U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH
31, 2004
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 March 31, 2004, the Company had 10,523,397 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 Statement of Earnings
Consolidated Statement of Financial Position
Consolidated Statement of Stockholders' Equity
Consolidated Statement 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, 2nd Floor
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 March 31, 2004
and the related condensed, consolidated statements of income and cash
flows for the three-month periods ended March 31, 2004 and 2003.
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 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 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, in order 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, 2003, 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,
2004, 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, 2003, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
As discussed in the notes to the financial statements, in 2004
the Company changed from an unacceptable method of accounting for
goodwill to an acceptable method. The change in accounting
principles has been accounted for as a correction of an error and
prior financial statements presented have been restated.
Turner, Jones & Associates, P.L.L.C
Vienna, Virginia
May 7, 2004
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Next Generation Media Corporation
Consolidated Interim Financial Statements
For The Three Months Ended March 31, 2004
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
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)
March 31, December 31,
2004 2003
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 223,040 $ 123,013
Accounts receivable, net of
uncollectible accounts 526,246 411,256
Notes receivable 313,919 321,279
Inventories 58,327 66,410
Prepaid expenses & other current assets 45,518 46,434
Total current assets 1,167,050 968,392
PROPERTY, PLANT AND EQUIPMENT
Equipment & vehicles 1,428,440 1,424,882
Furniture and fixtures 61,348 61,348
Leasehold improvements 70,188 80,644
Total property, plant and equipment 1,559,976 1,566,874
Less accumulated depreciation (1,222,239) (1,191,372)
Net property, plant and equipment 337,737 375,502
Intangibles, net of accumulated amortization 951,133 951,882
TOTAL ASSETS 2,455,920 2,295,776
See accompanying notes and accountant's review report
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current portion 99,235 99,190
Accounts and other payables 183,891 128,567
Accrued expenses 153,652 156,003
Sales tax payable 214,573 207,684
Obligation under capital lease 9,753 9,753
Total current liabilities 661,104 601,197
LONG TERM LIABILITIES:
Notes payable 10,436 18,815
Obligation under capital lease 41,055 43,660
Total long term liabilities 51,491 62,475
Total liabilities 712,595 663,672
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 (5,737,653) (5,852,874)
Total stockholders' equity 1,747,325 1,632,104
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,459,920 2,295,776
See accompanying notes and accountant's review report
Next Generation Media Corporation
Consolidated Statements of Income - Unaudited
For The Three Months Ended
March 31, March 31,
2004 2003
REVENUES:
Coupon sales, net of discounts $ 1,786,923 $ 1,772,527
Franchise fees 116,500 26,600
Total revenues 1,903,423 1,799,127
COST OF GOODS SOLD:
Materials 229,704 257,128
Direct labor 374,155 369,780
Other direct costs 36,871 51,207
Postage and delivery 513,082 551,811
Payroll taxes from direct labor 28,623 28,293
Total cost of goods sold 1,182,435 1,258,219
Gross margin 720,988 540,908
GENERAL AND ADMINISTRATIVE EXPENSES:
401(k) matching 12,000 10,500
Advertising 3,093 4,906
Amortization 750 750
Bad debt expense 30,000 7,500
Depreciation 30,867 40,155
Franchise development & support 81,583 15,632
Insurance 15,026 11,437
Meals and entertainment - -
Office expense 24,041 16,548
Other expenses 30,899 17,569
Payroll 217,123 142,565
Payroll taxes 25,446 19,515
Professional fees 30,505 45,426
Property taxes 3,375 3,900
Rent and pass thru expenses 70,228 67,672
Repairs and maintenance 6,812 4,392
Travel and conferences 442 5,039
Utilities 18,238 20,935
Total operating expenses 600,428 434,441
Gain/(Loss) from operations 120,560 106,467
OTHER INCOME AND EXPENSES:
Other 4,080
Interest expense (5,339) (4,087)
Total other income (expense) (5,339) (7)
Net income 115,221 106,460
Gain applicable to common shareholders 115,221 106,460
Basic gain/(loss) per common share 0.011 0.0077
Weighted average common shares outstanding 10,523,397 9,523,397
Diluted gain per common share 0.008 0.0064
Fully diluted common shares outstanding 14,213,397 11,371,897
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, 2003 9,523,397 95,234 7,343,744 6,147,665) $1,291,313
Common stock issued in
exchange for services 1,000,000 10,000 36,000 - 46,000
Net Income - Year to Date - - - 294,791 294,791
Balance: December 31, 2003 10,523,397 105,234 7,379,744 (5,852,874) 1,632,104
Net Income - Year to Date - - - 115,221 115,221
Balance: March 31, 2004 10,523,397 105,234 7,379,744 (5,737,653) 1,747,325
See accompanying notes and accountant's review report
Next Generation Media Corporation
Statement of Cash Flows - Unaudited
For The Three Months Ended
March 31, March 31,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 115,221 $ 106,460
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 31,617 40,905
(Increase) decrease in assets
Accounts & notes receivable (107,630) (42,898)
Inventories 8,083 (5,021)
Prepaids and other current assets (3,085) 23,811
Increase (decrease) in liabilities
Accounts and other payables 62,213 215
Accrued expenses (2,351) 19,030
Net cash flows (used) by operating activities 104,068 142,502
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (923)
Disposal of property & equipment, net 6,898
Net cash provided/(used) by investing activities 6,898 (923)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital leases (2,605) -
Repayment of notes payable (8,334) (54,508)
Net cash provided/(used) by financing activities (10,939) (54,508)
NET INCREASE/(DECREASE) IN CASH 100,027 87,071
CASH, BEGINNING OF PERIOD 123,013 199,305
CASH, END OF PERIOD 223,040 286,376
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Income taxes - -
Interest 1,818 5,547
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 March 31, 2004, 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 2003 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 March 31, 2004, the Company had
approximately 50 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 March 31, 2004 and
2003 was $30,867 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
periodically 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. Any excess over market
capitalization would be written off due to impairment. In addition,
the Company has a covenant not to compete, which is being amortized
over five (5) years. Amortization expense for each of the three
months ended March 31, 2004 and 2003 was $750.
Advertising Expense:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations for the three
months ended March 31, 2004 and 2003 was $11,763 and $4,906.
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 conditions have been met at the time
of payment. Franchise support fees of $150 per quarter per
franchisee are billed quarterly and 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
March 31, 2004.
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 March 31, 2004 and 2003 was $88,314 and $29,104 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 a result of the Company's net
losses, all potentially dilutive securities including warrants and
stock options, would be anti-dilutive and thus, excluded from diluted
earnings per share.
As of March 31, 2004, 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 March 31, 2004
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 March 31, 2004.
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 2004. Accrued
contributions for the quarter ended March 31, 2004 are $12,000.
NOTE 3 - NOTES PAYABLE AND LINE OF CREDIT
Notes payable consists of the following:
March 31, 2004 Amount
Note payable to CIT Group, interest of 10% on principal only,
collateralized by the equipment of United Marketing Solutions,
Inc. $ 10,998
Note payable to PS Business Parks, face amount of $130,000,
interest at 5%, payable over three years. $ 38,084
Note payable to Capital York, unsecured with payments
inclusive of interest of $1,000 per month $ 16,500
Note payable to Frank Parsons Paper
payable in monthly installments inclusive of interest $ 22,839
Promissory note payable to former executive
payable in twenty-four monthly installments of $3,452 at 0%
interest $ 21,250
$109,671
Less: Current portion $ 99,235
Long-term portion $ 10,436
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 the note collectible.
NOTE 5 - COMMON STOCK
During the three months ended March 31, 2004 and 2003, the Company
issued no shares of common stock.
In 2003, the Company issued 2,350,000 options to purchase shares of
common stock at $0.01 per share to members of the Company's Board of
Directors and employees. The options were issued at the then fair
market value of the underlying shares. In addition, the Company
issued 1,000,000 shares of common stock valued at $46,000 to various
consultants and employees for services rendered.
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 March 31, 2004 are:
Operating Capital
2004 217,253 9,418
2005 282,780 14,628
2006 280,006 14,628
2007 23,409 14,628
2008 0 6,095
Thereafter 0 0
Total 803,448 59,317
Rent expense for the years ended March 31, 2004 and 2003 were $64,096
and $61,631.
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 March 31,
2004 are as follows:
Total minimum lease payments $59,397
Amount representing interest 8,589
Present value of net minimum lease payments 50,808
Current portion 9,753
Long-term capital lease obligation 41,055
NOTE 9 - CORRECTION OF AN ERROR
The interim financial statements have been corrected to remove
amortization of goodwill pursuant to SFAS No. 142. The cumulative
effect was a $265,370 deficit and corresponding increase in
intangibles through December 31, 2003. The correction resulted in an
increase in net income and intangibles and a corresponding decrease
in accumulated deficit of approximately $33,171 for the quarters
ended March 31, 2004 and 2003. All prior periods presented have been
restated to reflect the correction.
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 increased to $1,903,423 in the quarter ended March 31,
2003 as compared to $1,799,127 in the quarter ended March 31, 2003, an
increase of more than five percent.
Total cost of goods sold decreased from $1,258,219 in the quarter
ended March 31, 2003 as compared to $1,182,435 in the quarter ended
March 31, 2004, a reduction of approximately 6%. The gross margin
increased from $540,908 in the quarter ended March 31, 2003 to
$720,988 in the quarter ended March 31, 2004, an increase of
approximately 25%.
Total operating expenses increased to $600,428 in the quarter ended
March 31, 2004 from $486,480 in the quarter ended March 31, 2003. The
greatest percentage of this increase in expenses was due to an
increase of $74,558 in payroll expense and an increase in franchise
development and support paid of $66,370.
Total gain from operations for the quarter ending March 31, 2004 was
$120,560 as compared to a gain of $106,467 for the quarter ending
March 31, 2003.
Total assets grew from $2,295,726 at December 31, 2003 to $2,455,920
at March 31, 2004. Total current liabilities increased from $663,672
at December 31, 2003 to $712,595 at March 31, 2004.
Net cash flows by operating activities was $104,068 for the period
ended March 31, 2004 as compared to $142,502 for the period ended
March 31, 2003.
Cash provided by investing activities was $6,898 for the period ended
March 31, 2004, as compared to net cash used by investing activities
of $923 for the period ended March 31, 2003.
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 2000, the Financial Accounting Standards Board issued
interpretation No. 44 ("FIN 44"), "Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25". FIN 44 clarifies the application of APB No. 25 for
(a) the definition of employee for purposes of applying APB No. 25,
(b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various
modifications to previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 2, 2000 but certain conclusions
cover specific events that occur after either December 15, 1998 or
January 12, 2000. The adoption of FIN 44 did not have an affect on
the Company's financial statements but may impact the accounting for
grants or awards in future periods
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141, Business
Combinations (FAS 141), and FAS 142, Goodwill and Other Intangible
Assets (FAS 142). FAS 141 addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a
business combination. FAS 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business
combination, whether acquired individually or with a group of other
assets, and the accounting and reporting for goodwill and other
intangibles subsequent to their acquisition. These standards require
all future business combinations to be accounted for using the
purchase method of accounting. Goodwill will no longer be amortized
but instead will be subject to impairment tests at least annually.
The Company is required to adopt FAS 141 and FAS 142 on a prospective
basis as of January 1, 2002; however, certain provisions of these new
standards may also apply to any acquisitions concluded subsequent to
June 30, 2001. As a result of implementing these new standards, the
Company will discontinue the amortization of goodwill as of December
31, 2001. The Company does not believe that the adoption of FAS 141
or 142 will have a material impact on its consolidated financial
statements.
In October 2001, the Financial Accounting Standards Board issued FAS
144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
(FAS 144). FAS 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This statement
supersedes FAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (FAS 121) and
related literature and establishes a single accounting model, based
on the framework established in FAS 121, for long-lived assets to be
disposed of by sale. The Company is required to adopt FAS 144 no
later than January 1, 2002. The Company does not believe that the
adoption of FAS 144 will have a material impact on its 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 Registrant had no sales of unregistered securities during the
three-month period ending March 31, 2004.
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 March 31, 2003.
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 Principal 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