U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE
30, 2007
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 June 30, 2007, the Company had 12,373,397 shares of common
stock issued and outstanding.
TABLE OF CONTENTS
Part I - Financial Information Page
Item 1
Condensed Consolidated Interim Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion And
Analysis of Financial Condition
And Results Of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities And
Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters To A Vote Of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports On Form 8-K
Signature
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Turner, Jones &Associates, P.L.L.C.
Certified Public Accountants
108 Center Street, North, 2ndFloor
Vienna, Virginia 22180-5712
(703) 242-6500
FAX (703) 242-1600
To the Board of Directors and Stockholders of
Next Generation Media Corporation
7644 Dynatech Court
Springfield, VA 22153
We have reviewed the condensed consolidated balance sheet
of Next Generation Media Corporation and subsidiary as of June
30, 2007, and the related condensed consolidated statements of
income and cash flows for the six-month periods ended June 30,
2007 and 2006. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with the standards of
the Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the objective of which is the
expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the condensed financial
statements, referred to above, for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited in accordance with the standards of
the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of Next Generation Media
Corporation and subsidiary as of December 31, 2006, 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 1, 2007, 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, 2006, is
fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
s/s: Turner, Jones & Associates, P.L.L.C
Turner, Jones & Associates, P.L.L.C
Vienna, Virginia
August 8, 2007
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Next Generation Media Corporation
Condensed Consolidated
Interim Financial Statements
For The Six Months Ended June 30, 2007
With Review Report of Independent
Registered Public Accounting Firm
TURNER, JONES AND ASSOCIATES, P.L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
Table of Contents Page
Condensed Consolidated Interim Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
Next Generation Media Corporation
Condensed Consolidated Balance Sheets
ASSETS
(Unaudited) (Audited)
June 30, 2007 December 31, 2006
CURRENT ASSETS:
Cash and cash equivalents $ 329,339 $ 181,196
Accounts receivable, net of
uncollectible accounts 373,320 166,325
Inventories 84,676 97,434
Employee loans and advances - 1,883
Prepaid expenses and other current assets 57,033 25,103
Total current assets 844,368 471,941
PROPERTY, PLANT AND EQUIPMENT:
Equipment 1,236,672 1,143,943
Furniture and fixtures 38,757 38,757
Leasehold improvements 107,300 107,300
Computer equipment/software 384,589 329,917
Software development 411,391 411,391
Vehicles 9,200 9,200
Total property, plant and equipment 2,187,909 2,040,508
Less: accumulated depreciation (1,079,619) (973,071)
Net property, plant and equipment 1,108,290 1,067,437
OTHER ASSETS:
Goodwill 951,133 951,133
Deposits 41,200 41,200
Total other assets 992,333 992,333
TOTAL ASSETS $ 2,944,991 $ 2,531,711
LIABILITIES AND STOCKHOLDERS' EQUITY
Obligation under capital
leases, current portion 85,252 46,871
Notes payable, current portion 23,877 25,317
Line of credit 150,000 100,000
Accounts payable 363,808 203,670
Accrued expenses 103,446 127,891
Pension payable 52,046 34,264
Deferred rent 66,949 -
Deferred revenue 65,094 -
Sales tax payable - 1,338
Total current liabilities 910,472 539,351
LONG TERM LIABILITIES:
Obligation under capital leases 247,255 79,563
Notes payable 25,700 36,725
Total long term liabilities 272,955 116,288
Total liabilities 1,183,427 655,639
STOCKHOLDERS' EQUITY:
Common stock, $.01 par
value, 50,000,000 shares
authorized, 12,373,397 issued and
outstanding 123,734 123,734
Additional paid in capital 7,379,744 7,379,744
Accumulated deficit (5,741,914) (5,627,406)
Total stockholders' equity 1,761,564 1,876,072
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,944,991 $ 2,531,711
See accompanying notes and accountant's review report
Next Generation Media Corporation
Condensed Consolidated Statement of Income (Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
Revenues:
Sales, net of discounts $ 2,084,370 $ 2,146,121 $ 4,067,707 $ 4,118,765
Franchise fees - 36,000 79,000 89,000
Total revenues 2,084,370 2,182,121 4,146,707 4,207,765
Cost of Goods Sold: 1,636,164 1,744,886 3,092,649 3,137,316
Gross margin 448,206 437,235 1,054,058 1,070,449
General and administrative expenses 529,259 522,816 1,086,459 1,076,689
Depreciation 57,167 45,000 106,549 90,000
Total operating expenses 586,426 567,816 1,193,008 1,166,689
Gain/(Loss) from operations (138,220) (130,581) (138,950) (96,240)
Other income and (expenses):
Interest income - - - -
Miscellaneous income(expense) 24,307 15,685 40,815 15,266
Gain on disposal of equipment - - - -
Interest expense (11,714) (4,566) (19,372) (8,068)
Total other income (expense) 12,593 11,119 21,443 7,198
Net income (125,627) (119,462) (117,507) (89,042)
Gain applicable to common shareholders (125,627) (119,462) (117,507) (89,042)
Basic gain/(loss) per common share -0.010 -0.010 -0.009 -0.007
Weighted average common shares outstanding 12,373,397 12,215,842 12,373,397 12,215,842
Diluted gain per common share N/A N/A N/A N/A
Fully diluted common shares outstanding 13,075,547 13,347,342 13,075,547 13,347,342
See accompanying notes and accountant's review report
Next Generation Media Corporation
Statement of Cash Flows - Unaudited
For The Six Months Ended
30-Jun 30-Jun
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ (114,507) $(89,042)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 106,549 90,000
(Increase) decrease in assets
Accounts & notes receivable (206,995) (133,123)
Inventories 12,758 (12,278)
Prepaids and other current assets (31,930) 10,994
Employee loans 1,883 -
Increase (decrease) in liabilities
Accounts and other payables 152,137 45,472
Deferred rent 66,949 -
Deferred revenue 65,094 -
Customer deposits - 201,026
Net cash flows (used) by
operating activities 51,938 113,049
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (147,401) (66,703)
Net cash provided/(used) by investing activities (147,401) (66,703)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under Capital leases 236,941 28,390
Line of Credit 50,000 -
Repayment of capital leases (30,870) (12,797)
Pepayment of notes payable (12,465) (11,687)
Net cash provided/(used)
by financing activities 243,606 3,906
NET INCREASE/(DECREASE) IN CASH 148,143 50,252
CASH, BEGINNING OF PERIOD 181,196 610,885
CASH, END OF PERIOD $ 329,339 $ 661,137
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Income taxes - -
Interest 19,372 8,068
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: December 31, 2006 12,373,397 123,734 7,379,744 (5,627,406) $ 1,876,072
Shares issued - - - - -
Net Income - - - 11,119 11,119
Balance: March 31, 2007 12,373,397 123,734 7,379,744 (5,616,287) $ 1,887,191
Shares issued - - - - $ -
Net Loss - - - (125,627) (125,627)
Balance June 30 2007 12,373,397 123,734 7,379,744 (5,741,914) $ 1,761,564
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 months ended June 30, 2007, 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.
The balance sheet at December 31, 2006 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Registrant Company
and Subsidiaries' annual report on Form 10-KSB for the year ended
December 31, 2006.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business:
Next Generation Media Corporation was incorporated in the State of
Nevada in November of 1980 as Micro Tech Industries Inc., with an
official name change to Next Generation Media Corporation in April of
1997. The Company, through its wholly owned subsidiary, United
Marketing Solutions, Inc., provides direct marketing products, which
involves the designing, printing, packaging, and mailing of public
relations and marketing materials and coupons for retailers who provide
services. Sales are conducted through a network of franchises that the
Company supports on a wholesale basis. At June 30, 2007, the Company
had approximately 37 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 equipment & software 5 years
Depreciation expense for the six months ended June 30, 2007 and 2006
was $106,549 and $90,000, respectively.
Intangibles:
The Company has recorded goodwill based on the difference between the
cost and the fair value of certain purchased assets. The Company
annually evaluates the goodwill for possible impairment. The
analysis consists of a comparison of the Company's market
capitalization under SFAS No. 142 to the net fair market value of all
identifiable assets plus goodwill and/or projected cash flows to the
carrying value of the goodwill. Any excess book value over market
capitalization would be written off due to impairment.
Advertising Expense:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations for the three
months ended June 30, 2007 and 2006 was $21,892 and $31,833.
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 are performed upon payment
of the fee. Initial franchise fees are a one-time fee charged per
franchise license agreement. The initial franchise fees are non-
refundable. Franchise support of $150 per quarter per franchise and
other fees are recognized when billed to the franchisee. Amounts
billed or collected in advance of final delivery or shipments are
reported as deferred revenue.
Impairment of Long-Lived Assets:
The Company reviews the carrying values of its long-lived assets for
possible impairment on an annual basis and whenever events or changes
in circumstances indicate that the carrying amount of the assets
should be addressed. The Company believes that no permanent
impairment in the carrying value of long-lived assets exists as of
June 30, 2007.
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 items of comprehensive income to report.
Reclassifications:
Certain prior period amounts have been reclassified to conform to the
current period presentation.
New Accounting Pronouncements:
On December 15, 2004, the Financial Accounting Standards Board issued
SFAS No. 123(R), Share-Based Payment, which amends SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No 123 (R) requires
that all share-based payments to employees, including grants of
employee stock options, be accounted for at fair value. The pro
forma disclosures previously permitted under SFAS No. 123 no longer
will be an alternative to financial statement recognition. Under
SFAS No. 123 (R), the Company must determine the appropriate fair
value model to be used for valuing share-based payments, the
amortization method for compensation cost and the transition method
to be used for valuing share-based payments, the amortization method
for compensation cost and the transition method to be used at date of
adoption. The Company previously adopted the fair-value-based method
of accounting for share-based payments under SFAS No. 123 effective
January 1, 2003 using the prospective method described in SFAS No.
148, Accounting for Stock-Based Compensation-Transition and
Disclosure. SFAS No. 123 (R) also amends SFAS No. 95, Statement of
Cash Flows, to require that excess tax benefits be reported as a
financing cash inflow rather than as a reduction of taxes paid. As
originally issued, SFAS No. 95 required all income tax payments to be
classified as operating cash outflows. This statement is effective
for fiscal periods beginning after June 15, 2005. The adoption of
SFAS No. 123 (R) had no material effect on the financial position or
results of operation.
FIN48 In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48
clarifies the accounting for income taxes is prescribing a minimum
probability threshold that a tax position must meet before a
financial statement benefit is recognized. The minimum threshold is
defined in FIN 48 as a tax position that is more likely than not to
be sustained upon examination by the applicable taxing authority,
including resolution of any related appeals or litigation processes,
based on the technical merits of the position. The tax benefit to be
recognized is measured as the largest amount of benefit realized upon
ultimate settlement. FIN 48 must be applied to all existing tax
positions upon initial adoption. The cumulative effect of
applying FIN 48 at adoption, if any, is to be reported as an
adjustment to opening retained earnings for the year of adoption.
FIN 48 is effective for the Company's 2008 fiscal year, although
early adoption is permitted. The Company is currently assessing the
potential effect of FIN 48 on its financial statements.
SFAS 157 In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (FASB 157).
SFAS 157 provides a common definition of fair value in generally
accepted accounting principles more consistent and comparable. SFAS
157 also requires expanded disclosures to provide information about
the extent to which fair value is used to measure assets and
liabilities, the methods and assumptions used to measure fair value,
and the effect of fair value measures on earnings. SFAS 157 is
effective for the Company's 2009 fiscal year, although early adoption
is permitted. The Company is currently assessing the potential
effect of SFAS 157 on its financial statements.
Use of Estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes:
The Corporation uses Statement of Financial Standards No. 109
Accounting for Income Taxes (SFAS No. 109) in reporting deferred
income taxes. SFAS No. 109 requires a company to recognize deferred
tax liabilities and assets for expected future income tax
consequences of events that have been recognized in the company's
financial statements. Under this method, deferred tax assets and
liabilities are determined based on temporary differences in
financial carrying amounts and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in which
temporary differences are expected to reverse.
Risks and Uncertainties:
The Company operates in an environment where intense competition
exists from other companies. This competition, along with increases
in the price of paper, can impact the pricing and profitability of
the Company.
Credit Risk:
The Company at times may have cash deposits in excess of federally
insured limits.
Accounts Receivable:
The Corporation grants credit to its customers, which includes the
retail sector and their own franchisees. The Company establishes an
allowance for doubtful accounts based upon on a percentage of
accounts receivable plus those balances the Company feels will be
uncollectible. Allowance for uncollectible accounts as of June 30,
2007 and 2006 was $23,755 and $27,973, 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, 2007, the Company had financial obligations that
could create future dilution to the Company's common shareholders and
are not currently classified as common shares of the company. The
following table details such instruments and obligations and the
common stock comparative for each. The common stock number is based
on specific conversion or issuance assumptions pursuant to the
corresponding terms of each individual instrument or obligation.
Instrument or Obligation
Stock options outstanding as of June 30, 2007
with a weighted average exercise price per share
of $0.57 1,131,500
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 subsidiary as of June 30, 2007.
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 accrued a matching contribution for the quarter ended June
30, 2007 of $9,000.
NOTE 3 - NOTES PAYABLE
Notes payable at June 30, 2007 consists of:
Obligation to Bank of America, bearing interest at 6.4% percent
per annum, the loan is payable in forty-eight monthly
installments of $2,395, including interest, and is
collateralized by the equipment financed. Balance outstanding
at June 30, 2007 was $49,577.
The 5 year schedule of maturities is as follows:
2007 12,492
2008 27,011
2009 10,074
Thereafter 0
$ 49,577
NOTE 4 - COMMON STOCK
During the three months ended June 30, 2007 and 2006, the Company
issued no shares of common stock.
NOTE 5 - 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 6 - COMMITMENTS AND CONTINGENCIES
The Company acquired machinery under the provisions of long-term
leases. For financial reporting purposes, minimum lease payments
relating to the machinery have been capitalized.
Future minimum annual lease payments for capital and operating leases
as of December 31, 2007 are:
Operating Capital
2007 146,071 54,732
2008 302,855 99,215
2009 314,969 86,224
2010 327,568 45,740
2011 355,549 33,944
Thereafter 0 84,859
Total 1,447,012 404,714
Rent expense for the period ended June 30, 2007 and 2006 was $139,049
and $139,553 respectively.
The Company has entered into various employment contracts. The
contracts provided for the award of present and/or future shares of
common stock and/or options to purchase common stock at fair market
value of the underlying options 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.
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.
During the three months ended June 30, 2007 the Company experienced a
decrease in revenue of 4.4% with sales of $2,084,370, compared to
$2,182,121 for the three months ended June 30, 2006. While core
product sales remained constant, decreases in pass-thru & ancillary
product sales, and the adjustment or cancellation of scheduled
production contributed to the net decline. An increase of 16% in
national insert sales helped to bolster overall revenue. The Company
continues to offer significant incentive programs designed to
facilitate growth of existing franchises, and will continue to
evaluate staffing requirements and various opportunities to increase
the visibility necessary to achieve additional network growth.
Total costs of goods sold in the three-month period ended June 30,
2007 were down 6.2% from the same period in 2006, $1,636,164 compared
to $1,744,886. Cost of goods as a percentage of sales also decreased
from 79.9% for the three-month period ended June 30, 2006 to 78.4%
for the three-month period ended June 30, 2007. While the costs of
labor and core raw materials such as paper, ink and envelopes
continue to rise, the Company continues to build stronger
relationships with core material vendors in order to contain cost
increases. Cost of goods will fluctuate from quarter to quarter and
year to year based on production workflow and market conditions.
These cost fluctuations may result in the need for rightsizing
adjustments to maintain competitive market position.
Total operating expenses for the three months ended June 30, 2007
rose 3.2% ($586,426 compared to $567,816) from the same period in
2006. Additional advertising costs incurred to increase franchise
opportunity visibility and additional depreciation expense from
equipment and production workflow software acquisitions contributed
to the increase.
Total assets increased from $2,630,850 at June 30, 2006 to $2,944,991
at June 30, 2007 as result of a continuing investment in workflow
software and production equipment. Total current liabilities also
increased from $867,854 at June 30, 2006 to $910,472 at June 30, 2007
due in part to additional short term financing of capitalized assets.
The Company uses credit to manage cash flow and build cash reserves.
Finance charges are avoided by paying outstanding balances in full by
due dates.
Net cash flows provided by operating activities were $51,398 for the
six-month period ended June 30, 2007 as compared to net cash flows
provided by operating activities of $113,049 for the six-month period
ended June 30, 2006.
Net cash used by investing activities was $66,703 for the six-month
period ended June 30, 2006, as compared to net cash used by investing
activities of $147,401 for the six-month period ended June 30, 2007.
Net cash provided by financing activities was $243,606 for the six-
month period ended June 30, 2007, as compared to net cash of $3,906
provided by financing activities for the six-month period ended June
30, 2006.
The Company incurred a net loss of $125,627 for the three months
ended June 30, 2007, compared to a loss of $119,462 for the three
months ended June 30, 2006. The results of operations for the three
months ended June 30, 2007 are not necessarily indicative of the
results to be expected for the full year. Despite sub par performance
for a three-month period in the past, the Company has produced annual
profits on a regular basis.
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
requirements. As previously mentioned, the Company has obtained
financing in the forms of equity as well as commercial financing 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 acquiring additional financing.
The Company has issued shares of its common stock from time to time
in the past to satisfy certain obligations, and expects in the future
to also acquire certain services, satisfy indebtedness, and/or make
acquisitions utilizing authorized shares of the capital stock of the
Company.
Quantitative And Qualitative Disclosures About Market Risk
In the normal course of business, operations of the Company may be
exposed to fluctuations in interest rates. These fluctuations can
vary the cost of financing, investing, and operating transactions.
Because the Company has only fixed rate short-term debt, there are no
material impacts on earnings due to fluctuations in interest rates.
New Accounting Pronouncements:
In March 2004, the FASB issued EITF No. 03-1, The Meaning of Other-
Than-Temporary Impairment and its Application to Certain Investments
which provides additional guidance on how companies, carrying debt
and equity securities at amounts higher than the securities fair
values, evaluate whether to record a loss on impairment. In
addition, EITF No. 03-1 provides guidance on additional disclosures
required about unrealized losses. The impairment accounting guidance
is effective for reporting periods beginning after June 15, 2004 and
the disclosure requirements are effective for annual reporting
periods ending after June 15, 2004. On September 30, 2004, the FASB
approved the issuance of FASB Staff Position EITF No. 03-1-1, which
delays the effective date for the application of the recognition and
measurement provisions of EITF No. 03-1 to investments in securities
that are impaired. Certain disclosure provisions in EITF No. 03-1
were effective for fiscal years ended after December 15, 2003 and
other disclosure provisions are effective for annual reporting
periods after June 15, 2004. The adoption of this statement is not
expected to have a material effect on the Company's consolidated
financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-
Based Payment ("SFAS 123 r"). This statement is a revision of SFAS
No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related
implementation guidance. SFAS 123r requires that compensation cost relating to
share-based payment transactions be recognized in financial statements. That
cost will be measured based on the fair value of the equity or liability
instruments issued. This statement is effective beginning with the
Company's third quarter of fiscal year 2005. The Company is
currently evaluating the requirements of SDAF 123r and has not yet
fully determined the impact on its consolidated financial statements.
The adoption of this statement is not expected to have a material
effect on the Company's consolidated financial statements.
Forward Looking Statements.
The foregoing Managements Discussion and Analysis of Financial
Condition and Results of Operations "forward looking statements"
within the meaning of Rule 175 under the Securities Act of 1933, as
amended, and Rule 3b-6 under the Securities Act of 1934, as amended,
including statements regarding, among other items, the Company's
business strategies, continued growth in the Company's markets,
projections, and anticipated trends in the Company's business and the
industry in which it operates. The words "believe," "expect,"
"anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. These forward-
looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, including but
not limited to, those risks associated with economic conditions
generally and the economy in those areas where the Company has or
expects to have assets and operations; competitive and other factors
affecting the Company's operations, markets, products and services;
those risks associated with the Company's ability to successfully
negotiate with certain customers, risks relating to estimated
contract costs, estimated losses on uncompleted contracts and
estimates regarding the percentage of completion of contracts,
associated costs arising out of the Company's activities and the
matters discussed in this report; risks relating to changes in
interest rates and in the availability, cost and terms of financing;
risks related to the performance of financial markets; risks related
to changes in domestic laws, regulations and taxes; risks related to
changes in business strategy or development plans; risks associated
with future profitability; and other factors discussed elsewhere in
this report and in documents filed by the Company with the Securities
and Exchange Commission. Many of these factors are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
information contained in this Form 10-QSB will, in fact, occur. The
Company does not undertake any obligation to revise these forward-
looking statements to reflect future events or circumstances and
other factors discussed elsewhere in this report and the documents
filed or to be filed by the Company with the Securities and Exchange
Commission.
Inflation
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
Trends, Risks and Uncertainties
The Company has sought to identify what it believes to be the most
significant risks to its business as discussed in "Risk Factors"
above, but cannot predict whether or to what extent any of such risks
may be realized nor can there be any assurances that the Company has
identified all possible risks that might arise. Investors should
carefully consider all of such risk factors before making an
investment decision with respect to the Company's stock.
Limited operating history; anticipated losses; uncertainly of future results
The Company has only a limited operating history upon which an
evaluation of the Company and its prospects can be based. The
Company's prospects must be evaluated with a view to the risks
encountered by a company in an early stage of development,
particularly in light of the uncertainties relating to the business
model that the Company intends to market and the potential acceptance
of the Company's business model. The Company will be incurring costs
to develop, introduce and enhance its products, to establish
marketing relationships, to acquire and develop products that will
complement each other, and to build an administrative organization.
To the extent that such expenses are not subsequently followed by
commensurate revenues, the Company's business, results of operations
and financial condition will be materially adversely affected. There
can be no assurance that the Company will be able to generate
sufficient revenues from the sale of its products and services. The
Company expects that negative cash flow from operations may exist for
the next 12 months as it continues to develop and market its products
and services. If cash generated by operations is insufficient to
satisfy the Company's liquidity requirements, the Company may be
required to sell additional equity or debt securities. The sale of
additional equity or convertible debt securities would result in
additional dilution to the Company's shareholders.
Potential fluctuations in quarterly operating results may fluctuate
Significantly in the future as a result of a variety of factors, most
of which Are outside the Company's control including: the demand for
the Company's products and services; seasonal trends in demand and
pricing of products and services; the amount and timing of capital
expenditures and other costs relating to the expansion of the
Company's operations; the introduction of new services and products
by the Company or its competitors; price competition or pricing
changes in the industry; political risks and uncertainties involving
the world's markets; technical difficulties and general economic
conditions. The Company's quarterly results may also be significantly
affected by the impact of the accounting treatment of acquisitions,
financing transactions or other matters. Particularly the Company's
early stage of development, such accounting treatment can have a
material impact on the results for any quarter. Due to the foregoing
factors, among others, it is likely that the Company's operating
results will fall below the expectations of the Company or investors
in some future quarter.
Management of Growth
The Company may experience growth in the number of employees relative
to its current levels of employment and the scope of its operations.
In particular, the Company may need to hire sales, marketing and
administrative personnel. Additionally, acquisitions could result in
an increase in employee headcount and business activity. Such
activities could result in increased responsibilities for management.
The Company believes that its ability to increase its customer
support capability and to attract, train, and retain qualified
technical, sales, marketing, and management personnel, will be a
critical factor to its future success. In particular, the
availability of qualified sales and management personnel is quite
limited, and competition among companies to attract and retain such
personnel is intense. During strong business cycles, the Company may
experience difficulty in filling its needs for qualified sales, and
other personnel.
The Company's future success will be highly dependent upon its
ability to successfully manage the expansion of its operations. The
Company's ability to manage and support its growth effectively will
be substantially dependent on its ability to implement adequate
financial and management controls, reporting systems, and other
procedures and hire sufficient numbers of financial, accounting,
administrative, and management personnel. The Company is in the
process of establishing and upgrading its financial accounting and
procedures. There can be no assurance that the Company will be able
to identify, attract, and retain experienced accounting and financial
personnel. The Company's future operating results will depend on the
ability of its management and other key employees to implement and
improve its systems for operations, financial control, and
information management, and to recruit, train, and manage its
employee base. There can be no assurance that the Company will be
able to achieve or manage any such growth successfully or to
implement and maintain adequate financial and management controls and
procedures, and any inability to do so would have a material adverse
effect on the Company's business, results of operations, and
financial condition.
The Company's future success depends upon its ability to address
potential market opportunities while managing its expenses to match
its ability to finance its operations. This need to manage its
expenses will place a significant strain on the Company's management
and operational resources. If the Company is unable to manage its
expenses effectively, the Company's business, results of operations,
and financial condition will be materially adversely affected.
Risks associated with acquisitions
Although the Company does not presently intend to do so, as part of
its business strategy in the future, the Company could acquire assets
and businesses relating to or complementary to its operations. Any
acquisitions by the Company would involve risks commonly encountered
in acquisitions of companies. These risks would include, among other
things, the following: the Company could be exposed to unknown
liabilities of the acquired companies; the Company could incur
acquisition costs and expenses higher than it anticipated;
fluctuations in the Company's quarterly and annual operating results
could occur due to the costs and expenses of acquiring and
integrating new businesses or technologies; the Company could
experience difficulties and expenses in assimilating the operations
and personnel of the acquired businesses; the Company's ongoing
business could be disrupted and its management's time and attention
diverted; the Company could be unable to integrate successfully.
PART II.
ITEM 1. LEGAL PROCEEDINGS.
Other than as set forth below, the Registrant is not a party to any
material pending legal proceedings and, to the best of its knowledge,
no such action by or against the Registrant has been threatened.
The Company is subject to other legal proceedings and claims that
arise in the ordinary course of its business. Although occasional
adverse decisions or settlements may occur, the Company believes that
the final disposition of such matters will not have material adverse
effect on its financial position, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Sales of Unregistered Securities.
Not Applicable.
Use of Proceeds.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were not any matters submitted requiring a vote of security
holders during the three-month period ending June 30, 2007.
ITEM 5. OTHER INFORMATION.
Not Applicable.
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. (previously filed).
3.2 Amendment to the Articles of Incorporation (previously filed).
3.3 Amended and Restated Bylaws (previously filed).
10.1 Employment Agreement for Darryl Reed (previously filed).
16.1 Letter on change in certifying accountant (previously filed).
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