|
NEXT
GENERATION MEDIA CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
(unaudited)
June
30,
2009
|
|
|
December
31,
2008
|
|
|
ASSETS
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
377,144 |
|
|
$ |
466,193 |
|
|
Accounts
receivable, net of allowance of $25,140 and $117,173,
respectively
|
|
|
413,521 |
|
|
|
367,450 |
|
|
Prepaid
expenses and other current assets
|
|
|
85,323 |
|
|
|
95,109 |
|
|
Total
current assets
|
|
|
875,988 |
|
|
|
928,754 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
4,108,212 |
|
|
|
4,246,654 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
4,984,200 |
|
|
$ |
5,175,406 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS’ EQUITY
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
1,374,897 |
|
|
$ |
1,125,115 |
|
|
Obligation
under capital leases, current
|
|
|
32,316 |
|
|
|
65,763 |
|
|
Notes
payable, current
|
|
|
0 |
|
|
|
9,697 |
|
|
Lines
of credit
|
|
|
650,000 |
|
|
|
650,000 |
|
|
Total
current liabilities
|
|
|
2,057,213 |
|
|
|
1,850,575 |
|
|
|
|
|
|
|
|
|
|
|
|
Long
term debt, less current maturities:
|
|
|
|
|
|
|
|
|
|
Obligation
under capital leases
|
|
|
132,505 |
|
|
|
132,505 |
|
|
Notes
payable
|
|
|
3,700,000 |
|
|
|
3,700,000 |
|
|
Total
long term liabilities
|
|
|
3,832,505 |
|
|
|
3,832,505 |
|
|
Total
liabilities
|
|
|
5,889,718 |
|
|
|
5,683,080 |
|
|
|
|
|
|
|
|
|
|
|
|
DEFICIENCY
IN STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.01 per share; 50,000,000 shares authorized, 12,373,397
shares issued and outstanding
|
|
|
123,734 |
|
|
|
123,734 |
|
|
Additional
paid in capital
|
|
|
7,379,744 |
|
|
|
7,379,744 |
|
|
Accumulated
deficit
|
|
|
(8,408,996
|
) |
|
|
(8,011,152
|
) |
|
Total
stockholders’ equity
|
|
|
(905,518
|
) |
|
|
(507,674
|
) |
|
|
|
$ |
4,984,200 |
|
|
$ |
5,175,406 |
|
|
|
|
|
|
|
|
|
|
|
|
See
the accompanying notes to the unaudited condensed consolidated financial
statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NEXT
GENERATION MEDIA CORP.
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
753,910 |
|
|
$ |
1,387,398 |
|
|
Cost
of sales
|
|
|
625,342 |
|
|
|
1,195,366 |
|
|
Gross
profit
|
|
|
128,568 |
|
|
|
192,032 |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Selling
and administrative
|
|
|
210,831 |
|
|
|
406,068 |
|
|
Depreciation
|
|
|
69,132 |
|
|
|
77,211 |
|
|
Total
operating expenses
|
|
|
279,963 |
|
|
|
483,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME/(LOSS)
FROM OPERATIONS
|
|
|
(151,395
|
) |
|
|
(291,247
|
) |
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
184 |
|
|
|
314 |
|
|
Gain
on sale of equipment
|
|
|
2,500 |
|
|
|
0 |
|
|
Interest
expense, net
|
|
|
(85,286
|
) |
|
|
(74,342
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) before income taxes
|
|
|
(233,997
|
) |
|
|
(365,275
|
) |
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) BEFORE MINORITY INTEREST
|
|
$ |
(233,997 |
) |
|
$ |
(365,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
(10,628
|
) |
|
|
3,577 |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) APPLICABLE TO SHAREHOLDERS
|
|
$ |
(244,625 |
) |
|
$ |
(361,698 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) per common share-basic (Note A)
|
|
$ |
(.01 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per common stock-assuming fully diluted (Note A)
|
|
|
|
|
|
(see
Note A
|
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-basic
|
|
|
12,373,397 |
|
|
|
12,373,397 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-fully diluted
|
|
|
|
|
|
(see
Note A
|
) |
|
|
|
|
|
|
|
|
|
|
|
See
the accompanying notes to the unaudited condensed consolidated financial
statements
|
|
|
|
|
|
|
|
|
|
NEXT
GENERATION MEDIA CORP.
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
(unaudited)
|
|
| |
|
|
|
|
Six
months ended June 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,521,458 |
|
|
$ |
2,931,181 |
|
|
Cost
of sales
|
|
|
1,144,297 |
|
|
|
2,252,864 |
|
|
Gross
profit
|
|
|
377,161 |
|
|
|
678,317 |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Selling
and administrative
|
|
|
480,527 |
|
|
|
804,624 |
|
|
Depreciation
|
|
|
138,442 |
|
|
|
154,422 |
|
|
Total
operating expenses
|
|
|
618,969 |
|
|
|
959,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME/(LOSS)
FROM OPERATIONS
|
|
|
(241,808
|
) |
|
|
(280,729
|
) |
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
391 |
|
|
|
52,871 |
|
|
Gain
on sale of equipment
|
|
|
6,000 |
|
|
|
— |
|
|
Interest
expense, net
|
|
|
(162,428
|
) |
|
|
(163,227
|
) |
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) before income taxes
|
|
|
(397,845
|
) |
|
|
(391,085
|
) |
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) BEFORE MINORITY INTEREST
|
|
$ |
(397,845 |
) |
|
$ |
(391,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
(23,207
|
) |
|
|
6,674 |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) APPLICABLE TO SHAREHOLDERS
|
|
$ |
(421,052 |
) |
|
$ |
(384,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) per common share-basic (Note A)
|
|
$ |
(.01 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per common stock-assuming fully diluted (Note A)
|
|
|
|
|
|
(see
Note A
|
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-basic
|
|
|
12,373,397 |
|
|
|
12,373,397 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-fully diluted
|
|
|
|
|
|
(see
Note A
|
) |
|
|
|
|
|
|
|
|
|
|
|
See
the accompanying notes to the unaudited condensed consolidated financial
statements
|
|
|
|
|
|
|
|
|
|
NEXT
GENERATION MEDIA CORP.
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$ |
(421,052 |
) |
|
$ |
(384,411 |
) |
|
Adjustments
to reconcile net loss to net cash provided (used) in operating
activities:
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
23,207 |
|
|
|
(6,674
|
) |
|
Adjustments
for depreciation
|
|
|
138,441 |
|
|
|
154,421 |
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(107,226
|
) |
|
|
(45,020
|
) |
|
Inventory
|
|
|
— |
|
|
|
17,212 |
|
|
Prepaid
expenses and other current assets
|
|
|
9,787 |
|
|
|
(117,997
|
) |
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
312,859 |
|
|
|
290,603 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used) in operating activities
|
|
|
(43,984
|
) |
|
|
(91,866
|
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Borrowings
under line of credit
|
|
|
— |
|
|
|
348,000 |
|
|
(Payments)/borrowings
on notes payable and capital leases, net
|
|
|
(45,065
|
) |
|
|
(68,209
|
) |
|
Net
cash provided (used) by financing activities
|
|
|
(45,065
|
) |
|
|
279,791 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(89,049
|
) |
|
|
187,925 |
|
|
Cash
and cash equivalents at beginning of period
|
|
|
466,193 |
|
|
|
132,909 |
|
|
Cash
and cash equivalents at end of period
|
|
$ |
377,144 |
|
|
$ |
320,384 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$ |
162,428 |
|
|
$ |
163,227 |
|
|
Cash
paid during the period for taxes
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
See
the accompanying notes to the consolidated financial
statements
|
|
|
|
|
|
|
|
|
NEXT
GENERATION MEDIA CORP.
NOTES
TO FINANCIAL STATEMENTS
June
30, 2009
NOTE
A - SUMMARY OF ACCOUNTING POLICIES
General
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Accordingly,
the results from operations for the three and six month periods ended June 30,
2009 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2009. The unaudited consolidated financial statements
should be read in conjunction with the consolidated December 31, 2008 financial
statements and footnotes thereto included in the Company’s SEC Form
10-K.
A summary
of the significant accounting policies applied in the preparation of the
accompanying financial statements follows.
Business and Basis of
Presentation
Next
Generation Media Corporation was incorporated in the State of Nevada in November
of 1980 as Micro Tech Industries, 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, 2009, the Company had approximately 6
active area franchise license agreements located throughout the United
States.
The
consolidated financial statements include the accounts of the Company, its
wholly owned subsidiary, United Marketing Solutions, Inc., and a variable
interest entity Dynatech, LLC. All significant inter-company transactions and
balances have been eliminated in consolidation.
Revenue
Recognition
For
revenue from product sales, the Company recognizes revenue in accordance with
Staff Accounting Bulletin No. 104, REVENUE RECOGNITION (“SAB104”), which
superseded Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS (“SAB101”). SAB 101 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectability is reasonably assured. Determination of
criteria (3) and (4) are based on management’s judgments regarding the fixed
nature of the selling prices of the products delivered and the collectibility of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded.
SAB 104
incorporates Emerging Issues Task Force 00-21 (“EITF 00-21”),
MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21 on
the Company’s consolidated financial position and results of operations was not
significant.
Use of
Estimates
The
preparation of the financial statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Cash
Equivalents
For the
purpose of the accompanying financial statements, all highly liquid investments
with a maturity of three months or less are considered to be cash
equivalents.
Property and
Equipment
Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives as follows:
|
|
|
|
Furniture
and fixtures
|
5
years
|
|
Office
equipment
|
3
to 5 years
|
|
Manufacturing
equipment
|
3
to 10 years
|
|
Buildings
|
40
years
|
Impairment of Long-Lived
Assets
The
Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS
144). The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted discounted cash flows. Should impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less disposal costs. The
Company did not incur impairment losses for the three month periods ended June
30, 2009 and 2008.
Income
Taxes
The
Company has adopted Financial Accounting Standards No. 109 (“SFAS 109”) which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statement or tax returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between financial statements and the tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Temporary differences between
taxable income reported for financial reporting purposes and income tax purposes
are insignificant.
Research and
Development
The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board’s Statement of Financial Accounting
Standards No. 2 (“SFAS 2”), “Accounting for Research and Development Costs”.
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. The Company did not incur
expenditures on research and product development for the three months ended June
30, 2009 and 2008.
Advertising
The
Company follows the policy of charging the costs of advertising to expenses as
incurred. The Company charged to operations $4,128 and $16,173 as advertising
costs for the three months ended June 30, 2009 and 2008,
respectively.
Comprehensive
Income
Statement
of Financial Accounting Standards No. 130 (“SFAS 130”), “Reporting Comprehensive
Income,” establishes standards for reporting and displaying of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company does not have any items of comprehensive income in any
of the periods presented.
Segment
Information
The
Company has adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”)
in the years ended December 31, 2001 and subsequent years. SFAS 131 establishes
standards for reporting information regarding operating segments in annual
financial statements and requires selected information for those segments to be
presented in interim financial reports issued to stockholders. SFAS 131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions on how to allocate resources and assess
performance.
Stock Based
Compensation
Effective
January 1, 2006, the beginning of the Company’s first fiscal quarter of 2006,
the Company adopted the fair value recognition provisions of SFAS 123R, using
the modified-prospective transition method. Under this transition method,
stock-based compensation expense was recognized in the consolidated financial
statements for granted, modified, or settled stock options. Compensation expense
recognized included the estimated expense for stock options granted on and
subsequent to January 1, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS 123R, and the estimated expense for the
portion vesting in the period for options granted prior to, but not vested as of
January 1, 2006, based on the grant date fair value estimated in accordance with
the original provisions of SFAS 123. Results for prior periods have not been
restated, as provided for under the modified-prospective method.
SFAS
123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. In the Company’s pro forma information required under SFAS 123 for
the periods prior to fiscal 2006, the Company accounted for forfeitures as they
occurred.
Upon
adoption of SFAS 123(R), the Company is using the Black-Scholes option-pricing
model as its method of valuation for share-based awards granted beginning in
fiscal 2006, which was also previously used for the Company’s pro forma
information required under SFAS 123. The Company’s determination of fair value
of share-based payment awards on the date of grant using an option-pricing model
is affected by the Company’s stock price as well as assumptions regarding a
number of highly complex and subjective variables. These variables include, but
are not limited to the Company’s expected stock price volatility over the term
of the awards, and certain other market variables such as the risk free interest
rate.
The
Company had no employee stock options issued and outstanding at June 30, 2009.
All prior awards of stock options were vested at the time of issuance in prior
years.
Net income (loss) per
share
The
weighted average shares outstanding used in the basic net income per share
computations for the three and six month periods ended June 30, 2009 and 2008
was 12,373,397. In determining the number of shares used in computing diluted
loss per share for the three and six month periods ended June 30, 2009 and 2008,
common stock equivalents derived from shares issuable from the exercise of stock
options are not considered in the calculation of the weighted average number of
common shares outstanding because they would be anti-dilutive, thereby
decreasing the net loss per share.
Liquidity
As shown
in the accompanying financial statements, the Company had a net loss from
operations of ($151,395), during the three month period ended June 30, 2009. The
Company’s total liabilities exceeded its total assets by $905,518 as of June 30,
2009.
Concentration of Credit
Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with high credit quality institutions. At times, such investments may be in
excess of the FDIC insurance limit. The Company periodically reviews its trade
receivables in determining its allowance for doubtful accounts. At June 30, 2009
and June 30, 2008, allowance for doubtful account balance was $25,140 and
$29,755, respectively.
New Accounting
Pronouncements
In
February 2006, the FASB issued SFAS No. 155. “Accounting for certain Hybrid
Financial Instruments an amendment of FASB Statements No. 133 and 140,” or SFAS
No. 155. SFAS No. 155 permits fair value re-measurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and principal-only strips are
not subject to the requirements of Statement No. 133, establishes a requirement
to evaluate interests in securitized financial assets to identify interests that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006. The adoption of SFAS No. 155 did not have a material impact
on our financial position, results of operations or cash flows.
In March
2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
Financial Assets - an amendment to FASB Statement No. 140. Statement 156
requires that an entity recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into a
service contract under certain situations. The new standard is effective for
fiscal years beginning after September 15, 2006. The adoption of SFAS No.156 did
not have a material impact on the Company’s financial position and results of
operations.
In July
2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting for
uncertainty in Income Taxes”. FIN 48 clarifies the accounting for Income Taxes
by prescribing the minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements. It also provides
guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition and clearly scopes
income taxes out of SFAS 5, “ Accounting for Contingencies”. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did
not have a material impact on the Company’s financial position and results of
operations.
In
September 2006, the Financial Account Standards Board (the “FASB”) issued its
Statement of Financial Accounting Standards 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. FAS 157 effective date is for fiscal
years beginning after November 15, 2007. The Company does not expect adoption of
this standard will have a material impact on its financial position, operations
or cash flows.
In
September 2006, the FASB issued its Statement of Financial Accounting Standards
158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans”. This Statement improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. This Statement also improves financial reporting by requiring an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. The effective date for
an employer with publicly traded equity securities is as of the end of the
fiscal year ending after December 15, 2006. The Company does not expect adoption
of this standard will have a material impact on its financial position,
operations or cash flows.
In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements (“FSP 00-19-2”) which addresses accounting for registration
payment arrangements. FSP 00-19-2 specifies that the contingent obligation to
make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included as a
provision of a financial instrument or other agreement, should be separately
recognized and measured in accordance with FASB Statement No. 5, Accounting for
Contingencies. FSP 00-19-2 further clarifies that a financial instrument subject
to a registration payment arrangement should be accounted for in accordance with
other applicable generally accepted accounting principles without regard to the
contingent obligation to transfer consideration pursuant to the registration
payment arrangement. For registration payment arrangements and financial
instruments subject to those arrangements that were entered into prior to the
issuance of EITF 00-19-2, this guidance shall be effective for financial
statements issued for fiscal years beginning after December 15, 2006 and interim
periods within those fiscal years. The Company adopted FSP 00-19-2 in the
preparation of the financial statements (see Note 1).
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS 159 applies to reporting periods beginning after November 15, 2007. The
adoption of SFAS 159 is not expected to have a material impact on the Company’s
financial position, results of operations, or cash flows.
In
June 2007, the Accounting Standards Executive Committee issued Statement of
Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide
Investment Companies and Accounting by Parent Companies and Equity Method
Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1
provides guidance for determining whether an entity is within the scope of the
AICPA Audit and Accounting Guide Investment Companies (the “Audit Guide”). SOP
07-1 was originally determined to be effective for fiscal years beginning on or
after December 15, 2007, however, on February 6, 2008, FASB issued a
final Staff Position indefinitely deferring the effective date and prohibiting
early adoption of SOP 07-1 while addressing implementation issues.
In June
2007, the FASB ratified the consensus in EITF Issue No. 07-3, “Accounting
for Nonrefundable Advance Payments for Goods or Services to be Used in Future
Research and Development Activities” (EITF 07-3), which requires that
nonrefundable advance payments for goods or services that will be used or
rendered for future research and development (R&D) activities be deferred
and amortized over the period that the goods are delivered or the related
services are performed, subject to an assessment of recoverability.
EITF 07-3 will be effective for fiscal years beginning after
December 15, 2007. The Company does not expect that the adoption of
EITF 07-3 will have a material impact on our consolidated financial
position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations” (“SFAS No. 141(R)”), which establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in an acquiree, including the recognition and
measurement of goodwill acquired in a business combination. SFAS No. 141(R) is
effective as of the beginning of the first fiscal year beginning on or after
December 15, 2008. Earlier adoption is prohibited and the Company is
currently evaluating the effect, if any, that the adoption will have on its
financial position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest
in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
No. 160”), which will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity within the consolidated balance sheets. SFAS
No. 160 is effective as of the beginning of the first fiscal year beginning on
or after December 15, 2008. Earlier adoption is prohibited and the Company
is currently evaluating the effect, if any, that the adoption will have on its
financial position, results of operations or cash flows.
In
December 2007, the FASB ratified the consensus in EITF Issue No. 07-1,
“Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1
defines collaborative arrangements and requires collaborators to present the
result of activities for which they act as the principal on a gross basis and
report any payments received from (made to) the other collaborators based on
other applicable authoritative accounting literature, and in the absence of
other applicable authoritative literature, on a reasonable, rational and
consistent accounting policy is to be elected. EITF 07-1 also provides for
disclosures regarding the nature and purpose of the arrangement, the entity’s
rights and obligations, the accounting policy for the arrangement and the income
statement classification and amounts arising from the agreement. EITF 07-1
will be effective for fiscal years beginning after December 15, 2008, which
will be the Company’s fiscal year 2009, and will be applied as a change in
accounting principle retrospectively for all collaborative arrangements existing
as of the effective date. The Company has not yet evaluated the potential impact
of adopting EITF 07-1 on our consolidated financial position, results of
operations or cash flows.
EITF 07-1
will be effective for fiscal years beginning after December 15, 2008, which
will be the Company’s fiscal year 2009, and will be applied as a change in
accounting principle retrospectively for all collaborative arrangements existing
as of the effective date.
The
adoption of EITF 07-1in 2009 did not have a material effect on its consolidated
financial position, results of operations or cash flows.
In
June 2008, the FASB ratified the consensus on Emerging Issues Task Force
(EITF) Issue 07-5, “Determining whether an Instrument (or Embedded Feature)
is indexed to an Entity’s Own Stock.” This issue addresses whether an instrument
(or an embedded feature) is indexed to an entity’s own stock, which is the first
part of the scope exception in paragraph 11(a) of SFAS No. 133, for
purposes of determining whether the instrument should be classified as an equity
instrument or accounted for as a derivative instrument. The provisions of EITF
Issue No. 07-5 are effective for financial statements issued for fiscal
years beginning after December 15, 2008 and will be applied retrospectively
through a cumulative effect adjustment to retained earnings for outstanding
instruments as of that date. The adoption of EITF 07-05 did not have a material
effect on its consolidated financial position, results of operations or cash
flows.
In March
2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities - an amendment to FASB Statement No. 133” (“SFAS No.
161”). SFAS No. 161 is intended to improve financial standards for derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial position,
financial performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments; (b)
how derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations; and (c) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows. It is effective for financial statements issued for
fiscal years beginning after November 15, 2008, with early adoption encouraged.
The adoption of SFAS No. 161 did not have a material effect on its consolidated
financial position, results of operations or cash flows.
In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other
Intangible Assets”. The Company is required to adopt FSP 142-3 on January 1,
2009, earlier adoption is prohibited. The guidance in FSP 142-3 for determining
the useful life of a recognized intangible asset shall be applied prospectively
to intangible assets acquired after adoption, and the disclosure requirements
shall be applied prospectively to all intangible assets recognized as of, and
subsequent to, adoption. The adoption of FSP No. FAS 142-3 did not have a
material effect on its consolidated financial position, results of operations or
cash flows.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). SFAS No. 162 will become effective 60 days following
the SEC’s approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.” The Company does not expect the
adoption of SFAS No. 162 to have a material effect on its consolidated
financial position, results of operations or cash flows.
In May
2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 “Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) “ (“FSP APB 14-1”). FSP APB 14-1
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer’s non-convertible debt borrowing rate. FSP
APB 14-1 is effective for fiscal years beginning after December 15,
2008 on a retroactive basis. The adoption of FSP APB 14-1 did not have a
material effect on its consolidated financial position, results of operations or
cash flows.
In May
2008, the FASB issued FASB Statement No. 163, “Accounting for Financial
Guarantee Insurance Contracts”, which clarifies how FASB Statement No. 60,
“Accounting and Reporting by Insurance Enterprises”, applies to financial
guarantee insurance contracts issued by insurance enterprises. The standard is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, including interim periods in that year. The Company does not
expect the adoption of SFAS 163 to have a material effect on its consolidated
financial statements.
In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities.” Under the FSP,
unvested share-based payment awards that contain rights to receive
non-forfeitable dividends (whether paid or unpaid) are participating securities,
and should be included in the two-class method of computing EPS. The FSP is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those years. The adoption of FSP EITF No. 03-6-1 did not
have a material effect on its consolidated financial position, results of
operations or cash flows.
In
October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active.”
This position clarifies the application of SFAS No. 157 in a market
that is not active and provides an example to illustrate key considerations in
determining the fair value of a financial asset when the market for that
financial asset is not active. It also reaffirms the notion of fair value as an
exit price as of the measurement date. This position was effective upon
issuance, including prior periods for which financial statements have not been
issued. The adoption had no impact on the Company’s consolidated financial
statements.
In
December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets, which is effective for fiscal years ending
after December 15, 2009. FSP 132(R)-1 requires disclosures about fair value
measurements of plan assets that would be similar to the disclosures about fair
value measurements required by SFAS 157. The Company is assessing the potential
effect of the adoption of FSP 132(R)-1 on its consolidated financial
statements.
In
December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8,
Disclosures about Transfers of Financial Assets and Interests in Variable
Interest Entities. The FSP requires extensive additional disclosure by public
entities with continuing involvement in transfers of financial assets to
special-purpose entities and with variable interest entities (VIEs), including
sponsors that have a variable interest in a VIE. This FSP became effective for
the first reporting period ending after December 15, 2008 and did not have
any material impact on the Company’s consolidated financial
statements.
In
January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue
No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue
No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends
the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest
Income and Impairment on Purchased Beneficial Interests and Beneficial Interests
that Continue to be Held by a Transferor in Securitized Financial Assets” to
achieve more consistent determination of whether an other-than-temporary
impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it
did not have a material impact on the consolidated financial
statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.
Reclassifications
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
NOTE
B - PROPERTY, PLANT, AND EQUIPMENT
Property,
plant and equipment at June 30, 2009 and December 31, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
June
30,
2009
|
|
|
December
31,
2008
|
|
|
Furniture
and fixtures
|
|
$ |
24,585 |
|
|
$ |
24,585 |
|
|
Land
|
|
|
565,270 |
|
|
|
565,270 |
|
|
Building
|
|
|
3,108,989 |
|
|
|
3,108,989 |
|
|
Equipment
|
|
|
313,229 |
|
|
|
313,229 |
|
|
Vehicles
|
|
|
9,200 |
|
|
|
9,200 |
|
|
Leasehold
improvements
|
|
|
107,300 |
|
|
|
107,300 |
|
|
Software
development
|
|
|
411,391 |
|
|
|
411,391 |
|
|
Computer
equipment
|
|
|
339,275 |
|
|
|
339,275 |
|
|
|
|
|
4,879,239 |
|
|
|
4,879,239 |
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
|
771,027 |
|
|
|
632,585 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
property and equipment
|
|
$ |
4,108,212 |
|
|
$ |
4,246,654 |
|
The total
depreciation expense for the three months ended June 30, 2009 and 2008 amounted
to $69,132, and $77,211, respectively.
NOTE
C - NOTES PAYABLE
Notes
payable at June 30, 2009 and December 31, 2008 consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
June
30,
2009
|
|
|
December
31,
2008
|
|
|
Note
payable-Virginia Commerce Bank, bearing interest at 6.625% per annum, the
loan is payable in three hundred monthly installments with a minimum
payment consisting of the accrued interest amount for the first three
years and amortized thereafter, collateralized by the property located at
7644 Dynatech Court. The note is held by the variable interest entity
Dynatech, LLC.
|
|
|
3,700,000 |
|
|
|
3,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable-Obligation to Bank of America, bearing interest at 6.4% per annum,
the loan is payable in forty-eight monthly installments of $2,395,
including interest, and is collateralized by the equipment
financed.
|
|
|
— |
|
|
|
9,697 |
|
|
|
|
|
3,700,000 |
|
|
|
3,709,697 |
|
|
Less:
current maturities:
|
|
|
— |
|
|
|
(9,697
|
) |
|
|
|
|
|
|
|
|
|
|
|
Long
term portion
|
|
$ |
3,700,000 |
|
|
$ |
3,700,000 |
|
NOTE
D – OPTIONS
Non-Employee Stock
Options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company’s common stock issued at June 30,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
Exercise
Price
Range
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Weighed
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
$0.1232
|
|
850,000
|
|
2.46
|
|
$0.50
|
|
850,000
|
|
$0.26
|
|
|
to
$0.50
|
|
|
|
|
|
|
|
|
|
|
|
Transactions
involving stock options issued are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Number
of Shares
|
|
|
Price
Per Share
|
|
|
Outstanding
at June 30, 2007
|
|
|
850,000 |
|
|
$ |
0.37 |
|
|
Granted
|
|
|
— |
|
|
|
— |
|
|
Exercised
|
|
|
— |
|
|
|
— |
|
|
Canceled
or expired
|
|
|
— |
|
|
|
— |
|
|
Outstanding
at June 30, 2008
|
|
|
850,000 |
|
|
|
0.37 |
|
|
Granted
|
|
|
— |
|
|
|
— |
|
|
Exercised
|
|
|
— |
|
|
|
— |
|
|
Canceled
or expired
|
|
|
— |
|
|
|
— |
|
|
Outstanding
at June 30, 2009
|
|
|
850,000 |
|
|
$ |
0.37 |
|
NOTE
E - RELATED PARTY TRANSACTIONS
The
Company leases its office and warehouse space from Dynatech, LLC, here-after
referred to as the “Lessor”. The Lessor is owned 65% by the Company President
and 35% by the Company’s wholly owned subsidiary United Marketing Solutions,
Inc. The Lessor is charging a market rate per square foot for the lease and the
local lease market will be evaluated on a continual basis to ensure that a
market rate is maintained. The current lease payment is $25,585 per month and
the lease end date is January 31, 2012.
NOTE
F - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at June 30, 2009 and December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
June
30, 2009
|
|
|
December
31,
2008
|
|
|
Accounts
payable
|
|
$ |
1,002,925 |
|
|
$ |
712,973 |
|
|
Pension
payable
|
|
|
103,046 |
|
|
|
103,046 |
|
|
Accrued
liabilities
|
|
|
268,926 |
|
|
|
244,854 |
|
|
|
|
$ |
1,374,897 |
|
|
$ |
1,063,873 |
|
NOTE
G - INCOME TAXES
The
Company has adopted Financial Accounting Standards No. 109, which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns.
Under
this method, deferred tax liabilities and assets are determined based on the
difference between financial statements and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Temporary differences between taxable income reported for
financial reporting purposes and income tax purposes are insignificant. A
management estimates that at June 30, 2009, the Company has available for
federal income tax purposes a net operating loss carry forward of approximately
$3,061,370, expiring in the year 2024, that may be used to offset future taxable
income.
The
Company has provided a valuation reserve against the full amount of the net
operating loss benefit, since in the opinion of management based upon the
earnings history of the Company; it is more likely than not that the benefits
will not be realized in the near future.
Components
of deferred tax assets as of June 30, 2009 and December 31, 2008:
Non
current:
|
|
|
|
|
|
|
|
|
|
|
June
30,
2009
|
|
|
December
31,
2008
|
|
|
Net
operating loss carryforward
|
|
$ |
3,061,370 |
|
|
$ |
3,061,370 |
|
|
Valuation
allowance
|
|
$ |
(3,061,370 |
) |
|
$ |
(3,061,370 |
) |
|
Net
deferred asset
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
NOTE
H - COMMITMENTS AND CONTINGENCIES
The
Company has entered into various employment contracts. The contracts can be
terminated without cause upon written notice. 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 an
adverse effect on the Company’s financial position or the future results of
operations.
NOTE
I - SEGMENT INFORMATION
The
Company has two reportable segments for the three month period ended June 30,
2009.
United
Marketing Solutions. United was acquired on April 1, 1999. The entity is a
wholly owned subsidiary. United operates a direct mail marketing business and is
the Company’s primary line of business.
Dynatech,
LLC. Dynatech, LLC began operations on June 22, 2007. The entity is a variable
interest entity. Dynatech, LLC is a commercial real estate
business.
The
accounting policies of the reportable segments are the same as those set forth
in the Summary of Accounting Policies. Summarized financial information
concerning the Company’s reporting segments for the periods ending June 30, 2009
and December 31, 2008 are presented below:
Quarter
Ended
June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
Dynatech
|
|
|
NGMC
|
|
|
Eliminating
Entries
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
717,910 |
|
|
|
112,755 |
|
|
|
45,000 |
|
|
|
(121,755
|
) |
|
|
753,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit/(loss)
|
|
|
(275,883
|
) |
|
|
30,367 |
|
|
|
11,518 |
|
|
|
(10,628
|
) |
|
|
(244,625
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
2,034,004 |
|
|
|
3,755,908 |
|
|
|
382,880 |
|
|
|
(1,188,592
|
) |
|
|
4,984,200 |
|
Year
Ended
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
Dynatech
|
|
|
NGMC
|
|
|
Eliminating
Entries
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
5,121,946 |
|
|
|
307,021 |
|
|
|
142,500 |
|
|
|
(415,381
|
) |
|
|
5,156,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit/(loss)
|
|
|
(839,715
|
) |
|
|
(21,384
|
) |
|
|
(1,003,964
|
) |
|
|
— |
|
|
|
(1,865,063
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
2,290,758 |
|
|
|
3,691,290 |
|
|
|
394,773 |
|
|
|
(1,262,657
|
) |
|
|
5,114,164 |
|
NOTE
J - LINES OF CREDIT
The
Company has two lines of credit in the amounts of $500,000 and $150,000 secured
by the Company’s accounts receivable.
The first
line of credit for $500,000 matures on 8/26/09 and calls for interest of 7.25%
per annum. The balance outstanding at June 30, 2009 was $500,000.
The
second line of credit of $150,000 matures on 10/01/09 and calls for interest of
8.25% per annum. The balance outstanding at June 30, 2009 was
$150,000.
NOTE
K – GOING CONCERN MATTERS
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying financial
statements for the three and six month periods ended June 30, 2009 and the
twelve month period ended December 31, 2008, the Company has incurred operating
losses of $244,625 and $1,865,063, respectively. In addition, the Company has a
deficiency in stockholder’s equity of ($905,518) and ($507,674 )at June 30, 2009
and December 31, 2008, respectively. These factors among others may indicate
that the Company will be unable to continue as a going concern.
ITEM II.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
When used
in this Form 10-Q and in our future filings with the Securities and Exchange
Commission, the words or phrases will likely result, management expects, or we
expect, will continue, is anticipated, estimated or similar expressions are
intended to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Readers are cautioned not to
place undue reliance on any such forward-looking statements, each of which speak
only as of the date made. These statements are subject to risks and
uncertainties, some of which are described below. Actual results may differ
materially from historical earnings and those presently anticipated or
projected. We have no obligation to publicly release the result of any revisions
that may be made to any forward-looking statements to reflect anticipated events
or circumstances occurring after the date of such statements.
General
Overview
The
Company acquired United on April 1, 1999. Originlly founded in 1981 as United
Coupon Corporation, United has operated within the coperative direct mail
industry for twenty years. United has diversified and expanded its product lines
and markets to evolve from a coupon company to a full-service marketing provider
specializing in two communication mediums: direct mail and direct marketing.
United offers advertising and marketing products and services through a network
of franchises, with the largest concentration being in the northeast United
States. United provides full-service design, layout, printing, packaging, and
distribution of marketing products and promotional coupons sold by the franchise
network to local market buinesses, services providers, and professionals as
resources to help them generate “trial and repeat” customers. United’s core
product, the cooperative coupon envelope, reaches in excess of ten million
mailboxes per year.
Results of
Operations
The
Company’s revenues are difficult to forecast and may vary significantly from
quarter to quarter and year to year due to the attrition of franchisees. In
addition, the Company’s expense levels for each quarter are, to a significant
extent, fixed in advance based on the Company’s expectation as to the net
revenues to be generated during that quarter. The Company therefore is generally
unable to adjust spending in a timely manner to compensate for any unexpected
shortfall in net revenues. Further as a result of these factors any delay in
product introductions, whether due to internal delays or delays caused by third
party difficulties, or any significant shortfall in demand in relation to the
Company’s expectations, would have an almost immediate adverse impact on the
Company’s operating results and on its ability to maintain profit in a
quarter.
During
the three months ended June 30, 2009 the Company experienced a decrease in total
revenues with sales of $753,910 as compared to $1,387,398 for the three months
ended June 30, 2008. The Company has continued its commitment to offer
incentives to the franchise network to grow their businesses and, in turn,
increase Company production levels. Despite providing incentives consistent with
those of prior years, production and revenue realized from the core product
client base continue to fall in addition to various factors which have caused a
number of franchisees to disband their operations. An analysis of production
data for the three months ended June 30, 2009 shows the company produced 2,771
advertising units as compared to 5,544 units through the same period in 2008;
while the coupon average per envlope increased from 16.95 in nthe second quarter
of 2008 to 19.68 in the second quarter of 2009. The mailing area insertion
average for for the second quarter of 2009 increased to 18.47 from 17.49 for the
comparable three months in 2008. In-home marketing reach dropped from 3,170,000
homes in the second quarter of 2008 to 1,490,000 homes in the second quarter of
2009. The company continues to offer significant incentive programs designed to
facilitate growth of existing franchises, and will continue to evaluate various
opportunities to achieve additional network growth.
Total
costs of goods sold as a percentage of sales, for the three month period ended
June 30, 2009 were 82.95%, down slightly from 86.16% during the same period in
2008. Cost of goods will fluctuate from quarter to quarter and year to year
based on production workflow and market conditions.
Total
operating expenses were $483,279 (34.8%) for the three months ending June 30,
2008 compared to $279,963 (37.1%) for the three months ending June 30, 2009. The
Company continues to place a strong emphasis on franchise development and the
operations, training, and support of its network. The Company continues to
explore new opportunities that will expand production levels, market awareness,
and market territory.
The
Company realized a Net Loss for the three months ended June 30, 2009 of
$(244,625) as compared to a Net Loss of $(365,274) at June 30, 2008 which is an
expected outflow from the decline in core product revenues generated through its
franchise network.
Total
assets decreased from $5,114,164 at June 30, 2008 to $4,984,200 at June 30, 2009
as a result, in large part, to the write-down of goodwill in the last quarter of
2008. Total current liabilities increased from $1,789,333 at June 30, 2008 to
$2,057,213 at June 30, 2009, due, in part, to additional draws on various lines
of credit to make up for the shortfall in production revenues. The Company uses
credit to manage cash flow and build cash reserves.
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.
Introduction
Next
Generation Media Corporation was incorporated in the State of Nevada in November
of 1980 as Micro Tech Industries, 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.
PROPERTIES
Corporate
The
Company’s principal executive and administrative offices are located at 7644
Dynatech Court, Springfield, VA 22153.
ACQUISITION
OR DISPOSITION OF PLANT AND EQUIPMENT
Other
than as provided within this Form 10-Q and other filings, we do not anticipate
the acquisition of any significant property, plant or equipment during the next
12 months.
NUMBER
OF EMPLOYEES
The
Company currently has 6 employees. The Company does not have any collective
bargaining agreements covering any of its employees, has not experienced any
material labor disruption and is unaware of any efforts or plans to organize its
employees. The Company considers relations with its employees to be
good.
Forward
Looking Statements.
The
foregoing Management’s 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-KSB 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 had a material effect on the operations of
the Company. Costs of raw materials and the fuel surcharges to ship the
materials continue to rise but the Company is continuing its cost cutting
measures and negotiations with vendors to minimize the effect.
Cautionary Factors that may
Affect Future Results
We
provide the following cautionary discussion of risks, uncertainties and possible
inaccurate assumptions relevant to our business and our products. These are
factors that we think could cause our actual results to differ materially from
expected results. Other factors besides those listed here could adversely affect
us.
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.
Uncertainty of future
results
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.
Due to the foregoing factors, among others, it is possible that the Company’s
operating results may fall below the expectations of the Company and/or
investors in some future quarter.
Liquidity and Working
Capital Risks; Need for Additional Capital to
Finance Growth and Capital
Requirements
We have
had limited working capital and we may rely upon notes (borrowed funds) to
operate. We may seek to raise capital from public or private equity or debt
sources to provide working capital to meet our general and administrative costs
until net revenues make the business self-sustaining. We cannot guarantee that
we will be able to raise any such capital on terms acceptable to us or at all.
Such financing may be upon terms that are dilutive or potentially dilutive to
our stockholders. If alternative sources of financing are required, but are
insufficient or unavailable, we will be required to modify our growth and
operating plans in accordance with the extent of available funding.
Potential fluctuations in
quarterly operating results
Our
quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, most of which are outside our control,
including: the demand for our products; seasonal trends in purchasing, the
amount and timing of capital expenditures and other costs relating to the
development of our products; price competition or pricing changes in the
industry; technical difficulties or system downtime; general economic
conditions, and economic conditions specific to the healthcare industry. Our
quarterly results may also be significantly impacted by the impact of the
accounting treatment of acquisitions, financing transactions or other matters.
Particularly at our 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 our operating results will fall below
our expectations or those of investors in some future quarter.
Limitation of Liability and
Indemnification of Officers and Directors
Our
officers and directors are required to exercise good faith and high integrity in
our Management affairs. Our Articles of Incorporation provide, however, that our
officers and directors shall have no liability to our shareholders for losses
sustained or liabilities incurred which arise from any transaction in their
respective managerial capacities unless they violated their duty of loyalty, did
not act in good faith, engaged in intentional misconduct or knowingly violated
the law, approved an improper dividend or stock repurchase, or derived an
improper benefit from the transaction. Our Articles and By-Laws also provide for
the indemnification by us of the officers and directors against any losses or
liabilities they may incur as a result of the manner in which they operate our
business or conduct the internal affairs, provided that in connection with these
activities they act in good faith and in a manner that they reasonably believe
to be in, or not opposed to, the best interests of the Company, and their
conduct does not constitute gross negligence, misconduct or breach of fiduciary
obligations. To further implement the permitted indemnification, we have entered
into Indemnity Agreements with our officers and directors.
Limited Market Due To Penny
Stock
The
Company’s stock differs from many stocks, in that it is a “penny stock.” The
Securities and Exchange Commission has adopted a number of rules to regulate
“penny stocks.” These rules include, but are not limited to, Rules 3a5l-l,
15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and
Exchange Act of 1934, as amended. Because our securities probably constitute
“penny stock” within the meaning of the rules, the rules would apply to us and
our securities. The rules may further affect the ability of owners of our stock
to sell their securities in any market that may develop for them. There may be a
limited market for penny stocks, due to the regulatory burdens on
broker-dealers. The market among dealers may not be active. Investors in penny
stock often are unable to sell stock back to the dealer that sold them the
stock. The mark-ups or commissions charged by the broker-dealers may be greater
than any profit a seller may make. Because of large dealer spreads, investors
may be unable to sell the stock immediately back to the dealer at the same price
the dealer sold the stock to the investor. In some cases, the stock may fall
quickly in value. Investors may be unable to reap any profit from any sale of
the stock, if they can sell it at all. Stockholders should be aware that,
according to the Securities and Exchange Commission Release No. 34- 29093, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. These patterns include:- - Control of the market for the security by one
or a few broker-dealers that are often related to the promoter or issuer;
-Manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; - “Boiler room” practices involving high
pressure sales tactics and unrealistic price projections by inexperienced sales
persons; - Excessive and undisclosed bid-ask differentials and markups by
selling broker- dealers; and - The wholesale dumping of the same securities by
promoters and broker- dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with consequent
investor losses. Furthermore, the “penny stock” designation may adversely affect
the development of any public market for the Company’s shares of common stock
or, if such a market develops, its continuation. Broker-dealers are required to
personally determine whether an investment in “penny stock” is suitable for
customers. Penny stocks are securities (i) with a price of less than five
dollars per share; (ii) that are not traded on a “recognized” national exchange;
(iii) whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of an
issuer with net tangible assets less than $2,000,000 (if the issuer has been in
continuous operation for at least three years) or $5,000,000 (if in continuous
operation for less than three years), or with average annual revenues of less
than $6,000,000 for the last three years. Section 15(g) of the Exchange Act, and
Rule 15g-2 of the Commission require broker-dealers dealing in penny stocks to
provide potential investors with a document disclosing the risks of penny stocks
and to obtain a manually signed and dated written receipt of the document before
effecting any transaction in a penny stock for the investor’s account. Potential
investors in the Company’s common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be “penny
stock.” Rule 15g-9 of the Commission requires broker- dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for the Company’s stockholders to
resell their shares to third parties or to otherwise dispose of
them.
ITEM 3.
CONTROLS AND PROCEDURES
CONTROLS
AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures.
The
Company maintains disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as
amended) that are designed to ensure that information required to be disclosed
in our periodic reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to management,
including the Company’s principal executive officer and principal financial
officer, to allow timely decisions regarding required disclosure.
As of the
end of the period covered by this report, management carried out an evaluation,
under the supervision and with the participation of the Company’s principal
executive officer and principal financial officer, of the Company’s disclosure
controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the
Exchange Act). Based upon the evaluation, the Company’s principal
executive/financial officer concluded that its disclosure controls and
procedures were effective at a reasonable assurance level to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms. In
addition, the Company’s principal executive officer and principal financial
officer concluded that its disclosure controls and procedures were effective at
a reasonable assurance level to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company’s management, including its
principal executive officer and principal financial officer, to allow timely
decisions regarding required disclosure.
Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, will be or have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, and/or by management override of the control. The design of any system
of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving our stated goals under all potential future conditions; over time,
controls may become inadequate because of changes in conditions, and/or the
degree of compliance with the policies and procedures may deteriorate. Because
of the inherent limitations in a cost-effective internal control system,
misstatements due to error or fraud may occur and not be detected.
Changes
in Disclosure Controls and Procedures.
There
were no changes in the Company’s disclosure controls and procedures, or in
factors that could significantly affect those controls and procedures since
their most recent evaluation.
PART
II.
ITEM 1.
LEGAL PROCEEDINGS.
Other
than as set forth below, the Company is not a party to any material pending
legal proceedings and, to the best of its knowledge, no such action by or
against the Company has been threatened. The
Company is subject to 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.
In the
Circuit Court of Fairfax County Virginia, filed on August 1, 2008, United
Marketing Solutions, Inc. sued Geoff and Fran Blair for breach of contract in
that the Defendant has failed to pay to Plaintiff
$11,041.82 and has also sought $75,000 in punitive damages. The case No. is
CL2008-9914 and trial date has been set for June 2009.
In the
United States District Court, Southern District of Iowa, filed on February 2,
2009, COLORFX sued United Marketing Solutions, Inc. for breach of contract in
that the Defendant has failed to pay to
Plaintiff $128,409.73. The case No. is 4:09-C-00039. United Marketing Solutions,
Inc. intends to defend itself against COLORFX.
In the
Iowa District Court for Polk County, filed on February 3, 2009, in Case No. CL
111876, Rees Associates, Inc. sued United Marketing Solutions, Inc. for breach
of contract in failing to pay to the Plaintiff
$161,587.69. United Marketing Solutions, Inc. intends to defend itself against
Rees Associates, Inc.
In the
Circuit Court of Fairfax County, filed in April 2009, in Civil Action No:
2009-6401, United Marketing Solutions, Inc. sued Roger Homan for breach of
contract, statutory business conspiracy and tortious
interference in an amount of no less than Three Hundred Thousand Dollars
($300,000).
In the
Circuit Court of Fairfax County, filed in April 2009, in Civil Action No:
2009-6410, United Marketing Solutions, Inc. sued Sheila D. Callo and Fernando A.
Callo for breach of contract in an amount of
no less than Forty-Five Thousand Dollars ($45,000) plus an amount of no less
than Seventeen Thousand ($17,000) for prejudgment interest.
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 June 30, 2009 other than disclosed within this Form 10Q, and in
particular, Notes B and C to the Financial Statements.
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, 2009 other than as disclosed
herein.
ITEM 5.
OTHER INFORMATION.
Not
applicable.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K.
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(a)
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Reports
on Form 8-K. No reports on Form 8-K were filed during the three-month
period covered in this Form 10-Q other than disclosed
below.
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(b)
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Exhibits.
Exhibits included or incorporated by reference herein: See Exhibit
Index.
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Exhibit
No.
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Description
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3.1
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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).
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3.2
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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).
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3.3
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Amended
and Restated Bylaws (incorporated by reference in the filing of the
Company’s annual report on Form 10KSB filed on November 12,
1999).
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16.1
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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).
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31.1
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Rule
13a-14(a)/15d-14(a) Certification of Darryl Reed (filed
herewith).
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31.2
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Rule
13a-14(a)/15d-14(a) Certification of Olin Greene (filed
herewith).
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32.
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Section
1350 Certification of Darryl Reed and Olin Greene (filed
herewith).
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the date indicated:
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Next
Generation Media Corp. |
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Dated:
August 15, 2009
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By:
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/s/
Darryl Reed
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Darryl
Reed, CEO |