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
SEPTEMBER 30, 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 September 30, 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 Statements of Earnings
Consolidated Statements of Financial Position
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, 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 September 30,
2004 and the related condensed, consolidated statements of income and
cash flows for the nine-month periods ended September 30, 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
November 9, 2004
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Next Generation Media Corporation
Condensed Consolidated
Interim Financial Statements
For The Nine Months Ended September 30, 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
Condensed Consolidated Interim Financial Statements
Consolidated Statements of Earnings
Consolidated Statements of Financial Position
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
Next Generation Media Corporation
Consolidated Statements of Financial Position
ASSETS
(Unaudited) (Audited)
September 30, December 31,
2004 2003
CURRENT ASSETS:
Cash and cash equivalents $ 448,328 $ 123,013
Accounts receivable, net of allowance
for uncollectible accounts 402,244 411,256
Notes receivable, net of allowance 162,863 321,279
for uncollectible accounts
Inventories 86,032 66,410
Prepaid expenses & other current assets 145,695 46,434
Total current assets 1,245,162 968,392
PROPERTY, PLANT AND EQUIPMENT:
Equipment & vehicles 1,444,707 1,424,882
Furniture and fixtures 63,214 61,348
Leasehold improvements 76,362 80,644
Total property, plant and equipment 1,584,283 1,566,874
Less accumulated depreciation (1,302,549) (1,191,372)
Net property, plant and equipment 281,734 375,502
Intangibles, net of accumulated amortization 951,133 951,882
TOTAL ASSETS 2,478,029 2,295,776
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current portion 37,074 99,190
Accounts and other payables 230,050 128,567
Accrued expenses 250,414 156,003
Sales tax payable 5,537 207,684
Obligation under capital lease 15,526 9,753
Total current liabilities 538,601 601,197
LONG TERM LIABILITIES:
Notes payable 6,086 18,815
Obligation under capital lease 29,908 43,660
Total long term liabilities 35,994 62,475
Total liabilities 574,595 663,672
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 (5,581,544) (5,852,874)
Total stockholders' equity 1,903,434 1,632,104
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,478,029 2,295,776
See accompanying notes and accountant's review report
Next Generation Media Corporation
Condensed Consolidated Statements of Earnings (Unaudited)
For The Three Months Ended For the Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2004 2003 2004 2003
REVENUES:
Coupon sales, net of discounts $ 1,969,597 $ 1,885,805 $ 5,748,813 $5,475,442
Franchise fees 122,500 88,350 358,000 146,050
Total revenues 2,092,097 1,974,155 6,106,813 5,621,492
COST OF GOODS SOLD:
Materials 263,808 248,398 782,749 796,897
Direct labor 427,962 365,449 1,202,116 1,103,569
Equipment repairs 9,857 3,854 22,398 11,009
Other direct costs 29,794 30,887 93,678 106,744
Postage and delivery 576,004 571,742 1,741,923 1,676,782
Payroll taxes from direct labor 32,739 27,849 91,969 84,411
Total cost of goods sold 1,340,164 1,248,179 3,934,833 3,779,412
Gross margin 751,933 725,976 2,171,980 1,842,080
OPERATING EXPENSES:
401(k) matching 12,000 10,500 36,000 31,500
Advertising 2,980 5,090 26,495 22,432
Amortization - 750 750 2,250
Bad debt expense 30,000 7,500 240,000 22,500
Bank charges
Depreciation 40,155 40,155 111,177 120,465
Franchise development and support 90,576 56,211 261,313 93,662
Insurance 14,057 10,768 42,321 37,956
Meals and entertainment 1,376 2,656 3,495 5,725
Office expense 22,089 17,114 75,628 50,366
Payroll 221,774 158,341 683,268 454,864
Payroll taxes 13,023 10,190 58,673 43,103
Professional fees 45,609 29,024 105,894 92,042
Property taxes 3,375 900 11,964 8,700
Rent and pass thru expenses 70,228 68,472 211,517 204,616
Repairs and maintenance 16,063 3,763 32,343 13,125
Utilities 26,761 23,311 63,332 66,567
Total operating expenses 610,066 444,745 1,964,170 1,269,873
Gain/(Loss) from operations 141,867 281,231 207,810 572,207
OTHER INCOME AND EXPENSES:
Interest income - - -
Other income (expense) (14,519) (17,363) (88,095) (60,807)
Gain/(Loss) on legal settlement 290 - 176,954 5,730
Interest expense (8,671) (7,356) (25,339) (16,895)
Total other income (expense) (22,900) (24,719) 63,520 (71,972)
Net Income/(Loss) 118,967 256,512 271,330 500,235
Gain/(Loss) applicable to common shareholders 118,967 256,512 271,330 500,235
Basic gain/(loss) per common share 0.011 0.022 0.026 0.043
Weighted average common shares outstanding 10,523,397 11,523,397 10,523,397 11,523,397
Diluted gain per common share 0.008 0.020 0.019 0.039
Fully diluted common shares outstanding 14,213,397 12,863,397 14,213,397 12,863,397
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 - - - 271,330 271,330
Balance: September 30, 2004 10,523,397 105,234 7,379,744 (5,581,544) 1,903,434
Next Generation Media Corporation
Statement of Cash Flows - Unaudited
For The Three Months Ended
September 30, September 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 118,967 $ 256,512
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 40,155 40,905
(Increase) decrease in assets
Accounts & notes receivable (172,309) (134,088)
Inventories 2,256 3,751
Prepaids and other current assets (45,664) (37,767)
Increase (decrease) in liabilities
Accounts and other payables (1,746) (43,313)
Pension payable - (3,167)
Accrued expenses 121,687 (13,285)
Net cash flows (used) by operating activities 63,346 69,548
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (18,291) (15,563)
Net cash provided/(used) by investing activities (18,291) (15,563)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable and capital leases (36,081) (30,393)
Net cash provided/(used) by financing activities (36,081) (30,393)
NET INCREASE/(DECREASE) IN CASH 8,974 23,592
CASH, BEGINNING OF PERIOD 439,354 159,785
CASH, END OF PERIOD 448,328 183,377
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Income taxes - -
Interest 8,671 1,776
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 its 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 and nine month periods ended
September 30, 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-KSB40.
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 September 30, 2004, the Company had
approximately 50 active area franchise licenses 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:
Computers 3 years
Furniture, fixtures and equipment 10 years
Leasehold improvements are amortized over the lesser of the lease
term or the useful life of the property.
Depreciation expense for the three months ended September 30, 2004
and 2003 was $40,155.
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.
Intangibles:
Any excess over market capitalization would be written off due to
impairment. In addition, the Company had a covenant not to compete,
which was being amortized over five (5) years. Amortization expense
for the three months ended September 30, 2004 and 2003 amounted to $0
and $750 respectively.
Advertising Expense:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations for the three
months ended September 30, 2004 and 2003 was $2,980 and $5,090
respectively.
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 or conditions are performed prior to
receipt of payment from the franchise. Franchise support fees of
$150 per quarter and other charges are 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 a 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
September 30, 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 September
30, 2004 and 2003 was $481,940 and $304,697 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 September 30, 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 Common Stock
Stock options outstanding as of September 30, 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 September 30, 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. The Corporation
accrued $12,000 and $10,500 in the three months ended September 30,
2004 and 2003 respectively.
NOTE 3 - NOTES PAYABLE
Notes payable consists of the following:
September 30, 2004 Amount
Note payable to Capital York, unsecured with payments $ 10,500
inclusive of interest of $1,000 per month
Note payable to CIT Group, interest of 10% on principal only,
collateralized by the equipment of United Marketing Solutions, Inc. $ 7,998
Note payable to PS Business Park, face amount of
$130,000, interest at 5%, payable over three years $15,424
Note payable to Frank Parsons Paper payable in monthly
Installments $ 9,238
$43,160
Less: Current portion $37,074
Long-term portion $ 6,086
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 a portion of the note collectible. Accordingly,
the Company recognized $150,000 of bad debt expense during the
quarter ended June 30, 2004.
NOTE 5 - COMMON STOCK
During the three months ended September 30, 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
One 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.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
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.
Future minimum annual lease payments for capital and operating leases
as of September 30, 2004 are:
Operating Capital
2004 162,940 4,555
2005 282,780 14,628
2006 280,006 14,628
2007 23,409 14,628
2008 0 4,916
Thereafter 0 0
Total 749,135 53,355
Rent expense for the quarters ended September 30, 2004 and 2003 were
$70,229 and $68,472 Respectively.
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 September
30, 2004 are as follows:
Total minimum lease payments $53,355
Amount representing interest 7,921
Present value of net minimum lease payments 45,434
Current portion 15,526
Long-term capital lease obligation 29,908
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 decrease in accumulated 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
$33,921 and $33,721 for the quarters ended September 30, 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 in the quarter ended September 30, 2004 and the nine
months ended September 30, 2004, respectively $2,092,097 and
$6,106,813, increased from $1,974,155 in the quarter ended September
30, 2003 and $5,621,492 in the nine months ended September 30, 2003, a
three month increase of five percent (5%) and a nine month increase of
eight percent (8%).
Total cost of goods sold in the quarter ended September 30, 2004 and
the nine months ended September 30, 2004, respectively, $1,340,164 and
$3,934,833, increased from $1,248,179 in the quarter ended September
30, 2003 and $3,779,412 in the nine months ended September 30, 2003.
The gross margin in the quarter ended September 30, 2004 and the nine
months ended September 30, 2004, respectively, $751,933 and
$2,171,980, increased from $725,976 in the quarter ended September 30,
2003 and $1,842,080 in the nine months ended September 30, 2003.
Total operating expenses in the quarter ended September 30, 2004 and
the nine months ended September 30, 2004, respectively, $610,066 and
$1,964,170, increased from $444,745 in the quarter ended September 30,
2003 and $1,269,088 in the nine months ended September 30, 2003. The
greatest percentage of this increase in expenses was due to an
increase in franchise development and support of $34,365 and an
increase in payroll expense of $63,433.
Total net gain from operations in the quarter ended September 30, 2004
and the nine months ended September 30, 2004, respectively, $141,867
and $207,810, decreased from a gain of $281,231 in the quarter ended
September 30, 2003 and $572,207 in the nine months ended September 30,
2003.
Net cash flows provided by operating activities was $63,346 for the
period ended September 30, 2004 as compared to $69,548 provided for
the period ended September 30, 2003.
Cash used by investing activities was $18,291 for the period ended
September 30, 2004, as compared to net cash provided by investing
activities of $69,548 for the period ended September 30, 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.
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 September 30, 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 September 30, 2004.
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