U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 2005
OR
[ ] 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: 000-28083
NEXT GENERATION MEDIA CORP.
(Exact name of Company as specified in its charter)
Nevada 88-0169543
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
7644 Dynatech Court, Springfield, Virginia 22153
(Address of principal executive offices) (Zip Code)
Company's telephone number: (703) 644-0200
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Company was required to file such reports),
and (2) been subject to such filing requirements for the past 90
days. Yes X No___
As of August 15, 2005, the Company had 12,373,397 shares of common
stock issued and outstanding.
TABLE OF CONTENTS
Part I - Financial Information Page
Item 1
Review Report of Independent Registered Public Accounting Firm
Condensed Consolidated Interim Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Part Ii - Other Information
Item 1. Legal Proceedings
Item 2. Changes In Securities And Use Of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission Of Matters To A Vote Of Security Holders
Item 5. Other Information
Item 6. Exhibits And Reports On Form 8-K
Signature
Turner, Jones &Associates, P.L.L.C.
Certified Public Accountants
108 Center Street, North, 2ndFloor
Vienna, Virginia 22180-5712
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Next Generation Media Corporation
7644 Dynatech Court
Springfield, VA 22153
We have reviewed the condensed consolidated balance sheet of Next
Generation Media Corporation and subsidiary as of June 30, 2005, and
the related condensed consolidated statements of income and cash
flows for the six-month periods ended June30, 2005 and 2004. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A review
of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the condensed financial statements, referred
to above, for them to be in conformity with accounting principles
generally accepted in the United States of America.
We have previously audited in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Next Generation Media Corporation and
subsidiary as of December 31, 2004, and the related consolidated
statements of income, retained earnings, and cash flows for the year
then ended (not presented herein); and in our report dated March 23,
2005, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of
December 31, 2004, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
Turner, Jones & Associates, P.L.L.C
Vienna, Virginia
August 9, 2005
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Next Generation Media Corporation
Condensed Consolidated
Interim Financial Statements
For The Six Months Ended June 30, 2005
With Review Report of Independent
Registered Public Accounting Firm
TURNER, JONES AND ASSOCIATES, P.L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
Table of Contents
Page
Review Report of Independent Registered Public Accounting Firm
Condensed Consolidated Interim Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
Next Generation Media Corporation
Consolidated Balance Sheets
For the Periods Ended
ASSETS
(Unaudited) (Audited)
June 30, December 31,
2005 2004
CURRENT ASSETS:
Cash and cash equivalents $ 647,397 $ 395,575
Accounts receivable, net of uncollectible accounts 448,523 325,698
Notes receivable 106,040 132,420
Inventories 98,193 103,380
Prepaid expenses & other current assets 83,929 67,711
Total current assets 1,384,082 1,024,784
PROPERTY, PLANT AND EQUIPMENT:
Equipment & vehicles 1,413,321 1,443,587
Furniture and fixtures 67,604 65,093
Leasehold improvements 81,159 76,363
Computer equipment/software 174,460 53,887
Vehicles 9,200 9,200
Total property, plant and equipment 1,745,744 1,648,130
Less accumulated depreciation (1,365,135) (1,320,701)
Net property, plant and equipment 380,609 327,429
OTHER ASSETS:
Intangibles, net of accumulated amortization 951,133 951,133
Trade notes receivable - 21,630
Total other assets 951,133 972,763
TOTAL ASSETS 2,715,824 2,324,976
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current portion 27,972 13,998
Accounts and other payables 284,142 175,663
Accrued expenses 179,796 206,006
Sales tax payable 9,649 4,299
Obligation under capital lease 8,384 18,595
Customer deposits 164,369 29,000
Total current liabilities 674,312 447,561
LONG TERM LIABILITIES:
Note payable 74,065 -
Obligation under capital lease 64,393 61,851
Total long term liabilities 138,458 61,851
Total liabilities 812,770 509,412
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares
authorized and 10,523,397 105,234 105,234
issued and outstanding
Additional paid in capital 7,379,744 7,379,744
Accumulated deficit (5,581,924) (5,669,414)
Total stockholders' equity 1,903,054 1,815,564
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,715,824 2,324,976
See accompanying notes and accountant's review report
Next Generation Media Corporation
Condensed Consolidated Statement of Income (Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
Revenues:
Coupon sales, net of discounts $ 2,107,838 $ 1,980,194 $ 4,157,245 $ 3,779,299
Franchise fees 64,000 119,000 127,000 235,500
Total revenues 2,171,838 2,099,194 4,284,245 4,014,799
Cost of Goods Sold: 1,514,019 1,412,390 2,930,077 2,594,825
Gross margin 657,819 686,804 1,354,168 1,419,974
General and administrative expenses 626,217 774,842 1,224,716 1,357,236
Depreciation 37,500 40,155 75,000 71,022
Total operating expenses 663,717 814,997 1,299,716 1,428,258
Gain/(Loss) from operations (5,898) (128,193) 54,452 (8,284)
Other income and (expenses):
Interest income 535 - 989 -
Other income 36,851 - 34,339 -
Gain on disposal of equipment - - 1,500 -
Gain on sales tax settlement - 176,664 - 176,664
Interest expense (2,726) (11,329) (3,790) (16,017)
Total other income (expense) 34,660 165,335 33,038 160,647
Net income 28,762 37,142 87,490 152,363
Gain applicable to common shareholders 28,762 37,142 87,490 152,363
Basic gain/(loss) per common share 0.003 0.004 0.008 0.014
Weighted average common shares outstanding 10,523,397 10,523,397 10,523,397 10,523,397
Diluted gain per common share 0.002 0.003 0.006 0.011
Fully diluted common shares outstanding 14,213,397 14,213,397 14,213,397 14,213,397
See accompanying notes and accountant's review report
Next Generation Media Corporation
Consolidated Statements of Stockholders' Equity-Unaudited
Additional
Common Stock Paid In Accumulated
Shares Amount Capital Deficit Total
Balance: January 1, 2004 10,523,397 105,234 7,379,744 (5,852,874) 1,632,104
Net Income - Year to Date - - - 183,460 183,460
Balance: December 31, 2004 10,523,397 105,234 7,379,744 (5,669,414) 1,815,564
Net Income - Year to Date - - - 87,490 87,490
Balance: June 30, 2005 10,523,397 105,234 7,379,744 (5,581,924) 1,903,054
See accompanying notes and accountant's review report
Next Generation Media Corporation
Statement of Cash Flows - Unaudited
For The Three Months Ended
30-Jun 30-Jun
2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 28,762 $ 37,142
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 37,500 40,155
Settlement of sale tax - 176,664)
(Increase) decrease in assets
Accounts & notes receivable 88,735 447,367
Inventories (2,860) (29,961)
Prepaids and other current assets (2,277) (50,513)
Increase (decrease) in liabilities
Accounts and other payables 61,992 19,580
Accrued expenses (48,696) (28,972)
Customer deposits 90,910 -
Net cash flows (used) by
operating activities 254,066 258,134
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (105,753) (6,016)
Net cash provided/(used) by investing activities (105,753) (6,016)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under note payable 100,969 -
Repayment of capital leases (2,190) (2,657)
Repayment of notes payable (8,430) (33,147)
Net cash provided/(used) by financing activities 90,349 (35,804)
NET INCREASE/(DECREASE) IN CASH 238,662 216,314
CASH, BEGINNING OF PERIOD 408,735 223,040
CASH, END OF PERIOD 647,397 439,354
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Income taxes - -
Interest 2,726 11,329
See accompanying notes and accountant's review report
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
included herein have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC). The
interim condensed consolidated accounts of Next Generation Media
Corporation and it's subsidiary (collectively, the Company). In the
opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair statement of the
financial position, results of operations and cash flows for the
interim periods presented have been made. The preparation of the
financial statements includes estimates that are used when accounting
for revenues, allowance for uncollectible receivables,
telecommunications expense, depreciation and amortization and certain
accruals. Actual results could differ from those estimates. The
results of operations for the three months ended June 30, 2005, are
not necessarily indicative of the results to be expected for the full
year. Some information and footnote disclosures normally included in
financial statements or notes thereto prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to SEC rules and regulations. The Company believes,
however, that its disclosures are adequate to make the information
provided not misleading. You should read these interim consolidated
financial statements in conjunction with the consolidated financial
statements and notes thereto included in the Company's 2004 Annual
Report on Form 10-KSB.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business:
Next Generation Media Corporation was incorporated in the State of
Nevada in November of 1980 as Micro Tech Industries Inc., with an
official name change to Next Generation Media Corporation in April of
1997. The Company, through its wholly owned subsidiary, United
Marketing Solutions, Inc., provides direct marketing products, which
involves the designing, printing, packaging, and mailing of public
relations and marketing materials and coupons for retailers who
provide services. Sales are conducted through a network of
franchises that the Company supports on a wholesale basis. At June
30, 2005, the Company had approximately 52 active area franchise
operations located throughout the United States.
Property and Equipment:
Property and equipment are stated at cost. The company uses the
straight-line method in computing depreciation for financial
statement purposes.
Expenditures for repairs and maintenance are charged to income, and
renewals and replacements are capitalized. When assets are retired
or otherwise disposed of, the cost of the assets and the related
accumulated depreciation are removed from the accounts.
Estimated useful lives are as follows:
Furniture, fixtures and equipment 7-10 years
Leasehold Improvements 10 years
Vehicles 5 years
Computer & Software 5 years
Depreciation expense for the three months ended June 30, 2005 and
2004 was $37,500 and $40,155, respectively.
Intangibles:
The Company has recorded goodwill based on the difference between the
cost and the fair value of certain purchased assets. The Company
annually evaluates the goodwill for possible impairment. The
analysis consists of a comparison of the Company's market
capitalization under SFAS No. 142 to the net fair market value of all
identifiable assets plus goodwill and/or projected cash flows to the
carrying value of the goodwill. Any excess book value over market
capitalization would be written off due to impairment.
Advertising Expense:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations for the three
months ended June 30, 2005 and 2004 was $15,481 and $21,141.
Revenue Recognition:
The Company recognizes revenue from the design production and
printing of coupons upon delivery. Revenue from initial franchise
fees is recognized when substantially all services or conditions
relating to the sale have been substantially performed.
Substantially all services and or conditions are satisfied upon
receipt of payment. Franchise support of $150 per quarter per
franchisee is recognized when billed to the franchisee. Amounts
billed or collected in advance of final delivery or shipment are
reported as deferred revenue.
Impairment of Long-Lived Assets:
The Company reviews the carrying values of its long-lived assets for
possible impairment on an annual basis and whenever events or changes
in circumstances indicate that the carrying amount of the assets
should be addressed. The Company believes that no permanent
impairment in the carrying value of long-lived assets exists as of
June 30, 2005.
Comprehensive Income:
The Company has adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income". Comprehensive income as
defined includes all changes to equity except that resulting from
investments by owners and distributions to owners. The company has
no item of comprehensive income to report.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the
current year presentation.
New Accounting Pronouncements:
FASB Interpretation No. 45 - In November 2002, the FASB issued
interpretation No. 45, Guarantor's Accounting and Disclosures
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45), which changes the accounting for,
and disclosure of, guarantees. Beginning with transactions entered
into after December 31, 2002, the interpretation requires certain
guarantees to be recorded at fair value, which is different from
prior practice, which was generally to record a liability only when a
loss was probable and reasonably estimable, as defined by SFAS No. 5,
Accounting for Contingencies. In general, FIN 45 applies to contracts
or indemnification agreements that require Next Generation Media
Corporation to make payments to a guaranteed third-party based on
changes in an underlying that is related to an asset, liability, or
an equity security of the guaranteed party. The accounting provisions
of FIN 45 apply only to new transactions entered into after December
31, 2002. FIN 45 immediately requires new disclosures effective
immediately. The adoption of FIN45 does not have a material impact on
the Company's financial position, results of operations or cash flows.
Use of Estimates:
The preparation of financial statements in accordance with 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.
Income Taxes:
The Corporation uses Statement of Financial Standards No. 109
"Accounting for Income Taxes" (SFAS No. 109) in reporting deferred
income taxes. SFAS No. 109 requires a company to recognize deferred
tax liabilities and assets for expected future income tax
consequences of events that have been recognized in the company's
financial statements. Under this method, deferred tax assets and
liabilities are determined based on temporary differences in
financial carrying amounts and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in which
temporary differences are expected to reverse.
Risks and Uncertainties:
The Company operates in an environment where intense competition
exists from other companies. This competition, along with increases
in the price of paper, can impact the pricing and profitability of
the Company.
Credit Risk:
The Company at times may have cash deposits in excess of federally
insured limits.
Accounts Receivable:
The Corporation grants credit to its customers, which includes the
retail sector and their own franchisees. The Company establishes an
allowance for doubtful accounts based upon on a percentage of
accounts receivable plus those balances the Company feels will be
uncollectible. Allowance for uncollectible accounts as of June 30,
2005 and 2004 was $44,313 and $36,940 respectively.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with maturities
of three months or less to be cash equivalents.
Earnings Per Common Share:
The Company calculates its earnings per share pursuant to Statement
of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). Under SFAS No. 128, basic earnings per share is
computed by dividing reported earnings available to common
stockholders by weighted average shares outstanding. Diluted
earnings per share reflect the potential dilution assuming the
issuance of common shares for all potential dilutive common shares
outstanding during the period.
As of June 30, 2005, the Company had financial obligations that could
create future dilution to the Company's common shareholders and are
not currently classified as common shares of the company. The
following table details such instruments and obligations and the
common stock comparative for each. The common stock number is based
on specific conversion or issuance assumptions pursuant to the
corresponding terms of each individual instrument or obligation.
Instrument or Obligation
Stock options outstanding as of June 30, 2005
with a weighted average exercise price per share
of $0.26 3,690,000
Inventories:
Inventories consist primarily of paper, envelopes, and printing
materials and are stated at the lower of cost or market, with cost
determined on the first-in, first-out method.
Principles of Consolidation:
The accompanying consolidated financial statements include the
accounts of the parent company, Next Generation Media Corporation and
its subsidiaries as of June 30, 2005.
NOTE 2 - RETIREMENT PLAN
The company maintains a 401(k) defined contribution plan covering
substantially all employees. The Corporation may elect to contribute
up to 3% of each eligible employee's gross wages. Employees can
elect up to 15% of their salary to be contributed before income
taxes, up to the annual limit set by the Internal Revenue Code. The
company anticipates making a contribution for 2005. Accrued
contributions for the quarter ended June 30, 2005 are $15,000.
NOTE 3 - NOTES PAYABLE AND LINE OF CREDIT
Notes payable consists of the following:
June 30, 2005 Amount
Notes payable at June 30, 2005 consists of:
Obligation to CIT Group, bearing interest at 10%, the loan is
payable in fifty-six monthly installments of $500, including
interest, and is collateralized by the property and equipment of
the Company. Balance outstanding at June 30, 2005 was $3,498.
Unsecured note payable to Capitol York calling for payments of
$1,000 per month inclusive of interest. Balance at June 30,
2005 was $1,500.
Note payable to Bank of America bearing interest at 6.40%,
payable in 48 monthly installments. The loan is secured by
computer hardware and software.
The 5 year schedule of maturities is as follows:
2005 27,972
2006 24,511
2007 26,151
2008 23,403
Thereafter 0
102,037
NOTE 4 - NOTES RECEIVABLE
On June 30, 2000, the Company executed a promissory note with UNICO,
Inc. for $200,000 in conjunction with the sale of Independent News,
Inc. The note is outstanding and currently in default, the Company's
management considers $42,900 of the note collectible.
NOTE 5 - COMMON STOCK
During the three months ended June 30, 2005 and 2004, the Company
issued no shares of common stock.
NOTE 6 - EMPLOYEE STOCK INCENTIVE PLAN
On December 26, 2001, the Company adopted the Employee Stock
Incentive Plan authorizing 3,000,000 shares at a maximum offering
price of $0.10 per share for the purpose of providing employees
equity-based compensation incentives. The Company issued no shares
under the plan during the periods.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Future minimum annual lease payments for capital and operating leases
as of June 30, 2005 are:
Operating Capital
2005 141,390 12,900
2006 280,006 25,800
2007 23,409 25,800
2008 0 17,988
Thereafter 0 0
Total 444,805 82,488
Rent expense for the quarters ended June 30, 2005 and 2004 were
$68,188 and $64,928.
The Company has entered into various employment contracts. The
contracts provided for the award of present and/or future options to
purchase common stock at then fair market value of the underlying
shares at date of grant or vesting. The contracts can be terminated
without cause upon written notice within thirty to ninety days.
The Company is party to various legal matters encountered in the
normal course of business. In the opinion of management and legal
counsel, the resolution of these matters will not have a material
adverse effect on the Company's financial position or the future
results of operations.
NOTE 8 - OBLIGATION UNDER CAPITAL LEASE
The Company acquired machinery under the provisions of a long-term
leases. For financial reporting purposes, minimum lease payments
relating to the machinery have been capitalized.
The future minimum lease payments under capital leases and net
present value of the future minimum lease payments as of June 30,
2005 are as follows:
Total minimum lease payments $82,488
Amount representing interest 9,711
Present value of net minimum lease payments 72,777
Current portion 8,384
Long-term capital lease obligation $64,393
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following Management Discussion and Analysis should be read in
conjunction with the financial statements and accompanying notes
included in this Form 10-QSB.
Total revenues in the quarter ended June 30, 2005 and the six months
ended June 30, 2005, respectively $2,171,838 and $4,284,245, increased
from $2,099,194 in the quarter ended June 30, 2004 and $4,014,799 in
the six months ended June 30, 2004, a three month increase of three
percent (3%) and a six month increase of seven percent (7%). Revenues
for the quarter ended June 30, 2005 and the six month period ended
June 30, 2005 are up 17% and 18% respectively for the same periods in
June 2003.
Total cost of goods sold in the quarter ended June 30, 2005 and the
six months ended June 30, 2005, respectively, $1,514,019 and
$2,930,077, increased from $1,412,390 in the quarter ended June 30,
2003 and $2,594,825 in the six months ended June 30, 2003, a three
month increase of seven percent (7%) and a six month increase of
thirteen percent (13%). This increase is due primarily to the production
cost associated with the increase in revenue which includes labor and
material expense. The gross margin in the quarter ended
June 30, 2005 and the six months ended June 30, 2005, respectively,
$657,819 and $1,354,168 decreased from $686,804 in the quarter ended
June 30, 2004 and $1,419,974 in the six months ended June 30, 2004.
Total operating expenses in the quarter ended June 30, 2005 and the
six months ended June 30, 2005, respectively, $663,717 and $1,299,716,
decreased from $814,997 in the quarter ended June 30, 2004 and
$1,428,258 in the six months ended June 30, 2004 as management worked
to control costs and eliminate unnecessary expenditures.
Total assets grew increased from $2,324,976 at December 31, 2004 to
$2,715,824 at June 30, 2005. Total current liabilities increased from
$509,412 at December 31, 2004 to $812,770 at June 30, 2005 due in part to
short term financing of current liabilities. The company uses credit to
manage cash flow and build cash reserves. Finance charges are avoided
by paying outstanding balances in full by due dates.
Net cash flows by operating activities was $254,066 for the period
ended June 30, 2005 as compared to $258,134 used for the period ended
June 30, 20043.
Cash used by investing activities was $105,753 for the period ended
June 30, 2005, as compared to net cash used by investing activities of
$6,016 for the period ended June 30, 2004.
Net cash provided by financing activities was $90,349 for the period
ended June 30, 2005 as compared to net cash used by financing
activities of $35,804 for the period ended June 30, 2004.
While the Company has raised capital to meet its working capital and
financing needs in the past, additional financing may be required in
order to meet the Company's current and projected cash flow deficits
from operations. As previously mentioned, the Company has obtained
financing in the form of equity in order to provide the necessary
working capital. The Company currently has no other commitments for
financing. There are no assurances the Company will be successful in
raising the funds required.
The Company has issued shares of its common stock from time to time
in the past to satisfy certain obligations, and expects in the future
to also acquire certain services, satisfy indebtedness and/or make
acquisitions utilizing authorized shares of the capital stock of the
Company.
Quantitative And Qualitative Disclosures About Market Risk
In the normal course of business, operations of the Company may be
exposed to fluctuations in interest rates. These fluctuations can
vary the cost of financing, investing, and operating transactions.
Because the Company has only fixed rate short-term debt, there are no
material impacts on earnings due to fluctuations in interest rates.
New Accounting Pronouncements:
In March 2004, the FASB issued EITF No. 03-1, The Meaning of Other-
Than-Temporary Impairment and its Application to Certain Investments
which provides additional guidance on how companies, carrying debt
and equity securities at amounts higher than the securities fair
values, evaluate whether to record a loss on impairment. In
addition, EITF No. 03-1 provides guidance on additional disclosures
required about unrealized losses. The impairment accounting guidance
is effective for reporting periods beginning after June 15, 2004 and
the disclosure requirements are effective for annual reporting
periods ending after June 15, 2004. On September 30, 2004, the FASB
approved the issuance of FASB Staff Position EITF No. 03-1-1, which
delays the effective date for the application of the recognition and
measurement provisions of EITF No. 03-1 to investments in securities
that are impaired. Certain disclosure provisions in EITF No. 03-1
were effective for fiscal years ended after December 15, 2003 and
other disclosure provisions are effective for annual reporting
periods after June 15, 2004. The adoption of this statement is not
expected to have a material effect on the Company's consolidated
financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-
Based Payment ("SFAS 123 r"). This statement is a revision of SFAS
No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related
implementation guidance. SFAS 123r requires that compensation cost relating to
share-based payment transactions be recognized in financial statements. That
cost will be measured based on the fair value of the equity or liability
instruments issued. This statement is effective beginning with the
Company's third quarter of fiscal year 2005. The Company is
currently evaluating the requirements of SDAF 123r and has not yet
fully determined the impact on its consolidated financial statements.
The adoption of this statement is not expected to have a material
effect on the Company's consolidated financial statements.
Forward Looking Statements.
The foregoing Managements Discussion and Analysis of Financial
Condition and Results of Operations "forward looking statements"
within the meaning of Rule 175 under the Securities Act of 1933, as
amended, and Rule 3b-6 under the Securities Act of 1934, as amended,
including statements regarding, among other items, the Company's
business strategies, continued growth in the Company's markets,
projections, and anticipated trends in the Company's business and the
industry in which it operates. The words "believe," "expect,"
"anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. These forward-
looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, including but
not limited to, those risks associated with economic conditions
generally and the economy in those areas where the Company has or
expects to have assets and operations; competitive and other factors
affecting the Company's operations, markets, products and services;
those risks associated with the Company's ability to successfully
negotiate with certain customers, risks relating to estimated
contract costs, estimated losses on uncompleted contracts and
estimates regarding the percentage of completion of contracts,
associated costs arising out of the Company's activities and the
matters discussed in this report; risks relating to changes in
interest rates and in the availability, cost and terms of financing;
risks related to the performance of financial markets; risks related
to changes in domestic laws, regulations and taxes; risks related to
changes in business strategy or development plans; risks associated
with future profitability; and other factors discussed elsewhere in
this report and in documents filed by the Company with the Securities
and Exchange Commission. Many of these factors are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
information contained in this Form 10-QSB will, in fact, occur. The
Company does not undertake any obligation to revise these forward-
looking statements to reflect future events or circumstances and
other factors discussed elsewhere in this report and the documents
filed or to be filed by the Company with the Securities and Exchange
Commission.
Inflation
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
Trends, Risks and Uncertainties
The Company has sought to identify what it believes to be the most
significant risks to its business as discussed in "Risk Factors"
above, but cannot predict whether or to what extent any of such risks
may be realized nor can there be any assurances that the Company has
identified all possible risks that might arise. Investors should
carefully consider all of such risk factors before making an
investment decision with respect to the Company's stock.
Limited operating history; anticipated losses; uncertainly of future results
The Company has only a limited operating history upon which an
evaluation of the Company and its prospects can be based. The
Company's prospects must be evaluated with a view to the risks
encountered by a company in an early stage of development,
particularly in light of the uncertainties relating to the business
model that the Company intends to market and the potential acceptance
of the Company's business model. The Company will be incurring costs
to develop, introduce and enhance its products, to establish
marketing relationships, to acquire and develop products that will
complement each other, and to build an administrative organization.
To the extent that such expenses are not subsequently followed by
commensurate revenues, the Company's business, results of operations
and financial condition will be materially adversely affected. There
can be no assurance that the Company will be able to generate
sufficient revenues from the sale of its products and services. The
Company expects that negative cash flow from operations may exist for
the next 12 months as it continues to develop and market its products
and services. If cash generated by operations is insufficient to
satisfy the Company's liquidity requirements, the Company may be
required to sell additional equity or debt securities. The sale of
additional equity or convertible debt securities would result in
additional dilution to the Company's shareholders.
Potential fluctuations in quarterly operating results may fluctuate
Significantly in the future as a result of a variety of factors, most
of which Are outside the Company's control including: the demand for
the Company's products and services; seasonal trends in demand and
pricing of products and services; the amount and timing of capital
expenditures and other costs relating to the expansion of the
Company's operations; the introduction of new services and products
by the Company or its competitors; price competition or pricing
changes in the industry; political risks and uncertainties involving
the world's markets; technical difficulties and general economic
conditions. The Company's quarterly results may also be significantly
affected by the impact of the accounting treatment of acquisitions,
financing transactions or other matters. Particularly the Company's
early stage of development, such accounting treatment can have a
material impact on the results for any quarter. Due to the foregoing
factors, among others, it is likely that the Company's operating
results will fall below the expectations of the Company or investors
in some future quarter.
Management of Growth
The Company may experience growth in the number of employees relative
to its current levels of employment and the scope of its operations.
In particular, the Company may need to hire sales, marketing and
administrative personnel. Additionally, acquisitions could result in
an increase in employee headcount and business activity. Such
activities could result in increased responsibilities for management.
The Company believes that its ability to increase its customer
support capability and to attract, train, and retain qualified
technical, sales, marketing, and management personnel, will be a
critical factor to its future success. In particular, the
availability of qualified sales and management personnel is quite
limited, and competition among companies to attract and retain such
personnel is intense. During strong business cycles, the Company may
experience difficulty in filling its needs for qualified sales, and
other personnel.
The Company's future success will be highly dependent upon its
ability to successfully manage the expansion of its operations. The
Company's ability to manage and support its growth effectively will
be substantially dependent on its ability to implement adequate
financial and management controls, reporting systems, and other
procedures and hire sufficient numbers of financial, accounting,
administrative, and management personnel. The Company is in the
process of establishing and upgrading its financial accounting and
procedures. There can be no assurance that the Company will be able
to identify, attract, and retain experienced accounting and financial
personnel. The Company's future operating results will depend on the
ability of its management and other key employees to implement and
improve its systems for operations, financial control, and
information management, and to recruit, train, and manage its
employee base. There can be no assurance that the Company will be
able to achieve or manage any such growth successfully or to
implement and maintain adequate financial and management controls and
procedures, and any inability to do so would have a material adverse
effect on the Company's business, results of operations, and
financial condition.
The Company's future success depends upon its ability to address
potential market opportunities while managing its expenses to match
its ability to finance its operations. This need to manage its
expenses will place a significant strain on the Company's management
and operational resources. If the Company is unable to manage its
expenses effectively, the Company's business, results of operations,
and financial condition will be materially adversely affected.
Risks associated with acquisitions
Although the Company does not presently intend to do so, as part of
its business strategy in the future, the Company could acquire assets
and businesses relating to or complementary to its operations. Any
acquisitions by the Company would involve risks commonly encountered
in acquisitions of companies. These risks would include, among other
things, the following: the Company could be exposed to unknown
liabilities of the acquired companies; the Company could incur
acquisition costs and expenses higher than it anticipated;
fluctuations in the Company's quarterly and annual operating results
could occur due to the costs and expenses of acquiring and
integrating new businesses or technologies; the Company could
experience difficulties and expenses in assimilating the operations
and personnel of the acquired businesses; the Company's ongoing
business could be disrupted and its management's time and attention
diverted; the Company could be unable to integrate successfully.
PART II.
ITEM 1. LEGAL PROCEEDINGS.
Other than as set forth below, the Registrant is not a party to any
material pending legal proceedings and, to the best of its knowledge,
no such action by or against the Registrant has been threatened.
The Company is subject to other legal proceedings and claims that
arise in the ordinary course of its business. Although occasional
adverse decisions or settlements may occur, the Company believes that
the final disposition of such matters will not have material adverse
effect on its financial position, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Sales of Unregistered Securities.
The Company had no sales of unregistered securities during the
three-month period ending June 30, 2005. Subsequent to the reporting
period, the Company did act to physically issue the shares to the Board
of Directors that had been approved and reported in 2004. This caused an
increase in number of shares actually outstanding from 10,523,397 to
12,373,397 and will be included in the financials for the third quarter
of 2005.
Use of Proceeds.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were not any matters submitted requiring a vote of security
holders during the three-month period ending June 30, 2005.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Reports on Form 8-K. No reports on Form 8-K were filed
during the three-month period covered in this Form 10-QSB.
(b) Exhibits. Exhibits included or incorporated by reference
herein: See Exhibit Index.
EXHIBIT INDEX
Exhibit . Description
3.1 Articles of Incorporation, under the name Micro Tech
Industries, Inc. (incorporated by reference in the filing
of the Company's annual report on Form 10KSB filed on April
15, 1998).
3.2 Amendment to the Articles of Incorporation (incorporated by
reference in the Company's quarterly report filed on Form
10 Q filed on May 15, 1997).
3.3 Amended and Restated Bylaws (incorporated by reference in
the filing of the Company's annual report on Form 10KSB
filed on November 12, 1999).
16.1 Letter on change in certifying accountant (incorporated by
reference in the filing of the Company's current report on
Form 8-K filed on January 5, 2001).
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002