U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007
o | 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 0-32345
MORRIS BUSINESS DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
California (State or other jurisdiction of incorporation or organization) | 33-0795854 (I.R.S. Employer Identification No.) |
413 Avenue G, #1 Redondo Beach, CA (Address of principal executive offices) | 90277 (Zip Code) |
Registrant’s telephone number, including area code (310) 493-2244
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x.
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 13, 2007, there were 1,300,000 shares of common stock, par value $0.02, issued and outstanding.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION | 3 | |
ITEM 1 | Financial Statements | 3 |
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | 17 |
ITEM 4. | Controls and Procedures | 17 |
PART II - OTHER INFORMATION | 18 | |
ITEM 1. | Legal proceedings | 18 |
ITEM 1A | Risk Factors | 18 |
ITEM 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
ITEM 3 | Defaults Upon Senior Securities | 18 |
ITEM 4 | Submission of Matters to a Vote of Security Holders | 18 |
ITEM 5 | Other Information | 19 |
ITEM 6 | Exhibits | 20 |
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PART I– FINANCIAL INFORMATION
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company’s future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
ITEM 1 Financial Statements
4 | ||||
Statements of Operations for the Three Month Periods Ended June 30, 2007, 2006 and 2005 (Unaudited) | 5 | |||
Statements of Cash Flows for the Three Month Periods Ended June 30, 2007, 2006 and 2005 (Unaudited) | 6 | |||
Notes to Unaudited Financial Statements | 7 |
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(Formerly known as Electronic Media Central Corporation)
BALANCE SHEETS
JUNE 30, 2007 AND 2006
(Unaudited)
2007 | 2006 | ||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash & cash equivalents | $ | 2,944 | $ | 10,205 | |||
Accounts receivable, net of allowance for doubtful accounts of $3,700 and $3,700 respectively | 12,511 | 22,695 | |||||
Due from related parties | 82,991 | 48,360 | |||||
Total assets | $ | 98,446 | $ | 81,260 | |||
LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||
CURRENT LIABILITIES | |||||||
Accounts payable & accrued expenses | $ | 75,480 | $ | 72,266 | |||
Notes payable - related parties | 114,300 | 113,100 | |||||
Due to related party | 8,463 | 7,906 | |||||
Due to officer | 160,247 | 87,274 | |||||
Total current liabilities | 358,489 | 280,546 | |||||
STOCKHOLDERS' DEFICIT | |||||||
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding | - | - | |||||
Common stock, $0.02 par value; 40,000,000 shares authorized; 1,300,000 and 1,300,000 shares issued and outstanding respectively | 26,000 | 26,000 | |||||
Additional paid in capital | 42,600 | 42,600 | |||||
Accumulated deficit | (328,644 | ) | (267,886 | ) | |||
Total stockholders' deficit | (260,044 | ) | (199,286 | ) | |||
Total liabilities and stockholders' deficit | $ | 98,446 | $ | 81,260 |
The accompanying notes are an integral part of these unaudited financial statements
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MORRIS BUSINESS DEVELOPMENT COMPANY
(Formerly known as Electronic Media Central Corporation)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2007, 2006, AND 2005
(Unaudited)
2007 | 2006 | 2005 | ||||||||
Net revenues | $ | 23,337 | $ | 83,231 | $ | 37,952 | ||||
Cost of revenues | 12,809 | 53,365 | 26,014 | |||||||
Gross profit | 10,528 | 29,866 | 11,938 | |||||||
Operating expenses | ||||||||||
Professional fees | 5,271 | 11,228 | 2,861 | |||||||
Salaries and related expenses | 6,381 | 8,752 | 9,109 | |||||||
Other | 5,437 | 4,744 | 8,472 | |||||||
Total operating expenses | 17,089 | 24,724 | 20,441 | |||||||
Income (loss) from operations | (6,561 | ) | 5,142 | (8,503 | ) | |||||
Other income (expense) | ||||||||||
Other income | 2,000 | 805 | - | |||||||
Interest expense | (4,348 | ) | (3,542 | ) | (3,040 | ) | ||||
Total other expense | (2,348 | ) | (2,737 | ) | (3,040 | ) | ||||
Income (loss) before income taxes | (8,909 | ) | 2,405 | (11,543 | ) | |||||
Provision for income taxes | 800 | 800 | 800 | |||||||
Net income (loss) | $ | (9,709 | ) | $ | 1,605 | $ | (12,343 | ) | ||
Basic and diluted weighted average number of common stock outstanding | 1,300,000 | 1,300,000 | 1,000,000 | |||||||
Basic and diluted net earnings (loss) per share | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) |
Weighted average number of shares used to compute basic and diluted earnings (loss) per share is the same as the effect of dilutive securities is anti-dilutive
The accompanying notes are an integral part of these unaudited financial statements
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(Formerly known as Electronic Media Central Corporation)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2007, 2006, AND 2005
(Unaudited)
2007 | 2006 | 2005 | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||
Net income (loss) | $ | (9,709 | ) | $ | 1,605 | $ | (12,343 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||
Decrease (Increase) in accounts receivable | (1,523 | ) | 102,072 | 14,330 | ||||||
Increase (Decrease) in accounts payable | (2,445 | ) | (58,253 | ) | 2,886 | |||||
Net cash provided by (used in) operating activities | (13,677 | ) | 45,424 | 4,873 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||
Decrease (Increase) in receivables from related party | (6,041 | ) | (34,384 | ) | 8,147 | |||||
Increase (decrease) in due to officer | 21,543 | (7,282 | ) | (13,908 | ) | |||||
Net cash provided by (used in) financing activities | 15,502 | (41,667 | ) | (5,761 | ) | |||||
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS | 1,825 | 3,757 | (888 | ) | ||||||
CASH & CASH EQUIVALENTS, BEGINNING BALANCE | 1,118 | 6,448 | 6,865 | |||||||
CASH & CASH EQUIVALENTS, ENDING BALANCE | $ | 2,944 | $ | 10,205 | $ | 5,977 | ||||
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION | ||||||||||
Interest paid during the year | $ | - | $ | - | $ | - | ||||
Taxes paid during the year | $ | - | $ | - | $ | - |
The accompanying notes are an integral part of these unaudited financial statements
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MORRIS BUSINESS DEVELOPMENT COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 | ORGANIZATION |
On April 1, 1998, Morris Business Development Company, formerly Electronic Media Central, Corporation (the Company or MBDC) was incorporated in California (formerly a division of Internet Infinity, Inc. (III)). The Company is engaged in providing services for duplication, replication and packaging of DVDs and CDs.
As of May 12, 2006 the Company filed Form N-54A with the United States Securities Exchange Commission to become a business development company by certifying that it is a closed-end company (mutual fund) organized and operated for the purpose of making investments in securities described in section 55 (a)(1) through (3) of the Investment Company Act of 1940; and that it will make available significant managerial assistance with respect to issuers of such securities to the extent required by the act.
The Company has commenced the development of new management consulting services to assist client companies in complying with the reporting requirements to the government and in communicating with shareholders, customers and the public and the accessing of needed growth capital.
On March 29, 2007 the Company registered a name change to Morris Business Development Company with the California Secretary of State.
NOTE 2 | BASES OF PRESENTATION AND BUSINESS |
The accompanying financial statements have been prepared by MBDC (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. The unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to fairly state the financial position as of June 30, 2007 and 2006 , and the results of operations and cash flows for the related interim periods ended June 30, 2007, 2006 and 2005. The results of operations for the three month period ended June 30, 2007, are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2008.
The accounting policies followed by the Company and other information are contained in the notes to the Company’s financial statements filed on July 3, 2007, as part of the Company’s annual report on Form 10-KSB for the year ended March 31, 2007. This quarterly report should be read in conjunction with such annual report.
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MORRIS BUSINESS DEVELOPMENT COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
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.
Reclassifications
Certain comparative amounts have been reclassified to conform to the current year's presentation.
Recent Pronouncements
In September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The management is currently evaluating the effect of this pronouncement on financial statements.
In September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)’ This Statement improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the following information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements:
a. | A brief description of the provisions of this Statement |
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MORRIS BUSINESS DEVELOPMENT COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
b. | The date that adoption is required |
c. | The date the employer plans to adopt the recognition provisions of this Statement, if earlier. |
The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The management is currently evaluating the effect of this pronouncement on financial statements.
In February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to specific requirements outlined in the new Statement. Therefore, calendar-year companies may be able to adopt FAS 159 for their first quarter 2007 financial statements.
The new Statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair value in subsequent reporting periods must be recognized in current earnings. FAS 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities. The management is currently evaluating the effect of this pronouncement on financial statements.
NOTE 3 | UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN |
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has accumulated deficit of $328,644 at June 30, 2007, and its total liabilities exceeds its total assets by $260,044.
In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding and potential merger or acquisition candidates and strategic partners, which would enhance stockholders’ investment. Management believes that the above actions will allow the Company to continue operations through the next fiscal year.
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MORRIS BUSINESS DEVELOPMENT COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 4 | ACCOUNT PAYABLE & ACCRUED EXPENSES |
Accrued expenses consisted of the following at June 30, 2007 and 2006:
2007 | 2006 | ||||||
Account payable | $ | 29,593 | $ | 36,541 | |||
Accrued state tax | 3,157 | 2,357 | |||||
Accrued interest | 39,730 | 30,868 | |||||
3,000 | 2,500 | ||||||
$ | 75,480 | $ | 72,266 |
NOTE 5 | RELATED PARTY TRANSACTIONS |
The Company has a receivable of $ 82,991 and 48,360 from and a payable of $8,463 and $7,906 to parties related through common shareholder and officer of the Company as of June 30, 2007 and 2006 respectively. The amounts are temporary loan in normal course of business, interest free, unsecured and due on demand.
The Company has a note payable to a related party through common shareholder and officer. The note amounts to $114,300 as of June 30, 2007 and $113,100 as of June 30, 2006, due on demand, and is secured by assets of MBDC. Interest shall accrue at 6% per annum, due and payable upon demand. This note is the remaining unpaid consulting fees and office expense provided by the related party. During the three month period ended June 30, 2007, $300 of unpaid office expense was added to the note. The company recorded interest of $2,267, $2,123 and $1,948 for the three month periods ended June 30, 2007, 2006 and 2005, respectively. The interest payable amounting to $ 39,730 at June 30, 2007 and $30,868 as of June 30, 2006 is included in the accompanying financial statements.
The Company has a payable to the Company’s chairman. The loan amounting to $142,361 at June 30, 2007 and $76,470 as of June 30, 2006, carries an interest rate of 6 % per annum, is unsecured and due on March 31, 2008. The company recorded interest of $2,081, $1,418 and $1,092 for the three month period ended June 30, 2007, 2006 and 2005, respectively. The total interest payable on the loan amounted to $17,886 at June 30, 2007 and $10,804 as of June 30, 2006 and has been included in due to officer in the accompanying financial statements.
George Morris is the chairman of MBDC. As of June 30, 2007, Mr. Morris’ beneficial ownership percentages of related companies’ common stock is as follows:
Morris Business Development Company (the Company) | 82.9 | % | ||
Internet Infinity, Inc. | 85.1 | % | ||
Morris & Associates, Inc. | 71.3 | % | ||
Apple Realty, Inc. | 100.0 | % |
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MORRIS BUSINESS DEVELOPMENT COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 6 | CONCENTRATION OF CREDIT RISK |
For the three month periods ended June 30, 2007, 2006 and 2005, revenue from one customer represent 32.8%, 68.2% and 95.8% of the Company’s total revenue, respectively. Accounts receivable balance outstanding from this customer as of June 30, 2007 was $9,630 and $22,695 as of June 30, 2006.
For the three month periods ended June 30, 2007, 2006 and 2005, the Company has one vendor who represents 31.5%, 81.5% and 83.3% of total purchases, respectively. Accounts payable balance outstanding as of June 30, 2007 for this vendor was $2,500 and $36,541 as of June 30, 2006.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Disclaimer Regarding Forward Looking Statements
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
We focus on the development of opportunities to invest in eligible portfolio companies providing early stage capital, strategic guidance and operational support.
Our principal objective is current consulting income and long-term capital appreciation. We may invest in debt securities of these companies, or may acquire an equity interest in the form of common or preferred stock, warrants or options to acquire stock or the right to convert the debt securities into stock. We may invest alone, or as part of a larger investment group. Consistent with our status as a BDC and the purposes of the regulatory framework for BDC’s under the 1940 Act, we will provide managerial assistance, potentially in the form of a consulting agreement or in the form of a board of director’s seat, to the developing companies in which we invest.
In addition, we may acquire either a minority or controlling interest in mature companies in a roll-up strategy. It is anticipated that any acquisitions will be primarily in exchange for our common stock, or a combination of cash and stock. The principal objective of acquisitions pursuant to a roll-up strategy would be to consolidate an industry and either sell the acquired entities as a larger unit, or take the unit public through an initial public offering, spin-off to our shareholders, or reverse merger into a publicly traded shell corporation.
We operate as an externally managed investment company. Our operations will be governed by an Investment Advisory Management Agreement to be entered into between us and a new investment advisory limited liability company which will be formed and wholly-owned by our Chairman, George Morris. We have not elected to qualify to be taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code.
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Our common stock trades on the over the counter bulletin board under the symbol “MBDV”.
Our financial statements have been prepared assuming we will continue as a going concern. Because we have historically incurred operating losses, and expect those losses to continue in the future, our Certified Public Accountants included an explanatory paragraph in their report raising substantial doubt about our ability to continue as a going concern.
Regulation as a BDC
Although the 1940 Act exempts a BDC from registration under that Act, it contains significant limitations on the operations of BDC’s. Among other things, the 1940 Act contains prohibitions and restrictions relating to transactions between a BDC and its affiliates, principal underwriters and affiliates of its affiliates or underwriters, and it requires that a majority of the BDC’s directors be persons other than “interested persons,” as defined under the 1940 Act. The 1940 Act also prohibits a BDC from changing the nature of its business so as to cease to be, or to withdraw its election as, a BDC unless so authorized by the vote of the holders of a majority of its outstanding voting securities. BDC’s are not required to maintain fundamental investment policies relating to diversification and concentration of investments within a single industry.
Generally, a BDC must be primarily engaged in the business of furnishing capital and providing managerial expertise to companies that do not have ready access to capital through conventional financial channels. Such portfolio companies are termed “eligible portfolio companies.” More specifically, in order to qualify as a BDC, a company must (1) be a domestic company; (2) have registered a class of its equity securities or have filed a registration statement with the Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934; (3) operate for the purpose of investing in the securities of certain types of portfolio companies, namely immature or emerging companies and businesses suffering or just recovering from financial distress; (4) extend significant managerial assistance to such portfolio companies; and (5) have a majority of “disinterested” directors (as defined in the 1940 Act).
An eligible portfolio company is, generally, a U.S. company that is not an investment company and that (1) does not have a class of securities registered on an exchange or included in the Federal Reserve Board’s over-the-counter margin list; or (2) is actively controlled by a BDC and has an affiliate of a BDC on its board of directors; or (3) meets such other criteria as may be established by the Securities and Exchange Commission. Control under the 1940 Act is generally presumed to exist where a BDC owns 25% of the outstanding voting securities of the company.
The 1940 Act prohibits or restricts companies subject to the 1940 Act from investing in certain types of companies, such as brokerage firms, insurance companies, investment banking firms and investment companies. Moreover, the 1940 Act limits the type of assets that BDC’s may acquire to “qualifying assets” and certain assets necessary for its operations (such as office furniture, equipment and facilities) if, at the time of acquisition, less than 70% of the value of the BDC’s assets consist of qualifying assets. Qualifying assets include: (1) securities of companies that were eligible portfolio companies at the time the BDC acquired their securities; (2) securities of bankrupt or insolvent companies that were eligible at the time of the BDC’s initial acquisition of their securities but are no longer eligible, provided that the BDC has maintained a substantial portion of its initial investment in those companies; (3) securities received in exchange for or distributed in or with respect to any of the foregoing; and (4) cash items, government securities and high-quality short-term debt. The 1940 Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased in order for the securities to be considered qualifying assets. These restrictions include limiting purchases to transactions not involving a public offering and acquiring securities from either the portfolio company or its officers, directors, or affiliates.
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A BDC is permitted to invest in the securities of public companies and other investments that are not qualifying assets, but those kinds of investments may not exceed 30% of the BDC’s total asset value at the time of the investment.
A BDC must make significant managerial assistance available to the issuers of eligible portfolio securities in which it invests. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted does provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. The portfolio company does not have to accept the BDC’s offer of managerial assistance, and if they do accept may be required to pay prevailing market rates for the services.
We do not currently have any subsidiaries or EPC’s, however we do have an operating division that provides services for the duplication, replication, and packaging of DVD’s and CD’s. We are actively seeking quality eligible portfolio companies in which to make an investment and provide managerial assistance.
Three Months ended June 30, 2007 compared to the Three Months ended June 30, 2006 and June 30, 2005
Results of Operations
Introduction
During the three months ended June 30, 2006, we elected to become subject to certain sections of the Investment Company Act of 1940 by becoming a Business Development Company. Our DVD and CD division continued to be our sole source of revenues for the quarter.
Revenues and Income (Loss) from Operations
Our revenue, cost of revenue, total operating expenses and income (loss) from operations for the three months ended June 30, 2007, as compared to the three months ended June 30, 2006 and 2005, and March 31, 2006, are as follows:
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3 Months Ended June 30, 2007 | 3 Months Ended June 30, 2006 | Percentage Change Increase (Decrease) | 3 Months Ended June 30, 2005 | 3 Months Ended March 31, 2007 | ||||||||||||
Revenue | $ | 23,337 | $ | 83,231 | (71.96 | %) | $ | 37,952 | $ | 16,307 | ||||||
Cost of revenue | 12,809 | 53,365 | (75.99 | %) | 26,014 | 9,087 | ||||||||||
Total operating expenses | 17,089 | 24,724 | (30.88 | %) | 20,441 | 30,335 | ||||||||||
Income (loss) from operations | $ | (6,561 | ) | $ | 5,142 | (227.59 | %) | $ | (8,503 | ) | $ | (23,135 | ) |
Our revenues for the three months ended June 30, 2007 decreased to $23,337 compared to $83,231 for the three months ended June 30, 2006, $37,952 for the three months ended June 30, 2005, and $16,307 for the three months ended March 31, 2007. This decrease in revenues was a result of reduced purchases by our largest customer.
Our revenues for the current quarter decreased by 71,96% compared to a year earlier and our total operating expenses decreased by 30.88%, to $17,089 for the three months ended June 30, 2007 compared to $24,724 for the three months ended June 30, 2006, $20,441 for the three months ended June 30, 2005, and $30,335 for the three months ended March 31, 2007.
As a result of the above, our loss from operations for the three months ended June 30, 2007 was $6,561, compared to an income of $5,142 for the three months ended June 30, 2006, loss of $8,503 for the three months ended June 30, 2005, and loss of $23,135 for the three months ended March 31, 2007.
Non-Operating Income (Expense) and Net Income (Loss)
Our other income, interest expense, and net income (loss) for the three months ended June 30, 2007, as compared to the three months ended June 30, 2006 and 2005, and March 31, 2007, are as follows:
3 Months Ended June 30, 2007 | 3 Months Ended June 30, 2006 | Percentage Change Increase (Decrease) | 3 Months Ended June 30, 2005 | 3 Months Ended March 31, 2007 | ||||||||||||
Other income | $ | 2,000 | $ | 805 | (59.75) | % | $ | 0 | $ | 4,590 | ||||||
Interest expense | (4,348 | ) | (3,542 | ) | (18.54) | % | (3,040 | ) | (4,284 | ) | ||||||
Net income (loss) | $ | (9,709 | ) | $ | 1,605 | (82.06) | % | $ | (12,343 | ) | $ | (22,830 | ) |
Our other income for the three months ended June 30, 2007 was $2,000. The interest expense was related to $4,348.
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Liquidity and Capital Resources
Introduction
During the three months ended June 30, 2007, we had both a small net loss and a small positive cash flow from financing activities. We anticipate these number will continue.
Our cash and cash equivalents, accounts receivable, total current assets, total current liabilities, and total liabilities as of June 30, 2007, compared to June 30, 2006 and March 31, 2007, are as follows:
June 30, 2007 | June 30, 2006 | March 31, 2007 | ||||||||
Cash | $ | 2,944 | $ | 10,205 | $ | 1,118 | ||||
Accounts receivable | 12,511 | 22,695 | 10,988 | |||||||
Total current assets | 98,446 | 81,260 | 88,144 | |||||||
Total assets | 98,446 | 81,260 | 88,144 | |||||||
Total current liabilities | 358,489 | 280,546 | 338,478 | |||||||
Total liabilities | 358,489 | 280,546 | 338,478 |
Cash Requirements
Our cash requirements are expected to remain stable over the next 12 months. Our cash is utilized primarily for professional fees associated with being a public, reporting company and with the acquisition of eligible portfolio companies.
Sources and Uses of Cash
Operations and Financing
During the three months ended June 30, 2007, we generated positive cash flow of $2,944. This was a result of net cash used by operating activities of ($13,677), offset by net cash provided in financing activities of $15,502. Net cash used by operating activities consisted primarily of an increased operating loss, increase of accounts receivable and decrease in accounts payable of net $13,677, offset by an increase in receivable from related party offset by an increase in due to officers of net $1,825. We anticipate that we will continue to operate at a small net loss and generate a small positive cash flow from the operations of our DVD and CD division and loans from officers..
Critical Accounting Policies
Our accounting policies are fully described in Note 2 to our consolidated financial statements. The following describes the general application of accounting principles that impact our consolidated financial statements.
Our results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principals generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debt, inventories, investments, intangible assets, income taxes, financing operations, and contingencies and litigation.
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We base our 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 values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Since we have very few assets and only one operating division there is no quantitative information, as of June 30, 2007, about market risk that has any impact on our present business. Once we begin making investments in additional eligible portfolio companies we anticipate there will be market risk sensitive instruments and we will disclose the applicable market risk information at that time.
Our primary financial instruments are cash in banks and money market instruments. We do not believe that these instruments are subject to material potential near-term losses in future earnings from reasonably possible near-term changes in market rates or prices. We do not have derivative financial instruments for speculative or trading purposes. We are not currently exposed to any material currency exchange risk.
ITEM 4. Controls and Procedures
Evaluation of disclosure controls and procedures. The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective and provide reasonable assurances that the information the Company is required to disclose in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period required by the Commission's rules and forms. Further, the Company’s officers concluded that its disclosure controls and procedures are also effective to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. There were no significant changes in the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. Legal proceedings
In the ordinary course of business, we may be from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
ITEM 1A Risk Factors
At the time we filed our Annual Report on Form 10-K, we were a Small Business Issuer as defined in Regulation S-B, and thus did not include risk factors in our filing.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
There have been no events which are required to be reported under this Item.
ITEM 3 Defaults Upon Senior Securities
There have been no events which are required to be reported under this Item.
ITEM 4 Submission of Matters to a Vote of Security Holders
There have been no events which are required to be reported under this Item.
ITEM 5 Other Information
On January 8, 2007, by written action without a meeting by the record holder of a majority of the outstanding shares of common stock, William Nordstrom and James Herbert were elected to be independent directors of the corporation. They accepted these positions in August 2007. George Morris, the third director, is the sole director that is not “disinterested.”
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ITEM 6 Exhibits
(a) Exhibits
3.1 (1) | Articles of Incorporation of Electronic Media Central Corporation | |
3.2 (4) | Articles of Amendment to Articles of Incorporation | |
3.3 (1) | Bylaws | |
10.1 (2) | Distribution Agreement Between Electronic Media Central and L&M Media, Inc., dba Apple Media | |
14.1 (3) | Code of Ethics | |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | |
32.1 | Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(1) | Incorporated by reference to our Form 10-SB, Commission file number 000-32345, filed with the Commission on February 13, 2001. |
(2) | Incorporated by reference to the Registrant’s Registration Statement on Form 10-SB/A, filed on April 13, 2001. |
(3) | Incorporated by reference to the Registrant’s Annual Report on Form 10-KSB, filed on July 13, 2004. |
(4) | Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed on July 3, 2007. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: August 16, 2007 | /s/ Roger Casas | |
By: Roger Casas | ||
Its: Chief Executive Officer | ||
Dated: August 16, 2007 | /s/ George P. Morris | |
By: George P. Morris | ||
Its: Chief Financial Officer |
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