on shareholder notes.
 
 On January 26, 2012, the Company issued 2,895 shares of common stock for interest totaling $3,250 due on shareholder notes.
 
 On February 9, 2012, a $10,000 shareholder note was converted into 8,323 shares of common stock.
 
 On March 2, 2012, several shareholder notes totaling $115,000 were converted into 99,076 shares of common stock.
 
 On March 2, 2012, stock warrants valued at $362,500 were exercised for 303,850 shares of common stock for compensation of employees and related party consulting services.
 
 On March 16, 2012, a $20,000 shareholder note was converted into 10,312 shares of common stock.
 
 On April 4, 2012, a preferred stock shareholder converted 82,981 preferred shares into 497,888 shares of common stock.
 
 On April 9, 2012, the Company issued 877 shares of common stock for interest totaling $1,500 due on shareholder notes.
 
 On May 4, 2012, the Company issued 1,637 shares of common stock for interest totaling $3,250 due on shareholder notes.
 
 On May 11, 2012, the Company issued 2,096 shares of common stock for interest totaling $5,000 on shareholder notes.
 
 On June 5, 2012, a $25,000 shareholder note was converted into 22,207 shares of common stock.
 
 On June 5, 2012, the Company issued 1,951 shares of common stock for interest totaling $2,625 due on shareholder notes.
 
 On June 20, 2012, the Company issued 814 shares of common stock for interest totaling $1,250 due on shareholder notes.
 
 On July 19, 2012, the Company issued 2,184 shares of common stock for interest totaling $3,000 on shareholder notes.
 
 On July 19, 2012, three shareholder notes totaling $85,000 were converted into 68,066 shares of common stock.
 
 On July 23, 2012, a preferred stock shareholder converted 82,659 preferred shares valued at a $1.00 per share into 495,954 shares of common stock.
 
 On August 8, 2012, the Company issued 38,400 shares of common stock for management and consulting services totaling $57,600.
 
 On August 23, 2012, the Company issued 1,841 shares of common stock for interest totaling $2,500 on shareholder notes.
 
 Preferred Stock
 
 For the quarter ended June 30, 2012, there were 82,981 shares converted of Series A Convertible Preferred stock.
 
 For the quarter ended September 30, 2012, we issued Worth, Inc. a total of 125,000 shares of our Series A Convertible Preferred stock valued at $1.00 per share or $125,000 as partial payment of note.
 
 The Series A Convertible Preferred Stock has the following rights and preferences:
 
 Conversion/ Dividend Rights
 
 Each share of the Series A Preferred Stock may be convertible, at the option of the holder thereof and subject to notice requirements described herein, at any time, into six (6) shares of our common stock.  Holders of our Series A Convertible Preferred Stock will be entitled to receive dividends on the stock out of assets legally available for distribution when, as and if authorized and declared by our Board of Directors.
 
 Liquidation Preference
 
 The holders of Series A Convertible Preferred Stock are entitled to receive, prior to the holders of the other series of the Company’s Preferred Stock and prior and in preference to any distribution of our assets or surplus funds to the holders of any other shares of stock of the Company by reason of their ownership of such stock, an amount equal to $0.37 per share with respect to each share of Series A Convertible Preferred Stock, plus all declared but unpaid dividends with respect to such share.
 
 Voting Rights
 
 Except as otherwise required by law, the holders of the Company’s Series A Convertible Preferred Stock vote; (i) as a single class and shall have such number of votes as is determined by multiplying (a) the number of shares of Series A Convertible Preferred Stock held by such holder, (b) the number of issued and outstanding shares of our Series A Convertible Preferred Stock and Common Stock as of the record date for the vote, or, if no such record date is established, as of the date such vote is taken or any written consent of stockholders is solicited, and (c) 0.00000025; and (ii) the holders of our Common Stock shall have one vote per share of Common Stock held as of such date.
 
 5.   Commitments and Contingencies
 
 Leases
 
 The Company has an operating lease in connection with its office space. The future commitments are as follows:
 
 2013
$ 17,2922014
17,8202015
4,488$39,600
 
 6.   Restaurant Sale
 
 In March, 2012, the Company sold its Jalapenos Mexican Food restaurant to an independent third party for $325,000.  AC Mexcian Food, Inc. continues to operate by providing fresh Mexican foods to the Company’s vending machines.  The Company recognized a $54,513 loss on the sale.
 
 7.   Subsequent Events
 
 The Company has evaluated events and transactions that occurred between September 30, 2012 and the date the financial statements were available for issue, for possible disclosure or recognition in the financial statements.
 
 Two shareholder notes totaling $75,000 were converted into 63,517 shares of common stock.
 
 The Company issued 6,289 shares of common stock for payment of interest on shareholder notes.


Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operation





Forward Looking Statements





This report contains certain forward-looking statements regarding, among other things, the anticipated financial and operating results of the Company.  For this purpose, forward-looking statements are any statements contained herein that are not statements of historical fact and include, but are not limited to, those preceded by or that include the words, “estimate”, “could”, “should”, “would”, “likely”, “may”, “will”, “plan”, “intend”, “believes”, “expects”, “anticipates”, “projected”, or similar expressions.  Those statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those contemplated by the statements.  The forward-looking information is based on various factors and was derived using numerous assumptions.  For these statements, we claim the protection of the “bespeaks caution” doctrine. All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements.





Our Financial Statements are attached to the end of this Report.





Results of Operations




Total revenues for the nine months ended September 30, 2012, were $10,869,269 compared to total revenues of $6,269,523 for the nine months ended September 30, 2011.  The increase in revenue of $4,599,746 is due to manufacturing sales.  We attribute the increased manufacturing revenues to large orders of our custom kiosks.





For the nine months ended September 30, 2012, cost of goods totaled $5,117,563 compared to the nine months ended September 30, 2011 of $2,447,021.  This increase in cost of goods of $2,670,542 is due to the increased quantity of custom orders of machines and kiosks.




For the nine months ended September 30, 2012, operating expenses were $4,892,842, this compares to the nine months ended September 30, 2011 where we had $3,338,787 in operating expenses. We attribute the increase in operating expenses of $1,554,055 for the nine months ended September 30, 2012 to increased general and administration expenses.  The $226,000 increase was related to freight and shipping due to over seas shipping.  The $68,000 increase in automobile is due to added auto’s for service calls and gas price increases.  We had $102,000 increase for additional offices and the set up.  Marketing increased by $105,000 due to the making of commercials and advertising.  We attribute the increase in rent of $56,000 due to the added space.  The addition of wireless cards for kiosk units increased out telephone by $118,000 and $673,000 increase related to increase in staffing and utilization of outside services.




For the nine months ended September 30, 2012, net income  was $694,621 compared to the nine months ended September 30, 2011, of $302,295. The increase in net income of $392,326 is the result of an increase in manufacturing revenues as a result of large orders of custom kiosks.




Total revenues for the three months ended September 30, 2012, were $3,813,758 compared to total revenues of $2,197,399 for the three months ended September 30, 2011.  The increase in revenue is due to manufacturing sales. We attribute the increased manufacturing revenues to large orders of our custom kiosks.




For the three months ended September 30, 2012, cost of goods totaled $1,688,490 compared to the three months ended September 30, 2011 of $717,326.  This increase in cost of goods of $971,164 is due to the increased quantity of custom orders of machines and kiosks.




For the three months ended September 30, 2012, operating expenses were $1,946,813, this compares to the three months ended September 30, 2011 where we had $1,126,493 in operating expenses.  We attribute the increase in operating expenses for the three months ended September 30, 2012 to increased general and administration expenses. The increase of $61,000 in freight and shipping is due to over seas shipping.  We had an increase of $45,000 in office supplies related to increase of employees and offices. Our rent increased by $32,000 due to added warehouse space.  The increase in telephone of $27,000 is due to added phone lines and wireless card’s and $394,000 increase was related to increased staffing and utilization of outside services.




For the three months ended September 30, 2012, net income was $135,313 compared to the three months ended September 30, 2011, of $257,579. The decrease in net income of $122,266 is the result of increased cost of goods and operating expenses.




We believe the increased spending on manufacturing is necessary for the company to move away from vending operations and work towards increased machine sales and the development of technology, which facilitates sales of our electronic payment, back end inventory control and advertising products.  We continue to improve the restaurant operations with management and expect the restaurant expenses to be reducing during the next year.




We expect manufacturing to continually increase sales over the next 12 months.  We believe that we have sufficient cash and cash flow from operations to satisfy our working capital and capital expenditure requirements during the next 12 months.  There can be no assurance, however, that cash and cash flow from operations will be sufficient to satisfy our working capital and capital requirements for the next 12 months or beyond.




Our cost of goods and prices for our products remain relatively stable and we expect this trend to continue through the end of 2012.




Liquidity and Capital Resources




We have historically financed operations through a combination of cash on hand, cash provided from operations and the sale of our securities.




Working Capital









At

September 30, 2012
At

December 31, 2011Current Assets
$9,899,389
$7,682,450Current Liabilities
$1,904,523
$1,550,657Working Capital
$7,994,866
$6,131,793







These numbers reflect our transitioning several major projects from the development and pilot phase, in to actual production.





AVT has a commitment to developing custom-designed systems that fit the specific needs of our customers. Accordingly, we often spend months in development, fine-tuning all aspects of a system - from graphics to software to the customer interface.  After initial development, we move this approved system into a pilot program, where field-testing and consumer feedback can be obtained. Only after the successful outcome of this lengthy process do we begin full-scale production.





Accordingly, our inventory has grown considerably as we moved into production on several large programs. The inventory is shipped and invoiced as quickly as possible following final assembly and inspection.





The Company





AVT, Inc. is an innovative developer, manufacturer and vending operator of technology based product dispensing solutions and equipment that is in the process of revolutionizing convenience food access and food product dispensing.  With extensive experience in the vending machine industry, AVT combines vast market knowledge and strong customer relationships with best-in-class technologies to dramatically improve the values delivered to consumers.





AVT’s designs are innovative and exploit the use of integrated PCs.  As a design manufacturer, creator of specialty application software and integrator of technology, our company defines the cutting edge of the vending and dispensing industry.  We are positioned us as a leader and industry innovator.  We currently have vending systems throughout the Los Angeles, Orange and Riverside, California counties.  It is our vending operation experience over the past years that adds a distinctive advantage and contributes to our overall success as a manufacturer and leader of technology based vending products





We were originally incorporated under the laws of the State of Delaware on February 25, 1969 as Infodex, Incorporated.  In October, 2005, we acquired Automated Vending Technologies, Inc., a Nevada corporation and began focusing our business on vending operations. In December, 2006 we merged our operating wholly owned subsidiary into the parent company and in January of 2008, we changed our state of domicile to the State of Nevada and renamed the company to “AVT, Inc.”  We operate in the State of California as “AVT Vending, Inc.”.





Our Products





We have a family of products which are geared towards improving the experience of consumers, establishments, and operators in the convenience food, digital signage and product dispensing industry.





Automated Express Market





We have developed and created an Automated Express Market (AEMTM) system which is a Controlled Access Cabinet system. These custom built wood and steel based cabinets are PC based and designated for use in specialized locations such as hotels, Inns, c-stores, malls and retail stores that are limited in the ability to effectively sell and market food, and carry convenience items or higher priced items which are subject to pilfering. The cabinets can be merchandised to dispense more than seventy-two selections including snacks, hot meals, ice cream, alcoholic and non-alcoholic beverages as well as personal amenities such as sunscreen, toothpaste, and brushes.  They can also be configured for high ticket items such as cell phones, digital cameras, mp3 players, personal electronic devises and more. The AEMTM system gives the hotel’s customers the convenience of billing directly to their room through touch screen pin technology so they do not have to carry cash or coin to make purchases. The system automatically posts the charge to the guest’s account by utilizing touch screen vending (TSVTM) and multi-payment capabilities. AEMTM cabinets have multiple payment options built in that include touch screen payment technology, credit/debit acceptors and smart card readers.   We are currently exploring opportunities with many limited service hotel chains in the U.S., a market that totals more than 50,000 establishments as well as c-stores, retail stores and shopping malls.





Media Advertising





We have developed a software product called AVTi MediaTM which enables an advertising medium (player) to be added to virtually any of AVT designed systems including AEMTM cabinets and all four next generation vending and product dispensing systems.  By incorporating AVTi Media, we allow the consumer to view the media, advertising or hotel messaging while they make their selections.  AVTi Media can generate advertising revenue for owners and operators in many settings such as conference rooms, hotel lobbies, airport terminals, restaurants, car rental outlets and surgery center waiting rooms.  By having vending machines in prominent locations within major companies, the vending operator “owns” the valuable advertising space that can be used to generate advertising revenue through the Digital TV Message Board or (DTVMB) technology.  Our Vending Management System software enables the management of machine inventory, repairs, collections and advertising through remote access. VMSTM enables owners/operators to reduce costs and increase profits by enabling real time access to inventory levels, system status, machine service and daily receivables with little to no machine down time.





Vending Management SystemTM (VMS)





Our VMS  is another AVT developed software product that allows us to remotely view  information for each machine to help plan for daily replenishment, sales statistics and alerts of system malfunctions to operators as well as defect history for each machine by means of software error log files. This technology increases operational efficiency of vending operations and helps to prevent inventory shrinkage and skimming, both major control issues in the vending industry. A key differentiator relative to the offerings of other established players in the vending machine management space is that our VMS solution works via a DSL line cellular modem or Internet Wi-Fi and are substantially less expensive to own and operate than competing systems that do not use the internet for bi-directional transmission of vending system data.  VMS currently holds a Patent pending.





Vend Sensing System (VSS)





We have developed and have a patent pending on our VSS product to provide a surefire solution for detecting all vended items.





The VSS was developed specifically to detect a vending type of product that has dropped from one of the dispensing columns directly above the sensing system and has fallen into the customer delivery bin at the base of the vending system.




The VSS is coupled directly with the vending system control electronics.  The VSS circuitry is disabled until the vending system control electronics has received payment.  Once payment has been received and the vending system starts the dispensing process, the control electronics enables the VSS circuitry to detect product which has been dispensed and has dropped into the delivery bin below.  During this sensing period, the VSS circuitry is only enabled for the time period taken to detect that a vendible product has fallen into the delivery bin.





During the sensing period of time, the VSS circuitry uses an auto-calibrated ultrasonic beam to detect if an object of just about any size, form or shape (designed for detection of any object that can be vended) has fallen into the detectable space of the customer product delivery bin.  If an object (vended product) enters the detectable vending space, the VSS circuitry detects the object and in turn sends a “detected” signal to the Control Electronics.  If the VSS circuitry does not detect an object has entered the customer delivery bin space within the allotted empirical time frame, the VSS circuitry returns a command signal to the control electronics stating “no vend object detected”.  It is the control electronics responsibility to determine the next appropriate action to take.





This invention for product detection provides many distinct and exciting advantages over conventional detection.  First and foremost, the VSS is calibrated to “look” across the entire cross-sectional area of the delivery bin.  This is a primary advantage over the conventional light beam detection method.  The detection system is compatible in cost to that of traditional vending detection systems.  The self calibration mode allows the system to be able to retrofit into other vending systems with minimal modification needed.





Touch Screen Vending (TSV)





TSV (Touch Screen Vending) is our primary flagship application software product.  Designed and development by AVT’s software staff several years ago, it is like most of today’s application software, constantly maintained and in continuous refinement, support and development to remain compatible with and competitive with the ever changing PC’s environment.  Our TSV software product is the primary foundation for ALL of AVT’s touch screen based systems. This application software is modular by design allowing extreme flexibly by our customers allowing them to have a product that is capable providing the system owner a specific “look and feel” coupled with dispensing their own specific products via the customizable GUI interface.





Kiosk/ Game Trader Systems





In addition to our vending machines, we have incorporated a line of computer and technology based kiosk systems.  These kiosks will be deployed in conjunction with our line of vending systems as well as being sold as self service or control center kiosk systems.  All kiosks have the ability to be fitted with digital signage which runs our media software products to become a part of AVTi Media Network.  AVT engineered the Game Trader machine that will allow customers to buy video games as well as trade used games in for cash.





Media Products





Our Media Product Technology effort is focused on the design and enhancement of our AVTi Media products.  The AVTi Media products are integrated into our base systems and also sold to other vending manufacturers.





•  AVTi Media Administer:  This program is designed to manage and administer all aspects and features of our digital signage program.  The Media Administrator allows a remote operator to create, manage, update and schedule ads that will play on LCD displays which have been integrated into vending systems.





•  AVTi Media Client: This program is designed to be located on the vending system’s integrated PC and has the priority of playing the ad “play list”.  This client software also uses prescheduled times to monitor the server to “update” the playlist as required.





•AVTI Media Server:  This is a server based program which coordinates the efforts, changes and directives from the administrator program with the schedule efforts of all the multiple clients located in the field and connected via the internet.  Our secondary fabrication and design efforts run concurrently with our primary efforts to support ongoing systems and to develop new products.  These products are summarized as follows:





•  TSV:  Touch Screen Vending is an ongoing software development effort which is our primary flagship software product.  This modular program is designed to evolve with the changing technologies supporting our vending and dispensing products.





•  IVend:This is an ongoing development design that features a high-end dispensing center which combines our base cabinet with a creative front door design which includes interactive touch screens and a variety of other supported hardware.  The IVend also has its own software application program which is designed to provide a high degree of interactive and intuitive application to the user.





•  Tech Store: This system is similar to our IVend system designed for middle priced systems.





•Vend Mart: This system is similar to our IVend system designed for entry level priced systems.  The Vend Mart also has its own software application program, designed to provide a high degree of interactive and intuitive application to base line vending systems equipped with TSV.





In addition, we have a variety of ongoing hardware and software R&D projects which are at various stages of development.  The following is a brief list of some of our non-confidential R&D efforts:





MDB – PC Software Interface

DEX to PC software Interface

MDB to USB Hardware Device

DEX to Radio Controller PCB

X – Y Dispensing Center Design
VMSII – Hardware/Server/Software Project

VMS – Drop Sensing efforts

AEM Cabinet Design

Multiple All-In-One PC/LCDDisplays Designs

Multiple Custom Dispensing Projects





The expense of complying with environmental regulations is of minimal consequence.





Patent Pending





Multimedia System, Method for Controlling Vending Machines


Serial Number 11-588,422


(Filed:  October 27, 2006)





Conventional control of vending systems is typically done by using a system control board consisting of a PWB (printed circuit board) and a microcontroller supported by a group of discrete electronic components.  These system components are used to control the various system functions of a vending machine (i.e. spinning of auger motors, control of bill and coin acceptors, LED display feedback, etc.).





Our invention of Touch Screen Vending or TSV has redefined the conventional method of vending machine control.  TSV empowers the use of a multimedia PC and a color touch LCD display to virtually control the complete operation of the vending machine.  The PC stores a database software program containing all desired products to vend with an associated color digital image of each item.  A second application program displays the color image of the intended items to vend in the exact format as seen through the glass front of the vending machine.  The PC also controls the collection of currency (i.e. bill acceptor, coin acceptor, credit card reader) in place of the vending machines control board.  I/O (input/output) ports from the PC are used to interface to the vending machine control board and all aspects of operation of the vending machine is under complete control by a multimedia PC coupled with the touch screen LCD.





This invention for the control of vending machines provides many distinct and exciting advantages over conventional control such as the universal language of using a touch display to select desired products to vend in place of an alphanumeric keypad.  The system can generate virtually any type of report to combat money or product shrinkage while providing exact control of inventory.  The LCD provides a means of generating additional revenue through advertising displayed products or other services while the system in idle mode.





Vend Operating System


Claims to be amended to the Multimedia System, Method for


Controlling Vending Machines – Serial Number 11-588,420


(Filed:  October 27, 2006)





Our Vend Operating System (Vend OS) is a next generation vending and product dispensing system utilizing a personal computer (PC) to drive the system components and utility software.  The uniqueness in the system is based on our vending system, and uses a PC to control the vending system.


The prior art in the vending industry typically uses discrete component controllers for overall system operation and control.





Our Vend OS is broken up into two sections hardware and software. The hardware consists of the following devices: Virtual Sensing System (VSS), a USB Omni-pattern scanner, a USB Magtek Card Reader, a USB Pyramid Bill Acceptor, a MDB Coinco coin machine, a 7 inch LCD screen built-in with the Nano-ITX PC, and a portable mpeg player (allowing static media files to play in a continuous loop).   The software consists of the following applications: Vending Management System (VMS), Touch Screen Vending (TSV) and AVTI Digital Signage Media.





Our Vend OS is extremely flexible regarding capabilities, because the product is installed in our RAM bases systems without any peripheral devices; and includes a Nano-ITX computer with freeware developed by our engineering department running as a Windows’ service allowing vending by conventional methods. This freeware allows sales data and records to be stored in a secure database and has the capability of manipulating a machine’s state remotely through internet connectivity, memory stick, cell modem or phone line.





With our Vend OS we can:  manipulate product prices; turn the machine off and on, turn the compressor off and on, manipulate the change returned, manipulate the system clock, and read the machine’s state from the MDB interface and motor/auger control.





Our Nano-ITX computer includes an optional 7 inch touch wide screen LCD, a flash ROM that runs Microsoft Embedded System, a MDB to RS-232 interface board that connects from a VMC board to the PC serial port, motor driver printed circuit board and a PCMCIA modem that allows wireless internet connection as a typical system but control for any variety of input or output devices are part of the scalable system.





The effects of existing or probable government regulations are minimal.





Additional information





The Company currently has approximately 30 full time employees and 5 part-time employees.  We also allow and utilize the services of independent contractors.





Vending Machine Manufacturing, Sales and Placements





We currently manufacture next generation refrigerated and high capacity snack machines as well as standard and customized product dispensing systems. These machines have been designed to meet or exceed our specific performance specifications and give us the ability to minimize costs traditionally associated with purchasing new equipment.  The manufacturing of our own equipment also allows us to incorporate our technology into the systems during production reducing the costs associated with retrofitting units. We sell these systems directly to distributors, vending operators and end users located primarily throughout the United States, Canada and Mexico. We believe that we are currently the only manufacturing entity with this capability in the vending industry, giving us a tremendous lead and advantage over our competition.





The major competitive advantages of AVT’s next generation machines is they all have the capability of being configured with an integrated PC with customized AVT software.





The integrated PC allows for a variety of additional functions which include but are not limited to, cashless vending, remote sales management and media advertising for creating additional revenue through the sale and display of advertising play loops.





The feature of playing multiple looping advertisements yields the possibility of adding additional stream of revenue which may exceed that of the sales of vended product.  Another significant advantage is the ability to plug into a standard 120 VAC household power outlet. As an operator, AVT’s experience is that the unit price of a machine and sometimes the required 220VAC circuits for the units represent major constraints to growth of a vending company.





Our next generation machines will cut machine acquisition cost by greater than 50% and eliminate expensive power outlet upgrades for establishments and operators, thereby increasing placement and sales opportunities.




Through the design and manufacturing of vending and product dispensing systems using new technologies, we have become a vendor of equipment for the entire gamut of food and high priced consumer electronics and dispensed items. Our company can produce machines that are far less expensive, are less power demanding and have multi-pay options that far exceed the traditional market standard.  As a result, we have the opportunity to grow both the mainstream and the specialty segment of the vending machine manufacturing and operations business.  We also have the opportunity a major equipment provider to other distributors, all without a heavy capital investment.





Business Strategy





Manufacturing Capabilities





AVT is a full service developer and manufacturer of highly integrated vending and product dispensing systems.  Over the past several years, AVT has assembled an integrated team of experienced engineers and qualified technicians and software programmers to develop proprietary technology based solutions.  Our solutions are comprised of original and inventive technology that is integrated into a line of sophisticated self service products.  At the heart of our business is our engineering, manufacturing and creatively inventive and functional application software for use on our AVT designed and manufactured systems.





Design:  AVT employs a complete design team.  Our engineers use creative tools such as “Solid Works” to develop and generate CAD drawings used by our local manufacturing partners as well as our OEM manufacturer in China to produce our state of the art vending systems components, shipped to our 50 thousand square foot facility in Corona, California for integration, assembly, final testing and deployment.





A multitude of electrical and software tools are also used to create AVT’s proprietary control boards, sensors, and firmware used by all AVT branded product.





Software Development:  We also employ a complete software design and development team.  Our software products are a key factor to the success, functional operation and financial position of the company.  AVT owned Intellectual Property supports our proprietary software products, which are sold as a licensed part of every system AVT sells, that can be integrated with an optional PC.  We design our software products using today’s state-of-the-art high level programming environments which produce effective and efficient software programs that are highly flexibly and user friendly, while maintaining the elevated degree of complexity and inventiveness that yield a superior and competitive product.





Future Goals





In addition, our PDC systems can dispense a variety of snack items and non-food items such as cell phones, MP3 players, digital cameras, DVDs, consumer electronics and accessories.  We will also focus on “Themed” systems to dispense products such as tee-shirts, promotional items, perfumes, contact lenses and just about any product our customers have a location and market for.  Our “Themed” systems are of exceptional interest to our direct end customers as the products these systems dispense result in higher profit margins.





All of our vending systems are capable of the inclusion of PC hardware and LCD displays.


A future goal of AVT is to complete and continue to refine application software that runs digital signage for the primary purpose of displaying paid advertisements.  Each system that is equipped with a PC and LCD display becomes a “node” on a digital network.  As the digital network expands, many thousands of vending systems and PDCs can be part of nationwide advertising network which we believe will interest national advertisers.





Our goal is to “own” the network but not the systems.  All vending system owners will have the option to join the AVT nationwide network with our AVT based advertising vending system, to share revenue for allowing advertisements from AVT’s servers to be pushed-out onto their vending system.





Future goals and system refinements will include continued software and hardware development and refinements, including even more efficient operating systems to integrate more seamlessly with the internet, becoming Wi-Fi standard and including SMS and email features. Our goal is to make the AVT solution the standard for intelligent self-service vending systems deployed throughout the US and world markets.




Off-Balance Sheet Arrangements




We maintain no significant off-balance sheet arrangements.




Foreign Currency Transactions




None.




Item 3.   Quantitative and Qualitative Disclosures about Market Risk





We currently do not utilize sensitive instruments subject market risk in our operations.  In the event that we borrow money for our operations, our principal exposure to financial market risks is the impact that interest rate changes could have on our loans.





Item 4.   Controls and Procedures





EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES





For purposes of this Item 4., the term disclosure controls and procedures means controls and other procedures of the Company (i) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (15 U.S.C. 78a et seq.  and hereinafter the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “Commission”), and (ii)  include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures do not comply with the requirements in (i) and (ii) above.





Our Chief Executive Officer, James Winsor, and Chief Financial Officer, Natalie Russell, have reviewed the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) as of the end of the period covered by the report September 30, 2012 and has concluded that (i) the Company’s disclosure controls and procedures are not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Commission, and (ii) the Company’s controls and procedures have not been designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.





REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING





Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, our internal control over financial reporting does not provide assurance that a misstatement of our financial statements would be prevented or detected.





As of November 30, 2012, management conducted an evaluation of the effectiveness of our internal control over financial reporting and found it to be not effective subsequent to filing our Annual Report on Form 10-K for the year ended December 31, 2011 on April 12, 2012, with the Commission. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management has concluded that the Company’s internal controls over financial reporting are not effective because we have limited resources available. As we obtain additional funding and employ additional personnel, we will implement programs recommended by the Treadway Commission to ensure the proper segregation of duties, reporting channels and accounting policies.





Our independent registered public accountanting firm, StarkSchenkein, LLP, has not conducted an audit of our controls and procedures regarding internal control over financial reporting. Consequently, StarkSchenkein, LLP expresses no opinion with regards to the effectiveness or implementation of our controls and procedures with regards to internal control over financial reporting.





CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING





There were no changes in our internal control over financial reporting identified in connection with our evaluation of these controls as of the third fiscal quarter ended September 30, 2012 as covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS





The Company's management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.





Part II – Other Information





Item 1.    Legal Proceedings





We are not a party to any pending legal proceedings responsive to this Item Number.





Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds





We have sold the following unregistered securities to accredited investors for the quarter ended September 30, 2012.
 
 Date of Sale
Price
Security7/11/12
$10,000.00
Note7/12/12
$10,000.00
Note7/29/12
$10,000.00
Note8/10/12
$10,000.00
Note8/15/12
$10,000.00
Note9/10/12
$10,000.00
Note9/18/12
$12,000.00
Note9/24/12
$25,000.00
Note9/25/12
$50,000.00
Note
 
 There were no underwritten offerings employed in connection with any of the transactions set forth above.  The issuance of securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act of 1933 and Regulation D as transactions by an issuer not involving any public offering.  The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. The sales of these securities were made without general solicitation or advertising.
 
 The notes bear annual cash interest of 10%, mature in three years and are convertible at the option of the holder, in whole or part, at any time from issuance date until up to twelve months from issue date, into such number of fully paid and non- assessable shares of common stock, as of such date that the holder elects to convert by (y) a number which is 75% of the average Closing Price for the immediate preceding 10 Trading Days; or at any time from a date which is after 12 months from the Issuance Date up to a date which is 24 months from the Issuance date a number which is 85% of the average Closing Price for the immediate preceding 10 Trading Days; or at any time from a date which is after 24 months from the Issuance Date up to the Maturity Date a number which is 90% of the average Closing Price for the immediate preceding 10 Trading Days.
 
 We intend to use the proceeds from sale of our securities to purchase equipment for vending operations, vending machines, supplies and payroll for operations, professional fees, and working capital.


Item 3.Default Upon Senior Securities





None.





Item 4.Mine Safety Disclosures





Not Applicable





Item 5.Other Information





None.





Item 6.     Exhibits





Exhibit
Form
Filing
Filed withExhibits
#
Type
Date
This ReportCertificate of Incorporation filed with the Secretary of State of Delaware on February 25, 1969.
3.1
10
8/14/2008Certificate of Amendment filed with the Secretary of State of Delaware on December 16, 1985.
3.2
10
8/14/2008Certificate of Amendment filed with the Secretary of State of Delaware on March 5, 1987.
3.3
10
8/14/2008Certificate of Amendment filed with the Secretary of State of Delaware on February 11, 1991.
3.4
10
8/14/2008Certificate of Renewal filed with the Secretary of State of Delaware on January 14, 2005.
3.5
10
8/14/2008Certificate of Amendment filed with the Secretary of State of Delaware on September 22, 2005.
3.6
10
8/14/2008Amended and Restated Certificate of Amendment of Incorporation filed with the Secretary of State of Delaware on April 28, 2006.
3.7
10
8/14/2008Articles of Incorporation filed with the Nevada Secretary of State on September 24, 2007.
3.8
10
8/14/2008Certificate of Amendment filed with the Nevada Secretary of State  on November 30, 2007.
3.9
10
8/14/2008Certificate of Merger filed with the Secretary of State of Delaware on December 11, 2007.
3.10
10
8/14/2008Certificate of Designation of Rights, Preferences, Privileges and Restrictions of Series A Convertible Preferred Stock filed with the Nevada Secretary of State on March 5, 2008.
3.11
10
8/14/2008Amended and Restated Bylaws dated March 12, 2008.
3.12
10
8/14/2008Agreement and Plan of Merger dated December 3, 2007 by and between Automated Vending Technologies, Inc. and AVT, Inc.
10.12
10/A-1
2/24/2009Code of Ethics
14.1
10
8/14/2008Certification of Natalie Russell pursuant to Rule 13a-14(a)
31.1


XCertification of James Winsor pursuant to Rule 13a-14(a)
31.2


XCertification of Natalie Russell pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1


XCertification of James Winsor pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1


X


























SignaturesPursuant to 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.Signatures
Title
Date/s/ Natalie Russell

Natalie Russell
Secretary,

Chief Financial Officer

Principal Accounting Officer

Director
November 30, 2012