U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 000-28083
NEXT GENERATION MEDIA CORP.
---------------------------
(Exact name of Company as specified in its charter)
Nevada 88-0169543
------ ----------
(State or jurisdiction of incorporation (I.R.S. Employer or organization)
Identification No.)
7644 Dynatech Court, Springfield, Virginia 22153
------------------------------------------------
(Address of principal executive offices) (Zip Code)
Company's telephone number: (703) 644-0200
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ].
The Company had $8,219,717 in revenue for the fiscal year ended on December 31,
2005. The aggregate market value of the voting stock held by non-affiliates of
the Company as of March 29, 2006: Common Stock, par value $0.001 per share --
$805,374. As of December 31, 2005, the Company had 12,373,397 shares of common
stock issued and outstanding, of which 6,711,452 were held by non-affiliates.
NEXT GENERATION MEDIA, CORP.
FORM 10-KSB
TABLE OF CONTENTS
PART I
ITEM 1. Description of Business.............................................. 3
ITEM 2. Description of Property.............................................. 4
ITEM 3. Legal Proceedings.................................................... 4
ITEM 4. Submission of Matters to a Vote of Security Holders.................. 4
PART II
ITEM 5. Market for Common Equity and Other Shareholder Matters............... 5
ITEM 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 7
ITEM 7. Financial Statements.................................................12
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................12
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act....................13
ITEM 10. Executive Compensation...............................................14
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.......15
ITEM 12. Certain Relationships and Related Transactions.......................16
ITEM 13. Exhibits and Reports on Form 8-K.....................................17
ITEM 14. Controls and Procedures..............................................18
Signatures....................................................................19
2
PART I.
RISK FACTORS AND CAUTIONARY STATEMENTS
Forward-looking statements in this report are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The Company
wishes to advise readers that actual results may differ substantially from such
forward-looking statements. Forward-looking statements include statements
concerning underlying assumptions and other statements that are other than
statements of historical facts. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied by the statements, including, but not limited to, the
following: the ability of the Company to provide for its obligations, to provide
working capital needs from operating revenues, to obtain additional financing
needed for any future acquisitions, to meet competitive challenges and
technological changes, and other risks detailed in the Company's periodic report
filings with the Securities and Exchange Commission.
ITEM 1. BUSINESS.
INTRODUCTION
------------
Next Generation Media Corporation (the "Company") was incorporated on November
21, 1980, under the laws of the State of Nevada under the name Micro Tech
Industries, Inc. On February 6, 1997, an unrelated third party purchased 85.72%
of the outstanding stock of Micro Tech Industries, Inc. from its majority
shareholder for $50,000 in cash. Effective March 31, 1997, Micro Tech
Industries, Inc. changed its name to Next Generation Media Corporation.
Management believes that prior to February 6, 1997, the Company was a "shell"
company for at least five years without assets and liabilities. Management is
unaware of any operating history prior to February 6, 1997.
REPORTING PERIOD PRINCIPLE SERVICES
-----------------------------------
During the reporting period, the Company operated as a holding company with one
wholly-owned operating subsidiary, United Marketing Solutions, Inc. ("United").
The Company acquired United on April 1, 1999. Originally founded in 1981 as
United Coupon Corporation, United has operated within the cooperative direct
mail industry for twenty years. United has diversified and expanded its product
lines and markets to evolve from a coupon company to a full-service marketing
provider specializing in two communication mediums: direct mail and direct
marketing. United offers advertising and marketing products and services through
a network of franchisees in more than twenty states, with the largest
concentration being in the northeast United States. United provides full-service
design, layout, printing, packaging and distribution of marketing products and
promotional coupons sold by the franchise network to local market businesses,
services providers and professionals as resources to help them generate "trial
and repeat" customers. United's core product, the cooperative coupon envelope,
reaches in excess of nineteen million mailboxes per year with an estimated four
hundred million coupons.
3
COMPETITION
-----------
The Company's current and future lines of business are highly competitive.
First, the advertising business is highly competitive with many firms competing
in various forms of media and possessing substantial resources. The direct mail
industry is highly fragmented and includes a large number of small and
independent cooperative direct mailers in addition to competition from companies
for whom coupon advertising is not their primary line of business. In addition,
several large firms, notably Val-Pak Direct Marketing Systems, Inc., Money
Mailer and Advo, Inc., are direct competitors of United in its direct mail
marketing business.
GOVERNMENT REGULATION
---------------------
United is subject to state regulation as a franchisor, requiring United to file
periodic state registration documents pertaining to the offering of area and
regional franchise licenses. Management believes that United is in substantial
compliance with the applicable state franchise laws.
EMPLOYEES
---------
As of December 31, 2005, the Company, through United, had approximately 68
employees. The Company does not have any collective bargaining agreements
covering any of its employees, has not experienced any material labor disruption
and is unaware of any efforts or plans to organize its employees. The Company
considers relations with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's principal executive and administrative offices are located at 7644
Dynatech Court, Springfield, Virginia 22153. The current rent for 2006 for this
facility is $294,449, has built in increases per year of four percent (4%) and
has a term set to expire in January of 2012. The Company considers these offices
to be adequate and suitable for its current needs.
ITEM 3. LEGAL PROCEEDINGS
Other than as set forth below, the Company is not a party to any material
pending legal proceedings and, to the best of its knowledge, no such action by
or against the Company has been threatened. The Company is subject to legal
proceedings and claims that arise in the ordinary course of its business.
Although occasional adverse decisions or settlements may occur, the Company
believes that the final disposition of such matters will not have material
adverse effect on its financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the last quarter of fiscal year-ended December 2005, the Company did not
submit any matters to a vote of security holders.
4
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
------------------
The Company's Common Stock has been and is currently traded on the
over-the-counter market and quotations are published on the OTC Bulletin Board
under the symbol "NGMC" and began trading on June 11, 2001.
The following table sets forth the range of high and low bid prices of the
Common Stock for each fiscal quarterly period. Prices reported represent prices
between dealers, do not include retail markups, markdowns or commissions and do
not represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended on December 31, 2005
----------------------------------------------
HIGH LOW
Quarter Ended December 31, 2005 0.16 0.057
Quarter Ended September 30, 2005 0.19 0.115
Quarter Ended June 30, 2005 0.15 0.11
Quarter Ended March 31, 2005 0.40 0.125
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended on December 31, 2004
----------------------------------------------
HIGH LOW
Quarter Ended December 31, 2004 0.17 0.10
Quarter Ended September 30, 2004 0.22 0.13
Quarter Ended June 30, 2004 0.30 0.11
Quarter Ended March 31, 2004 0.40 0.22
5
The ability of individual stockholders to trade their shares in a particular
state may be subject to various rules and regulations of that state. A number of
states require that an issuer's securities be registered in their state or
appropriately exempted from registration before the securities are permitted to
trade in that state. Presently, the Company has no plans to register its
securities in any particular state. Further, most likely the Company's shares
will be subject to the provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
The NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
issuer's net tangible assets (at least $2 million); or exempted from the
definition by the Commission. If the Company's shares are deemed to be a penny
stock, trading in the shares may be subject to additional sales practice
requirements of broker-dealers who sell penny stocks to persons other than
established customers and accredited investors.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in the Company's Common Stock and may affect the
ability of stockholders to sell their shares.
Holders of Common Equity
------------------------
As of March 29, 2006, there were approximately 600 shareholders of record of the
Company's common stock.
Dividend Information
--------------------
The Company has not declared or paid cash dividends on its Common Stock or made
distributions in the past, and the Company does not anticipate that it will pay
cash dividends or make cash distributions in the foreseeable future, other than
non cash dividends described below. The Company currently intends to retain and
invest future earnings, if any, to finance its operations.
Transfer Agent
--------------
The transfer agent and registrar for our common stock is OTR Transfer Agency.
6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
When used in this Form 10-KSB and in our future filings with the
Securities and Exchange Commission, the words or phrases will likely result,
management expects, or we expect, will continue, is anticipated, estimated or
similar expressions are intended to identify forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on any such forward-looking statements,
each of which speak only as of the date made. These statements are subject to
risks and uncertainties, some of which are described below. Actual results may
differ materially from historical earnings and those presently anticipated or
projected. We have no obligation to publicly release the result of any revisions
that may be made to any forward-looking statements to reflect anticipated events
or circumstances occurring after the date of such statements.
GENERAL OVERVIEW
----------------
The Company acquired United on April 1, 1999. Originally founded in 1981 as
United Coupon Corporation, United has operated within the cooperative direct
mail industry for twenty-five years. United has diversified and expanded its
product lines and markets to evolve from a coupon company to a full-service
marketing provider specializing in two communication mediums: direct mail and
direct marketing. United offers advertising and marketing products and services
through a network of franchisees in more than twenty states, with the largest
concentration being in the northeast United States. United provides full-service
design, layout, printing, packaging and distribution of marketing products and
promotional coupons sold by the franchise network to local market businesses,
services providers and professionals as resources to help them generate "trial
and repeat" customers. United's core product, the cooperative coupon envelope,
reaches in excess of nineteen million mailboxes per year with an estimated four
hundred million coupons.
RESULTS OF OPERATIONS
---------------------
The Company's revenues are difficult to forecast and may vary significantly from
quarter to quarter and year to year. In addition, the Company's expense levels
for each quarter are, to a significant extent, fixed in advance based upon the
Company's expectation as to the net revenues to be generated during that
quarter. The Company therefore is generally unable to adjust spending in a
timely manner to compensate for any unexpected shortfall in net revenues.
Further as a result of these factors any delay in product introductions, whether
due to internal delays or delays caused by third party difficulties, or any
significant shortfall in demand in relation to the Company's expectations, would
have an almost immediate adverse impact on the Company's operating results and
on its ability to maintain profitability in a quarter.
Comparison of the Year Ended December 31, 2005 with the Year Ended December 31,
-------------------------------------------------------------------------------
2004
----
During the year ending December 31, 2005 the Company experienced a five percent
growth in revenues with sales of $8,219,717 compared to $7,821,606 in the year
ending December 31, 2004. The increased frequency and distribution from our
existing franchisees was responsible for this growth. Nevertheless, a shortfall
in 2005 franchisee sales curtailed a greater anticipated overall revenue growth.
Senior management changes have been implemented to address future franchise
sales.
7
Cost of revenues consists of materials, labor costs and applied overhead
expenses. Due to a significant increase in the cost of materials and a growth in
direct labor costs, the cost of revenues as a percentage of net revenues were up
from 67% for the year ended December 31, 2004 to 71% in the year ended December
31, 2005. While the cost of goods sold percentage will fluctuate from quarter to
quarter and year to year as overhead expenses and labor ratios change, the
Company is taking steps to lower costs. The growth in direct labor costs led to
the acquisition and implementation of workflow software which should help
contain future production staffing requirements. Additionally, the Company is
also analyzing the acquisition of printing equipment that could also directly
influence cost containment.
General and administrative (operating) expenses decreased during 2005 from
$2,485,024 in 2004 to $2,245,916 in 2005 as management worked to control
expenses despite a 5% growth in revenues.
Net Income
----------
The Company realized net income of $17,974 for the year ended December 31, 2005
as compared to net income of $184,460 for the year ended December 31, 2004. A
decline in 2005 franchise sales contributed to a reduction in anticipated
revenues. Overall growth in revenue from 2004 to 2005 was limited to 5% by a 55%
decrease in franchise sales revenue. In 2005, increased frequency and
distribution from our existing franchisees provided an increase in core product
revenues of 11% over 2004. Senior management has taken appropriate action to
address future franchise sales. Additionally, production incentives to
franchisees increased by 15% from 2004 to 2005 and the annual impact of those
incentives will be reached in 2006 and beyond.
Liquidity and Capital Resources
-------------------------------
The Company has relied primarily on funds generated from revenues, the issuance
of common stock and use of its line of credit to finance its operations and
expansion. Cash and cash equivalents at December 31, 2005 was $610,885 and
$395,575 at December 31, 2004. For the year ended December 31, 2005, we
generated a cash flow surplus of $215,310 from operating activities. The net
cash provided by financing activities was $107,050 while making repayment on
notes payable. The Company has used its working capital to finance ongoing
operations and the marketing of its products.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
8
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company does not expect the
adoption to have a material impact to the Company's financial position or
results of operations.
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 will not
have a material impact on the Company's results of operations or financial
position.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 will not have a material impact on the Company's
results of operations or financial position.
Forward Looking Statements.
---------------------------
The foregoing Managements Discussion and Analysis of Financial Condition and
Results of Operations "forward looking statements" within the meaning of Rule
175 under the Securities Act of 1933, as amended, and Rule 3b-6 under the
Securities Act of 1934, as amended, including statements regarding, among other
items, the Company's business strategies, continued growth in the Company's
markets, projections, and anticipated trends in the Company's business and the
industry in which it operates. The words "believe," "expect," "anticipate,"
"intends," "forecast," "project," and similar expressions identify
forward-looking statements. These forward- looking statements are based largely
on the Company's expectations and are subject to a number of risks and
uncertainties, including but not limited to, those risks associated with
economic conditions generally and the economy in those areas where the Company
has or expects to have assets and operations; competitive and other factors
affecting the Company's operations, markets, products and services; those risks
associated with the Company's ability to successfully negotiate with certain
customers, risks relating to estimated contract costs, estimated losses on
uncompleted contracts and estimates regarding the percentage of completion of
contracts, associated costs arising out of the Company's activities and the
matters discussed in this report; risks relating to changes in interest rates
and in the availability, cost and terms of financing; risks related to the
performance of financial markets; risks related to changes in domestic laws,
9
regulations and taxes; risks related to changes in business strategy or
development plans; risks associated with future profitability; and other factors
discussed elsewhere in this report and in documents filed by the Company with
the Securities and Exchange Commission. Many of these factors are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this Form
10-KSB will, in fact, occur. The Company does not undertake any obligation to
revise these forward-looking statements to reflect future events or
circumstances and other factors discussed elsewhere in this report and the
documents filed or to be filed by the Company with the Securities and Exchange
Commission.
Inflation
---------
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
Trends, Risks and Uncertainties
-------------------------------
The Company has sought to identify what it believes to be the most significant
risks to its business as discussed in "Risk Factors" above, but cannot predict
whether or to what extent any of such risks may be realized nor can there be any
assurances that the Company has identified all possible risks that might arise.
Investors should carefully consider all of such risk factors before making an
investment decision with respect to the Company's stock.
Limited operating history; anticipated losses; uncertainly of future results
----------------------------------------------------------------------------
The Company has a moderately limited operating history upon which an evaluation
of the Company and its prospects can be based. The Company's prospects must be
evaluated with a view to the risks encountered by a company in varying stages of
development, particularly in light of the uncertainties relating to the business
model that the Company intends to market and the potential acceptance of the
Company's business model. The Company will be incurring costs to develop,
introduce and enhance its products, to establish marketing relationships, to
acquire and develop products that will complement each other, and to build an
administrative organization. To the extent that such expenses are not
subsequently followed by commensurate revenues, the Company's business, results
of operations and financial condition will be materially adversely affected.
There can be no assurance that the Company will be able to generate sufficient
revenues from the sale of its products and services. If cash generated by
operations is insufficient to satisfy the Company's liquidity requirements, the
Company may be required to sell additional equity or debt securities. The sale
of additional equity or convertible debt securities would result in additional
dilution to the Company's shareholders.
Potential fluctuations in quarterly operating results may fluctuate
significantly in the future as a result of a variety of factors, most of which
are outside the Company's control including: the demand for the Company's
products and services; seasonal trends in demand and pricing of products and
services; the amount and timing of capital expenditures and other costs relating
to the expansion of the Company's operations; the introduction of new services
and products by the Company or its competitors; price competition or pricing
changes in the industry; political risks and uncertainties involving the world's
markets; technical difficulties and general economic conditions. The Company's
10
quarterly results may also be significantly affected by the impact of the
accounting treatment of acquisitions, financing transactions or other matters.
Such accounting treatment can have a material impact on the results for any
quarter. Due to the foregoing factors, among others, it may be that the
Company's operating results will fall below the expectations of the Company or
investors in some future quarter.
Management of Growth
--------------------
The Company may experience growth in the number of employees relative to its
current levels of employment and the scope of its operations. In particular, the
Company may need to hire sales, marketing and administrative personnel.
Additionally, acquisitions could result in an increase in employee headcount and
business activity. Such activities could result in increased responsibilities
for management. The Company believes that its ability to increase its customer
support capability and to attract, train, and retain qualified technical, sales,
marketing, and management personnel, will be a critical factor to its future
success. In particular, the availability of qualified sales and management
personnel is quite limited, and competition among companies to attract and
retain such personnel is intense. During strong business cycles, the Company may
experience difficulty in filling its needs for qualified sales, and other
personnel.
The Company's future success will be highly dependent upon its ability to
successfully manage the expansion of its operations. The Company's ability to
manage and support its growth effectively will be substantially dependent on its
ability to implement adequate financial and management controls, reporting
systems, and other procedures and hire sufficient numbers of financial,
accounting, administrative, and management personnel. The Company is in the
process of establishing and upgrading its financial accounting and procedures.
There can be no assurance that the Company will be able to identify, attract,
and retain experienced accounting and financial personnel. The Company's future
operating results will depend on the ability of its management and other key
employees to implement and improve its systems for operations, financial
control, and information management, and to recruit, train, and manage its
employee base. There can be no assurance that the Company will be able to
achieve or manage any such growth successfully or to implement and maintain
adequate financial and management controls and procedures, and any inability to
do so would have a material adverse effect on the Company's business, results of
operations, and financial condition.
The Company's future success depends upon its ability to address potential
market opportunities while managing its expenses to match its ability to finance
its operations. This need to manage its expenses will place a significant strain
on the Company's management and operational resources. If the Company is unable
to manage its expenses effectively, the Company's business, results of
operations, and financial condition will be materially adversely affected.
Risks associated with acquisitions
----------------------------------
Although the Company does not presently intend to do so, as part of its business
strategy in the future, the Company could acquire assets and businesses relating
to or complementary to its operations. Any acquisitions by the Company would
involve risks commonly encountered in acquisitions of companies. These risks
would include, among other things, the following: the Company could be exposed
to unknown liabilities of the acquired companies; the Company could incur
11
acquisition costs and expenses higher than it anticipated; fluctuations in the
Company's quarterly and annual operating results could occur due to the costs
and expenses of acquiring and integrating new businesses or technologies; the
Company could experience difficulties and expenses in assimilating the
operations and personnel of the acquired businesses; the Company's ongoing
business could be disrupted and its management's time and attention diverted;
the Company could be unable to integrate successfully.
ITEM 7. FINANCIAL STATEMENTS.
Comparative Audited Financial Statements as of and for the year ended December
31, 2005, and for the year ended December 31, 2004 are presented in a separate
section of this report following Part IV.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Other than as presented below, there were no changes in or disagreements with
Accountants on Accounting and Financial Disclosure.
ITEM 8A. CONTROLS AND PROCEDURES.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure.
Evaluation of disclosure and controls and procedures. As of the end of the
period covered by this Annual Report, we conducted an evaluation, under the
supervision and with the participation of our chief executive officer and chief
financial officer, of our disclosure controls and procedures (as defined in
Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
Changes in internal controls over financial reporting. There was no change in
our internal controls, which are included within disclosure controls and
procedures, during our most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
controls.
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PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT.
OFFICERS AND DIRECTORS.
-----------------------
The names and respective positions of the
directors, executive officers, and key employees of the Company are set forth
below; there are no other promoters or control persons of the Company. The
directors named below will serve until the next annual meeting of the Company's
stockholders or until their successors are duly elected and have qualified.
Directors are elected or re-elected at stockholders' meeting. Officers will hold
their positions at the will of the board of directors, absent any employment
agreement. There are no arrangements, agreements or understandings between
non-management shareholders and management under which non-management
shareholders may directly or indirectly participate in or influence the
management of the Company's affairs. The directors and executive officers of the
Company are not a party to any material pending legal proceedings.
Darryl Reed, President/CEO/Director
-----------------------------------
Mr. Darryl Reed is the current President of the Company. His background includes
seven years in the financial services industry. Mr. Reed formerly was with New
York Life Insurance Company, a major insurance company, and certain of its
subsidiaries since October 1995. Such subsidiaries included #1A Eagle Strategies
Corp., a registered investment adviser, where Mr. Reed worked from April 1997
until May 2000. Mr. Reed held several licenses in the financial services
industry, including Series 7, 63 and 65. He has a BS in Finance from the
University of Florida and an MS from the American College, Philadelphia, PA.
Olin Greene, Treasurer
----------------------
Hired as Director of Accounting in October 2002, Olin Greene is currently the
Controller for United Marketing Solutions and Treasurer for Next Generation
Media. Mr. Greene has over thirty years of experience in the accounting field;
including twelve years of senior financial management experience. From March
2000 to April 2002, Mr. Greene was Controller of Craven Tire Company in Fairfax,
Virginia, and from April 1998 to March 2000 he Comptroller/CFO of
Douglas-Michaels Company, L.P. in Springfield, Virginia. Mr. Greene attended
Virginia Polytechnic Institute and State University from 1967 to 1970.
Leon Zajdel, Director, Chairman of the Board
--------------------------------------------
Leon Zajdel has been a director of the Company since April 1999. Mr. Zajdel was
founder and has served as President of Energy Guard Corp., a manufacturer and
retailer of replacement windows, located in Beltsville, MD, since 1972.
13
Melissa Held, Director
----------------------
Ms. Held was appointed to the Board of Directors in November 2002. She possesses
an extensive background in financial management and real estate. Ms. Held was
with Merrill Lynch in a variety of positions over the past eight years, as a
Sales Associate from 1994 to 1998, as a Senior Specialist, Interactive
Technology from 1998 to 2000 and as Asst. Vice President, Consultative Training
Services from 2000 to present. Ms. Held has a BA in Communications from Hollins
College (1993).
Fernando Mathov, Director
-------------------------
Mr. Mathov was appointed to the Board of Directors in February 2003. He
possesses an extensive background as a project manager, systems engineer and
consultant in the telecommunications industry with various companies. Currently
Mr. Mathov holds two positions, as a Technical Solutions Manager from 1997 to
the present at Media and Entertainment Vertical EMC Corporation, and as a
Project Manager at Informix Software from 1994 to the present. Mr. Mathov has a
BS in Computer Science (1989) and an MBA in Management Science (1991), both from
Virginia Polytechnic Institute and State University.
(b) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, certain officers and persons holding 10% or more of the Company's
common stock to file reports regarding their ownership and regarding their
acquisitions and dispositions of the Company's common stock with the Securities
and Exchange Commission. Such persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the fiscal year ended December 31, 2005 and
subsequently, the Company is unaware that any required reports were not timely
filed.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth certain information relating to the compensation
paid by the Company during the last three fiscal years to the Company's
President. No other executive officer of the Company received total salary and
bonus in excess of $100,000 during the fiscal year ended December 31, 2005 and
prior.
14
SUMMARY COMPENSATION TABLE
====================================================================================================================
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------- -------------------------------------------------------
AWARDS PAYOUTS
-------------------------- ----------
SECURITIES
OTHER RESTRICTED UNDER-
NAME AND ANNUAL STOCK LYING LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPEN-
POSITION YEAR ($) ($) ($) ($) SAR(#) ($) SATION($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
====================================================================================================================
Darryl Reed, 2005 199,650 0 0 $10,000 1,000,000 0 0
President 2004 180,000 0 0 0 0 0 0
2003 165,000 0 0 0 0 0 0
====================================================================================================================
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial ownership of
shares of the Company's common stock as of December 31, 2005 (issued and
outstanding) by (i) all stockholders known to the Company to be beneficial
owners of more than ten percent of the outstanding common stock; and (ii) all
directors and executive officers of the Company as a group:
==============================================================================================================
TITLE OF
CLASS NAME OF BENEFICIAL OWNER AMOUNT OF BENEFICIAL OWNERSHIP (2) PERCENT OF CLASS
==============================================================================================================
CommonStock Darryl Reed(1) 3,008,965 24.3%
==============================================================================================================
Common Stock Leon Zajdel(1) 478,747 3.9%
==============================================================================================================
Common Stock Melissa Held Marsden(1) 100,000 1.0%
==============================================================================================================
Common Stock Fernando Mathov(1) 100,000 1.0%
==============================================================================================================
Common Stock Christoper Boeman 1,981,433 15.6%
1827 E 298th St., Wickliffe, OH
44092
==============================================================================================================
All five persons listed above, 5,661,945 45.8%
together
==============================================================================================================
15
(1) The address for all persons listed is 7644 Dynatech Court, Springfield,
VA, 22153. Each person has sole voting power and sole right to dispose
as to all of the shares shown as beneficially owned by them except as
footnoted.
Insurance Plans
The Company makes available to all full-time employees medical and dental plan
benefits. Employees are eligible to participate in company insurance plans when
they complete 90 days of service with the Company.
Other Benefit Plans
401(k) Plan. The Company makes available a 401(k) Savings Plan (the "401(k)
Plan"), a federally-qualified, tax-deferred plan administered by a third party.
The 401(k) Plan provides participants with savings or retirement benefits based
on employee deferrals of compensation, as well as any matching and other
discretionary contributions made by the Company. Employees are eligible to
participate in the 401(k) Plan when they complete one month of service with the
Company and have attained the age of 18. The employee can defer up to 15% of the
compensation amount earned within a calendar year, not to exceed the ceiling set
forth annually by the Internal Revenue Service. The Company matches the
employee's contribution to the 401(k) Plan fifty cents-for-dollar up to 6% of
the employee's annual salary. Participants become vested in any employer
contributions to the 401(k) Plan after two years of service at a rate of 20% for
each completed year of service. A participant is always 100% vested in his or
her salary reduction contributions to the 401(k) Plan.
Stock Option Plan.
The Company has also filed a Stock Option Plan for Employees on Form S-8 in
December 2001. The Company had not issued any Stock Options pursuant to the Plan
included therein to any employees as of December 31, 2005.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the past two years, and as not otherwise disclosed of in any other
filing, there have not been any transactions that have occurred between the
Company and its officers, directors, and five percent or greater shareholders,
unless listed below.
Certain of the officers and directors of the Company are engaged in other
businesses, either individually or through partnerships and corporations in
which they have an interest, hold an office, or serve on a board of directors.
As a result, certain conflicts of interest may arise between the Company and its
officers and directors. The Company will attempt to resolve such conflicts of
interest in favor of the Company. The officers and directors of the Company are
accountable to it and its shareholders as fiduciaries, which requires that such
officers and directors exercise good faith and integrity in handling the
16
Company's affairs. A shareholder may be able to institute legal action on behalf
of the Company or on behalf of itself and other similarly situated shareholders
to recover damages or for other relief in cases of the resolution of conflicts
is in any manner prejudicial to the Company.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
EXHIBITS.
Exhibits included or incorporated by reference in this document are set forth in
the Exhibit Index.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES.
Report of Independent Registered Public Accounting Firm F-2
Financial Statements
Balance Sheet F-4
Statements of Income F-6
Statements of Stockholders' Equity F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-10
17
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth fees billed to us by our auditors during the
years ended December 31, 2004 and 2003 for: (i) services rendered for the audit
of our annual financial statements and the review of our quarterly financial
statements, (ii) services by our auditor that are reasonably related to the
performance of the audit or review of our financial statements and that are not
reported as Audit Fees, (iii) services rendered in connection with tax
compliance, tax advice and tax planning, and (iv) all other fees for services
rendered.
December 31, 2005 December 31, 2004
----------------- -----------------
(i) Audit Fees $45,000 $40,000
(ii) Audit Related Fees $0 $0
(iii) Tax Fees $0 $0
(iv) All Other Fees $0 $0
------- -------
Total fees $45,000 $40,000
======= =======
AUDIT FEES. Consists of fees billed for professional services rendered for the
audit of the Company's consolidated financial statements and review of the
interim consolidated financial statements included in quarterly reports and
services that are normally provided by our auditors in connection with statutory
and regulatory filings or engagements.
AUDIT-RELATED FEES. Consists of fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of the
Company's consolidated financial statements and are not reported under "Audit
Fees." There were no Audit-Related services provided in fiscal 2005 or 2004.
TAX FEES. Consists of fees billed for professional services for tax compliance,
tax advice and tax planning. There were no charges for tax services provided in
fiscal 2005 or 2004.
ALL OTHER FEES. Consists of fees for products and services other than the
services reported above. There were no management consulting services provided
in fiscal 2005 or 2004.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS
The Company currently does not have a designated Audit Committee, and
accordingly, the Company's Board of Directors' policy is to pre-approve all
audit and permissible non-audit services provided by the independent auditors.
These services may include audit services, audit-related services, tax services
and other services. Pre-approval is generally provided for up to one year and
any pre-approval is detailed as to the particular service or category of
services and is generally subject to a specific budget. The Board of Directors
may also pre-approve particular services on a case-by-case basis.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date indicated:
===========================================================================================================
Signature Title Date
===========================================================================================================
/s/Darryl Reed President, Secretary, Director March 29, 2006
-------------------------
Darryl Reed
===========================================================================================================
/s/Olin Greene Treasurer March 29, 2006
-------------------------
Olin Greene
===========================================================================================================
/s/Melissa Held Marsden Director March 29, 2006
-------------------------
Melissa Held Marsden
===========================================================================================================
/s/ Fernando Mathov Director March 29, 2006
-------------------------
Fernando Mathov
===========================================================================================================
/s/ Leon Zajdel Chairman of the Board March 29, 2006
-------------------------
Leon Zajdel
===========================================================================================================
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation, under the name Micro Tech
Industries, Inc. (incorporated by reference in the filing of
the Company's annual report on Form 10KSB filed on April 15,
1998).
3.2 Amendment to the Articles of Incorporation (incorporated by
reference in the Company's quarterly report filed on Form 10 Q
filed on May 15, 1997).
3.3 Amended and Restated Bylaws (incorporated by reference in the
filing of the Company's annual report on Form 10KSB filed on
November 12, 1999).
16.1 Letter on change in certifying accountant (incorporated by
reference in the filing of the Company's current report on
Form 8-K filed on January 5, 2001).
Exhibit 31.1 Certification of Principal Executive Officer
Exhibit 31.2 Certification of Chief Financial Officer
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
19
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 2005 AND 2004
FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
NEXT GENERATION MEDIA CORP.
NEXT GENERATION MEDIA CORP.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Registered Public Accounting Firm F-2
Financial Statements
Balance Sheet F-4
Statements of Income F-6
Statements of Stockholders' Equity F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-10
F-1
Turner, Jones & Associates, P.L.L.C
Certified Public Accountants
108 Center Street, North, 2nd Floor
Vienna, Virginia 22180-5712
(703) 242-6500
FAX (703) 242-1600
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Board of Directors and Stockholders of
Next Generation Media Corporation
7644 Dynatech Court
Springfield, VA 22153
We have audited the accompanying consolidated balance sheet of Next
Generation Media Corporation (a Nevada Incorporation) as of December 31, 2005,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 2005. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Next
Generation Media Corporation as of December 31, 2005, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2005, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Turner, Jones & Associates, P.L.L.C
Vienna, Virginia
March 23, 2005
F-2
Next Generation Media Corporation
and Subsidiary
Consolidated Financial Statements
For The Years Ended December 31, 2005 and 2004
With Audit Report of Independent
Registered Public Accounting Firm
TURNER, JONES AND ASSOCIATES, P.L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
F-3
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2005
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 610,885
Accounts receivable, net of
uncollectible accounts 231,285
Trade notes receivable 10,637
Inventories 60,847
Employee loans and advances 2,874
Prepaid expenses and other current assets 28,658
-----------
Total current assets $ 945,186
-----------
PROPERTY, PLANT AND EQUIPMENT:
Equipment 1,475,962
Furniture and fixtures 69,348
Leasehold improvements 81,390
Computer equipment/software 192,140
Software development 157,981
Vehicles 9,200
-----------
Total property, plant and equipment 1,986,021
Less: accumulated depreciation (1,454,008)
-----------
Net property, plant and equipment 532,013
-----------
OTHER ASSETS:
Goodwill 951,133
Deposits 41,200
-----------
Total other assets 992,333
-----------
TOTAL ASSETS $ 2,469,532
===========
--------------------------------------------------------------------------------
See accompanying notes and accountant's audit report
F-4
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2005
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Obligation under capital leases, current portion $ 28,699
Notes payable, current portion 23,730
Accounts payable 216,168
Accrued expenses 149,519
Pension payable 48,519
Sales tax payable 1,794
-----------
Total current liabilities $ 468,429
-----------
LONG TERM LIABILITIES:
Obligation under capital leases $ 85,204
Notes payable $ 63,861
-----------
Total long term liabilities $ 149,065
-----------
Total liabilities $ 617,494
-----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares
authorized, 12,373,397 issued and outstanding 123,734
Additional paid in capital 7,379,744
Accumulated deficit (5,651,440)
-----------
Total stockholders' equity 1,852,038
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,469,532
===========
--------------------------------------------------------------------------------
See accompanying notes and accountant's audit report
F-5
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
--------------------------------------------------------------------------------
2005 2004
------------ ------------
REVENUES:
Coupon and postage sales, net of discounts $ 8,017,717 $ 7,369,106
Franchise fees 202,000 452,500
------------ ------------
Total revenues $ 8,219,717 $ 7,821,606
COST OF GOODS SOLD $ 5,806,010 $ 5,206,244
------------ ------------
GROSS MARGIN $ 2,413,707 $ 2,615,362
------------ ------------
OPERATING EXPENSES:
General and Administrative 2,245,916 2,485,024
Depreciation and amortization 163,873 130,079
------------ ------------
Total operating expense: 2,409,789 2,615,103
------------ ------------
Income (Loss) from operations 3,918 259
------------ ------------
OTHER INCOME AND EXPENSES:
Gain on settlement of debt -- 188,673
Other income (expense) 21,711 717
Interest expense (9,155) (6,189)
Gain on sale of equipment 1,500 --
------------ ------------
Total other income (expense) 14,056 183,201
------------ ------------
Income (Loss) before provision for income tax 17,974 183,460
Provision for income tax -- --
------------ ------------
Net income 17,974 183,460
============ ============
Income (loss) applicable to common shareholders 0.00 $ 183,460
------------ ------------
Basic income/(loss) per common share 0.00 0.017
------------ ------------
Weighted average common shares outstanding 12,215,842 10,523,397
------------ ------------
Diluted income/(loss) per common share 0.00 0.013
------------ ------------
Fully diluted common shares outstanding 13,347,342 14,213,397
------------ ------------
--------------------------------------------------------------------------------
See accompanying notes and accountant's audit report
F-6
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------
Common Stock Additional
------------------------- Paid In Accumulated
Shares Amount Capital Deficit Total
---------- ---------- ---------- ---------- ----------
December 31, 2003 10,523,397 105,234 7,379,744 (5,852,874) 1,632,104
Net Income (Loss) -- -- -- 183,460 183,460
---------- ---------- ---------- ---------- ----------
December 31, 2004 10,523,397 105,234 7,379,744 (5,669,414) 1,815,564
Net Income -- -- -- 17,974 17,974
Shares issued 1,850,000 18,500 -- -- 18,500
---------- ---------- ---------- ---------- ----------
Balance December 31, 2005 12,373,397 123,734 7,379,744 (5,651,440) 1,852,038
-----------------------------------------------------------------------------------------------------------
See accompanying notes and accountant's audit report
F-7
NEXT GENERATION MEDIA CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
------------------------------------------------------------------------------------------
2005 2004
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,974 $ 183,460
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock issued for services 18,500 --
Depreciation and amortization 161,995 130,079
(Increase)/decrease in assets
Receivables 237,026 252,786
Inventories 42,533 (36,970)
Prepaids and other current assets (4,221) (21,278)
Increase/(decrease) in liabilities
Accounts payable 47,063 45,497
Accrued expenses (56,487) 50,003
Deferred revenue (29,000) 29,000
Pension payable 41,961 1,599
Sales tax payable (2,505) (203,385)
------------- -------------
Net cash flows provided/(used) by
operating activities 474,839 430,791
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase and development of fixed assets (368,079) (81,255)
Sale of equipment 1,500 --
------------- -------------
Net cash used by investing activities (366,579) (81,255)
------------- -------------
------------------------------------------------------------------------------------------
See accompanying notes and accountant's audit report
F-8
NEXT GENERATION MEDIA CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
------------------------------------------------------------------------------------------
2005 2004
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under capital lease 53,883 42,047
Borrowing under notes payable 100,990
Repayment of notes payable and capital lease (47,823) (119,021)
------------- -------------
Net cash provided by financing activities 107,050 (76,974)
------------- -------------
NET INCREASE (DECREASE) IN CASH 215,310 272,562
CASH, BEGINNING OF PERIOD 395,575 123,013
------------- -------------
CASH, END OF PERIOD $ 610,885 $ 395,575
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Income taxes -- --
Interest $ 9,155 $ 6,189
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Common stock issued for services $ 18,500 $ --
------------------------------------------------------------------------------------------
See accompanying notes and accountant's audit report
F-9
NEXT GENERATION MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
NATURE OF BUSINESS:
-------------------
Next Generation Media Corporation was incorporated in the State of Nevada in
November of 1980 as Micro Tech Industries, with an official name change to Next
Generation Media Corporation in April of 1997. The Company, through its wholly
owned subsidiary, United Marketing Solutions, Inc., provides direct marketing
products, which involves the designing, printing, packaging, and mailing of
public relations and marketing materials and coupons for retailers who provide
services. Sales are conducted through a network of franchises that the Company
supports on a wholesale basis. At December 31, 2005, the Company had
approximately 48 active area franchise license agreements located throughout the
United States.
PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment are stated at cost. The company uses the straight line
method in computing depreciation for financial statement purposes.
Expenditures for repairs and maintenance are charged to income, and renewals and
replacements are capitalized. When assets are retired or otherwise disposed of,
the cost of the assets and the related accumulated depreciation are removed from
the accounts.
Estimated useful lives are as follows:
Furniture, Fixtures and Equipment 7-10 years
Leasehold Improvements 10 years
Vehicles 5 years
Computers & Software 5 years
Software Development 5 years
Depreciation expense for the years ended December 31, 2005 and 2004 amounted to
$163,873 and $129,329 respectively.
F-10
INTANGIBLES:
------------
The Company has recorded goodwill based on the difference between the cost and
the fair value of certain purchased assets. The Company annually evaluates the
goodwill for possible impairment. The Company performed an assessment of the
fair value of its sole reporting unit as defined by SFAS No. 142 and compared it
to the carrying value of its reporting unit. The Company's market capitalization
was less than the Company's book value indicating possible impairment under the
test established by SFAS No. 142. The Company determined the fair value of its
assets on a class-by-class basis. The fair values of the Company's assets were
based upon the expected cash flow from the Company's business, assuming a
discount rate that reflects the degree of risk involved with this type of
business. The fair value of goodwill was in excess of its carrying value, and
therefore, no impairment was recorded.
In addition, the Company had a covenant not to compete, which was being
amortized over five (5) years. The covenant not to compete was fully amortized
during 2005.
ADVERTISING EXPENSE:
--------------------
The Company expenses the cost of advertising and promotions as incurred.
Advertising costs charged to operations for the years ended December 31, 2005
and 2004 were $86,534 and $46,170 respectively.
REVENUE RECOGNITION:
--------------------
The Company recognizes revenue from the design production and printing of
coupons upon delivery. Revenues from initial franchise fee is recognized when
substantially all services or conditions relating to the sale have been
substantially performed. Substantially all services or conditions are performed
prior to receipt of payment from the franchisee. Franchise support of $150 per
quarter and other charges are recognized when billed to the franchisee. Amounts
billed or collected in advance of final delivery or shipment are reported as
deferred revenue.
IMPAIRMENT OF LONG-LIVED ASSETS:
--------------------------------
The Company reviews the carrying values of its long-lived assets for possible
impairment on an annual basis and whenever events or changes in circumstances
indicate that the carrying amount of the assets should be addressed. The Company
believes that no permanent impairment in the carrying value of long-lived assets
exists for either of the two years ending December 31, 2005 and 2004.
F-11
COMPREHENSIVE INCOME:
---------------------
The Company has adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income." Comprehensive income as defined includes all
changes to equity except that resulting from investments by owners and
distribution to owners. The Company has no item of comprehensive income to
report.
NEW ACCOUNTING PRONOUNCEMENTS:
------------------------------
On December 15, 2004, the Financial Accounting Standards Board issued SFAS No.
123(R), Share-Based Payment, which amends SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No 123 (R) requires that all share-based payments
to employees, including grants of employee stock options, be accounted for at
fair value. The pro forma disclosures previously permitted under SFAS No. 123 no
longer will be an alternative to financial statement recognition. Under SFAS No.
123 (R), the Company must determine the appropriate fair value model to be used
for valuing share-based payments, the amortization method for compensation cost
and the transition method to be used for valuing share-based payments, the
amortization method for compensation cost and the transition method to be used
at date of adoption. The Company previously adopted the fair-value-based method
of accounting for share-based payments under SFAS No. 123 effective January 1,
2003 using the prospective method described in SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 123 (R) also amends
SFAS No. 95, Statement of Cash Flows, to require that excess tax benefits be
reported as a financing cash inflow rather than as a reduction of taxes paid. As
originally issued, SFAS No. 95 required all income tax payments to be classified
as operating cash outflows. This statement is effective for fiscal periods
beginning after June 15, 2005. The Company is still evaluating the impact of
adopting SFAS No. 123 (R).
USE OF ESTIMATES:
-----------------
The preparation of financial statements in accordance 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.
F-12
INCOME TAXES:
-------------
The Corporation uses Statement of Financial Standards No. 109 Accounting for
Income Taxes (SFAS No. 109) in reporting deferred income taxes. SFAS No. 109
requires a company to recognize deferred tax liabilities and assets for expected
future income tax consequences of events that have been recognized in the
company's financial statements. Under this method, deferred tax assets and
liabilities are determined based on temporary differences in financial carrying
amounts and the tax bases of assets and liabilities using enacted tax rates in
effect in the years in which temporary differences are expected to reverse.
RISKS AND UNCERTAINTIES:
------------------------
The Company operates in an environment where intense competition exists from
other companies. This competition, along with increases in the price of paper,
can impact the pricing and profitability of the Company.
The Company at times may have cash deposits in excess of federally insured
limits.
ACCOUNTS RECEIVABLE:
--------------------
The Corporation grants credit to its customers, which includes the retail sector
and their own franchisees. The Company establishes an allowance for doubtful
accounts based upon on a percentage of accounts receivable plus those balances
the Company believes will be uncollectible. Allowance for uncollectible accounts
as of December 31, 2005 was $10,641.
CASH AND CASH EQUIVALENTS:
--------------------------
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Earnings Per Common Share:
--------------------------
The Company calculates its earnings per share pursuant to Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). Under SFAS
No. 128, basic earnings per share are computed by dividing reported earnings
available to common stockholders by weighted average shares outstanding. Dilated
F-13
earnings per share reflects the potential dilution assuming the issuance of
common shares for all potential dilative common shares outstanding during the
period. The Company had 1,131,500 and 3,690,000 options issued and outstanding
as of December 31, 2005 and 2004 to purchase stock, respectively. The weighted
average exercise price was $0.62 and $0.77 at December 31, 2005 and 2004,
respectively.
INVENTORIES:
------------
Inventories consist primarily of paper, envelopes, and printing materials and
are stated at the lower of cost or market, with cost determined on the first-in,
first-out method.
PRINCIPLES OF CONSOLIDATION:
----------------------------
The accompanying consolidated financial statements include the accounts of the
parent company, Next Generation Media Corporation and its subsidiary United
Marketing Solutions, Inc. for the years ended December 31, 2005 and 2004. All
inter-company balances and transactions have been eliminated in consolidation.
GAIN ON SETTLEMENT OF DEBT:
---------------------------
During 2004, the Company settled its delinquent sales tax obligation with the
Virginia Department of Taxation. The settlement resulted in a gain to the
company of $188,673.
NOTE 2 - RETIREMENT PLAN
------------------------
The company maintains a 401(k) defined contribution plan covering substantially
all employees. The Corporation may contribute up to 3% of each eligible
employee's gross wages. Employees can elect up to 15% of their salary to be
contributed before income taxes up to the annual limit set by the Internal
Revenue Code. The Corporation contributed $42,154 and $43,054 in matching
contributions, net of forfeitures for 2005 and 2004, respectively.
F-14
NOTE 3 - NOTES PAYABLE
----------------------
Notes payable at December 31, 2005 consists of:
Obligation to Bank of America, bearing interest at 6.4% percent per
annum, the loan is payable in forty-eight monthly installments of
$2,395, including interest, and is collateralized by the equipment
financed. Balance outstanding at December 31, 2005 was $87,591.
The 5 year schedule of maturities is as follows:
2006 23,730
2007 25,317
2008 27,011
2009 11,533
Thereafter 0
---------
87,591
=========
NOTE 4 - COMMITMENTS AND CONTINGENCIES
--------------------------------------
Future minimum annual lease payments for capital and operating leases as of
December 31, 2005 are:
Operating Capital
2006 294,449 38,730
2007 219,107 38,730
2008 302,855 30,918
2009 314,969 12,930
2010 327,568 12,929
Total 1,458,948 134,237
========== =========
F-15
Rent expense for the years ended December 31, 2005 and 2004 was $303,917 and
$282,640, respectively.
The Company has entered into various employment contracts. The contracts
provided for the award of present and/or future shares of common stock and/or
options to purchase common stock at fair market value of the underlying options
at date of grant or vesting. The contracts can be terminated without cause upon
written notice within thirty to ninety days. The Company is party to various
legal matters encountered in the normal course of business. In the opinion of
management and legal counsel, the resolution of these matters will not have a
material adverse effect on the Company's financial position or the future
results of operations.
NOTE 5 - INCOME TAXES
---------------------
Deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases.
Management has provided a valuation allowance for the total net deferred tax
assets as of December 31, 2005 and 2004, as they believe that it is more likely
than not that the entire amount of deferred tax assets will not be realized.
The company filed a consolidated return, with a tax liability of $0 for the year
2005. At December 31, 2005, the Company had net operating loss carry forwards
for federal income tax purposes of approximately $2,391,535 which are available
to offset future taxable income, if any, on a scheduled basis through 2018.
NOTE 6 - OBLIGATION UNDER CAPITAL LEASE
---------------------------------------
The Company acquired machinery under the provisions of a long-term leases. For
financial reporting purposes, minimum lease payments relating to the machinery
have been capitalized.
F-16
The future minimum lease payments under capital leases and net present value of
the future minimum lease payments as of December 31, 2005 are as follows:
Total minimum lease payments $134,239
Amount representing interest 20,336
--------
Present value of net minimum lease payments 113,903
Current portion 28,699
--------
Long-term capital lease obligation $ 85,204
========
NOTE 7 - COMMON STOCK
---------------------
During 2005, the Company issued 1,850,000 shares of common stock, to various
officers and directors. As a result the Company recognized $18,500 of expense.
NOTE 8 - NOTE RECEIVABLE
------------------------
On June 30, 2000, the Company executed a promissory note with UNICO, Inc. for
$200,000 in conjunction with the sale of Independent News, Inc. During 2005, the
Company's management considered the note uncollectible and the unreserved
remaining balance of $40,000 was written off.
NOTE 9 - INTANGIBLE ASSETS
--------------------------
Intangible assets consist of the following items:
Goodwill $ 1,341,850
-----------
1,341,850
Less accumulated amortization (Pre January 1, 2002) (390,717)
-----------
Intangible assets, net $ 951,133
===========
F-17
NOTE 10 - PUBLIC STOCK LISTING
------------------------------
Next Generation Media Corporation common stock began trading on the OTC Bulletin
Board on June 11, 2001, under the symbol NGMC.
NOTE 11 - SEGMENT INFORMATION
-----------------------------
The Company has one reportable segment for the twelve-month periods ended
December 31, 2005 and 2004: United Marketing Solutions. United was acquired on
April 1, 1999. The entity is a wholly owned subsidiary. United operates a direct
mail marketing business. The accounting policies of the reportable segments are
the same as those set forth in the Summary of Accounting Policies. Summarized
financial information concerning the Company's reporting segments for the
periods ending December 31, 2005 and 2004 are presented below:
YEAR ENDED
DECEMBER 31, 2005 SEGMENT PARENT ELIMINATIONS TOTAL
--------------------------------------------------------------------------------
Revenue 8,219,717 225,000 225,000 8,219,717
Segment profit/(loss) 103,554 (85,580) 0 17,974
Total assets 2,170,725 1,730,636 (1,431,829) 2,469,532
Revenue 7,821,762 418,000 418,000 7,821,762
Segment profit/(loss) 83,324 100,136 0 183,460
Total assets 1,958,152 1,647,024 (1,280,200) 2,324,976
F-18
NOTE 12 - RECLASSIFICATIONS
---------------------------
Certain amounts on the 2004 financial statements have been reclassified to
conform with the 2005 presentation.
NOTE 13 - EMPLOYEE STOCK INCENTIVE PLAN
---------------------------------------
One December 26, 2001, the Company adopted the Employee Stock Incentive Plan
authorizing 3,000,000 shares at a maximum offering price of $0.10 per share for
the purpose of providing employees equity-based compensation incentives.
NOTE 14 - SUBSEQUENT EVENTS
---------------------------
Subsequent to year end the Company extended the lease for its headquarters for
five years.
F-19