U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
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FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2008
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AN EXCHANGE ACT
OF 1934
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For
the transition period from: __________ to __________
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|
Commission
file number 000-52834
|
ORGANA TECHNOLOGIES GROUP,
INC.
(Exact
Name of Registrant as specified in its charter)
DELAWARE
|
|
02-0545879
|
(State
of Incorporation)
|
|
(IRS
Employer Identification Number)
|
2910
Bush Drive, Melbourne, FL
|
|
32935
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
321-421-6652
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 month (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
¨
Accelerated
filer
¨
Non-accelerated filer
¨
Smaller
reporting company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
At
August 18, 2008: 28,870,264 shares of the registrant’s common stock (no par
value) were outstanding.
TABLE
OF CONTENTS
PART
I
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ITEM
I
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ITEM
2
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ITEM
3
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ITEM
4
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PART
II
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ITEM
1
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ITEM
1A
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ITEM
2
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ITEM
3
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ITEM
4
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ITEM
5
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ITEM
6
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SIGNATURES
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Statements contained in this Quarterly Report on Form 10-Q
which are not historical facts are forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts regarding Organa
Technologies Group, Inc.’s (the “Company’s”) business strategy, future
operations, financial position, estimated revenues or losses, projected costs,
prospects, plans and objectives are forward looking statements. These
forward-looking statements appear in a number of places and can be identified by
the use of forward-looking terminology such as “may,” “will,” “should,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,”
“intend,” “hopes” or “certain” or the negative of these terms or other
variations or comparable terminology.
Management
cautions that forward-looking statements are subject to risks and uncertainties
that could cause our actual results to differ materially from those projected in
such forward-looking statements including, without limitation, the following:
the future prospects for and growth of the Company and the industries in which
it operates, the level of the Company’s future sales, customer demand and cost
of raw materials, the Company’s ability to maintain its business model; the
Company’s ability to retain and recruit key personnel; the Company’s ability to
maintain its competitive strengths and to effectively compete against its
competitors; the Company’s short-term decisions and long-term strategies for the
future and its ability to implement and maintain such decisions and strategies,
including its strategies: (i) to focus on entering into the design and
manufacturing sectors., (ii) to focus on international and domestic product
distribution through its internet services and retail segments of its business
and (iii) to create a strong position in the marketplace as industry
leaders within all business segments; the Company’s engaging in and ability to
consummate future acquisitions; manufacturers’ ability to produce products to
the Company’s specification on a timely basis; the impact of debt covenants on
the Company’s flexibility in running its business and the effect of an event of
default on the Company’s results of operations; the effect of interest rate
fluctuations; the Company’s ability to manage its credit risk and accounts
receivable; the timing and amounts of future capital expenditures and the
Company’s ability to meet its needs for working capital including its ability to
negotiate lines of credit; the Company’s ability to track technology trends to
make good buy-sell decisions with respect to products; the effect of changes to
the Company’s accounting policies and impact of evolving interpretation and
implementation of such policies; the risk of litigation and claims against the
Company; the impact of a change in the Company’s overall effective tax rate as a
result of the Company’s mix of business levels in various tax jurisdictions in
which it does business; the adequacy of the Company’s insurance coverage; the
impact of a failure by third parties to manufacture our products timely or
properly; the effect of seasonality on the Company’s business; and the Company’s
ability to pass on increases in its costs of its components of its products
and/or labor costs, including manufacturing costs, operating expenses and
interest expense through increases in selling prices. Further, our future
business, financial condition and results of operations could differ materially
from those anticipated by such forward-looking statements and are subject to
risks and uncertainties including the risks set forth above and the “Risk
Factors” set forth in this Form 10-Q. Moreover, neither we assume nor any other
person assumes responsibility for the accuracy and completeness of the
forward-looking statements.
Forward-looking
statements are made only as of the date of this Form 10-Q and are based on
management’s reasonable assumptions, however these assumptions can be wrong or
affected by known or unknown risks and uncertainties. No forward-looking
statement can be guaranteed and subsequent facts or circumstances may
contradict, obviate, undermine or otherwise fail to support or substantiate such
statements. Readers should not place undue reliance on these forward-looking
statements and are cautioned that any such forward-looking statements are not
guarantees of future performance. We are under no duty to update any of the
forward-looking statements after the date of this Form 10-Q to conform such
statements to actual results or to changes in our expectations.
ORGANA
TECHNOLOGIES GROUP, INC.
|
|
Consolidated
Balance Sheet
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ORGANA
TECHNOLOGIES GROUP, INC. and SUBSIDIARIES
|
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Consolidated Balance Sheets
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ASSETS
|
|
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|
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Current
Assets
|
|
June
30, 2008
|
|
|
Restated
December 31, 2007
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
193,810
|
|
|
$
|
37,089
|
|
Accounts
Receivable
|
|
|
14,708
|
|
|
|
14,673
|
|
Inventory
|
|
|
267,388
|
|
|
|
54,815
|
|
Prepaid
Expenses
|
|
|
356,178
|
|
|
|
14,526
|
|
Due
From Related Party
|
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|
315,983
|
|
|
|
277,972
|
|
|
|
|
|
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|
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Total
Current Assets
|
|
|
1,148,067
|
|
|
|
399,075
|
|
Property,
Plant and Equipment, Net
|
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|
322,502
|
|
|
|
264,672
|
|
Goodwill
|
|
|
241,543
|
|
|
|
241,543
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|
Other
Assets
|
|
|
58,036
|
|
|
|
18,624
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,770,148
|
|
|
$
|
923,914
|
|
|
|
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|
|
|
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LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
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|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Notes
Payable, Current Portion
|
|
$
|
224,163
|
|
|
$
|
220,837
|
|
Capitalized
Leases, Current Portion
|
|
|
3,376
|
|
|
|
3,066
|
|
Accounts
Payable and Accrued Expenses
|
|
|
240,677
|
|
|
|
208,400
|
|
Accrued
Payroll and Taxes
|
|
|
-
|
|
|
|
2,665
|
|
Deferred
Revenue
|
|
|
536,734
|
|
|
|
-
|
|
Due
to Related Party
|
|
|
44,894
|
|
|
|
-
|
|
|
|
|
|
|
|
|
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Total
Current Liabilities
|
|
|
1,049,844
|
|
|
|
434,968
|
|
|
|
|
|
|
|
|
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Long-Term
Liabilities
|
|
|
|
|
|
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Notes
Payable
|
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|
152,640
|
|
|
|
153,311
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|
Capitalized
Leases
|
|
|
15,639
|
|
|
|
17,409
|
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Total
Long-Term Liabilities
|
|
|
168,279
|
|
|
|
170,720
|
|
|
|
|
|
|
|
|
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Total
Liabilities
|
|
|
1,218,123
|
|
|
|
605,688
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Minority
Interest
|
|
|
56,394
|
|
|
|
46,724
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
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Preferred
Stock
|
|
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|
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Series
A Convertible Preferred Stock, voting; $1.00 par
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value;
5,000,000 shares authorized; 380,000 shares,
|
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|
|
|
130,000
shares, issued and outstanding, respectively
|
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|
380,000
|
|
|
|
130,000
|
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Discount of
Preferred Stock
|
|
|
(65,140
|
)
|
|
|
(5,200
|
)
|
Common
Stock
|
|
|
|
|
|
|
|
|
$.0001
par value, 100,000,000 shares authorized,
|
|
|
|
|
|
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28,870,264
shares issued and outstanding at
|
|
|
|
|
|
|
|
|
June
30, 2008
|
|
|
80,200
|
|
|
|
80,200
|
|
Additional
Paid-in Capital
|
|
|
2,078,141
|
|
|
|
2,076,924
|
|
Accumulated
Deficit
|
|
|
(1,977,570
|
)
|
|
|
(2,010,422
|
)
|
Total
Stockholders' Equity
|
|
|
495,631
|
|
|
|
271,502
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
1,770,148
|
|
|
$
|
923,914
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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See
accompanying notes to consolidated financial statements.
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ORGANA
TECHNOLOGIES GROUP, INC. and SUBSIDIARIES
|
|
Consolidated Statements of Operations
|
|
(unaudited)
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|
|
Quarter
Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
741,783
|
|
|
$
|
281,044
|
|
|
$
|
1,251,283
|
|
|
$
|
515,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
381,094
|
|
|
|
165,424
|
|
|
|
636,694
|
|
|
|
289,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
360,689
|
|
|
|
115,620
|
|
|
|
614,589
|
|
|
|
225,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
355,197
|
|
|
|
93,573
|
|
|
|
601,406
|
|
|
|
187,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
From Operations
|
|
|
5,492
|
|
|
|
22,047
|
|
|
|
13,183
|
|
|
|
38,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income / (Expense)
|
|
|
15,156
|
|
|
|
-
|
|
|
|
9,884
|
|
|
|
(9,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before Minority Interest
|
|
|
20,648
|
|
|
|
22,047
|
|
|
|
23,067
|
|
|
|
29,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest in Subsidiary
|
|
|
8,714
|
|
|
|
-
|
|
|
|
9,785
|
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
29,362
|
|
|
$
|
22,047
|
|
|
$
|
32,852
|
|
|
$
|
29,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted based upon 28,870,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic
weighted average shares outstanding and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,655,000
fully diluted weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
Basic
and diluted based upon 5,514,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted
average shares outstanding
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
|
ORGANA
TECHNOLOGIES GROUP, INC.
For
the Six Months Ended June 30,
(unaudited)
|
|
2008
|
|
|
2007
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
Net
Income
|
|
$
|
32,851
|
|
|
$
|
29,351
|
|
Adjustments
to Reconcile Net Income to Net
|
|
|
|
|
|
|
|
|
Cash
Provided By Operating Activities:
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
11,535
|
|
|
|
4,129
|
|
Minority
Interests in Subsidiaries
|
|
|
9,670
|
|
|
|
(207
|
)
|
Changes
in Assets and Liabilities, Net of Acquisitions:
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
(35
|
)
|
|
|
-
|
|
Inventory
|
|
|
(212,573
|
)
|
|
|
1,342
|
|
Prepaid
Expenses
|
|
|
(341,652
|
)
|
|
|
(50,361
|
)
|
Deferred
Revenue
|
|
|
536,734
|
|
|
|
-
|
|
Other
Assets
|
|
|
(39,412
|
)
|
|
|
(87,059
|
)
|
Accounts
Payable and Accrued Expenses
|
|
|
29,614
|
|
|
|
96,004
|
|
Net
Cash Provided By (Used In) Operating Activities
|
|
|
26,732
|
|
|
|
(6,801
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Acquisition
of Property and Equipment
|
|
|
(69,365
|
)
|
|
|
(810
|
)
|
Due
from Related Party
|
|
|
(32,294
|
)
|
|
|
50,818
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided By (Used In) Investing Activities
|
|
|
(101,659
|
)
|
|
|
50,008
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Repayment
of Capitalized Lease
|
|
|
(1,460
|
)
|
|
|
-
|
|
Due
to Related Parties
|
|
|
44,894
|
|
|
|
-
|
|
Net
Issuance of Preferred Stock
|
|
|
190,060
|
|
|
|
-
|
|
Increase
in Additional Paid in Capital
|
|
|
1,217
|
|
|
|
|
|
Issuance
(Reduction) of Notes Payable
|
|
|
(2,391
|
)
|
|
|
82,284
|
|
Repayment
of Notes Payable
|
|
|
(671
|
)
|
|
|
(119,359
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided By (Used In) Financing Activities
|
|
|
231,649
|
|
|
|
(37,075
|
)
|
Net
Increase in Cash
|
|
|
156,722
|
|
|
|
6,132
|
|
Cash
at Beginning of Year
|
|
|
37,089
|
|
|
|
19,203
|
|
Cash
at End of Period
|
|
$
|
193,811
|
|
|
$
|
25,335
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid for Interest
|
|
$
|
17,186
|
|
|
$
|
9,622
|
|
|
|
|
|
|
|
|
|
|
Taxes
Paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated
financial statements.
ORGANA
TECHNOLOGIES GROUP, INC.
June
30, 2008
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Operation
Organa
Technologies Group, Inc. (“OTG” or the “Company”), was formerly known as
Integrity Messenger Corporation (“IMC”), a Delaware corporation formed in 2002.
In October 2005, the Board approved a name change to Organa Technologies Group,
Inc. Reference to OTG will include the period prior to the name change when the
Company was IMC.
The
Company was organized as a vehicle to enter into various Internet business
combinations seeking customers through Internet product sales and Internet
services. The company is a management company that has acquired several
technology based businesses.
The
Company is a holding company that currently operates five wholly-owned
subsidiaries; Hurricane Host, Inc., an entity which provides Internet web
hosting and Voice over Internet Protocol (VoIP) services, Davinci’s Computer
Corp., an entity which provides hardware and software computer system solutions
and services, Gateway Internet Services Corporation, an entity which provides
on-line payment processing through ACH and other banking solutions, Game2Gear,
Inc., an entity that provides online product registration of replica weapons,
Epic Weapons, Inc, which manufactures, designs, and sells replica
weapons, and two majority-owned subsidiaries; Zowy Media,
Incorporated, doing business as Swordsonline and WeaponMasters,
which provide Internet purchasing of swords and weapon memorabilia, and
Organa Consulting Group, Inc., an entity which provides web design services,
hardware and software installation and training, and other Internet related
consulting services.
Basis
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries and have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”). All significant inter-company
accounts and transactions have been eliminated.
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Hurricane Host, Inc. (“HH”), Gateway Internet
Services Corporation (“GIS”), Davinci’s Computer Corp. (“DCC”), Epic Weapons,
Inc. (“Epic”).and Game2Gear, Inc. (“G2G”), and its majority-owned subsidiaries,
Organa Consulting Group, Inc. (“OCG”), and Zowy Media, Incorporated
(“Zowy”),
Recent
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157,
Fair Value Measurements
(SFAS 157). SFAS 157 provides a common definition of fair value and
establishes a framework to make the measurement of fair value in generally
accepted accounting principles more consistent and comparable. SFAS 157 also
requires expanded disclosures to provide information about the extent to which
fair value is used to measure assets and liabilities, the methods and
assumptions used to measure fair value, and the effect of fair value measures on
earnings. SFAS 157 is effective for the Company’s 2009 fiscal year, although
early adoption is permitted. The Company is currently assessing the potential
effect of SFAS 157 on its financial statements.
In July
2006, the FASB issued FASB interpretation No. 48,
Accounting for Uncertainty in Income
Taxes
(FIN 48). FIN 48 clarifies the accounting for income taxes by
prescribing a minimum probability threshold that a tax position must meet before
a financial statement benefit is recognized. The minimum threshold is defined in
FIN 48 as a tax position that is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. The tax benefit to be recognized is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. FIN 48 must be applied to all existing tax position upon
initial adoption. The cumulative effect of applying FIN 48 at adoption is to be
reported as an adjustment to beginning retained earnings for the year of
adoption. FIN 48 is effective for the Company’s 2007 fiscal year. The Company
recognizes interest and Income Tax Penalties as income taxes in the financial
statements. The Company has assessed the potential effect of FIN 48
for the year ended December 31, 2007 and concluded there would be no impact to
the beginning retained earnings in the fiscal year 2008. Further
disclosure may be reviewed in Note 11 – Income Taxes.
In
accordance with Statement of Financial Standards (SFAS) No. 144,
Accounting for the Impairment of
Disposable Long-Lived Assets,
the Company will record impairment losses
on long-lived assets used in operations when events and circumstances indicate
that assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amount of those assets.
Even though the Company ceased operations of its instant messenger
program/service, it did not recognize any impact on disposable long-live assets
as all hardware and software had been fully depreciated. To date there has been
no impairment of the Company’s long-lived assets.
Cost
of Sales
The cost
of sales includes the cost of manufactured products as well as goods purchased
for resale. In accordance with IAS 2, the cost comprises overheads directly
attributable to the production process, including depreciation charges on
production equipment and design, in addition to directly attributable costs,
such as the cost of materials, personnel associated with the products and
services offered, shipping and packaging material, server cost, and royalty
fees.
Operating
Expenses
Costs
associated with running
the Company but not considered directly applicable to the current line of goods
and services being sold are considered operating expenses. These
expenses include management and payroll, professional fees, travel and
entertainment, dues and subscriptions, insurance, utilities, and banking
fees.
Concentration
of Credit Risk and Significant Customers
Financial
instruments which potentially subject the Company to a concentration of credit
risk consist principally of temporary cash investments and accounts
receivable.
The
Company places a portion of its temporary cash investments with Avante Holding
Group (AHG), as defined in the revolving credit agreement, and can be considered
a high risk investment (See Note 7 – Related Party). In addition, the
Company places the remainder of its temporary cash investments with financial
institutions insured by the FDIC.
Concentrations
of credit risk with respect to trade receivables are limited due to the diverse
group of customers to whom the Company sells and that a substantial amount of
the company’s revenues are paid for prior to the products being shipped or
services provided. The Company establishes an allowance for doubtful accounts
when events and circumstances regarding the collectability of its receivables
warrant based upon factors such as the credit risk of specific customers,
historical trends, other information and past bad debt history. As of June 30,
2008 and 2007, no allowance for doubtful accounts was deemed
necessary.
Impairment
of Goodwill
In
accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible
Assets,
goodwill is evaluated for potential impairment annually,
generally during the fourth quarter, by comparing the fair value of a reporting
unit to its carrying value, including recorded goodwill. If the carrying value
exceeds the fair value, impairment is measured by comparing the derived fair
value of goodwill to its carrying value, and any impairment determined would be
recorded in the current period. To date there has been no impairment of the
Company’s recorded goodwill.
Net
Earnings (Loss) Per Share
In
accordance with SFAS No. 128,
Earnings Per Share
, basic net
earnings (loss) per common share is computed by dividing the net earnings (loss)
for the period by the weighted average number of common shares outstanding
during the period. Diluted earnings (loss) per share are computed using the
weighted average number of common and dilutive common stock equivalent shares
outstanding during the period. Dilutive common stock equivalent shares consist
of Series A convertible preferred stock and convertible promissory note at June
30, 2008. Dilutive common stock equivalent shares are not utilized when the
effect is anti-dilutive.
Revenue
Recognition
The
Company recognizes revenue on our products, which include retail sales, retail
sales over the Internet, computer hardware, and computer software sales (not
sold as a service) in accordance with the Securities Exchange Commission
(SEC) Staff Accounting Bulletin No. 104, (which superseded Staff Accounting
Bulletin No. 101) “Revenue Recognition in Financial Statements”. Under these
guidelines, revenue is recognized on sales transactions when all of the
following exist: persuasive evidence of an arrangement did exist, delivery of
product or services has occurred, the sales price to the buyer is fixed or
determinable and collectability is reasonably assured. We accrue a provision for
estimated returns concurrent with revenue recognition.
The
Company recognizes revenue on its proprietary or licensed computer software as a
service; to include, web hosting, design and development, Voice over Internet
Protocol (VoIP), and on-line payment processing in accordance with SFAS 86,
Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed
; SOP 97-2,
“
Software Revenue
Recognition
”; and SOP 98-1, “
Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use”
. Software
license revenue is recognized when a non-cancelable license agreement has been
executed, delivery has occurred, fees are fixed and determinable, and collection
of the resulting
receivable
is deemed probable by management. Service revenue includes support revenue,
which is recognized ratably over the support period.
The
Company recognizes revenue on sales of services when services are rendered,
based on actual service provided in relation to the total of services to be
provided.
Revenue
from on-line sales is recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable, and
collectability is probable. The Company defers a portion of the selling price of
on-line products for hosting and recognizes that hosting ratably over the
contractual period. The Company recognizes the two components, the software
(design) and the service (or hosting) based on their relative fair
values.
Revenue
from physical product sales is recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is fixed or
determinable, and collectability is probable. Generally, these criteria are met
at the time product is shipped. A reserve is established at the time the related
revenue is recognized for estimated product returns.
The
Company recognizes revenue on our reseller arrangements in accordance with EITF
01-9. EITF 01-9 states that cash consideration (including sales incentive) given
by a vendor to a customer is presumed to be a reduction of the selling prices of
the vendors products or services and, therefore, should be characterized as a
reduction of revenue when recognized in the vendor’s income statement. As a
result, pricing adjustments to customers are characterized as a reduction of
revenue when recognized in the income statement. The company receives no
identifiable benefit and the consideration can be used or is exercisable by the
customer as a result of a single revenue transaction
.
The Company does not provide
discounts to its resellers. The Company, as part of its standard
business practice, offers discounts for quantity purchases. Resellers
purchase large quantities to effectuate a better rate and then provide those
services to its clients at full price. The Company only recognizes
the revenue as collected from the reseller.
Fair
Value of Stock-based Compensation
Under its
Year 2007 Stock Option Plan (the “Plan”), the Company grants stock options for a
fixed number of shares to employees and directors with an exercise price equal
to the fair market value of the shares at the date of grant. The Company adopted
SFAS 123(r),
Share-Based
Payments
, in the first quarter of fiscal 2006. Prior to fiscal 2006, the
Company had adopted the disclosure-only provision of SFAS 123,
Accounting for Stock-Based
Compensation
, as amended by SFAS 148,
Accounting for Stock-Based
Compensation, Transition and Disclosure
, which permitted the Company to
account for stock option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to
Employees
. Under APB 25, compensation expense is recorded when the
exercise price of the Company’s employee stock option is less than the market
price of the underlying stock at the date of grant.
The
provisions of SFAS 123(r) require the Company to estimate the fair value of each
option grant and employee stock purchase plan. The Company uses the
Black-Scholes option pricing model to estimate these fair values. The
Black-Scholes option-pricing model was developed for use in estimating the value
of traded options that have no vesting restrictions and are fully transferable,
while the options issued by the Company are subject to both vesting and
restrictions on transfer. In addition, option pricing models require input of
highly subjective assumptions including expected stock price volatility. The
Company uses projected data for expected volatility and estimates the life of
its stock options by applying the simplified method set out in SEC Staff
Accounting Bulletin No. 107 (SAB 107). The simplified method defines the
expected term of an option as the average of the contractual term of the options
and the weighted average vesting period for all option tranches.
Segment
Information
In
accordance with the provisions of SFAS No. 131,
Disclosures about Segments of an
Enterprise and Related Information,
the Company is required to report
financial and descriptive information about its reportable operating segments.
The Company identifies its operating segments as divisions based on how
management internally evaluates separate financial information, business
activities and management responsibility. The Company segments and the
subsidiaries associated with each segment are as follows:
Retail
Sales
|
|
Computer Hardware and
|
|
Internet
Services
|
|
Corporate
|
|
|
Software
|
|
|
|
|
Zowy
Media, Incorporated
|
|
Davinci's
Computer Corp.
|
|
Hurricane
Host, Inc.
|
|
Organa
Technologies Group, Inc.
|
Epic
Weapons, Inc.
|
|
|
|
Organa
Consulting Group, Inc.
|
|
|
Game2Gear,
Inc.
|
|
|
|
Gateway
Internet Services, Inc.
|
|
|
NOTE
2 – RESTATEMENT OF PRIOR PERIOD CONSOLIDATED FINANCIAL
STATEMENTS
The
following restated financials for the quarter ended March 31, 2008 and the year
ended December 31, 2007 as incorporated in this section, reflect the current
restated financials. The Company has not yet filed such amendments to it Form
10-K filed on April 14, 2008, Form 10-Q filed on May 15, 2008, and Form 10/A
filed on May 1, 2008. The Company anticipates the filing of these amendments
shortly.
In
connection with subsequent reviews of the Company’s financial statements for the
quarters ended March 31, 2008 and March 31, 2007 respectively, and the years
ended December 31, 2007, certain errors were discovered. These errors were
associated with (i) the Company’s recognition of goodwill and classification of
other assets associated with the acquisition of Zowy Media, Incorporated and its
subsidiary, Epic Weapons, Inc. and the reporting of its subsequent results of
operations and (ii) the proper recognition and recording of transactions for
years prior to the current reporting periods with Avante Holding Group,
Inc. "AHG" (See Note 7 - Related Parties), (iii) the Company’s recognition
of goodwill associated with the acquisition of Davinci Computer Corporation,
(iv) the reclassification of fees paid to Dinosaur Securities from a reduction
of APIC to a discount of Series A Preferred, and (iv) the reclassification
of legal fees from prepaid expenses.
Restated
2008 Balance Sheet Statement for Period Ending March 31, 2008
|
|
Reported
March 31, 2008
|
|
|
Adjustments
|
|
|
Restated
March 31, 2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
358,121
|
|
|
$
|
-
|
|
|
$
|
358,121
|
|
Accounts
Receivable
|
|
|
115,952
|
|
|
|
-
|
|
|
|
115,952
|
|
Inventory
|
|
|
141,673
|
|
|
|
-
|
|
|
|
141,673
|
|
Prepaid
Expense
|
|
|
72,481
|
|
|
|
(53,185
|
)
|
|
|
19,296
|
|
Due
from Related Party
|
|
|
541,038
|
|
|
|
|
|
|
|
541,038
|
|
Total
Current Assets
|
|
|
1,229,265
|
|
|
|
(53,185
|
)
|
|
|
1,176,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, Net
|
|
|
317,386
|
|
|
|
29,367
|
|
|
|
346,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
241,543
|
|
|
|
-
|
|
|
|
241,543
|
|
Other
Assets
|
|
|
55,463
|
|
|
|
(29,367
|
)
|
|
|
26,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,843,657
|
|
|
$
|
(53,185
|
)
|
|
$
|
1,790,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable, Current Portion
|
|
|
75,294
|
|
|
|
5,717
|
|
|
|
81,011
|
|
Capitalized
Leases, Current Portion
|
|
|
3,217
|
|
|
|
-
|
|
|
|
3,217
|
|
Accounts
Payable and Accrued Expenses
|
|
$
|
328,412
|
|
|
$
|
-
|
|
|
$
|
328,412
|
|
Accrued
Payroll and Taxes
|
|
|
1,499
|
|
|
|
-
|
|
|
|
1,499
|
|
Deferred
Revenue
|
|
|
546,164
|
|
|
|
-
|
|
|
|
546,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
954,586
|
|
|
|
5,717
|
|
|
|
876,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Liabilities:
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Notes
Payable
|
|
|
16,545
|
|
|
|
-
|
|
|
|
16,545
|
|
Capitalized
Leases
|
|
|
302,979
|
|
|
|
-
|
|
|
|
302,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Long-Term Liabilities
|
|
|
319,524
|
|
|
|
-
|
|
|
|
319,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
|
56,289
|
|
|
|
(10,636
|
)
|
|
|
45,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
320,000
|
|
|
|
(5,200
|
)
|
|
|
314,800
|
|
Common
Stock
|
|
|
80,200
|
|
|
|
-
|
|
|
|
80,200
|
|
Additional
Paid-in Capital
|
|
|
2,071,724
|
|
|
|
5,200
|
|
|
|
2,076,924
|
|
Accumulated
Deficit
|
|
|
(1,958,666
|
)
|
|
|
(48,266
|
)
|
|
|
(2,006,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
513,258
|
|
|
|
(48,266
|
)
|
|
|
464,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
1,843,657
|
|
|
$
|
(53,185
|
)
|
|
$
|
1,706,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated 2008 Statement of Operations
and Deficit for Period Ending March 31, 2008
The
Company erroneously classified legal fees associated with the lawsuit as prepaid
expenses. This was expensed appropriately in the quarter in which
services were provided. These changes effected Minority Interest, Net
Income, and Stockholders Equity which were changed accordingly.
|
For the Three
Months Ended March 31, 2008
|
|
|
As
|
|
|
|
As
|
|
|
Reported
|
|
Adjustments
|
|
Restated
|
|
|
|
|
|
|
|
|
Sales
|
$
|
509,500
|
|
|
-
|
|
$
|
509,500
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
255,600
|
|
|
-
|
|
|
255,600
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
253,900
|
|
|
-
|
|
|
253,900
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
238,226
|
|
|
7,983
|
|
|
246,209
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Operations
|
|
15,674
|
|
|
(7,983
|
)
|
|
7,691
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income / (Expense)
|
|
(5,272
|
)
|
|
-
|
|
|
(5,272
|
)
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Minority Interest
|
|
10,402
|
|
|
(7,983
|
)
|
|
2,419
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest in Subsidiary
|
|
(525
|
)
|
|
1,596
|
|
|
1,071
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
$
|
9,877
|
|
$
|
(6,387
|
)
|
$
|
3,490
|
|
|
|
|
|
|
|
|
|
|
|
Restated
2008 Cash Flow Statement for Period Ending March 31, 2008
The
Company reclassified the note from AHG from Cash Flow from Operations to Cash
Flow from Investing Activities.
|
|
March
31, 2008
|
|
|
|
|
|
March
31, 2008
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
9,877
|
|
|
$
|
(6,387
|
)
|
|
$
|
3,490
|
|
Adjustments
to Reconcile Net Income to Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Provided By Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
3,968
|
|
|
|
-
|
|
|
|
3,968
|
|
Minority
Interests in Subsidiaries
|
|
|
525
|
|
|
|
(1,596
|
)
|
|
|
(1,071
|
)
|
Accounts
Receivable
|
|
|
(101,279
|
)
|
|
|
-
|
|
|
|
(101,279
|
)
|
Inventory
|
|
|
(86,858
|
)
|
|
|
-
|
|
|
|
(86,858
|
)
|
Prepaid
Expenses
|
|
|
(12,753
|
)
|
|
|
7,983
|
|
|
|
(4,770
|
)
|
Deferred
Revenue
|
|
|
546,164
|
|
|
|
|
|
|
|
546,164
|
|
Due
From Related Party
|
|
|
(257,350
|
)
|
|
|
257,350
|
|
|
|
-
|
|
Other
Assets
|
|
|
(7,472
|
)
|
|
|
-
|
|
|
|
(7,472
|
)
|
Accounts
Payable and Accrued Expenses
|
|
|
118,846
|
|
|
|
-
|
|
|
|
118,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By
Operating Activities
|
|
|
213,668
|
|
|
|
257,350
|
|
|
|
471,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Property and Equipment
|
|
|
(86,049
|
)
|
|
|
-
|
|
|
|
(86,049
|
)
|
Due
From Related Party
|
|
|
-
|
|
|
|
(257,350
|
)
|
|
|
(257,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used In)
Investing Activities
|
|
|
(86,049
|
)
|
|
|
(257,350
|
)
|
|
|
(343,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of Capitalized Lease
|
|
|
(713
|
)
|
|
|
-
|
|
|
|
(713
|
)
|
Issuance
of Preferred Stock
|
|
|
190,000
|
|
|
|
(5,200
|
)
|
|
|
184,800
|
|
Additional
Paid in Capital
|
|
|
-
|
|
|
|
5,200
|
|
|
|
5,200
|
|
Issuance
of Notes Payable
|
|
|
5,998
|
|
|
|
|
|
|
|
5,998
|
|
Repayment
of Notes Payable
|
|
|
(1,873
|
)
|
|
|
-
|
|
|
|
(1,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by
Financing Activities
|
|
|
193,412
|
|
|
|
-
|
|
|
|
193,412
|
|
Net
Increase in Cash
|
|
|
321,031
|
|
|
|
-
|
|
|
|
321,031
|
|
Cash
at Beginning of Year
|
|
|
37,089
|
|
|
|
-
|
|
|
|
37,089
|
|
Cash
at End of Period
|
|
$
|
358,120
|
|
|
$
|
-
|
|
|
$
|
358,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
financial statements for the year ended December 31, 2007 were required to be
restated. The Company was not a reporting entity until November 26,
2007.
Restated
2007 Balance Sheet Statement for Period Ending December 31, 2007
The
Company reclassified the tooling material required for the making of the
Frostmourne Sword from an Other Asset to Property, Plant, and Equipment as it is
a physical asset that is owned by the Company. The Company initially
assumed the tooling was part of the intellectual rights of the designer which
was incorrect. In addition, the Company erroneously classified legal
fees associated with the
lawsuit
as prepaid expenses. This was expensed appropriately in the year and
quarter in which services were provided. These changes affected
Minority Interest, Stockholders Equity which was changed
accordingly.
|
|
December
31, 2007
|
|
|
December
31, 2007
|
|
|
December
31, 2007
|
|
|
|
As
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
37,089
|
|
|
$
|
-
|
|
|
$
|
37,089
|
|
Accounts
Receivable
|
|
|
14,673
|
|
|
|
-
|
|
|
|
14,673
|
|
Inventory
|
|
|
54,815
|
|
|
|
-
|
|
|
|
54,815
|
|
Prepaid
Expenses
|
|
|
59,728
|
|
|
|
(45,202
|
)
|
|
|
14,526
|
|
Due
From Related Party
|
|
|
283,689
|
|
|
|
(5,717
|
)
|
|
|
277,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
449,994
|
|
|
|
(50,919
|
)
|
|
|
399,075
|
|
Property,
Plant and Equipment, Net
|
|
|
235,305
|
|
|
|
29,367
|
|
|
|
264,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
241,543
|
|
|
|
-
|
|
|
|
241,543
|
|
Other
Assets
|
|
|
47,991
|
|
|
|
(29,367
|
)
|
|
|
18,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
974,833
|
|
|
$
|
(45,202
|
)
|
|
$
|
923,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& STOCK HOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable, Current Portion
|
|
|
220,837
|
|
|
|
-
|
|
|
|
220,837
|
|
Capitalized
Leases, Current Portion
|
|
|
3,066
|
|
|
|
-
|
|
|
|
3,066
|
|
Accounts
Payable and Accrued Expenses
|
|
$
|
208,400
|
|
|
$
|
-
|
|
|
$
|
208,400
|
|
Accrued
Payroll
|
|
|
2,665
|
|
|
|
-
|
|
|
|
2,665
|
|
Total
Current Liabilities
|
|
|
434,968
|
|
|
|
-
|
|
|
|
434,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Tern
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable
|
|
|
153,311
|
|
|
|
-
|
|
|
|
153,311
|
|
Capitalized
Leases
|
|
|
17,409
|
|
|
|
-
|
|
|
|
17,409
|
|
Total
Long-Term Liabilities
|
|
|
170,720
|
|
|
|
-
|
|
|
|
170,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
605,688
|
|
|
|
-
|
|
|
|
605,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
|
55,764
|
|
|
|
(9,040
|
)
|
|
|
46,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
130,000
|
|
|
|
(5,200
|
)
|
|
|
124,800
|
|
Common
Stock
|
|
|
80,200
|
|
|
|
-
|
|
|
|
80,200
|
|
Additional
Paid-in Capital
|
|
|
2,071,724
|
|
|
|
5,200
|
|
|
|
2,076,924
|
|
Accumulated
Deficit
|
|
|
(1,968,543
|
)
|
|
|
(41,879
|
)
|
|
|
(2,010,422
|
)
|
Total
Stockholders' Equity
|
|
|
313,381
|
|
|
|
(41,879
|
)
|
|
|
271,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
974,833
|
|
|
$
|
(50,919
|
)
|
|
$
|
923,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
2007 Statement of Operations and Deficit for Period Ending December 31,
2007
The
Company reclassified the prepaid legal fees and expensed them according to the
months in which the services were provided.
This
additional expense also created a change in the minority interest.
|
|
December
31, 2007
|
|
|
December
31, 2007
|
|
|
December
31, 2007
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,143,158
|
|
|
$
|
-
|
|
|
$
|
1,143,158
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Cost
of Sales
|
|
|
722,111
|
|
|
|
-
|
|
|
|
722,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
421,047
|
|
|
|
-
|
|
|
|
421,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
594,651
|
|
|
|
50,919
|
|
|
|
645,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) From Operations
|
|
|
(173,604
|
)
|
|
|
(50,919
|
)
|
|
|
(224,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income / (Expense)
|
|
|
(14,842
|
)
|
|
|
-
|
|
|
|
(14,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Min. Int.
|
|
|
(188,446
|
)
|
|
|
(50,919
|
)
|
|
|
(239,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest in Subsidiary
|
|
|
(7,408
|
)
|
|
|
(9,040
|
)
|
|
|
(16,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(181,038
|
)
|
|
$
|
(41,879
|
)
|
|
$
|
(222,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
2007 Cash Flow for Period Ending December 31, 2007
In
addition to the changes affected by the restatement of income and expenses, the
Company reclassified the note due from AHG from Cash Flow from Operations to
Cash Flow from Investing Activities.
|
As
Reported
|
|
|
|
|
Restated
|
|
|
|
2007
|
|
|
Adjustments
|
|
|
2007
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(181,038
|
)
|
|
$
|
(41,879
|
)
|
|
$
|
(222,917
|
)
|
Adjustments
to Reconcile Net Loss to Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Used In Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
10,138
|
|
|
|
-
|
|
|
|
10,138
|
|
Minority
Interests in Subsidiaries
|
|
|
(7,408
|
)
|
|
|
(9,040
|
)
|
|
|
(16,448
|
)
|
Changes
in Assets and Liabilities, Net of Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
(11,663
|
)
|
|
|
-
|
|
|
|
(11,663
|
)
|
Inventory
|
|
|
(35,815
|
)
|
|
|
-
|
|
|
|
(35,815
|
)
|
Prepaid
Expenses
|
|
|
(59,728
|
)
|
|
|
45,202
|
|
|
|
(14,526
|
)
|
Due
From Related Party
|
|
|
57,928
|
|
|
|
(57,928
|
)
|
|
|
-
|
|
Other
Assets
|
|
|
(23,391
|
)
|
|
|
29,367
|
|
|
|
5,976
|
|
Accounts
Payable and Accrued Expenses
|
|
|
156,166
|
|
|
|
-
|
|
|
|
156,166
|
|
Net Cash Used In
Operating Activities
|
|
|
(94,811
|
)
|
|
|
(34,278
|
)
|
|
|
(129,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Property and Equipment
|
|
|
(22,397
|
)
|
|
|
(29,367
|
)
|
|
|
(51,764
|
)
|
Due
From Related Party
|
|
|
-
|
|
|
|
63,645
|
|
|
|
63,645
|
|
Cash
Received from Acquired Business
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net Cash Provided By
(Used In) Investing Activities
|
|
|
(22,397
|
)
|
|
|
34,278
|
|
|
|
11,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Capitalized Lease
|
|
|
21,588
|
|
|
|
-
|
|
|
|
21,588
|
|
Repayment
of Capitalized Lease
|
|
|
(1,113
|
)
|
|
|
-
|
|
|
|
(1,113
|
)
|
Issuance
of Preferred Stock
|
|
|
130,000
|
|
|
|
-
|
|
|
|
130,000
|
|
Commissions
Paid on Sale of Preferred Stock
|
|
|
(5,200
|
)
|
|
|
-
|
|
|
|
(5,200
|
)
|
Repayment
of Notes Payable
|
|
|
(10,181
|
)
|
|
|
-
|
|
|
|
(10,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by
Financing Activities
|
|
|
135,094
|
|
|
|
-
|
|
|
|
135,094
|
|
Net
Increase in Cash
|
|
|
17,886
|
|
|
|
-
|
|
|
|
17,886
|
|
Cash
at Beginning of Year
|
|
|
19,203
|
|
|
|
-
|
|
|
|
19,203
|
|
Cash
at End of Year
|
|
$
|
37,089
|
|
|
$
|
-
|
|
|
$
|
37,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
3 – ACQUISITIONS AND NEW SUBSIDIARIES FORMED
Integrity
Messenger Corporation
The
Company was formed in December 2002 but completed its first acquisition in
January 2004, when it acquired the assets of IMC-FL in exchange for 60,000,000
shares of restricted common stock, which were issued in a transaction exempt
from registration under section 4(2) of the Securities Act of 1933, as amended.
IMC-FL was incorporated in February 2002 and had operated as a development
company for an instant messenger service organization.
The
Company operated Integrity Messenger Instant Messenger under the parent Company
through December 31, 2007, at which time it took its instant messenger server
off-line and shutdown the Integrity Messenger Instant Messenger. On February 19,
2008 the Company elected to cease operations permanently on the Integrity
Messenger Instant Messenger. (See Note -12 Discontinued Operations) While the
Company retains ownership of the software, it will determine in the future if it
will enter into this line of service in the future. In the event the Company
elects to develop a new instant messenger service it will operate under a
different name. As all software and hardware cost associated with the
Instant Messenger Program has been fully depreciated, there were no additional
requirements for the disposal of assets under a discontinuing
service.
Hurricane
Host, LLC
On April
1, 2004, OTG acquired 100% of the membership units of Hurricane Host, LLC (“HH”)
for $50,000. HH, a Texas limited liability company, was originally formed in
2003. HH merged with Hurricane Host, Inc. (“HH-FL”), a Florida
corporation.
Organa
Consulting Group, Inc.
On
October 25, 2005, OTG acquired 80% of Organa Consulting Group, Inc. (“OCG”), a
Florida corporation, for $800. The minority interest of 20% in OCG is owned by
Avante Holding Group, Inc. (“AHG”).
Gateway
Internet Services Corporation
On April
20, 2006, Gateway Internet Services Corporation (“GIS”), a Florida corporation,
was formed as a subsidiary of the Company. GIS will work parallel with its
customer, Render Payment Corporation (“RPC”). RPC is the payment processor
whereas GIS has the technology to provide secure processing of payments from
individuals through bank wires and ACH processing for select Internet clients.
As of December 31, 2007, GIS was an inactive subsidiary.
Davinci’s
Computer Corp.
On June
1, 2006, OTG acquired Davinci’s Computer Corp. (“DCC”) of Florida for 2,000,000
(net effect of 1:4 forward split) shares of the Company’s common stock valued at
$.10 per share at the time of the transaction. DCC provides computer consulting
services to select clients throughout the state of Florida.
In
accordance with SFAS No. 141, “Business Combinations”, the acquisition has been
accounted for under the purchase method of accounting. The purchase price was
allocated to DCC’s tangible and intangible assets acquired and liabilities
assumed based on their estimated fair values with any excess being ascribed to
goodwill. Management is responsible for determining the fair value of these
assets. The fair value of the assets acquired and liabilities assumed represent
management’s estimate of fair values. The following table summarizes the
activity of the acquired company at May 31, 2006:
STATEMENT
of OPERATIONS for the Period JANUARY 1 - MAY 31, 2006:
|
|
|
|
|
Sales
|
$
|
55,520
|
|
Cost
of Sales
|
|
12,555
|
|
Gross
Profit
|
|
42,965
|
|
Operating
Expenses
|
|
77,493
|
|
Loss
from Operations
|
|
(34,528
|
)
|
Loss
Before Taxes
|
$
|
(34,528
|
)
|
|
|
|
|
The
purchase price of DCC was $50,000. The following table summarized the estimated
fair values of the assets acquired and liabilities assumed at the date of
acquisition:
Current
assets
|
|
$
|
-
|
|
Property,
plant and equipment
|
|
|
-
|
|
Goodwill
|
|
|
55,571
|
|
Total
assets acquired
|
|
|
55,571
|
|
Current
liabilities
|
|
|
5,571
|
|
Long-term
debt
|
|
|
-
|
|
Total
liabilities assumed
|
|
|
5,571
|
|
Net
assets acquired
|
|
$
|
50,000
|
|
|
|
|
|
|
Zowy
Media, Incorporated
On
October 1, 2006, OTG acquired 80% of Zowy Media, Incorporated (“Zowy”) and its
subsidiary, Epic Weapons, Inc. (f/k/a Epic Weapons, LLC) (“Epic”), all of
Florida, for 8,000,000 (net effect of 1:4 forward split) shares of OTG common
stock, valued at $.0025 (net effect of 1:4 forward split) per share at the time
of the transaction. Zowy operates an Internet website (
www.swordsonline.com
and
www.weaponmasters.com
)
for the marketing and selling of various products. Zowy operates under the dba
Weaponmasters. Epic has an agreement with Blizzard Entertainment® to market
certain licensed products (initially the Frostmourne Sword®) related to the
World of Warcraft® computer games.
In
accordance with SFAS No. 141, “Business Combinations”, the acquisition has been
accounted for under the purchase method of accounting. The purchase price was
allocated to Zowy’s tangible and intangible assets acquired and liabilities
assumed based on their estimated fair values with any excess being ascribed to
goodwill. Management is responsible for determining the fair value of these
assets. The fair value of the assets acquired and liabilities assumed represent
management’s estimate of fair values. The following table summarizes the
activity of the acquired company at September 30, 2006:
STATEMENT
of OPERATIONS for the Period JANUARY 1 - SEPTEMBER 30,
2006:
|
|
|
|
|
|
Sales
|
|
$
|
429,748
|
|
Cost
of Sales
|
|
|
155,235
|
|
Gross
Profit
|
|
|
274,513
|
|
Operating
Expenses
|
|
|
256,834
|
|
Income
from Operations
|
|
|
17,679
|
|
Income
Before Taxes
|
|
$
|
17,679
|
|
|
|
|
|
|
Income Taxes are not recorded as
the company was a S Corporation from January 1- September 30, 2006.
The
purchase price of Zowy was $200,000. The following table summarizes the
estimated fair values of the assets acquired and liabilities assumed at the date
of acquisition:
Current
assets
|
|
$
|
29,519
|
|
Property,
plant and equipment
|
|
|
225,083
|
|
Goodwill
|
|
|
185,972
|
|
Total
assets acquired
|
|
|
440,574
|
|
Current
liabilities
|
|
|
82,108
|
|
Long-term
debt
|
|
|
154,959
|
|
Minority
interest
|
|
|
3,507
|
|
Total
liabilities assumed
|
|
|
240,574
|
|
Net
assets acquired
|
|
$
|
200,000
|
|
|
|
|
|
|
Game2Gear,
Inc.
On
December 18, 2006, Game2Gear, Inc. (“G2G”), a Florida corporation, was formed as
a subsidiary of the Company. G2G is a technology based solution that may be
offered to various business verticals enabling vendors to internally and
externally track and process inventory more efficiently, create industry
specific and regulatory mandated security requirements and/or compliance
protocols establishing a unique product identification method that would be
embedded into a product allowing businesses to provide better customer service
and secure its marketplace from fraudulent and unlicensed products.
Epic
Weapons, Inc.
On
January 1, 2008 OTG purchased the outstanding stock of Epic Weapons from Zowy
Media, Inc., a subsidiary of OTG. The Consolidated Financial
Statements include the operating results of each business. Pro forma results of
operations and acquisition have not been presented because the effects of these
acquisitions were not material on either an individual or an aggregate basis.
Any net changes to the books of OTG and Zowy would be written off under
Consolidation and Eliminations.
The
purchase price of Epic was $43,656. The following table summarizes
the estimated fair values of the assets acquired and liabilities assumed at the
date of acquisition:
Current
assets
|
|
$
|
10,304
|
|
Property,
plant and equipment
|
|
|
41,346
|
|
Goodwill
|
|
|
-
|
|
Total
assets acquired
|
|
|
51,650
|
|
Current
liabilities
|
|
|
1,009
|
|
Long-term
debt
|
|
|
-
|
|
Minority
interest
|
|
|
(8,803
|
)
|
Total
liabilities assumed
|
|
|
(7,994
|
)
|
Net
assets acquired
|
|
$
|
43,656
|
|
|
|
|
|
|
NOTE
4 – BALANCE SHEET DETAILS
Inventory
consists of the following:
|
June
30,
|
|
December 31,
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
Inventory
|
|
$
|
267,388
|
|
|
$
|
54,815
|
|
|
|
|
|
|
|
|
|
|
The
inventory of Epic ($168,495) relates to the Frostmourne® Sword which was
contracted to be manufactured internationally. Epic’s contract is for 5,000
swords. Zowy ($22,647), DCC ($20,495), and G2G ($55,751), account for the
remaining inventory. The G2G inventory relates to the RFID Reader that will be
sold in conjunction with the Frostmourne® Sword.
Property
and equipment consist of the following:
|
|
Useful
|
|
June
30,
|
|
Restated
December 31,
|
|
|
|
Life
|
|
2008
|
|
2007
|
|
Building
|
|
|
30
|
|
$
|
209,000
|
|
$
|
209,000
|
|
Land
|
|
|
|
|
|
20,000
|
|
|
20,000
|
|
Capital
Improvements
|
|
|
5
|
|
|
2,500
|
|
|
-
|
|
Computer
equipment
|
|
|
3
|
|
|
2,657
|
|
|
2,657
|
|
Tooling
|
|
(a)
|
|
|
36,089
|
|
|
29,367
|
|
Capitalized
Lease
|
|
|
5
|
|
|
21,588
|
|
|
-
|
|
Equipment
|
|
|
5
|
|
|
61,470
|
|
|
24,428
|
|
|
|
|
|
|
|
353,304
|
|
|
285,452
|
|
Less:
accumulated depreciation
|
|
|
|
|
|
(30,802
|
)
|
|
(20,780
|
)
|
Net
property and equipment
|
|
|
|
|
$
|
322,502
|
|
$
|
264,672
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Amortized over 20,000 units.
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense was $11,535 and $10,138 for the six months ended June 30, 2008 and the
year ended December 31, 2007, respectively.
Other
assets consist of the following:
|
|
|
|
|
Restated
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Patents
|
|
$
|
5,413
|
|
|
$
|
1,513
|
|
Trademark
|
|
|
250
|
|
|
|
-
|
|
Design
(a)
|
|
|
53,888
|
|
|
|
17,111
|
|
|
|
|
59,551
|
|
|
|
18,624
|
|
Less:
accumulated amoritization
|
|
|
(1,514
|
)
|
|
|
-
|
|
Net
other assets
|
|
$
|
58,036
|
|
|
$
|
18,624
|
|
|
|
|
|
|
|
|
|
|
(a)
Related to the Epic Weapons, Inc., contract with Blizzard
Entertainment®.
|
|
Notes
payable consists of the following:
|
June
30,
|
|
December 31,
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
PhoenixSurf.com,
LLC (Organa Consulting Group, Inc.), Due on Demand principal, 7% interest
per annum, convertible to common stock when the Company's stock is trading
at $0.75 (based upon 1:4 forward stock split) or higher.
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Coastal
Bank (Zowy Media, Incorporated), adjustable rate mortgage at 1% over the
current index. Due September 2010. Current monthly payment of $1,573.39.
Note secured by mortgage and an unconditional and continuing guarantee by
Titus Blair.
|
|
|
153,953
|
|
|
|
154,565
|
|
LHI
Cocoa Corp. (Zowy Media,Incorporated), 9% interest over 20 years. Balloon
payment due August 2007. Company extends on month-by-month
basis.
|
|
|
34,921
|
|
|
|
28,877
|
|
Washington
Mutual (Zowy Media, Incorporated), business line of credit, interest at
11.25%. Company extends on month to month basis
|
|
|
37,929
|
|
|
|
40,706
|
|
Total
debt
|
|
|
376,803
|
|
|
|
374,148
|
|
Less:
Current portion
|
|
|
224,163
|
|
|
|
220,837
|
|
Total
long-term portion of debt
|
|
$
|
152,640
|
|
|
$
|
153,311
|
|
|
|
|
|
|
|
|
|
|
NOTE
5 – COMMITMENTS
The
Company leases a laser engraver from Avante Leasing Corporation, a subsidiary of
AHG (see Note 7 – Related Parties). The terms of the agreement include a 5
year term, 19.4% interest, with a $2,159 purchase price at the end of the term.
The lease expires on July 1, 2012. Monthly lease payments are $565.
OTG and
DCC leases office space in Melbourne, Florida from GAMI, LLC (“GAMI” – See Note
7 – Related Parties). The terms of the agreement are monthly payments of $4,000
and $3,000 respectively, expiring May 31, 2012 and February 28, 2013,
respectively. There are two renewable five year extensions.
Future
minimum obligations for the above leases are as follows:
2008
|
|
$
|
45,390
|
|
2009
|
|
|
90,780
|
|
2010
|
|
|
90,780
|
|
2011
|
|
|
90,780
|
|
2012
|
|
|
59,955
|
|
2013
|
|
|
6,000
|
|
|
|
|
|
|
Total
Lease Obligations
|
|
$
|
383,685
|
|
|
|
|
|
|
Total
rent expense under non-cancelable operating leases was $29,272 and $35,632 for
the six months ended June 30, 2008 and the year ended December 31, 2007,
respectively.
NOTE
6 – BUSINESS SEGMENTS
The
Company operates primarily in four segments: (i) retail sales,
(ii) internet services, (iii)computer hardware and software, and
(iv) corporate.
Information
concerning the revenues and operating income for the six months ended June 30,
2008 and 2007, and the identifiable assets for the four segments in which the
Company operates are shown in the following table:
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
2008
|
|
|
2007
|
|
OPERATING
REVENUE
|
|
|
|
|
|
|
Retail
Sales
|
|
$
|
885,754
|
|
|
$
|
229,523
|
|
Computer
Hardware and Software
|
|
|
107,541
|
|
|
|
107,993
|
|
Internet
Services
|
|
|
257,989
|
|
|
|
178,146
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
1,251,284
|
|
|
$
|
515,662
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
|
|
|
|
|
|
Retail
Sales
|
|
$
|
312,585
|
|
|
$
|
22,160
|
|
Computer
Hardware and Software
|
|
|
5,058
|
|
|
|
17,359
|
|
Internet
Services
|
|
|
(78,431
|
)
|
|
|
22,247
|
|
Corporate
|
|
|
(264,754
|
)
|
|
|
(23,001
|
)
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
(25,542
|
)
|
|
$
|
38,765
|
|
|
|
|
|
|
|
|
|
|
IDENTIFIABLE
ASSETS
|
|
|
|
|
|
|
|
|
Retail
Sales
|
|
$
|
1,070,375
|
|
|
$
|
348,628
|
|
Computer
Hardware and Software
|
|
|
61,557
|
|
|
|
19,355
|
|
Internet
Services
|
|
|
30,444
|
|
|
|
1,015,848
|
|
Corporate
|
|
|
312,638
|
|
|
|
28,520
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
1,475,014
|
|
|
$
|
1,412,351
|
|
|
|
|
|
|
|
|
|
|
DEPRECIATION
AND AMORTIZATION
|
|
|
|
|
|
|
|
|
Retail
Sales
|
|
$
|
11,535
|
|
|
$
|
4,129
|
|
Computer
Hardware and Software
|
|
|
-
|
|
|
|
-
|
|
Internet
Services
|
|
|
-
|
|
|
|
-
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
11,535
|
|
|
$
|
10,138
|
|
|
|
|
|
|
|
|
|
|
NOTE
7 – RELATED PARTIES
OTG and
AHG entered into a Consulting Agreement in October 2006 to provide corporate
guidance, financial and accounting services. As compensation, AHG received
$8,000 per month in 2006. Under this agreement AHG has the unilateral authority
to hire additional personnel required to perform investor relations, financial
administration, and executive oversight and request reimbursement from OTG on a
reimbursable expense basis. The term of this agreement is for three years with
one additional automatic three-year extension. AHG is a company primarily
controlled by Michael W. Hawkins. AHG is a significant shareholder of the
Company.
In the
transaction of OTG acquiring Zowy; 40% was acquired from AHG and 40% from GAMI,
LLC (“GAMI”) with the remaining 20% being held by the former owner of Zowy
Media, Inc. Both AHG and GAMI are related parties, since the majority
shareholder of OTG controls these companies. Prior to the acquisition, AHG had a
Consulting Agreement with Zowy to provide corporate guidance,
financial
and
accounting services. As compensation, AHG received $10,000 per month prior to
the acquisition.
Effective
October 1, 2007, the date of the acquisition of Zowy by OTG, the Zowy Consulting
Agreement was terminated. The OTG Consulting Agreement was modified to increase
the monthly compensation from $8,000 to $10,000, the amount previously paid by
Zowy.
On
October 5, 2005, a Settlement Agreement was made between OTG and AHG regarding
the $812,000 debt owed by OTG to AHG. In the Settlement Agreement, OTG issued
400,000,000 common shares of OTG at the current market value of $.001, or
$40,000, in lieu of the approximately $812,000 in debt. This transaction, even
though not an arms length transaction, was at an exchange rate of $20 to $1,
therefore, it would be considered favorable to the Company.
On June
30, 2006, the Company executed a Note Receivable with AHG for $250,000. The
terms of the note was 7% interest, accrued throughout the term of the note, and
payable on June 30, 2007. On September 30, 2006 the Company entered into a
Revolving Credit Agreement with the AHG for up to $500,000. In
addition, AHG entered into a revolving credit agreement with the Company
for up to $500,000.
On August
1, 2007, Avante Leasing Corporation, a wholly-owned subsidiary of Avante, leased
a laser engraver to Zowy Media, Inc. The terms of the agreement include a five
year term, 19.4% interest, with a 10% purchase price at the end of the period.
This transaction was completed as the acquisition and financing of the laser
engraver required the financial guarantee of Avante and Michael W. Hawkins. As
of June 30, 2008, the balance due to Avante Leasing Corporation under this
Agreement was $19,015.
On June
1, 2007, the Company entered into a triple net lease agreement with GAMI, a
related party previously discussed in Note 5. Monthly rent will be $4,000 which
is at fair market value. GAMI is a company controlled by Michael W. Hawkins, a
majority shareholder of the Company, and his wife.
On March
1, 2008, DCC entered into a triple net lease agreement with GAMI, a related
party previously discussed in Note 5. Monthly rent will be $3,000 which is at
fair market value. DCC relocated to 2910 Bush Drive, Melbourne,
Florida.
An
analysis of the current debt/financing/investing for 2007 and the six months
ended June 30, 2008 are detailed in the following chart. The quarter
end remaining balance, if owed by the Company to AHG is recognized as Financing
Activities, and if the balance is owed from AHG to the Company it is recognized
as Investing Activities.
|
|
Due
From (To) Avante [ DR (CR) ]
|
|
|
|
|
|
Loans
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
|
Payments
|
|
|
Avante
|
|
|
Expenses
|
|
|
Payments
|
|
|
Loans
|
|
|
Services
|
|
|
|
|
|
Interest
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
From
|
|
|
Consulting
|
|
|
Paid
By
|
|
|
to
|
|
|
to
|
|
|
billed
to
|
|
|
Non-Cash
|
|
|
(Expense)
|
|
|
at
End
|
|
Period
|
|
of
Period
|
|
|
Avante
|
|
|
Fees
|
|
|
Avante
|
|
|
Avante
|
|
|
Avante
|
|
|
Avante
|
|
|
Settlement
|
|
|
Income
|
|
|
of
Period
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/1/07
- 12/31/07
|
|
$
|
341,617
|
|
|
|
(137,852
|
)
|
|
|
(125,717
|
)
|
|
|
(151,183
|
)
|
|
|
53,449
|
|
|
|
140,000
|
|
|
|
136,735
|
|
|
|
|
|
|
20,923
|
|
|
$
|
277,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/1/08
- 6/30/08
|
|
$
|
277,972
|
|
|
|
(12,800
|
)
|
|
|
(60,000
|
)
|
|
|
(68,607
|
)
|
|
|
7,501
|
|
|
|
435,922
|
|
|
|
16,466
|
|
|
|
(296,218
|
)
|
|
|
15,747
|
|
|
$
|
315,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
|
Avante
Holding Group, Inc. ("Avante") is a management company that seeks
companies in various industries that are a) just getting started, b) have
been in business and reached a plateau and cannot move to the next level,
or c) are in a distressed mode and
|
|
(a)
|
|
Represents
loans and advances from Avante to the parent company or
subsidiary. Also includes repayments of amounts borrowed by Avante
from the Company.
|
|
(b)
|
|
Under
an Administrative Consulting Agreement with Avante, the Company pays
$10,000 per month for administrative services.
|
|
|
|
|
|
(c)
|
|
From
time to time, Avante will make expenditures on behalf of the Company and
its subsidiaries for expenses, inventory and equipment.
|
|
|
|
|
|
(d)
|
|
Represents
payments made to Avante against amounts owed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e)
|
|
Loans
and advances to Avante.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f)
|
|
Beginning
in fiscal 2006, two of the Company's subsidiaries began providing hardware
and software sales to Avante and server maintenance and
support.
|
|
(g)
|
|
Epic
Weapons, Avante, and Global Trading Agents enter into agreement to
assign liability for payment of swords to Avante, reducing the obligation
of Epic Weapons. The assignment was consider a reduction of amount
owed by Avante to the Company.
|
|
(h)
|
|
Interest
is accrued and paid or assessed at the rate of 7% per the revolving credit
agreements, minus interest accrued against the payables owed to
Avante.
|
|
NOTE
8 – STOCKHOLDERS’ EQUITY
The
following table shows underlying issuances of common in connection
with various debt and equity transactions since the Company’s
inception:
Date
|
Type
of Instrument
|
|
Initial
Underlying Common Shares Issued
|
|
|
Underlying
Common Shares Issued as effected by April 11, 2006 Reverse Split and
November 1, 2007 Forward Split
|
|
|
Aggrgrate
Total of Underlying Common Shares Issued
|
|
Jan
2004
|
Common
|
|
|
60,000,000
|
|
|
|
2,400,000
|
|
|
|
2,400,000
|
|
Jan-Feb
2004
|
Common
|
|
|
11,500,000
|
|
|
|
460,000
|
|
|
|
2,860,000
|
|
April
2004
|
Common
|
|
|
250,000
|
|
|
|
10,000
|
|
|
|
2,870,000
|
|
October
2005
|
Common
|
|
|
400,000,000
|
|
|
|
16,000,000
|
|
|
|
18,870,000
|
|
April
2006
|
Convertible
Debt
|
|
|
50,000
|
|
|
|
200,000
|
|
|
|
19,070,000
|
|
Jul
2006
|
Common
|
|
|
500,000
|
|
|
|
2,000,000
|
|
|
|
21,070,000
|
|
Oct
2006
|
Common
|
|
|
2,000,000
|
|
|
|
8,000,000
|
|
|
|
29,070,000
|
|
Dec
2006
|
Interest
|
|
|
4,401
|
|
|
|
17,604
|
|
|
|
29,087,604
|
|
Dec
2007
|
Series
A Preferred
|
|
|
160,000
|
|
|
|
160,000
|
|
|
|
29,247,604
|
|
Dec
2007
|
Interest
|
|
|
7,875
|
|
|
|
7,875
|
|
|
|
29,255,479
|
|
Feb
2008
|
Series
A Preferred
|
|
|
220,000
|
|
|
|
220,000
|
|
|
|
29,475,479
|
|
Mar
2008
|
Options
|
|
|
3,185,000
|
|
|
|
3,185,000
|
|
|
|
32,660,479
|
|
May
2008
|
Options
|
|
|
(400,000
|
)
|
|
|
(400,000
|
)
|
|
|
32,260,479
|
|
July
2008
|
Options
|
|
|
(250,000
|
)
|
|
|
(250,000
|
)
|
|
|
32,010,479
|
|
Common
Stock
On
January 1, 2004, the Company acquired all of the assets of IMC-FL in exchange
for 60,000,000 shares of its common stock.
In
January and February 2004, the Company completed a private placement of
11,500,000 shares of its common stock under Regulation D, Section
504.
The
Company learned in the Fall of 2006 that in April 2004, 250,000 shares of common
stock were issued in error by the Company’s then Transfer Agent to a shareholder
who had claimed to have lost its stock certificate, but had in fact sold the
shares. After an internal investigation and reconciliation, the Company
identified this error and reconciled the lost shares. The Company’s board of
directors determined that the cost associated with further action against the
shareholder and the transfer agent was greater than adjusting the books and
records to accept the erroneous shares. The Company dismissed its transfer agent
after the improper issuance was discovered.
On
October 5, 2005, the Company amended its Articles of Incorporation to
900,000,000 common shares and 50,000,000 blank check preferred shares
authorized.
On
October 5, 2005, the Company entered into a Settlement Agreement with Avante
whereby all debt owed to Avante, of approximately $812,000, was converted into
400,000,000 common shares of IMC with a market value of $.0001 at the time of
the conversion. The valuation of $40,000 was substantially lower than the
obligation to Avante. This transaction was not an arms length transaction as the
directors of OTG are also officers and minority shareholders of Avante. This
transaction was completed as needed to facilitate the Company’s plans for future
transactions that would increase the Company’s revenue and profits.
On April
11, 2006, the Company’s shareholders authorized an amendment to its Certificate
of Incorporation to effect a 1:100 reverse stock split. All share and per share
amounts have been adjusted for this reverse stock split. An additional 66 shares
were issued as part of the roundup of fractional shares.
On July
1, 2006, the Company acquired Davinci’s Computer Corp. a Florida Corporation for
500,000 shares of the Company’s common stock valued at $.10 per share at the
time of the transaction.
On
October 1, 2006, the Company acquired 80% of Zowy Media, Incorporated, a Florida
Corporation, in exchange for 2,000,000 shares of its common stock. The minority
interest of Zowy is owned by Titus Blair.
On
September 10, 2007, the Company identified that during the conversion from IMC
to OTG, 5,000 shares were erroneously issued and have been subsequently
cancelled.
On
October 15, 2007, the Company filed an amendment to its Articles of
Incorporation to authorize 100,000,000 shares of common stock, $0.0001 par value
per share, 45,000,000 shares of blank check preferred stock, $0.0001 par value,
and 5,000,000 shares of series A preferred stock at $1.00 par value per
share.
On
November 1, 2007, the Company authorized a 1:4 forward split whereby total
issued shares will be 28,870,264.
Each of
the stock issuances described above, with the exception of the 504 offering, was
effected in private transaction exempt from registration under the Securities
Act of 1933, as amended, Section 4(2). No commissions were paid to anyone in
connection with these transactions and no solicitation was made by the Company
in connection therewith. All entities or persons receiving shares were believed
to be “accredited” investors as that term is defined under Regulation D. The
persons receiving the stock under the Rule 504 offering are currently being
investigated by the SEC, NASD, and U.S. Postal Services with four associated
individuals believed to have pled guilty to an illegal “pump and dump” scheme.
Management has cooperated fully with the authorities involved in this ongoing
investigation.
Current
management believes the initial Rule 504 offering was placed through Rim Rock,
LLC and Cold Springs, LLC. The offering is believed to have been made in full
compliance with the Rule.
On March
1, 2008, the Company granted 3,185,000 stock options to eleven employees,
directors and related parties. With the resignation of two individuals who were
issued options, 650,000 options were cancelled during the second
quarter.
Preferred
Stock
On
October 19, 2007, the Company engaged Dinosaur Securities, LLC to act as
Placement Agent to assist it in raising up to $5,000,000 under a Confidential
Private Placement Memorandum (PPM) for Epic. As part of the PPM the Company has
authorized 5,000,000 shares of Series A preferred stock of OTG. Under the PPM
each purchase of one unit at a cost of $10,000 is entitled to receive in
exchange for 10,000 shares of Series A preferred stock and a 0.04% royalty for
each Frostmourne
TM
Sword
sold. The Company sold 32 units at $10,000 to various qualified investors (see
chart below for dates of sale), sold 1 unit at $10 to Dinosaur Securities (which
has the right to purchase up to 3 units under and as a condition to the
investment banking agreement), sold 3 units to the CEO at $10, and 2 units to
the Company’s former CFO at $10 per unit, and has subsequently closed the
private placement. The Company received total cash payment of
$320,060 from the Series A Preferred Shareholders. The Company
allocated a Reduction of Series A Preferred of $59,940 for the six units it
issued at $10 per unit, and an additional $5,200 for the payment to Dinosaur
Securities as a commission in accordance with its Investment Banking
Agreement. The payment to Dinosaur Securities was originally booked
as a reduction to additional paid in capital, but was reclassified as a
reduction to Series A Preferred Equity as the services were directly related to
the raising of capital. The preferred shares may elect to convert to
the Company’s common stock on a one-for-one basis at any time. The Company did
not use any method of determining the fair market value for the conversion of
Series A Preferred to Common. The Company has reserved 380,000 shares
of its common stock in the event the preferred shareholders elect to convert. At
June 30, 2008, 380,000 preferred Series A shares were issued and outstanding and
Dinosaur Securities has been paid $5,200 for its services.
As an
aggregate, the Company will pay 1.6% royalties to the Series A Preferred
Shareholders. The royalty fee is calculated as a sword is
sold. There is no guarantee that one sword will be sold, therefore,
the Company allocates for the royalty fee as revenue is recognized.
|
|
|
|
Balance
at Close of PPM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Issue
Date
|
|
Shares
|
|
|
Price
Per Share
|
|
|
Amount
|
|
|
Discount
on Preferred
|
|
|
Net
Proceeds to Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
12/3/2007
|
|
|
130,000
|
|
|
$
|
1.00
|
|
|
$
|
130,000
|
|
|
$
|
-
|
|
|
$
|
130,000
|
|
|
9
|
|
1/7/2008
|
|
|
90,000
|
|
|
|
1.00
|
|
|
|
90,000
|
|
|
|
-
|
|
|
|
90,000
|
|
|
3
|
|
1/9/2008
|
|
|
30,000
|
|
|
|
1.00
|
|
|
|
30,000
|
|
|
|
-
|
|
|
|
30,000
|
|
|
1
|
|
1/15/2008
|
|
|
10,000
|
|
|
|
1.00
|
|
|
|
10,000
|
|
|
|
(9,990
|
)
|
|
|
10
|
|
|
3
|
|
1/15/2008
|
|
|
30,000
|
|
|
|
1.00
|
|
|
|
30,000
|
|
|
|
(29,970
|
)
|
|
|
30
|
|
|
5
|
|
1/24/2008
|
|
|
50,000
|
|
|
|
1.00
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
2
|
|
2/13/2008
|
|
|
20,000
|
|
|
|
1.00
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
20,000
|
|
|
2
|
|
2/19/2008
|
|
|
20,000
|
|
|
|
1.00
|
|
|
|
20,000
|
|
|
|
(19,980
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
380,000
|
|
|
|
|
|
|
$
|
380,000
|
|
|
$
|
(59,940
|
)
|
|
$
|
320,060
|
|
Convertible
Debt
On April
13, 2006 the Company entered into a Convertible Promissory Note with New
Millenium Entrepreneurs, LLC, a Georgia limited liability
company. Under the terms and conditions of the note, it is
automatically converted into common stock of the Company at $0.75 per share (as
adjusted for stock splits) when the stock trades for $0.75 per
share. The note is governed by Florida law, and as such is considered
“Due on Demand” in accordance with Florida Statute 673.1081
(1)(b). For further information concerning the convertible debt
review Note 10 - Legal Proceedings. The following table shows the projected
conversion as of June 30, 2008:
Date
|
Type
of Instrumnent
|
|
Initial
Underlying Common Shares Issued
|
|
|
Underlying
Common Shares Issued as effected by April 11, 2006 Reverse Split and
November 1, 2007 Forward Split
|
|
|
Aggrgrate
Total of Underlying Common Shares Issued
|
|
April
11, 2006
|
Convertible
Debt
|
|
|
50,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
December
31, 2006
|
Interest
|
|
|
4,401
|
|
|
|
17,606
|
|
|
|
217,606
|
|
December
31, 2007
|
Interest
|
|
|
7,875
|
|
|
|
7,875
|
|
|
|
225,481
|
|
June
30, 2008
|
Interest
|
|
|
3,938
|
|
|
|
3,938
|
|
|
|
229,418
|
|
NOTE
9 – STOCK OPTION PLAN
Stock
Plan
Under its
2007 Stock Option Plan (the “Plan”), the Company has the authority to grant
stock options for a fixed number of shares to employees, directors, and
consultants with an exercise price not lower than the fair market value at the
date of grant. The Company adopted SFAS 123(r),
Share-Based Payments
, in the
first quarter of fiscal 2008. In accordance with the provisions of SFAS 123(r),
the Company will recognize compensation expense related to outstanding options
granted under the 2007 Plan. No options were granted in
2007.
For
purposes of computing pro forma net income, the Company estimates the fair value
of each option grant and employee stock purchase plan on the date of grant using
the Black-Scholes option pricing model. The Black-Scholes option-pricing model
was developed for use in estimating the value of traded options that have no
vesting restrictions and are fully transferable, while the options issued by the
Company are subject to both vesting and restrictions on transfer. In addition,
option pricing models require input of highly subjective assumptions including
expected stock price volatility. The Company uses projected data for expected
volatility and estimates the expected life of its stock options by applying the
simplified method set out in SEC Staff Accounting Bulletin No. 107 (SAB 107).
The simplified method defines the expected term of an option as the average of
the contractual term of the options and the weighted average vesting period for
all option tranches.
The
Company complies with Accounting Principles Board (APB) No. 25 “Accounting for
Stock Issued to Employees” in accounting for stock options issued to employees.
Stock options are granted with an exercise price equal to the fair market value
on the date of grant. Accordingly, no compensation expense will be recognized
for options issued to employees.
For
purposes of computing pro forma net income, the Company estimates the fair value
of each option grant and employee stock purchase plan right on the date of grant
using the Black-Scholes option-pricing model. The Black-Scholes option-pricing
model was developed for use in estimating the value of traded options that have
no vesting restrictions and are fully transferable, while the options issued by
the Company are subject to both vesting and restrictions on transfer. In
addition, option-pricing models require input of highly subjective assumptions
including expected stock price volatility. The Company uses projected data for
expected volatility and estimates the expected life of its stock
options.
There are
4,000,000 unissued options under the 2007 Stock Option Plan at December 31,
2007. Subsequently, 3,185,000 options were granted on March 1, 2008 leaving a
balance of 815,000 options that can be granted under the
plan. 400,000 shares were forfeited on or about May 10, 2008 and an
additional 250,000 shares were forfeited on July 6, 2008.
In
accordance with the provisions of SFAS 123(r), the Company has recognized
compensation expense related to outstanding options granted in fiscal 2008. No
options were granted in fiscal 2007. Prior to fiscal 2007, the Company had
adopted the disclosure-only provision of SFAS 123,
Accounting for Stock-Based
Compensation
, as amended by SFAS 148,
Accounting for Stock-Based
Compensation, Transition and Disclosure
, which permitted the Company to
account for stock option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to
Employees
. Under APB 25, compensation expense is recorded when the
exercise price of the Company’s employee stock option is less than the market
price of the underlying stock at the date of grant. Of the 2,535,000
options granted (and not forfeited – see comments below), 1,225,000 were granted
to employees of the Company and as such no compensation expense was/will be
recorded.
For
purposes of computing pro forma net income for the remaining 1,310,000 options
granted to consultants and directors, the Company estimates the fair value of
each option grant on the date of grant using the Black-Scholes option-pricing
model. The Black-Scholes option-pricing model was developed for use in
estimating the value of traded options that have no vesting restrictions and are
fully transferable, while the options issued by the Company are subject to both
vesting and restrictions on transfer. In addition, option-pricing models require
input of highly subjective assumptions including expected stock price
volatility. The Company uses projected data for expected volatility and
estimates the expected life of its stock options. Based upon the
weighted average assumptions below, the Company will recognize $15,600 in
operating expenses associated with the issuance of options on March 1,
2008. As the options vest over a three-year period, the Company will
recognize $433 per month, effective April 1, 2008, in operating
expenses.
The
weighted average assumptions used to value the option grants:
January 1, 2007 thru December
31, 2007
|
Stock
Option Plans
|
|
Expected
life (years)
|
5
|
|
Risk-free
interest rate
|
7
|
|
Volatility
|
28.0
|
%
|
Dividend
rate
|
0
|
|
Options
granted under the 2007 incentive stock option plan are exercisable at the market
price of grant and, subject to termination of employment, vesting schedules,
expire five years from the date of issuance, are not transferable other than on
death, and vest in various unequal annual installments commencing at various
times from the date of grant. A current summary of the Company’s
stock option plan is presented below:
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
Outstanding
at the beginning of the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Granted
at fair value
|
|
|
3,185,000
|
|
|
$
|
0.0125
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
650,000
|
|
|
$
|
0.0125
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Currently
Outstanding
|
|
|
2,535,000
|
|
|
$
|
0.0125
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at the end of the year
|
|
|
-
|
|
|
|
|
|
The
following table summarizes information for the current stock options
outstanding:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
Range
of
|
|
|
Number
|
|
|
Average
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
Exercise
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Exercisable
|
|
|
Exercise
|
|
Prices
|
|
|
@ 6/30/08
|
|
|
in years
|
|
|
Price
|
|
|
@ 6/30/08
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0125
|
|
|
|
2,785,000
|
|
|
|
3.18
|
|
|
$
|
0.0125
|
|
|
|
0
|
|
|
$
|
0.0125
|
|
NOTE
10 – LEGAL PROCEEDINGS
On July
19, 2006, the Company filed a lawsuit against New Millenium Entrepreneurs. Inc.,
and Phocnixsurf.com, LLC, and various other individuals and parties claiming
libel, slander, and conspiracy to injure business. The claim relates to
consulting services provided by Organa Consulting Group, Inc., a wholly owned
subsidiary of Organa Technologies Group, Inc., to PhocnixSurf.com, a so-called
"websurfing" business which ceased operations in July 2006. The Company also has
asked for injunctive relief, compensatory and punitive damages in excess of
$1,000,000. The lawsuit was filed in the Circuit Court of the Eighteenth
Judicial Circuit In and For Brevard County, Florida. On September 19, 2007, the
Company released the individual defendants quid filed for a default judgment
against New Millenium Entrepreneurs, LLC and Phoenixsurf.com, LLC which was
granted on August 10, 2007. In July 2008 the court issued a Final Ruling as to
Liability against the Defendants, in favor of the Company. The Company is
currently awaiting jury trial for damages to be awarded.
On
October 2, 2006, the Company was named in a lawsuit captioned
New Millennium
Entrepreneurs, LLC
and Phoenixsurf.com,
LLC
v.
Michael W. Hawkins, et.
al.
U.S. District Court, Middle District of Georgia, 3: 06-CV-84
(CDC). The lawsuit alleges violations of the Georgia Securities Act, Georgia
Fair Business Practices Act, Federal Securities laws and certain other
unspecified laws in connection with the investment by Plaintiffs of $150,000 in
Organa Technologies Group and seeks rescission of this investment. In addition,
the lawsuit alleges contractual disputes and misappropriations of funds by
Organa Consulting Group. The Company has responded to the complaint, has entered
into third party claims against the individual owners of New Millenium
Entrepreneurs, LLC and other interested parties. The Company believes it has
meritorious defenses to the claims made and intends to vigorously defend the
lawsuit. On July 24, 2007, the Securities and Exchange Commission filed charges
in the United States District Court for the Central District of California in
Los Angeles, California against New Millenium Entrepreneurs, LLC,
Phoenixsurf.com, LLC, and two of its officers and managing
members. On August 5, 2008 a Protective Order for the sharing of
certain information was executed by the Parties with discovery
scheduled to be completed by February 2009.
NOTE
11 – DISCONTINUED OPERATIONS
On
February 19, 2008 OTG determined that it no longer would operate an instant
messenger service and as such discontinued the operations of the Integrity
Messenger Instant Messenger. The software and computer hardware
associated with the program had been fully depreciation/amortized therefore the
Company did not recognized any discontinued gains/losses. OTG
recognized zero revenue for the instant messenger program in 2007.
The
Company estimates no loss on the disposal of the instant messenger as zero
revenue was generated. Management’s estimated loss on disposal of the instant
messenger service is consistent to the operational results for 2007. The
operating results of the discontinued operations are summarized as follows for
the fiscal years ending December 31, 2007:
STATEMENT
of OPERATIONS for the Period JANUARY 1 - DECEMBER 31,
2007:
|
|
|
|
|
|
Sales
|
|
$
|
-
|
|
Cost
of Sales
|
|
|
-
|
|
Gross
Profit
|
|
|
-
|
|
Operating
Expenses
|
|
|
-
|
|
Loss
from Operations
|
|
|
-
|
|
Loss
Before Taxes
|
|
$
|
-
|
|
As of
February 19, 2008, the Company’s assets and liabilities related to discontinued
operations were as follows:
Current
assets
|
|
$
|
-
|
|
Property,
plant and equipment
|
|
|
-
|
|
Other
Assets
|
|
|
-
|
|
Current
liabilities
|
|
|
-
|
|
Other
long-term liabilities
|
|
|
-
|
|
Long-term
debt
|
|
|
-
|
|
Provisions
for estimated loss on disposal
|
|
|
-
|
|
Net
assets of discontinued operations
|
|
$
|
-
|
|
|
|
|
|
|
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements under federal
securities laws. Forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties. Our actual results
could differ materially from those indicated by forward-looking statements as a
result of various factors, including but not limited to those set forth under
this Item, as well as those discussed in Part II - Item 1A, “Risk Factors,” and
elsewhere in this document and those that may be identified from time to time in
our reports and registration statements filed with the Securities and Exchange
Commission.
This
discussion should be read in conjunction with the Consolidated Financial
Statements and related Notes included in Part I – Item 1 of this Quarterly
Report on Form 10-Q and the Consolidated Financial Statements and related Notes
and the Management’s Discussion and Analysis of Financial Condition and Results
of Operations contained in our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on April 14, 2008.
DESCRIPTION
OF COMPANY:
The
Company is a holding company that currently operates five wholly-owned
subsidiaries; Hurricane Host, Inc., an entity which provides Internet web
hosting and Voice over Internet Protocol (VoIP) services, Davinci’s Computer
Corp., an entity which provides hardware and software computer system solutions
and services, Gateway Internet Services Corporation, an entity which provides
on-line payment processing through ACH and other banking solutions, Game2Gear,
Inc., an entity that provides online product registration of replica weapons,
Epic Weapons, Inc, which manufactures, designs, and sells replica
weapons, and two majority-owned subsidiaries; Zowy Media,
Incorporated, doing business as Swordsonline and WeaponMasters,
which provide Internet purchasing of swords and weapon memorabilia, and
Organa Consulting Group, Inc., an entity which provides web design services,
hardware and software installation and training, and other Internet related
consulting services.
OVERVIEW:
The
Company, through its subsidiaries, provides technology-based solutions and
consulting, computer hardware and software solutions, Internet-based retail
sales, and other ancillary services.
The
Company currently evaluates financial performance in four segments; Retail
Sales, Internet Services, Hardware and Software, and Corporate. The following
table identifies the company’s associated with the respective
segment.
Retail
Sales
|
|
Computer Hardware and
|
|
Internet
Services
|
|
Corporate
|
|
|
Software
|
|
|
|
|
Zowy
Media, Incorporated
|
|
Davinci's
Computer Corp.
|
|
Hurricane
Host, Inc.
|
|
Organa
Technologies Group, Inc.
|
Epic
Weapons, Inc.
|
|
|
|
Organa
Consulting Group, Inc.
|
|
|
Game2Gear,
Inc.
|
|
|
|
Gateway
Internet Services, Inc.
|
|
|
The
following Management Discussion and Analysis should be read in conjunction with
the financial statements and accompanying notes included in this Form
10-Q.
COMPARISON
OF THE THREE MONTHS ENDED JUNE 30, 2008 TO THE THREE MONTHS ENDED JUNE 30,
2007
Overview
Total
revenues increased to $741,783 for the three months ended June 30, 2008 from
$281,044 for the three months ended June 30, 2007. The increase of $460,739 or
163.9% is a direct result by our Retail Sales Division. The Company’s Internet
Services Division and Retail Sales Division increased revenue by $36,762 and
$426,979 respectively, while the Computer Hardware and Software division
decreased revenue by $3,002.
Second
Quarter Ending June 30,
|
|
Internet Services
Division
|
Retail Sales Division
|
|
Hardware and
Software Division
|
Corporate
|
|
Consolidated
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Revenue
|
|
$ 130,822
|
|
$ 94,060
|
|
$ 557,807
|
|
$ 130,828
|
|
$ 53,154
|
|
$ 56,156
|
|
-
|
|
-
|
|
$ 741,783
|
|
$ 281,044
|
Cost
of Sales
|
|
99,671
|
|
47,966
|
|
265,206
|
|
94,199
|
|
16,216
|
|
23,259
|
|
-
|
|
-
|
|
381,094
|
|
165,424
|
Gross
Profit
|
|
31,151
|
|
46,094
|
|
292,601
|
|
36,629
|
|
36,937
|
|
32,897
|
|
-
|
|
-
|
|
360,689
|
|
115,620
|
Operating
Expenses
|
|
73,399
|
|
38,891
|
|
110,141
|
|
20,461
|
|
33,797
|
|
22,366
|
|
131,383
|
|
11,855
|
|
348,721
|
|
93,573
|
Income
(Loss) from Operations
|
|
$ (42,249)
|
|
$ 7,203
|
|
$ 182,460
|
|
$ 16,168
|
|
$ 3,141
|
|
$ 10,531
|
|
$
(131,383)
|
|
$ (11,855)
|
|
$ 11,969
|
|
$ 22,047
|
Total
revenues and as a percent of consolidated revenues for the three months ended
June 30, 2008, were provided as follows: Internet Services Division –
$130,822 (17.6%), Retail Sales Division - $557,807 (75.2%), and Computer
Hardware and Software Division - $53,154 (7.2%).
Cost of
sales was $381,094 and $165,424, for three months ended June 30, 2008 and 2007,
respectively. As a percent of revenue, the cost of sales decreased
from 58.9% to 51.4% for the three months ended June 30, 2007 as compared to the
three months ended June 30, 2008. The Computer Hardware and Software Division
recognized a lower cost of sales percent, 30.5% than the consolidated total of
the Retail Sales division, 47.5% and the consolidated total of the Internet
Services Division, 76.2%. The increase in cost of sales was directly
associated with the increase of revenue in the Retail Sales and Internet
Services Division.
Gross
profit was $360,689 and $165,424, for the three months ended June 30, 2008 and
2007, respectively. As a percent of revenue, gross profit was 48.6% and 41.1%,
for the three months ended June 30, 2008 and 2007, respectively. The increase in
gross profit was directly associated with the increase of revenue in the Retail
Sales and Internet Services Division.
Total
operating expenses increased from $93,573 to $348,721 for the three months ended
June 30, 2007 and 2008, respectively. This increase of $255,148, or 272% was
attributed to the expansion of operations directly associated with the growth of
the business, to include; currency exchange, professional fees, and
marketing.
Operating
expenses as a percent of consolidated operating expenses for each division for
the three months ended June 30, 2008 are as follows: Internet Services Division
– $73,399 (21%), Retail Sales Division - $110,141 (31.6%), Computer Hardware and
Software Division – $33,797 (9.7%), and Corporate $131,383 (37.7%).
Internet
Services Division
Revenue
attributed to the Internet Services Division was $130,822 (17.6% of total
consolidated revenue) in 2008 as compared to $94,060 (33.5% of total
consolidated revenue) in 2007 (39.1% increase in division
revenues).
The
Internet Services Division includes Hurricane Host, Organa Consulting Group, and
Gateway Internet Services. HH accounted for $129,594 (17.5% of the Company’s
overall revenue) for the three months ended June 30, 2008 and $78,919 (28.1% of
the Company’s overall revenue) for the three months ended June 30, 2007. OCG
accounted for less than 5% of the Company’s revenue in 2008. Gateway
Internet Services has recognized no revenue to date.
Cost of
sales and the percent of consolidated cost of sales for the three months ended
June 30, 2008 and 2007, respectively, for HH were $101,318 (26.6%) and $41,939
(25.4%) of the overall cost of sales and 101.7% and 87.4% of the cost of sales
of the Internet Sales Division segment. The cost of sales for the three months
ended June 30, 2008 for OCG was insignificant.
Operating
expenses and the percent of consolidated operating expenses for the three months
ended June 30, 2008 and 2007, respectively, for HH was $20,413 (5.9%) and
$23,423 (9.1%) of the overall operating expenses and 54.4% and 60.2% of the
operating expenses of the Internet Services Division segment. The operating
expenses and the percent of consolidated operating expenses for the three months
ended June 30, 2008 for OCG was insignificant.
Retail
Sales Division
The
Retail Sales Division includes, Zowy Media, Epic Weapons, and Game2Gear. Revenue
increased from $130,828 to $557,807 (increase of $426,979) for the three months
ended June 30, 2007 and 2008, respectively. The increase of 326.4% is related to
the registration fees associated with the launch of Epic Weapons auction website
and sales of the Frostmourne Sword®.
Cost of
sales increased from $94,199 to $265,206 (increase of $171,007) for the three
months ended June 30, 2007 and 2008, respectively. The increase of 181.6% is
related to the Company’s sales associated with the Frostmourne Sword® and the
subsequent growth overall in sales.
Operating
expenses increased from $20,461 to $110,141 (increase of $89,680) for the three
months ended June 30, 2007 and 2008, respectively. The increase of 438.3% is
directly associated with the increase of sales and maintaining the appropriate
staff to meet the requirements associated with the increased
sales. In addition, as the Company imports product, as a condition of
its agreements, it was required to pay $24,231 in currency exchange due to the
weak dollar. In additional the Company expensed $42,000 in marketing
for the promotion of Weaponmasters and Epic Weapons.
Income
from operations increased from $16,168 to $182,460 for the three months ended
June 30, 2007 and 2008, respectively. The $166,292 increase was due primarily to
the increase, as a percentage, of the revenue and cost of sales growth
attributed to Epic Weapons.
Computer
Hardware and Software Division
DCC was
the only revenue generating activity in the Computer Hardware and Software Sales
Division for 2007 and 2008. Revenue decreased from $56,156 to $53,154 (decrease
of $3,002) for the three months ended June 30, 2007 and 2008, respectively. The
decrease of 5.3% is related to the relocation of the business and the downtown
in providing services during the relocation process.
Cost of
sales decreased from $23,259 to $16,216 (decrease of $7,043) for the three
months ended June 30, 2007 and 2008, respectively. The decrease of 30.3% is
related to the relative decrease of hardware sales and the increase in service
related revenue, which has a higher profit margin.
Operating
expenses increased from $22,366 to $33,797 (increase of $11,431) for the three
months ended June 30, 2007 and 2008, respectively. The increase of 51.1% is
associated with the increase in payroll, rent, and marketing
services.
Income
from operations decreased from $10,531 to $3,141 for the three months ended June
30, 2007and 2008, respectively. The 70.2% decrease was due primarily to
marketing services, payroll, rent, and relocation costs.
Corporate
The
operating expenses and the percent of consolidated operating expenses for the
three months ended June 30, 2007 and 2008, respectively, for corporate
headquarters was $11,855 (17.9%) and $131,383 (37.7%) of the overall operating
expenses. The increase in operating expenses is primarily due to the increase of
staff to support operations, legal fees, and marketing services.
COMPARISON
OF THE SIX MONTHS ENDED JUNE 30, 2008 TO THE SIX MONTHS ENDED JUNE 30,
2007
Overview
Total
revenues increased to $1,251,283 for the six months ended June 30, 2008 from
$515,662 for the six months ended June 30, 2007. The increase of $735,621 or
58.8% is a direct result of the increase in revenue by our Retail Sales
Division. The Company’s Internet Services Division and Retail Sales Division
increased revenue by $79,843 and $656,231, respectively, while the Computer
Hardware and Software Division decreased revenue by $452.
Six
Month Ended June 30,
|
|
Internet Services Division
|
|
|
Retail Sales Division
|
|
|
Hardware and
Software Division
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenue
|
|
$
|
130,822
|
|
|
$
|
94,060
|
|
|
$
|
557,807
|
|
|
$
|
130,828
|
|
|
$
|
53,154
|
|
|
$
|
56,156
|
|
|
-
|
|
|
-
|
|
|
$
|
741,783
|
|
|
$
|
281,044
|
|
Cost
of Sales
|
|
|
99,671
|
|
|
|
47,966
|
|
|
|
265,206
|
|
|
|
94,199
|
|
|
|
16,216
|
|
|
|
23,259
|
|
|
-
|
|
|
-
|
|
|
|
381,094
|
|
|
|
165,424
|
|
Gross
Profit
|
|
|
31,151
|
|
|
|
46,094
|
|
|
|
292,601
|
|
|
|
36,629
|
|
|
|
36,937
|
|
|
|
32,897
|
|
|
|
-
|
|
|
|
-
|
|
|
|
360,689
|
|
|
|
115,620
|
|
Operating
Expenses
|
|
|
73,399
|
|
|
|
38,891
|
|
|
|
110,141
|
|
|
|
20,461
|
|
|
|
33,797
|
|
|
|
22,366
|
|
|
|
131,383
|
|
|
|
11,855
|
|
|
|
348,721
|
|
|
|
93,573
|
|
Income
(Loss) from Operations
|
|
$
|
(42,249
|
)
|
|
$
|
7,203
|
|
|
$
|
182,460
|
|
|
$
|
16,168
|
|
|
$
|
3,141
|
|
|
$
|
10,531
|
|
|
$
|
(131,383
|
)
|
|
$
|
(11,855
|
)
|
|
$
|
11,969
|
|
|
$
|
22,047
|
|
Revenues
and the percent of consolidated revenue for the three months ended June 30,
2008, by segment, are as follows: Internet Services Division, $257,989 (21.0%),
Retail Sales Division $885,754 (71.0%), and Computer Hardware and Software
Division $107,54(8.4%).
Overall
cost of sales was $636,694 and $289,722 for the six months ended June 30, 2008
and 2007, respectively. As a percent of revenue, the cost of sales decreased
from 56.2.0% to 50.9%, for the six months ended June 30, 2007 as compared to the
six months ended June 30, 2008. This is primarily due to overall increase
in cost of sales by our Retail Sales Division directly relating to the
Frostmourne® Sword and the increased internet traffic generated by the auction
and interest in the launch of the sword.
The cost
of sales and the percent of consolidated cost of sales for the six months ended
June 30, 2008, by segment, are as follows: Internet Services Division, $180,359
(28.3%), Retail Sales Division $413,410 (64.9%), and Computer Hardware and
Software Division $42,924 (6.7%).
Gross
profit was $614,590 and $225,940 for the six months ended June 30, 2008 and
2007, respectively. As a percent of revenue, gross profit was 49.1% and 43.8%
for the six months ended June 30, 2008 and 2007, respectively.
Total
operating expenses increased to $594,929 for the six months ended June 30, 2008
from $187,175 for the six months ended June 30, 2007. This $407,754 or 168.5%
increase was primarily attributable to operating expenses associated with the
Retail Sales Division ($49,465) with increasing corporate operating expenses
associated with the Company’s projected growth offset by a decrease in the
Internet Sales Division.
The
operating expenses and the percent of consolidated operating expenses for the
six months ended June 30, 2008, were contributed as follows: Internet Services
Division, $110,858 (18.6%), Retail Sales Division, $159,759 (26.9%), Computer
Hardware and Software Division, $58,558 (9.8%), and Corporate, $264,754
(44.5%).
Internet
Services Division
Revenue
attributed to the Internet Services Division was $257,989 (21.0% of total
consolidated revenue) in 2008 as compared to $178,146 (34.5% of total
consolidated revenue) in 2007 (24.3% increase in division
revenues).
The
Internet Services Division includes Hurricane Host, Organa Consulting Group, and
Gateway Internet Services. HH accounted for $250,162 (20.0% of the Company’s
overall revenue) and $153,146 (29.7% of the Company’s overall revenue) in
revenue for 2008 and 2007, respectively. OCG accounted for less than 5% of the
Company’s revenue in both 2008 and 2007.
Cost of
sales and the percent of consolidated cost of sales for the six months ended
June 30, 2008 and 2007, respectively, for HH was $177,900 (27.9%) and $65,924
(22.8%) of the overall cost of sales and 98.6% and 87.1% of the cost of sales of
the Internet Sales Division segment. The cost of sales for the six months ended
June 30, 2008 for OCG was insignificant.
Operating
expenses and the percent of consolidated operating expenses for the six months
ended June 30, 2008 and 2007, respectively, for HH was $46,430 (7.8%) and
$17,101 (9.1%) of the overall operating expenses and 41.9% and 21.3% of the
operating expenses of the Internet Services Division segment. The operating
expenses and the percent of consolidated operating expenses for the six months
ended June 30, 2008 for OCG was insignificant.
Retail
Sales Division
The
Retail Sales Division includes, Zowy Media, Epic Weapons, and Game2Gear. Revenue
increased from $229,523 to $885,754 (increase of $656,231) for the six months
ended June 30, 2007 and 2008, respectively. The increase of 285.9% is related to
the sales (registration fees) associated with the Frostmourne® Sword in
2008.
Cost of
sales increased from $168,213 to $413,410 (increase of $245,197) for the six
months ended June 30, 2007 and 2008, respectively. The increase of 145.8% is
related to the Company’s sales associated with the Frostmourne® Sword in
2008.
Operating
expenses increased from $39,150 to $159,759 (increase of $120,609) for the six
months ended June 30, 2007 and 2008, respectively. The increase of 308.1% is
related to the Company only having Weaponmasters active in 2007 compared to the
activity associated with Epic launching the sales of the Frostmourne® Sword in
2008.
Income
from operations increased from $22,160 to $312,585 for the six months ended June
30, 2007 and 2008, respectively. The increase was due primarily to the increase,
as a percentage, of the cost of sales and the cost attributed to Epic. While
revenues increased 285.9%, cost of sales increased 145.8%. The actual percentage
of cost of sales as compared to revenue decreased from 73.30% to 46.7% for the
six months ended June 30, 2007 and 2008, respectively. The Company expensed
$47,991 in work associated with the development of the Frostmourne® Sword in
2007.
Computer
Hardware and Software Division
DCC was
the only revenue generating activity in the Computer Hardware and Software Sales
Division for 2007 and 2008. Revenue decreased from $107,993 to $107,541
(decrease of $452) for the six months ended June 30, 2007 and 2008,
respectively. The decrease of 0.4% is related to the relocation of the corporate
office and business to a more central location.
Cost of
sales decreased from $45,812 to $42,294 (decrease of $3,518) for the six months
ended June 30, 2007 and 2008, respectively. The decrease of 7.7% is related to
increased hardware sales.
Operating
expenses increased from $44,822 to $58,558 (increase of $13,736) for the six
months ended June 30, 2007 and 2008, respectively. The increase of 30.6% is
related to management salaries and marketing services.
Income
from operations decreased from $17,359 to $5,058 for the six months ended June
30, 2007and 2008, respectively. The decrease was due primarily to marketing
services, additional overheads related to the expansion of .services and
relocation costs.
Corporate
The
operating expenses and the percent of consolidated operating expenses for the
six months ended June 30, 2007 and 2008, respectively, for corporate
headquarters was $11,146 (11.9%) and $133,371 (56.0%) of the overall operating
expenses. The increase in operating expenses is primarily due to the increase of
staff to support overall operations, and the research and development of
additional products and services.
Liquidity
and Capital Resources
As of
June 30, 2008, the Company had a working capital surplus of $98,223. Net income
was $32,851 for the six months ended June 30, 2008. The Company generated a
positive cash flow from operations of $33,147 for the six months ended June 30,
2008. The positive cash flow from operating activities for the period is
primarily attributable to the Company's net income, decrease in accounts
receivables, $35, increase in inventory, $212,573, prepaid expenses and other
assets, $341,652, deferred revenue, $536,734, commissions paid on sale of
preferred stock, and accounts payable and accrued expenses,
$29,612.
Cash
flows used in investing activities for the six months ended June 30, 2008
consisted of the acquisition of $65,365 of equipment and increase of $32,294 in
receivable from related party.
Cash
flows provided by financing activities for the six months ended June 30, 2008
was $225,232 primarily due to the issuance of preferred stock, $184,860 and an
increase in payable due to related party, $44,894.
The
Company had a net increase in cash of $156,721 for the six months ended June 30,
2008 compared to an increase of $6,132 for six months ended June 30,
2007.
Management
believes it has sufficient capital resources to meet projected cash flow needs
through the next twelve months. However, if thereafter, the pricing of the
products or services the Company sells increase dramatically, sales grow
rapidly, and we are not successful in generating sufficient liquidity from
operations or in raising sufficient capital resources, on terms acceptable to
us, this could have a material adverse effect on our business, results of
operations, liquidity and financial condition.
The
effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are located primarily in the southeast and
central United States and there are no seasonal aspects that would have a
material effect on the Company's financial condition or results of operations.
The Company does purchase inventory from international sources, which caused by
the decreasing value of the US Dollar, caused the Company to experience an
increase in its operational costs associated with currency
conversion.
Contractual
Obligations
The
Company has contractual obligations as outlined below. The payments
associated with these obligations reflect total payments required, inclusive of
interest and principal.
Contractual
obligations
|
|
Payments
due by period
|
|
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than 5 years
|
|
Long-Term
Debt Obligations
|
|
$
|
270,052
|
|
|
$
|
241,731
|
|
|
$
|
23,601
|
|
|
$
|
4,720
|
|
|
|
-
|
|
Capital
Lease Obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating
Lease Obligations
|
|
|
411,075
|
|
|
|
118,170
|
|
|
|
250,905
|
|
|
|
42,000
|
|
|
|
-
|
|
Purchase
Obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
Long-Term Liabilities Reflected on the Registrant's Balance Sheet under
GAAP
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
681,127
|
|
|
$
|
359,901
|
|
|
$
|
274,506
|
|
|
$
|
46,720
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not
applicable
The
Company’s management, under the supervision and with the participation of the
Company’s Chief Executive Officer (the “CEO”) and Interim Chief Financial
Officer (the “CFO”), performed an evaluation of the effectiveness of the design,
maintenance and operation of the Company’s disclosure controls and procedures of
June 30, 2008. Based on that evaluation, the CEO and CFO concluded that the
Company’s disclosure controls and procedures were effective. There have been no
changes in the Company’s internal controls that have or is reasonably likely to
materially affect, the Company’s internal control over financial reporting for
the quarter ended March 31, 2008.
On
July 19, 2006, the Company filed a lawsuit against New Millenium Entrepreneurs.
Inc., and Phocnixsurf.com, LLC, and various other individuals and parties
claiming libel, slander, and conspiracy to injure business. The claim relates to
consulting services provided by Organa Consulting Group, Inc., a wholly owned
subsidiary of Organa Technologies Group, Inc., to PhocnixSurf.com, a so-called
"websurfing" business which ceased operations in July 2006. The Company also has
asked for injunctive relief, compensatory and punitive damages in excess of
$1,000,000. The lawsuit was filed in the Circuit Court of the Eighteenth
Judicial Circuit In and For Brevard County, Florida. On September 19, 2007, the
Company released the individual defendants quid filed for a default judgment
against New Millenium Entrepreneurs, LLC and Phoenixsurf.com, LLC which was
granted on August 10, 2007. In July 2008 the court issued a Final Ruling as to
Liability against the Defendants, in favor of the Company. The Company is
currently awaiting jury trial for damages to be awarded.
On
October 2, 2006, the Company was named in a lawsuit captioned
New
Millennium Entrepreneurs, LLC
and
Phoenixsurf.com, LLC
v.
Michael
W. Hawkins, et. al.
U.S. District Court, Middle District of Georgia,
3: 06-CV-84 (CDC). The lawsuit alleges violations of the Georgia Securities Act,
Georgia Fair Business Practices Act, Federal Securities laws and certain other
unspecified laws in connection with the investment by Plaintiffs of $150,000 in
Organa Technologies Group and seeks rescission of this investment. In addition,
the lawsuit alleges contractual disputes and misappropriations of funds by
Organa Consulting Group. The Company has responded to the complaint, has entered
into third party claims against the individual owners of New Millenium
Entrepreneurs, LLC and other interested parties. The Company believes it has
meritorious defenses to the claims made and intends to vigorously defend the
lawsuit. On July 24, 2007, the Securities and Exchange Commission filed charges
in the United States District Court for the Central District of California in
Los Angeles, California against New Millenium Entrepreneurs, LLC,
Phoenixsurf.com, LLC, and two of its officers and managing
members. On August 5, 2008 a Protective Order for the sharing of
certain information was executed by the Parties with discovery
scheduled to be completed by February 2009.
You
should carefully consider the following discussion of various risks and
uncertainties. We believe these risk factors are the most relevant to our
business and could cause our results to differ materially from the
forward-looking statements made by us. The following risk factors are not the
only risk factors facing our Company. Additional risks that we do not consider
material, or of which we are not currently aware, may also have an adverse
impact on us. Our business, financial condition, and result of operations could
be seriously harmed if any of these risks or uncertainties actually occurs or
materializes. In that event, the market price for our common stock could
decline, and you may lose all of part of your investment.
We
have a limited relevant operating history and we may not be able to maintain
profitability in the near term, which may result in raising additional capital
and diluting our shareholders.
Our
company and management team is newly formed and has limited experience working
together in this area. Such limits could adversely effect our near term
performance in the management of our assets. Our company has had a cumulative
net loss from inception of approximately $2,078,141 with only the year ended
December 31, 2006 being profitable. Our needs for continued expenditures for
product research and development and marketing, among other things, will make it
difficult for us to reduce our operating expenses in order to deal with lack of
sales growth or unanticipated reductions in existing sales. Our failure to
balance expenditures in any period with sales will create losses for the company
that would require additional financing to meet cash flow requirements. The
possibility of our future success must be considered relative to the problems,
challenges, complications and delays frequently encountered in connection with
the development and operation of a rapid growth business. The Company's
prospects must be evaluated with a view to the risks encountered by a company in
an early stage of development. 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 services and products. 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 stockholders.
Achieving
our business objectives will depend on our ability to acquire suitable business
and to monitor and administer those businesses, which will depend, in turn, on
the abilities of our Administrative Consultant.
Achieving
this result on a cost-effective basis will be largely a function of the
Administrative Consultant’s structuring of the business process and its ability
to provide competent, attentive and efficient services to us. Our executive
officers and the business professionals of the Administrative Consultant will
have substantial responsibilities in connection with their respective roles as
the Administrative Consultant and with the other business vehicles advised by
the Administrative Consultant, as well as responsibilities to us under the
Consultant Services Agreement. They may also be called upon to provide
managerial assistance to our portfolio companies on our behalf. These demands on
their time, which will increase as the number of business or other clients
increase, may distract them or slow the rate of growth. In order to grow, the
Administrative Consultant will need to hire, train, supervise and manage new
employees. However, we cannot assure you that any such employees will contribute
to the work of the Administrative Consultant on our behalf. Any failure to
manage our future growth effectively could have a material adverse effect on our
business, financial condition and results of operations.
The
Administrative Consultant currently manages and may in the future manage
business vehicles with a business focus that partially overlaps with our focus,
which could result in increased competition for access to business
opportunities.
The
Administrative Consultant currently manages other companies with a business
focus that may partially overlap with our focus, and may in the future sponsor
or manage additional business opportunities or other clients with businesses
overlapping ours, which, in each case, could result in us competing for access
to business opportunities. The Company does not believe a current conflict
exists.
There
may be conflicts of interest in our relationship with the Administrative
Consultant, which could result in decisions that are not in the best interests
of our stockholders.
The
Company and its Administrative Consultant may determine that a business is
appropriate both for us and for one or more other business vehicles or clients.
In such event, depending on the availability of such business and other
appropriate factors, the Administrative Consultant may determine which business
vehicle makes the business or, in certain limited circumstances, whether we
would invest concurrently with one or more other business vehicles. We may make
all such businesses subject to compliance with applicable regulations and
interpretations, and the Administrative Consultant’s allocation
protocol.
Our
Administrative Consultant has not assumed any responsibility to us other than to
render the services described in the Consultant Services Agreement. The
Consultant Services Agreement provides that, absent willful misfeasance, bad
faith or gross negligence in the performance of the Administrative Consultant’s
duties or by reason of the reckless disregard of the Administrative Consultant’s
duties and obligations, the Administrative Consultant (and its officers,
managers, partners, agents, employees, controlling persons, members and any
other person or entity affiliated with the Administrative Consultant, including,
without limitation, its general partner and the Consultant), are entitled to
indemnification from the Company for any damages, loss, liabilities, costs and
expenses (including, without limitation, judgments, fines, reasonable attorneys’
fees and expenses, and amounts reasonably paid or to be paid in settlement)
incurred by such persons in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding (including, without limitation,
an action or suit by or in the right of the Company or its security holders)
arising out of or otherwise based upon the performance of any of the
Administrative Consultant’s duties or obligations under the Consultant Services
Agreement or otherwise as an Administrative Consultant of the Company. These
protections may lead our Administrative Consultant to act in a riskier manner
when acting on our behalf than it would when acting for its own
account.
We
may experience fluctuations in our periodic results therefore results of
operations may not provide a clear picture in which investors could make a
determination of participation favorable to the Company.
We could
experience fluctuations in our operating results due to a number of factors,
including variations in and timing of recognition of realized and unrealized
capital gains or losses, the degree to which we encounter competition in our
markets, and general economic conditions. Specifically, the Company expects to
see rapid growth spurts in Epic due to the sale of the Frostmourne™ Sword. In
addition, Weaponmasters traditionally experiences increased sales during the
holiday season between October and December each year. As a result of these
factors, results for any period should not be relied upon as being indicative of
performance in future periods.
Our
ability to achieve our business objectives will depend on our ability to acquire
suitable businesses and to monitor and administer those businesses, which will
depend, in turn, on our Administrative Consultant’s ability to identify, invest
in and monitor companies that meet our business criteria.
Accomplishing
this result on a cost-effective basis will be largely a function of our
Administrative Consultant’s structuring of the business process and its ability
to provide competent, attentive and efficient services to us. Our executive
officers and certain of the officers of our Administrative Consultant will have
substantial responsibilities in connection with their roles at the Company, as
well as responsibilities under the Business Management Agreement. They may also
be called upon to provide managerial assistance to our portfolio companies on
our behalf. These demands on their time, which will increase as the number of
business grow, may distract them or slow the rate of business. In order to grow,
we and our Administrative Consultant will need to hire, train, supervise and
manage new employees. However, we cannot assure you that any such employees will
contribute to the work of the Administrative Consultant. Any failure to manage
our future growth effectively could have a material adverse effect on our
business, financial condition and results of operations.
We
may change our business strategy and asset allocation without stockholder
consent, which may result in our engaging in riskier businesses.
We may
change our business strategy or asset allocation at any time without the consent
of our stockholders. Any such change in our business strategy or asset
allocation could result in our engaging in businesses that are different from,
and possibly riskier than, the business described in this annual report. A
change in our business strategy may increase our exposure to interest rate
market fluctuations.
Two
of our current stockholders currently have, and may continue to have, a
significant influence over our management and affairs and control over most
votes requiring stockholder approval.
The
majority of common stock is currently held by only two stockholders, Avante
(69.27%) and GAMI (13.85%), both of which are managed by one individual, Michael
W. Hawkins. As long as these two stockholders continue to hold a significant
percentage of our common stock following an offering, they will be able to exert
influence over our management and policies and control most votes requiring
stockholder approval. This concentration of ownership may also have the effect
of delaying, preventing or deterring a change of control of the Company, could
deprive our stockholders of an opportunity to receive a premium for their common
stock as part of a sale of the Company and might ultimately affect the market
price of our common stock. The Administrative Consultant has the authority to
vote securities held by our two controlling stockholders, including on matters
that may present a conflict of interest between the Administrative Consultant
and other stockholders.
Upon
effectiveness of this Registration Statement, we will be subject to certain
provisions of the Sarbanes-Oxley Act of 2002, and the related rules and
regulations promulgated by the SEC. Under current SEC rules, beginning with our
fiscal year ending December 31, 2008, our management will be required to
report on our internal controls over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002 and rules and regulations of
the SEC thereunder. We will be required to review on an annual basis our
internal controls over financial reporting, and on a quarterly and annual basis
to evaluate and disclose changes in our internal controls over financial
reporting. As a result, we expect to incur significant additional expenses in
the near term, which may negatively impact our financial performance and our
ability to make distributions. This process also will result in a diversion of
management’s time and attention. We cannot be certain as to the timing of
completion of our evaluation, testing and remediation actions or the impact of
the same on our operations and may not be able to ensure that the process is
effective or that the internal controls are or will be effective in a timely
manner. There can be no assurance that we will successfully identify and resolve
all issues required to be disclosed prior to becoming a public company or that
our quarterly reviews will not identify additional material weaknesses. In the
event that we are unable to maintain or achieve compliance with the
Sarbanes-Oxley Act and related rules, we may be adversely affected.
With
a limited public market of our securities, and no current market makers, the
Company may witness volatility and huge fluctuations in our stock price and the
price may not be indicative of the Company’s performance and have a negative
effect on the Company’s ability to raise capital or make
acquisitions.
The
Company’s common stock is quoted and traded on the Markets under the ticker
symbol OGNT.PK and is thinly traded. Until such time that the Company receives
approval from the Financial Industry Regulatory Authority ( FINRA ) to trade its
shares on another platform, the stock may be sold or bought at varying prices
that would make it difficult for potential investors and acquisition candidates
to make a fair assessment of the Company’s valuation. As such, the Company may
not be able to fairly negotiate acquisition transactions that are fair and
equitable.
The
Company sold 27 units of Series A Preferred under its Private Placement
Memorandum. Each unit consists of 10,000 shares of Series A Preferred Stock that
converts to common stock on a 1-for-1 basis.
None.
None.
None
Exhibits
No.
|
|
Description
|
10.1
|
|
Assignment
between GTA/ AHG/ OTG
|
31.1
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, there unto duly
authorized.
Organa
Technologies Group, Inc.
|
|
Date:
August 19, 2008
|
By:
|
/s/
Gina L. Bennett
|
|
Chief
Executive Officer
|
(Principal
Executive Officer)
|
|
Date:
August 19, 2008
|
By:
|
/s/
Steves Rodriguez
|
|
Interim
Chief Financial Officer (Principal
|
Accounting
and Financial Officer)
|
Organa Technologies (CE) (USOTC:OGNT)
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