Friday, February 01, 2008 1:00:42 PM
10KSB: ARIEL WAY INC
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Edgar Online
5:13 p.m. 01/14/2008
(EDGAR Online via COMTEX) -- Item 6. Management's Discussion and Analysis or Plan of Operation
The following is a discussion and analysis of the results of operations and financial position as of and for the two years ended September 30, 2007 and the factors that could affect our future financial condition and results of operations. Historical results may not be indicative of future performance.
This discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this 10-KSB. Our consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles. All references to dollar amounts in this section are in United States dollars.
Revenue and Expenses
Overall Operating Results:
Revenue was $922,221 and $2,459,012 for the fiscal years ended September 30, 2007 and 2006 respectively. The reduced revenue resulted from the ceasing of the operation of dbsXmedia in both the US and the UK in August 2006, and our reduced Business TV operation in the UK through Ariel Way Media. This operation was terminated in June 2007. Gross profit for the fiscal year ended September 30, 2007 was $201,135, compared to a gross profit of $35,290 for the fiscal year ended September 30, 2006. The imroved margin for 2007 was due to substantial cost reductions as a result of negotiated lower satellite service charges incurred related to the satellite provider.
Total operating expenses were $841,415 and $3,024,692 for the fiscal years ended September 30, 2007 and 2006. The significantly reduced operating expenses from 2006 to 2007 were due to an overall reduction of the operational organization. Salaries decreased from $473,957 to $40,428 in 2006 to 2007 respectively, professional fees decreased from $840,411 to $610,096 in 2006 to 2007 respectively, and rent decreased from $414,468 to $51,325 in 2006 to 2007 respectively. Bad debt expense decreased from $268,026 to -0- in 2006 to 2007 respectively, and loss on conditional guarantee no longer applied due to settlement with Loral Skynet resulting in a reduction from $303,328 to -0- in 2006 to 2007 respectively. Further, during year 2007, there were no expenses for the issuance of options or warrants, since none were issued during the year.
As of September 30, 2007 cash and cash equivalents was -0- compared to $46,050 as of September 30, 2006. Cash balances decreased as the company worked to satisfy substantial outstanding debts. As of September 30, 2007, accounts payable and accrued expenses were $2,109,976, compared to September 30, 2006 balances of $2,889,260. This reduction was due to substantial effort in reducing liabilities and debt during the fiscal year ended September 30, 2007 as a result of a settlement with Loral Skynet, the liquidation of dbsXmedia, Ltd (UK), the ceasing of operation of dbsXmedia (US), and the cancellation of other debt and liabilities. We intend to continue to significantly reduce our liabilities and debt.
Operations and Net Income
The net income for the fiscal year ended September 30, 2007 was $599,491 compared to a net loss of ($3,069,411) for the fiscal year ended September 30, 2006. The change to net income compared with previous year's losses were the result of other income of $1,240,797 recorded as a result of significant debt and liability reductions to include a settlement of significant debt and liability to Loral Skynet, the liquidation of dbsXmedia, Ltd (UK), the ceasing of operation of dbsXmedia (US), and the cancellation of other accrued debt and liabilities. We intend to continue to significantly reduce our liabilities and debt.
As of September 30, 2007 the accumulated deficit was reduced to ($5,167,535) compared with ($5,767,026) September 30, 2006. This accumulated deficit may, on a limited basis, be offset against future taxable income. There are limitations on the amount of net operating loss carryforwards that can be used due to the change in the control of the ownership as a result of our stock exchange transaction on February 2, 2005 of the now wholly-owned Old Ariel Way subsidiary.
Application of Critical Accounting Policies
We prepare our consolidated financial statement in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Our significant accounting policies are discussed in Note 2 to the consolidated financial statements.
We consider the accounting policies related to revenue and related cost recognition, valuation of goodwill and other intangible assets and accounting for income taxes to be critical to the understanding of our results of operations. Critical accounting policies include the areas where we have made what we consider to be particularly subjective or complex judgments in making estimates and where these estimates can significantly impact our financial results under different assumptions and conditions. The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience, where available, and on various other assumptions and information that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from estimates under different assumptions or conditions.
Management believes the following reflect its more significant accounting policies and estimates used in the preparation of its consolidated financial statements. Our senior management has discussed the development of each of the following accounting policies and estimates and the following disclosures with the audit committee of our board of directors.
Goodwill
We had no recorded goodwill and we reported no goodwill impairment during the fiscal year ended September 30, 2007.
Goodwill must be reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. There can be no assurance that upon review at a later date material impairment charges will not be required.
The intangible asset impairment test consists of comparing the fair value of the intangible asset to the carrying amount of the intangible asset. If the carrying amount exceeds the fair value, an impairment loss is recognized for the difference. The goodwill impairment test is a two-step process. The first step compares the fair value of the goodwill unit to its carrying value. If the carrying amount exceeds the fair value, the second step of the test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of the goodwill with the carrying amount of that goodwill. The more complete methodology to calculate the implied fair value of goodwill, is that an enterprise allocates the fair value of a reporting unit to all of the assets and liabilities of that reporting unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value was the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities of the reporting unit is the implied fair value of goodwill. If the carrying amount exceeds the implied fair value, an impairment loss is recognized for that difference.
The fair value of an intangible asset, such as a software technology license, and reporting unit goodwill is the amount at which that asset or reporting unit could be bought or sold in a current transaction between willing parties. Therefore, quoted market prices in active markets are the best evidence of fair value and should be used when available. If quoted market prices are not available, the estimate of fair value is based on the best information available, including prices for similar assets and the use of other valuation techniques. Other valuation techniques include present value analysis, multiples of earnings or revenue or a similar performance measure. The use of these techniques involves assumptions by management about factors that are highly uncertain including future cash flows, the appropriate discount rate and other inputs. Different assumptions for these inputs or valuation methodologies could create materially different results.
Property, Plant and Equipment
Annually, property, plant and equipment lives are reviewed to ensure that the estimated useful lives are appropriate. The estimated useful lives of property, plant and equipment is a critical accounting estimate because changing the lives of assets can result in larger or smaller charges for depreciation expense. Factors used in determining useful lives include technology changes, regulatory requirements, obsolescence and type of use. We did not change the useful lives of any property, plant and equipment in the year ended September 30, 2007.
We review long-lived assets for impairment whenever events or circumstances indicate that the carrying amount may not be fully recoverable. During the year ended September 30, 2007 the Company wrote off approximately $24,249 in fixed assets due to the impairment of the value and the ceasing of operation of dbsXmedia.
Liquidity and Capital Resources
As of September 30, 2007, the Company had cash and cash equivalents of -0-. The Company was unable to satisfy current debts, and is in default in its loan obligations. The focus of the Company during the fiscal year ending September 30, 2007 has been to significantly reduce accrued and outstanding liabilities and debt.
Net cash used in operating activities was $112,671 for the fiscal year ended September 30, 2007 compared with $167,223 for the fiscal year ended September 30, 2006.
As of September 30, 2007 the Stockholders' Deficit was ($2,550,328) compared with September 30, 2006, of ($3,149,820). At September 30, 2007, we had a negative working capital (current assets minus current liabilities) of ($2,554,341) compared with negative working capital of approximately ($3,190,782) at September 30, 2006. The improvement is the result of the focus of the Company during the fiscal year ending September 30, 2007 to significantly reduce accrued and outstanding liabilities and debt.
There is a significant working capital deficit. Additional funding is required in order to sustain our current operations. There is limited cash flow from current operations. We are attempting to secure debt and equity funding from external sources, including existing shareholders. We may not be able to obtain additional sources of financing. Funding is required to first satisfy existing debts and current operational expenses.
If our revenue from operations and funds raised are not sufficient to implement our business plan, we will be required to raise money from other sources. Other sources of funds may not be available or may be available only on terms that are unfavorable to us. If we are unable to raise sufficient funds, the implementation of our Plan of Operation will be delayed and we may cease operations.
Going concern
The Company and its Subsidiaries' consolidated financial statements have been prepared on the basis that it will continue as a going concern, which contemplates the realization of asset values and the satisfaction of liabilities in the normal course of business. Certain conditions indicate that the Company may be unable to continue as a going concern as follows:
- The inability of the company to fund current operations and satisfy its current debts when due.
- The current default of its loans from shareholders.
- The inability to fund acquisition opportunities that could provide operational cash flow for the operation going forward.
The Company's ability to continue as a going concern is dependent upon increasing its revenues and gross profit margins to cover cost of services and other operating expenses, generating positive cash flows from operations, obtaining debt or equity capital to fund any negative operating cash flows and returning the Company to profitable operations. In this connection, the Company has adopted the following operating and management plans in order to provide positive cash flow from operations and fiscal year 2008:
Raise additional capital or secure funding from credit sources.
Expand and develop its Business TV business with existing customer base and additional contracts for new services.
Continue to develop and expand its digital signage business through targeted marketing initiatives in both the US and Europe.
Continue overall cost and expense control and adoption of efficient service and equipment roll-out approaches resulting in improved gross profits and reduced operating expenses.
Expand operation and revenue base through an aggressive acquisition program of profitable companies with operation and services with synergy to its current operation.
Develop strategic partnerships with major companies in the area of secure wireless communications, installation, and equipment maintenance supporting the Company's strategy. This strategic initiative is believed to provide increased revenues and result in reduced operating expenses.
Develop strategic partnerships with major companies providing content and advertising services for the Company's digital signage operation roll-out.
Although the results of these actions cannot be predicted with any degree of certainty, management believes that if the Company can continue to increase its revenues and gross profit margins, reduce expenses, and can obtain additional debt or equity financing to fund any negative cash flow from operations in 2008, the Company has the ability ultimately to return to profitability.
Off-Balance Sheet Arrangements
At September 30, 2007, there were none issued and outstanding.
Plan of Operation
Ariel Way, Inc. is a technology and services company for highly secure global communications and digital signage solutions and technologies. We are focused on developing innovative and secure technologies, acquiring and growing profitable advanced technology companies and global communications service providers and creating strategic alliances with companies in complementary product lines and service industries.
During fiscal year 2007, our communications solutions were provided by our subsidiary Ariel Way Media, Inc., a Delaware corporation and its subsidiary Ariel Way Media, Ltd., a U.K. corporation, that provided solutions for Business Television (BTV) delivered over satellite networks. As of July 2007, we discontinued our BTV services to focus entirely on the development and operation of a network for advanced digital signage solutions and services. Our planned digital signage network includes technologies using LCD and plasma flat screen displays as a new platform for companies to promote and advertise products and services to targeted audiences as they shop, work and play in malls, banks and other strategic locations. This network that is based on transmission over satellite, wireless and the Internet, is also intended to be used for corporate communications and training activities based on our previous experience in the operation of Business Television.
We have embarked on building on the experience gained from the previous BTV operation and expanding into the dynamic digital signage business through our subsidiary company Ariel Way Media. However, if revenue and cash provided by operations do not outpace our expenses, if economic conditions weaken or if competitive pressures increase, our ability to meet our debt obligations and our financial condition could be materially and adversely affected, thereby potentially adversely affecting our credit ratings, our ability to access the capital markets and our compliance with debt covenants.
We are pursuing both acquisitions and strategic alliances to leverage our strategy of creating a technology and services company for digital signage and highly secure global communications solutions and technologies. Our objectives are to create high margin revenues and shareholder value, expand our reach in the global market for digital signage and highly secure global communications solutions and technologies and position us to play a more visible role in providing next generation highly secure communications digital signage solutions, products, services and technologies.
In order to implement our overall business plan including both the full development of a digital signage business, we intend to attempt to raise at least $10,000,000 over the next 12 months in order to fund:
Expenses associated with acquisitions of companies;
Investment in laboratory facilities including test and simulation equipment;
Acquisition or licensing of certain intellectual property related to the development of a nationwide digital signage network and highly secure communications technology and software development technology;
Compensation for employees and consultants;
Legal and accounting fees and other general administrative overhead;
General working capital purposes
In addition, we may need additional funds if we use a greater percentage of cash rather than stock in connection with future acquisitions.
New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The scope of SFAS No. 123R includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS No. 123R replaces SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in APB No. 25, as long as the footnotes to the financial statements disclosed what net income would have been had the preferable fair-value-based method been used. The impact of this SFAS is fully discussed in Note 2 to the Financial Statements as of September 30, 2007 and 2006.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No.3, Reporting Accounting Changes in Interim Financial Statements. This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed.
Inflation
Our monetary assets, consisting primarily of cash and receivables, and our non-monetary assets, consisted primarily of intangible assets and goodwill, are not affected significantly by inflation. We believe that replacement costs of equipment, furniture and leasehold improvements will not materially affect our operations. However, the rate of inflation affects our expenses, such as those for employee compensation and costs of network services, which may not be readily recoverable in the price of services offered by us.
RISK FACTORS
We are subject to various risks that may materially harm our business, financial condition and results of operations. You should carefully consider the risks and uncertainties described below and the other information in this filing before deciding to purchase our common stock. If any of these risks or uncertainties actually occur, our business, financial condition or operating results could be materially harmed. In that case, the trading price of our common stock could decline and you could loose all or part of your investment.
Risks Related To Our Business
We are a technology company with a revised and new and unproven enterprise technology model and a short operating history, which makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment.
We have only a limited operating history with our revised and new business model upon which to base an evaluation of our current business and future prospects. Our limited operating history with the new business model makes an evaluation of our business and prospects very difficult. You must consider our business and prospects in light of the risks and difficulties we may encounter as a developing company with a revised and new business model in the rapidly evolving market for technology and services supporting the business of highly secure global communications. These risks and difficulties include, but are not limited to, the following:
our revised and new and unproven business and technology model;
a limited number of service offerings and risks associated with developing new product and service offerings;
the difficulties we may face in managing rapid growth in personnel and operations;
a failure of our physical infrastructure or internal systems caused by a denial of service, third-party attack, employee error or malfeasance, or other causes;
a general failure of satellite services and the Internet that impairs our ability to deliver our service;
a loss or breach of confidentiality of customer data;
the negative impact on our brand, reputation or trustworthiness caused by any significant unavailability of our service;
the systematic failure of a core component of our service from which it would be difficult for us to recover;
the timing and success of new service introductions and new technologies by our competitors;
our ability to acquire and merge subsidiaries in a highly competitive market; and
drastic changes in the regulatory environment that could have an adverse impact in the Telecommunications industry.
We may not be able to successfully address any of these risks or others. Failure to adequately do so could force us to curtail or cease our business operations.
We have previous years lost money and we may again experience losses in the near term, which means that we may not be able to continue to operate as a going concern unless we obtain additional funding
We have previous years lost money. In the fiscal year ended September 30, 2007 we had a net income of $599,491 and for the fiscal year ended September 30, 2006 we had a net loss of ($3,069,411). Future losses may occur. Accordingly, we are experiencing liquidity and cash flow problems and we may not be able to raise additional capital as needed and on acceptable terms. No assurances can be given that we will be successful in reaching or maintaining profitable operations; or that we will be able to raise or borrow adequate funds to execute our business plan and consummate any future acquisitions.
There is substantial doubt about our ability to continue as a going concern.
As of September 30, 2007, the Company's independent public accounting firm issued a "going concern opinion" wherein they stated that the accompanying financial statements were prepared assuming the Company will continue as a going concern. As discussed in Note 11 to the financial statements as of September 30, 2007, the Company did not generate sufficient cash flows from revenues during the year ended September 30, 2007, to fund its operations. Also at September 30, 2007, the Company had negative net working capital of ($2,554,341). These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plan in regard to these matters is discussed in Note 10 to the accompanying financial statements as of September 30, 2007. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Unless the Company is successful in generating additional sources of revenue, or obtaining additional capital, or restructuring its business, the Company is at risk of ceasing operations or filing bankruptcy.
We have a material weakness in internal controls due to a limited segregation of duties, and if we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting which could harm the trading price of our stock.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Inferior internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. During the year ended September 30, 2007, we reduced our staffing in order to conserve cash, as our level of business activity declined. As a result, there is very limited segregation of duties, this is a material weakness in internal controls. However, we have implemented procedures to both limit access to bank accounts and to segregate the approval of invoices from disbursements of cash. However, with only five employees and consultants at the Company, segregation of duties is not practicable.
We have historically generated revenue which has not been adequate to support our full operation and this may continue in the future, which means that we may not be able to continue operations unless we can increase our generated revenue. Further, we ceased the operations of two locations and future revenue could be limited.
We have generated revenue from operations; however, if we do not begin generating more revenue we may have to cease operations. As of September 30, 2007, we had an accumulated deficit of ($5,167,535). In order to become profitable, we will need to generate revenues to offset our cost of operations and general and administrative expenses. We may not achieve or sustain our revenue or profit objectives and our losses may increase in the future and ultimately, we may have to cease operations.
Our operating results are not possible to predict because we have limited operations. As a result, we cannot determine if we will be successful in our proposed plan of operation. Accordingly, we cannot determine what the future holds for our proposed plan of business. As such an investment in our business is extremely risky and could result in the entire loss of your investment.
We will need to raise additional capital to continue our operations and consummate any future acquisitions or we may be unable to fund our operations, promote our products or develop our technology
We have relied on external financing to fund our operations and acquisitions to date. Such financing has historically come from a combination of borrowings . . .
Jan 14, 2008
(c) 1995-2008 Cybernet Data Systems, Inc. All Rights Reserved
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Edgar Online
5:13 p.m. 01/14/2008
(EDGAR Online via COMTEX) -- Item 6. Management's Discussion and Analysis or Plan of Operation
The following is a discussion and analysis of the results of operations and financial position as of and for the two years ended September 30, 2007 and the factors that could affect our future financial condition and results of operations. Historical results may not be indicative of future performance.
This discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this 10-KSB. Our consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles. All references to dollar amounts in this section are in United States dollars.
Revenue and Expenses
Overall Operating Results:
Revenue was $922,221 and $2,459,012 for the fiscal years ended September 30, 2007 and 2006 respectively. The reduced revenue resulted from the ceasing of the operation of dbsXmedia in both the US and the UK in August 2006, and our reduced Business TV operation in the UK through Ariel Way Media. This operation was terminated in June 2007. Gross profit for the fiscal year ended September 30, 2007 was $201,135, compared to a gross profit of $35,290 for the fiscal year ended September 30, 2006. The imroved margin for 2007 was due to substantial cost reductions as a result of negotiated lower satellite service charges incurred related to the satellite provider.
Total operating expenses were $841,415 and $3,024,692 for the fiscal years ended September 30, 2007 and 2006. The significantly reduced operating expenses from 2006 to 2007 were due to an overall reduction of the operational organization. Salaries decreased from $473,957 to $40,428 in 2006 to 2007 respectively, professional fees decreased from $840,411 to $610,096 in 2006 to 2007 respectively, and rent decreased from $414,468 to $51,325 in 2006 to 2007 respectively. Bad debt expense decreased from $268,026 to -0- in 2006 to 2007 respectively, and loss on conditional guarantee no longer applied due to settlement with Loral Skynet resulting in a reduction from $303,328 to -0- in 2006 to 2007 respectively. Further, during year 2007, there were no expenses for the issuance of options or warrants, since none were issued during the year.
As of September 30, 2007 cash and cash equivalents was -0- compared to $46,050 as of September 30, 2006. Cash balances decreased as the company worked to satisfy substantial outstanding debts. As of September 30, 2007, accounts payable and accrued expenses were $2,109,976, compared to September 30, 2006 balances of $2,889,260. This reduction was due to substantial effort in reducing liabilities and debt during the fiscal year ended September 30, 2007 as a result of a settlement with Loral Skynet, the liquidation of dbsXmedia, Ltd (UK), the ceasing of operation of dbsXmedia (US), and the cancellation of other debt and liabilities. We intend to continue to significantly reduce our liabilities and debt.
Operations and Net Income
The net income for the fiscal year ended September 30, 2007 was $599,491 compared to a net loss of ($3,069,411) for the fiscal year ended September 30, 2006. The change to net income compared with previous year's losses were the result of other income of $1,240,797 recorded as a result of significant debt and liability reductions to include a settlement of significant debt and liability to Loral Skynet, the liquidation of dbsXmedia, Ltd (UK), the ceasing of operation of dbsXmedia (US), and the cancellation of other accrued debt and liabilities. We intend to continue to significantly reduce our liabilities and debt.
As of September 30, 2007 the accumulated deficit was reduced to ($5,167,535) compared with ($5,767,026) September 30, 2006. This accumulated deficit may, on a limited basis, be offset against future taxable income. There are limitations on the amount of net operating loss carryforwards that can be used due to the change in the control of the ownership as a result of our stock exchange transaction on February 2, 2005 of the now wholly-owned Old Ariel Way subsidiary.
Application of Critical Accounting Policies
We prepare our consolidated financial statement in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Our significant accounting policies are discussed in Note 2 to the consolidated financial statements.
We consider the accounting policies related to revenue and related cost recognition, valuation of goodwill and other intangible assets and accounting for income taxes to be critical to the understanding of our results of operations. Critical accounting policies include the areas where we have made what we consider to be particularly subjective or complex judgments in making estimates and where these estimates can significantly impact our financial results under different assumptions and conditions. The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience, where available, and on various other assumptions and information that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from estimates under different assumptions or conditions.
Management believes the following reflect its more significant accounting policies and estimates used in the preparation of its consolidated financial statements. Our senior management has discussed the development of each of the following accounting policies and estimates and the following disclosures with the audit committee of our board of directors.
Goodwill
We had no recorded goodwill and we reported no goodwill impairment during the fiscal year ended September 30, 2007.
Goodwill must be reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. There can be no assurance that upon review at a later date material impairment charges will not be required.
The intangible asset impairment test consists of comparing the fair value of the intangible asset to the carrying amount of the intangible asset. If the carrying amount exceeds the fair value, an impairment loss is recognized for the difference. The goodwill impairment test is a two-step process. The first step compares the fair value of the goodwill unit to its carrying value. If the carrying amount exceeds the fair value, the second step of the test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of the goodwill with the carrying amount of that goodwill. The more complete methodology to calculate the implied fair value of goodwill, is that an enterprise allocates the fair value of a reporting unit to all of the assets and liabilities of that reporting unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value was the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities of the reporting unit is the implied fair value of goodwill. If the carrying amount exceeds the implied fair value, an impairment loss is recognized for that difference.
The fair value of an intangible asset, such as a software technology license, and reporting unit goodwill is the amount at which that asset or reporting unit could be bought or sold in a current transaction between willing parties. Therefore, quoted market prices in active markets are the best evidence of fair value and should be used when available. If quoted market prices are not available, the estimate of fair value is based on the best information available, including prices for similar assets and the use of other valuation techniques. Other valuation techniques include present value analysis, multiples of earnings or revenue or a similar performance measure. The use of these techniques involves assumptions by management about factors that are highly uncertain including future cash flows, the appropriate discount rate and other inputs. Different assumptions for these inputs or valuation methodologies could create materially different results.
Property, Plant and Equipment
Annually, property, plant and equipment lives are reviewed to ensure that the estimated useful lives are appropriate. The estimated useful lives of property, plant and equipment is a critical accounting estimate because changing the lives of assets can result in larger or smaller charges for depreciation expense. Factors used in determining useful lives include technology changes, regulatory requirements, obsolescence and type of use. We did not change the useful lives of any property, plant and equipment in the year ended September 30, 2007.
We review long-lived assets for impairment whenever events or circumstances indicate that the carrying amount may not be fully recoverable. During the year ended September 30, 2007 the Company wrote off approximately $24,249 in fixed assets due to the impairment of the value and the ceasing of operation of dbsXmedia.
Liquidity and Capital Resources
As of September 30, 2007, the Company had cash and cash equivalents of -0-. The Company was unable to satisfy current debts, and is in default in its loan obligations. The focus of the Company during the fiscal year ending September 30, 2007 has been to significantly reduce accrued and outstanding liabilities and debt.
Net cash used in operating activities was $112,671 for the fiscal year ended September 30, 2007 compared with $167,223 for the fiscal year ended September 30, 2006.
As of September 30, 2007 the Stockholders' Deficit was ($2,550,328) compared with September 30, 2006, of ($3,149,820). At September 30, 2007, we had a negative working capital (current assets minus current liabilities) of ($2,554,341) compared with negative working capital of approximately ($3,190,782) at September 30, 2006. The improvement is the result of the focus of the Company during the fiscal year ending September 30, 2007 to significantly reduce accrued and outstanding liabilities and debt.
There is a significant working capital deficit. Additional funding is required in order to sustain our current operations. There is limited cash flow from current operations. We are attempting to secure debt and equity funding from external sources, including existing shareholders. We may not be able to obtain additional sources of financing. Funding is required to first satisfy existing debts and current operational expenses.
If our revenue from operations and funds raised are not sufficient to implement our business plan, we will be required to raise money from other sources. Other sources of funds may not be available or may be available only on terms that are unfavorable to us. If we are unable to raise sufficient funds, the implementation of our Plan of Operation will be delayed and we may cease operations.
Going concern
The Company and its Subsidiaries' consolidated financial statements have been prepared on the basis that it will continue as a going concern, which contemplates the realization of asset values and the satisfaction of liabilities in the normal course of business. Certain conditions indicate that the Company may be unable to continue as a going concern as follows:
- The inability of the company to fund current operations and satisfy its current debts when due.
- The current default of its loans from shareholders.
- The inability to fund acquisition opportunities that could provide operational cash flow for the operation going forward.
The Company's ability to continue as a going concern is dependent upon increasing its revenues and gross profit margins to cover cost of services and other operating expenses, generating positive cash flows from operations, obtaining debt or equity capital to fund any negative operating cash flows and returning the Company to profitable operations. In this connection, the Company has adopted the following operating and management plans in order to provide positive cash flow from operations and fiscal year 2008:
Raise additional capital or secure funding from credit sources.
Expand and develop its Business TV business with existing customer base and additional contracts for new services.
Continue to develop and expand its digital signage business through targeted marketing initiatives in both the US and Europe.
Continue overall cost and expense control and adoption of efficient service and equipment roll-out approaches resulting in improved gross profits and reduced operating expenses.
Expand operation and revenue base through an aggressive acquisition program of profitable companies with operation and services with synergy to its current operation.
Develop strategic partnerships with major companies in the area of secure wireless communications, installation, and equipment maintenance supporting the Company's strategy. This strategic initiative is believed to provide increased revenues and result in reduced operating expenses.
Develop strategic partnerships with major companies providing content and advertising services for the Company's digital signage operation roll-out.
Although the results of these actions cannot be predicted with any degree of certainty, management believes that if the Company can continue to increase its revenues and gross profit margins, reduce expenses, and can obtain additional debt or equity financing to fund any negative cash flow from operations in 2008, the Company has the ability ultimately to return to profitability.
Off-Balance Sheet Arrangements
At September 30, 2007, there were none issued and outstanding.
Plan of Operation
Ariel Way, Inc. is a technology and services company for highly secure global communications and digital signage solutions and technologies. We are focused on developing innovative and secure technologies, acquiring and growing profitable advanced technology companies and global communications service providers and creating strategic alliances with companies in complementary product lines and service industries.
During fiscal year 2007, our communications solutions were provided by our subsidiary Ariel Way Media, Inc., a Delaware corporation and its subsidiary Ariel Way Media, Ltd., a U.K. corporation, that provided solutions for Business Television (BTV) delivered over satellite networks. As of July 2007, we discontinued our BTV services to focus entirely on the development and operation of a network for advanced digital signage solutions and services. Our planned digital signage network includes technologies using LCD and plasma flat screen displays as a new platform for companies to promote and advertise products and services to targeted audiences as they shop, work and play in malls, banks and other strategic locations. This network that is based on transmission over satellite, wireless and the Internet, is also intended to be used for corporate communications and training activities based on our previous experience in the operation of Business Television.
We have embarked on building on the experience gained from the previous BTV operation and expanding into the dynamic digital signage business through our subsidiary company Ariel Way Media. However, if revenue and cash provided by operations do not outpace our expenses, if economic conditions weaken or if competitive pressures increase, our ability to meet our debt obligations and our financial condition could be materially and adversely affected, thereby potentially adversely affecting our credit ratings, our ability to access the capital markets and our compliance with debt covenants.
We are pursuing both acquisitions and strategic alliances to leverage our strategy of creating a technology and services company for digital signage and highly secure global communications solutions and technologies. Our objectives are to create high margin revenues and shareholder value, expand our reach in the global market for digital signage and highly secure global communications solutions and technologies and position us to play a more visible role in providing next generation highly secure communications digital signage solutions, products, services and technologies.
In order to implement our overall business plan including both the full development of a digital signage business, we intend to attempt to raise at least $10,000,000 over the next 12 months in order to fund:
Expenses associated with acquisitions of companies;
Investment in laboratory facilities including test and simulation equipment;
Acquisition or licensing of certain intellectual property related to the development of a nationwide digital signage network and highly secure communications technology and software development technology;
Compensation for employees and consultants;
Legal and accounting fees and other general administrative overhead;
General working capital purposes
In addition, we may need additional funds if we use a greater percentage of cash rather than stock in connection with future acquisitions.
New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The scope of SFAS No. 123R includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS No. 123R replaces SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in APB No. 25, as long as the footnotes to the financial statements disclosed what net income would have been had the preferable fair-value-based method been used. The impact of this SFAS is fully discussed in Note 2 to the Financial Statements as of September 30, 2007 and 2006.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No.3, Reporting Accounting Changes in Interim Financial Statements. This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed.
Inflation
Our monetary assets, consisting primarily of cash and receivables, and our non-monetary assets, consisted primarily of intangible assets and goodwill, are not affected significantly by inflation. We believe that replacement costs of equipment, furniture and leasehold improvements will not materially affect our operations. However, the rate of inflation affects our expenses, such as those for employee compensation and costs of network services, which may not be readily recoverable in the price of services offered by us.
RISK FACTORS
We are subject to various risks that may materially harm our business, financial condition and results of operations. You should carefully consider the risks and uncertainties described below and the other information in this filing before deciding to purchase our common stock. If any of these risks or uncertainties actually occur, our business, financial condition or operating results could be materially harmed. In that case, the trading price of our common stock could decline and you could loose all or part of your investment.
Risks Related To Our Business
We are a technology company with a revised and new and unproven enterprise technology model and a short operating history, which makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment.
We have only a limited operating history with our revised and new business model upon which to base an evaluation of our current business and future prospects. Our limited operating history with the new business model makes an evaluation of our business and prospects very difficult. You must consider our business and prospects in light of the risks and difficulties we may encounter as a developing company with a revised and new business model in the rapidly evolving market for technology and services supporting the business of highly secure global communications. These risks and difficulties include, but are not limited to, the following:
our revised and new and unproven business and technology model;
a limited number of service offerings and risks associated with developing new product and service offerings;
the difficulties we may face in managing rapid growth in personnel and operations;
a failure of our physical infrastructure or internal systems caused by a denial of service, third-party attack, employee error or malfeasance, or other causes;
a general failure of satellite services and the Internet that impairs our ability to deliver our service;
a loss or breach of confidentiality of customer data;
the negative impact on our brand, reputation or trustworthiness caused by any significant unavailability of our service;
the systematic failure of a core component of our service from which it would be difficult for us to recover;
the timing and success of new service introductions and new technologies by our competitors;
our ability to acquire and merge subsidiaries in a highly competitive market; and
drastic changes in the regulatory environment that could have an adverse impact in the Telecommunications industry.
We may not be able to successfully address any of these risks or others. Failure to adequately do so could force us to curtail or cease our business operations.
We have previous years lost money and we may again experience losses in the near term, which means that we may not be able to continue to operate as a going concern unless we obtain additional funding
We have previous years lost money. In the fiscal year ended September 30, 2007 we had a net income of $599,491 and for the fiscal year ended September 30, 2006 we had a net loss of ($3,069,411). Future losses may occur. Accordingly, we are experiencing liquidity and cash flow problems and we may not be able to raise additional capital as needed and on acceptable terms. No assurances can be given that we will be successful in reaching or maintaining profitable operations; or that we will be able to raise or borrow adequate funds to execute our business plan and consummate any future acquisitions.
There is substantial doubt about our ability to continue as a going concern.
As of September 30, 2007, the Company's independent public accounting firm issued a "going concern opinion" wherein they stated that the accompanying financial statements were prepared assuming the Company will continue as a going concern. As discussed in Note 11 to the financial statements as of September 30, 2007, the Company did not generate sufficient cash flows from revenues during the year ended September 30, 2007, to fund its operations. Also at September 30, 2007, the Company had negative net working capital of ($2,554,341). These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plan in regard to these matters is discussed in Note 10 to the accompanying financial statements as of September 30, 2007. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Unless the Company is successful in generating additional sources of revenue, or obtaining additional capital, or restructuring its business, the Company is at risk of ceasing operations or filing bankruptcy.
We have a material weakness in internal controls due to a limited segregation of duties, and if we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting which could harm the trading price of our stock.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Inferior internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. During the year ended September 30, 2007, we reduced our staffing in order to conserve cash, as our level of business activity declined. As a result, there is very limited segregation of duties, this is a material weakness in internal controls. However, we have implemented procedures to both limit access to bank accounts and to segregate the approval of invoices from disbursements of cash. However, with only five employees and consultants at the Company, segregation of duties is not practicable.
We have historically generated revenue which has not been adequate to support our full operation and this may continue in the future, which means that we may not be able to continue operations unless we can increase our generated revenue. Further, we ceased the operations of two locations and future revenue could be limited.
We have generated revenue from operations; however, if we do not begin generating more revenue we may have to cease operations. As of September 30, 2007, we had an accumulated deficit of ($5,167,535). In order to become profitable, we will need to generate revenues to offset our cost of operations and general and administrative expenses. We may not achieve or sustain our revenue or profit objectives and our losses may increase in the future and ultimately, we may have to cease operations.
Our operating results are not possible to predict because we have limited operations. As a result, we cannot determine if we will be successful in our proposed plan of operation. Accordingly, we cannot determine what the future holds for our proposed plan of business. As such an investment in our business is extremely risky and could result in the entire loss of your investment.
We will need to raise additional capital to continue our operations and consummate any future acquisitions or we may be unable to fund our operations, promote our products or develop our technology
We have relied on external financing to fund our operations and acquisitions to date. Such financing has historically come from a combination of borrowings . . .
Jan 14, 2008
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