Quarterly Report — Small Business — Form 10-QSB Filing Table of Contents
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(Former
name, former address and former fiscal year
if
changed since last report)
Check
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such
reports), and (2) has been subject to such filing requirements for the past
90
days. Yes x No o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
APPLICABLE
ONLY TO CORPORATE ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check
whether the registrant filed all documents and reports required to be filed
by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Yes o No o
APPLICABLE
ONLY TO CORPORATE ISSUERS]
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 49,632,222 shares of Common Stock, $.0001
par
value, were outstanding as of September 30, 2007
Transitional
Small Business Disclosure Forms (check one): Yes o No x
Note
1. Nature
of Business and Summary of Significant Accounting Policies
Organization
NB
Telecom, Inc. (the “Company”) was originally incorporated as NB Payphones Ltd.
under the laws of the state of Pennsylvania on November 16, 1999. On December27, 2005 we migrated our state of organization to the state of Nevada and
effective March 23, 2006, our name changed to NB Telecom, Inc.
Nature
of Business
NB
Telecom, Inc. is currently a provider of both privately owned and company
owned
payphones (COCOT’s) and stations in Pennsylvania. The Company receives revenues
from the collection of the payphone coinage, a portion of usage of service
from
each payphone and a percentage of long distance calls placed from each payphone
from the telecommunications service providers. In addition, the Company also
receives revenues from the service and repair of privately owned payphones,
sales of payphone units and the sales of prepaid phone cards.
Interim
Reporting
The
unaudited financial statements as of September 30, 2007 and 2006 and for
the
nine months then ended, reflect in the opinion of management, all adjustments
(which include only nominal recurring adjustments) necessary to fairly state
the
financial position and results of operations for The nine months ended.
Operating results for interim periods are not necessarily indicative of the
results which can be expected for full years.
Summary
of Significant Accounting Policies
Management
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and the 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.
Note
1. Nature
of Business and Summary of Significant Accounting Policies
(Continued)
Summary
of Significant Accounting Policies (Continued)
Concentrations
of Credit Risk
The
Company’s payphones are located primarily in Pennsylvania and usage of those
phones may be affected by economic conditions in those areas. The
company has experienced about a 30% drop in revenue’s, due to increased
competition from other payphone providers and increase usage of wireless
communications.
The
Company maintains cash balances with a financial institution insured by the
Federal Deposit Insurance Corporation up to $100,000. There are no uninsured
balances at September 30, 2007.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with a maturity of three
months
or less when purchased to be cash equivalents for purposes of classification
in
the balance sheets and statement of cash flows. Cash and Cash equivalents
consists of cash in bank (checking) accounts.
Fixed
Assets and Depreciation
Fixed
assets are stated at cost. Depreciation is calculated on a straight-line
basis
over the useful lives of the related assets, which range from five to seven
years.
Income
Taxes
Income
taxes are accounted for in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes”. Under SFAS No. 109, deferred
income taxes are recognized using the asset and liability method by applying
tax
rates to cumulative temporary differences based on when and how they are
expected to affect the tax return. Deferred tax assets and liabilities are
adjusted for income tax rate changes.
Net
(Loss) per Common Share
Net
loss
per common share has been calculated by taking the net loss for the current
period and dividing by the weighted average shares outstanding at the end
of the
period.
Note
1. Nature
of Business and Summary of Significant Accounting Policies
(Continued)
Summary
of Significant Accounting Policies (Continued)
Revenue
Recognition
The
Company derives its primary revenue from the sources described below, which
includes dial around revenues, coin collections, and telephone equipment
repairs
and sales. Other revenues generated by the company include, phone card sales,
and commissions.
Dial
around revenues are generated from calls to gain access to a different long
distance carrier than is already programmed into the phone. Revenues from
dial
around calls are recorded based upon estimates until the coin collection
revenues are generated when callers deposit coins into the phones to make
calls.
Coin revenues are recorded in an amount equal to the coins
collected. Revenues on commissions, phone card sales, and telephone
equipment repairs and sales are realized when the services are
provided.
Expense
Allocation
The
Company is part of a consolidated entity, USIP.Com, Inc and the Board of
Directors of USIP has approved the spinoff of the Company. Expenses related
to
Insurance, Rent and Professional Fees were allocated proportionately to their
business activities. The allocation was determined by the percentage of total
expenses per each company to total expenses per the consolidated. Then the
Insurance, Rent and Professional Fees were allocated to the companies based
on
this allocation percentage. The Company felt this was the best indication
of
operations done by the company. At the year ending December 31, 2006, the
total
expenses incurred by USIP.com was $88,415. NB Telecom recorded extra expenses
per the allocation of $25,605 for the year ended December 31,2006.
Recent
Accounting Standards
In
September 2006, the FASB issued SFAS No. 157, "Accounting for Fair Value
Measurements." SFAS No. 157 defines fair value, and establishes a framework
for
measuring fair value in generally accepted accounting principles and expands
disclosure about fair value measurements. SFAS No. 157 is effective for the
Company for financial statements issued subsequent to November 15, 2007.
The
Company does not expect the new standard to have any material impact on the
financial position and results of operations.
In
September 2006, the staff of the Securities and Exchange Commission issued
Staff
Accounting Bulletin No. 108 (“SAB 108”) which provides interpretive guidance on
how the effects of the carryover or reversal of prior year misstatements
should
be considered in quantifying a current year misstatement. SAB 108 becomes
effective in fiscal 2007. Management is evaluating the financial impact of
this
pronouncement.
Note
1. Nature
of Business and Summary of Significant Accounting Policies
(Continued)
Recent
Accounting Standards (Continued)
In
February 2007, the FASB issued SFAS no, 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159
provides companies with an option to report selected financials assets and
liabilities at fair value. The objective of SFAS 159 is to reduce
both complexity in accounting for financial instruments and the volatility
in
earnings caused by measuring related assets and liabilities
differently. Generally accepted accounting principles have required
different measurement attributes for different assets and liabilities that
can
create artificial volatility in earnings. The FASB has indicated it
believes that SFAS 159 helps to mitigate this type of accounting-induced
volatility by enabling companies to report related assets and liabilities
at
fair value, which would likely reduce the need for companies to comply with
detailed rules for hedge accounting.
Note
2. Inventory
Inventory
is valued at the lower of cost, determined on the first-in, first-out basis
(FIFO), or market value. Inventory consists of the following:
The
Company has a note payable with a relative of Joseph Passalaqua, Secretary
of
the Company. This note has a due date of November 21, 2007 and
carries an interest of 10%. The outstanding principal on the note was $5,000
as
of September 30, 2007 and December 31, 2006.
The
Company has a note payable with Joseph Passalaqua, Secretary of the
Company. This note has a due date of May 31, 2008 and carries an
interest of 15%. A new note payable was issued January 27, 2007 and
carries interest of 10%. The outstanding principal on the notes were
$43,200 and $10,000 as of September 30, 2007 and December 31, 2006,
respectively. The accrued interest was $2,726 and $584 as of
September 30, 2007 and December 31, 2006, respectively.
Major
Dial Around Compensation Providers
(Commissions)
The
Company received approximately 95% of total dial around and zero-plus
compensation (commissions) from two providers.
Note
7.
Income
Taxes
As
of
December 31, 2006, the Company had a net operating loss carry forward for
income
tax reporting purposes of approximately $330,000 that may be offset against
future taxable income through 2025. Current tax laws limit the amount
of loss available to be offset against future taxable income when a substantial
change in ownership occurs. Therefore, the amount available to offset
future taxable income may be limited. No tax benefit has been
reported in the financial statements, because the Company believes there
is a
50% or greater chance the carry-forwards will expire
unused. Accordingly, the potential tax benefits of the loss
carry-forwards are offset by a valuation allowance of the same
amount.
The
provision for income taxes differs from the amount computed using the federal
US
statutory income tax rate as follows:
2006
2005
Provision
(Benefit) at US Statutory Rate
(62,262
)
(30,426
)
Other
Differences
(246
)
7,139
Increase
(Decrease) in Valuation Allowance
62,508
23,287
-
-
The
Company evaluates its valuation allowance requirements based on projected
future
operations. When circumstances change and causes a change in management's
judgment about the recoverability of deferred tax assets, the impact of the
change on the valuation is reflected in current income.
Note
8. Going
Concern Considerations
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which
contemplates the Company as a going concern. However, the Company has
sustained substantial operating losses in recent years. The company
has a current ratio of .034 for the period ended September 30, 2007, and
has a
deficit in stockholders’ equity. The Company’s ability to continue as
a going concern is dependent upon obtaining the additional capital as well
as
additional revenue to be successful in its planned activity. The
Company is actively pursuing alternative financing and has had discussions
with
various third parties, although no firm commitments have been
obtained. In the interim, shareholders of the Company have committed
to meeting its minimal operating expenses. Management believes that
actions presently being taken to revise the Company’s operating and financial
requirements provide them with the opportunity to continue as a going
concern.
These
financial statements do not reflect adjustments that would be necessary if
the
Company were unable to continue as a “going concern”. While
management believes that the actions already taken or planned, will mitigate
the
adverse conditions and events which raise doubt about the validity of the
“going
concern” assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
If
the
Company were unable to continue as a “going concern”, then substantial
adjustments would be necessary to the carrying values of assets, the reported
amounts of its liabilities, the reported revenues and expenses, and the balance
sheet classifications used.
On December 27, 2005
the Company signed an Agreement and
Plan of Merger
("Agreement") with NB Telecom, Inc., ("Telecom") a newly formed Nevada
corporation. Under the terms of the proposed Merger the Company shall
be merged into Telecom, with Telecom continuing as the surviving
corporation. The Merger became effective as of March 23, 2006. The
SEC granted effectiveness for NB Telecom July 19, 2007.
13
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
FORWARD
LOOKING STATEMENTS
The
following is a discussion and analysis of the results of operations of our
company and should be read in conjunction with our financial statements and
related notes contained in the Form 10-QSB. This Form 10-QSB contains forward
looking statements that involve risks and uncertainties. You can identify these
statements by the use of forward-looking words such as “may”, “will”, “expect”,
“anticipate”, “estimate”, “believe”, “continue”, or other similar words. You
should read statements that contain these words carefully because they discuss
our future expectations contain projections of our future results of operation
or financial condition or state other “forward-looking” information. We believe
that it is important to communicate our future expectations to our investors.
However, there may be events in the future that we are unable to accurately
predict or control. Those events as well as any cautionary language in this
Quarterly statement provide examples of risks, uncertainties and events that
may
cause our actual results to differ materially from the expectations we describe
in our forward-looking statements. Actual results may differ materially
from current expectations. Among the factors that could affect our actual
results and could cause results to differ from those contained in the
forward-looking statements contained herein is our ability to expand our
customer base, which will be dependent on business, financial and other factors
beyond our control, including, among others, seasonal aspects such as the winter
months that tend to reduce the frequency of outdoor payphone use, ability to
increase our size and marketing area by purchasing payphones and locations
from
independent telephone companies, and whether the public uses our payphones,
together with all the risks inherent in the establishment of a new enterprise
and marketing of new products.
BASIS
OF PRESENTATION
The
unaudited financial statements of NB Telecom, Inc. (“NB”, the “Company”, “our”,
or “we”), include the accounts of NB Telecom, Inc. The unaudited financial
statements of NB present herein, should be read in conjunction with the audited
financial statements of NB as of and for the year ended December 31, 2006.
In
the opinion of management, the unaudited financial statements presented herein
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for fair presentation. Interim results are not necessarily indicative
of results to be expected for the entire year.
We
prepare our financial statements in accordance with generally
accepted accounting principles, which require that management make estimates
and
assumptions that affect reported amounts. Actual results could differ from
these
estimates.
Certain
of the statements contained below are forward-looking statements (rather than
historical facts) that are subject to risks and uncertainties that could cause
actual results to differ materially from those described in
the forward-looking statements.
Impact
of Inflation
Inflation
is not considered a material factor affecting the Company’s business. General
operating expenses such as salaries, and employee benefits are, however, subject
to normal inflationary pressures
Seasonality
The
Company’s revenues from payphone operation are affected by seasonal variations,
geographic distribution of payphones and type of location. Because
the Company operates in the northeastern part of the country with many of the
payphones located outdoor, weather patterns affect our revenue streams. Revenues
drop off significantly during winter and conversely show an increase in the
spring and summer. Revenues are generally lowest in the first quarter and
highest in the third quarter.
As
of
September 30, 2007, we owned and operated a network of approximately
125payphones. Our installed payphone base generates
revenue from three principle sources: coin-calls and non-coin calls, sales
and
service of payphones and pre-paid phone cards.
14
1.Commission
Income.
Commission
income includes commissions from operator service telecommunications companies
and commissions for toll free calls from all payphones. The commissions for
operator services are paid 45 days in arrears. Dial Around compensation is
billed quarterly and received three and one half months behind the billed
quarter.
2.Coin
calls.
Coin
calls represent calls paid for by customers who deposit coins into the
payphones. Coin call revenue is recorded as the actual amount of coins collected
from the payphones. Some coin collections are made on a daily basis and others
more often if the particular payphone has significant usage. The coins are
counted in house and deposited weekly.
3.Payphone
sales, repairs and pre-paid phone card sales.
We
derive
income from the sale and repair of a payphone. We can negotiate the sale, of
a
payphone to a site owner when it becomes cost prohibitive to maintain or if
a
customer offers to buy the phone at a price that is favorable to our company.
The new owner or lessee becomes responsible for the maintenance and operational
costs of the payphone. We sell pre-paid phone cards at some of our payphone
locations. Sales and repairs of payphones and the sale of pre-paid phone cards
are not subject to the same collection delays as the other types of operating
income.
Costs
Related to our operation.
The
principle costs related to the ongoing operation of the Company’s payphones
include telephone charges, commissions, service, maintenance and network costs.
Telephone charges consist of payments made by the Company to LEC or competitive
Local Exchange Carriers and long distance carrier for access to and use of
their
telecommunications networks. Commission expense represents payments to owners
or
operators of the premises at which a payphone is located. Service,
maintenance and network cost represent the cost of servicing and maintaining
the
payphones on an ongoing basis.
Our
total
revenue decreased by $234 or approximately 1.3%, from $18,576 in the three
months ended September 30, 2006 to $18,342 in the three months ended September30, 2007. This decrease was primarily attributable to the decrease in payphone
sales revenue.
Our
commissions decreased by $1,815 or approximately 99.4%, from $1,825 in the
three
months ended September 30, 2006 to $10 in the three months ended September30,2007. This decrease was primarily due to reduced number of payphones in the
field.
Our
coin
call revenues decreased by $996 or approximately 49.1%, from $2,028 in the
three
months ended September 30, 2006 to $1,032 in the three months ended September30, 2007. The decrease in coin call revenue was primarily attributable to the
reduced number of payphones we operated coupled with the increased competition
from wireless communication services.
Our
non-coin call revenue, which is comprised primarily of dial-around revenue
increased $2,155 approximately 37.1% from $5,810 in the three months ended
September 30, 2006 to $7,965 in the three months ended September 30, 2007.
This
increase was primarily attributable to increase in advertising on the
payphones.
Service
&
Repair
Sales increased by
$422 when compared to the same period in 2006.
15
COSTS
OF SALES
Our
overall cost of sales decreased in the three months ending September 30, 2007
by
$19,655 or approximately 59.3% when compared to the three months ending
September 30, 2006. This decrease in our overall cost is primarily due to 25%
less payphones. Our telecommunication costs decreased by $9,385, due to the
cost
of providing telephone service to 25% less phones. This number reflects an
overall reduction of payphones due to our ongoing strategy of identifying and
removing unprofitable payphones. Once a low revenue payphone is identified,
we
offer the site owner an opportunity to purchase the equipment. If the site
owner
does not purchase the payphone, we remove it from the site.
Depreciation
expense decreased by $10,270 when compared to the same period in 2006. This
decrease is due to certain assets being fully depreciated and our on going
strategy of identifying unprofitable payphones, and selling them to the site
owners. Once a payphone is sold to the site owner it is removed from our assets
and depreciation schedules. We own telephone equipment and motor vehicles,
which
provide a service for a number of years. The term of service is commonly
referred to as the “useful life” of the asset. Because an asset such as
telephone equipment or motor vehicle is expected to provide service for many
years, it is recorded as an asset, rather than an expense, in the year acquired.
A portion of the cost of the long-lived asset is reported as an expense during
the cost of an asset to expense over its life in a rational and systematic
manner.
OPERATION
AND ADMINISTRATIVE EXPENSES
Operating
expenses decreased by $9,706 or approximately 30.4% over the same period in
2006. This decrease was primarily attributable to the decrease in salaries
and
related payroll taxes. Salaries and related payroll taxes decreased by $19,868
when compared to the same period in 2006. Our insurance expense increased by
$772 when compared to the same fiscal period 2006. Rent decreased by $135 when
compared to 2006. Professional fees increased by $9,769 over 2006. These are
fees we pay to accountants and attorneys throughout the year for performing
various tasks. Our telephone, utilities, office, and vehicle expenses, together
account for a decrease of $244 when compared to the same period ending September30, 2006.
Our
total
revenue increased by $485 or approximately 0.9%, from $53,178 in the nine months
ended September 30, 2006 to $53,663 in the
nine months ended September 30, 2007. This increase was primarily attributable
to the increase of dial around revenue.
Our
commissions increased by $1,271 or approximately 26.4%, from $4,809 in the
nine
months ended September 30, 2006 to $6,080 in the nine months ended September30,2007. This increase was primarily due to an increase in long distance
phone calls derived from advertisements on our network of
payphones.
Our
coin
call revenues decreased by $1,859 or approximately 26.5%, from $7,020 in the
nine months ended September 30, 2006 to $5,161 in the nine months ended
September 30, 2007. The decrease in coin call revenue was primarily attributable
to the reduced number of payphones we operated coupled with the increased
competition from wireless communication services. We reduced our network of
payphones approximately 25% during the period.
Our
non-coin call revenue, which is comprised primarily of dial-around revenue
increased $2,657 approximately 22% from $12,051 in the nine months ended
September 30, 2006 to $14,708 in the nine months ended September 30, 2007.
This
increase was primarily attributable to an increase in long distance calls
derived from advertisements on our network of payphones.
Service
&
Repair
Sales decreased by
$1,584 when compared to the same period in 2006.
16
COSTS
OF SALES
Our
overall cost of sales decreased in the nine months ending September 30, 2007
by
$30,038 or approximately 35.9% when compared to the nine months ending September30, 2006. This decrease in our overall cost is primarily due to 25% less
payphones. Our telecommunication costs decreased by $13,380, due to the cost
of
providing telephone service to 25% less phones. This number reflects an overall
reduction of payphones due to our ongoing strategy of identifying and removing
unprofitable payphones. Once a low revenue payphone is identified, we offer
the
site owner an opportunity to purchase the equipment. If the site owner does
not
purchase the payphone, we remove it from the site.
Depreciation
expense decreased by $16,107 when compared to the same period in 2006. This
decrease is due to certain assets being fully depreciated and our on going
strategy of identifying unprofitable payphones, and selling them to the site
owners. Once a payphone is sold to the site owner it is removed from our assets
and depreciation schedules. We own telephone equipment and motor vehicles,
which
provide service for a number of years. The term of service is commonly referred
to as the “useful life” of the asset. Because an asset such as telephone
equipment or motor vehicle is expected to provide service for many years, it
is
recorded as an asset, rather than an expense, in the year acquired. A portion
of
the cost of the long-lived asset is reported as an expense during the cost
of an
asset to expense over its life in a rational and systematic manner.
Our
cost
of sales for repairs, service, travel and supplies decreased by $551 a direct
result of the management team’s ongoing efforts to reduce cost.
OPERATION
AND ADMINISTRATIVE EXPENSES
Operating
expenses increased by $5,726 or approximately 8.88% over the same period in
2006. This increase was primarily attributable to the fees we pay to accountants
and attorneys throughout the year for performing various tasks. Salaries and
related payroll taxes decreased by $10,240 when compared to the same period
in
2006. Our insurance expense decreased by $2,133 when compared to the same fiscal
period 2006. Rent increased by $228 when compared to 2006. Professional fees
increased by $19,211 over 2006 Our telephone, utilities, office, and vehicle
expenses, together account for a decrease of $1,340 when compared to the same
period ending September 30, 2006.
GOING
CONCERN QUALIFICATION
In
their
Independent Auditor’s Report for the fiscal year ending December 31, 2006,
Robison, Hill & Co. states that we have incurred annual losses since
inception raising substantial doubt about our ability to continue as a going
concern.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flow
Our
primary sources of liquidity have been loans from related parties. As of
September 30, 2007, we have a note payable to Joseph Passalaqua, in the amount
of $45,924.
17
RISKS
ASSOCIATED WITH OUR BUSINESS
In
addition to the other information in this report, the following risks should
be
considered carefully in evaluating our business and prospects:
UNLESS
WE CAN REVERSE OUR HISTORY OF LOSSES, WE MAY HAVE TO DISCONTINUE
OPERATIONS.
If
we are
unable to achieve or sustain profitability, or if operating losses increase
in
the future, we may not be able to remain a viable company and may have to
discontinue operations. Our expenses have historically exceeded our revenues
and
we have had losses in all fiscal years of operation, including those in fiscal
years 2006 through 2007, and the losses are projected to continue in 2008.
We
have been concentrating on the development of our products, services and
business plan. Our management believes that we can be profitable and that our
business plan will be successful; however, there is no assurance that we will
be
successful in implementing our business plan or that we will be profitable
now
or in the future.
WE
WILL NEED ADDITIONAL CAPITAL FINANCING IN THE FUTURE.
We
may be
required to seek additional financing in the future to respond to increased
expenses or shortfalls in anticipated revenues, accelerate product development
and deployment, respond to competitive pressures, develop new or enhanced
products, or take advantage of unanticipated acquisition opportunities. We
cannot be certain we will be able to find such additional financing on
reasonable terms, or at all. If we are unable to obtain additional financing
when needed, we could be required to modify our business plan in accordance
with
the extent of available financing.
IF
WE ENGAGE IN ACQUISITIONS, WE MAY EXPERIENCE SIGNIFICANT COSTS AND DIFFICULTY
ASSIMILATING THE OPERATIONS OR PERSONNEL OF THE ACQUIRED COMPANIES, WHICH COULD
THREATENOUR FUTURE GROWTH.
If
we
make any acquisitions, we could have difficulty assimilating the operations,
technologies and products acquired or integrating or retaining personnel of
acquired companies. In addition, acquisitions may involve entering markets
in
which we have no or limited direct prior experience. The occurrence of any
one
or more of these factors could disrupt our ongoing business, distract our
management and employees and increase our expenses. In addition, pursuing
acquisition opportunities could divert our management's attention from our
ongoing business operations and result in decreased operating performance.
Moreover, our profitability may suffer because of acquisition-related costs
or
amortization of acquired goodwill and other intangible assets. Furthermore,
we
may have to incur debt or issue equity securities in future acquisitions. The
issuance of equity securities would dilute our existing
stockholders.
IF
WE CANNOT ATTRACT, RETAIN, MOTIVATE AND INTEGRATE ADDITIONAL SKILLED PERSONNEL,
OUR ABILITY TO COMPETE WILL BE IMPAIRED.
Many
of
our current and potential competitors have more employees than we do. Our
success depends in large part on our ability to attract, retain and motivate
highly qualified management and technical personnel. We face intense competition
for qualified personnel. The industry in which we compete has a high level
of
employee mobility and aggressive recruiting of skilled personnel. If we are
unable to continue to employ our key personnel or to attract and retain
qualified personnel in the future, our ability to successfully execute our
business plan will be jeopardized and our growth will be inhibited.
WE
MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS OR MAY BE SUED BY
THIRD PARTIES FOR INFRINGEMENT OF THEIR PROPRIETARY
RIGHTS.
The
telecommunications industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of trade secret,
copyright or patent infringement. We may inadvertently infringe a patent of
which we are unaware. In addition, because patent applications can take many
years to issue, there may be a patent application now pending of which we are
unaware that will cause us to be infringing when it is issued in the future.
If
we make any acquisitions, we could have similar problems in those industries.
Although we are not currently involved in any intellectual property litigation,
we may be a party to litigation in the future to protect our intellectual
property or as a result of our alleged infringement of another's intellectual
property, forcing us to do one or more of the following:
18
Cease
selling, incorporating or using products or services that incorporate
the
challenged intellectual property;
Obtain
from the holder of the infringed intellectual property right a license to
sell or use the relevant technology, which license may not be available
on
reasonable terms; or
Redesign
those products or services that incorporate such
technology.
A
successful claim of infringement against us, and our failure to license the
same
or similar technology, could adversely affect our business, asset value or
stock
value. Infringement claims, with or without merit, would be expensive to
litigate or settle, and would divert management resources.
Our
employees may be bound by confidentiality and other nondisclosure agreements
regarding the trade secrets of their former employers. As a result, our
employees or we could be subject to allegations of trade secret violations
and
other similar violations if claims are made that they breached these
agreements.
BECAUSE
OUR OFFICERS AND DIRECTORS ARE INDEMNIFIED AGAINST CERTAIN LOSSES, WE MAY BE
EXPOSED TO COSTS ASSOCIATED WITH LITIGATION.
If
our
directors or officers become exposed to liabilities invoking the indemnification
provisions, we could be exposed to additional unreimbursable costs, including
legal fees. Our articles of incorporation and bylaws provide that our directors
and officers will not be liable to us or to any shareholder and will be
indemnified and held harmless for any consequences of any act or omission by
the
directors and officers unless the act or omission constitutes gross negligence
or willful misconduct. Extended or protracted litigation could have a material
adverse effect on our cash flow.
WE
WILL DEPEND ON OUTSIDE MANUFACTURING SOURCES AND
SUPPLIERS.
We
may
contract with third party manufacturers to produce our products and we will
depend on third party suppliers to obtain the raw materials necessary for the
production of our products. We do not know what type of contracts we will have
with such third party manufacturers and suppliers. In the event we outsource
the
manufacturing of our products, we will have limited control over the actual
production process. Moreover, difficulties encountered by any one of our third
party manufacturers, which result in product defects, delayed or reduced product
shipments, cost overruns or our inability to fill orders on a timely basis,
could have an adverse impact on our business. Even a short-term disruption
in
our relationship with third party manufacturers or suppliers could have a
material adverse effect on our operations. We do not intend to maintain an
inventory of sufficient size to protect ourselves for any significant period
of
time against supply interruptions, particularly if we are required to obtain
alternative sources of supply.
OUR
STOCK PRICE MAY BE VOLATILE.
The
market price of our common stock will likely fluctuate significantly in response
to the following factors, some of which are beyond our control:
Variations
in our quarterly operating results;
Changes
in financial estimates of our revenues and operating results by
securities
analysts;
Changes
in market valuations of telecommunications equipment
companies;
Announcements
by us of significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
Additions
or departures of key personnel;
Future
sales of our common stock;
Stock
market price and volume fluctuations attributable to inconsistent
trading
volume levels of our stock;
Commencement
of or involvement in
litigation.
19
In
addition, the equity markets have experienced volatility that has particularly
affected the market prices of equity securities issued by technology companies
and that often has been unrelated or disproportionate to the operating results
of those companies. These broad market fluctuations may adversely affect the
market price of our common stock.
WE
DO NOT ANTICIPATE PAYING ANY DIVIDENDS ON OUR COMMON
STOCK.
We
have
not paid any dividends on our Common Stock since inception and do not anticipate
paying any dividends on our Common Stock in the foreseeable future. Instead,
we
intend to retain any future earnings for use in the operation and expansion
of
our business.
WE
ARE CURRENTLY SUBJECT TO SEC REGULATIONS RELATING TO LOW-PRICED STOCKS, THE
MARKET FOR OUR COMMON STOCK COULD BE ADVERSELY AFFECTED.
The
Securities and Exchange Commission has adopted regulations concerning low-priced
(or "penny") stocks. The regulations generally define "penny stock" to be any
equity security that has a market price less than $5.00 per share, subject
to
certain exceptions. If our shares are offered at a market price less
than $5.00 per share, and do not qualify for any exemption from the penny stock
regulations, our shares may become subject to these additional regulations
relating to low-priced stocks.
The
penny
stock regulations require that broker-dealers, who recommend penny stocks to
persons other than institutional accredited investors make a special suitability
determination for the purchaser, receive the purchaser's written agreement
to
the transaction prior to the sale and provide the purchaser with risk disclosure
documents that identify risks associated with investing in penny stocks.
Furthermore, the broker-dealer must obtain a signed and dated acknowledgment
from the purchaser demonstrating that the purchaser has actually received the
required risk disclosure document before effecting a transaction in penny stock.
These requirements have historically resulted in reducing the level of trading
activity in securities that become subject to the penny stock
rules.
The
additional burdens imposed upon broker-dealers by these penny stock requirements
may discourage broker-dealers from effecting transactions in the common stock,
which could severely limit the market liquidity of our common stock and our
shareholders' ability to sell our common stock in the secondary
market.
ITEM
3. CONTROLS AND PROCEDURES
The
Company's Chief Executive Officer and Chief Financial Officer are responsible
for establishing and maintaining disclosure controls and procedures for the
Company.
(a)
Evaluation of Disclosure Controls
and Procedures
As
of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company's management,
including the Company's principal executive officer and our principal
financial officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-15 under
the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon
the
evaluation our principal executive officer and our principal financial officer
concluded that, as of the end of the period, the Company's disclosure controls
and procedures were effective in timely alerting them to material information
relating to the Company required to be included in the reports that the Company
files and submits pursuant to the Exchange Act.
(b)
Changes in Internal
Controls
Based
on
their evaluation as of September 30, 2007, there were no significant changes
in
the Company's internal controls over financial reporting or in any other areas
that could significantly affect the Company's internal controls subsequent
to
the date of their most recent evaluation, including any corrective actions
with
regard to significant deficiencies and material weaknesses.
20
PART
II OTHER INFORMATION.
ITEM
1. LEGAL PROCEEDINGS
Not
applicable.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES ANS USE OF
PROCEEDS.
Not
applicable
ITEM
3. DEFAULTS UPON SENIOR SECURITIES.
Not
applicable.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
*Filed
as
an exhibit to the Company's Registration Statement on Form 10-SB, as filed
with
the Securities and Exchange Commission on May 16, 2006.
(b) Reports
on Form 8K
None.
21
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.