ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent liabilities. On an ongoing basis, management evaluates its estimates, including those that relate to income tax contingencies, revenue recognition, and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. If actual results significantly differ from management's estimates, the Company's financial condition and results of operations could be materially impaired.
Comparison of Three Months Ended March 31, 2005 and Three Months Ended March 31, 2004
During the three months ended March 31, 2005, we recorded $946,953 as net sales revenues. This compares to the three months ended March 31, 2004 when we recorded $960,968 as net sales revenue.
During the three months ended March 31, 2005, our Cost of sales was $924,913 which resulted in a gross margin as a percentage of net sales revenues of approximately 3%. This compares to the three months ended March 31, 2004 where our Cost of sales was $953,662 which resulted in a gross margin percentage of net sales revenues was approximately 2%. Competitive conditions, product and sales mix, and technology trends impacted our gross margin in both of these years.
During the three months ended March 31, 2005 we incurred $840,588 in selling, general and administrative expenses. This compares to the three months ended March 31, 2004 when we incurred $787,247 in selling, general and administrative expenses. The increase from the three months ended March 31, 2004 to the three months ended March 31, 2005 was due primarily to the increased average monthly amount of selling, general and administrative expenses incurred as the Company developing and implementing its business plan. Overall, selling, general and administrative expenses were primarily made up of wages and salaries, office expenses, fees and costs incurred for legal and accounting services, and other administrative costs.
During the three months ended March 31, 2005, we recorded an Equity loss from unconsolidated subsidiaries of $14,213. And during the three months ended March 31, 2005, we incurred an Operating Loss of $847,692 compared to an Operating Loss of $779,941 during the three months ended March 31, 2004. The increase in the amount of the loss in the three months ended March 31, 2005 was due primarily to the increased selling, general and administrative expenses.
During the three months ended March 31, 2005, we incurred interest expense of $14,553 compared to $23,160 in interest expense during the three months ended March 31, 2004. During the three months ended March 31, 2005, we had bad debt expense recover of $26,833 compared to the three months ended March 31, 2004 when we $1,100 in bad debt expense.
As a result, during the three months ended March 31, 2005 we had a net loss of $1,110,409 compared to the three months ended March 31, 2004 when we had a net loss of $4,198,859.
Basic loss per share for the three months ended March 31, 2005 was $.01 compared to the three months ended March 31, 2004 when we had a basic loss per share of $.05. During the three months ended March 31, 2005, we had 129,761,501 weighted average shares outstanding. By comparison, during the three months ended March 31, 2004 we had 87,148,385 weighted average shares outstanding.
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Liquidity and Capital Resources
At March 31, 2005, we had $89,308 in cash. At the same time, we had $272,365 in other current assets. At March 31, 2004, we had $46,956 in cash. At the same time, we had $59,324 in other current assets. In contrast, as of March 31, 2005, our total current liabilities were $1,538,527 which consisted primarily of the following material amounts: $500,860 in Accounts payable, $116,292 in Accrued liabilities, $650,763 in Related party obligations, $95,626 in short term debt. In contrast, as of March 31, 2004, our total current liabilities were $1,308,326 which consisted primarily of the following material amounts: $375,564 in Accounts payable, $61,915 in Accrued liabilities, $607,094 in Related party obligations, $97,647 in short term and current portion of long term debt.
During the three months ended March 31, 2005, our cash needs were met primarily by the sale of common stock and loans from certain of our shareholders. We can not be assured that we will continue to obtain funds from these or any other sources to meet our need for additional capital resources.
Overall, our liquidity and access to capital is very limited. We have not received any commitment for additional financing and given the size of our company, we may be limited to loans and other cash infusions from officers, directors, existing stockholders, and persons affiliated or associated with one or more of them. If we are to implement our business plan, we will need to raise significant amounts of additional capital and during the period ended March 31, 2005 we had not received any commitment that any such additional financing would be forthcoming or, if could be obtained, that it can be obtained on reasonable terms in light of our circumstances at that time. In addition, if any financing should be obtained, existing shareholders will likely incur substantial, immediate, and permanent dilution of their existing investment.
On February 4, 2005, the Company entered into five stock subscription agreements for an aggregate of 33,333,335 shares of the Company’s Common Stock in exchange for $5,000,000 in US Treasury Bonds, with both the Company’s shares and the $5,000,000 being placed into escrow. Concurrent with the execution of the agreements, the Company purchased from Cogent Capital for $1 a call option to repurchase at the end of two years 80% of the shares of Common Stock sold at the then current market price. Also concurrent with the agreements, the Company entered into an equity swap arrangement with Cogent Capital for $50,000 and 3,333,333 shares of the Company’s Common Stock that entitles the Company to receive and obligate the Company to pay the price return of 75% of the shares issued in two years, or sooner if the shares are registered for sale under the Securities Act of 1933. The equity swap also provides for the exchange of certain cash flows, as defined in the agreement.
NextPhase Wireless, Inc. began trading on the OTC BB under the symbol NXPW. The Company owns 4,000,000 common shares of NextPhase, which has had a recent trading range of $2 to $2.50. The 4,000,000 common shares of NextPhase were pledged (“Pledged Stock”) as collateral on behalf of NextPhase for a $350,000 promissory note (“Note”). In early May 2005, the Note was paid in full and Pledged Stock is being released to the Company.
Critical Accounting Policies
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires us 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 amount of revenues and expenses during the reporting periods. We are required to make judgments and estimates about the effect of matters that are inherently uncertain. Actual results could differ from our estimates. While we are a development-stage company, the most significant areas involving our judgments and estimates are principally those involving our current liabilities.
Safe Harbor for Forward-Looking Statements
This Form 10-QSB contains forward-looking statements as defined by federal securities laws which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements concerning plans, objectives, goals, strategies, expectations, intentions, projections, developments, future events, performance or products, underlying (express or implied) assumptions and other statements which are other than historical facts. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "intends," "plans," "anticipates," "contemplates," "believes," "estimates," "predicts," "projects," and other similar terminology or the negative of these terms. From time to time we may publish or otherwise make available forward-looking statements of this nature. All such forward-looking statements, whether written or oral, and whether made by us or on our behalf, are expressly qualified by the cautionary statements described in this Form 10-QSB, including those set forth in Section 1A entitled "Factors That May Affect Future Results." In addition, we undertake no obligation to update or revise any forward-looking statement to reflect events, circumstances, or new information after the date of this Form 10-QSB or to reflect the occurrence of unanticipated or other subsequent events, and we disclaim any such obligation.
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Impact of Inflation
Because of the nature of its services, the Company does not believe that inflation had a significant impact on its sales or profits.
Recent Accounting Pronouncements
l. New Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS 151, Inventory Costs – an amendment of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “… under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges…” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption is not expected to have a material effect on the Company’s results of operations or financial conditions.
In December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions—an amendment of FASB Statements No. 66 and 67” (“SFAS 152). This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005, with earlier application encouraged. The adoption is not expected to have a material effect on the Company’s results of operations or financial conditions.
On December 16, 2004, the Financial Accounting Standards Board (“FASB”) published Statement of Financial Accounting Standards No. 123 (Revised 2004), Shared-Based Payment (“SFAS 123R). SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R are effective as of the first interim period that begins after June 15, 2005. Accordingly, the Company will implement the revised standard in the third quarter of fiscal year 2005. Currently, the Company accounts for its share-based payment transactions under the provisions of APB 25, which does not necessarily require the recognition of compensation cost in the financial statements. Management is assessing the implications of this revised standard, which may materially impact the Company’s results of operations in the third quarter of fiscal year 2005 and thereafter.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer has concluded that current disclosure controls and procedures are effective as of the end of the period covered by this quarterly report on Form 10-QSB.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Viper Networks, Inc. vs Greenland Corp.
On June 11, 2004 the Company filed an action in Superior Court seeking among other things, rescission of an April 25, 2003 agreement with Greenland Corp. The Company considers the contract it entered into with Greenland (wherein Greenland was to receive 2,500,000 common shares of the Company) to have been obtained by fraud. Greenland made numerous false statements and material omissions regarding Greenland Corp.’s financial condition, and failed to disclose investigations and litigation pending or threatened which would impair the value of Greenland. Indeed, subsequent to entering into this transaction, the Company discovered that Greenland had undisclosed tax liabilities nearing $2,000,000. The Internal Revenue Service had imposed tax liens against the property owned by Greenland. The Company also recently learned that at the time of the contract, Greenland Corp.’s majority shareholder and controlling Board of Directors transferred (“up-streamed”) roughly $1,300,000 from Greenland Corp.
It is unfortunate that this transaction resulted in litigation, but it is imperative that the Board of Directors of Viper Networks fulfill its fiduciary responsibility and protect its’ shareholders best interests. As such, we intend to take any and all action necessary to protect the rights of our shareholders. In order to minimize legal fees, as of the date of this filing, this case is in Arbitration. Unfortunately, Greenland has been seeking other forums to force the sale of the Viper stock outside of arbitration (which, to date, the Company has thwarted). The Company feels confident that all matters will be resolved in the Company’s favor, and the 2,500,000 common shares will be returned to treasury.
The Company's officers and directors are aware of no other threatened or pending litigation, which would have a material, adverse effect on us. From time to time we are a defendant (actual or threatened) in certain lawsuits encountered in the ordinary course of its business, the resolution of which, in our opinion, should not have a material adverse effect on our financial position, results of operations, or cash flows.
Hills of Bajamar
During September 1998, we entered into an agreement with a related party to purchase 50 acres of real property known as the Hills of Bajamar, located in Ensenada, Mexico. The property is valued at a predecessor cost of $125,000. We intended to sell lots for residential development and build a communications facility for residents in the surrounding area. The Company's current management team and Board of Directors has determined that the goals for use of the Mexico property and construction of telecommunications facilities to the Hills of Bajamar are not within the Company's current capabilities.
As consideration for the land, the Company issued 3,000,000 shares of our Series B Preferred Stock. On June 30, 2001, all of the Series B Preferred Stock was converted into 400,000 shares of our Common Stock. As of March 31, 2005, the Company had not received clear title to the land. Without clear title, the Company is in the process of attempting to rescind the original transaction, cancel the 400,000 common shares and return the shares to treasury.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In January 2005, the Company issued 1,500,000 shares of the Company’s Common Stock to one purchaser in exchange for the Company’s receipt of an aggregate of $50,000 in cash. All of the shares were offered and sold by the Company’s management without the use of an underwriter or NASD registered broker-dealer and no commissions were incurred by the Company in connection with this transaction. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933. Each purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities.
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In February 2005, the Company issued 3,000,000 shares of the Company’s Common Stock to one purchaser in exchange for the Company’s receipt of an aggregate of $180,000 in cash. All of the shares were offered and sold by the Company’s management without the use of an underwriter or NASD registered broker-dealer and no commissions were incurred by the Company in connection with this transaction. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933. Each purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities.
In February 2005, the Company entered into five stock subscription agreements for an aggregate of 33,333,335 shares of the Company’s Common Stock in exchange for $5,000,000 in US Treasury Bonds, with both the Company’s shares and the $5,000,000 being placed into escrow. Concurrent with the execution of the agreements, the Company purchased from Cogent Capital for $1 a call option to repurchase at the end of two years 80% of the shares of Common Stock sold at the then current market price. Also concurrent with the agreements, the Company entered into an equity swap arrangement with Cogent Capital for $50,000 and 3,333,333 shares of the Company’s Common Stock that entitles the Company to receive and obligate the Company to pay the price return of 75% of the shares issued in two years, or sooner if the shares are registered for sale under the Securities Act of 1933. The equity swap also provides for the exchange of certain cash flows, as defined in the agreement. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 and the shares were offered and sold by the Company’s management without the use of an underwriter or NASD registered broker-dealer and no commissions were incurred by the Company in connection with the transaction. Each purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities.
In March 2005, the Company issued a total of 300,000 shares of the Company’s Common Stock to Paul Atkiss, an officer and director of the Company, in payment for services. All of the shares were offered and sold by the Company’s management without the use of an underwriter or NASD registered broker-dealer and no commissions were incurred by the Company in connection with this transaction. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933. Each purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities.
In March 2005, the Company issued 55,173 shares of the Company’s Common Stock to IBC Radio in payment for three month of advertising services. All of the shares were offered and sold by the Company’s management without the use of an underwriter or NASD registered broker-dealer and no commissions were incurred by the Company in connection with this transaction. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933. Each purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities.
In March 2005, the Company issued 1,250,000 shares of the Company’s Common Stock to Rhino Capital in payment for twelve months of business consulting services. All of the shares were offered and sold by the Company’s management without the use of an underwriter or NASD registered broker-dealer and no commissions were incurred by the Company in connection with this transaction. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933. Each purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities.
All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 and the shares were offered and sold by the Company’s management without the use of an underwriter or NASD registered broker-dealer and no commissions were incurred by the Company in connection with the transaction. Each purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
CHANGE OF CORPORATE DOMICILE
Pursuant to prior action by a majority of the shareholders, the Company has completed a change in corporate domicile from Utah to Nevada. A copy of the Articles of Incorporation for the State of Nevada and the By-Laws for the Nevada corporation are as an exhibit to this report.
NEXTPHASE WIRELESS, INC.
As previously announced, NextPhase Wireless, Inc. began trading on the OTC BB under the symbol NXPW. The Company owns 4,000,000 common shares of NextPhase, which has had a recent trading range of $2 to $2.50. The 4,000,0000 common shares of NextPhase were pledged (“Pledged Stock”) as collateral on behalf of NextPhase for a $350,000 promissory note (“Note”). In early May 2005, the Note was paid in full and Pledged Stock is being released to the Company.
NextPhase Wireless, Inc. is an emerging national service provider of wireless broadband Internet connectivity and turnkey wireless solutions. The company designs, deploys and operates its own wireless networks and also provides wireless technology solutions to businesses and municipalities. Leveraging its full-service capabilities and world-class infrastructure, NextPhase Wireless, Inc. offers a comprehensive portfolio of broadband solutions that meet customers' needs today, and can anticipate and grow to meet their needs of tomorrow. For more information, please visit http://nextphasewireless.com.
ITEM 6. EXHIBITS
EXHIBIT
NUMBER | DESCRIPTION |
| |
3(i) | Articles of Incorporation of Viper Networks, Inc. |
3(ii) | By-Laws of Viper Networks, Inc. |
23.1 | Auditor’s Consent |
31.1 | Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
The Company filed the following Reports on Form 8-K during the three months ended March 31, 2005:
Form 8K on January 27, 2005, February 4, 2005, February 147 2005, March 14, 2005 and March 16, 2005
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