NEVADA
|
85-0206668
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
4840
EAST JASMINE STREET, SUITE 105, MESA, ARIZONA
|
85205
|
|||
(Address
of principal executive offices)
|
(Zip
Code)
|
Item
|
Page
|
|
1
|
||
1
|
||
|
||
24
|
||
|
||
26
|
|
|
|
||
27
|
||
28
|
||
29
|
||
|
||
31
|
||
|
||
33
|
||
52
|
||
53
|
||
53
|
||
53
|
·
|
allowances
for bad debt, which are based upon historical experience and reevaluated
monthly;
|
·
|
billing
fees, such as the fees charged by our billing aggregators and the
Local
Exchange Carriers;
|
·
|
billing
aggregator inquiry fees, which generally are 1% on a monthly basis;
|
·
|
dilution
resulting from fees and holdbacks due to items such as wrong telephone
numbers and other indications of
uncollectibility;
|
·
|
Internet
expenses, such as dial-up expenses;
and
|
·
|
direct
mailer marketing costs and the amortization of such
costs.
|
·
|
Revenue
Recognition:
|
o
|
Customer
refunds.
We have a customer refund policy that allows the customer to request
a
refund if they are not satisfied with the service within the first
120
days of the subscription. We accrue for refunds based on historical
experience of refunds as a percentage of new billings in that 120-day
period. Estimated refunds are reserved and charged to net
revenue.
|
o
|
Unbillable
records.
We recognize revenue during the month for which the service is provided
based on net billings accepted by the billing aggregators. The billing
aggregators may reject and return billing records to us if there
is no
immediate match in their database as a valid “Billing Telephone Number”
(“BTN”). We analyze the trend of accepted vs. rejected billing records.
Only accepted records are recognized as revenue. We then analyze
the
reasons for a record being rejected and then attempt to correct the
record
for resubmittal. Because there may be a period of 30-60 days to obtain
information from the billing aggregators that identify BTNs, we estimate
that amount when billed and those billings are excluded from
revenue.
|
o
|
Direct
bill customers.
We bill many subscribers directly. Our collection rate on these billings
is significantly lower than those processed through the LECs. We
track
collections on direct billed customers and recognize revenue from
those
customers based on the historical collection rates. Our recent collection
experience on these billings is approximately 10% to
12%.
|
o
|
Dilution
and Related Reserves.
We reserve for future fees, chargebacks and holdbacks charged by
the LECs
and third party billing aggregators that are related. Because there
may be
a period of time from when the billings are initiated and fees and
holdbacks are adjusted and processed by the billing aggregators,
we
estimate those fees based on contractual agreements with the billing
aggregators and historical experience. Fees and expenses charged
by the
LECs and billing aggregators are charged to cost of services and
netted
against gross accounts receivable. Total dilution has approximated
25% to
30% of gross billings.
|
·
|
Allowance
for Doubtful
Accounts:
|
·
|
Carrying
Value of Intellectual
Property:
|
·
|
Capitalization
of Direct Response Advertising Costs and Amortization
Thereof:
|
·
|
Income
Taxes:
|
·
|
attempt
to get listed on a national exchange or quotation
system;
|
·
|
add
additional independent directors to our Board of
Directors;
|
·
|
establish
an audit committee that fully complies with the requirements of
Sarbanes-Oxley and the exchanges;
|
·
|
engage
a national auditing firm;
|
·
|
obtain
broader, more sophisticated and more reliable research coverage;
and
|
·
|
roll
out our national branding campaign through various mediums of
advertisement, including, Internet, billboard, radio and cable television
in select markets to be determined. We have recently engaged a marketing
firm. We expect to use approximately $2,000,000 on this campaign
over the
next 18 months. This may have a negative impact on our margins. However,
to mitigate any adverse impact, management intends to attempt to
incur
these expenses gradually to be commensurate with anticipated increases
in
revenues resulting from the branding campaign.
|
·
|
maintain
and increase our base of
advertisers;
|
·
|
increase
the number of users who visit our web sites for online directory
services;
|
·
|
implement
and successfully execute our business and marketing
strategy;
|
·
|
continue
to develop and upgrade our
technology;
|
·
|
continually
update and improve our service offerings and
features;
|
·
|
provide
superior IAP advertiser service;
|
·
|
respond
to industry and competitive developments;
|
·
|
successfully
manage our growth while controlling expenses;
and
|
·
|
attract,
retain, and motivate qualified
personnel.
|
·
|
fluctuating
demand for our services, which may depend on a number of factors
including:
|
o
|
changes
in economic conditions and our IAP advertisers’
profitability,
|
o
|
varying
IAP advertiser response rates to our direct marketing
efforts,
|
o
|
our
ability to complete direct mailing solicitations on a timely basis
each
month,
|
o
|
changes
in our direct marketing efforts,
|
o
|
IAP
advertiser refunds or cancellations,
and
|
o
|
our
ability to continue to bill IAP advertisers on their monthly telephone
bills, ACH or credit card rather than through direct
invoicing;
|
·
|
timing
of new service or product introductions and market acceptance of
new or
enhanced versions of our services or products;
|
·
|
our
ability to develop and implement new services and technologies in
a timely
fashion to meet market demand;
|
·
|
price
competition or pricing changes by us or our
competitors;
|
·
|
new
product offerings or other actions by our
competitors;
|
·
|
month-to-month
variations in the billing and receipt of amounts from Local Exchange
Carriers (LEC), such that billing and revenues may fall into the
subsequent fiscal quarter;
|
·
|
the
ability of our check processing service providers to continue to
process
and provide billing information regarding our solicitation
checks;
|
·
|
the
amount and timing of expenditures for expansion of our operations,
including the hiring of new employees, capital expenditures, and
related
costs;
|
·
|
technical
difficulties or failures affecting our systems or the Internet in
general;
|
·
|
a
decline in Internet traffic at our
website;
|
·
|
the
cost of acquiring, and the availability of, information for our database
of potential advertisers; and
|
·
|
the
fact that our expenses are only partially based on our expectations
regarding future revenue and are largely fixed in nature, particularly
in
the short term.
|
·
|
the
announcement of new IAP advertisers or strategic alliances or the
loss of
significant IAP advertisers or strategic
alliances;
|
·
|
announcements
by our competitors;
|
·
|
sales
or purchases of our securities by officers, directors and
insiders;
|
·
|
government
regulation;
|
·
|
announcements
regarding restructuring, borrowing arrangements, technological
innovations, departures of key officers, directors or employees,
or the
introduction of new products;
|
·
|
political
or economic events and governmental actions affecting Internet operations
or businesses; and
|
·
|
general
market conditions and other factors, including factors unrelated
to our
operating performance or that of our
competitors.
|
·
|
the
pace of expansion of our
operations;
|
·
|
our
need to respond to competitive pressures;
and
|
·
|
future
acquisitions of complementary products, technologies or
businesses.
|
·
|
some
competitors have longer operating histories and greater financial
and
other resources than we have and are in better financial condition
than we
are;
|
·
|
some
competitors have better name recognition, as well as larger, more
established, and more extensive marketing, IAP advertiser service,
and IAP
advertiser support capabilities than we
have;
|
·
|
some
competitors may supply a broader range of services, enabling them
to serve
more or all of their IAP advertisers’ needs. This could limit our sales
and strengthen our competitors’ existing relationships with their IAP
advertisers, including our current and potential IAP
advertisers;
|
·
|
some
competitors may be able to better adapt to changing market conditions
and
IAP advertiser demand; and
|
·
|
barriers
to entry are not significant. As a result, other companies that are
not
currently involved in the Internet-based Yellow Pages advertising
business
may enter the market or develop technology that reduces the need
for our
services.
|
·
|
international
markets typically experience lower levels of Internet usage and Internet
advertising than the United States, which could result in
lower-than-expected demand for our
services;
|
·
|
unexpected
changes in regulatory requirements;
|
·
|
potentially
adverse tax consequences;
|
·
|
difficulties
in staffing and managing foreign
operations;
|
·
|
changing
economic conditions;
|
·
|
exposures
to different legal standards, particularly with respect to intellectual
property and distribution of information over the
Internet;
|
·
|
burdens
of complying with a variety of foreign laws;
and
|
·
|
fluctuations
in currency exchange rates.
|
·
|
cease
selling or using any of our products that incorporate the challenged
intellectual property, which would adversely affect our
revenue;
|
·
|
obtain
a license from the holder of the intellectual property right alleged
to
have been infringed, which license may not be available on reasonable
terms, if at all; and
|
·
|
redesign
or, in the case of trademark claims, rename our products or services
to
avoid infringing the intellectual property rights of third parties,
which
may not be possible and in any event could be costly and
time-consuming.
|
·
|
rapid
technological change;
|
·
|
changes
in advertiser and user requirements and
preferences;
|
·
|
frequent
new product and service introductions embodying new technologies;
and
|
·
|
the
emergence of new industry standards and practices that could render
our
existing service offerings, technology, and hardware and software
infrastructure obsolete.
|
·
|
enhance
our existing services and develop new services and technology that
address
the increasingly sophisticated and varied needs of our prospective
or
current IAP advertisers;
|
·
|
license,
develop or acquire technologies useful in our business on a timely
basis;
and
|
·
|
respond
to technological advances and emerging industry standards and practices
on
a cost-effective and timely basis.
|
·
|
decreased
demand in the Internet services
sector;
|
·
|
variations
in our operating results;
|
·
|
announcements
of technological innovations or new services by us or our
competitors;
|
·
|
changes
in expectations of our future financial performance, including financial
estimates by securities analysts and
investors;
|
·
|
our
failure to meet analysts’
expectations;
|
·
|
changes
in operating and stock price performance of other technology companies
similar to us;
|
·
|
conditions
or trends in the technology
industry;
|
·
|
additions
or departures of key personnel; and
|
·
|
future
sales of our common stock.
|
·
|
our
board is classified into three classes of directors as nearly equal
in
size as possible, with staggered three
year-terms;
|
·
|
the
authority of our board to issue up to 5,000,000 shares of serial
preferred stock and to determine the price, rights, preferences,
and
privileges of these shares, without stockholder
approval;
|
·
|
all
stockholder actions must be effected at a duly called meeting of
stockholders and not by written consent unless such action or proposal
is
first approved by our board of
directors;
|
·
|
special
meetings of the stockholders may be called only by the Chairman of
the
Board, the Chief Executive Officer, or the President of our company;
and
|
·
|
cumulative
voting is not allowed in the election of our
directors.
|
TABLE
OF CONTENTS
|
Page
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
26
|
CONSOLIDATED
FINANCIAL STATEMENTS:
|
|
Consolidated
Balance Sheet at September 30, 2003
|
27
|
Consolidated
Statements of Operations for the years ended September 30, 2003 and
September 30, 2002
|
28
|
Consolidated
Statements of Stockholders’ Equity for the years ended September 30, 2003
and September 30, 2002
|
29
|
Consolidated
Statements of Cash Flows for the years
ended September 30, 2003 and September 30, 2002
|
31
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
33
|
/s/
Epstein, Weber & Conover, PLC
|
Scottsdale,
Arizona
|
December
5, 2003
|
(except
for the restatement of financial statements
|
described
in Note 1, for which the date is November 18,
2005)
|
ASSETS:
|
|
|||
CURRENT
ASSETS
|
||||
Cash
and cash equivalents
|
$
|
2,378,848
|
||
Accounts
receivable, net
|
7,328,624
|
|||
Prepaid
expenses and other current assets
|
154,276
|
|||
Deferred
tax asset
|
1,400,637
|
|||
Total
current assets
|
11,262,385
|
|||
ACCOUNTS
RECEIVABLE - long term portion
|
1,123,505
|
|||
CUSTOMER
ACQUISITION COSTS, net of accumulated amortization of
$2,913,776
|
3,243,241
|
|||
PROPERTY
AND EQUIPMENT, net
|
731,142
|
|||
DEPOSITS
AND OTHER ASSETS
|
148,310
|
|||
INTELLECTUAL
PROPERTY- URL, net of accumulated amortization of
$1,868,283
|
3,512,952
|
|||
ADVANCES
TO AFFILIATES
|
2,126,204
|
|||
DEFERRED
INCOME TAXES
|
239,952
|
|||
TOTAL
ASSETS
|
$
|
22,387,691
|
||
LIABILITIES
AND STOCKHOLDERS' EQUITY:
|
||||
CURRENT
LIABILITIES:
|
||||
Accounts
payable
|
$
|
428,423
|
||
Accrued
liabilities
|
1,413,245
|
|||
Notes
payable - current portion
|
115,868
|
|||
Income
taxes payable
|
2,689,312
|
|||
Total
current liabilities
|
4,646,848
|
|||
Total
liabilities
|
4,646,848
|
|||
STOCKHOLDERS'
EQUITY:
|
||||
Series
E convertible preferred stock, $.001 par value, 200,000 shares
authorized,
131,840 issued and outstanding, liquidation preference
$39,552
|
11,206
|
|||
Common
stock, $.001 par value, 100,000,000 shares authorized, 55,265,136
issued,
49,348,287 outstanding
|
49,348
|
|||
Paid
in capital
|
9,359,866
|
|||
Deferred
stock compensation
|
(3,840,843
|
)
|
||
Treasury
stock at cost
|
(216,422
|
)
|
||
Retained
earnings
|
12,377,688
|
|||
Total
stockholders' equity
|
17,740,843
|
|||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
22,387,691
|
2003
|
2002
|
||||||
NET
REVENUES
|
$
|
30,767,444
|
$
|
12,618,126
|
|||
OPERATING
EXPENSES:
|
|||||||
Cost
of services
|
8,473,746
|
3,497,678
|
|||||
General
and administrative expenses
|
8,657,690
|
4,754,665
|
|||||
Sales
and marketing expenses
|
3,868,643
|
963,868
|
|||||
Depreciation
and amortization
|
660,475
|
581,290
|
|||||
Total
operating expenses
|
21,660,554
|
9,797,501
|
|||||
OPERATING
INCOME
|
9,106,890
|
2,820,625
|
|||||
OTHER
(INCOME) AND EXPENSES
|
|||||||
Interest
expense and other financing costs
|
19,728
|
92,341
|
|||||
Interest
income
|
(108,995
|
)
|
(17,682
|
)
|
|||
Other
expense/(income)
|
(291,002
|
)
|
(436,848
|
)
|
|||
Total
other income
|
(380,269
|
)
|
(362,189
|
)
|
|||
INCOME
BEFORE INCOME TAXES
|
9,487,159
|
3,182,814
|
|||||
INCOME
TAX PROVISION (BENEFIT)
|
1,871,293
|
342,082
|
|||||
NET
INCOME
|
$
|
7,615,866
|
$
|
2,840,732
|
|||
NET
INCOME PER SHARE:
|
|||||||
Basic
|
$
|
0.17
|
$
|
0.06
|
|||
Diluted
|
$
|
0.17
|
$
|
0.06
|
|||
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING:
|
|||||||
Basic
|
45,591,590
|
41,753,464
|
|||||
Diluted
|
45,591,590
|
41,753,464
|
Common
Stock
|
Preferred
E
|
Treasury
|
Paid-in
|
Retained
|
|||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Stock
|
Capital
|
Earnings
|
Total
|
||||||||||||||||||
|
___________ | ||||||||||||||||||||||||
BALANCE
OCTOBER 1, 2001
|
40,801,449
|
$
|
40,802
|
-
|
$
|
-
|
$
|
(171,422
|
)
|
$
|
4,595,609
|
$
|
1,923,562
|
$
|
6,388,551
|
||||||||||
Common
stock issued for services
|
100,000
|
100
|
8,900
|
9,000
|
|||||||||||||||||||||
Series
E preferred stock issued in exchange for common
shares
|
(131,840
|
)
|
(132
|
)
|
131,840
|
11,206
|
(11,074
|
)
|
-
|
||||||||||||||||
Series
E preferred stock dividends
|
(494
|
)
|
(494
|
)
|
|||||||||||||||||||||
Net
income
|
2,840,732
|
2,840,732
|
|||||||||||||||||||||||
BALANCE
SEPTEMBER 30, 2002
|
40,769,609
|
$
|
40,770
|
131,840
|
$
|
11,206
|
$
|
(171,422
|
)
|
$
|
4,593,435
|
$
|
4,763,800
|
$
|
9,237,789
|
Common
Stock
|
Preferred
E
|
Treasury
|
Paid-in
|
Deferred
|
Retained
|
|||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Stock
|
Capital
|
Compensation
|
Earnings
|
Total
|
||||||||||||||||||||
|
___________ | |||||||||||||||||||||||||||
BALANCE
OCTOBER 1, 2002
|
40,769,609
|
$
|
40,770
|
131,840
|
$
|
11,206
|
$
|
(171,422
|
)
|
$
|
4,593,435
|
$
|
-
|
$
|
4,763,800
|
$
|
9,237,789
|
|||||||||||
Common
stock issued for services
|
7,005,678
|
7,006
|
712,678
|
719,684
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Common
stock issued for URL
|
100,000
|
100
|
59,900
|
60,000
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Purchase
of treasury stock
|
(500,000
|
)
|
(500
|
)
|
(45,000
|
)
|
500
|
(45,000
|
)
|
|||||||||||||||||||
|
||||||||||||||||||||||||||||
Series
E preferred stock dividends
|
(1,978
|
)
|
(1,978
|
)
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Common
stock issued in restricted stock plan
|
1,973,000
|
1,973
|
3,993,352
|
(3,995,325
|
)
|
-
|
||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Amortization
of deferred stock compensation
|
154,482
|
154,482
|
||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Net
income
|
7,615,866
|
7,615,866
|
||||||||||||||||||||||||||
BALANCE
SEPTEMBER 30, 2003
|
49,348,287
|
$
|
49,349
|
131,840
|
$
|
11,206
|
$
|
(216,422
|
)
|
$
|
9,359,865
|
$
|
(3,840,843
|
)
|
$
|
12,377,688
|
$
|
17,740,843
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
2003
|
2002
|
|||||
Net
income
|
$
|
7,615,866
|
$
|
2,840,732
|
|||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
Depreciation
and amortization
|
660,475
|
581,290
|
|||||
Amortization
of deferred stock compensation
|
154,482
|
||||||
Issuance
of common stock as compensation for services
|
719,684
|
9,000
|
|||||
Gain
on settlement of debt
|
(45,362
|
)
|
-
|
||||
Deferred
income taxes
|
(1,631,774
|
)
|
1,078,157
|
||||
Loss
on disposal of equipment
|
6,932
|
||||||
Provision
for uncollectible accounts
|
1,688,058
|
1,375,226
|
|||||
Changes
in assets and liabilities:
|
|||||||
Accounts
receivable
|
(6,064,894
|
)
|
(2,580,410
|
)
|
|||
Customer
acquisition costs
|
(1,825,014
|
)
|
(1,224,983
|
)
|
|||
Prepaid
and other current assets
|
(183,196
|
)
|
(44,042
|
)
|
|||
Deposits
and other assets
|
2,415
|
(127,438
|
)
|
||||
Accounts
payable
|
233,027
|
(119,511
|
)
|
||||
Accrued
liabilities
|
1,228,470
|
106,069
|
|||||
Income
taxes payable
|
2,203,069
|
(736,075
|
)
|
||||
Net
cash provided by operating activities
|
4,762,238
|
1,158,015
|
|||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Advances
made to affiliate
|
(1,800,000
|
)
|
(116,757
|
)
|
|||
Expenditures
for intellectual property
|
(261,545
|
)
|
(49,688
|
)
|
|||
Purchases
of equipment
|
(736,955
|
)
|
(77,632
|
)
|
|||
Net
cash used for investing activities
|
(2,798,500
|
)
|
(244,077
|
)
|
|||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Proceeds
from debt
|
378,169
|
-
|
|||||
Principal
repayments on notes payable
|
(685,167
|
)
|
(830,677
|
)
|
|||
Purchase
of treasury stock
|
(45,000
|
)
|
-
|
||||
Net
cash used for financing activities
|
(351,998
|
)
|
(830,677
|
)
|
|||
INCREASE
IN CASH AND CASH EQUIVALENTS
|
1,611,740
|
83,261
|
|||||
CASH
AND CASH EQUIVALENTS, beginning of year
|
767,108
|
683,847
|
|||||
CASH
AND CASH EQUIVALENTS, end of year
|
$
|
2,378,848
|
$
|
767,108
|
2003
|
2002
|
||||||
Interest
Paid
|
$
|
11,258
|
$
|
99,541
|
|||
Income
taxes paid
|
$
|
1,300,000
|
$
|
-0-
|
2003
|
2002
|
||||||
Common
stock issued for services
|
$
|
719,684
|
$
|
9,000
|
|||
Common
stock issued to purchase intellectual property
|
$
|
60,000
|
$
|
-0-
|
|||
Common
stock exchanged for Series E Convertible Preferred Stock
|
$
|
-
0 -
|
$
|
11,206
|
1. |
ORGANIZATION
AND BASIS OF PRESENTATION
|
·
|
Customer
refunds of $313,716 in 2002 have been reclassified by moving them
from
cost of services to netting them in revenue. As a result of better
reporting by the third party billing aggregator, these refunds were
specifically identified when they were previously included as a general
charge back by the billing
aggregator.
|
·
|
It
was determined that $300,901 of revenue generated by providing services
to
an affiliate, Simple.net, which encompassed loaning personnel to
the
affiliate on a contract basis, did not represent customer revenue
in the
Company’s product line and that those related billings should therefore be
excluded from customer revenue. The Company reduced revenue as previously
reported by $300,901 and reclassified that amount in other
income.
|
·
|
It
was discovered in the year ended September 30, 2003, that 3,081,500
shares
of issued common stock had been improperly included in the outstanding
shares. These shares were actually treasury shares and therefore
should be
excluded from the number of shares outstanding. The Company corrected
the
error by reclassifying the par value of those shares of $3,082 from
the
common stock account to the paid in capital account. The incorrect
number
of treasury shares also had the effect of incorrectly reporting the
weighted average shares outstanding for purposes of the earnings
per share
calculation. The weighted average shares outstanding was previously
reported as 44,024,329 and has been corrected to 41,753,464. The
effect of
the corrected weighted average shares outstanding on the basic and
diluted
earnings per share for the year ended September 30, 2002 was an increase
from $0.06 to $0.07.
|
2. |
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
3.
|
ACCOUNTS
RECEIVABLE
|
Current
|
Long-Term
|
Total
|
||||||||
Gross
accounts receivable
|
$
|
10,317,029
|
$
|
1,518,251
|
$
|
11,835,280
|
||||
Allowance
for doubtful accounts
|
(2,988,405
|
)
|
(394,746
|
)
|
(3,383,151
|
)
|
||||
Net
|
$
|
7,328,624
|
$
|
1,123,505
|
$
|
8,452,129
|
Holdback
reserves of Local Exchange Carriers
|
$
|
2,221,441
|
||
Reserves
held by active third party billing aggregators
|
757,673
|
|||
Reserves
held by inactive third party billing aggregator
|
154,037
|
|||
Reserve
for refunds
|
250,000
|
|||
$
|
3,383,151
|
4.
|
INTELLECTUAL
PROPERTY
|
Years
ended September 30,
|
||||
2004
|
$
|
431,022
|
||
2005
|
398,528
|
|||
2006
|
343,986
|
|||
2007
|
236,212
|
|||
2008
|
213,035
|
|||
Thereafter
|
1,890,169
|
|||
Total
|
$
|
3,512,952
|
5.
|
PROPERTY
AND EQUIPMENT
|
Leasehold
improvements
|
$
|
376,287
|
||
Furnishings
and fixtures
|
167,706
|
|||
Office
and computer equipment
|
857,869
|
|||
Total
|
1,401,862
|
|||
Less
accumulated depreciation
|
(670,720
|
)
|
||
Property
and equipment, net
|
$
|
731,142
|
6. |
NOTES
PAYABLE AND LINE OF CREDIT
|
Note
payable to former Telco stockholders, original balance of $550,000,
interest at 10.5% per annum. Repayment terms require monthly installments
of principal and interest of $19,045 beginning December 15, 2002.
Stated
maturity September 25, 2004. Collateralized by all assets of the
Company.
|
$115,868
|
7.
|
PROVISION
FOR INCOME TAXES
|
2003
|
2002
|
||||||
Current
Provision
|
$
|
3,337,208
|
$
|
376,582
|
|||
Deferred
(Benefit) Provision
|
(1,465,915
|
)
|
77,836
|
||||
Net
income tax provision
|
$
|
1,871,293
|
$
|
454,418
|
2003
|
2002
|
||||||||||||
Federal
statutory rates
|
$
|
3,226,019
|
34
|
%
|
$
|
1,082,228
|
34
|
%
|
|||||
State
income taxes
|
114,807
|
1
|
%
|
222,811
|
7
|
%
|
|||||||
Utilization
of valuation allowance
|
-
|
-
|
(661,088
|
)
|
(43
|
)%
|
|||||||
Change
in estimate of NOL due to changes in structuring and state income
tax
rates used
|
(1,465,381
|
)
|
(15
|
)%
|
(143,575
|
)
|
(4
|
)%
|
|||||
Other
|
(4,153
|
)
|
-
|
(45,958
|
)
|
(1
|
)%
|
||||||
Effective
rate
|
$
|
1,871,293
|
20
|
%
|
$
|
(454,418
|
)
|
(7
|
)%
|
Deferred
Income Tax Assets:
|
||||
Book/tax
differences in accounts receivable
|
$
|
1,184,103
|
||
Deferred
and stock-based compensation
|
640,347
|
|||
Book/tax
differences in intangible assets
|
72,140
|
|||
Net
operating loss carryforward
|
979,138
|
|||
Total
deferred income tax asset
|
2,875,728
|
|||
Deferred
Income Tax Liabilities:
|
||||
Book/tax
differences in depreciation
|
100,006
|
|||
Book/tax
differences in customer acquisition costs
|
1,135,134
|
|||
Total
deferred income tax liability
|
1,235,140
|
|||
Net
income tax asset
|
$
|
1,640,588
|
8.
|
LEASES
|
2004
|
$
|
427,597
|
||
2005
|
383,679
|
|||
2006
|
292,125
|
|||
Total
|
$
|
1,103,401
|
9.
|
STOCKHOLDERS’
EQUITY
|
10.
|
COMMITMENTS
AND CONTINGENCIES
|
11. |
NET
INCOME PER SHARE
|
2003
|
2002
|
||||||||||||||||||
Income
|
Shares
|
Per
Share
|
Income
|
Shares
|
Per
share
|
||||||||||||||
Net
Income
|
$
|
7,615,866
|
$
|
2,840,731
|
|||||||||||||||
Preferred
stock dividends
|
(1,978
|
)
|
(494
|
)
|
|||||||||||||||
Income
available to common Stockholders
|
$
|
7,613,888
|
$
|
2,840,237
|
|||||||||||||||
Basic
Earnings Per Share:
|
|||||||||||||||||||
Income
available to common stockholders
|
$
|
7,613,888
|
45,591,590
|
$
|
0.17
|
$
|
2,840,237
|
41,753,464
|
$
|
0.07
|
|||||||||
Effect
of dilutive securities
|
N/A
|
N/A
|
N/A
|
||||||||||||||||
Diluted
Earnings Per Share
|
$
|
7,613,888
|
45,591,590
|
$
|
0.17
|
$
|
2,840,237
|
41,753,464
|
$
|
0.07
|
12.
|
RELATED
PARTY TRANSACTIONS
|
Morris
& Miller
|
$
|
1,089,485
|
||
Mathew
& Markson
|
1,036,719
|
|||
Total
|
$
|
2,126,204
|
13.
|
CONCENTRATION
OF CREDIT RISK
|
14.
|
STOCK
BASED COMPENSATION
|
2003
|
2002
|
||||||||||||
Weighted
Average Exercise
Price
|
Weighted
Average Exercise
Price
|
||||||||||||
Warrants
outstanding at beginning of year
|
500,000
|
$
|
2.12
|
500,000
|
$
|
2.12
|
|||||||
Granted
|
-0-
|
-0-
|
|||||||||||
Expired
|
-0-
|
-0-
|
|||||||||||
Exercised
|
-0-
|
-0-
|
|||||||||||
Outstanding
at September 30,
|
500,000
|
$
|
2.12
|
500,000
|
$
|
2.12
|
Dividend
yield
|
None
|
Volatility
|
0.491
|
Risk
free interest rate
|
4.18%
|
Expected
asset life
|
2.5
years
|
15.
|
EMPLOYEE
BENEFIT PLAN
|
16.
|
OTHER
INCOME
|
17.
|
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
Quarter
Ended
|
|||||||||||||
December
31,
2002
|
March
30,
2003
|
June
30,
2003
|
September
30,
2003
|
||||||||||
Quarterly
Data Per 10-Q Filings
|
|||||||||||||
Net
revenues
|
$
|
5,741,455
|
$
|
6,849,044
|
$
|
8,013,845
|
na
|
||||||
Gross
profit
|
3,919,305
|
5,000,078
|
5,952,616
|
na
|
|||||||||
Net
income
|
1,092,892
|
1,504,921
|
1,676,830
|
na
|
|||||||||
Earnings
per share information:
|
|||||||||||||
Basic
|
$
|
0.02
|
$
|
0.03
|
$
|
0.04
|
na
|
||||||
Diluted
|
$
|
0.02
|
$
|
0.03
|
$
|
0.04
|
na
|
||||||
Revised
Quarterly Data
|
|||||||||||||
Net
revenues
|
$
|
5,741,455
|
$
|
6,849,044
|
$
|
8,013,845
|
$
|
10,163,100
|
|||||
Gross
profit
|
3,803,327
|
5,000,078
|
5,952,616
|
7,537,677
|
|||||||||
Net
income
|
1,017,506
|
1,504,921
|
1,676,830
|
3,416,609
|
|||||||||
Earnings
per share information:
|
|||||||||||||
Basic
|
$
|
0.02
|
$
|
0.03
|
$
|
0.04
|
$
|
0.07
|
|||||
Diluted
|
$
|
0.02
|
$
|
0.03
|
$
|
0.04
|
$
|
0.07
|
< |