15-May-2009
Quarterly Report
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Regarding Forward-Looking Information
Under the Private Securities Litigation Reform Act of 1995, companies are provided with a "safe harbor" for making forward-looking statements about the potential risks and rewards of their strategies. Forward-looking statements often include the words "believe", "expect", "anticipate", "intend", "plan", "estimate" or similar expressions. In this Form 10-Q, forward-looking statements also include:
? statements about our business plans; ? statements about the potential for the development, regulatory approval and public acceptance of new services;
? estimates of future financial performance; ? predictions of national or international economic, political or market conditions;
? statements regarding other factors that could affect our future operations or financial position; and
? other statements that are not matters of historical fact.
These statements may be found under "Management's Discussion and Analysis or Plan of Operation" as well as in this Form 10-Q. Our ability to achieve our goals depends on many known and unknown risks and uncertainties, including changes in general economic and business conditions. These factors could cause our actual performance and results to differ materially from those described or implied in forward-looking statements.
These forward looking statements speak only as of the date of this Form 10-Q. We believe it is in the best interest of our investors to use forward-looking statements in discussing future events. However, we are not required to, and you should not rely on us to, revise or update these statements or any factors that may materially affect actual results, whether as a result of new information, future events or otherwise. You should carefully review the risk factors described in this Form 10-Q and also review the other documents we file from time to time with the Securities and Exchange Commission ("SEC").
Results of Operations
Nine Months Ended March 31, 2009 and 2008
For the nine months ended March 31, 2009 the Company had revenue of $2,811,328, which includes non-cash barter revenue of $172,757, and incurred costs of sales of $1,594,589 and general and administrative expenses of $2,468,407. Included in general and administrative expenses is a non-cash charge of $1,394,217, representing the value of compensatory common stock and warrants for services provided by consultants. This resulted in a net loss of $1,258,405, as compared with the nine months ended March 31, 2008 in which the Company had revenue of $952,562, incurred costs of sales of $736,419 and general and administrative expenses of $4,128,770, and interest income of $11,047, and interest expense of $10,174, offset by derivative income of $2,282,497, resulting in a net loss of $1,629,257.
Three Months Ended March 31, 2009 and 2008
For the three months ended March 31, 2009 the Company had revenue of $1,825,421, which includes non-cash barter revenue of $54,286, and incurred costs of sales of $959,542 and general and administrative expenses of $910,591. Included in general and administrative expenses is a non-cash charge of $302,011, representing the value of compensatory common stock and warrants for services provided by consultants. This resulted in a net loss of $116,012, as compared with the three months ended March 31, 2008 in which the Company had revenue of $565,630, incurred costs of sales of $461,292 and general and administrative expenses of $1,274,478 and derivative income of $253,853. Included in general and administrative expenses is a non-cash charge of $462,259, representing the value of common shares issued for services provided by consultants. This resulted in a net loss of $923,225.
Financial Condition, Liquidity and Capital Resources
The Company has negative working capital as of March 31, 2009 of $902,398. The Company retains consultants who are also significant stockholders of the Company to perform development and public company reporting activities in exchange for stock of the Company. At June 30, 2008, we had a working capital deficiency of $960,821. Our continuation as a going concern will require that we raise significant additional capital.
Absent continued issuances of common stock for services to our consultants and continued advances by stockholders of the Company, the Company cannot manufacture its golf shaft or fishing product lines or market its products based on its technologies. The Company is actively searching for capital in addition to $300,000 that management has raised in January 2009 to implement its business plans, supply the Company with products for distribution, and develop collateral materials for its potential customer base. There can be no assurance that such capital will be raised on terms acceptable to the Company and if this capital is raised, it, may cause significant dilution to the Company's stockholders.
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Recent Accounting Pronouncements
See Note 3 "Recent Accounting Pronouncements Affecting the Company" in the Notes to Condensed Consolidated Financial Statements in Item 1 for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein.
Dividend Policy
The Company has not declared or paid any cash dividends on its common stock since its inception and does not anticipate the declaration or payment of cash dividends in the foreseeable future. The Company intends to retain earnings, if any, to finance the development and expansion of its business. The Company is prohibited from paying dividends on common stock as long as there are any unpaid accrued dividends due to the Series B Convertible Stock shareholders. Therefore, there can be no assurance that dividends of any kind will ever be paid.
Effect of Inflation
Management believes that inflation has not had a material effect on its operations for the periods presented.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions 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 that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Stock-Based Compensation:
The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Statement of Financial Accounting Standards No. 123(R), Shared-Based Payments (FAS 123(R)). Under FAS 123(R), compensation cost is calculated on the date of the grant using the Black Scholes option-pricing formula. The compensation expense is then amortized over the vesting period. The Company uses the Black-Scholes option-pricing formula in determining the fair value of the Company's options at the grant date and applies judgment in estimating the key assumptions that are critical to the model such as the expected term, volatility and forfeiture rate of an option. The Company's estimate of these key assumptions is based on historical information and judgment regarding market factors and trends. If actual results are not consistent with the Company's assumptions and judgments used in estimating the key assumptions, the Company may be required to record additional compensation or income tax expense, which could have a material impact on the Company's financial position and results of operations.
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Allowance for Doubtful Accounts:
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, which would be charged against earnings.
Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax liabilities together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. The most significant tax assets are available net operating loss carryforwards. . We must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, a valuation allowance must be established. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, the impact will be included in the tax provision in the statement of operations. Significant management judgment is required to determine our provision for income taxes and the recoverability of the deferred tax asset. It is based on our estimates of future taxable income by jurisdiction in which we operate and the period over which the deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, a valuation allowance may need to be established which could result in a tax provision equal to the carrying value of the deferred tax assets.
Property and Equipment
We record property and equipment at cost and depreciate that cost over the estimated useful life of the asset on a straight-line basis. Ordinary maintenance and repairs are expensed as incurred and improvements that significantly increase the useful life of property and equipment are capitalized.
We test property and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future net cash flows expected to be generated by the asset. If such assets are deemed to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets based on the projected net cash flows discounted at a rate commensurate with the risk of the assets.
