AI
Monday, August 23, 2010 5:20:48 PM
Bagrat, not sure how to sticky, but here is the whole document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2010
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 333-156409
Ad Systems Communications, Inc.
(Exact name of Registrant as specified in its charter)
Nevada N/A
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
495 State Street Suite # 459, Salem, Oregon 97301
(Address of principal executive offices)
971-239-4166
(Registrant’s telephone number)
_______________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
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 [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
[ ] Large accelerated filer Accelerated filer [ ] Non-accelerated filer
[X] Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 316,800,000 common shares as of July 19, 2010.
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TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 8
Item 4T: Controls and Procedures 8
PART II – OTHER INFORMATION
Item 1: Legal Proceedings 9
Item 1A: Risk Factors 9
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 9
Item 3: Defaults Upon Senior Securities 9
Item 4: Removed and Reserved 9
Item 5: Other Information 9
Item 6: Exhibits 9
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our financial statements included in this Form 10-Q are as follows:
F-1 Balance Sheet as of June 30, 2010 (unaudited) and December 31, 2009 (unaudited);
F-2 Statements of Operations for the three and six months ended June 30, 2010 and 2009 (unaudited);
F-3 Statement of Stockholders’ Equity (Deficit) for period from December 31, 2008 to June 30, 2010 (unaudited);
F-4 Statements of Cash Flows for the six months ended June 30, 2010 and 2009; and
F-5 Notes to Financial Statements;
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2010 are not necessarily indicative of the results that can be expected for the full year.
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AD SYSTEMS COMMUNICATIONS, INC.
Balance Sheets
(Unaudited)
ASSETS June 30,
2010 December 31,
2009
CURRENT ASSETS
Cash $ 100,028 $ 38,751
Refundable deposits 25,000 -
Trade accounts receivable, net 161,219 146,839
Total Current Assets 286,247 185,590
PROPERTY AND EQUIPMENT, net 28,500 -
TOTAL ASSETS $ 314,747 $ 185,590
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 140,909 $ 122,413
Accrued interest payable 43,815 78
Advance payable - related parties 607,175 550,000
Convertible notes payable, net 112,740 822
Total Current Liabilities 904,639 673,313
TOTAL LIABILITIES 904,639 673,313
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.001 per share 10,000,000 shares authorized; no shares issued and outstanding - -
Common stock; par value $0.001 per share 490,000,000 shares authorized; 316,800,000 shares issued and outstanding 316,800 316,800
Additional paid-in capital 222,652 (127,348)
Accumulated deficit (1,129,344) (677,175)
Total Stockholders' Equity (Deficit) (589,892) (487,723)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 314,747 $ 185,590
The accompanying notes are an integral part of these financial statements.
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AD SYSTEMS COMMUNICATIONS, INC.
Statements of Operations
(Unaudited)
For the Three Months Ended
June 30, For the Six Months Ended
June 30,
2010 2009 2010 2009
REVENUES $ 217,565 $ 127,062 $ 323,096 $ 219,043
COST OF SALES 54,487 31,400 86,182 58,342
GROSS PROFIT 163,078 95,662 236,914 160,701
OPERATING EXPENSES
Depreciation 661 - 1,323 -
Consulting fees 141,410 72,522 271,130 138,882
Professional fees 28,221 - 55,499 -
Bad debt expense 66,877 - 66,877 -
General and administrative 272,887 22,842 141,462 29,376
Total Operating Expenses 510,056 95,364 536,291 168,258
INCOME (LOSS) FROM OPERATIONS (346,978 ) 298 (299,377 ) (7,557)
OTHER INCOME (EXPENSES)
Interest expense (103,634 ) - (152,792 ) -
Total Other Income (Expenses) (103,634 ) - (152,792 ) -
LOSS BEFORE TAXES (450,612 ) 298 (452,169 ) (7,557)
Provision for Income Taxes - - - -
NET LOSS $ (450,612 ) $ 298 $ (452,169 ) $ (7,557)
BASIC AND DILUTED LOSS PER SHARE $ (0.00 ) $ 0.00 $ (0.00 ) $ (0.00)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 316,800,000 192,000,000 316,800,000 192,000,000
The accompanying notes are an integral part of these financial statements.
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AD SYSTEMS COMMUNICATIONS, INC.
Statements of Stockholders' Equity (Deficit)
(Unaudited)
Common Stock Additional
Paid-in Accumulated Total
Stockholders'
Equity
Shares Amount capital Deficit (Deficit)
Balance, December 31, 2008 192,000,000 $ 192,000 $ (17,548 ) $ (638,509 ) $ (464,057)
Recapitalization 124,800,000 124,800 (124,800 ) - -
Value of beneficial conversion feature - - 15,000 - 15,000
Net loss for the year
ended December 31, 2009 - - - (38,666 ) (38,666)
Balance, December 31, 2009 316,800,000 316,800 (127,348 ) (677,175 ) (487,723)
Value of beneficial conversion feature - - 350,000 - 350,000
Net loss for the six months ended
June 30, 2010 - - - (452,169 ) (452,169)
Balance, June 30, 2010 316,800,000 $ 316,800 $ 222,652 $ (1,129,344 ) $ (589,892)
The accompanying notes are an integral part of these financial statements.
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AD SYSTEMS COMMUNICATIONS, INC.
Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
2010 2009
OPERATING ACTIVITIES
Net loss $ (353,154 ) $ (7,557)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Amortization of beneficial conversion feature 111,918 -
Depreciation 1,323 -
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (81,257 ) (24,321)
(Increase) decrease in refundable deposits (25,000 ) -
Increase (decrease) in accounts payable 30,095 (47,589)
Net Cash Used in Operating Activities (316,075 ) (79,467)
INVESTING ACTIVITIES
Purchase of equipment (29,823 ) -
Net Cash Used in Investing Activities (29,823 ) -
FINANCING ACTIVITIES
Proceeds from convertible note payable 350,000 -
Proceeds from related party advances 57,175 64,850
Net Cash Provided by Financing Activities 407,175 64,850
NET INCREASE (DECREASE) IN CASH 61,277 (14,617)
CASH AT BEGINNING OF PERIOD 38,751 15,282
CASH AT END OF PERIOD $ 100,028 $ 665
CASH PAID FOR:
Interest $ - $ -
Income Taxes $ - $ -
NON CASH FINANCING ACTIVITIES: $ - $ -
The accompanying notes are an integral part of these financial statements.
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AD SYSTEMS COMMUNICATIONS, INC.
Condensed Notes to Financial Statements
June 30, 2010 and December 31, 2009
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2010, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2009 audited financial statements. The results of operations for the period ended June 30, 2010 is not necessarily indicative of the operating results for the full year.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
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AD SYSTEMS COMMUNICATIONS, INC.
Condensed Notes to Financial Statements
June 30, 2010 and December 31, 2009
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company issued 192,000,000 shares of its common stock upon its incorporation for the conversion of $174,452 of debt during the year ended December 31, 2009.
As of June 30, 2010 and December 31, 2009, the Company owed $607,175 and $550,000, respectively, to related parties for funds advanced for its operations. The advances are due upon demand, unsecured and accrue interest at 10% per annum.
NOTE 5- CONVERTIBLE DEBT
At June 30, 2010 and December 31, 2009, the Company had outstanding notes payable for $365,000 and $15,000, respectively. The notes are unsecured, accrue interest at 12% per annum and are due and payable upon demand. Interest expense for the six months ended June 30, 2010 was $13,435. Accrued interest as of June 30, 2010 and December 31, 2009 totaled $13,513 and $78, respectively.
The notes are convertible into shares of the Company’s common stock at $0.017 per share. The Company recorded $365,000 for the value of the beneficial conversion feature attached to the note payable. The amount allocated to the beneficial conversion feature has been recorded as additional paid-in capital and a related discount on the convertible promissory note, which discount was amortized as a non-cash charge to interest expense over the term of the note. As of June 30, 2010 and December 31, 2009, the carrying value of these notes, net of the discount, was $112,740 and $822, respectively. Interest expense from the amortization of the discount on the convertible promissory note was $111,918 and $822 for the period ended June 30, 2010 and the year ended December 31, 2009.
NOTE 6 – SIGNIFICANT EVENTS
Effective January 1, 2010, NanoAsia, Ltd. (NanoAsia) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ad Systems Communications, Inc., a privately held Oregon corporation (“Ad Systems”), and NanoAsia Acquisition Corp. (“Acquisition Sub”), a newly formed wholly-owned Nevada subsidiary. In connection with the closing of this merger transaction, Ad Systems merged with and into Acquisition Sub (the “Merger”) on February 11, 2010. As a result of the Merger, Ad Systems no longer exists and Acquisition Corp. became NanoAsia’s wholly-owned subsidiary. Pursuant to the Merger Agreement, the sole shareholder of Ad Systems immediately prior to the closing of the Merger exchanged all of the shares of Ad Systems for 192,000,000 (32,000,000 pre-split) shares of NanoAsia’s common stock. NanoAsia had 124,800,000 (20,800,000 pre-split) shares issued and outstanding prior to the Merger. Accordingly, the accompanying financial statements therefore reflect 192,000,000 (32,000,000 pre-split) shares outstanding prior to the Merger and 124,800,000 (20,800,000 pre-split) shares issued as a result of the merger. The accompanying financial statements also reflect the retirement of 307,200,000 (51,200,000 pre-split) shares owned by the former officers and directors of NanoAsia who agreed to purchase NanoAsia’s former nano-technology business in exchange for the cancellation and return all of their collective common stock into treasury and the forgiveness of debts owed.
The Company also entered into a convertible debt agreement for up to $750,000 of financing. The Company has received $365,000 of convertible debt proceeds as of June 30, 2010. The shareholder of the Company became the controlling shareholder of the combined entity. Accordingly, the transaction has been accounted for as a recapitalization of the Company. The number of shares outstanding and per share amounts has been restated to recognize the recapitalization.
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AD SYSTEMS COMMUNICATIONS, INC.
Condensed Notes to Financial Statements
June 30, 2010 and December 31, 2009
7 - COMMON STOCK TRANSACTIONS
Effective April 9, 2010 the Company’s Board of Directors approved a 8-for-1 forward stock dividend of the Company’s issued and outstanding common stock. The Company’s statements of stockholder’s equity have been retroactively restated to reflect the split. Prior to approval of the forward split the Company had a total of 6,600,000 issued and outstanding shares of $0.001 par value common stock. On the effective date of the forward split, the Company had total of 52,800,000 issued and outstanding shares of $0.001 par value common stock
NOTE 8 – SUBSEQUENT EVENTS
On July 7, 2010, the board of directors and majority shareholder approved an amendment to the articles of incorporation for the purpose of increasing the authorized common stock from 90,000,000 shares to 490,000,000 shares. The authorized shares of preferred stock were not affected.
The board of directors approved a 6 for 1 stock dividend with a record date of July 1, 2010. Each shareholder of record as of July 19, 2010, will received five additional shares of common stock for each share of common stock held. Each shareholder’s percentage of ownership in the company and his proportional voting power remains unchanged. The Company’s statements of stockholder’s equity have been retroactively restated to reflect the stock dividend.
In accordance with ASC 855, the Company’s management has reviewed all material events and there are no material subsequent events to report other those items listed above as of the date of this report.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
We are engaged in the business of developing, manufacturing, selling, and managing advertisement insertion hardware and software systems and services (our "Products" and “Services”). We have specifically targeted second and third tier cable TV operators that deploy national cable TV networks in the U.S. However, we do have plans to expand our operations to certain international markets.
Our Product enables local cable operators (our “Customers”) to insert advertising in both conventional and nontraditional cable TV systems. Our Product is a standalone inserter, capable of controlling up to 8 networks and sharing up to 4 playback devices for commercial insertion. While this technology meets our needs and the current needs of our customers, we intend to upgrade the insertion technology in order to cater to all-digital cable head ends, including IP TV, which is becoming increasingly popular. A second generation is planned, which is intended for the following application environments:
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1. Analog Insertion
2. MPEG-2 stream splicing
3. Digital Overlay
4. Digital Signage
Analog insertion is still the technology of today, but it is rapidly being displaced as new digital head ends drive costs downward. The response to this pressure is to include digital-into-digital splicing (also known as MPEG-2 stream splicing), which we expect to develop and offer as development funds become available. Digital overlay and signage represent growth markets for us in the future, once the cable market has become saturated.
Our Services to the operator consist of acquiring advertising spots from local, regional, and national advertisers; scheduling, running, and billing for playback time; installing and maintaining the associated hardware and software; providing ongoing support; and managing ad sales, all on a revenue share basis.
We are an independent provider of designated market area (“DMA”) based cable TV advertising sales and commercial delivery in the U.S. During the current reporting period, we have expanded into the following areas:
§ Lake Communication’s residential Cable TV systems in the Springfield, Missouri DMA.
§ KLiP Interactive LLC’s residential Cable TV systems in the Butte-Bozeman, Montana DMA.
§ Manchester Broadband, a cable TV provider in Manchester, Georgia.
§ Flint Cable TV Systems of Conifer, Georgia.
§ Jefferson County Cable Inc. in Toronto, Ohio.
§ South Central Communications, a cable TV provider in the Salt Lake City, Utah DMA.
§ Laurel Highland Total Communications a cable TV provider in the Pittsburgh, PA DMA.
We expect that our international expansion will initially focus on market opportunities in India and Latin America, followed by Canada. We intend to continue to focus the placement of our Products with independently-owned cable TV systems, franchised cable operators, colleges and university campuses, hotels, resorts, and other multi-dwelling-units (“MDUs”).
We provide ad-insertion technology and services to Customers who were previously unable to benefit from this technology due to the prohibitively high cost of most ad-insertion systems. Our hardware is significantly less expensive to produce than traditional systems, and we maintain ownership of the system when we place it with a Customer. Thus, our Customer’s experience no out-of-pocket expense; they simply split with us the additional revenue generated by our system.
Based on this model, we successfully completed a beta rollout to 12 sites in early 2008, and have since increased our customer base to 25 cable TV systems. This customer base is comprised of several Universities and small cable operators for an installed base of over 225,000 subscribers. We are ready to expand this customer base with 195 additional multi-year contracts that have already been signed, increasing our installed base to 824,400 in 2010, and 4,255,200 in 2011. Additionally, we have the potential of signing multiple five-year contracts which are pending execution, which, when and if concluded, would increase the company’s installed base to over 11,671,299 in 2012 and 22,135,200 in 2013. We anticipate monthly revenues to parallel industry averages once fully deployed, which is $4 to $6 per subscriber at this time.
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We feel that we can realize our revenue projections by completing the hundreds of contracts we already have. Additionally, we intend to increase this installed base by closing on some of thousands of potential future contracts.
Our offices are located at 495 State Street Suite # 459, Salem, Oregon, 97301.
Significant Equipment
We deploy a proprietary switch matrix and off the shelf computer servers embedded with our proprietary software.
We intend to pay our contracted manufacturer to build between 75 to100 new systems and network support equipment for us to deploy during 2010. The capital cost for acquisition and deployment of this equipment is expected to be approximately $600,000.
Our operations are currently implemented on a small number of servers, which will have to be increased in order to accommodate growth. The development effort is minimal, but we expect the capital for new server hardware to be approximately $45,000.
Results of Operations for the Three and Six Months Ended June 30, 2010 and 2009
Our revenues have increased in each fiscal period. We reported revenues of $127,062 during the three months ended June 30, 2009, increasing to $217,565 in 2010. We reported revenues of $219,043 during the six months ended June 30, 2009, increasing to $339,537 in 2010. Our steady increase in revenues is attributable to the addition of additional cable systems to our subscriber base and increased advertising revenues in our established cable systems. It takes approximately one year for a cable system to develop significant revenues after joining our system.
Our gross profit for the three months ended June 30, 2010 was $163,078, or approximately 75% of revenues. Gross profit for three months ended June 30, 2009 was $95,662, or approximately 75% of sales. Gross profit for the six months ended June 30, 2010 was $253,355, or approximately 75% of sales. Gross profit for six months ended June 30, 2009 was $160,701, or approximately 73% of sales. Our cost of revenues remained relatively constant in proportion to our increase in revenues for all periods mentioned.
General and administrative expenses have increased dramatically due to the cost of going public. General and administrative expenses increased to $272,887 during the three months June 30, 2010 from $95,364 in 2009, and increased to $468,090 during the six months ended June 30, 2010 from $168,258 in 2009. The major components of our increase in general and administrative expenses for the six months ended June 30, 2010 compared to the same period in 2009 are: compensation expense $306,663 vs. $138,882 and legal and accounting fees $72,699 vs. $-0-. The major components of our increase in general and administrative expenses for the three months ended June 30, 2010 compared to the same period in 2009 are: compensation expense $175,828 vs. $72,522 and legal and accounting fees $44,233 vs. $-0-.
We incurred a net loss of $214,104 for the three months ended June 30, 2010, compared with net income of $298 for the three months ended June 30, 2010. We incurred a net loss of $353,154 for the six months ended June 30, 2010, compared with a net loss of $7,557 for the six months ended June 30, 2009.
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Off Balance Sheet Transactions
We have had no off balance sheet transactions.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 of the Financial Statements.
Liquidity and Capital Resources
As of June 30, 2010, we had total current assets of $369,566 and total assets of $398,066. Our total current liabilities as of June 30, 2010 were $888,943. Thus, we had a working capital deficit of $519,377 as of June 30, 2010.
Operating activities used $299,633 in cash for the six months ended June 30, 2010. Our net loss of $353,154 combined with an increase in refundable deposits of $25,000 and increase in accounts receivable of $81,257 offset by an amortization of a beneficial conversion feature of $101,137 and increase in accounts payable of $57,318 was the primary reason for our negative operating cash flow. Our cash used in investing activities was $29,823 during the six months ended June 30, 2010 was for the purchase of equipment. Cash flows provided by financing activities during the six months ended June 30, 2010 was $407,175 represented by proceeds from convertible notes payable in the amount of $350,000 and proceeds from related party advances in the amount of $57,175.
We anticipate requiring $2,000,000 in order to implement the plan discussed herein and service the contracts, which we have already signed. Based upon our current financial condition, we do not have sufficient cash to operate our business at the planned level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
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Going Concern
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 4T. Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2010. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, J. Michael Heil. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2010, our disclosure controls and procedures are effective. There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2010.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods 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 our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Internal Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 1A: Risk Factors
A smaller reporting company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Removed and Reserved
Item 5. Other Information
None
Item 6. Exhibits
Exhibit Number Description of Exhibit
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Ad Systems Communications, Inc.
Date: August 23, 2010
By: /s/ J. Michael Heil
J. Michael Heil
Title: Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director
CERTIFICATIONS
I, J. Michael Heil , certify that;
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2010 of As Systems Communications, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 23, 2010
/s/ J. Michael Heil
By: J. Michael Heil
Title: Chief Executive Officer
CERTIFICATIONS
I, J. Michael Heil , certify that;
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2010 of Ad Systems Communications, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 23, 2010
/s/ J. Michael Heil
By: J. Michael Heil
Title: Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly Report of Ad Systems Communications, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2010 filed with the Securities and Exchange Commission (the “Report”), I, J. Michael Heil , Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.
By:
/s/ J. Michael Heil
Name:
J. Michael Heil
Title:
Principal Executive Officer,
Principal Financial Officer and Director
Date:
August 23, 2010
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2010
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 333-156409
Ad Systems Communications, Inc.
(Exact name of Registrant as specified in its charter)
Nevada N/A
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
495 State Street Suite # 459, Salem, Oregon 97301
(Address of principal executive offices)
971-239-4166
(Registrant’s telephone number)
_______________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
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 [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
[ ] Large accelerated filer Accelerated filer [ ] Non-accelerated filer
[X] Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 316,800,000 common shares as of July 19, 2010.
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TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 8
Item 4T: Controls and Procedures 8
PART II – OTHER INFORMATION
Item 1: Legal Proceedings 9
Item 1A: Risk Factors 9
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 9
Item 3: Defaults Upon Senior Securities 9
Item 4: Removed and Reserved 9
Item 5: Other Information 9
Item 6: Exhibits 9
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our financial statements included in this Form 10-Q are as follows:
F-1 Balance Sheet as of June 30, 2010 (unaudited) and December 31, 2009 (unaudited);
F-2 Statements of Operations for the three and six months ended June 30, 2010 and 2009 (unaudited);
F-3 Statement of Stockholders’ Equity (Deficit) for period from December 31, 2008 to June 30, 2010 (unaudited);
F-4 Statements of Cash Flows for the six months ended June 30, 2010 and 2009; and
F-5 Notes to Financial Statements;
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2010 are not necessarily indicative of the results that can be expected for the full year.
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AD SYSTEMS COMMUNICATIONS, INC.
Balance Sheets
(Unaudited)
ASSETS June 30,
2010 December 31,
2009
CURRENT ASSETS
Cash $ 100,028 $ 38,751
Refundable deposits 25,000 -
Trade accounts receivable, net 161,219 146,839
Total Current Assets 286,247 185,590
PROPERTY AND EQUIPMENT, net 28,500 -
TOTAL ASSETS $ 314,747 $ 185,590
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 140,909 $ 122,413
Accrued interest payable 43,815 78
Advance payable - related parties 607,175 550,000
Convertible notes payable, net 112,740 822
Total Current Liabilities 904,639 673,313
TOTAL LIABILITIES 904,639 673,313
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $0.001 per share 10,000,000 shares authorized; no shares issued and outstanding - -
Common stock; par value $0.001 per share 490,000,000 shares authorized; 316,800,000 shares issued and outstanding 316,800 316,800
Additional paid-in capital 222,652 (127,348)
Accumulated deficit (1,129,344) (677,175)
Total Stockholders' Equity (Deficit) (589,892) (487,723)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 314,747 $ 185,590
The accompanying notes are an integral part of these financial statements.
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AD SYSTEMS COMMUNICATIONS, INC.
Statements of Operations
(Unaudited)
For the Three Months Ended
June 30, For the Six Months Ended
June 30,
2010 2009 2010 2009
REVENUES $ 217,565 $ 127,062 $ 323,096 $ 219,043
COST OF SALES 54,487 31,400 86,182 58,342
GROSS PROFIT 163,078 95,662 236,914 160,701
OPERATING EXPENSES
Depreciation 661 - 1,323 -
Consulting fees 141,410 72,522 271,130 138,882
Professional fees 28,221 - 55,499 -
Bad debt expense 66,877 - 66,877 -
General and administrative 272,887 22,842 141,462 29,376
Total Operating Expenses 510,056 95,364 536,291 168,258
INCOME (LOSS) FROM OPERATIONS (346,978 ) 298 (299,377 ) (7,557)
OTHER INCOME (EXPENSES)
Interest expense (103,634 ) - (152,792 ) -
Total Other Income (Expenses) (103,634 ) - (152,792 ) -
LOSS BEFORE TAXES (450,612 ) 298 (452,169 ) (7,557)
Provision for Income Taxes - - - -
NET LOSS $ (450,612 ) $ 298 $ (452,169 ) $ (7,557)
BASIC AND DILUTED LOSS PER SHARE $ (0.00 ) $ 0.00 $ (0.00 ) $ (0.00)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 316,800,000 192,000,000 316,800,000 192,000,000
The accompanying notes are an integral part of these financial statements.
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AD SYSTEMS COMMUNICATIONS, INC.
Statements of Stockholders' Equity (Deficit)
(Unaudited)
Common Stock Additional
Paid-in Accumulated Total
Stockholders'
Equity
Shares Amount capital Deficit (Deficit)
Balance, December 31, 2008 192,000,000 $ 192,000 $ (17,548 ) $ (638,509 ) $ (464,057)
Recapitalization 124,800,000 124,800 (124,800 ) - -
Value of beneficial conversion feature - - 15,000 - 15,000
Net loss for the year
ended December 31, 2009 - - - (38,666 ) (38,666)
Balance, December 31, 2009 316,800,000 316,800 (127,348 ) (677,175 ) (487,723)
Value of beneficial conversion feature - - 350,000 - 350,000
Net loss for the six months ended
June 30, 2010 - - - (452,169 ) (452,169)
Balance, June 30, 2010 316,800,000 $ 316,800 $ 222,652 $ (1,129,344 ) $ (589,892)
The accompanying notes are an integral part of these financial statements.
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AD SYSTEMS COMMUNICATIONS, INC.
Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
2010 2009
OPERATING ACTIVITIES
Net loss $ (353,154 ) $ (7,557)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Amortization of beneficial conversion feature 111,918 -
Depreciation 1,323 -
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (81,257 ) (24,321)
(Increase) decrease in refundable deposits (25,000 ) -
Increase (decrease) in accounts payable 30,095 (47,589)
Net Cash Used in Operating Activities (316,075 ) (79,467)
INVESTING ACTIVITIES
Purchase of equipment (29,823 ) -
Net Cash Used in Investing Activities (29,823 ) -
FINANCING ACTIVITIES
Proceeds from convertible note payable 350,000 -
Proceeds from related party advances 57,175 64,850
Net Cash Provided by Financing Activities 407,175 64,850
NET INCREASE (DECREASE) IN CASH 61,277 (14,617)
CASH AT BEGINNING OF PERIOD 38,751 15,282
CASH AT END OF PERIOD $ 100,028 $ 665
CASH PAID FOR:
Interest $ - $ -
Income Taxes $ - $ -
NON CASH FINANCING ACTIVITIES: $ - $ -
The accompanying notes are an integral part of these financial statements.
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AD SYSTEMS COMMUNICATIONS, INC.
Condensed Notes to Financial Statements
June 30, 2010 and December 31, 2009
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2010, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2009 audited financial statements. The results of operations for the period ended June 30, 2010 is not necessarily indicative of the operating results for the full year.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
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AD SYSTEMS COMMUNICATIONS, INC.
Condensed Notes to Financial Statements
June 30, 2010 and December 31, 2009
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company issued 192,000,000 shares of its common stock upon its incorporation for the conversion of $174,452 of debt during the year ended December 31, 2009.
As of June 30, 2010 and December 31, 2009, the Company owed $607,175 and $550,000, respectively, to related parties for funds advanced for its operations. The advances are due upon demand, unsecured and accrue interest at 10% per annum.
NOTE 5- CONVERTIBLE DEBT
At June 30, 2010 and December 31, 2009, the Company had outstanding notes payable for $365,000 and $15,000, respectively. The notes are unsecured, accrue interest at 12% per annum and are due and payable upon demand. Interest expense for the six months ended June 30, 2010 was $13,435. Accrued interest as of June 30, 2010 and December 31, 2009 totaled $13,513 and $78, respectively.
The notes are convertible into shares of the Company’s common stock at $0.017 per share. The Company recorded $365,000 for the value of the beneficial conversion feature attached to the note payable. The amount allocated to the beneficial conversion feature has been recorded as additional paid-in capital and a related discount on the convertible promissory note, which discount was amortized as a non-cash charge to interest expense over the term of the note. As of June 30, 2010 and December 31, 2009, the carrying value of these notes, net of the discount, was $112,740 and $822, respectively. Interest expense from the amortization of the discount on the convertible promissory note was $111,918 and $822 for the period ended June 30, 2010 and the year ended December 31, 2009.
NOTE 6 – SIGNIFICANT EVENTS
Effective January 1, 2010, NanoAsia, Ltd. (NanoAsia) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ad Systems Communications, Inc., a privately held Oregon corporation (“Ad Systems”), and NanoAsia Acquisition Corp. (“Acquisition Sub”), a newly formed wholly-owned Nevada subsidiary. In connection with the closing of this merger transaction, Ad Systems merged with and into Acquisition Sub (the “Merger”) on February 11, 2010. As a result of the Merger, Ad Systems no longer exists and Acquisition Corp. became NanoAsia’s wholly-owned subsidiary. Pursuant to the Merger Agreement, the sole shareholder of Ad Systems immediately prior to the closing of the Merger exchanged all of the shares of Ad Systems for 192,000,000 (32,000,000 pre-split) shares of NanoAsia’s common stock. NanoAsia had 124,800,000 (20,800,000 pre-split) shares issued and outstanding prior to the Merger. Accordingly, the accompanying financial statements therefore reflect 192,000,000 (32,000,000 pre-split) shares outstanding prior to the Merger and 124,800,000 (20,800,000 pre-split) shares issued as a result of the merger. The accompanying financial statements also reflect the retirement of 307,200,000 (51,200,000 pre-split) shares owned by the former officers and directors of NanoAsia who agreed to purchase NanoAsia’s former nano-technology business in exchange for the cancellation and return all of their collective common stock into treasury and the forgiveness of debts owed.
The Company also entered into a convertible debt agreement for up to $750,000 of financing. The Company has received $365,000 of convertible debt proceeds as of June 30, 2010. The shareholder of the Company became the controlling shareholder of the combined entity. Accordingly, the transaction has been accounted for as a recapitalization of the Company. The number of shares outstanding and per share amounts has been restated to recognize the recapitalization.
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AD SYSTEMS COMMUNICATIONS, INC.
Condensed Notes to Financial Statements
June 30, 2010 and December 31, 2009
7 - COMMON STOCK TRANSACTIONS
Effective April 9, 2010 the Company’s Board of Directors approved a 8-for-1 forward stock dividend of the Company’s issued and outstanding common stock. The Company’s statements of stockholder’s equity have been retroactively restated to reflect the split. Prior to approval of the forward split the Company had a total of 6,600,000 issued and outstanding shares of $0.001 par value common stock. On the effective date of the forward split, the Company had total of 52,800,000 issued and outstanding shares of $0.001 par value common stock
NOTE 8 – SUBSEQUENT EVENTS
On July 7, 2010, the board of directors and majority shareholder approved an amendment to the articles of incorporation for the purpose of increasing the authorized common stock from 90,000,000 shares to 490,000,000 shares. The authorized shares of preferred stock were not affected.
The board of directors approved a 6 for 1 stock dividend with a record date of July 1, 2010. Each shareholder of record as of July 19, 2010, will received five additional shares of common stock for each share of common stock held. Each shareholder’s percentage of ownership in the company and his proportional voting power remains unchanged. The Company’s statements of stockholder’s equity have been retroactively restated to reflect the stock dividend.
In accordance with ASC 855, the Company’s management has reviewed all material events and there are no material subsequent events to report other those items listed above as of the date of this report.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
We are engaged in the business of developing, manufacturing, selling, and managing advertisement insertion hardware and software systems and services (our "Products" and “Services”). We have specifically targeted second and third tier cable TV operators that deploy national cable TV networks in the U.S. However, we do have plans to expand our operations to certain international markets.
Our Product enables local cable operators (our “Customers”) to insert advertising in both conventional and nontraditional cable TV systems. Our Product is a standalone inserter, capable of controlling up to 8 networks and sharing up to 4 playback devices for commercial insertion. While this technology meets our needs and the current needs of our customers, we intend to upgrade the insertion technology in order to cater to all-digital cable head ends, including IP TV, which is becoming increasingly popular. A second generation is planned, which is intended for the following application environments:
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1. Analog Insertion
2. MPEG-2 stream splicing
3. Digital Overlay
4. Digital Signage
Analog insertion is still the technology of today, but it is rapidly being displaced as new digital head ends drive costs downward. The response to this pressure is to include digital-into-digital splicing (also known as MPEG-2 stream splicing), which we expect to develop and offer as development funds become available. Digital overlay and signage represent growth markets for us in the future, once the cable market has become saturated.
Our Services to the operator consist of acquiring advertising spots from local, regional, and national advertisers; scheduling, running, and billing for playback time; installing and maintaining the associated hardware and software; providing ongoing support; and managing ad sales, all on a revenue share basis.
We are an independent provider of designated market area (“DMA”) based cable TV advertising sales and commercial delivery in the U.S. During the current reporting period, we have expanded into the following areas:
§ Lake Communication’s residential Cable TV systems in the Springfield, Missouri DMA.
§ KLiP Interactive LLC’s residential Cable TV systems in the Butte-Bozeman, Montana DMA.
§ Manchester Broadband, a cable TV provider in Manchester, Georgia.
§ Flint Cable TV Systems of Conifer, Georgia.
§ Jefferson County Cable Inc. in Toronto, Ohio.
§ South Central Communications, a cable TV provider in the Salt Lake City, Utah DMA.
§ Laurel Highland Total Communications a cable TV provider in the Pittsburgh, PA DMA.
We expect that our international expansion will initially focus on market opportunities in India and Latin America, followed by Canada. We intend to continue to focus the placement of our Products with independently-owned cable TV systems, franchised cable operators, colleges and university campuses, hotels, resorts, and other multi-dwelling-units (“MDUs”).
We provide ad-insertion technology and services to Customers who were previously unable to benefit from this technology due to the prohibitively high cost of most ad-insertion systems. Our hardware is significantly less expensive to produce than traditional systems, and we maintain ownership of the system when we place it with a Customer. Thus, our Customer’s experience no out-of-pocket expense; they simply split with us the additional revenue generated by our system.
Based on this model, we successfully completed a beta rollout to 12 sites in early 2008, and have since increased our customer base to 25 cable TV systems. This customer base is comprised of several Universities and small cable operators for an installed base of over 225,000 subscribers. We are ready to expand this customer base with 195 additional multi-year contracts that have already been signed, increasing our installed base to 824,400 in 2010, and 4,255,200 in 2011. Additionally, we have the potential of signing multiple five-year contracts which are pending execution, which, when and if concluded, would increase the company’s installed base to over 11,671,299 in 2012 and 22,135,200 in 2013. We anticipate monthly revenues to parallel industry averages once fully deployed, which is $4 to $6 per subscriber at this time.
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We feel that we can realize our revenue projections by completing the hundreds of contracts we already have. Additionally, we intend to increase this installed base by closing on some of thousands of potential future contracts.
Our offices are located at 495 State Street Suite # 459, Salem, Oregon, 97301.
Significant Equipment
We deploy a proprietary switch matrix and off the shelf computer servers embedded with our proprietary software.
We intend to pay our contracted manufacturer to build between 75 to100 new systems and network support equipment for us to deploy during 2010. The capital cost for acquisition and deployment of this equipment is expected to be approximately $600,000.
Our operations are currently implemented on a small number of servers, which will have to be increased in order to accommodate growth. The development effort is minimal, but we expect the capital for new server hardware to be approximately $45,000.
Results of Operations for the Three and Six Months Ended June 30, 2010 and 2009
Our revenues have increased in each fiscal period. We reported revenues of $127,062 during the three months ended June 30, 2009, increasing to $217,565 in 2010. We reported revenues of $219,043 during the six months ended June 30, 2009, increasing to $339,537 in 2010. Our steady increase in revenues is attributable to the addition of additional cable systems to our subscriber base and increased advertising revenues in our established cable systems. It takes approximately one year for a cable system to develop significant revenues after joining our system.
Our gross profit for the three months ended June 30, 2010 was $163,078, or approximately 75% of revenues. Gross profit for three months ended June 30, 2009 was $95,662, or approximately 75% of sales. Gross profit for the six months ended June 30, 2010 was $253,355, or approximately 75% of sales. Gross profit for six months ended June 30, 2009 was $160,701, or approximately 73% of sales. Our cost of revenues remained relatively constant in proportion to our increase in revenues for all periods mentioned.
General and administrative expenses have increased dramatically due to the cost of going public. General and administrative expenses increased to $272,887 during the three months June 30, 2010 from $95,364 in 2009, and increased to $468,090 during the six months ended June 30, 2010 from $168,258 in 2009. The major components of our increase in general and administrative expenses for the six months ended June 30, 2010 compared to the same period in 2009 are: compensation expense $306,663 vs. $138,882 and legal and accounting fees $72,699 vs. $-0-. The major components of our increase in general and administrative expenses for the three months ended June 30, 2010 compared to the same period in 2009 are: compensation expense $175,828 vs. $72,522 and legal and accounting fees $44,233 vs. $-0-.
We incurred a net loss of $214,104 for the three months ended June 30, 2010, compared with net income of $298 for the three months ended June 30, 2010. We incurred a net loss of $353,154 for the six months ended June 30, 2010, compared with a net loss of $7,557 for the six months ended June 30, 2009.
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Off Balance Sheet Transactions
We have had no off balance sheet transactions.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 of the Financial Statements.
Liquidity and Capital Resources
As of June 30, 2010, we had total current assets of $369,566 and total assets of $398,066. Our total current liabilities as of June 30, 2010 were $888,943. Thus, we had a working capital deficit of $519,377 as of June 30, 2010.
Operating activities used $299,633 in cash for the six months ended June 30, 2010. Our net loss of $353,154 combined with an increase in refundable deposits of $25,000 and increase in accounts receivable of $81,257 offset by an amortization of a beneficial conversion feature of $101,137 and increase in accounts payable of $57,318 was the primary reason for our negative operating cash flow. Our cash used in investing activities was $29,823 during the six months ended June 30, 2010 was for the purchase of equipment. Cash flows provided by financing activities during the six months ended June 30, 2010 was $407,175 represented by proceeds from convertible notes payable in the amount of $350,000 and proceeds from related party advances in the amount of $57,175.
We anticipate requiring $2,000,000 in order to implement the plan discussed herein and service the contracts, which we have already signed. Based upon our current financial condition, we do not have sufficient cash to operate our business at the planned level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
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Going Concern
The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 4T. Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2010. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, J. Michael Heil. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2010, our disclosure controls and procedures are effective. There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2010.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods 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 our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Internal Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 1A: Risk Factors
A smaller reporting company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Removed and Reserved
Item 5. Other Information
None
Item 6. Exhibits
Exhibit Number Description of Exhibit
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Ad Systems Communications, Inc.
Date: August 23, 2010
By: /s/ J. Michael Heil
J. Michael Heil
Title: Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director
CERTIFICATIONS
I, J. Michael Heil , certify that;
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2010 of As Systems Communications, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 23, 2010
/s/ J. Michael Heil
By: J. Michael Heil
Title: Chief Executive Officer
CERTIFICATIONS
I, J. Michael Heil , certify that;
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2010 of Ad Systems Communications, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 23, 2010
/s/ J. Michael Heil
By: J. Michael Heil
Title: Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly Report of Ad Systems Communications, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2010 filed with the Securities and Exchange Commission (the “Report”), I, J. Michael Heil , Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.
By:
/s/ J. Michael Heil
Name:
J. Michael Heil
Title:
Principal Executive Officer,
Principal Financial Officer and Director
Date:
August 23, 2010
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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