U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT for the
transition period from ___________________ to ___________________.
Commission File Number 0-33135
ADSOUTH PARTNERS, INC.
(Name of small business issuer in its charter)
Nevada 68-0448219
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
1515 N. Federal Highway, Suite 418, Boca Raton, FL 33432
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(Address of principal executive offices)
(561) 750-0410
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
As of August 9, 2004, there are 87,721,171 shares of the par value $.0001 common
stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
Indicate by checkmark whether the Registrant is an accelerated filer as
defined in Rule 12b-2 of the Securities and Exchange Act of 1934. Yes [ ]
No [X]
Page 1
ADSOUTH PARTNERS, INC.
Index
Page
----
Part I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Unaudited Condensed Sector Statement of Operations
-Three Months Ended June 30, 2004 3
Unaudited Condensed Consolidated Statement of Operations
-Three Months Ended June 30, 2004 4
Unaudited Condensed Sector Statement of Operations
-Six Months Ended June 30, 2004 5
Unaudited Condensed Consolidated Operations
-Six Months Ended June 30, 2004 6
Unaudited Condensed Sector Balance Sheet - As of June 30, 2004 7-8
Unaudited Condensed Consolidated Balance Sheet - As of June 30, 2004 9
Unaudited Condensed Sector Statement of Cash Flows
-Six Months Ended June 30, 2004 10
Unaudited Condensed Consolidated Statement of Cash Flows
-Six Months Ended June 30, 2004 11
Unaudited Condensed Consolidated Statement of Changes in
Stockholders' Equity
- For the six Months Ended Jun 30, 2004 12
Notes to Unaudited Condensed Consolidated Interim Financial Statements 13-19
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 20-22
PART II OTHER INFORMATION 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
Page 2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
- --------------------------------------------------------------------------------
Adsouth Partners, Inc. and Subsidiary
Unaudited Condensed Sector Statement of Operations
For the Three Months Ended June 30, 2004
- --------------------------------------------------------------------------------
ADVERTISING
Revenues $ 1,481,000
- --------------------------------------------------------------------------------
Costs and expenses
Media placement and production costs 556,000
Selling, administrative and other expense (includes $142,000
of non cash stock based compensation) 456,000
- --------------------------------------------------------------------------------
Total costs and expenses 1,012,000
- --------------------------------------------------------------------------------
Operating income - Advertising 469,000
PRODUCTS
Revenues 6,000
- --------------------------------------------------------------------------------
Costs and expenses
Cost of sales 1,000
Selling, administrative and other expense (includes $71,000
of non cash stock based compensation) 223,000
- --------------------------------------------------------------------------------
Total costs and expenses 224,000
- --------------------------------------------------------------------------------
Operating loss - Products (218,000)
- --------------------------------------------------------------------------------
TOTAL COMPANY
Net income $ 251,000
- --------------------------------------------------------------------------------
Weighted average number of common shares 87,146,489
- --------------------------------------------------------------------------------
AMOUNTS PER SHARE OF COMMON STOCK
Basic net income $.00*
- --------------------------------------------------------------------------------
Diluted net income $.00*
- --------------------------------------------------------------------------------
* - less than $.01
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3
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Adsouth Partners, Inc. and Subsidiary
Unaudited Condensed Consolidated Statement of Operations
For the Three Months Ended June 30, 2004
- --------------------------------------------------------------------------------
Revenues
Advertising $ 1,481,000
Products 6,000
- --------------------------------------------------------------------------------
Revenues 1,487,000
- --------------------------------------------------------------------------------
Costs and expenses
Media placement and production costs 556,000
Cost of sales 1,000
Selling, administrative and other expense (includes $213,000
of non cash stock based compensation) 679,000
- --------------------------------------------------------------------------------
Total costs and expenses 1,236,000
- --------------------------------------------------------------------------------
Net income $ 251,000
- --------------------------------------------------------------------------------
Weighted average number of common shares 87,146,489
- --------------------------------------------------------------------------------
AMOUNTS PER SHARE OF COMMON STOCK
Basic net income $.00*
- --------------------------------------------------------------------------------
Diluted net income $.00*
- --------------------------------------------------------------------------------
* - less than $.01
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4
- --------------------------------------------------------------------------------
Adsouth Partners, Inc. and Subsidiary
Unaudited Condensed Sector Statement of Operations
For the Six Months Ended June 30, 2004
- --------------------------------------------------------------------------------
ADVERTISING
Revenues $ 1,856,000
- --------------------------------------------------------------------------------
Costs and expenses
Media placement and production costs 759,000
Selling, administrative and other expense (includes
$3,328,000 of non cash stock based compensation) 3.910,000
- --------------------------------------------------------------------------------
Total costs and expenses 4,669,000
- --------------------------------------------------------------------------------
Operating loss - Advertising (2,813,000)
Loss on sale of marketable securities (10,000)
- --------------------------------------------------------------------------------
Net loss - Advertising (2,823,000)
PRODUCTS
Revenues 6,000
- --------------------------------------------------------------------------------
Costs and expenses
Cost of sales 1,000
Selling, administrative and other expense 241,000
General and administrative expense-Non cash stock based
compensation 575,000
- --------------------------------------------------------------------------------
Total costs and expenses 817,000
- --------------------------------------------------------------------------------
Operating loss - Products (811,000)
- --------------------------------------------------------------------------------
TOTAL COMPANY
Net loss $ (3,634,000)
- --------------------------------------------------------------------------------
Weighted average number of common shares 77,687,456
- --------------------------------------------------------------------------------
AMOUNTS PER SHARE OF COMMON STOCK
Basic and diluted net loss ($.05)
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5
- --------------------------------------------------------------------------------
Adsouth Partners, Inc. and Subsidiary
Unaudited Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 2004
- --------------------------------------------------------------------------------
Revenues
Advertising $ 1,856,000
Products 6,000
- --------------------------------------------------------------------------------
Revenues 1,862,000
- --------------------------------------------------------------------------------
Costs and expenses
Media placement and production costs 759,000
Cost of sales 1,000
Selling, administrative and other expense (includes
$3,903,000 of non cash stock based compensation) 4,726,000
- --------------------------------------------------------------------------------
Total costs and expenses 5,486,000
- --------------------------------------------------------------------------------
Loss from operations (3,624,000)
Loss on sale of marketable securities (10,000)
- --------------------------------------------------------------------------------
Net loss $ (3,634,000)
- --------------------------------------------------------------------------------
Weighted average number of common shares 77,687,456
- --------------------------------------------------------------------------------
AMOUNTS PER SHARE OF COMMON STOCK
Basic and diluted net loss ($.05)
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 6
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Adsouth Partners, Inc. and Subsidiary
Unaudited Condensed Sector Balance Sheet
As of June 30, 2004
- --------------------------------------------------------------------------------
ASSETS
ADVERTISING
Cash $ 132,000
Accounts receivable 154,000
Prepaid expenses and other current assets 467,000
- --------------------------------------------------------------------------------
Total current assets 753,000
Property and equipment, net 47,000
Deposits 8,000
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Total Advertising assets 808,000
- --------------------------------------------------------------------------------
PRODUCTS
Cash 9,000
Accounts receivable 1,000
Inventory 71,000
Prepaid expenses and other current assets 45,000
- --------------------------------------------------------------------------------
Total current assets 127,000
Property and equipment, net 24,000
Investment in product line rights 125,000
Deposits 4,000
- --------------------------------------------------------------------------------
Total Product assets 280,000
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TOTAL ASSETS $ 1,088,000
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(continued)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 7
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Adsouth Partners, Inc. and Subsidiary
Unaudited Condensed Sector Balance Sheet
As of June 30, 2004
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
ADVERTISING
Accounts payable $ 138,000
Accrued salaries and payroll taxes 43,000
Deferred revenues 5,000
- --------------------------------------------------------------------------------
Total Advertising current liabilities 186,000
- --------------------------------------------------------------------------------
PRODUCTS
Accounts payable 71,000
- --------------------------------------------------------------------------------
Total Products current liabilities 71,000
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STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value; 5,000,000 shares
authorized, 3,500,000 designated as Series A
Convertible Preferred Stock, none issued and
outstanding as of June 30, 2004 -
Common stock, $.0001 par value; 500,000,000
shares authorized, 86,790,968 issued and
outstanding as of June 30, 2004 9,000
Additional paid-in capital 4,976,000
Deferred compensation (475,000)
Notes receivable - stockholder (45,000)
Accumulated deficit (3,634,000)
- --------------------------------------------------------------------------------
Total stockholders' equity 831,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,088,000
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 8
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Adsouth Partners, Inc. and Subsidiary
Unaudited Condensed Consolidated Balance Sheet
As of June 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Cash $ 141,000
Accounts receivable 155,000
Inventory 71,000
Prepaid expenses and other current assets 513,000
- --------------------------------------------------------------------------------
Total current assets 880,000
Property and equipment, net 71,000
Investment in product line rights 125,000
Deposits 12,000
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 1,088,000
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 209,000
Accrued salaries and payroll taxes 43,000
Deferred revenues 5,000
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Total current liabilities 257,000
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value; 5,000,000 shares
authorized, 3,500,000 designated as Series A
Convertible Preferred Stock, none issued and
outstanding as of June 30, 2004 -
Common stock, $.0001 par value; 500,000,000
shares authorized, 86,790,968 issued and
outstanding as of June 30, 2004 9,000
Additional paid-in capital 4,976,000
Deferred compensation (475,000)
Notes receivable - stockholder (45,000)
Accumulated deficit (3,634,000)
- --------------------------------------------------------------------------------
Total stockholders' equity 831,000
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,088,000
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 9
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Adsouth Partners, Inc. and Subsidiary
Unaudited Condensed Sector Statement of Cash Flows
For the Six Months Ended June 30, 2004
- --------------------------------------------------------------------------------
Advertising Products
--------------- ------------
CASH FLOWS - OPERATING ACTIVITIES:
Net loss $ (2,823,000) $ (811,000)
Adjustments to reconcile net loss to net cash - operating activities:
Non cash stock based compensation expense 3,328,000 575,000
Loss on sale of marketable securities 10,000 -
Depreciation 2,000 1,000
Other operating adjustments (4,000) -
Changes in assets and liabilities:
Accounts receivable (154,000) (1,000)
Inventory - (71,000)
Prepaid expense and other current assets (467,000) (46,000)
Accounts payable 120,000 71,000
Accrued salaries and payroll taxes 40,000 -
Deferred revenues 5,000 -
- ---------------------------------------------------------------------------------------------------------------------
Net cash - operating activities 57,000 (282,000)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS - INVESTING ACTIVITIES:
Capital expenditures (31,000) (24,000)
Acquisition of marketable securities (246,000 -
Proceeds from sale of marketable securities 236,000 -
Deposits (7,000) (4,000)
Investment in product line rights - (125,000)
- ---------------------------------------------------------------------------------------------------------------------
Net cash - investing activities (48,000) (153,000)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS - FINANCING ACTIVITIES:
Proceeds from issuance of common stock 107,000 444,000
- ---------------------------------------------------------------------------------------------------------------------
Net cash - financing activities 107,000 444,000
- ---------------------------------------------------------------------------------------------------------------------
Net change in cash 116,000 9,000
Cash - beginning of period 16,000 -
- ---------------------------------------------------------------------------------------------------------------------
Cash - end of period $ 132,000 $ 9,000
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SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ - $ -
- ---------------------------------------------------------------------------------------------------------------------
Cash paid for income taxes $ - $ -
- ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 10
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Adsouth Partners, Inc. and Subsidiary
Unaudited Condensed Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 2004
- --------------------------------------------------------------------------------
CASH FLOWS - OPERATING ACTIVITIES:
Net loss $ (3,634,000)
Adjustments to reconcile net loss to net cash
- operating activities:
Non cash stock based compensation expense 3,903,000
Loss on sale of marketable securities 10,000
Depreciation 3,000
Other operating adjustments (4,000)
Changes in assets and liabilities:
Accounts receivable (155,000)
Inventory (71,000)
Prepaid expense and other current assets (513,000)
Accounts payable 191,000
Accrued salaries and payroll taxes 40,000
Deferred revenues 5,000
- --------------------------------------------------------------------------------
Net cash - operating activities (225,000)
- --------------------------------------------------------------------------------
CASH FLOWS - INVESTING ACTIVITIES:
Capital expenditures (55,000)
Acquisition of marketable securities (246,000)
Proceeds from sale of marketable securities 236,000
Deposits (11,000)
Investment in product line rights (125,000)
- --------------------------------------------------------------------------------
Net cash - investing activities (201,000)
- --------------------------------------------------------------------------------
CASH FLOWS - FINANCING ACTIVITIES:
Proceeds from issuance of common stock 551,000
- --------------------------------------------------------------------------------
Net cash - financing activities 551,000
- --------------------------------------------------------------------------------
Net change in cash 125,000
Cash - beginning of period 16,000
- --------------------------------------------------------------------------------
Cash - end of period $ 141,000
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SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ -
- --------------------------------------------------------------------------------
Cash paid for income taxes $ -
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 11
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Adsouth Partners, Inc. and Subsidiary
Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity
For the Six Months Ended June 30, 2004
- --------------------------------------------------------------------------------
Common Stock Additional Note
----------------------- Paid-in Deferred Receivable- Accumulated
Shares Amount Capital Compensation Stockholder Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
2003 (see Note 2) 28,000,000 $3,000 $19,000 - - ($12,000) $10,000
Equity section of Zenith
Technology, Inc. 24,170,475 2,000 932,000 ($783,000) ($20,000) (131,000) -
Transfer to additional
paid-in capital upon
reorganization - - (131,000) - - 131,000 -
Capitalization of
accumulated deficit
at the time of the S-
Corp revocation - - (12,000) - - 12,000 -
Stock issued pursuant to
stock grants (see Note 7) 29,800,944 3,000 3,592,000 (100,000) - - 3,495,000
Amortization of deferred
compensation (see Note 6) - - - 408,000 - - 408,000
Stock issued for note
receivable - related
party (see Note 5) 5,000,000 1,000 1,001,000 - (650,000) - 352,000
Cancellation of note
receivable - related
party upon return of
previously issued
stock (see Note 5) (2,180,451) * (635,000) - 635,000 - -
Interest on note
receivable - related
party (see Note 5) - - 10,000 - (10,000) - -
Sale of common stock 2,000,000 * 200,000 - - - 200,000
Net loss - - - - - (3,634,000) (3,634,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2004 86,790,968 $9,000 $4,976,000 ($475,000) ($45,000) ($3,634,000) $831,000
- -----------------------------------------------------------------------------------------------------------------------------------
* - less than $1,000.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 12
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Adsouth Partners, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the SixMonths Ended June 30, 2004
- --------------------------------------------------------------------------------
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Adsouth Partners, Inc. and its wholly owned subsidiary Adsouth, Inc.,
(collectively the "Company") have been prepared in accordance with Regulation
S-B promulgated by the Securities and Exchange Commission and do not include all
of the information and footnotes required by generally accepted accounting
principles in the United States of America for complete financial statements. In
the opinion of management, these interim financial statements include all
adjustments necessary in order to make the financial statements not misleading.
The results of operations for such interim periods are not necessarily
indicative of results of operations for a full year. The unaudited condensed
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto of Adsouth Partners, Inc. (formerly
Zenith Technology, Inc.), included as Exhibit 99.1 in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2003, Adsouth, Inc.,
included as Exhibit 99.2 in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2003 and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Annual Report on
Form 10-KSB for the year ended December 31, 2003.
Because the acquisition of Adsouth, Inc., as described in Note 2, is
accounted for as a reverse acquisition and the acquirer was organized in July
2003, comparative statements of operations for the three and six months ended
June 30, 2004 are not included in this filing.
2. Acquisition of Adsouth, Inc.
On January 4, 2004, the Company, the Tiger Fund, Adsouth, Inc., John P.
Acunto, Jr. and Angela E. Acunto entered into a share exchange transaction,
pursuant to which the Tiger Fund transferred 28,000,000 shares of Common Stock
it owned to Mr. John P. Acunto, Jr. and Ms. Angela E. Acunto, who were the two
shareholders of Adsouth, Inc., in exchange for their 100% equity ownership in
Adsouth, Inc. (the "Adsouth Acquisition"). Upon the completion of the Adsouth
Acquisition, control of the Company had changed whereby Mr. John P. Acunto, Jr.
and Ms. Angela Acunto owned more than 50% of the total issued and outstanding
Common Stock.
Because the Adsouth Acquisition resulted in the former owners of
Adsouth, Inc. gaining control of the Company, the transaction is accounted for
as a reverse acquisition. Effective on the acquisition date, the Company's
balance sheet includes the assets and liabilities of Adsouth, Inc. and its
equity accounts have been recapitalized to reflect the equity of Adsouth, Inc.
In addition, effective on the acquisition date, and for all reporting periods
thereafter, the Company's operating activities, including any prior comparative
periods, will include only those of Adsouth, Inc. However, because Adsouth, Inc.
commenced operations in July 2003, comparative operating results for the three
and six months ended June 30, 2004 are not included in this filing.
3. Significant Accounting Policies
The accounting policies followed by the Company are set forth in Note 1
to the Adsouth Partners, Inc. (formerly Zenith Technology, Inc.), financial
statements included as Exhibit 99.1 in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2003, and in Note 1 to the Adsouth, Inc.,
financial statements included as Exhibit 99.2 in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2003.
Page 13
Revenue Recognition
During the three and six months ended June 30, 2004, the Company
derived revenue from the placement of advertising, the production of
advertising, creative advertising consulting and public relations and from the
sale of products. The Company's advertising services revenue is derived from
billings that are earned when the media is placed, from fees earned as
advertising services are performed and from production services rendered. In
addition, incentive amounts may be earned based on qualitative and/or
quantitative criteria. In the case of media placements, revenue is recognized as
the media placements appear. During 2004, the Company was the primary obligor
and carried all of the credit risk for the media placements and accordingly,
recorded the full amount of such billings from the media placements as revenue
in accordance with Emerging Issues Task Force Issue No. 99-19. In the case of
consulting and production arrangements, the revenue is recognized as the
services are performed. The Company's creative consulting revenue is generally
earned on a fee basis, and in certain cases incentive amounts may also be
earned. As with fee arrangements in advertising, such revenue is recognized as
the work is performed. Incentive amounts for advertising and marketing services
are recognized upon satisfaction of the qualitative and/or quantitative
criteria, as set out in the relevant client contract. Deferred revenues are
recognized as a liability when billings are received in advance of the date when
revenues are earned. Revenues from the sale of products are recognized upon the
shipment of the goods being sold.
Basic and Diluted Income (Loss) Per Share
Basic and diluted per share results for the three and six months ended
June 30, 2004 were computed based on the net income or (loss) allocated to the
common stock for the respective period. The weighted average number of shares of
common stock outstanding during the period was used in the calculation of basic
earnings (loss) per share. In accordance with FAS 128, "Earnings Per Share," the
weighted average number of shares of common stock used in the calculation of
diluted per share amounts is adjusted for the dilutive effects of potential
common shares including, (i) the assumed exercise of stock options based on the
treasury stock method; and (ii) the assumed conversion of convertible preferred
stock only if an entity records earnings from continuing operations, as such
adjustments would otherwise be anti-dilutive to earnings per share from
continuing operations. As a result of the Company recording a loss during the
six months ended June 30, 2004, the average number of common shares used in the
calculation of basic and diluted loss per share is identical and have not been
adjusted for the effects of 13,222,800 potential common shares from unexercised
stock options and warrants. Such potential common shares may dilute earnings per
share in the future. For the three months ended June 30, 2004 a portion of such
potential common shares were dilutive and 1,722,800 were excluded as they were
anti-dilutive. The following table presents a reconciliation of basic earnings
per common share to dilutive earnings per common share.
Net
Weighted Income
Average Shares Per
Three Months Ended June 30, 2004 Net Income Outstanding Share
- ------------------------------------------------------------------------------
Basic earnings per common share $251,000 87,146,489 $.00 *
Effect of potential common shares - 4,107,143 $.00 *
- ------------------------------------------------------------------------------
Diluted earnings per common share $251,000 91,253,632 $.00 *
- ------------------------------------------------------------------------------
* - less than $.01
Page 14
Stock Based Compensation
The Company has elected to use the intrinsic value method of accounting
for stock options in accordance with APB Opinion No. 25 and related
interpretations issued to employees under its stock option plans whereby the
amount of stock-based compensation expense is calculated as the difference
between the fair market value and the exercise price on the date of issuance.
For purposes of pro forma disclosures the amount of stock-based compensation as
calculated using the fair value method of accounting for stock options issued to
employees is amortized over the options' vesting period. The Company's pro forma
information for the three and six month periods ended June 30, 2004 is as
follows:
Three Months Six Months
Ended Ended
June 30, 2004 June 30, 2004
- --------------------------------------------------------------------------------
Net income (loss) as reported $ 251,000 $ (3,634,000)
Deduct: Amount by which stock- based employee
compensation as determined under fair value
based method for all awards exceeds the
compensation as determined under the
intrinsic value method - (19,000)
- --------------------------------------------------------------------------------
Pro forma net income (loss) under FAS No. 123 $ 251,000 $ (3,653,000)
- --------------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30, 2004 June 30, 2004
- --------------------------------------------------------------------------------
Amounts per share of common stock:
Basic:
As reported $.00* ($0.05)
Pro forma under SFAS No. 123 $.00* ($0.05)
Diluted:
As reported $.00* ($0.05)
Pro forma under SFAS No. 123 $.00* ($0.05)
* - less than $.01
4. Supplemental Disclosure of Non Cash Investing and Financing Activities
On March 31, 2004, the Company sold 5,000,000 shares of common stock to
a related party for $1 million of which $650,000 was paid with the issuance of a
promissory note. On June 23, 2004, 2,180,451 of such shares were returned in
cancellation of $635,000 of the related promissory note (see Note 5).
5. Tiger Fund, Inc. Equity Investment
Pursuant to the Adsouth Acquisition, the Tiger Fund, Inc. committed to
provide the Company with a total of $1 million in equity funding during 2004.
Originally, the Tiger fund was to receive a warrant to purchase 2,000,000 shares
of Common Stock at $1 per share for its $1 million investment. On March 31, 2004
the Company and the Tiger Fund entered into an amended agreement pursuant to
which the Tiger Fund, Inc. purchased 5,000,000 shares of common stock for $1
million consisting of $350,000 cash and a promissory note in the amount of
$650,000. As of March 31, 2004, $280,000 of the cash payment was received and in
April 2004 the remaining $70,000 was received. The $650,000 promissory note
bears interest at 4% per annum and, beginning May 1, 2004, requires monthly
payments of approximately $96,000. On June 23, 2004, the Company accepted the
return of 2,180,451 share of Common Stock and agreed to cancel $635,000 of the
remaining note receivable balance due form the Tiger Fund, Inc.
Page 15
6. Deferred Stock Based Compensation
Pursuant to a management agreement entered into on December 22, 2003
between Strategy Partners, Inc., a related party, and Adsouth Partners, Inc.
(formerly Zenith Technology, Inc.) the Company authorized the issuance of
5,217,000 shares of Common Stock valued at approximately $.15 per share to
Strategy Partners as payment for the first twelve months of their management
consulting services. These shares had a fair value of $783,000 which is being
amortized ratably over 2004.
On May 4, 2004, the Company granted to a consultant 625,000 shares of
Common Stock having a fair value of $100,000, which is being amortized over the
twelve month life of the underlying consulting agreement.
The amortization for the two stock issuances described in the preceding
two paragraphs for the three and six months ended June 30, 2004 is $212,000 and
$408,000, respectively. The unamortized balance of deferred stock based
compensation as of June 30, 2004 of $475,000 is presented as a separate
component of stockholders' equity.
7. Stock-based Compensation
Stock Grants
On January 4, 2004, the Company granted 10,040,000 shares of common
stock to employees including 10,000,000 shares issued to its executive officers.
The fair value of each share on January 4, 2004 was $.16 resulting in
stock-based compensation expense of $1.606 million.
On February 20, 2004, the Company granted 750,000 shares of common
stock to non-employee consultants. The fair value of each share on February 20,
2004 was $.13 resulting in stock-based compensation expense of $98,000.
On February 27, 2004, the Company granted 16,960,000 shares of common
stock to employees including 13,360,000 shares issued to its executive officers,
granted 400,000 shares of common stock to a non-employee consultant and
3,200,000 shares to the managing director of the Strategy Partners. The fair
value of each share on February 27, 2004 was $.09 resulting in stock-based
compensation expense of $1.526 million.
On March 1, 2004, the Company granted 400,000 shares of common stock to
an executive officer. The fair value of each share on March 1, 2004 was $.11
resulting in stock-based compensation expense of $44,000.
On March 18, 2004, the Company granted 525,944 shares of common stock
to employees including 492,611 shares issued to its executive officers. The fair
value of each share on March 18, 2004 was $.225 resulting in stock-based
compensation expense of $118,000.
On March 31, 2004, the Company granted 500,000 shares of common stock
to an executive officer. The fair value of each share on March 31, 2004 was
$.205 resulting in stock-based compensation expense of $103,000.
Stock Options
On February 27, 2004, the Company issued to executive officers, options
to purchase 11,500,000 shares of common stock at a price of $.09 per share, the
fair value of such shares on February 27, 2004, resulting in no stock-based
compensation expense.
On May 4, 2004, the Company issued to a consultant an option to
purchase 800,000 shares of common stock at a price of $.163 per share. The fair
value of each share on May 4, 2004 was $.13 per share resulting in no
stock-based compensation.
Page 16
Warrants
On January 28, 2004, the Company issued warrants to purchase an
aggregate of 136,134 shares of common stock at a price of $2.00 per share. The
fair value of each share on January 28, 2004 was $.22 resulting in no
stock-based compensation expense.
On May 11, 2004, the Company issued a warrant to purchase an aggregate
of 786,666 shares of common stock at a price of $.20 per share. The fair value
of each share on May 11, 2004 was $.15 resulting in no stock-based compensation
expense.
8. Concentrations of Credit Risk
For both the three and six months ended June 30, 2004, 89% of the
Company's total revenues were derived from one company and as of June 30, 2004
84% of the Company's accounts receivable is from that same customer.
9. Acquisition of DermaFresh Product
In February 2004, the Company acquired the DermaFresh product line from
an unaffiliated company for cash consideration of $125,000. The acquisition cost
is included in other long-term assets and will be amortized as an expense
against the future sales of the DermaFresh product.
10. Employment Agreement
On March 18, 2004, the Company entered into an employment agreement
with its President pursuant to which effective April 5, 2004 he receives an
annual base salary of $175,000. In addition, the President received a one-time
signing bonus of $50,000 cash and shares of common stock valued at $100,000. The
President may receive stock based incentive in the future for revenues that are
generated as a result of the direct efforts of the President. No such incentives
have been earned as of June 30, 2004. Finally, the President received 500,000
shares of common stock for overseeing the establishment of a web-based
advertising business, which such web-site was completed and operational during
the first quarter of 2004.
11. Sale of Common Stock
On June 4, 2004, the Company sold 2,000,000 shares of its common stock
to an accredited investor pursuant to a private placement offering receiving
proceeds of $200,000.
12. Capital Stock
In April 2004, the Company's stockholders, by a consent of the holders
of a majority of the outstanding shares of common stock, consisting of the
Company's chief executive officer and his wife, approved an amendment to the
Company's certificate of incorporation, which (i) increases the number of
authorized shares of common stock, par value $.0001 per share, to 500,000,000
shares, and (ii) to authorize 5,000,000 shares of preferred stock, par value
$.0001 per share, of which 3,500,000 shares are designated as Series A
Convertible Preferred Stock.
The Series A Convertible Preferred Stock provides the holders of such
shares the right to convert each share into one hundred (100) shares of
fully-paid, validly issued and non-assessable shares of the Company's Common
Stock, without further consideration, upon any "change of control" of the
Company. For purposes of the Series A Convertible Preferred Stock, a "change of
control" shall be deemed to have occurred in the event that any person or entity
shall have acquired more than twenty-five percent (25%) of the aggregate number
of shares of the Company's issued and outstanding Common Stock in any single
transaction or series of transactions which is not approved by our Board of
Directors. While the Board of Directors has the ability to issue shares of
Series A Convertible Preferred Stock to any person, the primary purpose for the
authorization to issue a series of stock having the particular attributes of the
proposed Series A Convertible Preferred Stock is to serve as a deterrent to any
outside person taking control of the Company away from its existing controlling
stockholders.
Page 17
As of June 30, 2004, the Company has no present arrangement, obligation
or specific intention to issue shares of our Preferred Stock to any person,
however the Board of Directors does have the express authority, without further
shareholder approval, to issue shares of Preferred Stock without the further
approval by, or prior knowledge of, the shareholders.
All remaining shares of Preferred Stock not so specifically designated
may be designated in the future by action of the Board of Directors of the
Corporation and otherwise in accordance with the applicable provisions of the
Nevada Revised Statutes of the State of Nevada.
13. Executive Compensation
John P. Acunto, Jr., is the controlling stockholder and Chief Executive
Officer of the Company (the "CEO") and through June 30, 2004, he was the
Company's sole Director. Substantially all of the revenues of the Company since
its inception are a direct result of his sales efforts and the CEO's
compensation is based on an incentive that corresponds to revenues calculated as
33% of the gross margin, which is defined as revenue less direct costs. Due to
budget constraints, during the first six months of 2004, the CEO voluntarily
limited his salary to $100,000.
During the second quarter, the Company paid commissions, approximating
$400,000 to the CEO for binding advertising sales orders approximating $3.4
million that have been received by the Company. These orders, under the
Company's revenue recognition policies, will not be recognized as revenue until
the underlying advertising services are fulfilled, and as such, the amounts for
such commissions are classified as prepaid expenses as of June 30, 2004.
14. Segment Information
The Company's operating activity consists of two operating segments,
Advertising and Products. Segment selection is based upon the organizational
structure that the Company's management uses to evaluate performance and make
decisions on resource allocation, as well as availability and materiality of
separate financial results consistent with that structure. The Advertising
sector consists of the placement of advertising, the production of advertising,
creative advertising consulting and public relations. The Products sector
includes all activities related to the sale of the DermaFresh product line.
Certain corporate and general expenses of the Company are allocated to the
Company's segments based on an estimate of the proportion that such allocable
amounts benefit the segments.
Advertising Products Total
- --------------------------------------------------------------------------------
Three Months Ended June 30, 2004:
Revenues $ 1,481,000 $ 6,000 $ 1,487,000
Operating income (loss) $ 469,000 $ (218,000) $ 251,000
Six Months Ended June 30, 2004:
Revenues $ 1,856,000 $ 6,000 $ 1,862,000
Operating loss $ (2,823,000) $ (811,000) $(3,634,000)
Other Disclosures:
Total assets at June 30, 2004 $ 817,000 $ 271,000 $ 1,088,000
Page 18
15. Subsequent Events
On July 8, 2004, the Company issued a $250,000 promissory note to an
individual in order to finance inventory purchases. The note bears interest at
18% which is due and payable each month that the note is outstanding. All
principal and interest on the note is due on January 8, 2005. The note is
secured by the inventory of the Company and a pledge by John P. Acunto, Jr.,
CEO, of 3,000,000 shares of the Company's common stock owned by him. In
addition, the Company issued to the individual 230,203 shares of its common
stock, the value of which will reduce the amount of interest that is payable in
cash and the fair value of such stock is treated as interest expense.
On July 9, 2004, the Company obtained a $100,000 bank line of credit.
The line of credit bears interest at prime, currently 4.25% and is
collateralized by a $100,000 certificate of deposit.
On July 20, 2004, the Company sold 700,000 shares of its common stock
to an accredited investor pursuant to a private placement offering receiving
proceeds of $52,500.
On July 23, 2004, the Company's board of directors authorized the
repurchase of up to $500,000 of the company's common stock from time to time in
open market transactions. As of August 14, 2004, the Company has not purchase
any such shares.
On August 9, 2004, the Company registered an aggregate of 48,300,000
shares of its common stock on Form S-8 (file no. 333-118049) as filed with the
Securities and Exchange Commission. The registration statement covered
25,850,944 shares which are already issued and outstanding from stock grants,
12,300,000 shares underlying unexercised incentive stock options and 10,149,056
reserved for future issuance under the Company's stock incentive plans. The
terms on which the restricted stock grants were issued provide that the shares
cannot be sold until the last to occur of (i) the date stockholder approval of
these plans, which occurred in April 2004, (ii) the date the shares are
registered, which occurred on August 9, 2004, (iii) the date of the filing of a
Form 10-KSB annual report or Form 10-QSB quarterly report which reflects
profitable operations of the Company for one calendar quarter (iii) upon filing
of the registration statement of which this prospectus is a part, and (iv) the
date of which the board of directors determines that the right to transfer
vests, except that, in any event, the right to transfer the shares vests on the
earlier of five years from the date of the restricted stock grant or the date of
a change of control, as defined in the plans. As of the date of the filing of
this Form 10-QSB, the right to transfer the shares issued pursuant to the
restricted stock grants has not vested.
On August 10, 2004, the Company expanded its board of directors to
four, with the election of John Cammarano, Gary Hohman and Lee Wingeier.
In August 2004, the Company established a compensation committee in
large part to oversee the compensation paid to the Company's employees and to
oversee the Company's stock incentive plans.
Page 19
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statement Regarding Forward Looking Disclosure
This Quarterly Report of Adsouth Partners, Inc. ("us", "we" "our" or
the "Company") on Form 10-QSB, including this section entitled "Management's
Discussion and Analysis of Financial Condition and results of Operations," may
be "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include, but are not
limited to, statements that express our intentions, beliefs, expectations,
strategies, predictions or any other statements relating to our future
activities or other future events or conditions. These statements are based on
current expectations, estimates and projections about our business based, in
part, on assumptions made by management. These statements are not guarantees of
future performance and involve risks, uncertainties and assumptions that are
difficult to predict. Therefore, actual outcomes and results may, and probably
will, differ materially from what is expressed or forecasted in the
forward-looking statements due to numerous factors, including those risks
discussed under "Risk Factors" in our Form S-8, which was filed with the SEC on
August 9, 2004, and in our Form 10-KSB annual report for the year ended December
31, 2003, those described in Management's Discussion and Analysis of Financial
Conditions and Results of Operations in our Form 10-KSB annual report for the
year ended December 31, 2003 and this Form 10-QSB quarterly report, and those
described and in any other filings which we make with the SEC. In addition, such
statements could be affected by risks and uncertainties related to our financial
conditions, the availability of financing, the ability to generate clients for
the direct response marketing business and the ability to successfully develop
Dermafresh business and other factors which affect the industries in which we
conduct business, market and customer acceptance, competition, government
regulations and requirements and pricing, as well as general industry and market
conditions and growth rates, and general economic conditions. Any
forward-looking statements speak only as of the date on which they are made, and
we do not undertake any obligation to update any forward-looking statement to
reflect events or circumstances after the date of this report.
The important factors that could cause actual results to differ from
those in the forward-looking statements herein (the "cautionary statements") are
more fully described in our Form S-8, which was filed with the SEC on August 9,
2004, and Form 10-KSB for the year ended December 31, 2003, and include, without
limitation: We Face Intense Competition In The Direct Marketing, Advertising And
Media Placement Services Which We Provide To Our Clients, And As A Small, Public
Company We May Not Be Able To Sustain Sufficient Business Growth And Revenue
Production To Compete Successfully; Our Business Is Highly Subject To
Fluctuations In The Economy, Reductions In Corporate Budgeting, Increases In
Media Costs And Other Factors Affecting Advertisers And Marketers Generally; We
Do Not Often Maintain Long-Term Agreements With Our Customers And May Be Unable
To Retain Customers, Attract New Customers Or Replace Departing Customers With
Customers That Can Provide Comparable Revenues; We May Not Be Able To Continue
To Grow Through Acquisitions Of Or Investments In Other Companies Or Products;
Management Of Future Acquisitions And Growth Will Require Additional Investment,
Which May Exceed Our Ability To Manage This Growth; Loss Of Key Personnel Or
Inability To Hire Additional Qualified Personnel Might Result In Failure To
Implement Our Plans; Control By Management Might Limit Independent, Public
Shareholder Influence Over Our Corporation; Our Limited Prior Public Market And
Restrictions On The Free Sale Or Transferability Of Our Stock May Adversely
Effect Our Stock's Value And Liquidity; The Issuance Of Shares Through Our Stock
Compensation And Incentive Plans May Dilute The Value Of Existing Shareholders;
We Do Not Intend To Declare Any Dividends On Our Stock For The Foreseeable
Future, If At All; Our Publicly-Traded Stock Is Subject To Significant
Restrictions And Limitations Imposed By The SEC And Self-Regulatory
Organizations Involving The Purchase And Sale Of Penny Stocks.
The success of recent or contemplated future acquisitions will depend
on the effective integration of newly-acquired businesses, products or services
into the Company's current operations. Important factors for integration include
realization of anticipated synergies and cost savings and the ability to retain
and attract new personnel and clients.
This Quarterly Report also contains certain financial information
calculated on a "pro forma" basis. Because "pro forma" financial information by
its very nature departs from traditional accounting conventions, this
information should not be viewed as a substitute for historical financial
information
Page 20
prepared in accordance with GAAP contained in the Company's financial statements
that are contained in this Quarterly Report and should be read in conjunction
therewith.
Investors should evaluate any statements made by the Company in light
of these important factors.
Results of Operations
Reverse Merger Acquisition
On January 4, 2004, our acquisition of Adsouth, Inc. ("Adsouth") was
completed, and on such date we became a direct response marketing company.
Beginning with the quarter ending March 31, 2004, and for all reporting periods
thereafter, our operating activities, including the prior period comparatives,
include only those of Adsouth. Because Adsouth commenced operations in July
2003, there are no comparative operating results for the three and six months
ended June 30, 2004.During the first sixty days after the acquisition of Adsouth
we spent significant time and resources developing and implementing our business
model. Our most significant expense in the first quarter of 2004 was $3.495
million of non-cash stock based compensation expense representing the fair value
of common stock that was granted to employees and consultants during the first
quarter of 2004. The stock grants were used to obtain financial, legal and
management consulting services and to attract qualified employees to Adsouth.
During the first quarter of 2004 we added five new permanent employees including
our president and our chief financial officer. Our salaries and related costs
during the first quarter of 2004 include signing bonuses of $50,000. The
acquisition of Adsouth also required the audit of both the holding company and
Adsouth which services were performed during the first quarter of 2004 and
amounted in the aggregate to $42,000.
Current Operations
The marketing communications business is highly competitive, with
agencies of all sizes and disciplines competing primarily on the basis of
quality of service to attract and retain clients and personnel. We intend to
develop a market niche by providing a full level of service quality that users
of direct marketing services may not receive from our larger competitors and to
become vertically integrated with the addition of new direct marketing products.
Our operating activity consists of two operating segments, Advertising and
Products. The Advertising sector consists of the placement of advertising, the
production of advertising, creative advertising consulting and public relations.
The Products sector includes all activities related to the sale of the
DermaFresh product line. Selected financial information of our operating
segments is presented in the following table.
Advertising Products Total
- -----------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2004:
Revenues $ 1,481,000 $ 6,000 $ 1,487,000
Costs and expenses (excluding non cash
stock-based compensation expense) 870,000 153,000 1,023,000
- -----------------------------------------------------------------------------------------------------------
611,000 (147,000) 464,000
Non cash stock-based compensation expense 142,000 71,000 213,000
- -----------------------------------------------------------------------------------------------------------
Net income (loss) $ 469,000 $ (218,000) $ 251,000
- -----------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2004:
Revenues $ 1,856,000 $ 6,000 $ 1,862,000
Costs and expenses (excluding non cash
stock-based compensation expense) 1,341,000 242,000 1,583,000
- -----------------------------------------------------------------------------------------------------------
515,000 (236,000) 279,000
Non cash stock-based compensation expense 3,328,000 575,000 3,903,000
- -----------------------------------------------------------------------------------------------------------
Operating loss (2,813,000) (811,000) (3,624,000)
Non-operating expenses (10,000) - (10,000)
- -----------------------------------------------------------------------------------------------------------
Net loss $ (2,823,000) ($811,000) ($3,634,000)
- -----------------------------------------------------------------------------------------------------------
Page 21
Advertising
During the second quarter of 2004 the Advertising segments revenues
increased $1.106 million, or 296%, from the first quarter of 2004. The
Advertising segment generated income of $611,000 before the deduction of non
cash stock-based compensation expense of $142,000, resulting in operating income
of $469,000. Advertising revenues in the first half of 2004 were $1.856 million
upon which the Advertising segment generated income of $515,000 before the
deduction of $3.328 million of non cash stock-based compensation expense,
resulting in an operating loss of $2.813 million.
Products
During the first quarter of 2004 we acquired the rights to the
DermaFresh product line. The second Quarter of 2004 was the first period in
which we started generating revenues from our Products segment amounting to
$6,000 for both the second quarter and first half of 2004. Overall the Products
segment generated losses of 218,000 and $811,000, respectively for the second
quarter and first half of 2004. These losses include non cash stock-based
compensation expense of $71,000 and $575,000, respectively, for the second
quarter and first half of 2004. Subsequent to June 30, 2004, the, the Products
segment received retail orders in excess of $700,000 which are expected to be
shipped in the third quarter of 2004.
Financial Condition
As of June 30, 2004, our working capital assets were $880,000 and
included $141,000 of cash, $155,000 of accounts receivable, $71,000 of inventory
and $513,000 of prepaid expenses. Our current liabilities as of June 30, 2004
were $257,000 including $209,000 of accounts payable and $43,000 of accrued
salary. During the first half of 2004 our operating activities used $225,000 of
cash. Non operating sources of cash during the first half of 2004 included
$551,000 from the sale of common stock. Our significant use of cash during the
first half of 2004 included $125,000 to acquire the rights to the DermaFresh
product line and $55,000 for capital expenditures. We expect that a significant
portion of our future cash needs will be generated from our operations and from
the sale of securities of the Company. We anticipate the need to obtain
additional funding to finance the purchase of any products we may offer for sale
Our working capital was also affected by our compensation arrangement
with our chief executive officer whereby he received during the six months ended
June 30, 2004, commissions of approximately $400,000 based on firm orders placed
with us. Under the terms of our agreement with the client, we did not receive
all of the money on which the commission was payable and the sale will not
booked as revenue until the underlying advertising services are performed..
Item 3. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, have
supervised and participated in an evaluation of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
quarterly report, and, based on their evaluation, they believe that our
disclosure controls and procedures, as defined in Rule 13a-14(c) of the
Securities Exchange Act of 1934, as amended, are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.
Based on the recommendations of our accountants, we have modified our internal
controls as they relate to executive compensation, whereby the Company will no
longer make payments to third parties on behalf of an executive, and all
compensation due to the executive will be paid directly to him. As a result of
the evaluation, there were no other significant changes in our internal controls
or in other factors that could significantly affect those controls subsequent to
the date of their evaluation.
Page 22
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 26, 2004, by a consent in lieu of a meeting, John P. Acunto,
Jr., our chief executive officer, and Angela E. Acunto, his wife, the holders of
48,138,300 shares of common stock, representing 59.6% of the outstanding common
stock, executed a consent of stockholders as provided in an information
statement sent to stockholders, pursuant to which they approved:
1. The change in the name of the corporation to Adsouth Partners, Inc.
2. The amendment to our Articles of Incorporation to (i) increase the number of
authorized shares of common stock, par value $.0001 per share, to 500,000,000
shares, and (ii) to authorize 5,000,000 shares of preferred stock, par value
$.0001 per share, of which 3,500,000 shares are designated as Series A
Convertible Preferred Stock
3. The Amended and Restated Stock Incentive Plan
4. The Amended and Restated Stock Management Incentive Plan
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Chief Executive Officer Certification.
31.2 Chief Financial Officer Certification
32 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
1) Current report filed on April 27, 2004 amending our February 13,
2004 8-K filing reporting a change in accountants.
2) Current report filed on May 14, 2004 reporting the issuance of a
press release.
Page 23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADSOUTH PARTNERS, INC.
/S/ Chief Executive Officer and Director August 14, 2004
John P. Acunto (Principal Executive and Accounting Officer)
/S/ Chief Financial Officer August 14, 2004
Anton Lee Wingeier (Chief Accounting Officer)
Page 24
Exhibit 31.1
SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, John P. Acunto, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Adsouth Partners,
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)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f) 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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
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 auditors 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.
August 14, 2004
By /S/John P. Acunto, Jr.
Chief Executive Officer
Page 25
Exhibit 31.2
SECTION 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, Anton Lee Wingeier, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Adsouth Partners,
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)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f) 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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
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 auditors 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.
August 14, 2004
By /S/ Anton Lee Wingeier
Chief Financial Officer
Page 26
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Adsouth Partners, Inc., (the
"Company") on Form 10-QSB for the period ending June 30, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned Chief Executive Officer and Chief Financial Officer of the Company
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 that (based on their 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 as of and for the periods covered in the
Report.
/S/ John P. Acunto, Jr.
Chief Executive Officer
/S/ Anton Lee Wingeier
Chief Financial Officer
August 14, 2004
Page 27