Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
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[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to __________
Commission File Number: 000-33251
NEWPORT DIGITAL TECHNOLOGIES, INC.
(Formerly: International Food Products Group, Inc.)
(Exact name of small business issuer as specified in its charter)
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Nevada | 33-0903004 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
620 Newport Center Drive, Suite 570 Newport Beach, California 92660
(Address of principal executive offices)
(949) 219-0530
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
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]
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 2, 2011, the issuer had 1,786,755,341 shares of its common stock issued and outstanding and 16,000,000 shares of its preferred stock issued and outstanding.
NEWPORT DIGITAL TECHNOLOGIES, INC.
(a Development Stage Company)
FORM 10-Q
For the Quarterly Period Ended September 30, 2011
INDEX
PART I | Financial Information | 3 |
Item 1. | Financial Statements | 3 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 14 |
Item 4. | Controls and Procedures | 14 |
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PART II | Other Information | 16 |
Item 1. | Legal Proceedings | 16 |
Item 1A. | Risk Factors | 18 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
Item 3. | Defaults Upon Senior Securities | 18 |
Item 4. | Submission of Matters to a Vote of Security Holders | 18 |
Item 5. | Other Information | 18 |
Item 6. | Exhibits | 18 |
Signatures | 19 | |
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
NEWPORT DIGITAL TECHNOLOGIES, INC.
(a Development Stage Company)
Balance Sheets
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| September 30, 2011 |
| June 30, 2011 | |||
Current Assets |
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Cash |
| $ | 556 |
| $ | 10,030 | |
Inventory |
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| 22,800 |
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| 22,800 | |
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Total Current Assets |
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| 23,356 |
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| 32,830 | |
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Total assets |
| $ | 23,356 |
| $ | 32,830 | |
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Liabilities and Shareholders’ Equity (Deficit) | |||||||
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Current Liabilities |
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Trade accounts payable |
| $ | 80,531 |
| $ | 106,662 | |
Other accrued expenses |
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| 584,446 |
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| 539,446 | |
Notes payable – related parties |
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| 966,153 |
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| 966,153 | |
Note payable – third party |
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| 316,045 |
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| 316,045 | |
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Total current liabilities |
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| 1,947,175 |
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| 1,928,306 | |
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Shareholders’ Equity (Deficit): |
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Preferred Stock $.001 par value, 16,000,000 authorized and issued |
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| 16,000 |
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| 16,000 | |
Common stock: $.001 par value; 1,800,000,000 shares authorized; |
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1,786,755,341 and 1,770,755,341, issued and outstanding, respectively |
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| 1,786,757 |
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| 1,770,757 | |
Common stock subscribed |
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| 169,746 |
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| 179,746 | |
Additional paid-in capital |
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| 19,769,703 |
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| 19,738,703 | |
Deficit accumulated during development stage |
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| (12,180,614) |
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| (12,115,271) | |
Accumulated deficit |
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| (11,485,411) |
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| (11,485,411) | |
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Total shareholders’ equity (deficit) |
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| (1,923,819) |
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| (1,895,476) | |
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Total liabilities and shareholders’ equity (deficit) |
| $ | 23,356 | $ | 32,830 | ||
The accompanying notes are an integral part of the financial statements.
3
NEWPORT DIGITAL TECHNOLOGIES, INC.
(a Development Stage Company)
Statements of Operations
(Unaudited)
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For the three months ended September 30, |
July 1, 2008 (Inception of development stage) through September 30, 2011 |
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2011 |
2010 |
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Gross sales |
$ |
- |
$ |
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$ |
14,116 |
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Less: returns, discounts and allowances |
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- |
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4,716 |
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Net sales |
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- |
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9,400 |
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Cost of goods sold |
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- |
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7,855 |
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Gross profit |
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- |
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1,545 |
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Research and development |
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- |
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1,322,599 |
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Inventory impairment |
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204,434 |
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General and administrative expenses |
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83,913 |
787,835 |
10,873,112 |
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Total operating expenses |
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83,913 |
787,835 |
12,400,145 |
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Loss from operations |
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(83,913) |
(787,835) |
(12,398,600) |
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Other income (expense) |
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Interest expense |
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- |
(14,907) |
(59,332) |
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Debt forgiveness |
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18,570 |
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277,318 |
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Total other income (expense) |
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18,570 |
(14,907) |
217,986 |
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Net loss |
$ |
(65,343) |
$ |
(802,742) |
$ |
(12,180,614) |
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Net loss per share, basic and diluted: |
$ |
(0.00) |
$ |
(0.00) |
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Shares used in per-share calculation, basic and diluted |
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1,783,929,254 |
1,448,140,018 |
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Supplemental Schedule of Non-cash investing and financing Activities |
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Issuance of common shares for prepaid services |
$ |
- |
$ |
161,681 |
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$ |
3,757,179 |
The accompanying notes are an integral part of the financial statements.
4
NEWPORT DIGITAL TECHNOLOGIES, INC.
(a Development Stage Company)
Statement of Shareholders’ Equity (Deficit)
(Unaudited)
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| Deficit |
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| Accumulated |
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| Preferred Stock | Common Stock | Common Stock | Additional Paid-in | Accumulated | During Development |
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| Shares | Amount | Shares | Amount | Subscribed | Capital | Deficit | Stage | Total | |
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Balance, June 30, 2007 | -- | $ -- | 414,363,501 | $ 414,364 | $ -- | $ 9,966,550 | $ (10,156,074) | $ -- | $ 224,840 | |
Shares issued for cash | -- | -- | 8,405,000 | 8,405 | -- | 55,595 | -- | -- | 64,000 | |
Shares issued for cash | -- | -- | 59,200,000 | 59,200 | -- | 406,400 | -- | -- | 465,600 | |
Preferred stock issued | 16,000,000 | 16,000 | -- | -- | -- | 64,000 | -- |
| 80,000 | |
Net loss for the year | -- | -- | -- | -- | -- | -- | (1,329,337) | -- | (1,329,337) | |
Balance, June 30, 2008 | 16,000,000 | 16,000 | 481,968,501 | 481,969 | -- | 10,492,545 | (11,485,411) | -- | (494,897) | |
Shares issued for cash | -- | -- | 29,000,000 | 29,000 | -- | 502,172 | -- | -- | 531,172 | |
Shares issued for services | -- | -- | 43,750,000 | 43,750 | -- | 1,273,500 | -- | -- | 1,317,250 | |
Cash received for stock subscription | -- | -- | -- | -- | 2,957,500 | -- | -- | -- | 2,957,500 | |
Net loss for the year | -- | -- | -- | -- | -- | -- | -- | (3,775,709) | (3,775,709) | |
Balance, June 30, 2009 | 16,000,000 | 16,000 | 554,718,501 | 554,719 | 2,957,500 | 12,268,217 | (11,485,411) | (3,775,709) | 535,317 | |
Shares issued for services | -- | -- | 325,782,000 | 325,782 |
| 2,887,466 | -- | -- | 3,213,248 | |
Cash received for stock subscription | -- | -- | -- | -- | 1,322,274 | -- | -- | -- | 1,322,274 | |
Shares issued for subscriptions received | -- | -- | 509,801,500 | 509,802 | (3,024,500) | 2,514,698 | -- | -- | -- | |
Net loss for the year ended June 30, 2010 | -- | -- | -- | -- | -- | -- | -- | (6,593,233) | (6,593,233) | |
Balance, June 30, 2010 | 16,000,000 | 16,000 | 1,390,302,001 | 1,390,303 | 1,255,274 | 17,670,381 | (11,485,411) | (10,368,942) | (1,522,395) | |
Stock issued for services | -- | -- | 87,124,437 | 87,125 | -- | 335,151 | -- | -- | 422,276 | |
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Stock issued to satisfy subscriptions received | -- | -- | 293,328,903 | 293,329 | (2,026,500) | 1,733,171 | -- | -- | -- | |
Common stock subscriptions received | -- | -- | -- | -- | 950,972 | -- | -- | -- | 950,972 | |
Net loss for the year ended June 30, 2011 | -- | -- | -- | -- | -- | -- | -- | (1,746,329) | (1,746,329) | |
Balance, June 30, 2011 | 16,000,000 | 16,000 | 1,770,755,341 | 1,770,757 | 179,746 | 19,738,703 | (11,485,411) | (12,115,271) | (1,895,476) | |
Stock issued for services (unaudited) | -- | -- | 10,000,000 | 10,000 | -- | 7,000 | -- | -- | 17,000 | |
Cash received for stock subscription (unaudited) | -- | -- | -- | -- | 20,000 | -- | -- | -- | 20,000 | |
Stock issued to satisfy subscriptions received (unaudited) | -- | -- | 6,000,000 | 6,000 | (30,000) | 24,000 | -- | -- | - | |
Net loss for the period ended September 30, 2011 (unaudited) | -- | -- | -- | -- | -- | -- | -- | (65,343) | (65,343) | |
Balance, September 30, 2011 (unaudited) | 16,000,000 | $ 16,000 | 1,786,755,341 | $1,786,757 | $ 169,746 | $19,769,703 | $(11,485,411) | $(12,180,614) | $(1,923,819) | |
The accompanying notes are an integral part of the financial statements
6
NEWPORT DIGITAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
As of September 30, 2011
NOTE 1 - Summary of Significant Accounting Policies
Company Overview
On March 30, 2009 a Special Meeting of the Company’s shareholders was held and a majority vote of shareholders approved a name change of the Company to Newport Digital Technologies, Inc. In addition, the number of authorized shares of the Company’s $.001 par value common stock was increased from 600,000,000 shares to 1,800,000,000 shares.
The Company, during the past two years has continued to broaden its scope of business, leaving the food processing business behind, and devoting all of its resources and attention to developing a technology marketing and distribution business. As a result, it should be considered a development stage company, and has yet to realize significant revenues in its redirected business.
The Company has underway, the development, positioning and initial marketing of several different innovative wireless technology solutions which it hopes to sell to Fortune 500 companies and their clients. The Company has developed through strategic alliances with other companies, a portfolio of competencies in the following wireless technologies: (1) RFID (radio frequency identification); (2) WiMax; (3) Digital Signage/LED lighting; and (4) Security & Surveillance solutions.
The Company is in the development stage as defined under Statement on Financial Accounting Standards Accounting Standards Codification FASB ASC 915-205 "Development-Stage Entities.”
Revenue Recognition
The Company recognizes revenue in accordance with Revenue Recognition ASC 605-15-25 which requires that four basic criteria must be met before revenue can be recognized. (1) persuasive evidence of an arrangement exists; (2) title has transferred; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related revenues are recorded.
Cash
For purposes of reporting cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents as of September 30, 2011 or June 30, 2011.
The Company has no requirement for compensating balances.
Trade Accounts Receivable
The Company intends and has the ability to hold trade accounts receivable until they are paid. Trade accounts receivable are reported at their outstanding principal amount less any charge offs and an allowance for doubtful accounts. When a trade account receivable is deemed uncollectible, the balance is charged off against the allowance for doubtful accounts. An allowance for doubtful accounts is based on the Company's historical loss experience. Recoveries of trade accounts receivable that have been previously charged off are recorded when received as a reduction in bad debt expense in the year of collection. The Company determines trade accounts receivable delinquency based on contractual terms of the specific trade account receivable. The Company's policy for determining past due is 60 days past agreed upon payment terms. As of September 30, 2011 and June 30, 2011, the Company had accounts receivable of $0 and $0, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Market is defined as sales price less cost to dispose and a normal profit margin. Inventory consists of finished products.
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Research and Development
Research and development expenses for new products are expensed as they are incurred.
Income Taxes
Deferred income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities. Deferred income tax expense (benefit) represents the change during the reporting period in the deferred tax assets and deferred tax liabilities. Deferred tax assets and/or liabilities are classified as current and noncurrent based on the classification of the related asset or liability for financial reporting purposes, or based on the expected reversal date for deferred taxes that are not related to an asset or liability. Deferred tax assets include tax loss and credit carry forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company currently has net operating loss ("NOL") carry forwards that can be utilized to offset future income for federal and state tax purposes. The NOL's generate a significant deferred tax asset. However, the Company has recorded a valuation allowance against this deferred tax asset as it has been determined that it is more likely than not that the Company will not generate future income that the NOL's could offset.
Stock Based Compensation
We account for stock-based compensation in accordance with FASB ASC 718, Compensation – Stock Compensation which requires that companies account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations. Under FASB ASC 718 we are required to measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest.
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 718, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services. If the fair value of goods or services received in a share-based payment transaction with nonemployees is more reliably measurable than the fair value of the equity instruments issued, the fair value of the goods or services received shall be used to measure the transaction. In contrast, if the fair value of the equity instruments issued in a share-based payment transaction with nonemployees is more reliably measurable than the fair value of the consideration received, the transaction shall be measured based on the fair value of the equity instruments issued.
Loss per Share
Basic and diluted loss per common share has been computed by dividing the loss available to common shareholders by the weighted-average number of common shares outstanding.
The effect of any potentially dilutive securities was not included in the computation of diluted loss per share, because to do so would have been anti dilutive for the two periods presented.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. The most significant assumption that has been made by management with regards to the preparation of their financial statements is the valuation allowance that has been established for the deferred income tax asset and the valuation of share-based compensation. Changes in this and other estimates as well as the assumptions involved in the preparation of the financial statements are considered reasonably possible and may have a material impact on the financial statement
New Accounting Pronouncements
In October 2011 the Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for impairment. This ASU's objective is to simplify the process of performing impairment testing for Goodwill. With this update a company is allowed to asses qualitative factors, first, to determine if it is more likely than not (greater than 50%) that the FV is less than the carrying amount. This would be done, prior to performing the two-step goodwill impairment testing, as prescribed by Topic 350. Prior to this ASU, all entities were required to test, annually, their good will for impairment by Step 1 - comparing the FV to the carrying amount, and if impaired, then step 2 - calculate and recognize the impairment. Therefore, are gained by not requiring fair value measurement, until the "more likely than not" reasonableness test is concluded. Effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption did not have an impact on the Company’s financial position and results of operations.
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In May 2011 the Accounting Standards Update (Update) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU clarifies the board's intent of current guidance, modifies and changes certain guidance and principles, and adds additional disclosure requirements concerning the 3 levels of fair value measurements. Specific amendments are applied to FASB ASC 820-10-35, Subsequent Measurement and FASB ASC 820-10-50, Disclosures. Effective dates are for interim and annual periods beginning after December 15, 2011. The adoption did not have an impact on the Company’s financial position and results of operations.
In December 2010, the FASB Accounting Standards Update 2010-29 Business Combinations Topic 805, which requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. Effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption did not have an impact on the Company’s financial position and results of operations.
Fair Value of Financial Instruments
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
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| · | Level 1. Observable inputs such as quoted prices in active markets; |
| · | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| · | Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The following presents the gross value of assets and liabilities that were measured and recognized at fair value.
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| · | Level 1: none |
| · | Level 2: none |
| · | Level 3: none |
At September 30, 2011 and June 30, 2011, the Company’s financial instruments are cash, accounts payable-trade, accrued liabilities and notes payable. The recorded values of cash and accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The recorded value of the notes payable approximates the fair value, as interest approximates market rates.
NOTE 2 – Inventory
In accordance with ASC 330-10-35, “Adjustment to Lower of Cost or Market” the Company determined that the value of its inventory had fallen below the cost at which it was recorded. As such the Company has written its entire inventory down to cost and has recorded a loss on impairment of $204,434 as of June 30, 2011.
NOTE 3 - Other Accrued Expenses
Included in Other Accrued Expenses is a payable to a vendor of the Company who supplied packaging for the Company's products during the period from fiscal year 2000 through fiscal year 2002 and obtained a judgment in the California Superior Court against the Company for the amounts due for the products that were provided and court-awarded attorney’s fees. This judgment awarded by the court to the vendor has been recorded, and a lien has been filed in the approximate amount of $130,000.
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NOTE 4 - Notes Payable
Notes payable for the periods ended are as follows:
September 30, 2011 | June 30, 2011 | ||||
Note payable to a third party, uncollateralized with interest @10% due on demand, including interest | $ | 50,000 |
| $ | 50,000 |
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Note payable to an individual dated November 1, 2009, uncollateralized with interest due at 5% per month with a maturity date of October 31, 2011. The note may be converted to common stock at a later date agreeable to by both borrower and lender. |
| 25,000 |
| 25,000 | |
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Note payable to an individual dated November 1, 2009, uncollateralized with interest due at 5% per month with a maturity date of October 31, 2012. The note may be converted to common stock at a later date agreeable to by both borrower and lender. |
| 2,295 |
| 2,295 | |
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Note payable to an individual dated November 10, 2009, uncollateralized with interest due at 5% per month with a maturity date of November 11, 2011. The note may be converted to common stock at a later date agreeable to by both borrower and lender. |
| 113,750 |
| 113,750 | |
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Note payable to an individual dated December 24, 2009, uncollateralized with interest due at 5% per month with a maturity date of December 23, 2011. The note may be converted to common stock at a later date agreeable to by both borrower and lender. |
| 125,000 |
| 125,000 | |
| $ | 316,045 |
| $ | 316,045 |
Note payable to related party who is an officer, director and major shareholder; the note is uncollateralized with interest. @ 10% due on demand, including interest | $ | 961,951 | $ | 961,951 | |
Note payable to a related party; the note is uncollateralized with interest @ 10% due on demand, including interest | 4,202 | 4,202 | |||
| $ | 966,153 | $ | 966,153 |
In the second quarter of Fiscal year 2011 all of the note holders agreed to allow the company to cease accruing interest on their loans for an unspecified length of time, while the company redirected its focus and plan of operation.
NOTE 5 - Deferred Income Taxes
Significant components of the Company's deferred income tax assets and liabilities are as follows:
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| September 30, 2011 |
| June 30, 2011 | ||
Deferred income tax assets: |
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Net operating loss carry forward |
| $ | 6,735,188 |
| $ | 6,712,971 |
Allowance and reserves |
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| -- |
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| - |
Other |
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| -- |
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| - |
Total deferred income tax asset |
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| 6,735,188 |
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| 6,712,971 |
Valuation allowance |
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| (6,735,188) |
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| (6,712,971) |
Net deferred income tax asset |
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- |
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- |
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The Company, based upon its history of losses and management's assessment of when operations are anticipated to generate taxable income, has concluded that it is more likely than not that none of the net deferred income tax assets will be realized through future taxable earnings and has established a valuation allowance for them.
Reconciliation of the effective tax rate to the U.S. statutory rate is as follows:
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| September 30, 2011 |
| June 30, 2011 |
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Tax benefit at U.S. statutory rate |
| (34.0) | % |
| (34.0.) | % |
State tax provision |
| - |
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| - |
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Other |
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| - |
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Stock-based compensation |
| 16.6 |
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| 16.6 |
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Change in valuation allowance |
| 17.4 |
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| 17.4 |
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Effective income tax rate |
| 0.0 | % |
| 0.0 | % |
The Company also has federal and state net operating loss carry forwards of approximately $22,400,000. The federal net operating loss carry forwards will begin to expire in the years 2027.
NOTE 6 - Going Concern
The Company has incurred net losses for the three months ended September 30, 2011 of $65,343, and has a retained deficit of $23,666,025, is in the development stage, and has minimal revenues. Our business plan calls for development, marketing and sale of cutting edge technology based products and services, developed based on the technology of our strategic partners. If we are unable negotiate favorable contracts for such technology with our partners, or if the products and services we choose to develop and market are not favorably received in the market place and do not generate significant sales and revenues at reasonable profit margins to us, we will not be able to generate enough revenue to achieve and maintain profitability or to continue our operations. No assurances can be given that the Company will be able to raise the capital required to implement its business plan.. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern.
NOTE 7 - Share-Based Compensation
In prior years, the Company granted options to its officers and certain consultants. No options were granted during the three months ended September 30, 2011 or the year ended June 30, 2011. The Company does not have a formal plan for granting options. All options granted were fully vested at June 30, 2011 and are exercisable, upon proper notice, in whole or in part at any time. The options granted have contractual lives ranging from ten to sixteen years.
Summary information about the Company's options outstanding all of which were exercisable at September 30, 2011:
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Exercisable at September 30, 2011 |
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Summary information about the Company's options outstanding all of which are exercisable at September 30, 2011: | |||||||||||||
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11
The Company issues shares of its common stock to non-employees in payment for services provided, and issued shares to employees in satisfaction of accrued compensation. If the fair value of goods or services received in a share-based payment transaction with nonemployees is more reliably measurable than the fair value of the equity instruments issued, the fair value of the goods or services received shall be used to measure the transaction. In contrast, if the fair value of the equity instruments issued in a share-based payment transaction with nonemployees is more reliably measurable than the fair value of the consideration received, the transaction shall be measured based on the fair value of the equity instruments issued.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur in accordance with guidance of section 505-50-30 of the FASB Accounting Standards Codification.
NOTE 8 – Common Stock Transactions
During the year ended June 30, 2008 the Company issued 67,605,000 shares of its common stock, 59,200,000 to consultants for services, and 8,405,000 for cash of $64,000. The shares were valued at their closing price on the date of issuance. The Company also issued 16,000,000 preferred shares to its President, a related party for accrued salary of $80,000.
During the year ended June 30, 2009 the Company issued 565,782,000 shares of its common stock to consultants for services valued at $1,317,250 and 29,000,000 shares for cash proceeds of $531,172. In addition during the year ended June 30, 2009, the Company received cash proceeds totaling $2,957,500 for common stock subscriptions.
During the year ended June 30, 2010 the Company issued 565,782,000 shares of its common stock to consultants for services valued at $3,213,248. In addition during the year ended June 30, 2009, the Company received cash proceeds totaling $1,322,274 for common stock subscriptions.
During the year ended June 30, 2011 the company issued 3,739,768 shares of its common stock for legal services valued at $25,681, 83,384,669 shares of its common stock for consulting and other services valued at $396,595. The shares were valued at their closing price on the date of issuance. The Company issued 293,328,903 shares of its common stock for common stock subscriptions received. The Company received $955,972 in stock subscriptions.
During the three months ended September 30, 2011 the Company issued 10,000,000 shares of common stock for services valued at $17,000 based on the closing price of $0.0017 on the date of issuance. The Company also issued 6,000,000 shares for common stock subscriptions received and received $20,000 in new stock subscriptions.
NOTE 9 - Related Party Transactions
There is a note payable to a related party who is an officer, director and major shareholder; the note is uncollateralized and due on demand. The note holder has agreed to change the terms of the note to 0% interest. The note payable balance was $961,450 at September 30, 2011 and June 30, 2011.
During the year ended June 30, 2011 a related party advanced $4,202 to pay for certain company expenses.
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NOTE 10 - Subsequent Events
In accordance with Accounting Standards Codification Topic No. 855 “Subsequent Events” (ASC 855), the Company has evaluated subsequent events and has found none to report.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
THE FOLLOWING PRESENTATION OF OUR MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS REPORT.
The Company is a development stage company, and has yet to realize revenues in its business, which is that of developing, marketing and selling cutting edge technology products and services.
From 2009 through late 2010, The Company had underway the development, positioning and initial marketing of several different innovative wireless technology solutions which it hopes to sell to Fortune 500 companies and their clients. The Company had during that time developed through strategic alliances with other companies, a portfolio of competencies in the following wireless technologies: (1) RFID (radio frequency identification); (2) WiMax; (3) Digital Signage/LED lighting; and (4) Security & Surveillance solutions. In July, 2010, the Company has elected to narrow its initial focus on marketing and distributing only RFID and Digital Signage/LED lighting solutions and to hold off on initiating sales and marketing efforts on its WiMax and Security & Surveillance solutions. In early 2011, the Company abandoned its focus on the RFID market, finding that it did not have the capital or human resources to effectively compete in that market against other better financed, established companies, and decided to further reduce its focus on the Digital Signage Market. Specifically, the Company is working to sell a network of digital signage kiosks and screens into retail stores that would enable manufacturers of consumer goods to advertize, market and promote their product in-store via interactive, digital signage solutions. By June of 2011, the Company was engaged with national retail sales, marketing and merchandising company and had begun market research and business development in this area of business. The Company is also engaged with a Major League Baseball Team, the San Diego Padres, to develop and deploy certain digital signage solutions with the Padres’ Petco Park baseball stadium. The Company has entered into a strategic joint venture agreement with Convergent Holdings, as described in this report, in order to design, instill and operated digital signage networks into retail stores.
Results of Operations for the three month period ended September 30, 2011 and 2010
General and Administrative expenses: General and Administrative expenses for the three month period ended September 30, 2011, were $83,913 compared to $787,835 in the same period in 2010. The decrease in expense is a direct result of the Company’s significant restructuring of its business, to now focus on the marketing and distribution of technology products and solutions.
Liquidity and Capital Resources: We have experienced net losses of $65,343 and $802,742 for the three months ended September 30, 2011 and 2010, respectively. At September 30, 2011, we had $556 in cash. As a development stage company in our new field of endeavor, we currently do not have significant revenue producing operations, and we must sustain operations through equity and debt financing.
Since our adoption of our new business plan in July of 2008, we have financed cash flow requirements through the issuance of common stock for cash and services and through loans. As we expand our operational activities, we will continue to experience net negative cash flows until we establish revenue producing operations with sufficient depth to offset our expenses. We hope to be able to obtain additional financing to fund operations through equity offerings and borrowings to the extent necessary to provide the necessary working capital to implement our business plan and achieve positive cash flow. Financing may not be available, and, if available, it may not be available on acceptable terms. Such financing it will likely have a negative impact on our financial condition and our shareholders. The sale of debt would, among other things, adversely impact our balance sheet, increase our expenses and increase our cash flow requirements. The sale of equity could, depending on the terms of its placement, among other things result in dilution to our shareholders. If we are unable to access sufficient funds when needed, obtain additional external funding or generate sufficient revenue from the sale of our products and services, we could be forced to curtail or possibly cease operations.
Plan of Operations
In early 2011, the Company abandoned its focus on the RFID market, finding that it did not have the capital or human resources to effectively compete in that market against other better financed, established companies, and decided to further reduce its focus on the Digital Signage Market. Specifically, the Company is working to sell a network of digital signage kiosks and screens into retail stores that would enable manufacturers of consumer goods to advertize, market and promote their product in-store via interactive, digital signage solutions. By June of 2011, the Company was engaged with national retail sales, marketing and merchandising company and had begun market research and business development in this area of business. The Company is also engaged with a Major League Baseball Team, the San Diego Padres, to develop and deploy certain digital signage solutions with the Padres’ Petco Park baseball stadium. The Company has entered into a strategic joint venture agreement with Convergent Holdings, as described below, in order to design, instill and operated digital signage networks into retail stores.
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This development led the Company to establish a joint venture with TechVentures Capital Investment Corp and at the same time became an authorized LG Electronics commercial display reseller in an effort to overcome pricing issues, to offer branded digital signage solutions in an attempt to compete in the digital signage market.
From June 2011 until today, the Company has been attempting to leverage its status as an authorized LGE reseller in order to sell digital signage into the hospitality, health care, and sports and entertainment markets. Thus far, the Company has determined that digital signage, branded or otherwise, has fast become a commodity product with tremendous competition and very little gross profit margins. Management does not believe it can compete effectively by selling digital signage hardware and has begun, in September 2011, to focus its efforts on selling digital signage network solutions into targeted retail stores.
In September, 2011, the Company announced that we have entered into a strategic business agreement with Convergent Holdings, Inc., a technology driven company with expertise in wireless, interactive digital signage solutions, in order to advance our digital signage projects with the San Diego Padres PetCo Park as well as the deployment of retail in-store digital signage networks currently under development.
The Company has developed a joint venture with Convergent and Convergents’ Founder and CEO, Brooks Pickering. He has agreed to join the Company as a strategic advisor to provide end-to-end interactive digital signage solutions design and deployment experience and expertise to the Company’s clients. Mr. Pickering was recently the advisor to Deutsche Bank in designing and deploying all guest experience technologies at the recently opened $3 billion Cosmopolitan of Las Vegas, a project that included: first-of-its-kind interactive room control, specialized projection systems, and the largest high-definition LCD video installation in the world. The Company believes that is now has a resource partner to develop and deploy unique, integrated interactive digital signage solutions to it customers. We believe that because of some of Convergents’ unique, proprietary technology, that we will be able to offer unique solutions at competitive prices to our prospective clients
As the Company has changed its business focus, the Company’s marketing efforts are focus entirely on selling business-to-business interactive digital signage solutions to select clients. We are now engaged in broad based marketing efforts; though we do attend strategic industry trade shows. The Company develops its client base primarily through face-to-face business development meetings. We are focused on key companies who have strong presence in large retail food, drug and general merchandise chains in order to sell in-store, interactive digital signage solutions.
Critical Accounting Policies
The preparation of financial statements and related disclosure in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the financial statements and accompanying notes. Results of operations could be impacted significantly by judgments, assumptions, and estimates used in the preparation of the financial statements and actual results could differ materially from the amounts reported based on these policies.
Material events and uncertainties: We anticipate that we will begin to be profitable in the fourth quarter of fiscal year 2012, but there is no assurance that this will occur.. For this to happen, we must gain financing and deliver a very successful product.
While we believe that these statements are accurate, our business is dependent upon general economic conditions and various conditions specific to the technological industry. Accordingly, future trends and results cannot be predicted with certainty.
Under current operating conditions, management believes that our sources of cash are insufficient to last through the next year. For NDT continue to operate and to grow its sales it will need to raise additional capital and have profitable revenue.
Certain Trends and Uncertainties:
NDT has in the past and may in the future make forward-looking statements. Certain of the statements contained in this document involve risks and uncertainties. The future results of NDT could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed in this document. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those predicted. Such risks and uncertainties include, but are not limited to the following:
NDT relies heavily on the technology expertise of outside consultants, advisors, and partners. Without these relationships, the Company would most likely not be able to become competitor in digital signage technologies.
In general the technology software and high technology industries are very competitive and new and improved methodologies and technologies always pose a threat to existing operations. At anytime those standards utilized by NDT could become obsolete.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-Q report contains certain forward-looking statements with respect to NDT and its business. Statements that are not historical facts are identified as “forward-looking statements”. The words “estimate,” “project,” “intend,” “expect,” “believe,” “plan,” “may”, and similar expressions, particularly when used in the “future tense”, are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. These forward-looking statements are necessarily estimates, reflecting the best judgment of senior management that rely on a number of assumptions concerning future events, many of which are outside of NDT’s control, and involve a number of risks and uncertainties that could cause actual results to differ in a negative manner, and materially so, from those suggested by the forward-looking statements. These uncertainties, among others, include the ability of NDT to obtain sufficient equity and/or debt capital on commercially reasonable terms to carry out its business plan, whether advantageous contracts can be negotiated on specific products with NDT’s strategic partners, whether new products will find acceptance in the market place and generate significant sales and profits, the status of US and World economies, and various other factors and risks. Further information on potential risk factors that could affect the Company's business plans and financial results can be found in the Company's reports filed with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation as of the end of the period covered by this report was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Disclosure controls and procedures are defined as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the United States Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer's management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that those disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission's rules and forms.
Evaluation of and Report on Internal Control over Financial Reporting
The Management of Newport Digital Technologies, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| - | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
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| - | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
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| - | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
Based on its assessment, management concluded that, as of September 30, 2011, the Company’s internal control over financial reporting is effective based on those criteria.
Changes in Internal Control over Financial Reporting
There was no change in our internal controls over financial reporting during our fiscal quarter ended September 30, 2011, that materially affected or is reasonably likely to materially affect, our internal controls over financial reporting, as defined in Rules 13a-15 and 15d-15 under the Exchange Act.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has stipulated to a judgment against the Company in favor of Flair Packaging in the amount of $130,000. The Company and Flair Packaging have not reached a satisfactory agreement on the payment terms.
Item 1. A. Risk Factors
Risks Related to Our Business
We are the subject of a going concern opinion by our independent auditors who have raised substantial doubt as to our ability to continue as a going concern
Our financial statements have been prepared assuming we will continue as a going concern. We have experienced recurring net losses from operations, which losses have caused an accumulated deficit of approximately $23,666,025 at September 30, 2011. In addition, we had a working capital deficit as of September 30, 2011 of $1,923,819. We had net losses of $65,343 for the period ended September 30, 2011 and $1,746,329 for the year ended June 30, 2011. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty. Assurances cannot be given that adequate financing can be obtained to meet our capital needs. If we are unable to generate profits and are unable to continue to obtain financing to meet our working capital requirements, we may have to curtail our business sharply or cease operations altogether. Our continuation as a going concern is dependent upon our ability to generate additional debt or equity financing, and thereafter establish sufficient cash flow to meet our obligations on a timely basis to retain such financing, to obtain additional financing, and, ultimately, to attain profitability. Should any of these events not occur, we will be adversely affected and we may have to cease operations.
We May Not Be Able to Generate Sales Or Otherwise Successfully Implement Our Business Plan, Which Could Have a Significant Negative Impact on Our Financial Condition.
Our business plan calls for development, marketing and sale of cutting edge technology based products and services, developed based on the technology of our strategic partners. If we are unable negotiate favorable contracts for such technology with our partners, or if the products and services we choose to develop and market are not favorably received in the market place and do not generate significant sales and revenues at reasonable profit margins to us, we will not be able to generate enough revenue to achieve and maintain profitability or to continue our operations.
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We are currently dependent on External Financing
Currently, we are dependent upon external financing to fund our operations. It is imperative that we receive this external financing to implement our business plan and to finance ongoing operations. New capital may not be available and adequate funds may not be sufficient for our operations, and may not be available when needed or on terms acceptable to our management. Our failure to obtain adequate additional financing would require us to delay, curtail or scale back some or all of our operations and would hinder our ability to implement our business plan or continue our business.
We Do Not Own or Operate a R&D (RESEARCH and DEVELOPMENT) Engineering Team to Develop New Technology or Products
We do not own or operate a research facility or R&D team, nor do we develop new technology or products. We must rely on the research and development activities or our strategic partners. If our agreements without Strategic partners were to terminate for any reason, we would likely find it difficult to find comparable services and relationships with new strategic partners on comparable terms. This would have an adverse effect on our financial condition and results of operations, and our efforts to implement our business plan.
We Expect Our Targeted Markets to Become Increasingly Competitive and, in the Event We are Unable to Compete against Larger Competitors, Our Business Could Be Adversely Affected
We expect our business to faces competition from other companies developing products and services competitive with our targeted products and services. Competitors with greater access to financial resources may enter our markets and compete with us. We expect that many of our competitors will have longer operating histories, larger customer bases, longer relationships with customers, and significantly greater financial, technical, marketing, and public relations resources than we do. Established companies with competing products or services who have substantially greater financial resources and longer operating histories than us could have a significant adverse impact on our ability to implement our business plan and generate revenues, cash flows and ultimately profitability for our Company.
We Could Fail to Attract or Retain Key Personnel, Which Could Be Detrimental to Our Operations
Our success largely depends on the efforts and abilities of our key executive officers. The loss of the services of any of them could materially harm our business because of the cost and time necessary to find a successor. Such a loss would also divert management’s attention away from operational issues. We do not presently maintain key-man life insurance policies on our key executive officers. We also have other key employees who manage our operations and if we were to lose their services, senior management would be required to expend time and energy to find and train their replacements. To the extent that we are smaller than our competitors and have fewer resources, we may not be able to attract sufficient number and quality of staff.
Trading of our stock may be restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our stock
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2011 the company received cash proceeds of $20,000 for stock to be issued at a later date. The capital was used entirely for working capital.
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits
31.1 | Certification of CEO pursuant to Securities Exchange Act rules 13a-15 and 15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of 2002. |
31.2 | Certification of CFO pursuant to Securities Exchange Act rules 13a-15 and 15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of 2002. |
32.1 | Certification of CEO pursuant to 18 U.S.C. section1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002. |
32.1 | Certification of CFO pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002. |
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Newport Digital Technologies, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Newport Digital Technologies, Inc. (Registrant) | ||
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November 11, 2011 |
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| By |
| /s/ Donald Danks |
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| Donald Danks Chief Executive officer Principal Executive Officer |
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