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, 2007
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: 0-49648 |
CONTINAN COMMUNICATIONS, INC. |
(Exact Name of Company as Specified in its Charter) |
Nevada | 73-1554122 |
(State or Other Jurisdiction of Incorporation | (I.R.S. Employer |
or Organization) | Identification No.) |
4640 Admiralty Way, Suite 500, Marina del Rey, California 90292 |
(Address of Principal Executive Offices) |
(310) 496-5747 . |
(Company's Telephone Number) |
______________________________________________________________ |
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report) |
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 .
Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
No X .
As of September 30, 2007, the Company had 32,675,172 shares of common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
|
TABLE OF CONTENTS |
PART I - FINANCIAL INFORMATION | PAGE | ||
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) | |||
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2007 | 3 | ||
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE | |||
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND | |||
SEPTEMBER 30, 2006, AND FOR THE PERIOD OF INCEPTION | |||
(SEPTEMBER 16, 2002) TO SEPTEMBER 30, 2007 | 5 | ||
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY FOR THE PERIOD OF INCEPTION | |||
(SEPTEMBER 16, 2002) TO SEPTEMBER 30, 2007 | 7 | ||
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006, ANDand FOR THE PERIOD of INCEPTION | |||
(SEPTEMBER16, 2002) TO SEPTEMBER 30, 2007 | 10 | ||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 13 | ||
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF | |||
FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 33 | ||
ITEM 3. CONTROLS AND PROCEDURES | 46 | ||
PART II - OTHER INFORMATION | |||
ITEM 1. LEGAL PROCEEDINGS | 47 | ||
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 47 | ||
ITEM 3. DEFAULTS UPON SENIOR SECURITIES | 48 | ||
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 48 | ||
ITEM 5. OTHER INFORMATION | 48 | ||
ITEM 6. EXHIBITS | 49 | ||
SIGNATURES | 49 | ||
2 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCAL STATEMENTS.
CONTINAN COMMUNICATIONS, INC. |
(A Development Stage Company) |
CONSOLIDATED BALANCE SHEET |
SEPTEMBER 30, 2007 |
(Unaudited) |
ASSETS | |||||
Current assets: | |||||
Cash | $ 1,058 | ||||
Other receivables | -- | ||||
Prepaid expense | -- | ||||
Total current assets | 1,058 | ||||
Furniture and Equipment, net | 27,873 | ||||
Other Assets: | |||||
Intangible assets, net | 56,645 | ||||
Developed software, net | 508,652 | ||||
Security deposit | 3,595 | ||||
Total other assets | 568,892 | ||||
Total assets | $ 597,823 | ||||
LIABILITIES AND SHAREHOLDERS' DEFICIT | |||||
Current liabilities: | |||||
Accounts payable | $ 155,871 | ||||
Accrued liabilities | 114,579 | ||||
Accrued interest on notes payable - related party | 42,555 | ||||
Accrued interest on notes payable | 21,533 | ||||
Accrued management fees | 280,910 | ||||
Current portion of capital leases | 4,707 | ||||
Notes payable - related party | 232,610 | ||||
Notes payable | 87,586 | ||||
Income tax payable | 800 | ||||
Liability for derivative instruments | 579 | ||||
Total current liabilities | 941,730 | ||||
Long term liabilities: | |||||
Capital leases, net of current portion | 1,859 | ||||
Shareholders' deficit: | |||||
Preferred stock, par value of $0.001; 10,000,000 shares authorized | |||||
8,219 issued and outstanding | 8 | ||||
Common stock; par value of $0.001; 100,000,000 shares authorized | |||||
32,675,172 issued and outstanding | 32,676 | ||||
Additional paid in capital | 7,215,122 | ||||
Deficit accumulated during the development stage | (7,593,572) | ||||
Total shareholders' deficit | (345,766) | ||||
Total liabilities and shareholders' deficit | $ 597,823 | ||||
See Accompanying Notes to Consolidated Financial Statements |
3 |
CONTINAN COMMUNICATIONS, INC. |
(A Development Stage Company) |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited) |
|
Ended September 30, | Period from September 16, 2002 (Inception) to | |||||||
2007 | 2006 | 2007 | 2006 | ||||||
Revenues | $ 1,600 | $ 19,475 | $ 3,642 | $ 54,960 | $ 133,512 | |||||
Expenses: | ||||||||||
Direct costs | 1,884 | 46,404 | 16,130 | 197,905 | 385,487 | |||||
Selling expenses | 21,145 | 1.021,513 | 80,968 | 1,113,776 | 1,731,079 | |||||
Depreciation and amortization | 14,771 | 17,718 | 48,369 | 47,495 | 188,480 | |||||
General and administrative expenses | 245,380 | 849,629 | 782,615 | 1,509,616 | 4,354,158 | |||||
Total expenses | 283,180 | 1,935,264 | 928,082 | 2,868,792 | 6,659,204 | |||||
Other income (expenses), net: | ||||||||||
Interest expense | (16,371) | (21,388) | (16,011) | (56,385) | (222,739) | |||||
Other expense | -- | -- | (411) | (543) | (954) | |||||
Gain (loss) on derivative instruments | -- | 381,672 | 1,572 | 381,672 | (840,249) | |||||
Other income | -- | -- | -- |
| 62 | |||||
Total other income (expenses), net | (16,371) | (360,284) | (14,850) | (324,744) | (1,063,880) | |||||
Loss before provision for income taxes | (265,209) | (1,555,505) | (939,290) | (2,489,088) | (7,589,572) | |||||
Provision for income taxes |
|
| 800 | 800 | 4,000 | |||||
Net Loss | $ (265,209) | $ (1,555,505) | $ (940,090) | (2,489,888) | $ (7,593,572) | |||||
Net loss per common share - basic and diluted | $ (0.01) | $ (0.87) | $ (0.03) | $ (2.36) | $ (0.29) | |||||
Basic and diluted weighted average common shares outstanding (1) | 30,517,805 | 1,796,385 | 27,447,920 | 1,053,506 | 25,851,485 | |||||
(1) Adjusted for a 1 for 20 reverse split effective on December 1, 2006.
See Accompanying Notes to Consolidated Financial Statements |
4 |
CONTINAN COMMUNICATIONS, INC. |
(A Development Stage Company) |
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY |
FOR THE PERIOD FROM SEPTEMBER 16, 2002 (INCEPTION) TO JUNE 30, 2007 |
(Unaudited) |
Deficit | |||||||||||||||
Accumulated | |||||||||||||||
During the | |||||||||||||||
Additional | Development | Total | |||||||||||||
Preferred Stock | Common Stock | Paid in Capital | Stage | Shareholders | |||||||||||
Shares | Amount | Shares | Amount | (Restated) | (Restated) | Equity (Deficit) | |||||||||
Balance at inception (September 16, 2002) | -- | $ -- | -- | $ -- | $ -- | $ -- | $ -- | ||||||||
Issuance of common stock | 3,000,000 | 3,000 | -- | -- | -- | -- | 3,000 | ||||||||
Balance at December 31, 2002 | 3,000,000 | 3,000 | -- | -- | 2,123,608 | -- | 2,126,608 | ||||||||
Net loss | -- | -- | -- | -- | -- | (167,276) | (167,276) | ||||||||
Balance at December 31, 2003 | 3,000,000 | 3,000 | -- | -- | -- | (167,276) | 1,959,332 | ||||||||
Net loss | -- | -- | -- | -- | -- | (791,049) | (791,049) | ||||||||
Balance at December 31, 2004 | 3,000,000 | 3,000 | -- | -- | 2,123,608 | (958,325) | 1,168,283 | ||||||||
Net loss | -- | -- | -- | -- | -- | (1,359,128) | (1,359,128) | ||||||||
Balance at December 31, 2005 | 3,000,000 | 3,000 | -- | -- | 2,123,608 | (2,317,453) | (190,845) | ||||||||
Reverse acquisition, May 2006 | -- | -- | 1,699,108 (1) | 1,699 | 971,820 | -- | 973,519 | ||||||||
Stock options granted for consulting services | -- | -- | -- | -- | 40,343 | -- | 40,343 | ||||||||
Stock options granted to employees | -- | -- | -- | -- | 33,619 | -- | 33,619 | ||||||||
Stock options granted to management | -- | -- | -- | -- | 58,273 | -- | 58,273 | ||||||||
Stock options granted for finders fees | -- | -- | -- | -- | 37,737 | -- | 37,737 | ||||||||
Fees on reverse acquisition | -- | -- | -- | -- | (37,737) | -- | (37,737) | ||||||||
Issue of common stock | |||||||||||||||
upon exercise of warrants | -- | -- | 290,000 | 290 | (290) | -- | -- | ||||||||
Issue of common stock | |||||||||||||||
for consulting service | -- | -- | 249,500 | 250 | 548,750 | -- | 549,000 | ||||||||
Conversion of preferred stock | (3,000,000) | (3,000) | 20,250,000 | 20,250 | (17,250) | -- | -- | ||||||||
5 |
CONTINAN COMMUNICATIONS, INC. |
(A Development Stage Company) |
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY |
FOR THE PERIOD FROM SEPTEMBER 16, 2002 (INCEPTION) TO JUNE 30, 2007 |
(Unaudited) |
(continued) |
Deficit | ||||||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||||||
During the | ||||||||||||||||||||||||||||||||||||
Additional | Development | Total | ||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid in Capital | Stage | Shareholders | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | (Restated) | (Restated) | Equity (Deficit) | ||||||||||||||||||||||||||||||
Conversion of notes payable to | ||||||||||||||||||||||||||||||||||||
common stock - Rackgear Inc. | -- | -- | 210,914 | 211 | 63,063 | -- | 63,274 | |||||||||||||||||||||||||||||
Conversion of accounts payable in the | ||||||||||||||||||||||||||||||||||||
amount of $12,698 to common stock | -- | -- | 22,650 | 23 | 12,675 | -- | 12,698 | |||||||||||||||||||||||||||||
Conversion of notes payable to | ||||||||||||||||||||||||||||||||||||
preferred stock - First Bridge Bank | 5,510 | 6 | -- | -- | 550,951 | -- | 550,957 | |||||||||||||||||||||||||||||
Conversion of notes payable to | ||||||||||||||||||||||||||||||||||||
common stock - Kurt Hiete | -- | -- | 200,000 | 200 | 60,326 | -- | 60,526 | |||||||||||||||||||||||||||||
Conversion of accounts payable in the | ||||||||||||||||||||||||||||||||||||
amount of $34,865 to common stock | -- | -- | 35,000 | 35 | 34,830 | -- | 34,865 | |||||||||||||||||||||||||||||
Issue of common stock | ||||||||||||||||||||||||||||||||||||
for consulting services | -- | -- | 2,710,000 | 2,710 | 1,623,290 | -- | 1,626,000 | |||||||||||||||||||||||||||||
Stock options granted for consulting services | -- | -- | -- | -- | 48,846 | -- | 48,846 | |||||||||||||||||||||||||||||
Stock options granted for consulting services | -- | -- | -- | -- | 215,748 | -- | 215,748 | |||||||||||||||||||||||||||||
Stock options granted to employees | -- | -- | -- | -- | 93,236 | -- | 93,236 | |||||||||||||||||||||||||||||
Transfer to derivative liability | -- | -- | -- | -- | (307,516) | -- | (307,516) | |||||||||||||||||||||||||||||
Net loss | -- | -- | -- | -- | -- | (4,336,029) | (4,336,029) | |||||||||||||||||||||||||||||
Balance at December 31, 2006 | 5,510 | 6 | 25,667,172 | 25,668 | 6,154,322 | (6,653,482) | (473,486) | |||||||||||||||||||||||||||||
Issuance of common stock for | -- | -- | 65,000 | 65 | 33,085 | -- | 33,150 | |||||||||||||||||||||||||||||
6 |
CONTINAN COMMUNICATIONS, INC. |
(A Development Stage Company) |
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY |
FOR THE PERIOD FROM SEPTEMBER 16, 2002 (INCEPTION) TO JUNE 30, 2007 |
(Unaudited) |
(continued) |
Deficit | |||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
During the | |||||||||||||||||||||||||
Additional | Development | Total | |||||||||||||||||||||||
Preferred Stock | Common Stock | Paid in Capital | Stage | Shareholders | |||||||||||||||||||||
Shares | Amount | Shares | Amount | (Restated) | (Restated) | Equity (Deficit) | |||||||||||||||||||
Conversion of note payable to | 150 | -- | -- | -- | 15,000 | -- | 15,000 | ||||||||||||||||||
Stock options granted for consulting services | -- | -- | -- | -- | 81,130 | -- | 81,130 | ||||||||||||||||||
Conversion of A/P and management fees | -- | -- | 1,832,000 | 1,832 | 596,391 | -- | 602,530 | ||||||||||||||||||
Conversion of note payable and accrued | 3,360 | 3 | -- | -- | 335,997 | -- | 335,997 | ||||||||||||||||||
Conversion of common stock to | (801) | (1) | 804,000 | 804 | (803) | -- | -- | ||||||||||||||||||
Net loss | -- | -- | -- | -- | -- | (940,090) | (940,090) | ||||||||||||||||||
Balance at June 30, 2007 | 8,219 | $ 8 | 32,675,172 | $ 32,676 | $ 7,215,122 | $ (7,593,572) | $ (345,769) | ||||||||||||||||||
(1) Adjusted for a 1 for 20 reverse split effective on December 1, 2006.
See Accompanying Notes to Consolidated Financial Statements |
7 |
7
CONTINAN COMMUNICATIONS, INC. |
(A Development Stage Company) |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) |
Nine Months | Nine Months | September 16, 2002 | |||||||
Cash Flows from Operating Activities: | |||||||||
Net loss | $ (940,090) | $ (2,489,888) | $ (7,593,572) | ||||||
Adjustments to reconcile net loss to net cash | |||||||||
used in operating activities: | |||||||||
Depreciation and amortization | 48,369 | 47,495 | 188,479 | ||||||
Stock compensation for consulting services and options granted | |||||||||
to management and employees | 747,808 | 1,148,235 | 3,747,857 | ||||||
(Gain) loss on derivative instruments | (1,572) | (381,672) | 579 | ||||||
(Increase) decrease in assets: | |||||||||
Accounts receivable | -- | 37,062 | -- | ||||||
Other receivables | 1,758 | (2,909) | -- | ||||||
Security deposit | 4,805 | -- | (3,595) | ||||||
Prepaid expenses | 500 | 562,500 | -- | ||||||
Increase (decrease) in liabilities: | |||||||||
Accounts payable | (291,661) | 281,011 | 181,925 | ||||||
Accrued liabilities | 20,201 | 42,666 | 113,788 | ||||||
Accrued interest on notes payable - related party | (11,693) | 15,280 | 39,613 | ||||||
Accrued interest on notes payable | 1,853 | 22,601 | 24,475 | ||||||
Accrued management fees | 78,429 | 67,555 | 280,910 | ||||||
Income tax payable | 800 | -- | 800 | ||||||
Net cash used in operating activities | (340,493) | (650,064) | (3,018,741) | ||||||
8 |
CONTINAN COMMUNICATIONS, INC. |
(A Development Stage Company) |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) |
Nine Months | Nine Months | September 16, 2002 | |||||||||||
Cash Flows from Investing Activities: | |||||||||||||
Payment for intangible assets | -- | (152) | (101,369) | ||||||||||
Payment for software development costs | -- | (5,090) | (411,567) | ||||||||||
Purchase of equipment | (22,255) | (1,251) | (43,618) | ||||||||||
Net cash used in investing activities | (22,255) | (6,493) | (556,554) | ||||||||||
Cash Flows from Financing Activities: | |||||||||||||
Increase in bank overdraft | -- | 8,381 | -- | ||||||||||
Sale of common stock | -- | 214,500 | 247,500 | ||||||||||
Borrowings on convertible note payable | 15,000 | -- | 15,000 | ||||||||||
Payments on note payable-related party | (849) | -- | (7,677) | ||||||||||
Payments on notes payable | -- | -- | (7,400) | ||||||||||
Borrowings on notes payable - related party | 24,801 | 51,696 | 2,671,224 | ||||||||||
Borrowings on notes payable | 320,000 | 363,500 | 680,986 | ||||||||||
Payments on capital lease obligations | (3,856) | (7,059) | (23,280) | ||||||||||
Net cash provided by financing activities | 355,096 | 631,018 | 3,576,353 | ||||||||||
(Decrease) Increase -n Cash | (7,652) | (25,539) | 1,058 | ||||||||||
Cash, Beginning of Period | 8,710 | 25,539 | -- | ||||||||||
|
| ||||||||||||
Cash, End of Period | $ 1,058 | $ -- | $ 1,058 | ||||||||||
Supplemental Disclosures of Cash Flow Information: | |||||||||||||
Interest paid | $ -- | $ -- | $ - | ||||||||||
Income taxes paid | $ -- | $ 800 | $ 3,200 | ||||||||||
Supplemental Disclosuresof Non-Cash Investing and | |||||||||||||
Financing Activities: | |||||||||||||
Furniture and equipment acquired through exchange of stock | $ - -- | $ -- | $ 30,250 | ||||||||||
Developed software acquired through exchange of stock | $ -- | $ - -- | $ 165,000 | ||||||||||
Conversion of note payable to preferred stock | $ - -- | $ -- | $ 550,957 | ||||||||||
Conversion of notes payable and accrued interest into common stock | $ - -- | $ 339,367 | $ 123,800 | ||||||||||
Conversion of A/P and management fees into common stock | $ 602,530 | $ -- | $ 650,093 | ||||||||||
Purchase of equipment through capital leases | $ - -- | $ - -- | $ 29,843 | ||||||||||
Issuance of stock options for consulting services | $ 81,130 | $ - -- | $ 386,067 | ||||||||||
Issuance of common stock for consulting services | $ 33,150 | $ - -- | $ 2,208,150 | ||||||||||
Stock options granted to management and employees | $ - -- | $ - -- | $ 185,128 | ||||||||||
Issue of common stock upon exercise of warrants | $ - -- | $ 290 | $ 290 | ||||||||||
See Accompanying Notes to Consolidated Financial Statements
9 |
CONTINAN COMMUNICATIONS, INC. |
(A Development Stage Company) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(Unaudited) |
NOTE 1 - ORGANIZATION
Texxon, Inc. was incorporated on October 6, 1998, under the laws of the state of Oklahoma. Since inception, the Company's
primary focus was raising capital and paying for the exclusive licenses. Pursuant to the Company's Share Agreement with
Teleplus, Inc.,the Company's focus is now centered on the development and marketing of its Multinlingual Mobile Services for
international travelers in their native languages in collaboration with major wireless providers.
In May 2006, Texxon and the shareholders of TelePlus completed a Share Exchange Agreement whereas the Company acquired
all of the outstanding capital stock of TelePlus from the TelePlus shareholders in exchange for 3,000,000 shares of voting
convertible preferred stock convertible into 81,000,000 shares of Company c ommon stock. This transaction constituted a change
of control of the Company whereby the majority of the shares of Texxon are now owed by the shareholders of TelePlus. The
accounting for this transaction is identical to that resulting from a reverse-acquisition, except that no goodwill or other intangible
assets is recorded. As a result, the transaction was treated for accounting purposes as a recapitalization by the accounting
acquirer TelePlus. The historical financial statements will be those of TelePlus. On November 22, 2006, Texxon, the Oklahoma
corporation, for the sole purpose of re-domestication in Nevada, filed Articles of Merger with the Secretaries of state of the states
of Oklahoma and Nevada pursuant to which Texxon, the Oklahoma corporation, was merged with and into Texxon, Inc., a
Nevada corporation, with the Nevada corporation remaining as the surviving entity. Immediately following the merger, the
Nevada company changed its name to Continan Communications, Inc. ("Company") and its articles of incorporation were
amended such that the number of common stock and preferred stock is increased from 45,000,000 to 100,000,000 and from
5,000,000 to 10,000,000, respectively. On December 1, 2006, the Company executed a 1 for 20 reverse stock split of all its
issued and outstanding shares of common stock. Additionally, all convertible preferred stocks were converted into 20,250,000
shares of common stock.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation.
As a result of the Share Exchange Agreement, the Company acquired 100% of the stock of TelePlus, Inc. and TelePlus h as
become a wholly owned subsidiary of the Company. The consolidated financial statements include the accounts of the parent
and its subsidiary. All significant intercompany transactions have been eliminated in the consolidation. TelePlus was
incorporated in the State of California on September 16, 2002.
The Company is in the development stage, as defined in Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises", with its principal activity being to leverage its proprietary
content management software to deliver life enhancing, language specific, contents and services via a cellular phone.
Cash and Cash Equivalents.
The Company defines cash and cash equivalents as short-term investments in highly liquid debt instruments w ith original
maturities of three months or less, which are readily convertible to known amounts of cash.
Use of Estimates.
The preparation of financial statements in conformity 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.
10 |
Financial Instruments.
Financial accounting standards require disclosure of the fair value of financial instruments held by the Company. Fair value of
financial instruments is considered the amount at which the instrument could be exchanged in a current transaction between
willing parties. The carrying amount of receivables, accounts payable, and other liabilities included on the accompanying
balance sheet approximate their fair value due to their short-term nature.
Furniture and Equipment.
Furniture and equipment are carried at cost and depreciation is computed over the estimated useful lives of the individual assets
ranging from 3 to 15 years. The Company uses the straight-line method of depreciation.
The related cost and accumulated depreciation of ass ets retired or otherwise disposed of are removed from the accounts and the
resultant gain or loss is reflected in earnings. Maintenance and repairs are expensed currently while major renewals and
betterments are capitalized.
Intangible Assets.
Intangible assets consist of patent application costs that relate to the Company's U.S. patent application and consist primarily of
legal fees, the underlying test market studies and other direct fees. The recoverability of the patent application costs is dependent
upon, among other factors, the success of the underlying technology.
Developed Software.
Developed software is carried at the cost of development and amortization is computed over the estimated useful life of the
software that is currently 15 years. The Company uses the straight-line method of amortization.
Impairment of Long-Term Assets.
Long-term assets of the Company are reviewed annually as to whether their carrying value has become impaired. Management
considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations.
Management also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. As of September 30, 2007 management expects these assets to be fully recoverable.
Income Taxes.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and th eir respective tax bases. Deferred tax assets, including tax loss
and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense
represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax
assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Revenue Recognition.
The Company recognizes revenues when international travelers place a call to Company's call centers through their personal
cellular phone to obtain multilingual assistance and services in their native language while traveling in foreign countries.
11 |
Capital Leases.
Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair
value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the
shorter of the estimated useful lives of the assets or the period of the related lease.
Stock Based Compensation.
The Company adopted SFAS No. 123 (Revised 2004), Share Based Payment ("SFAS No. 123R"). SFAS No. 123R requires
companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments
based on the grant-date fair value. SFAS No. 123R eliminates the ability to account for the award of these instruments under the
i ntrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and allowed under the original provisions of SFAS No. 123.
Earnings Per Share.
SFAS No. 128, "Earnings Per Share," requires presentation of basic earnings per share ("Basic EPS") and diluted earnings per
share ("Diluted EPS"). The computation of basic earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of outstanding common shares during the period. Diluted earnings per share gives
effect to all dilutive potential common shares outstanding during the period. The computation of diluted earnings per share does
not assume conversion, exercise or contingen t exercise of securities that would have an anti-dilutive effect on losses. As all
dilutive securities have an antidilutive effect on 2007 and 2006 earnings per share, the securities have been excluded from the
earnings per share calculation.
Accounting for Options and Warrants.
During the period ended December 31, 2006, the Company issued warrants and options to numerous consultants and investors for
services and to raise capital. During the period up until the recapitalization performed on December 1, 2006 (Note 1), the
Company did not have sufficient authorized shares in order to issue these options should they be exercised. Because of the lack
of authorized shares, the Company therefore needed to follow derivative accounting rules for its accounting of options and
warrants.
The Company accounted for options and warrants issued in connection with financing arrangements in accordance with
Emerging Issues Task Force ("EITF") Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock." Pursuant to EITF 00-19, the Company was to recognize a liability for derivative
instruments on the balance sheet to reflect the insufficient amounts of shares authorized, which would have otherwise been
classified into equity. An evaluation of specifically identified conditions was then made to determine whether the fair value of
warrants or options issued was required to be classified as a derivative liability. The fair value of warrants and options classified
as derivative liabilities was adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or
loss was recorded in the corresponding period earnings.
In December 2006, the Company completed a reincorporation by merger with Texxon-Nevada, which, therefore, allowed the
Company to increase its authorized preferred and common shares from 5,000,000 to 10,000,000 shares and from 45,000,000 to
100,000,000 shares, respectively.
At the date of reincorporation, the Company recalculated the value of its options and warrants at the current fair value, and
recorded an increase to equity and a decrease to derivative liabilities for the fair value of the options and warrants. The
difference between the liability and the recalculated fair value was recorded as a gain or loss.
12 |
Recent Accounting Pronouncements.
In February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115." SFAS No. 159 permits
companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to
be measured at fair value. The objective of SFAS No. 159 is to provide opportunities to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently without having to apply hedge accounting provisions. SFAS No.
159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose
differen t measurement attributes for similar types of assets and liabilities. SFAS No. 159 will be effective in the first quarter of
fiscal 2008. The Company is currently evaluating the impact that this statement will have on its financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which addresses the measurement of fair value
by companies when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No.
157 provides a common definition of fair value to be used throughout GAAP that is intended to make the measurement of fair
value more consistent and comparable and improve disclosures about those measures. SFAS No. 157 will be effective for an
entity's financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating th e
effect SFAS No. 157 will have on its consolidated financial position, liquidity, or results of operations.
Reclassifications.
Certain reclassifications had been made to the 2006 financial statements to conform to the 2007 financial statement presentation.
These reclassifications had no effect on net income as previously reported.
NOTE 3 - GOING CONCERN
The Company has no significant operating history and, from (inception) to September 30, 2007, has generated a net loss of
$7,593,572. The accompanying financial statements for the period ended September 30, 2007 have been prepared assuming the
Company will continue as a going concern. During the year 2006, management completed a reverse merger with Texxon Inc.
and intended to raise equity through a private placement.
The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the
Company to continue as a going concern.
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following as of September 30, 2007 and December 31, 2006:
2007 | 2006 | ||
Furniture and fixtures | $ 12,272 | $ 12,272 | |
Computers and equipment | 68,289 | 63,452 | |
Total | 80,561 | 75,724 | |
Less: accumulated depreciation | (52,688) | (40,597) | |
Machinery and equipment, net | $ 27,873 | $ 35,127 |
Depreciation expense amounted to $12,091 for the nine months ended September 30, 2007 and $11,132 for the nine months ended September 30, 2006.
13 |
NOTE 5 - CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts and the balances may exceed federally insured limits from time to
time. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its
cash in bank deposit accounts. As of September 30, 2007, the Company did not have deposits in excess of federally insured
limits.
NOTE 6 - DEVELOPED SOFTWARE
The Company has developed internal use software for the purpose of managing its wireless network and specific services. The
total capitalized cost of this software at September 30, 2007and December 31, 2006 was $593,988. Accumulated amortization
amounted to $85,336 and $47,004 as of September 30, 2007 and December 31, 2 006, respectively. Amortization expense
amounted to $28,749 and $28,750 for the nine months ended September 30, 2007 and September 30, 2006.
NOTE 7 - INTANGIBLE ASSETS
Intangible assets consisted of the following at September 30, 2007 and December 31, 2006:
2007 | 2006 | ||
Patent application costs | $ 60,982 | $ 60,982 | |
Website development costs | 40,908 | 40,908 | |
Network interconnection | 5,300 | 5,300 | |
Total | 107,190 | 107,190 | |
Less: accumulated amortization | (50,545) | (43,016) | |
Intangible assets, net | $ 56,645 | $ 64,174 |
Amortization expense amounted to $7,530 for the nine months ended September 30, 2007 and $7,613 for the nine months ende
d September 30, 2006.
NOTE 8 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial statement purposes and the amounts used for income tax purposes. Significant components of the Company's
deferred tax assets and liabilities at September 30, 2007 are as follows:
Deferred tax asset | |
Federal net operating loss | $ 2,431,239 |
State net operating loss | 428,145 |
Total deferred tax asset | 2,859,384 |
Less valuation allowance | (2,859,384) |
Deferred tax asset, net | $ -- |
At September 30, 2007 and September 30, 2006, the Company had federal and state net operating loss ("NOL") carryforwards of
approximately $15,226,000 and $4,944,905, respectively. Federal NOLs could, if unused, expire in 2023. State NOLs, if unused,
could expire in 2013.
14 |
The Company has provided a 100% valuation allowance on the deferred tax assets at September 30, 2007 and December 31,
2006 to reduce such asset to zero, since there is no assurance that the Company will generate future taxable income to utilize such
asset. Management will review this valuation allowance requirement periodically and make adjustments as warranted.
The reconciliation of the effective income tax rate to the federal statutory rate for the periods ended September 30, 2007 and
December 31, 2006, are as follows:
2007 | 2006 | ||
U. S. Federal Statutory rate | 34.0% | 34.0% | |
State tax rate, net of federal benefit | 6.0 | 6.0 | |
Less valuation allowance | (40.0) | (40.0) | |
Effective income tax rate | -- % | -- % |
NOTE 9 - RELATED PARTY TRANSACTIONS
Notes Payable.
The Company has received loans from related parties. These related parties consist of various members of management who are
also shareholders. The related parties also consist of an employee, a relative of the CEO, and a shareholder of the Company. As
of September 30, 2007 and December 31, 2006, the Company had loans due to related parties of $232,615 and $193,658,
respectively. Loans due to related parties consisted of the following:
2007 | 2006 | |||||
Promissory note issued to Claude Buchert, CEO, on December 30, 2004 with interest of 10%. Principal along with accrued interest are due on or before June 30, 2005. | $ 18,809 | $ 5,209 | ||||
Promissory note issued to Edward Shirley, relative of Vice President, on February 23, 2004 with interest of 10%, with the remaining principal balance and accrued interest due on December 31, 2004. | 30,000 30,000 | 30,000 | ||||
Promissory notes issued to Humax West, Inc., shareholder, on various dates between January 26, 2006 and February 16, 2006 with interest of 10%. Principal along with accrued interest are payable on the maturity date March 30, 2006. The amount due in 2005 contain options for the Holder to receive shares of the Company stock in lieu of repayment of principal and was converted in 2006. The 2006 loan is non-convertible. | 30,000 | 30,000 | ||||
Promissory note issued to Stephanie Buchert, relative of CEO, on May 1, 2004 with interest of 10%, with the outstanding principal balance and accrued interest due on December 31, 2004. | 9,093 | 9,093 | ||||
Promissory note issued to Celine Coicaud, employee, on December 31, 2003 with interest of 10% with an additional payment of $9,900 due August 10, 2004 and the remaining principal balance and accrued interest due on December 31, 2004. | -- | 8,870 | ||||
Promissory note issued to Helene Legendre, Vice President and shareholder, on June 30, 2004 with interest of 10%, with the remaining principal balance and accrued interest due on December 31, 2004. | 144,713 | 110,486 | ||||
Totals notes payable - related | $ 232,615 | $ 193,658 | ||||
15 |
Total interest expense for the periods ended September 30, 2007 and September 30, 2006 for related parties amounted to $10,553
and $51,990, respectively. The Company is currently in default on various notes payable and is in the process of negotiating
settlements or payments. All notes are included in current liabilities.
Management Fees.
The Company has employment agreements with two members of management through March, 2008. These agreements are
cancelable at any time by the Company or member of management. As of September 30, 2007 and December 31, 2006, the
Company had $280,910 and $202,481, respectively, payable to management in arrears under these agreements. Expenses related
to these agreements are recorded in general and administrative expense and amounted to $126,737 and $100,000 for t he periods
ended September 30, 2007 and September 30, 2006, respectively.
NOTE 10 - LEASES
The Company leases its office facility under a six-month lease beginning July 2007 requiring payments of $2,500 per month.
The future minimum payments under the lease are as follows:
The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments
as of June 30, 2007, are as follows:
For the Years | ||
September 30, | Amount | |
2008 | $ 7,500 | |
Thereafter | -- | |
7,500 |
Capital leases
The Company leases certain computers under agreements that are classified as capital leases. The cost of equipment under capital
leases is included in the balance sheets as furniture and equipment and amounted to $33,173 at September 30, 2007. Accumulated
amortization of the leased equipment at September 30, 2007 was $15,613. Amortization of assets under capital leases is included
in depreciation expense.
The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments
as of September 30, 2007, are as follows:
The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments
as of June 30, 2007, are as follows:
Period Ending | |||
September 30, | Amount | ||
2008 | $ 4,707 | ||
2009 | 3,625 | ||
Thereafter | -- | ||
Total minimum lease payments | 8,332 | ||
Less: amount representing interest | (1,766) | ||
Present value of net minimum lease payments | 6,566 | ||
Less: current maturities of capital lease obligations | (4,707) | ||
Long-term capital lease obligations | $ 1,859 |
16 |
NOTE 11 - NOTES PAYABLE
2006 | 2005 | |||
Promissory note issued to James Bell on May 26, 2004 in the amount or $25,000 with interest of 10%. There are no monthly payments and the principal along with the accrued interest is due on or before December 31, 2005 or the date the Company received proceeds from the public offering of its shares, whichever is earlier. The promissory note contains an option for the holder to receive 1% of the outstanding shares in lieu of repayment of principal. | $ 25,000 | $ 25,000 | ||
Promissory notes issued to ARABIA Corporation on various dates between September 18, 2003 and May 18, 2004 with interest of 10%. Principal along with accrued interest is payable on the maturity dates between September 18, 2004 and December 31, 2004. | 55,000 | 55,000 | ||
Promissory note issued to Sax Public Relations, Inc. December 1, 2005 with interest accruing from September 1, 2005 at 10%. Payments of $1,000 to be made monthly beginning February 1, 2006 through March 2007. | 7,586 | 7,586 | ||
Total notes payable | $ 407,586 | $ 87,586 |
The Company is currently in default on various notes payable and is in the process of negotiating settlements or payments. All
notes payable are included in current liabilities.
NOTE 12 - STOCKHOLDERS' EQUITY
Following the completion of the reverse merger, the Company had two classes of stock.
Preferred Stock.
The Company has one class of preferred stock with a par value of $0.001. The Company has 5,000,000 shares authorized and
had 3,000,000 Series 2006 preferred shares issued and outstanding.
Common Stock.
The Company has one class of common stock with a par value of $0.001. The Company had 45,000,000 shares authorized and
44,772,159 issued and outstanding just prior to December 1, 2006 in connection with the Company's re-domestication (see Note
1). On December 1, 2006, the Company implemented a 1 for 20 reverse stock split of all its issued and outstanding shares. After
the reverse stock split, there were 2,238,608 shares of common stock issued and outstanding. At the date of the reverse split, the
Company had 3,000,000 shares of convertible preferred stock issued and outstanding. All preferred shares were converted into
20,250,000 shares of post reverse split common stock.
Prior to the reverse split, the Company had made promises to issue more common stock, but was unable to due to a lack of
authorized shares. Before the merger completed in November 2006, the Company was in the process of attempting to increase
the number of authorized common stock shares. Accordingly all promises to issue common stock w ere classified as a liability.
See descriptions of transactions below.
(a) In December 2006, accounts payable to a consulting company in the amount of $12,698 was converted into 22,650 common
shares with a par value of $0.001 per share. The Company recorded common stock in the amount of $23 and additional paid in
capital ("APIC") in the amount of $12,675. As of March 31, 2007, this agreement was finalized. However, stock certificates
were not issued until subsequent to year-end. As of March 31, 2007, 2006, the shares were considered outstanding.
(b) In December 2006, accounts payable to a consulting company in the amount of $34,830 was converted into 35,000 common
shares with a par value of $0.001 per share. The Company recorded common stock in the amount of $35 and APIC in the amount
of $34 ,795. As of March 31, 2007, this agreement was finalized. However, stock certificates were not issued until subsequent to
year-end. As of March 31, 2007, the shares were considered outstanding.
17 |
(c) In August 2006, the Company entered into a funding agreement with First Bridge Capital Incorporated for working capital
purposes. First Bridge Capital will make serial investments in the maximum amount of $1,000,000 for a future exchange of the
Company's convertible preferred stock. Before re-domestication, the Company had received $538,500 in advance payments from
First Bridge Capital. However, after the re-domestication was completed, all advance payment of $538,500 and related accrued
interests of $12,456 were converted into 5,510 shares of preferred stock at year end, on the basis of 1 preferred share issued for
each $100 owed. As of March 31, 2007, this agreement was finalized. However, stock certificates were not issued until
subsequent to year-end. As of March 31, 2007, the shares were considered outstanding.
In January 2007, First Capital issued a note in the amount of $15,000 to the Company. After the inception of the note, the
Company entered into an agreement with First Bridge Capital and converted the note into 150 shares of preferred stock on the
basis of 1 preferred share issued for each $100 owed. At the date of conversion, the market price of preferred stock was $0.51.
The company recorded $0.15 of preferred stock account and $14,999.85 of additional paid in capital.
In connection with the funding agreement, the Company issued First Bridge Capital 50,000 (1,000,000 pre reverse split) common
stock warrants. These warrants were valued at $20,000 as that was the cash payment equivalent of the value of services. The
Company accounted for these warrants as a liability for derivative instruments as they didn't have enough authoriz ed shares to
issue stock for these warrants. The Company valued these warrants at September 30, 2006 using the Black-Scholes model and
determined that the value as of September 30, 2006 was $4,965. Accordingly the Company recognized a gain on the change in
fair value of derivative instruments in the amount of $15,035 and reduced their initial $20,000 liability to $4,965. The factors
used for the Black Scholes model were a market price of $0.05 per share; volatility of 150%; risk free interest rate of 6%;
exercise price of $0.001 per share; and an estimated life of 4.8 years.
As a result of recapitalization in November 2006, the Company had more shares authorized to be issued. Therefore, the
derivative liability in the amount of $4,965 arisen due to a lack of authorized shares had to be eliminated and accounted for as
equity. The value for the derivative liability needed to be re-calculated using the Black Scholes model as of December 1, 2006
(the date of the reverse split). The recalculated value of the derivative liability was $14,836, which became an addition to APIC.
The remaining value of $9,871, after eliminating derivative liability, was recognized as a loss on derivative. The factors used for
the Black Scholes model were a market price of $0.30 per share; volatility of 178%; risk free interest rate of 4.39%; exercise
price of $.02 per share; and an estimated life of 4.55 years.
(d) In January 2007, the Company issued 65,000 shares of common stock with a par value of $0.001 to Karen Dix for
consulting services provided to the Company. At the date of issuance, the market price of the Company's common stock was
$0.51 per share. The Company recorded $65 in common stock and $33,085 in additional paid in capital.
(e) In 2006, a third party exercised 290,000 (5,800,000 pre reverse-split) warrants pursuant to a settlement agreement executed
on December 31, 2005. The Company issued 290,000 shares of its common stock related to the transaction and the value was
recorded as paid in capital.
(f) In July 2006, a settlement agreement was agreed upon between the Company and a consulting group for financial public
relations services that was performed. The Company was to issue 7,700,000 shares of common stock for compensation for the
services performed by the consulting group. The value of the shares on the date of issuance was based on the fair market value of
the common shares on the date of settlement. The Company had recorded this expense as public relations services expense in the
amount of $847,000. However, the Company did not have sufficient common shares authorized and did not have sufficient un-
issued shares available to settle this contract at the time of settlement. Therefore, 4,990,000 (249,500 post split) common shares
were issued to the consulting group as of September 30, 2006. The Company still owed 2,710,000 shares to complete this
settlement. A liability to issue the remaining shares was recorded based on the market price at the time of the settlement of $0.11
per share.
As of September 3, 2006, the stock price had fallen to $0.05 per share. Accordingly the Company recognized a gain on the
change in fair value of derivative instruments of $162,600 for the three months ending September 30, 2006. The remaining
liability of $135,400 was included on the balance sheet as a liability for derivative instruments. Following the company's
recapitalization, 2.71 million shares of common stock were issued to the consulting group on December 11, 2006. Per the
settlement, these shares were not adjusted for the reverse split. Therefore, the derivative liability in the amount of $135,400
arisen due to a lack of authorized shares had to be eliminated and accounted for as equity. In addition, due to changes in market
value for common stock, the value for the derivative liability needed to be adjusted before any changes were made as of
December 11, 2006. The recalculated value for the derivative liability was $1,626,000, of which $54,200 was recognized as
common stock and $1,571,800 was recognized as APIC. The remaining value after offsetting derivative liability in the amount of
$1,626,000 was recognized as a loss on derivative after elimination of the derivative liability. The adjusted value of the
derivative was calculated by number of shares to be issued multiplied by the market price per share at the time of issuance.
18 |
(g) In 2006, the Company contracted with a third party to perform public relations services that amounted to $24,000. The
Company agreed to pay for these services in common stock based upon the average 30 day trading price at a specified time
during the year. The average trading price determined was $0.29 per share, resulting in the need to issue 4,137 (82,759 pre
reverse split) shares of stock. The Company did not have sufficient authorized common shares available to settle this contract.
Therefore a liability was accrued for the service expense incurred of $24,000. As of September 30, 2006, the price of the stock
had dropped to $0.05 per share. Accordingly, the company recognized a gain on the change in fair value of derivative
instruments of $19,862 for the three months ended September 30, 2006. The remaining liability of $4, 138 was included on the
balance sheet as a liability. As of December 31, 2006,the market value of derivative liability was $2,152, which was calculated
by multiplying 4,137 shares with market price on December 31, 2006 of $0.52. The difference of $1,986 was, then, recognized
as gain on derivative, accordingly. As of June 30, 2007, the market value of derivative liability was $496, which was calculated
by multiplying 4,137 shares with a market price of $0.14 on June 30, 2007. The difference of $1,572 was then recognized as gain
on derivative, accordingly.
The Company, during the nine months ended September 30, 2007, issued 6,139,000 shares of common stock for repayment
considerations for accounts payable and other liabilities in the amount of $602,530. The stock was issued at various dates during
the nine months ended September 30 30, 2007 with market prices ranging from $0.04 to $0.22.
In January 2007, First Capital issued a note in the amount of $320,000 to the Company. After the inception of the note, the
Company entered into an agreement with First Bridge Capital and converted the note and accrued interest of $16,000 into 3,360
shares of preferred stock on the basis of 1 preferred share issued for each $100 owed with $0.001 per share. The Company
recorded preferred stock in the amount of $3 and APIC in the amount of $335,997. In September, 2007 First Bridge capital
converted 801 shares of preferred stock to 804,000 shares of common stock.
The following schedule summarizes the total liability originally recognized, the gain (loss) during the last fiscal year, the amount
transferred to equity upon recapital ization and the remaining liability at September 30, 2007:
19 |
Original | Gain/(Loss) | Liability | |||||
Liability | Recognized | Equity | 31, 2006 | ||||
Promise to issue convertible | |||||||
preferred stock | $ 481,382 | $ -- | $ 481,382 | $ -- | |||
Settlement of 2,710,000 |
| ||||||
common shares due | 298,000 | (1,328,000) | 1,626,000 | -- | |||
82,579 shares due to public relations firm | | | | | |||
Common stock warrants to First | |||||||
Bridge Capital | 20,000 | 5,164 | 14,836 | -- | |||
Non-employee stock option and | |||||||
warrants (Note 13) | 581,157 | 459,166 | 121,991 | -- | |||
Total | 923,157 | (840,249) | 1,762,827 | 579 | |||
Grand Total | $ 1,404,539 | $ (840,249) | $2,244,209 | $ 579 |
NOTE 13 - STOCK OPTIONS AND WARRANTS
(a) In January 2004, the Company granted an option to purchase 152,813 (3,056,250 pre reverse split) restricted shares of
common stock, exercisable at $1.00 ($0.05 pre split) per share, to a non-employee; this option vested in April 2004. This option
expires in January 2010 and was not valued at grant date. Because the Company did not have sufficient shares authorized to
issue if the option was exercised, this amount was recorded as a derivative and classified on the balance sheet as a liability for
derivative instruments. The Company revalued this option at September 30, 2006 using the Black-Scholes model and determined
that the value of this option was $136,431. Accordingly, the Company recognized a loss on the change in fair value of derivative
instruments o f $136,431 and increased the liability due as of September 30, 2006 to $136,431. The factors used for the Black
Scholes model were a market price of $0.05 per share; volatility of 150%; risk free interest rate of 6%; exercise price of $0.05 per
share; and an estimated life of 4.25 years.
As a result of completed recapitalization in November 2006, the Company had more shares authorized to be issued. Therefore,
the derivative liability in the amount of $136,431 arisen due to a lack of authorized shares had to be eliminated and accounted for
as equity. In addition, due to changes in market value for the common stock, the value for the derivative liability had to be
recalculated using the Black-Scholes model as of December 1, 2006 (the date of reverse split). The recalculated value for the
derivative liability was $40,250, whi ch became an addition to APIC. The remaining difference of $96,181, after eliminating
derivative liability, was recognized as a gain on derivative. The factors used for the Black-Scholes model were a market price of
$0.30 per share; volatility of 178%; risk free interest rate of 4.39%; exercise price of $1.00 per share; and an estimated life of 4
years.
(b) In September 2005, the Company granted an option to purchase 40,750 (815,000 pre reverse split) restricted shares of
common stock (TelePlus stock options), exercisable at $1.00 ($0.05 pre reverse split) per share, to an employee that vests and
expires on January 15, 2010. This option was exchanged for an option to purchase 45,000 restricted shares of common stock (the
equivalent of a 366,750 shares Texxon stock option) issued in May 2006 and an o ption to purchase 30,000 restricted shares of
common stock (the equivalent of a 244,500 Texxon stock option). Due to the fact that the Company has been generating
recurring losses and also not having an active market to trade its shares, the value of these options was determined to be zero and
accordingly, no expense or paid in capital has been recorded. The performance-based option issued to this employee was a part
of a performance based stock options issuance transaction that involved other employees (see subsequent paragraph on
performance based stock options issued in May for more details on this transaction).
20 |
(c) In September 2005, the Company granted an option to purchase 40,750 (815,000 pre reverse split) restricted shares of
common stock, exercisable at $0.02 ($0.001 pre reverse split) per share, to a non-employee; this option expires on January 15,
2010. The option was granted in exchange for consulting services valued at $40,000. The Company has recorded consulting
expense in this amount to reflect the value of these options for the year ended December 31, 2005. Because the Company did not
have sufficient shares authorized to issue if the option was exercised, this amount was recorded as a derivative and classified on
the balance sheet as a liability for derivative instruments. The Company revalued this option at September 30, 2006 using the
Black-Scholes model and determined that the value of this option was $38,305. Accordingly, the Company recognized a gain on
the change in fair value of derivative instruments of $1,695 and reduced their liability due as of September 30, 2006 to $38,305.
The factors used for the Black-Scholes model were a market price of $0.05 per share; volatility of 150%; risk free interest rate of
6%; exercise price of $0.001 per share; and an estimated life of 3.5 years.
As a result of the recapitalization in November 2006, the Company had more shares authorized to be issued. Therefore, the
derivative liability in the amount of $38,305 due to a lack of authorized shares had to be eliminated and accounted for as equity.
In addition, due to changes in market value for the common stock, the value for the derivative liability had to be recalculated
using the Black-Scholes model as of December 1, 2006 (the date of reverse split). The recalculated value for the derivative
liability was $11,980, which became an addition to APIC. The remaining difference after eliminating derivative liability in the
amount of $26,325 was recognized as a gain on derivative. The factors used for the Black-Scholes model were a market price of
$0.30 per share; volatility of 178%; risk free interest rate of 4.43%; exercise price of $0.02 per share; and an estimated life of
3.25 years.
(d) In February 2006, the Company granted an option to purchase 65,000 (1,300,000 pre reverse split) restricted shares of
common stock, exercisable at $0.02 ($0.001 pre reverse split) per share, to a consultant for assistance in the share exchange
between Texxon and TelePlus. This option was valued at $0.10 per share. The value of the option was calculated using the
Black-Scholes model with the following assumptions: exercise price of $0.001; share price of $0.10; risk free interest rate of
6.0%; expected life of 5 years; and estimated volatility of 150%. The Company recorded the expense and additional paid in
capital in the amount of $130,000 to reflect the finder's fees expense involved in the reverse merger acquisition process. Because
the Company did not have enough shares authorized to issue if the option was exercised, this amount was recorded as a derivative
and classified on the balance sheet as a liability for derivative instruments. The Company revalued this option at September 30,
2006 using the Black-Scholes model and determined that the value of this option was $64,493. Accordingly, the Company
recognized a gain on the change in fair value of derivative instruments of $65,507 and reduced the liabil ity due as of September
30, 2006 to $64,493. The factors used for the Black-Scholes model were a market price of $0.05 per share; volatility of 150%;
risk free interest rate of 6%; exercise price of $0.001 per share; and an estimated life of 4.5 years.
As a result of the recapitalization in November 2006, the Company had more shares authorized to be issued. Therefore, the
derivative liability in the amount of $64,493 due to a lack of authorized shares had to be eliminated and accounted for as equity.
In addition, due to changes in market value for the common stock, the value for the derivative liability had to be recalculated
using the Black-Scholes model as of December 1, 2006 (the date of reverse split). The recalculated value for the derivative
liability was $19,255, which became an addition to APIC. The remaining diff erence after offsetting derivative liability in the
amount of $45,238 was recognized as a gain on derivative after elimination of the derivative liability. The factors used for the
Black-Scholes model were a market price of $0.30 per share; volatility of 178%; risk free interest rate of 4.39%; exercise price of
$0.02 per share; and an estimated life of 4.25 years.
(e) In February 2006, the Company issued common stock warrants to two members of the Company's then current
management, and to a public relations firm. These warrants were for purchase of 125,000 (2,500,000 pre split) restricted shares
of common stock, exercisable at $2.20 ($0.11 pre reverse split) per share. These warrants were the only options/warrants from
pre-merger Texxon to survive the completion of the share exchange agreement (see Note 1); all other Texxon warrants were
cancelled. These warrants have been valued at $275,973 ($0.1104 per share). The value of the warrants was calculated as of
February 1, 2006 using the Black-Scholes model with the following assumptions: exercise price of $0.11; share price of $0.12;
risk free interest rate of 4.4%; expected life of 5 years; and estimated volatility of 150%. These warrants were valued by Texxon
prior to the merger and the effect of their issuance is included in the additional paid in capital as a result of the merger.
(f) In April 2006, the Company granted an option to purchase 36,675 (733,500 pre reverse split) restricted shares of common
stock, exercisable at $0.02 ($0.001 pre reverse split) per share, to a consultant in exchange for consulting services valued at its
fair market value for the services performed at $40,343. Because the Company did not have sufficient shares authorized to issue
if the options were exercised, this amount was recorded as a derivative and classified on the balance sheet as a liability for
derivative instruments. The Company revalued this option at September 30, 2006 using the Black-Scholes model and determined
that the value of this option was $36,287. Accordingly, the Company recognized a gain on the change in fair value of derivative
instruments of $4,056 and reduced their liability due as of September 30, 2006 to $36,287. The factors used for the Black-
Scholes model were a market price of $0.05 per share; volatility of 150%; risk free interest rate of 6%; exercise price of $0.001
per share; and an estimated life of 3.5 years.
21 |
As a result of the recapitalization in November 2006, the Company had more shares authorized to be issued. Therefore, the
derivative liability in the amount of $36,287 due to a lack of authorized shares had to be eliminated and accounted for as equity.
In addition, due to changes in market value for the common stock, the value for the derivative liability had to be recalculated
using the Black-Scholes model as of December 1, 2006 (the date of reverse split). The recalculated value for the derivative
liability was $10,782, which became an addition to APIC. The remaining difference after eliminating derivative liability in the
amount of $25,505 was recognized as a gain on derivative. The factors used for the Black-Scholes model were a market price of
$0.30 per share; volatility of 178%; risk free interest rate of 4.43%; exercise price of $0.02 per share; and an estimated life of
3.25 years.
(g) In April 2006, the Company granted an option to purchase 6,113 (122,250 pre reverse split) restricted shares of common
stock, exercisable at $0.02 ($0.001 pre reverse split) per share, each to two employees (total of 12,225 (244,500 pre reverse split)
shares of common stock). The option was valued at $13,448 ($0.11 per share). The value of the option was calculated using the
Black-Scholes model with the following assumptions: exercise price of $0.001; share price of $0.12; risk free interest rate of
6.0%; expected life of 4 years; and estimated volatility of 150%. The Company recorded payroll expense and additional paid in
capital in the amount of $13,448 to reflect the value of these options for the period ended September 30, 2006.
(h) In April 2006, the Company granted an option to purchase 75,000 (1,500,000 pre reverse split) restricted shares of common
stock, exercisable at $3.40 ($0.17 pre reverse split) per share, to an investment banking and financial advisory organization as
partial compensation for assistance in identifying suitable acquisition targets and long term funding. This option was valued at
$0.156 per share. The value of the option was calculated using the Black-Scholes option pricing model with the following
assumptions: exercise price of $0.17; share price of $0.17; risk free interest rate of 6.0%; expected life of 5 years; and estimated
volatility of 150%. The Company recorded an increase and decrease to additional paid in capital in the amount of $234,000 to
reflect the finder's fees expense involved in the reverse merger acquisition process. Because the Company did not have enough
shares authorized to issue if the option was exercised, this amount was recorded as a derivative and classified on the balance
sheet as a liability for derivative instruments. The Company revalued this option at September 30, 2006 using the Black-Scholes
model and determined that the value of this option was $61,917. Accordingly, the Company recognized a gain on the change in
fair value of derivative instruments of $172,611 and reduced the liability due as of September 30, 2006 to $61,917. The factors
used for the Black-Scholes model were a market price of $0.05 per share; volatility of 150%; risk free interest rate of 6%;
exercise price of $0.17 per share; and an estimated life of 4.5 years.
As a result of the recapitalization in November 2006, the Company had more shares authorized to be is sued. Therefore, the
derivative liability in the amount of $61,917 due to a lack of authorized shares had to be eliminated and accounted for as equity.
In addition, due to changes in market value for the common stock, the value for the derivative liability had to be recalculated
using the Black-Scholes model as of December 1, 2006 (the date of reverse split). The recalculated value for the derivative
liability was $18,482, which became an addition to APIC. The remaining difference after eliminating derivative liability in the
amount of $43,435 was recognized as a gain on derivative. The factors used for the Black-Scholes model were a market price of
$0.30 per share; volatility of 178%; risk free interest rate of 4.39%; exercise price of $3.40 per share; and an estimated life of
4.25 years.
(i) In May 2006, the Company granted an option to purchase 26,488 (529,750 pre reverse split) restricted shares of common
stock, exercisable at $0.02 ($0.001 pre reverse split) per share, each to two members of management (total of 52,975 (1,059,500
pre reverse split) shares of common stock). Each option was valued at $58,273 ($0.11 per share). The value of the option was
calculated using the Black-Scholes option pricing model with the following assumptions: exercise price of $0.001; share price of
$0.12; risk free interest rate of 6.0%; expected life of 4 years; and estimated volatility of 150%. The Company recorded the
payroll expense and additional paid in capital in the amount of $58,273 to reflect the value of these options for the period ended
September 30, 2006.
(j) In May 2006, the Company grante d an option to purchase 18,338 (366,750 pre reverse split) restricted shares of common
stock, exercisable at $0.02 ($0.001 pre reverse split) per share, to one employee. The option was valued at $0.12 per share. The
value of the option was calculated using the Black-Scholes model with the following assumptions: exercise price of $0.001; share
price of $0.12; risk free interest rate of 6.0%; expected life of 4 years; and estimated volatility of 150%. The Company recorded
payroll expense and additional paid in capital in the amount of $20,171 to reflect the value of this option for the period ended
September 30, 2006.
(k) The Company granted options to purchase 176,875 (3,537,500 pre reverse split) restricted shares of common stock to
employees on May 25, 2006 (based on performance), exercisable at $0.02 ($0.001 pre reverse s plit), that vest immediately. At
the time of grant, the Company was unable to determine whether the Company would meet the requirement needed in order to
grant the options. Due to these facts, no expense or paid in capital has been recorded.
22 |
(l) In July 2006, the Company contracted with a third party to perform public relations services. The total value of the services
to be provided was $500,000; the term of the contract was one year. The Company granted a warrant to purchase 192,308
(3,846,154 pre reverse split) restricted shares of common stock, exercisable at $0.02 ($0.001 pre reverse split) per share. Because
of the one-year term of the contract, the Company only recognized the grant of a warrant to purchase 961,538 shares at an
expense of $125,000. The Company accounted for this warrant as a liability for derivative instruments as the Company did not
have sufficient authorized shares to issue if the warrant was exercised. The Company valued this warrant at September 30, 2006
using the Black-Scholes model and determined that the value was $47,736. Accordingly, the Company recognized a gain on the
change in fair value of derivative instruments in the amount of $120,226 and reduced the initial $125,000 liability to $47,736.
The factors used for the Black-Scholes model were a market price of $0.05 per share; volatility of 150%; risk free interest rate of
6%; exercise price of $0.001 per share; and an estimated life of 4.8 years.
As a result of recapitalization in November 2006, the Company had more shares authorized to be issued. Therefore, the
derivative liability in the amount of $47,736 due to a lack of authorized shares had to be eliminated and accounted for as equity.
In addition, due to changes in market value for the common stock, the value for the derivative liability had to be recalculated
using the Black-Scholes model as of December 1, 2006 (the date of reverse split). The r ecalculated value for the derivative
liability was $14,266, which became an addition to APIC. The remaining difference after offsetting derivative liability in the
amount of $33,470 was recognized as a gain on derivative after elimination of the derivative liability. The factors used for the
Black-Scholes model were a market price of $0.30 per share; volatility of 178%; risk free interest rate of 4.39%; exercise price of
$0.02 per share; and an estimated life of 4.55 years.
In 2007, an additional 144,231 warrants were issued under this contract. The Company used the Black-Scholes model to value
these options. The factors used were a market price of $0.79 per share; volatility of 178%; risk free interest rate of 6%; exercise
price of $0.02 per share; and an estimated life of 4 years. This resulted in $81,130 of additiona l paid in capital.
(m) In October 2006, the Company granted an option to purchase 10,000 (200,000 pre reverse split) restricted shares of common
stock, exercisable at $0.01 per share, to a non-employee; this option will expire on October 15, 2011. This option was granted in
exchange for consulting services, valued at $11,814 using the Black-Scholes model. Because the Company did not have enough
shares authorized to issue if this option was exercised, this amount was recorded as a derivative and are classified on the balance
sheet as a liability for derivative instruments. The factors used for the Black-Scholes model were a market price of $0.06 per
share; volatility of 178%; risk free interest rate of 4.39%; exercise price of $0.01 per share; and an estimated life of 5 years.
As a result of recapit alization in November 2006, the Company had more shares authorized to be issued. Therefore, the
derivative liability in the amount of $11,814 due to a lack of authorized shares had to be eliminated and accounted for as equity.
In addition, due to changes in market value for the common stock, the value for the derivative liability had to be recalculated
using the Black-Scholes model as of December 1, 2006 (the date of reverse split). The recalculated value for the derivative
liability was $6,976, which became an addition to APIC. The remaining difference of $4,838 after elimination of derivative
liability was recognized as a gain on derivative. The factors used for the Black-Scholes model were a market price of $0.70 per
share; volatility of 178%; risk free interest rate of 4.39%; exercise price of $0.01 per share; and an estimated life of 4.75 years.
(n) In December 2006, the Company granted an option to purchase 70,000 restricted shares of common stock, exercisable at
$0.01 per share, to a non-employee; this option will expire on December 31, 2011. This option was granted in exchange for
consulting services, valued at $48,846 using the Black-Scholes model. The Company recorded consulting expense and additional
paid-in-capital in this amount. The factors used for Black-Scholes model were a market price of $0.70 per share; volatility of
178%; risk free interest rate of 4.39%; exercise price of $0.01; and a estimated lift of 5.00 years.
(o) In December 2006, the Company granted options to purchase 414,900 restricted shares of common stock, exercisable at
$0.01 per shares, for consultants (one of which is James Gibson, the Company's vice president business development remaining as an advisor to the Company); these options will expire on December 31, 2011. These options were valued at $215,748 using
the Black-Scholes model. The Company recorded consulting expense and additional paid-in-capital in this amount. The factors
used for Black-Scholes model were a market price of $0.52 per share; volatility of 178%; risk free interest rate of 4.39%; exercise
price of $0.01; and a estimated life of 5.00 years.
(p) In December 2006, the Company granted options to purchase 179,300 restricted shares of common stock, exercisable at
$0.01 per share, to various employees (one of which is Ross Nordin, the Company's former chief financial officer, remaining as
an advisor to the Company); these options will expire on December 31, 2011. These options were valued at $93,236 using
Black-Scholes model. The c ompany recorded consulting expense and additional paid-in-capital in this amount. The factors used
for Black-Scholes model were a market price of $0.52 per share; volatility of 178%; risk free interest rate of 4.39%; exercise
price of $0.01; and an estimated life of 5.00 years.
23 |
A summary of the status of, and changes in, the Company's stock option plan as of and for the nine months ended September 30,
2007 is presented below for all stock options issued to employees and non-employees.
Nine Months Ended September 30, 2007 | |||||
|
| Weighted Average | |||
Warrants | Options | Exercise Price | |||
Outstanding at Beginning of Year | 367,308 | 1,304,851 | $ 0.68 | ||
Granted | 144,231 | -- | -- | ||
Forfeited | -- | -- | -- | ||
Exercised | -- | (65,000) | -- | ||
|
|
| |||
Outstanding at End of Period | 511,539 | 1,239,851 | $ 0.68 | ||
Exercisable at End of Period | 511,539 | 1,062,976 | |||
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following management's discussion and analysis of financial condition and results of operations is based upon, and
should be read in conjunction with, our unaudited financial statements and related notes included elsewhere in this Form 10-QSB,
which have been prepared in accordance with accounting principles generally accepted in the United States.
Overview.
The Company is a provider of multiple assistance services to international travelers in the traveler language through their
personal mobile phone and is located in Marina del Rey, California. The Company has built platform, server and call centers to
provide a wide array of services to mobile phone users. The Company has strategic relationships with several service networks
in the United States and Europe.
The Company is the parent company of Vocalenvision, a pioneer in the field of wireless communications. The Company's
main role is that of a research and development incubator that endeavors to create new opportunities for its subsidiary for the
continually evolving convergence of international GSM wireless, that create the vehicles that consistently deliver its innovative
"native-language" contents and services to the end-user customer. In addition, the Company is actively seeking acquisition
targets to diversify the company's holdings and to strengthen the new "Continan Communications" brand.
Through its Vocalenvision subsidiary, the Company offers proprietary products and services that help customers
communicate effectively while travelling abroad. The Company's wireless service has market potential, boasting amongst its
features a "teleconcierge," who is a live operator trained to provide a variety of business-related and travel-related services
directly to a customer's mobile phone.
Vocalenvision has to date expended much of its efforts and funds on development of proprietary software, Beta tests in
Japan and United States, as well as its WikiTouri search engine to deliver multilingual travel assistance services to the traveler
and the initiation of its sales and marketing efforts. It is uncertain about the market acceptance of its products and services that
include auxiliary services offered through its software-based platform and delivered to the customer's cellular phone. The
Company has contracted with large European international wireless provider to deliver its Multilingual Travel Assistance
services as value added content to its customers while they roam in foreign countries.
The Company is focused on the continued development and implementation of a proprietary layered communications
architecture that operates in unison with conventional wireless networks in order to deliver "native-language" services to its end
customers.
The Company operates many of its own "in-network" platforms as an independent unit while using existing operator networks
from the leading international cellular service providers to transport the customer's calls as well as deliver users "native-
language" content. The Company supplies enhanced services and on-demand information to its customers via wireless.
Vocalenvision, Inc. is highly dependent upon the efforts and abilities of its management. The loss of the services of any of
them could have a substantial adverse effect on it. Vocalenvision, Inc. has not purchased "Key-Man" insurance policies on any of
them.
To date, Vocalenvision, Inc. has not yet had substantial sales. It expects initial growth in its sales to come primarily from
the private labeling of its Multilingual Travel Assistance services product which includes traveler's assistance, teleconcierge
products, native in-language in terpretation and emergency coverage through international wireless providers' existing customer
channels. These incumbent wireless carriers view the Company's services as a value added to their own existing wireless content
and services, while maximizing the security and convenience offer to their wireless users while traveling abroad.
Sales are anticipated to start in November 2007 in France, Italy, Spain and Great Britain through a major provider of
wireless services that is making the Vocalenvision services available to all of its wireless users. It is anticipated that the services
will provide income to the Company but not sufficient to cover all operational expenses during the following 12 months.
The Company should be able to capture a large portion of the travel market by providing its core services to a highly
untapped market. By forming synergistic relationships with various service providers and content providers, the Company will
also be able to continue to grow revenues significantly by offering the travelers a wide array of services and content in their
native languages.
25 |
An additional application of the Vocalenvision service offering includes a complete "Travel Kit" product, which includes a
wireless telephone and SIM card. The Travel Kit will be marketed to travelers prior to trip departure and will work in selected
international countries. In this model, the company is required to supply customers with temporary mobile telephones as well as
proprietary SIM cards. Vocalenvision must purchase mobile phones and SIM cards in advance and will require payment from
customer prior to shipment. Thus, Vocalenvision's development of the Travel Kit product is dependent on the number of
telephones and SIM cards which it can freely distribute and that, in turn, is dependent upon Vocalenvision's available capital for
the purchase of the hardware and cards.
However, a third application of Vocalenvison's existing technology envisions the distribution only of its proprietary SIM
Cards. The Vocalyz™ SIM cards work on many major wireless networks in the USA and Europe. The SIM card technology will
transport the international travelers calls as well as deliver users "native-language" translation assistance and teleconcierge. For
the sales of this service, Vocalenvision will be dependent upon travel agents, brokers, retail stores and web-based e-commerce.
Because of the Company's proprietary platform technology, unique service offering, development saving cost benefits,
innovative content and sales management experience, the Company believes its current business focus towards this highly
specific travel related niche allows it to position itself as a sustainable business that will result in the company realizing positive
cash flow by the fourth quarter of 2008.
The Company has historically experienced operating losses and negative cash flow. The Company expects that these
operating losses and negative cash flows may continue through additional periods. Until recently, the Company has had a limited
record of revenue-producing operations but with the modified and highly realistic product deployment strategy, the Company
now believes it has a predictable, scalable revenue and business model that will be able to achieve its business plans.
Results of Operations.
The acquisition of TelePlus was considered to be a capital transaction in substance, rather than a business combination.
Inasmuch, the transaction is equivalent to the issuance of stock by a development stage company (TelePlus) for the net monetary
assets of a public company (Texxon), accompanied by a recapitalization. The accounting for the transaction is identical to that
resulting from a reverse acquisition, except goodwill and other intangible assets were not recorded. Accordingly, these
consolidated financial statements are the historical financial statements of TelePlus.
TelePlus was incorporated in the State of California on September 2, 2002.
(a) Revenues.
Revenues were $3,642 for the nine months ended September 30, 2007 compared to $54,960 for the nine months ended September
30, 2006, which were the proceeds of a Beta marketing test in Japan with a CDMA cellul ar phones that was stopped on July
2006. The decrease of $51,318, or approximately 93%, is explained by the end of the Beta test. Revenues were $1,600 for the
three months ended September 30, 2007 compared to $19,475 for the three months ended September 30, 2006, a decrease of
$17,875 or approximately 92%. The decline in revenues was largely due to the fact that the Company is still a development stage
company. Currently, the Company's focus has been on raising capital that is necessary to fund its operations. In the nine months
ended September 30, 2006, the Company generated revenue largely from a test marketing study. A similar study was not
performed in 2007 as management was focused on raising capital, developing a SIM cards adaptable to most of GSM cellular
phones and positioning itself as a wholesaler to international w ireless provider.
Revenues for the period from September 2, 2002 (inception) through March 31, 2007 were $133,512.
(b) Direct Costs
Direct costs were $16,130 for the nine months ended September 30, 2007 compared to $197,905 for the nine months ended
September 30, 2006, a decrease of $181,775 or approximately 92%. Direct costs were $1,884 for the three months ended
September 30, 2007 compared to $46,404 for the three months ended September 30, 2006, a decrease of $44,520 or
approximately 96%. The decrease in direct costs was primarily related to expenses incurred in the prior year for the Company's
test market study. A similar study was not performed in 2007 as management was focused on raising capit al and developing its
three new products: (i) the wholesale of Vocalyz™ products to major international wireless providers; (ii) the complete "Travel
Kit"; and (iii) the positioning of its SIM card with its proprietary software, delivering an array of travelers' service and adaptable
to most GSM cellular phones in the U.S. and Europe.
26 |
(c) General and Administrative Expenses.
General and administrative expenses were $782,615 for the nine months ended September 30, 2007 compared to $1,509,6161 for
the nine months ended September 30, 2006, a decrease of $727,001 or approximately 48%. General and administrative expenses
were $245,380 for the three months ended September 30, 2007 compared to $849,629 for the three months ended September 30,
2006, a decrease of $604,249 or approximately 71%. The decrease in expenses was largely due to decreased payroll expenses as
the Company reduced the number of its employees during the quarter to reduce its expenses as much as possible.
(d) Net Loss.
The net loss for the nine months ended September 30, 2007 was $940,090 compared to $2,489,888 for the nine months
ended September 30, 2006, a change of $1,549,798 or 62%. The net loss was $265,209 for the three months ended September
30, 2007 compared to $1,555,505 for the nine months ended September 30, 2006, a decrease of $1,290,296 or approximately
83%. The Company has actively tried to lower its expenses in the current year in order to have cash available to focus on
generating revenue. The Company's primary focus remains on raising capital and accordingly has reduced its payroll expenses
solely to focus on raising capital and finalizing the development of its three new products.
Factors That May Affect Operating Results.
The Company's operating results can vary significantly, depending upon a number of factor s, many of which are outside the
Company's control. General factors that may affect the Company's operating results include:
• market acceptance;
• gain or loss of clients or strategic relationships;
• announcement or introduction of new services and products by the Company or by its competitors;
• the ability to build brand recognition;
• timing of sales to customers;
• price competition;
• the ability to upgrade and develop systems and infrastructure to accommodate growth;
• the ability to introduce and market products and services in accordance with market demand;
• changes in governmental regulation;
• reduction in or delay of capita l spending by clients due to the effects of terrorism, war and political instability;
• valuation of derivative liabilities; and
• general economic conditions.
The Company believes that its planned growth and profitability will depend in large part on the ability to promote and
position its various services and gain clients. Accordingly, the Company intends to invest in marketing, strategic partnerships and
development of its client base. If the Company is not successful in promoting its services and expanding its client base, this may
have a material adverse effect on its financial condition and the ability to continue to operate its business.
27 |
The Company is also subject to the following specific factors that may affect its operations:
(a) The Company May Not Be Able to Accommodate Rapid Growth Which Could Decrease Revenues and Result in a
Loss of Customers.
To manage anticipated growth, the Company must continue to implement and improve its operational, financial and management
information systems. The Company needs to hire, train and retain additional qualified personnel, continue to expand and upgrade
core technologies, and effectively manage its relationships with its major customers, end users, suppliers and other third parties.
The Company's expansion could place a significant strain on its current services and support operations, sales and administrative
personnel, capital and other resources. The Company could experienc e difficulties meeting demand for its products. The
Company cannot guarantee that its systems, procedures or controls will be adequate to support operations, or that management
will be capable of fully exploiting the market. The Company's failure to effectively manage growth could adversely affect its
business and financial results.
(b) The Company's Customers Require a High Degree of Reliability in Equipment and Services, and If the Company
Cannot Meet Their Expectations, Demand for Its Products/Services May Decline.
Any failure to provide reliable equipment and services for the Company's customers, whether or not caused by their own
failure, could reduce demand for the Company's services. The Company continues to improve its services and related
technology and as such, the Company does not expect negative customer response however this cannot be assured. Negative
customer response could impair the Company's reputation and impair its ability to make future sales.
(c) Dependence on Suppliers May Affect the Ability of the Company to Conduct Business.
For the "Travel Kit" product, the Company supplies telephones to its customers that contain its own proprietary SIM cards,
and which channel calls into its network via a platform, from which interpreters and concierge services are available. The
Company must purchase these telephones that require payment prior to shipment. Thus, the Company's growth depends on the
number of telephones available for distribution through rentals and sales, and that, in turn, depend upon available capital for the
purchases. Often the availability of telephones at the best prices is dependent upon the Company's ability to commit to an
immediate purchase and to pay immediately. If the Company cannot buy telephones in sufficient numbers or at favorable rates,
its revenues may decline or operating expenses may increase. Should the availability of telephone be compromised, it could
force the Company to develop alternative designs, which could add to the cost of goods sold and compromise delivery
commitments. In such an instance, the Company would not be able to meet the needs of its customers for a period of time, which
could materially adversely affect its business, results from operations, and financial condition.
For the wholesale applications of the Vocalenvision white labeled for major international wireless providers, the Company
has control over any third-party sub-contractor as to quality controls, and its customers. However, the wireless providers may
loose customers, affecting traffic sent to Vocalenvision, generating loss of revenue and subsequently affecting results from
operations.
For the part of the Travel Kit, i.e. its SIM cards sold separately, the company has limited control over any third party sub-
contractors in terms of quality control. The company uses its own reliable platform, servers and technology and as such, does not
expect failures. However this cannot be assured. Negative technical failures could impair the Company's reputation and its
ability to gain future channels of distribution.
(d) The Company Faces Some Competition in Its Market, Which Could Make It More Difficult for the Company to
Generate Revenues.
The Company's future success will depend on its ability to adapt to rapidly changing technologies, evolving industry
standards, product offerings and evolving demands of the marketplace. For the "Travel Kit" and SIM cards, the Company
competes for customers primarily with facilities-based carriers, as well as with other non-facilities-based network operators.
Some of the Company's competitors have substantially greater resources, larger customer bases, longer operating histories and
greater name recognition than the Company has. However the Company is working with a specific "niche market" for
international travelers.
28 |
• Some of competitors provide functionalities that the Company does not. Potential customers who desire these functions and
have no need for teleconcierge services, native language translations as well as the array of services of Vocalenvision, may
choose to obtain their equipment from the competitor that provides these additional functions.
• Potential customers with no need for multilanguages services may be motivated to purchase their wireless services from a
competitor in order to maintain or enhance their respective business relationships with that competitor.
In addition, the Company's competitors may also be better positioned to address technological and market developments
or may react more favorably to technological changes
; Competitors may develop or offer services that provide significant (technological, creative, performance, price) or other
advantages over the services offered by the Company. If the Company fails to gain market share or loses existing market share,
its financial condition, operating results and business could be adversely affected and the value of the investment in the Company
could be reduced significantly. The Company may not have the financial resources, technical expertise, marketing, and
distribution or support capabilities to compete successfully.
The Company believes that as the cost to the consumer for voice transmission decreases, consumers will be attracted by the
additional services available from transmission service providers. While at the present time our interpreter and concierge
services are rel atively unique, a larger, better financed transmission service provider might decide to develop its own competitive
services to offer to its own customer base, thereby keeping them from migrating to us.
(e) Uncertain Demand for Services May Cause Revenues to Fall Short of Expectations and Expenses to Be Higher Than
Forecast If the Company Needs to Incur More Marketing Costs.
The Company is unable to forecast revenues with certainty because the Company may not continue to provide services in
the future to meet the continually changing demands of customers. The Company has refined its sales and marketing plan as
well as products in order to achieve the desired level of revenue, which could result in increased sales and marketing costs. In the
event demand for the Com pany's services does not prove to be as great as anticipated, revenues may be lower than expected
and/or sales and marketing expenses higher than anticipated, either of which may increase the amount of time and capital that the
Company needs to achieve a profitable level of operations. There is no assurance that the Company will be successful in
marketing the three new redefined services contemplated. Although management has many years of sales experience and has
conducted an informal market research study with respect to its business, there is no assurance that the market that the company
proposes to establish will be sufficiently responsive, properly located, and demographically inclined to the type of operation the
Company is intended to operate.
(f) The Company Could Fail to Develop New Products/Services to Compet e In an Industry of Rapidly Changing
Technology, Resulting In Decreased Revenues.
The Company operates in an industry with rapidly changing technology, and its success will depend on the ability to deploy
new products/services that keep pace with technological advances. The market for communications services is characterized by
rapidly changing technology and evolving industry standards. The Company's technology or systems may become obsolete upon
the introduction of alternative technologies. If the Company does not develop and introduce new services in a timely manner, it
may lose opportunities to competing service providers, which would adversely affect business and results of operations.
There is a risk to the Company that there may be delays in initial implementation of new services/products. Further risks
inherent in new product/service introductions include the uncertainty of price-performance relative to products/services of
competitors, competitors' responses to its new product/service introductions, and the desire by customers to evaluate new
products/services for longer periods of time. Also, the Company does not have any control over the pace of technology
development. There is a significant risk that rights to a technology could be acquired or be developed that is currently or is
subsequently made obsolete by other technological developments. There can be no assurance that any new technology will be
successfully acquired, developed, or transferred.
29 |
(g) New Versions of the Company's Services May Contain Errors or Defects, Which Could Affect Its Ability to
Compete.
The Company's services are complex and, accordingly, may contain undetected errors or failures when first introduced or as
new versions are released. This may result in the loss of, or delay in, market acceptance of its products. The Company may in the
future discover errors and additional scalability limitations in new releases or new products after the commencement of
commercial shipments or be required to compensate customers for such limitations or errors, the result of which its business, cash
flow, financial condition and results of operations could be materially adversely affected. However, the Beta tests and test
market the Company made successively in 2005 and 2006 may decrease the possible errors or defects.
(h) The Company's Ability to Grow Is Directly Tied to Its Ability to Attract and Retain Customers, Which Could Result
In Reduced Revenues.
The Company has no way of predicting whether its marketing efforts will be successful in attracting new customers and
acquiring substantial market share. If the Company's marketing efforts fail, it may fail to attract new customers, which would
adversely affect business and financial results.
(i) Disruptions in or Interference with International Travel Could affect the Company's Business.
The Company's core competency relates to providing interpreter and concierge services and telephony services to internat ional
travelers. Therefore, any disruption or limitation on international travel could have an adverse effect on our business and
revenues. Virtually all such disruptions arise from events beyond the Company's control, such as terrorist acts which cause
governments to limit international travel, higher fuel costs which make the costs of travel too expensive, travel restrictions,
imposed because of an epidemic or pandemic, such as bird flu, or economic downturns that make fewer funds available for
leisure travel. Furthermore, the Company does not have alternate revenue sources to substitute for any such disruption or
limitation.
(j) The Company's Success Is Largely Dependent on the Abilities of Its Management.
The Company's potential success is la rgely dependent on the personal efforts and abilities of its senior management, which
currently have an employment agreement with the Company. The loss of certain members of the Company's senior
management, including its chief executive officer, could have a material adverse effect on its business and prospects.
The Company intends to recruit in fiscal year 2007 employees who are skilled in its industry. The failure to recruit these
key personnel could have a material adverse effect on the Company's business. As a result, the Company may experience
increased compensation costs that may not be offset through either improved productivity or higher revenue. There can be no
assurances that the Company will be successful in retaining existing personnel or in attracting and recruiting experienced
qualified personnel.
(k) Any Required Expenditures as a Result of Indemnification Will Result in an Increase in the Company's Expenses.
The Company's articles of incorporation and bylaws include provisions to the effect that the Company may indemnify any
director, officer, or employee. In addition, provisions of Nevada law provide for such indemnification, as well as for a limitation
of liability of the Company's directors and officers for monetary damages arising from a breach of their fiduciary duties. Any
limitation on the liability of any director or officer, or indemnification of any director, officer, or employee, could result in
substantial expenditures being made by the Company in covering any liability of such persons or in indemnifying them.
Operating Activities.
Net cash used in operating activities was $340,493 for the nine months ended September 30, 2007 compared to $650,064 for
the nine months ended September 30, 2006, a change of $309,571 or approximately 48%. The primary reason for the change was
increase in the use of stock to pay some of our vendors in the nine months ending September 30, 2007. Because the Company
could pay for services with stock, it was able to reduce the actual cash it had to spend on operating activities.
30 |
Net cash used in operating activities was $3,018,741 for the period from September 2, 2002 (inception) through September
30, 2007.
Investing Activities.
Net cash used in investing activities was $22,255 for the nine months ended September 30, 2007 compared to $6,493 for the
nine months ended September 30, 2006. Net cash used in investing activities was $556,554 for the period from September 2,
2002 (inception) through September 30, 2007. The Company has attempted to reduce spending on asset purchases unless such
purchases are absolutely necessary in order to reduce the amount cash the Company is spending.
Liquidity and Capital Resources.
As of September 30, 2007, the Company ha d total current assets of $1,058 and total current liabilities of $941,730, resulting in a
working capital deficit of $940,672. At September 30, 2007, the Company's current assets consisted solely cash on hand. As a
development stage company that began operations in 2002, the Company has incurred $7,593,572 in cumulative total losses from
inception through September 30, 2007.
The above factors raise substantial doubt as to the Company's ability to continue as a going concern. The Company's
independent registered public accounting firm's audit report included in the Company's Form 10-KSB included explanatory
paragraphs regarding the Company's ability to continue as a going concern.
The accompanying consolidated financial statements have bee n prepared assuming that the Company continues as a going
concern and contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The ability
of the Company to continue as a going concern on a long-term basis will be dependent upon its ability to generate sufficient cash
flows from operations to meet its obligations on a timely basis, to obtain additional financing and to ultimately attain
profitability.
The Company's current cash flow from operations will not be sufficient to maintain its capital requirements for the year.
Therefore, the Company's continued operations, as well as the implementation of its business plan, will depend upon its ability to
raise additional funds through bank borrowings and equity or debt financing of up to $2,000,000 during the year ending
December 31, 2007.
The Company has been successful in obtaining the required cash resources by issuing stock and notes payable, including
related party notes payable, to service the Company's operations through the third quarter of 2007. Net cash provided by
financing activities was $355,096 for the nine months ended September 30, 2007 compared to $631,018 for the nine months
ended September 30,2007, a change of $275,922 or approximately 44%. This decrease was primarily the result of not selling as
much stock for cash and instead relying on the ability to borrow money from lenders. Net cash used in financing activities was
$3,576,353 for the period from September 2, 2002 (inception) through September 30, 2007.
The Compan y has continued to issue stock to various vendors to make payments for services rendered. In the nine months
ending September 30, 2007, the Company issued 6,204,000 shares of stock in payment of services valued at $635,680. The
Company also granted stock options for services valued at $81,130. Of the 6,204,000 shares issued by the Company, 6,139,000
shares were issued to vendors with a promise that the shares would cover a certain amount of money owed to that vendor. If the
vendor is unable to sell its shares to cover the promised amount, the Company will be liable to issue more shares for the amount
that the vendor was unable to recover through the sale of stock. Through September 30, 2007 594,500 shares had yet to be sold
by the vendors that received them. If the Company's stock price were to fall from the price the shares were originally issued at ,
the Company will have to issue more stock to cover the change in the stock price. As of September 30, 2007, the Company's
stock price has fallen from the original issue price making the company liable for issuing an additional 87,000 shares of stock.
The amount of this liability has not been reflected on the Company's financial statements as the true amount of the liability is not
yet known as it is dependent on the vendors decision to sell their stock.
Whereas the Company has been successful in the past in raising capital, no assurance can be given that sources of financing will
continue to be available and/or that demand for its equity/debt instruments will be sufficient to meet its capital needs, or that
financing will be available on terms favorable to the Company. The consolidated financial statements do not include an y
adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should the Company
be unable to continue as a going concern.
31 |
If funding is insufficient at any time in the future, the Company may not be able to take advantage of business opportunities
or respond to competitive pressures or may be required to reduce the scope of the Company's planned product development and
marketing efforts, any of which could have a negative impact on business and operating results. In addition, insufficient funding
may have a material adverse effect on the Company's financial condition, which could require the Company to:
• curtail operations significantly;
• sell significant assets;
• seek arrangements with strategic partners or other parties that may require the Company to relinquish significant rights to
products, technologies or markets; or
R 26; explore other strategic alternatives including a merger or sale of the Company.
To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, dilution of
the interests of existing stockholders may occur. If additional funds are raised through the issuance of debt securities, these
securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose
restrictions on the Company's operations. Regardless of whether the Company's assets prove to be inadequate to meet its
operational needs, the Company may seek to compensate providers of services by issuance of stock in lieu of cash, which may
also result in dilution to existing shareholders.
Contractual Obligations.
(a) Capital Lease.
The Company leases certain computers under agreements that are classified as capital leases. The cost of equipment under
capital leases is included in the balance sheets as furniture and equipment and amounted to $33,173 at September 30, 2007.
Accumulated amortization of the leased equipment at September 30, 2007 was $15,613. Amortization of assets under capital
leases is included in depreciation expense.
(b) Operating Leases.
The principal executive offices for the Company currently consist of approximately 1,000 square feet of office space (some
of which is shared use), which are located at 4640 Admiralty Way, Suite 500. Marina del Rey, California 90292. The Company
leases this property on a six- month lease starting in July, 2007 at the current monthly rent of $2,500.
(c) Indemnities and Guarantees.
During the normal course of business, the Company has made certain indemnities and guarantees under which it may be required
to make payments in relation to certain transactions. These indemnities include certain agreements with the Company's officers
under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship,
lease agreements. The duration of these indemnities and guarantees varies, and in certain cases, is indefinite.
Off Balance Sheet Arrangements.
Other than operating leases, the Company does not engage in any off balance sheet arrangements t hat are reasonably likely
to have a current or future effect on its financial condition, revenues, results of operations, liquidity or capital expenditures.
Inflation.
The impact of inflation on the costs of the Company and the ability to pass on cost increases to its customers over time is
dependent upon market conditions. The Company is not aware of any inflationary pressures that have had any significant impact
on the Company's operations over the past year and the Company does not anticipate that inflationary factors will have a
significant impact on future operations.
32 |
Critical Accounting Policies.
The SEC has issued Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies" ("FRR 60"), suggesting companies provide additional disclosure and commentary on their most critical
accounting policies. In FRR 60, the SEC has defined the most critical accounting policies as the ones that are most important to
the portrayal of a company's financial condition and operating results and require management to make its most difficult and
subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this
definition, the Company's most critical accounting policies include: (a) valuation of stock-based compensation arrangements; (b)
reven ue recognition; and (c) derivative liabilities. The methods, estimates and judgments the Company uses in applying these
most critical accounting policies have a significant impact on the results the Company reports in its consolidated financial
statements.
(a) Valuation of Stock-Based Compensation Arrangements.
The Company has issued, and intends to continue to issue, shares of common stock and options to purchase shares of its
common stock to various individuals and entities for management, legal, consulting and marketing services. The Company
adopted SFAS No. 123 (Revised 2004), "Share Based Payment" ("SFAS No. 123R"). SFAS No. 123R requires companies to
measure and recognize the cost of employee services received in exchange for an award of equity instrum ents based on the grant-
date fair value. SFAS No. 123R eliminates the ability to account for the award of these instruments under the intrinsic value
method prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
allowed under the original provisions of SFAS No. 123. These transactions are reflected as a component of selling, general and
administrative expenses in the accompanying statement of operations.
(b) Revenue Recognition.
The Company recognizes revenues when international travelers place a call to Company's call centers through their personal
cellular phone to obtain multilingual assistance and services in their native language while traveling in foreign countries.
(c) Derivative Liabilities.
During the year ended December 31, 2006, the Company issued warrants and options to numerous consultants and investors for
services and to raise capital. During the period up until the recapitalization performed on December 1, 2006 (Note 1), the
Company did not have sufficient authorized shares in order to issue these options should they be exercised. Because of the lack
of authorized shares, the Company therefore needed to follow derivative accounting rules for its accounting of options and
warrants.
The Company evaluates the conversion feature of options and warrant indexed to its common stock to properly classify such
instruments within equity or as liabilities in its financial statements, pursuant to the requirements of the EITF No. 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," EITF No. 01-
06, "The Meaning of Indexed to a Company's Own Stock," and SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended.
Pursuant to EITF 00-19, the Company was to recognize a liability for derivative instruments on the balance sheet to reflect the
insufficient amounts of shares authorized, which would have otherwise been classified into equity. An evaluation of specifically
identified conditions was then made to determine whether the fair value of warrants or options issued was required to be
classified as a derivative liability. The fair value of warrants and options classified as derivative liabilities was adjusted for
changes in fair value at each reporting period, and the corresponding non-cash gain or loss was recorded in the corresponding
period earnings.
In December 2006, the Company completed a reincorporation by merger with Texxon-Nevada, which, therefore, allowed the
Company to increase its authorized preferred and common shares from 5,000,000 to 10,000,000 shares and from 45,000,000 to
100,000,000 shares, respectively.
At the date of recapitalization, the Company recalculated the value of its options and warrants at the current fair value, and
recorded an increase to equity and a decrease to derivative liabilities for the fair value of the options and warrants. The
difference between the liability and the recalculated fair value was recorded as a gain or loss.
33 |
Forward Looking Statements.
Information in this Form 10-QSB contains "forward looking statements" within the meaning of Rule 175 of the Securities
Act of 1933, as amended, and Rule 3b-6 of the Securities Exchange Act of 1934, as amended. When used in this Form 10-KSB,
the words "expects," "anticipates," "believes," "plans," "will" and similar expressions are intended to identify forward-looking
statements. These are statements that relate to future periods and include, but are not limited to, statements regarding adequacy of
cash, expectations regarding net losses and cash flow, statements regarding growth, need for future financing, dependence on
personnel and operating expenses.
Forward-looking statements are sub ject to certain risks and uncertainties that could cause actual results to differ materially
from those projected. These risks and uncertainties include, but are not limited to, those discussed below, as well as risks related
to the Company's ability to obtain future financing and the risks set forth above under "Factors That May Affect Operating
Results." These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change
in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
ITEM 3. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the
Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in the
Company's periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management,
including the Company's principal executive officer and principal financial officer, to allow timely decisions regarding required
disclosures.
As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the
participation of the Company's principal executive officer and principal financial officer, of the Company's disclosure controls
and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, the
Company's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were
effective at a reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. In addition, the Company's principal executive officer and principal financial officer concluded that its
disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the
Company's management, including its principal executive officer and principal financial officer, to allow timely decisions
regarding required disclosure.
Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people and/or by management
override of controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of changes in conditions, and/or the degree of compliance with
the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective internal control system,
misstatements due to error or fraud may occur and not be detected.
Changes in Disclosure Controls and Procedures.
There were no changes in the Company's disclosure controls and procedures, or in fac tors that could significantly affect those
controls and procedures, since its most recent evaluation.
34 |
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There were no unregistered sales of the Company's equity securities during the three months ended on September 30, 2007,
except as follows:
In March 2006, the Company's Board of Directors approved a funding arrangement with First Bridge Capital Incorporated.
Under the arrangement, First Bridge Capital advanced to the Company $80,000 for working capital purposes, for which
convertible preferred stock was to be issued as repayment. Under a later written agreement with First Bridge Capital in Augus t
2006, that firm agreed to make serial investments in the maximum amount of $1,000,000 for a future exchange of the Company's
Series A convertible preferred stock (including the amounts advanced starting in March 2006). On January 15, 2007, First
Bridge advanced another $320,000 under this agreement, none of which has been converted into shares of Series A preferred
stock (previously incorrectly reported as being issued). On July 10, 2007, the Company issued 806 shares of Series preferred
stock as a conversion of the first $80,000 loan (plus accrued interest); immediately thereafter, the Company issued 806,000
shares of free trading common stock upon conversion of 806 shares of Series A preferred stock.
There were no purchases of the Company's common stock by the Comp any's affiliates or by it during the three months
ended June 30, 2007.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As of September 30, 2007, the Company was in default in the payment of $298,883.87 principal amount of various notes payable
(related and non-related parties, as discussed in Notes 9 and 11 to the financial statements, but excluding the note payable to First
Bridge Capital) and in the payment of $62,847.91 of accrued interest. The Company is in the process of negotiating settlements
or payments. All notes are included in current liabilities. The Company is negotiating with the lenders to secure a conversion of
the debt to a proposed series of convertible preferred stock; pending the resolution of this matter, the lenders are exercising
forbearance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Subsequent Events.
(a) On October 12, 2007, the Company issued 200,000 restricted shares of common stock to Kurt Hiete in connection with
the conversion of his promissory on October 1, 2006 in the principal amount of $48,500 interest in the amount of $10,611
($0.295 per share).
(b) On October 12, 2007, the Company issued 35,000 restricted shares of common stock to London Trust in connection with
services rendered for the Company, valued at $34,865 (which represents the amount of an invoice for accounting work) ($ 0.996
per share).
(c) On October 15, 2007, the Company's board of directors appointed Helene Legendre as a member of the board of directors.
Ms. Legendre has been the Company's Executive Vice President since May 2006. Ms. Legendre was named to the Company's
audit committee upon her appointment as chief financial officer on August 6, 2007. Ms. Legendre has an employment agreement
with the Company, as discussed in a Form 8-K filed on August 10, 2007.
(c) On October 19, 2007, Ms, Legendre sold 261,000 shares of Company common stock for total gross proceeds of $8,769.60.
She then loaned these funds to the Company.
35 |
(e) On October 24, 2007, the Company issued 200,000 restricted shares of common stock to Jay Everingham in connection
with marketing services provided to the Company, valued at $7,000 ($0.035 per share).
(f) On November 19, 2007, a Certificate of Designation was filed with the Nevada Secretary of State in connection with the
designation of 10,000 shares of undesignated preferred stock. This stock is now designated and known as "Series A Convertible
Preferred Stock", par value One Tenth of One Cent ($0.001) (see Exhibit 4.4).
ITEM 6. EXHIBITS.
Exhibits included or incorporated by reference in this document are set forth in the Exhibit Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1 934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Continan Communications, Inc. | |
Dated: November 19, 2007 | /s/ Claude C. Buchert |
Claude C. Buchert, | |
Chief Executive Officer | |
Dated: November 19, 2007 | /s/ Helene Legendre |
Helene Legendre, | |
Chief Financial Officer |
36 |
EXHIBIT INDEX |
Number | Description |
3.1 | Articles of Incorporation, dated March 13, 2006 (incorporated by reference to Exhibit 3.1 of the Form 10-KSB filed on May 9, 2007). |
3.2 | Articles of Merger, dated November 22, 2006 (incorporated by reference to Exhibit 99.1 of the Form 8-K filed on December 7, 2006). |
3.3 | By-Laws, dated October 6, 1998 (incorporated by reference to Exhibit 3.2 of the Form 10-SB filed on February 28, 2002). |
4.1 | 1998 Incentive Stock Option Plan, dated November 1, 1998 (incorporated by reference to Exhibit 10.1 of the Form 10-SB filed on February 28, 2002) |
4.2 | 2002 Non-Qualified Stock Option Plan, dated October 1, 2002 (incorporated by reference to Exhibit 4 of the Form S-8 filed on January 27, 2003) |
4.3 | Share Exchange Agreement between the Texxon, Inc., TelePlus, Inc., and the Shareholders of TelePlus, Inc., dated March 2, 2006 (incorporated by reference to Exhibit 2 of the Form 10-QSB filed on May 22, 2006). |
4.4 | Certificate of Designation of TelePlus Acquisition Series of Preferred Stock, dated May 8, 2006 (incorporated by reference to Exhibit 4.1 of the Form 8-K filed on June 7, 2006). |
4.5 | Certificate of Designation of Series a Preferred Stock, dated September 14, 2007 (filed herewith) |
10.1 | Employment Agreement between TelePlus, Inc. and Claude Buchert, dated January 1, 2004 (incorporated by reference to Exhibit 10.1 of the Form 10-KSB filed on May 9, 2007). |
10.2 | Employment Agreement between TelePlus, Inc. and Helene Legendre, dated January 1, 2004 (incorporated by reference to Exhibit 10.2 of the Form 10-KSB filed on May 9, 2007). |
10.3 | Addendum to Employment Agreement between TelePlus, Inc. and Claude Buchert, dated February 1, 2004 (incorporated by reference to Exhibit 10.3 of the Form 10-KSB filed on May 9, 2007). |
10.4 | Letter of Engagement between TelePlus, Inc. and Ross Nordin, dated April 18, 2006 (incorporated by reference to Exhibit 10.4 of the Form 10-KSB filed on May 9, 2007). |
10.5 | Settlement Agreement between Wall Street PR, Inc. and Texxon, Inc., dated July 26, 2006 (incorporated by reference to Exhibit 10.5 of the Form 10-KSB filed on May 9, 2007). |
10.6 | Agreement for VOIP Services between TelePlus Inc. and Digitrad France SARL, dated July 27, 2006 (incorporated by reference to Exhibit 99 of the Form 8-K filed on August 14, 2006). |
10.7 | Funding Agreement between Texxon, Inc. and First Bridge Capital, Inc., dated August 14, 2006 (incorporated by reference to Exhibit 10.7 of the Form 10-KSB filed on May 9, 2007). |
10.8 | Settlement Agreement between Continan Communications, Inc., First Bridge Capital, Inc., and Wall Street PR, Inc., dated December 28, 2006 (incorporated by reference to Exhibit 10.8 of the Form 10-KSB filed on May 9, 2007). |
21 | Subsidiaries of the Company (incorporated by reference to Exhibit 21 of the Form 10-KSB filed on May 9, 2007). |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Claude C. Buchert (filed herewith). |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Helene Legendre (filed herewith). |
32 | Section 1350 Certification of Claude C. Buchert and Helene Legendre (filed herewith). |
99 | Provisional Patent Application, dated September 20, 2004 (incorporated by reference to Exhibit 99 of the Form 10-KSB filed on May 9, 2007). |
37 |
CERTIFICATE OF DESIGNATION |
OF |
CONTINAN COMMUNINCATIONS, INC. |
The undersigned, Claude C. Buchert, chief executive officer, and Helene Legendre, secretary, certify that:
Claude C. Buchert is the chief executive officer, and Helene Legendre is the secretary of Continan Communications, Inc., a
Nevada corporation ("Company").
By action of the Board of Directors of the Company on September 14, 2007, at the Company's offices located at 11601 Wilshire
Boulevard, Suite 2030, Los Angeles, California 90025, the following resolution was adopted by unanimous written consent of the
Directors:
WHEREAS, Article 5 of the Articles of Merger of the Company, dated November 4, 2006, authorizes the Company to
issue Ten Million (10,000,000) shares of preferred stock, par value of One Tenth of One Cent ($0.001) per share
("Preferred Stock"); a nd
WHEREAS, the shares of Preferred Stock were authorized to be issued from time to time in one or more series as expressly
authorized by the Board of Directors to determine or alter the rights, preferences, privileges, and restrictions granted to or
imposed on any wholly unissued class of shares or any wholly tissues series of any class of shares, and the number of shares
constituting any unissued series of Preferred Stock as well as the designations of the series, or any or all of them.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issue of undesignated
Preferred shares of the Company and does hereby fix and determine the rights, preferences, privileges, and restrictions of, and
other matters relating to, that series, as follows and such issu e shall not require the vote of the outstanding shares of Preferred
Stock of the Company:
Ten Thousand (10,000) shares of undesignated Preferred Stock shall be designated and known as "Series A Convertible Preferred
Stock", par value One Tenth of One Cent ($0.001), with the powers, preferences, rights, restrictions, and other matters as follows.
(1) CONVERSION. The holders of Series A Convertible Preferred Stock shall have conversion rights as follows
("Conversion Rights"):
(a) Right to Convert. Subject to subsection (b), each share of outstanding Series A Convertible Preferred Stock shall be
convertible at any time into shares of restricted common stock ("Conversion Shares") by giving not less than twenty (20) days
written no tice to the decision to convert. The conversion date will be the 20th day after the date of the written notice
("Conversion Date").
The conversion formula for a Series A Convertible Preferred Stock share is the lesser of (i) seventy cents ($0.70), or (ii) the rate
determined by (x) taking seventy percent (70%) of the average of the closing bid prices of the Company's common stock for the
twenty (20) consecutive day trading period immediately preceding the Conversion Date and (y) multiplying that by the dollar
amount of the Series A preferred shares that are being converted.
(b) Mechanics of Conversion.
(i) Before any holder of Series A Convertible Preferred Stock shall be entitled voluntarily to convert the same into sh ares
of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or of any
transfer agent for such stock, and shall give written notice to the Company at such office that he elects to convert the same and
shall state therein the number of shares to be converted and the name or names in which he wishes the certificate or certificates
for shares of Common Stock to be issued. The Company shall, as soon as practicable thereafter, issue and deliver at such office
to such holder of Series A Convertible Preferred Stock, a certificate or certificates for the number of shares of Common Stock to
which he shall be entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the
date or surrender of the shares of Series A Convertible Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
38 |
(ii) If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act, the
conversion may, at the option of any holder tendering shares of Series A Convertible Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Series A Convertible Preferred Stock shall not be deemed to have
converted such Series A Convertible Preferred Stock until immediately prior to the closing of such sale of securities.
(c) Adjustments to Conversion Rate for Stock Dividends and for Combinations or Subdivisions of Common Stock. In the
event that the Company at any time or from time to time after the first date of any issuance of Series A Convertible Preferred
Stock (the "Original Issue Date") shall declare or pay, without consideration, any dividend on the Common Stock payable in
Common Stock or in any right to acquire Common Stock for no consideration, or shall effect a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common
Stock, then the Conversion Rate in effect immediately prior to such event shall, concurrently with the effectiveness of such event,
be proportionately decreased or increased, as appropriate. In the event that the Company shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the
Company shall be deemed to have made. a dividend payable in Common Stock in an amount of shares equal to the maximum
number of shares issuable upon exercise of such rights to acquire common Stock.
(d) Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon conversion of the Series
A Convertible Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision o r combination of shares provided
for in Section 1(b) above or a merger or other reorganization referred to in Section 1(b) above), the Conversion Rate then in
effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that the
Series A Convertible Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the
number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series A
Convertible Preferred Stock immediately before that change.
(e) No Impairment. The Company will not, by amendment of its A rticles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section and in the taking of all
such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A
Convertible Preferred Stock against impairment.
(f) Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of any Conversion
Rate pursuant to this Se ction, the Company, at its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series A Convertible Preferred Stock a certificate executed by the
Company's President or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts
upon which the Company shall, upon the written request at any time of any holder of Series A Convertible Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Rate at the time in effect, and (iii) the number of shares of Common Stuck and the amount if any, of other property
which at the time would be received upon the conversion of the Series A Convertible Preferred Stock.
(g) Notices of Record Date. In the event that the Company shall propose at any time: (i) to declare any dividend or
distribution upon its Common Stock, whether in cash, property, stock or other securities. whether or not a regular cash dividend
and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; then, in connection
with each such event, the Co mpany shall send to the holders of Series A Convertible Preferred Stock:
(A) At least twenty (20) days prior written notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for
determining rights to vote, if any, in respect of the matters referred to in (iii) and (iv) above; and
39 |
(B) In the case of the matters referred to in (iii) and (iv) above, at least twenty (20) days prior written notice of the date
when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon the occurrence of such event).
(h) Reservation of Stock lssuable Upon Conversion. The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A
Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of
all outstanding shares of t he Series A Convertible Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Convertible
Preferred Stock, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including,
without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this
Certificate.
(i) Fractional Shares. No fractional share shall be issued upon the conversion of any share or shares of Series A
Convertible Preferred Stock. All shares of Comm on Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Convertible Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether
the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the Company shall, in lieu of issuing any fractional share,
pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors).
(j) Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series A
Convertible Pr eferred Stock shall be deemed given if deposited iii the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the Company.
(2) VOTING RIGHTS. The holder of each share of Series A Convertible Preferred Stock shall have the right to one
hundred (100) votes for each share of Common Stock into which such share of Series A Convertible Preferred Stock could be
converted on the record date for the vote or written consent of stockholders. In all cases any fractional share, determined on an
aggregate conversion basis, shall be rounded to the nearest whole share. With respect to such vote, such holder shall have full
voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provi sion hereof, to notice of any stockholders meeting in accordance with the bylaws of the Company, and
shall be entitled to vote, together with holders, of Common Stock, with respect to any question upon which holders of Common
Stock have the right to vote,
(3) DIVIDENDS. The Company shall accrue (whether or not declared) an annual cumulative eight percent (8%) dividend on
each share of Series A Convertible Preferred Stock. Subject to the requirements of Nevada law, the Company shall pay the
cumulative dividend in cash or, in its sole discretion, in whole or in part in additional Conversion Shares, at the first to occur of
(a) an initial public offering, or (2) conversion of all or part of the Series A Convertible Preferred Stock into Conversion Shares.
(4) STATUS OF CONVERTED STOCK. In the eve nt any shares of Series A Convertible Preferred Stock shall be
converted pursuant to Section 1 hereof, the shares so converted shall be canceled and shall not be issuable by the Company, and
all such shares shall be canceled, retired and eliminated from the shares which the Company is authorized to issue.
(5) SENIORITY OF SERIES A CONVERTIBLE PREFERRED STOCK. No additional shares of Series A Convertible
Preferred Stock shall be authorized or issued that have rights, privileges and preferences equal to or senior to the Series A
Convertible Preferred Stock as long as any Series Convertible Preferred Stock is outstanding
(6) LIQUIDATION PREFERENCE. If the Company is liquidated while the Series A Convertible Preferred Stock remains
outstanding, then after the Company pays its creditor obligations in full and reserve funds for the cost of liquidation, all available
cash will first be distributed to the holders of Series A Convertible Preferred Stock in proportion to their investment in Series A
Convertible Preferred Stock and cumulative unpaid dividends before any distributions are made to the holders of the Company's
common stock.
40 |
(7) RESTRICTIONS AND LIMITATIONS. So long as any shares of Series Convertible Preferred Stock remain
outstanding, the Company shall not, without the vote or written consent by the holders of at least a majority of the then outstanding shares of Series A Convertible Preferred Stock, amend these Articles of Incorporation if such amendment would adversely affect any of the rights, preferences or privileges provided for herein for the benefit of the Series A Convertible Preferred Stock.
RESOLVED FURTHER, that the Secretary of the Company is hereby authorized and directed to prepare, execute, verify and file, in the office of the Nevada Secretary of State, a Certificate of Designation in accordance with this resolution as required by law.
CONTINAN COMMUNICATIONS, INC. | |
/s/ Claude C. Buchert | Date: September 14, 2007 |
Claude C. Buchert, Chief Executive Officer | |
/s/ Helene Legendre | Date: September 14, 2007 |
Helene Legendre, Secretary |
41 |
RULE 13a-14(a)/15d-14(a) CERTIFICATION |
I, Claude C. Buchert, certify that:
1. I have reviewed this annual report on Form 10-QSB of Continan Communications, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the
periods presented in this report;
4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [omitted pursuant to extended compliance period]
for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [omitted pursuant to extended compliance period]
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our
concl usions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during
the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the small business issuer's independent registered public accounting firm and the audit
committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small
business issuer's internal control over financial reporting.
Dated: November 19, 2007 | /s/ Claude C. Buchert |
Claude C. Buchert, | |
Chief Executive Officer |
42 |
RULE 13a-14(a)/15d-14(a) CERTIFICATION |
I, Helene Legendre, certify that:
1. I have reviewed this annual report on Form 10-QSB of Continan Communications, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the
periods presented in this report;
4. The small business issuer's other certifying officer and I a re responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [omitted pursuant to extended compliance period]
for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [omitted pursuant to extended compliance period]
(c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our
conclus ions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during
the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the small business issuer's independent registered public accounting firm and the audit
committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small
business issuer's internal control over financial reporting.
Dated: November 19, 2007 | /s/ Helene Legendre |
Helene Legendre, | |
Chief Financial Officer |
43 |
SECTION 1350 CERTIFICATION |
In connection with the quarterly report of Continan Communications, Inc. ("Company") on Form 10-QSB for the quarter ended
September 30, 2007 as filed with the Securities and Exchange Commission ("Report"), the undersigned, in the capacity and on
the date indicated below, hereby certifies pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: November 19, 2007 | /s/ Claude C. Buchert |
Claude C. Buchert, | |
Chief Executive Officer | |
Dated: November 19, 2007 | /s/ Helene Legendre |
Helene Legendre, | |
Chief Financial Officer |
44 |
