As filed with the Securities and Exchange Commission on November 20, 2006
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the Quarterly Period Ended September 30, 2006
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from ______________ to ________________
Commission File No. 0-28315
MIDLAND INTERNATIONAL CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 84-1517404
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation)
12650 Jane Street
King City, Ontario, Canada L7B 1A3
(Address of Principal Executive Offices)
(905) 833-9845
(Issuer's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes|X| No|_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).Yes|_| No|X|
As of November 21, 2006, the number of common stock outstanding was 33,417,654.
================================================================================
Midland International Corporation
(A Development Stage Company)
INDEX
PART I Financial Information
Item 1. Condensed Financial Statements (unaudited)
Condensed Balance Sheet................................ 3
Condensed Statements of Operations..................... 4
Condensed Statements of Stockholders' Equity........... 5
Condensed Statements of Cash Flows..................... 7
Notes to Condensed Financial Statements................ 8
Item 2. Management's Discussion and Analysis..........................13
Item 3. Controls and Procedures.......................................18
PART II. Other Information
Item 1. Legal Proceedings.............................................19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...19
Item 3. Defaults Upon Senior Securities...............................19
Item 4. Submission of Matters to a Vote of Security Holders...........19
Item 5. Other Information.............................................19
Item 6. Exhibits......................................................21
A) Exhibit 31
B) Exhibit 32
Signatures................................................................20
2
PART I. Financial Information
-----------------------------
Item 1. Condensed Financial Statements
---------------------------------------
Midland International Corporation
(A Development Stage Company)
Condensed Balance Sheet
September 30, 2006
(UNAUDITED)
September 30, 2006
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ --
----------------------------------------------------------------------------------------
TOTAL ASSETS $ --
----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Bank overdraft $ 396
Accounts payable and accrued liabilities 133,449
Due to related parties (Note 4) 748,208
----------------------------------------------------------------------------------------
Total current liabilities 882,053
Stockholders' equity (deficit)
Preferred stock, $0.001 par value, 5,000,000 shares authorized,
No shares issued and outstanding --
Common stock, $0.001 par value, 100,000,000 shares authorized,
33,417,654 shares issued and outstanding at September 30, 2006 33,418
Additional paid-in capital 647,642
Accumulated deficit (1,563,113)
----------------------------------------------------------------------------------------
Total stockholders' deficiency (882,053)
----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ --
----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
3
Midland International Corporation
(A Development Stage Company)
Condensed Statements of Operations
(UNAUDITED)
Three months ended Six months ended May 1, 1996
September 30 September 30 (Inception) to
September 30,
2006 2005 2006 2005 2006
----------------------------------------------------------------------------------
Revenues $ -- $ -- $ -- $ -- $ 60,000
Cost of sales -- -- -- -- 49,500
-----------------------------------------------------------------------------------------------------------------------------------
Gross profit -- -- -- -- 10,500
Operating expenses:
Management fees -- 129,000 -- 258,000 724,000
Office and general 7,702 7,376 9,429 11,617 252,657
Professional and consulting 17,500 74,704 63,927 138,858 531,047
Amortization -- -- -- -- 50
-----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 25,202 (211,080) 73,356 408,475 1,507,754
-----------------------------------------------------------------------------------------------------------------------------------
Net loss before other expenses and income taxes (25,202) (211,080) (73,356) (408,475) (1,497,254)
-----------------------------------------------------------------------------------------------------------------------------------
Other expenses
Interest expense 8,564 6,779 17,317 6,779 25,856
Realized loss on disposal of assets -- -- -- -- 10,003
Write off of intangible assets -- -- -- -- 30,000
-----------------------------------------------------------------------------------------------------------------------------------
Total other expenses 8,564 6,779 17,317 6,779 65,859
-----------------------------------------------------------------------------------------------------------------------------------
Net loss before income taxes (33,766) (217,859) (90,673) (415,254) (1,563,113)
-----------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net loss $ (33,766) (217,859) $ (90,673) $ (415,254) $ (1,563,113)
===================================================================================================================================
Weighted average number of common shares 33,417,654 30,512,239 33,408,327 30,249,311 18,935,391
outstanding - Basic and diluted
Loss per share of common stock - Basic $ (0.001) $ (0.007) $ (0.003) ($ 0.014) ($ 0.083)
and diluted
See accompanying notes to financial statements.
4
Midland International Corporation
(A Development Stage Company)
Condensed Statement of Change in Stockholders' Deficiency
May 1, 1996 to September 30, 2006
(UNAUDITED)
Common Stock
-------------------------
Additional Accumulated Total
Paid-in Income Stockholders'
Shares Amount Capital (Deficit) Deficiency
----------- --------------------------------------------------------
Balance, May 1, 1996 -- $ -- -- -- --
----------- --------------------------------------------------------
Issuance of common stock 24,000,000 24,000 (23,700) -- 300
Net loss for the period from
inception to March 31, 2004 -- -- -- (19,186) (19,186)
----------- --------------------------------------------------------
Balance, March 31, 2004 24,000,000 $ 24,000 (23,700) (19,186) (18,886)
----------- --------------------------------------------------------
Exchange of debt for equity -- -- 30,500 -- 30,500
Shares issued as consideration for
assets purchased 3,000,000 3,000 71,503 -- 74,503
Common stock issued for services 78,000 78 59,922 -- 60,000
Issuance of common stock pursuant
to private placements 1,250,000 1,250 213,750 -- 215,000
Common stock issued for consulting
services provided 650,000 650 64,350 -- 65,000
Net loss for the year ended March
31, 2005 -- -- -- (558,404) (558,404)
----------- --------------------------------------------------------
Balance, March 31, 2005 28,978,000 $ 28,978 416,325 (577,590) (132,287)
----------- --------------------------------------------------------
Issuance of common stock pursuant
to cash received in prior period 900,000 900 (900) -- --
Issuance of common stock pursuant
to private placements 600,000 600 59,400 -- 60,000
Common stock issued for consulting
services provided 350,000 350 64,650 -- 65,000
Issuance of common stock pursuant
to private placements 2,400,000 2,400 100,297 -- 102,697
Cash received for shares issued
after year end -- -- 8,060 -- 8,060
Net loss for the period ended
March 31, 2006 -- -- -- (894,850) (894,850)
----------- --------------------------------------------------------
Balance, March 31, 2006 33,228,000 $ 33,228 647,832 (1,472,440) (791,380)
=========== ========================================================
See accompanying notes to financial statements.
5
Midland International Corporation
(A Development Stage Company)
Condensed Statement of Change in Stockholders' Deficiency
April 1, 2006 to September 30, 2006
(UNAUDITED)
Common Stock
-------------------------
Additional Accumulated Total
Paid-in Income Stockholders'
Shares Amount Capital (Deficit) Deficiency
----------- --------------------------------------------------------
Balance, March 31, 2006 33,228,000 $ 33,228 647,832 (1,472,440) (791,380)
----------- --------------------------------------------------------
Common stock issued for cash
received before year end 189,654 190 (190) -- --
----------- --------------------------------------------------------
----------- -------------------------------------------------------
Net loss for the period ended
September 30, 2006 -- -- -- (90,673) (90,673)
----------- --------------------------------------------------------
33,417,654 $ 33,418 647,642 (1,563,113) (882,053)
Balance, September 30, 2006
----------- --------------------------------------------------------
See accompanying notes to financial statements.
6
Midland International Corporation
(A Development Stage Company)
Condensed Statements of Cash Flows
(UNAUDITED)
Six Months Ended May 1, 1996
September 30, (Inception) to
September 30,
2006 2005 2006
---------------------------------------------------------------------------------------------------------------------------
Net cash used in operations
Net loss $ (90,673) $ (415,254) $(1,563,113)
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization -- -- 50
Loss on disposal of capital asset -- -- 10,003
Writedown of intangible assets -- -- 30,000
Bad debt expense -- -- 60,000
Common stock for consulting services provided -- 80,000 160,250
Changes in operating assets and liabilities:
Accounts receivable -- -- (60,000)
Inventory -- -- 49,500
Prepaid expenses -- (1,372) --
Accounts payable and accrued liabilities 25,347 22,564 133,449
----------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (65,326) (314,062) (1,179,861)
---------------------------------------------------------------------------------------------------------------------------
Cash flows provided by investing activities:
Proceeds from disposition of capital assets -- -- 15,000
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Net cash provided by investing activities: -- -- 15,000
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Cash flows provided by financing activities:
Increase (decrease) in bank indebtedness 292 -- 396
Proceeds from the Issuance of common stock -- 60,000 416,257
Proceeds from due to related parties 65,034 206,451 748,208
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities: 65,326 266,451 1,164,861
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Increase in cash -- (47,611) --
---------------------------------------------------------------------------------------------------------------------------
Cash, beginning of period -- 48,282 --
---------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ -- $ 671 $ --
---------------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Information:
May 1, 1996
Six Months Ended (Inception) to
September 30, September 30,
2006 2005 2006
------------------------------------------------------------------------------------------------------------
Income Taxes Paid $ -- $ -- $ --
Interest Paid $ -- $ -- $ --
Non-Cash Investing and Financing Activities
Shares issued as consideration for technology development $ -- $ -- $65,000
Shares issued as consideration for assets purchased $ -- $ -- $74,503
Issuance of common stock for consulting services $ -- $ -- $60,000
See accompanying notes to financial statements.
7
Midland International Corporation
(A Development Stage Company)
Notes to the Condensed Financial Statements
September 30, 2006
(Unaudited)
Note 1 - Basis of Presentation and business operations
------------------------------------------------------
Basis of presentation - Going concern
The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the liquidation of liabilities in the
ordinary course of business. As shown in the accompanying financial statements,
the Company had assets of $Nil, a working capital deficit of $882,053 and an
accumulated deficit of $1,563,113 at September 30, 2006. As a result,
substantial doubt exists about the Company's ability to continue to fund future
operations using its existing resources.
In the past the Company's operations were funded through private placement of
common equity, the sale of certain assets and loans from related parties.
Although the amounts due to related are reflected as current liabilities, there
are no specific repayment terms. In order to ensure the success of the new
business, the Company will have to raise additional financing to satisfy
existing liabilities and to provide the necessary funding for future operations.
The accompanying condensed unaudited financial statements of Midland
International Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by U.S. generally accepted accounting principles for complete financial
statements. In the opinion of management of the Company, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
period ended September 30, 2006 are not necessarily indicative of the results
that may be expected for the year ending March 31, 2007. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended March 31, 2006.
Business operations
The Company was originally incorporated in the State of Colorado on May 1, 1996
as Grand Canyon Ventures Two, Incorporated. The Company changed its name to
Azonic Engineering Corporation on September 23, 1998. On November 12, 1999 is
was re-domiciled to the State of Nevada by merging into its wholly owned
subsidiary Azonic Corporation, a Nevada corporation. On July 21, 2005 the Azonic
Corporation changed its name to Midland International Corporation (referred to
herein as "Midland," the "Company," Registrant" and "Issuer").
Note 2 - Recent developments
----------------------------
The Company announced that on July 12, 2006, Mr. Gary Hokkanen voluntarily
resigned as Chief Financial Officer of the Company. Mr. Hokkanen has served in
this capacity since October 2004. In the interim, Mr. Simmonds will act as Chief
Financial Officer of the Company. This resignation was voluntary, neither
involved a disagreement with the Company on any matter relating to the Company's
operations, policies or practices.
8
Note 3 - Summary of Significant Accounting Policies
---------------------------------------------------
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
The financial statements have, in management's opinion, been properly prepared
within reasonable limits of materiality and within the framework of the
significant accounting polices summarized below.
Use of estimates
The preparation of financial statements in conformity 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 revenue and expenses during the period. Actual results
could differ from those estimates, and such differences could be material.
Cash and cash equivalents
Cash and cash equivalents include time deposit, certificates of deposits, and
all highly liquid debt instruments with original maturities of three months or
less. The Company maintains cash and cash equivalents at financial institutions,
which periodically exceed federal insured amounts.
Development stage
The Company has operated as a development stage enterprise since its inception
by devoting substantially all of its efforts to financial planning, raising
capital, research and development, and developing markets for its products.
Accordingly, the financial statements of the Company have been prepared in
accordance with the accounting and reporting principles prescribed by SFAS No.
7, "Accounting and Reporting by Development Stage Enterprises," issued by FASB.
The Company was substantially inactive from May 1, 1996 through September 30,
2004. Activities began on or about October 1, 2004.
Fair value of financial instruments
The carrying value of receivables, bank indebtedness, accounts payable and
accrued liabilities, income taxes payable, and customer deposits approximates
fair value because of the short maturity of these instruments. The carrying
value of long-term debt and due to and from related parties also approximates
fair value. Unless otherwise noted, it is management's opinion that the Company
is not exposed to significant interest, currency or credit risk arising from
these financial instruments.
Income taxes
The Company provides for income taxes using the asset and liability method as
prescribed by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under the assets and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Additionally, a valuation allowance is established when
necessary to reduce deferred income tax assets to the amounts expected to be
realized. Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
9
Basic and diluted earnings (loss) per share
The Company reports basic earnings (loss) per share in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings
(loss) per share is computed using the weighted average number of shares
outstanding during the year. Diluted earnings per share includes the potentially
dilutive effect of outstanding common stock options and warrants which are
convertible to common shares.
Foreign Currency Translation
The functional currency of the Company is the United States dollars. However,
some of the transactions occurred in Canadian dollars which has been translated
into US dollars, the reporting currency, in accordance with Statement of
Financial Accounting Standards No. 52 "Foreign Currency Translation". Assets and
liabilities are translated at the exchange rate at the balance sheet date and
revenue and expenses are translated at the exchange rate at the date those
elements are recognized. Any translation adjustments resulting are not included
in determining net income but are included in other comprehensive income.
Recent issued accounting standards
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments" which amends SFAS No. 133 and SFAS No. 140. SFAS No. 155
permits hybrid financial instruments that contain an embedded derivative that
would otherwise require bifurcation to irrevocably be accounted for at fair
value, with changes in fair value recognized in the statement of income. The
fair value election may be applied on an instrument-by-instrument basis. SFAS
No. 155 also eliminates a restriction on the passive derivative instruments that
a qualifying special purpose entity may hold. SFAS No. 155 is effective for
those financial instruments acquired or issued after December 1, 2006. At
adoption, any difference between the total carrying amount of the individual
components of the existing bifurcated hybrid financial instrument and the fair
value of the combined hybrid financial instrument will be recognized as a
cumulative-effect adjustment to beginning retained earnings. The Company does
not expect the new standard to have any material impact on our financial
position and results of operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140." SFAS No. 156 requires
all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable. The standard permits an entity
to subsequently measure each class of servicing assets or servicing liabilities
at fair value and report changes in fair value in the statement of income in the
period in which the changes occur. SFAS No. 156 is effective for the Company as
of December 1, 2006. The Company does not expect the new standard to have any
material impact on our financial position and results of operations.
10
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value
Measurements". SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.
SFAS 157 is effective as of the beginning of the first fiscal year that begins
after November 15, 2007. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended March 31, 2009. The Company
is currently evaluating the impact of SFAS 157 on its financial statements.
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans - an
amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"). SFAS 158
requires 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. SFAS 158 is effective for an employer with publicly traded
equity securities as of the end of the first fiscal year ending after December
15, 2006. SFAS 158 also requires an employer to measure the funded status of a
plan as of the date of its year-end statement of financial position, effective
for fiscal years ending after December 15, 2008. As such, the Company is
required to recognize the funded status of its defined benefit postretirement
plan and to provide the required disclosures at the beginning of the fiscal year
ended March 31, 2007. The Company is currently evaluating the impact of SFAS 158
on its financial statements.
Note 4 - Related Party Transactions
-----------------------------------
Periodically expenses of the Company are paid by related parties on behalf of
the Company. These transactions result in non-interest bearing payables to
related parties with no specific terms of repayment other then described below.
At September 30, 2006, amounts due to related parties amounted to $748,208.
Related parties of the Company include entities under common management.
On December 31, 2005, the Company terminated the management services agreement
and provided Wireless Age Communications, Inc. an 8% promissory note in the
amount of $424,734, pursuant to which the Company agreed to repay the note over
a one year period with an initial payment of $100,000 on March 15, 2006,
followed by three payments of $108,244.66 on June 30, 2006, September 30, 2006
and December 31, 2006. The Company also agreed to enter into a General Security
Agreement providing a first charge security position on all of the assets of the
Company to Wireless Age. According to the terms of the promissory note, Wireless
Age has the option, but not the obligation, to convert the outstanding principal
and interest payment due on each of June 30, 2006, September 30, 2006 and
December 31, 2006 into shares of the Company's common stock at $0.035 per share.
At June 30, 2006, the Company was in default under the terms of the promissory
note. The Company received an additional cash advance of $4,380 since December
and interest of $25,856 was accrued on the note based on the terms of the
promissory note.
The Company was obligated to pay Simmonds Mercantile and Management Inc.
("Simmonds Mercantile") $20,000 per month for certain executive level management
services. The Company's head office was also located at the offices of Simmonds
Mercantile. Simmonds Mercantile is solely owned by the Company's CEO John
Simmonds. The Company and Simmonds Mercantile agreed to cancel this agreement as
of April 1, 2006. At September 30, 2006, Simmonds Mercantile was owed $153,024
for unpaid management services. King Stables an entity also owned by John
Simmonds was owed $104,214 by the Company.
11
Pursuant to the terms of consulting services agreement with David Smardon, a
shareholder and director the Company, the Company was obligated to pay $3,000
per month for his strategic consulting services. The Company and Dave Smardon
agreed to cancel this agreement as of April 1, 2006. At September 30, 2006 the
Company owed $36,000 for consulting services provided.
At September 30, 2006, the amounts due to related parties were:
Wireless Age Communications, Inc. Secured
Promissory Note (including accrued interest) $ 454,970
Simmonds Mercantile and related entities 257,238
David Smardon 36,000
---------------
$ 748,208
---------------
12
Item 2. Management's Discussion and Analysis or Plan of Operation.
------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Annual Report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and as such may involve risks and uncertainties. These forward-looking
statements relate to, among other things, expectations of the business
environment in which the Company operates, projections of future performance,
perceived opportunities in the market and statements regarding the Company's
goals. The Company's actual results, performance, or achievements expressed or
implied in such forward-looking statements may differ.
BACKGROUND
The Company was incorporated in the State of Colorado on May 1, 1996 as Grand
Canyon Ventures Two, Incorporated. The Company changed its name to Azonic
Engineering Corporation on September 23, 1998. On November 12, 1999, it was
re-domiciled to the State of Nevada by merging into its wholly owned subsidiary
Azonic Corporation ("Company"), a Nevada corporation. On July 21, 2005 the
Company officially changed its name to Midland International Corporation
("Midland").
The Company is in the development stage in accordance with Financial Accounting
Standards Board Standard No. 7. The Company has not been operational, other than
described below, nor has the Company established any continuing source of
revenue other than interest income since its inception.
RESULTS OF OPERATION
OVERVIEW
The Company had planned to market low-cost, wireless devices including cellular
phones, but due to difficulties in assembling the necessary business partners,
to be successful, is evaluating other business opportunities. During fiscal
2006, the Company disposed of all of the analog handsets and intellectual
property associated with the analog business plan to a distributor. The
distributor has not been successful in advancing the analog low-cost
opportunity. The Company therefore is considering all available options
including a complete change in business direction.
RESULTS OF OPERATIONS FOR QUARTER ENDED SEPTEMBER 30, 2006 AS COMPARED TO THE
SIMILAR PERIOD ENDED SEPTEMBER 30, 2005
The Company had revenues of $0 in the three month period ended September 30,
2006 and no revenues in the similar quarter for 2005.
The Company incurred office and general expenses of $7,702 in the three month
period ended September 30, 2006 compared to $7,376 in the same period ended
September 30, 2005. Office and general expenses include travel, communications
and other similar costs associated with operating the business in its current
state of evolution.
The Company incurred management fees of $0 in the three month period ended
September 30, 2006 compared to $129,000 in the same period ended September 30,
2005. The decrease is the result of the discontinuation of the management fee
agreements with Simmonds Mercantile ($20,000 per month) and Dave Smardon ($3,000
per month) cancelled on April 1, 2006. The remainder of the decrease is the
result of the discontinuation of the management agreement with Wireless Age
cancelled on December 31, 2005.
13
The Company incurred professional and consulting fees of $17,500 in the three
month period ended September 30, 2006 compared to $74,704. in the same period
ended September 30, 2005. These fees include consulting, legal and accounting
fees incurred to keep the Company's filings in good standing. The decrease is
the result of a decline in the business activities of the Company.
The Company accrued interest of $8,564 under a secured promissory note to a
related party in the three months period ended September 30, 2006.
The net loss was ($33,766) in the three month period ended September 30, 2006
compared to ($217,859) in the same period ended September 30, 2005. Loss per
share was ($0.001) in 2006 compared to ($0.007) in 2005.
RESULTS OF OPERATIONS FOR SIX MONTH ENDED SEPTEMBER 30, 2006 AS COMPARED TO THE
SIMILAR PERIOD ENDED SEPTEMBER 30, 2005
The Company had revenues of $0 in the six month period ended September 30, 2006
and no revenues in the similar quarter for 2005.
The Company incurred office and general expenses of $9,429 in the six month
period ended September 30, 2006 compared to $11,617 in the same period ended
September 30, 2005. Office and general expenses include travel, communications
and other similar costs associated with operating the business in its current
state of evolution.
The Company incurred management fees of $0 in the six month period ended
September 30, 2006 compared to $258,000 in the same period ended September 30,
2005. The decrease is the result of the discontinuation of the management fee
agreements with Simmonds Mercantile ($20,000 per month) and Dave Smardon ($3,000
per month) cancelled on April 1, 2006. The remainder of the decrease is the
result of the discontinuation of the management agreement with Wireless Age
cancelled on December 31, 2005.
The Company incurred professional and consulting fees of $63,927 in the six
month period ended September 30, 2006 compared to $138,858 in the same period
ended September 30, 2005. These fees include consulting, legal and accounting
fees incurred to keep the Company's filings in good standing. The decrease is
the result of a decline in the business activities of the Company.
The Company accrued interest of $17,317 under a secured promissory note to a
related party in the six months ended September 30, 2006.
The net loss was ($90,673) in the six month period ended September 30, 2006
compared to ($415,254) in the same period ended September 30, 2005. Loss per
share was ($0.003) in 2006 compared to ($0.014) in 2005.
Management is considering all available options including a complete change in
business direction and expects the operating losses to continue until the
necessary business operations are assembled.
14
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of results of operations and financial condition are
based upon the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP). The preparation of these consolidated financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Management evaluates the estimates on an
on-going basis, including those related to bad debts, inventories, investments,
customer accounts, intangible assets, income taxes, and contingencies and
litigation. Management bases its estimates on historical experience and on
various other assumptions that they believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. Note 3 of the "Notes to Condensed Financial
Statements" includes a summary of the significant accounting policies and
methods used in the preparation of the consolidated financial statements. The
following is a brief description of the more significant accounting policies and
methods the Company uses.
Intangibles Assets
------------------
The Company regularly reviews all of its long-lived assets, including intangible
assets, for impairment whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Factors the Company considers
important that could trigger an impairment review include, but are not limited
to, significant underperformance relative to historical or projected future
operating results, significant changes in the manner of use of the acquired
assets or the strategy for the Company's overall business, and significant
negative industry or economic trends. When management determines that an
impairment review is necessary based upon the existence of one or more of the
above indicators of impairment, the Company measures any impairment based on a
projected discounted cash flow method using a discount rate commensurate with
the risk inherent in our current business model. Significant judgment is
required in the development of projected cash flows for these purposes including
assumptions regarding the appropriate level of aggregation of cash flows, their
term and discount rate as well as the underlying forecasts of expected future
revenue and expense. To the extent that events or circumstances cause
assumptions to change, charges may be required which could be material.
Effective October 1, 2005, the Company adopted SFAS No 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 no longer permits the amortization of goodwill
and indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under prescribed conditions) for impairment in
accordance with this statement. If the carrying amount of the reporting unit's
goodwill or indefinite-lived intangible assets exceeds the implied fair value,
an impairment loss is recognized for an amount equal to that excess. Intangible
assets that do not have indefinite lives are amortized over their useful lives.
Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash and cash equivalents, accounts payable and accrued
liabilities income taxes payable and customer deposits approximates fair value
because of the short maturity of these instruments. The carrying value of due to
related parties also approximates fair value. Unless otherwise noted, it is
management's opinion that the Company is not exposed to significant interest,
currency or credit risk arising from these financial instruments.
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FINANCIAL CONDITION
Total assets of the Company were $0 at March 31, 2006 and $0 at September 30,
2006.
Total liabilities of the Company increased from $791,380 at March 31, 2006 to
$882,053 at September 30, 2006. The increase is the result of an increase in
accounts payables and additional borrowings from related parties due to the lack
of cash resources.
The stockholders' deficit increased from ($791,380) at March 31, 2006 to
($882,053) at September 30, 2006. The increase is attributable to the net loss
for the period. (See Statement of Change in Stockholders' Deficiency contained
in the financial statements).
The Company's accumulated deficit increased from ($1,472,440) at March 31, 2006
to ($1,563,113) at September 30, 2006 as a result of the ($90,673) loss for the
six month period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2006, the Company had a working capital deficit of $882,053.
The Company is largely reliant upon the ability of the Company to arrange equity
private placements or alternatively advances from related parties to pay any
expenses incurred. In addition to normal accounts payable of $133,449 the
Company also owes related parties $748,208 and there is a bank overdraft of
$396. Its only source for capital could be loans or private placements of common
stock.
The Company remains in the development stage and, since inception, has
experienced significant liquidity problems and has no significant capital
resources at September 30, 2006.
Plan of Operations and Need for Additional Funding
The current cash resources are insufficient to support the business over the
next 12 months and the Company is unable to carry out any plan of business
without funding. The Company cannot predict to what extent its current lack of
liquidity and capital resources will impair the business operations whether it
will incur further operating losses. There is no assurance that the Company can
continue as a going concern without substantial funding. Management has taken
steps to begin sourcing the necessary funding to begin to execute the business
plan.
The Company estimates it will require approximately $150,000 to cover legal,
accounting, transfer, consulting and the miscellaneous costs of being a
reporting company in the next fiscal year.
The Company does not intend to pursue or fund any research or development
activities during the coming year.
The Company does not intend to add any additional part-time or full-time
employees until the activities of the Company can support it. It may become
necessary for the Company to hire a sales person or sales staff in the near
future.
Going concern qualification. The Company has incurred significant losses from
operations for the six month period ended September 30, 2006, and such losses
are expected to continue. In addition, the Company has no working capital. The
foregoing raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans include seeking additional capital and/or debt
financing or the possible sale of the Company. There is no guarantee that
additional capital and/or debt financing will be available when and to the
extent required, or that if available, it will be on terms acceptable to the
Company. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Company does not have any contractual debt obligations and or any other
commercial commitments that represent prospective cash requirements in addition
to any capital expenditure programs. The portion of due to related that relates
to Wireless Age is secured by a promissory note. (see details described in the
Notes to the Financial Statements.) As of April 1, 2006 the Company is no longer
obligated to pay $20,000 monthly management fee to a related party for
management services or $3,000 per month to the Chairman of the Board for
strategic consulting services. The Company shares its premises with Simmonds
Mercantile and Management Inc. an entity with a common officer. The Company pays
no rent for the premises.
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Item 3. Controls and Procedures
-------------------------------
a. Evaluation of Disclosure Controls and Procedures:
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time period
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports filed under the Exchange Act
is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. As of the end of the period covered by this
report, the Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
upon and as of the date of that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.
b. Changes in Internal Control over Financial Reporting:
There were no changes in the Company's internal control over financial reporting
identified in connection with the Company evaluation of these controls as of the
end of the period covered by this report that could have significantly affected
those controls subsequent to the date of the valuation referred to in the
previous paragraph, including any correction action with regard to significant
deficiencies and material weakness.
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PART II. Other Information
--------------------------
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
The Company was in default on September 30, 2006 under a secured
promissory note with a related party. The default is on going after September
30, 2006.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
Exhibits - Exhibits 31 and 32 (Sarbanes-Oxley)
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATE: November 20, 2006 BY: /s/ John G. Simmonds
----------------------------
John G. Simmonds
CEO/CFO/Director
20