U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER: 000-28083
NEXT GENERATION MEDIA CORP.
(Exact name of Company as specified in its charter)
Nevada 88-0169543
(State or jurisdiction of incorporation (I.R.S. Employer or
organization) Identification No.)
7644 Dynatech Court, Springfield, Virginia 22153
(Address of principal executive offices) (Zip Code)
Company's telephone number: (703) 644-0200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $0.001 Par Value
Indicate by check mark whether the Company (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 Company was required to file such reports),
and (2) been subject to such filing requirements for the past 90
days. Yes X No___
As of November 5, 2002, the Company had 10,223,397 shares of common
stock issued and outstanding.
TABLE OF CONTENTS
Part I - Financial Information Page
Item 1. Condensed Consolidated Interim Financial Statements
Consolidated Statement of Earnings
Consolidated Statement of Financial Position
Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows - Three Months
Consolidated Statement of Cash Flows - Nine Months
Notes to Financial Statements
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes In Securities And Use Of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission Of Matters To A Vote Of Security Holders
Item 5. Other Information
Item 6. Exhibits And Reports On Form 8-K
Signature
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCAL STATEMENTS.
Next Generation Media Corporation
Condensed Consolidated
Interim Financial Statements
For The Three and Nine Month Periods Ended
September 30, 2002
With Review Report of Independent
Certified Public Accountants
TURNER, JONES AND ASSOCIATES, P.L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
Table of Contents Page
Review Report of Independent Certified Public Accountants 2
Condensed Consolidated Interim Financial Statements
Consolidated Statement of Earnings 3
Consolidated Statement of Financial Position 5
Consolidated Statement of Stockholders' Equity 7
Consolidated Statement of Cash Flows - Three Months 8
Consolidated Statement of Cash Flows - Nine Months 10
Notes to Financial Statements 12
REVIEW REPORT
To the Board of Directors and Stockholders of
Next Generation Media Corporation
We have reviewed the accompanying condensed consolidated
statement of financial position of Next Generation Media Corporation
(a Nevada Corporation) as of September 30, 2002 and 2001, and the
related statements of earnings, stockholders' equity, and cash flows
for the three-month and nine-month periods then ended, in accordance
with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
All information included in these condensed consolidated interim
financial statements is the representation of the management of Next
Generation Media Corporation.
A review of interim financial information consists principally
of inquiries of Company personnel and analytical procedures applied
to financial data. It is substantially less in scope than an audit
in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the
consolidated financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying consolidated
financial statements in order for them to be in conformity with
accounting principles accepted in the United States.
Vienna, Virginia
November 14,2002
Next Generation Media Corporation
Condensed Consolidated Statement of Earnings (Unaudited)
For The Periods Ended
For the Three Months Ended For the Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2002 2001 2002 2001
REVENUES (Note 1):
Coupon sales, net of discounts $ 1,925,517 $ 1,677,938 $ 5,647,689 $ 5,575,342
Franchise fees 54,600 - 84,300 20,985
Commission income - 12,946 - 29,429
Total revenues 1,980,117 1,690,884 5,731,989 5,625,756
COST OF GOODS SOLD:
Materials 243,085 226,360 847,269 943,620
Direct labor 507,837 450,823 1,391,008 1,355,086
Equipment repairs 20,090 16,162 44,302 35,734
Postage and delivery 588,214 490,566 1,772,239 1,730,060
Payroll taxes from direct labor 38,850 34,459 106,412 103,740
Total cost of goods sold 1,398,076 1,218,380 4,161,230 4,107,923
Gross margin 582,041 419,506 1,570,759 1,517,833
OPERATING EXPENSES:
401(k) administrative expense - 2,200 - 2,200
401(k) matching - 6,199 - 18,317
Advertising (Note 1) 2,687 266 4,815 9,784
Amortization (Note 1) 33,921 33,921 101,764 101,764
Bad debt expense 7,500 7,500 22,500 22,500
Commissions and fees 13,436 9,741 22,819 34,083
Credit card fees - 2,895 5,371 4,689
Depreciation (Note 1) 41,340 57,212 124,308 171,319
Employee benefits 40,448 49,968 114,150 132,874
Insurance 8,067 12,049 38,526 22,662
Meals and entertainment 2,124 524 2,703 1,407
Office expense 5,196 22,090 23,679 42,532
Officers compensation 68,288 45,965 234,010 221,975
Other expenses 2,836 50,549 7,721 61,027
Payroll 31,211 38,836 107,321 119,681
Payroll taxes 4,927 12,034 18,444 26,381
Postage and delivery 1,200 1,684 3,981 5,313
Professional fees 49,288 105,841 213,654 194,921
Property taxes 7,800 - 11,700 14,050
Rent and pass thru expenses 43,716 145,543 95,537 423,534
Repairs and maintenance 6,650 3,847 21,441 11,488
Telephone 11,392 11,279 34,179 35,433
Travel and conferences - 8,372 3,500 25,484
Utilities 27,531 18,736 49,293 55,034
Total operating expenses 409,558 638,851 1,211,416 1,737,935
Gain/(Loss) from operations 172,483 (166,347) 359,343 (220,102)
OTHER INCOME AND EXPENSES:
Interest income - 3,404 - 14,596
Other income (expense) - 615 - (2,332)
Gain/(Loss) on lawsuit settlement 33,035 - 33,035 -
Gain/(Loss) on equipment disposal - - 2,230 -
Interest expense (7,341) 1,323 (16,882) (27,341)
Total other income (expense) 25,694 (1,466) 18,383 (15,077)
Net Income/(Loss) 198,177 (167,813) 377,726 (235,179)
Gain/(Loss) applicable to common shareholders 198,177 (167,813) 377,726 (235,179)
Basic gain/(loss) per common share (Note 1) 0.02 (0.03) 0.04 (0.04)
Weighted average common shares outstanding 10,223,397 6,262,071 9,021,016 6,227,479
Diluted gain per common share (Note 1) 0.02 NA 0.03 NA
Fully diluted common shares outstanding 12,498,564 7,767,021 10,906,214 7,630,998
See accompanying notes and accountant's review report
Next Generation Media Corporation
Consolidated Balance Sheets
For the Periods Ended
ASSETS
(Unaudited) (Audited)
September 30, December 31,
2002 2001
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 299,192 $ 199,305
Accounts receivable, net of
uncollectible accounts (Note 1) 606,307 228,478
Notes receivable (Note 6) 333,608 333,608
Inventories (Note 1) 72,420 49,978
Deferred compensation - 73,921
Employee loans and advances - 827
Prepaid expenses 33,311 8,105
Total current assets 1,344,838 894,222
PROPERTY, PLANT AND EQUIPMENT (Notes 1 and 3):
Computer equipment and software 511,684 497,339
Furniture and fixtures 2,133,642 2,116,511
Leasehold improvements 167,675 88,754
Total property, plant and equipment 2,813,001 2,702,604
Less accumulated depreciation (2,372,755) (2,251,598)
Net property, plant and equipment 440,246 451,006
Intangibles, net of accumulated amortization
(Note 1) 856,119 957,883
TOTAL ASSETS 2,641,203 2,303,111
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current portion (Note 4) 192,928 296,479
Accounts payable 506,817 790,379
Accrued expenses 82,867 48,713
Severance payable - 68,619
Pension payable - 3,853
Sales tax payable 233,545 228,537
Deferred revenue 218,843 96,386
Total current liabilities 1,235,000 1,532,966
LONG TERM LIABILITIES:
Notes payable (Note 4) 128,372 -
Total long term liabilities 128,372 -
Total liabilities 1,363,372 1,532,966
STOCKHOLDERS' EQUITY (Note 7):
Common stock, $.01 par value, 50,000,000 shares
authorized, 10,223,397 and 6,773,397 102,234 67,734
issued and outstanding, respectively
Additional paid in capital 7,371,744 7,186,284
Less treasury stock, at cost, 1,800,000 shares (90,000) -
Accumulated deficit (6,483,873) (6,483,873)
Net Income - Year to Date 377,726 -
Total stockholders' equity 1,277,831 770,145
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,641,203 2,303,111
See accompanying notes and accountant's review report
Next Generation Media Corporation
Consolidated Statements of Stockholders' Equity-Unaudited
Additional
Common Stock Paid In Accumulated
Shares Amount Capital Deficit Total
Balance: January 31, 2001 6,206,897 62,069 7,135,409 (5,586,878) $1,610,600
Common stock issued in
exchange for services 300,000 3,000 33,000 - 36,000
Exercise of stock options 97,500 975 975 - 1,950
Common stock issued in
exchange for services 169,000 16,900 16,900 - 18,590
Net loss - - - (896,995) (896,995)
Balance: December 31, 2001 6,773,397 67,734 7,186,284 (6,483,873) 770,145
Common stock issued in
exchange for services 1,450,000 14,500 70,500 - 85,000
Employee stock options - - 36,960 - 36,960
Common stock issued in
exchange for services 2,000,000 20,000 78,000 - 98,000
Net Income - Year to Date - - - 287,726 287,726
Balance: September 30, 2002 10,223,397 102,234 7,371,744 (6,196,147) 1,277,831
See accompanying notes and accountant's review report
Next Generation Media Corporation
Statement of Cash Flows - Unaudited
For The Three Months Ended
September 30, September 30,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 198,177 $ (167,813)
Adjustments to reconcile net
income to net cash provided by operating
activities:
Stock issued for services - 36,000
Depreciation and amortization 75,261 91,133
(Increase) decrease in assets
Accounts receivable (352,094) (336,251)
Inventories (17,612) 57,626
Deferred compensation 73,921 -
Prepaids and other current assets 33,908 273,752
Increase (decrease) in liabilities
Accounts payable (58,523) 284,003
Accrued expenses 50,473 (198,660)
Wages payable (108,338) -
Severance payable (68,619) (16,761)
Pensions payable (2,271) -
Deferred revenue 218,843 (34,281)
Net cash flows provided/(used) by
operating activities 43,126 (11,252)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment 3,193 -
Net cash provided by investing activities 3,193 -
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds form issuance of stock - 1,950
Change in note payable 112,020 (32,186)
Net cash provided/(used) by financing activities 112,020 (30,236)
NET INCREASE/(DECREASE) IN CASH 158,339 (41,488)
CASH, BEGINNING OF PERIOD 140,853 119,776
CASH, END OF PERIOD 299,192 78,288
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest 7,341 3,404
See accompanying notes and accountant's review report
Next Generation Media Corporation
Statement of Cash Flows - Unaudited
For The Nine Months Ended
September 30, September 30,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 287,726 $ (235,179)
Adjustments to reconcile net
income to net cash provided by operating
activities:
Stock issued for services 219,960 36,000
Depreciation and amortization 222,921 453,883
(Increase) decrease in assets
Accounts receivable (377,002) 98,621
Inventories (22,442) 81,442
Deferred compensation 73,921 -
Prepaids and other current assets (25,206) 280,522
Increase (decrease) in liabilities
Accounts payable (170,216) 322,729
Accrued expenses 34,154 (338,184)
Wages payable (108,338) (19,655)
Severance payable (68,619) -
Pensions payable (3,853) -
Deferred revenue 122,457 (126,600)
Net cash flows provided by
operating activities 185,463 553,579
CASH FLOWS FROM INVESTING ACTIVITIES:
Due to related parties - (112,288)
Purchase of property and equipment (110,397) (1,740)
Net cash provided by investing activities (110,397) (114,028)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds form issuance of stock options - 1,950
Removal of note payable due to Big Hub
settlement (Note 5) - (500,000)
Change in note payable 24,821 -
Net cash provided/(used) by financing activities 24,821 (498,050)
NET INCREASE/(DECREASE) IN CASH 99,887 (58,499)
CASH, BEGINNING OF PERIOD 199,305 136,787
CASH, END OF PERIOD 299,192 78,288
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest 16,882 27,341
See accompanying notes and accountant's review report
Next Generation Media Corporation
Notes to Financial Statements-Unaudited
September 30, 2002
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
included herein have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC). The
interim condensed consolidated accounts of Next Generation Media
Corporation and its subsidiary (collectively, the Company). In the
opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair statement of the
financial position, results of operations and cash flows for the
interim periods presented have been made. The preparation of the
financial statements includes estimates that are used when accounting
for revenues, allowance for uncollectible receivables,
telecommunications expense, depreciation and amortization and certain
accruals. Actual results could differ from those estimates. The
results of operations for the three and nine month periods ended
September 30, 2002, are not necessarily indicative of the results to
be expected for the full year. Some information and footnote
disclosures normally included in financial statements or notes
thereto prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules and
regulations. The Company believes, however, that its disclosures are
adequate to make the information provided not misleading. You should
read these interim consolidated financial statements in conjunction
with the consolidated financial statements and notes thereto included
in the Company's 2001 Annual Report on Form 10-KSB40.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business:
Next Generation Media Corporation was incorporated in the State of
Nevada in November of 1980 as Micro Tech Industries Inc., with an
official name change to Next Generation Media Corporation in April of
1997. The Company, through its wholly owned subsidiary, United
Marketing Solutions, Inc., provides direct marketing products,
which involves the designing, printing, packaging, and mailing of public
relations and marketing materials and coupons for retailers who provide
services. Sales are conducted through a network of franchises that the Company
supports on a wholesale basis. At September 30, 2002, the Company had
approximately 39 active area franchise operations located throughout
the United States.
Property and Equipment:
Property and equipment are stated at cost. The company uses the
straight-line method in computing depreciation for financial
statement purposes.
Expenditures for repairs and maintenance are charged to income, and
renewals and replacements are capitalized. When assets are retired
or otherwise disposed of, the cost of the assets and the related
accumulated depreciation are removed from the accounts.
Estimated useful lives are as follows:
Computers 3 years
Furniture, fixtures and equipment 10 years
Leasehold improvements are amortized over the lesser of the lease
term or the useful life of the property.
Depreciation expense for the three months ended September 30, 2002
and 2001 amounted to $41,340 and $57,212 respectively.
Intangibles:
The Company has recorded goodwill based on the difference between the
cost and the fair value of certain purchased assets and it is being
amortized on a straight-line basis over the estimated period of
benefit, which ranges from five (5) to ten (10) years. The Company
periodically evaluates the goodwill for possible impairment. The
analysis consists of a comparison of future
projected cash flows to the carrying value of the goodwill. Any
excess goodwill would be written off due to impairment. In addition,
the Company has a covenant not to compete, which is being amortized
over five (5) years. Amortization expense for the three months ended
September 30, 2002 and 2001 amounted to $33,921 and $33,921 respectively.
Advertising Expense:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations for the three
months ended September 30, 2002 and 2001 was $2,687 and $266 respectively.
Revenue Recognition:
The Company recognizes revenue from the design production and
printing of coupons upon delivery. Revenue from initial franchise
fees is recognized when substantially all services or conditions
relating to the sale have been substantially performed. Franchise
support and other fees are recognized when billed to the franchisee.
Amounts billed or collected in advance of final delivery or shipment
are reported as deferred revenue.
Impairment of Long-Lived Assets:
The Company reviews the carrying values of its long-lived assets for
possible impairment on a periodic basis and whenever events or
changes in circumstances indicate that the carrying amount of the
assets should be addressed. The Company believes that no permanent
impairment in the carrying value of long-lived assets exists as of
September 30, 2002 and 2001.
Comprehensive Income:
The Company has adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income". Comprehensive income
as defined includes all changes to equity except that resulting from
investments by owners and distributions to owners. The company has no item
of comprehensive income to report.
Reclassifications:
Certain prior year amounts have been reclassified to conform to the
current year presentation.
New Accounting Pronouncements:
In June of 1998, the Financial Accounting Standards Board issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities. The new standard requires that all companies record
derivatives on the balance sheet as assets or liabilities, measured
at fair value. Gains or losses resulting from changes in the values
of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The
Company does not use derivative instruments either in hedging or as
investments. The Company adopted this accounting standard, as
amended, on January 1, 2001. Accordingly, the Company believes it
will have no material impact on its financial position or results of
operations.
In December of 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements" ("SAB 101"), which provides guidance related to
revenue recognition based on interpretations and practices followed
by the SEC. SAB 101 is effective in the quarter ended December 31,
2000, and requires companies to report any changes in revenue
recognition as a cumulative effect of a change in accounting
principle at the time of implementation in accordance with Accounting
Principles Board Opinion No. 20, "Accounting Changes". The Company
has assessed the impact of SAB 101 on its financial position and
results of operations and believes the effect to be minimal.
Use of Estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes:
The Corporation uses Statement of Financial Standards No. 109
"Accounting for Income Taxes" (SFAS No. 109) in reporting deferred
income taxes. SFAS No. 109 requires a company to recognize deferred
tax liabilities and assets for expected future income tax
consequences of events that have been recognized in the company's
financial statements. Under this method, deferred tax assets and
liabilities are determined based on temporary differences in
financial carrying amounts and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in which
temporary differences are expected to reverse.
Risks and Uncertainties:
The Company operates in an environment where intense competition
exists from other companies. This competition, along with increases
in the price of paper, can impact the pricing and profitability of
the Company.
Credit Risk:
The Company at times may have cash deposits in excess of federally
insured limits.
Accounts Receivable:
The Corporation grants credit to its customers, which includes the
retail sector and their own franchisees. The Company establishes an
allowance for doubtful accounts based upon on a percentage of
accounts receivable plus those balances the Company feels will be
uncollectible. Uncollectible accounts as of September 30, 2002 and
2001 was $335,563 and $25,839, respectively.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with maturities
of three months or less to be cash equivalents.
Loss Per Common Share:
The Company calculates its earnings per share pursuant to Statement
of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). Under SFAS No. 128, basic earnings per share is
computed by dividing reported earnings available to common
stockholders by weighted average shares outstanding. Diluted
earnings per share reflect the potential dilution assuming the
issuance of common shares for all potential dilutive common shares
outstanding during the period. As a result of the Company's net
losses, all potentially dilutive securities including warrants and
stock options, would be anti-dilutive and thus, excluded from diluted
earnings per share.
As of September 30, 2002, the Company had financial obligations that
could create future dilution to the Company's common shareholders and
are not currently classified as common shares of the company. The
following table details such instruments and obligations and the
common stock comparative for each. The common stock number is based
on specific conversion or issuance assumptions pursuant to the
corresponding terms of each individual instrument or obligation.
Instrument or Obligation Common Stock
Stock options outstanding as of September 30, 2002 1,875,167
Stock options outstanding as of September 30, 2001 1,672,667
Inventories:
Inventories consist primarily of paper, envelopes, and printing
materials and are stated at the lower of cost or market, with cost
determined on the first-in, first-out method.
Principles of Consolidation:
The accompanying consolidated financial statements include the
accounts of the parent company, Next Generation Media Corporation and
its subsidiaries as of September 30, 2002 and 2001.
NOTE 2 - RETIREMENT PLAN
The company maintains a 401(k) defined contribution plan covering
substantially all employees. The Corporation may elect to contribute
up to 3% of each eligible employee's gross wages. Employees can
elect up to 12% of their salary to be contributed before income
taxes, up to the annual limit set by the Internal Revenue Code. The
Corporation contributed $0 and $6,199 in the three months ended
September 30, 2002 and 2001 respectively.
NOTE 3 - PROPERTY & EQUIPMENT
Property and Equipment consists of the following:
September 30, 2002
Furniture and equipment $2,133,642
Computer equipment 511,684
Leasehold improvements 167,675
$2,813,001
Accumulated depreciation and amortization (2,372,755)
Net property and equipment $ 440,246
September 30, 2001
Furniture, fixtures and equipment $3,615,017
Computer equipment 832,969
Leasehold improvements 88,754
$4,536,740
Accumulated depreciation and amortization (3,955,741)
Net property and equipment $ 580,999
NOTE 4 - NOTES PAYABLE AND LINE OF CREDIT
Notes payable consists of the following:
September 30, 2002 Amount
Obligation to CIT Group, bearing interest at 10%, the
loan is payable in fifty-six monthly installments of $500,
including interest, and is collateralized by the property and
equipment of the Company. $ 20,388
Note payable to BancFirst, collateralized by the Company's
property and equipment. Terms are a twenty-four monthly
installments of $8,200 principal plus accrued interest. $ 55,681
Confessed judgement promissory note to Joel Sens, collateralized
by the good faith of the Company. Terms are a twenty-four month
note at 10% interest, monthly payments of $2,999 including
interest. $ 52,505
Promissory note payable to former executive, payable in
twenty-four installments of $3,542 at 0% interest. $ 81,458
Obligation to PS Business Parks bearing interest at 5%. The loan
is payable in thirty-six monthly installments of $3,896, including
interest, and is collateralized by the property and equipment of
the Company. $102,769
Obligation to Xerox in twenty-four monthly installments of $500.
The obligation is collateralized by the good faith of the Company. $ 8,500
$321,300
Less: Current portion $192,928
Long-term portion $128,372
September 30, 2001 Amount
Line of credit from Prosperity Bank with a face amount of
$90,000, interest is payable as it accrues at the banks' prime
rate (7.5% as of 12/31/2000), this line is secured by a Certificate
of Deposit held by the former President of the Company. $ 90,000
Note payable to CIT Group, interest of 10% on principal only, monthly
principal payments of $8,200 plus interest, due in January 2001,
collateralized by the equipment of United Marketing Solutions, Inc.,
and as of the date of this report is currently in default. $ 32,996
Note payable to BancFirst, interest at prime plus 1% (8.5% at
December 31, 2000), monthly payments of principal and interest
of $12,500, collateralized by the Company's property, plant and
equipment. The note payable was due in September of 2000 and
was in default. Terms renegotiated to twenty-four month, interest
at prime plus 1%, monthly payments of $8,500 principal plus
accrued interest. $171,730
Total notes payable and line of credit $294,726
Less: Current portion $294,726
Long-term portion $ 0
NOTE 5 - BIG HUB SETTLEMENT
On February 6, 2001, a settlement was reached between TheBigHub.com
("Big Hub"), the Company, and major shareholders of the Company. As
part of the settlement, Big Hub returned all but 242,732 shares of
the Company's common stock to the major shareholders involved, and
all stock options. The major shareholders retain their shares and
options in Big Hub. Big Hub forever releases and discharges the
Company from all obligations relating to the $622,288 dollars
advanced to the Company. The Company forever releases and discharges
Big Hub from all obligations relating to $199,620 owed to the Company
from Big Hub. Additionally the Company releases Big Hub from all
obligations in regards to the promised delivery of the "Tool Kit
Technology" (never delivered). Big Hub retains the 250,000 shares of
the Company's common stock transferred to Big Hub as original
consideration of promised delivery of "Tool Kit Technology". The
Company agrees to provide audited financial statements to Big Hub on
a consolidated basis. The major shareholders of Big Hub and the
Company agree to release, acquit and further discharge all parties
involved as a result of this agreement.
NOTE 6 - NOTES RECEIVABLE
On June 30, 2000, the Company executed a promissory note with UNICO,
Inc. for $200,000 in conjunction with the sale of Independent News,
Inc. The note is outstanding and currently in default, the Company's
management considers the note collectible.
NOTE 7 - COMMON STOCK
During the three months ended September 30, 2002, the Company did not
issue any shares.
On September 14, 2001, the Company issued 150,000 shares of common
stock valued at $18,000 to Dailyfinancial.com for future professional
services to be rendered in public relations.
On September 14, 2001, the company issued 150,000 shares of common
stock valued at $18,000 to Paul Cummings for future professional
services to be rendered in the development of the Company's web site.
NOTE 8 - SEGMENT INFORMATION
The Company has one reportable segment for the three months ended
September 30, 2002: United Marketing Solutions. United was acquired
on April 1, 1999. United is a wholly-owned subsidiary, with
different management teams and different products and services.
United operates a direct mail marketing business. The accounting
policies of the reportable segment is the same as those set forth in
the Summary of Accounting Policies. Summarized financial information
concerning the Company's reporting segment for the three months ended
September 30, 2002 and 2001.
Three months ended
September 30, 2002 United Parent Eliminations Total
Revenue $1,944,700 $ 0 $ 0 $1,944,700
Segment profit (loss) 369,217 (171,040) 0 198,177
Total assets 2,673,398 350,054 (382,249) 2,641,203
Three months ended
September 30, 2001 United Parent Eliminations Total
Revenue $1,690,884 $ 0 $ 0 $1,690,884
Segment profit (loss) (89,430) (78,383) 0 (167,813)
Total assets 2,107,807 1,597,563 (678,165) 3,027,205
NOTE 9 - EMPLOYEE STOCK INCENTIVE PLAN
One December 26, 2001, the Company adopted the Employee Stock
Incentive Plan authorizing 3,000,000 shares at a maximum offering
price of $0.10 per share for the purpose of providing employees
equity-based compensation incentives.
NOTE 10 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company's significant operating losses in past periods raise
substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 11 - GAIN ON LEGAL SETTLEMENT
The Company settled two lawsuits during the period ending September
30, 2002. A settlement with a former executive resulted in a $98,035
gain. A settlement with a former consultant resulted in a $65,000
loss.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following Management Discussion and Analysis should be read in
conjunction with the financial statements and accompanying notes
included in this Form 10-QSB.
Total revenues increased 14.7%, to $1,980,117 in the quarter ended
September 30, 2002 from $1,690,884 in the third quarter of 2001.
Total revenues increased 1.9%, to $5,731,989 in the nine-month period
ended September 30, 2002 from $5,625,756 in the same period of 2001.
Total operating expenses decreased 35.9% to $409,558 in the quarter
ended September 30, 2002 from $638,851 in the third quarter of 2002.
The greatest percentage of this reduction in expenses was due to a
reduction in rent, professional fees and pass through expense. Total
operating expenses decreased 31.3% to $1,211,416 in the nine-month
period ended September 30, 2002 from $1,737,935 in the same period of
2001.
Total gain from operations for the quarter ending September 30, 2002
was $172,483 as compared to a loss of $166,347 for the quarter ending
September 30, 2001. The nine months ended September 30, 2002 had a
gain of $359,343 as compared to a loss of $220,102 for the same period.
Cash provided by operating activities was $43,126 for the period ended
September 30, 2002 compared to cash used of $11,252 for the period
ended September 30, 2001. This was primarily due to an increase in
deferred revenues.
Cash used in investing activities was $3,193for the period ended
September 30, 2002, compared to $0 for the period ended September 30,
2001. This was primarily due to a purchase of property and equipment.
Cash used by financing activities was $112,020 for the period ended
September 30, 2002, compared to cash used in financing activities of
$30,236 for the period ended September 30, 2001. This was primarily
due a change in a note payable.
While the Company has raised capital to meet its working capital and
financing needs in the past, additional financing may be required in
order to meet the Company's current and projected cash flow deficits
from operations. As previously mentioned, the Company has obtained
financing in the form of equity in order to provide the necessary
working capital. The Company currently has no other commitments for
financing. There are no assurances the Company will be successful in
raising the funds required.
The Company has issued shares of its common stock from time to time
in the past to satisfy certain obligations, and expects in the future
to also acquire certain services, satisfy indebtedness and/or make
acquisitions utilizing authorized shares of the capital stock of the
Company.
The independent auditors unaudited quarterly report for the period
ended September 30, 2002 included in this Form states that the
Company's working capital deficiency and shareholder's deficit raise
substantial doubts about the Company's ability to continue as a going
concern.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, operations of the Company may be
exposed to fluctuations in interest rates. These fluctuations can vary
the cost of financing, investing, and operating transactions.
New Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board issued
interpretation No. 44 ("FIN 44"), "Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25". FIN 44 clarifies the application of APB No. 25 for
(a) the definition of employee for purposes of applying APB No. 25,
(b) the criteria for determining whether a plan qualifies as a non-
compensatory plan, (c) the accounting consequences of various
modifications to previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 2, 2000 but certain conclusions
cover specific events that occur after either December 15, 1998 or
January 12, 2000. The adoption of FIN 44 did not have an affect on
the Company's financial statements but may impact the accounting for
grants or awards in future periods
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141, Business
Combinations (FAS 141), and FAS 142, Goodwill and Other Intangible
Assets (FAS 142). FAS 141 addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a
business combination. FAS 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business
combination, whether acquired individually or with a group of other
assets, and the accounting and reporting for goodwill and other
intangibles subsequent to their acquisition. These standards require
all future business combinations to be accounted for using the
purchase method of accounting. Goodwill will no longer be amortized
but instead will be subject to impairment tests at least annually.
The Company is required to adopt FAS 141 and FAS 142 on a prospective
basis as of January 1, 2002; however, certain provisions of these new
standards may also apply to any acquisitions concluded subsequent to
June 30, 2001. As a result of implementing these new standards, the
Company will discontinue the amortization of goodwill as of December
31, 2001. The Company does not believe that the adoption of FAS 141
or 142 will have a material impact on its consolidated financial
statements.
In October 2001, the Financial Accounting Standards Board issued FAS
144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
(FAS 144). FAS 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This statement
supersedes FAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (FAS 121) and
related literature and establishes a single accounting model, based
on the framework established in FAS 121, for long-lived assets to be
disposed of by sale. The Company is required to adopt FAS 144 no
later than January 1, 2002. The Company does not believe that the
adoption of FAS 144 will have a material impact on its consolidated
financial statements.
Forward Looking Statements.
The foregoing Managements Discussion and Analysis of Financial
Condition and Results of Operations "forward looking statements"
within the meaning of Rule 175 under the Securities Act of 1933, as
amended, and Rule 3b-6 under the Securities Act of 1934, as amended,
including statements regarding, among other items, the Company's
business strategies, continued growth in the Company's markets,
projections, and anticipated trends in the Company's business and the
industry in which it operates. The words "believe," "expect,"
"anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. These forward-
looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, including but
not limited to, those risks associated with economic conditions
generally and the economy in those areas where the Company has or
expects to have assets and operations; competitive and other factors
affecting the Company's operations, markets, products and services;
those risks associated with the Company's ability to successfully
negotiate with certain customers, risks relating to estimated
contract costs, estimated losses on uncompleted contracts and
estimates regarding the percentage of completion of contracts,
associated costs arising out of the Company's activities and the
matters discussed in this report; risks relating to changes in
interest rates and in the availability, cost and terms of financing;
risks related to the performance of financial markets; risks related
to changes in domestic laws, regulations and taxes; risks related to
changes in business strategy or development plans; risks associated
with future profitability; and other factors discussed elsewhere in
this report and in documents filed by the Company with the Securities
and Exchange Commission. Many of these factors are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
information contained in this Form 10-QSB will, in fact, occur. The
Company does not undertake any obligation to revise these forward-
looking statements to reflect future events or circumstances and
other factors discussed elsewhere in this report and the documents
filed or to be filed by the Company with the Securities and Exchange
Commission.
Inflation
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
Trends, Risks and Uncertainties
The Company has sought to identify what it believes to be the most
significant risks to its business as discussed in "Risk Factors"
above, but cannot predict whether or to what extent any of such risks
may be realized nor can there be any assurances that the Company has
identified all possible risks that might arise. Investors should
carefully consider all of such risk factors before making an
investment decision with respect to the Company's stock.
Limited operating history; anticipated losses; uncertainly of future results
The Company has a limited operating history upon which an evaluation
of the Company and its prospects can be based. The Company's
prospects must be evaluated with a view to the risks encountered by a
company in an early stage of development, particularly in light of the
uncertainties relating to the business model that the Company intends
to market and the potential acceptance of the Company's business
model. The Company will be incurring costs to develop, introduce and
enhance its products, to establish marketing relationships, to acquire
and develop products that will complement each other, and to build an
administrative organization. To the extent that such expenses are not
subsequently followed by commensurate revenues, the Company's
business, results of operations and financial condition will be
materially adversely affected. There can be no assurance that the
Company will be able to generate sufficient revenues from the sale of
its products and services. The Company expects that negative cash
flow from operations could exist for the next 12 months as it
continues to develop and market its products and services. If cash
generated by operations is insufficient to satisfy the Company's
liquidity requirements, the Company may be required to sell additional
equity or debt securities. The sale of additional equity or
convertible debt securities would result in additional dilution to the
Company's shareholders.
Potential fluctuations in quarterly operating results of the Company
may fluctuate significantly in the future as a result of a variety of
factors, most of which are outside the Company's control, including:
the demand for the Company's products and services; seasonal trends in
demand and pricing of products and services; the amount and timing of
capital expenditures and other costs relating to the expansion of the
Company's operations; the introduction of new services and products by
the Company or its competitors; price competition or pricing changes
in the industry; political risks and uncertainties involving the
world's markets; technical difficulties and general economic
conditions. The Company's quarterly results may also be significantly
affected by the impact of the accounting treatment of acquisitions,
financing transactions or other matters. Particularly the Company's
early stage of development, such accounting treatment can have a
material impact on the results for any quarter. Due to the foregoing
factors, among others, it is likely that the Company's operating
results will fall below the expectations of the Company or investors
in some future quarter.
Management of Growth
The Company expects to experience significant growth in the number of
employees relative to its current levels of employment and the scope
of its operations. In particular, the Company may need to hire sales,
marketing and administrative personnel. Additionally, acquisitions
could result in an increase in employee headcount and business
activity. Such activities could result in increased responsibilities
for management. The Company believes that its ability to increase its
customer support capability and to attract, train, and retain
qualified technical, sales, marketing, and management personnel, will
be a critical factor to its future success. In particular, the
availability of qualified sales, trading and management personnel is
quite limited, and competition among companies to attract and retain
such personnel is intense. During strong business cycles, the Company
may experience difficulty in filling its needs for qualified sales,
and other personnel.
The Company's future success will be highly dependent upon its ability
to successfully manage the expansion of its operations. The Company's
ability to manage and support its growth effectively will be
substantially dependent on its ability to implement adequate financial
and management controls, reporting systems, and other procedures and
hire sufficient numbers of financial, accounting, administrative, and
management personnel. The Company is in the process of establishing
and upgrading its financial accounting and procedures. There can be
no assurance that the Company will be able to identify, attract, and
retain experienced accounting and financial personnel. The Company's
future operating results will depend on the ability of its management
and other key employees to implement and improve its systems for
operations, financial control, and information management, and to
recruit, train, and manage its employee base. There can be no
assurance that the Company will be able to achieve or manage any such
growth successfully or to implement and maintain adequate financial
and management controls and procedures, and any inability to do so
would have a material adverse effect on the Company's business,
results of operations, and financial condition.
The Company's future success depends upon its ability to address
potential market opportunities while managing its expenses to match
its ability to finance its operations. This need to manage its
expenses will place a significant strain on the Company's management
and operational resources. If the Company is unable to manage its
expenses effectively, the Company's business, results of operations,
and financial condition will be materially adversely affected.
Risks associated with acquisitions
Although the Company does not presently intend to do so, as part of
its business strategy in the future, the Company could acquire assets
and businesses relating to or complementary to its operations. Any
acquisitions by the Company would involve risks commonly encountered
in acquisitions of companies. These risks would include, among other
things, the following: the Company could be exposed to unknown
liabilities of the acquired companies; the Company could incur
acquisition costs and expenses higher than it anticipated;
fluctuations in the Company's quarterly and annual operating results
could occur due to the costs and expenses of acquiring and integrating
new businesses or technologies; the Company could experience
difficulties and expenses in assimilating the operations and personnel
of the acquired businesses; the Company's ongoing business could be
disrupted and its management's time and attention diverted; the
Company could be unable to integrate successfully.
PART II.
ITEM 1. LEGAL PROCEEDINGS.
Other than as set forth below, the Registrant is not a party to any
material pending legal proceedings and, to the best of its knowledge,
no such action by or against the Registrant has been threatened.
The Company is subject to other legal proceedings and claims which
arise in the ordinary course of its business. Although occasional
adverse decisions or settlements may occur, the Company believes that
the final disposition of such matters will not have material adverse
effect on its financial position, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Sales of Unregistered Securities.
The Registrant had no sales of unregistered securities during the
three-month period ending September 30, 2002.
Use of Proceeds.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were not any matters submitted requiring a vote of security
holders during the three month period ending September 30, 2002.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Reports on Form 8-K. No reports on Form 8-K were filed
during the three-month period covered in this Form 10-QSB.
(b) Exhibits. Exhibits included or incorporated by reference
herein: See Exhibit Index.
EXHIBIT INDEX
Exhibit No. Description
3.1 Articles of Incorporation, under the name Micro Tech
Industries, Inc. (incorporated by reference in the filing
of the Company's annual report on Form 10KSB filed on April
15, 1998).
3.2 Amendment to the Articles of Incorporation (incorporated by
reference in the Company's quarterly report filed on Form
10 Q filed on May 15, 1997).
3.3 Amended and Restated Bylaws (incorporated by reference in
the filing of the Company's annual report on Form 10KSB
filed on November 12, 1999).
16.1 Letter on change in certifying accountant (incorporated by
reference in the filing of the Company's current report on
Form 8-K filed on January 5, 2001).
99.1 Certification pursuant of President to 18 U.S.C. Section
1350, as adopted to Section 906 of the Sarbanes Oxley Act of 2002.
99.2 Certification pursuant of Chief Financial Officer to 18
U.S.C. Section 1350, as adopted to Section 906 of the
Sarbanes Oxley Act of 2002.
CERTIFICATIONS
I, Darryl Reed, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Next
Generation Media Corp.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements and other
financial information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14 for the registrant
and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, 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 in the design or operation
of internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions, with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Darryl Reed
Darryl Reed, President
CERTIFICATIONS
I, Phillip Trigg, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Next
Generation Media Corp.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements and other
financial information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14 for the
registrant and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, 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 in the design or operation
of internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions, with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Phillip Trigg
Phillip Trigg, Treasurer
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Next Generation Media Corp.
Dated: November 14, 2002 By: /s/ Darryl Reed
Darryl Reed, President