|• 10-Q • EX-31.1 • EX-32.1 • EX-101.INS • EX-101.SCH • EX-101.CAL • EX-101.DEF • EX-101.LAB • EX-101.PRE|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the quarterly period ended March 31, 2012
For the transition period from ________ to __________
Commission File Number: 333-165972
INTERNET MEDIA SERVICES, INC.
(Exact name of registrant specified in charter)
1434 6th STREET,
SANTA MONICA, CALIFORNIA 90401
(Address of principal executive offices)
(Issuer's telephone number)
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of the registrant’s Common Stock, $0.001 par value per share, was 24,309,983 as of May 8, 2012.
INTERNET MEDIA SERVICES, INC.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNET MEDIA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND MANAGEMENT'S PLANS
Nature of Business - Internet Media Services, Inc. (the Company) is a digital media company created to develop, own and operate a portfolio of integrated “internet properties”, offering complementary business models and components. The Company is primarily focused on creating, acquiring and partnering with companies with customer acquisition- customer relationship management solutions. The Company is also interested in information technology / content acquisition opportunities whether the content is informational, educational, or entertainment. On October 8, 2009, the Company completed its first acquisition in the legal vertical market through the purchase of the assets and assumption of certain liabilities of LegalStore.com. LegalStore.com is an internet based company that primarily sells legal supplies and legal forms.
In 2011, the Company developed a new service offering named SimplyProspects.com, an auction-based Internet application that provides a marketplace for businesses seeking to find new clients. SimplyProspects.com was released in July 2011 as part of a six-month beta program. In December 2011, at the end of this six-month period, the Company, based on the feedback obtained during the beta program, decided to further develop the service prior to a general release of the service. The Company anticipates having SimplyProspects.com released into the legal channel during the second half of 2012. In addition, the success of SimplyProspects.com service is contingent on the Company raising sufficient investment capital to support the national release and operational needs of the service. During the three months ended March 31, 2012, SimplyProspects.com had no revenue and incurred approximately $23,000 of start-up costs.
The accompanying consolidated financial statements have been prepared on a going concern basis. As shown in the accompanying consolidated financial statements, the Company has incurred accumulated losses totaling $1,029,524, has a stockholders’ deficiency of $291,488 and has a working capital deficit of $481,210 at March 31, 2012. These factors, among others, indicate that the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management recognizes that the Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis. The Company believes that it will be able to complete the necessary steps in order to meet its cash requirements throughout the next 12 months and continue its business development efforts. Management's plans in this regard include, but are not limited to, current discussions and negotiations with a number of additional financing alternatives, one or more of which it believes will be able to successfully close to provide the necessary working capital. There is no assurance the Company will be successful in completing the financing. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
To fund the Company’s operations for the next 12 months, the Company needs to raise additional financing and generate cash flows from its operations. Should additional cash flows not be available, the Company believes that it will have the ability to restructure its operations, and if necessary, initiate significant expense reductions. In addition, the Company will need to negotiate with its lenders to extend the repayment dates of its indebtedness. There can be no assurance that the Company will be able to successfully restructure its operations or debt obligations in the event it fails to obtain additional financing.
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying balance sheets and related interim statements of operations and cash flows include all adjustments, consisting only of normal recurring items necessary for their fair presentation in accordance with U.S. generally accepted accounting principles. All significant intercompany transactions have been eliminated.
Interim results are not necessarily indicative of results expected for a full year. For further information regarding the Company’s accounting policies, please refer to the audited consolidated financial statements and footnotes thereto for the fiscal year ended December 31, 2011 included in the Company’s 10-K annual report filed with the SEC on March 30, 2012.
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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions.
Fair Value of Financial Instruments - Financial instruments include cash, accounts receivable, accounts payable, accrued expenses, revolving note from related party and notes payable. Fair values were assumed to approximate carrying values for these financial instruments, except for notes payable, since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the revolving note from related party approximates the carrying value of the obligations based on these instruments bearing interest at variable rates consistent with the current rates available to the Company. Notes payable to third parties are measured at their fair value at each reporting period (see Note 3).
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the FASB Accounting Standards Coded (“ASC") 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
Earnings Per Common Share - The Company presents basic and diluted earnings per share. Basic earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed including the number of additional shares that would have been outstanding if dilutive potential shares had been issued. In a loss period, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.
As of March 31, 2012, there were 10,443,894 shares potentially issuable under convertible debt agreements, options, and warrants that could dilute basic earnings per share in the future that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses during the year. There were 2,500,000 shares of potentially dilutive instruments outstanding as of March 31, 2011.
Recent Accounting Pronouncements - In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS. ASU 2011-04 is required to be applied prospectively in interim and annual periods beginning after December 15, 2011. Early application was not permitted. The adoption of ASU 2011 did not have a material impact on the consolidated financial statements.
NOTE 3. NOTES PAYABLE
During 2011, the Company entered into a subscription agreement with two accredited investors under the Company’s current Private Placement offering. Under this subscription agreement, each of the investors received a 12% convertible promissory note with warrants for aggregate consideration of $25,000 in cash. The notes are secured by a lien on all assets of the Company. The principal amount of the notes plus accrued interest automatically convert into common stock on the maturity date of August 31, 2012. The conversion price is determined based on a twenty percent discount of the fair market value of the average closing transaction price of the Company’s common stock for the ten days of trading prior to conversion, but such conversion price shall not be less than $0.10 per share. Upon the termination of the Private Placement offering, the investor will receive a two year warrant to purchase shares of the Company’s common stock at $0.30 per share. The warrant shall be exercisable for such number of common shares equal to twenty percent of the funds invested (20% warrant coverage) amounting to 16,667 shares as of March 31, 2012. The Company did not allocate a portion the proceeds to the warrants because the warrants' value is not considered material. As of March 31, 2012, the outstanding principal amounted to $25,000 and the maximum number of common shares the notes could be converted into is 250,000 shares. An increase in the Company’s stock price greater than $.13 per share will result in a decreased number of shares the Company would be obligated to issue.
Also in 2011, the Company issued three Convertible Promissory Notes (“Note”) in the aggregate principal amount of $117,500. The Notes, which are due on various dates between May and September, 2012, bear interest at the rate of 8% per annum, are unsecured and are convertible into shares of our common stock at the election of lender at any time after 180 days from the date of the Note issuance at a conversion price equal to a 41% discount (for two Notes) or 42% discount (for one Note) to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The conversion price is subject to certain anti-dilution protection; for example, if the Company issues shares for a consideration less than the applicable conversion price, the conversion price is reduced to such amount. If the Company desires to exercise its right to prepay the Note during the first 90 days after its issuance, the prepayment amount is 135% of all amounts owed to lender; if it elects to prepay between the 91st and 180th day after issuance, the prepayment amount is 150% of all amount owed. There is no right to prepay after the 181th day of issuance. The lender agreed to restrict its ability to convert the Note and receive shares of the Company if the number of shares of common stock beneficially held by the lender and its affiliates in the aggregate after such conversion exceeds 4.99% of the then outstanding shares of common stock. On March 2, 2012, the lender elected to partially convert one Note in the principal amount of $8,000 into shares of the Company stock and was issued 338,983 shares of common stock by the Company pursuant to the terms of the Note. The fair value of the shares issued was $16,949.
As of March 31, 2012, the outstanding principal of the three Notes amounted to $109,500 and the maximum number of common shares the note could be converted into based on 4.99% of the outstanding shares as of March 31, 2012 is 1,208,078 shares. Based on the average of the three lowest stock prices for the last ten days of the three months ending March 31, 2012, the three Notes would be convertible into 4,667,227 shares when not taking into account the 4.99% limit on the number of shares the holder may own. An increase in the Company’s stock price will result in a decreased number of shares the Company would be obligated to issue.
Under ASC 480, Distinguishing Liabilities from Equity, the Company determined the notes payable are liabilities reported at fair value because the notes payable will be convertible into a variable number of common shares at fixed monetary amount, known at inception. The notes payable are to be subsequently measured at fair value at each reporting period, with changes in fair value being recognized in earnings. The fair value of the notes payable is measured by calculating possible outcomes of conversion to common shares and repayment of the notes payable, then weighting the probability of each possible outcome according to management’s estimates. The fair value measurement is classified as a Level 3 in the valuation hierarchy. The following table is a roll forward of the notes payable fair value:
NOTE 4. REVOLVING NOTE FROM RELATED PARTY
The Company has a revolving credit agreement with Mr. Raymond Meyers, a shareholder and chief executive officer of the Company. This credit agreement is in the amount of $250,000 and is scheduled to expire on March 31, 2013. The outstanding balance on the credit agreement bears interest at an annual rate of 6% above one year LIBOR (7.1% as of March 31, 2012), and is secured by all of the assets of the Company. As of March 31, 2012 the revolving credit line had an outstanding balance of $247,223 ($214,489 - December 31, 2011). For the three months ended March 31, 2012 and 2011, interest expense under this note amounted to $3,917 and $3,309, respectively. As of March 31, 2012, accrued interest amounted to $25,215 ($10,615- 2011), which is included in accrued expenses in the accompanying balance sheet. As of March 31, 2012, the Company was in default of the credit agreement due to a failure to pay interest when due. Mr. Meyers has waived this default through the maturity date.
NOTE 5. STOCKHOLDERS’ DEFICIENCY
On March 21, 2012, the Company sold in a private placement 50,000 shares of its common stock and warrants to acquire 50,000 shares of the Company stock at an exercise price of $0.15 for total proceeds of $5,000. The warrants have a contractual term of three years.
Outstanding warrant securities consist of the following at March 31, 2012:
1 The Company anticipates completing its private placement in June 2012 and issuing the warrants.
NOTE 6. COMMITMENTS AND CONTINGENCIES
On March 7, 2012, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Enthusiast Media Holdings, Inc. (“EMH”), a privately-held Washington corporation, to acquire the assets of the former Water Channel television network (the “Assets”). The Agreement was expected to close within thirty (30) days (the “Closing Date”) if certain contingencies are met. The contingencies include the delivery by EMH of general releases from at least ninety (90) percent of EMH’s secured creditors and the Company’s final review and acceptance of the Assets and an associated real estate lease.
On April 6, 2012, EMH informed the Company that the contingencies have not been met as outlined and requested the Company grant a sixty (60) day extension. The Company is continuing to evaluate the request for an extension as of the date of this filing.
The Agreement provides that as consideration for the purchase of the Assets, the Company will issue a total of up to 4,000,000 shares of its restricted common stock (the “Shares”), and the assumption by the Company of a certain real estate lease associated with the Assets. On the Closing Date, the Agreement calls for the delivery of 3,323,261 Shares by the Company to EMH for the benefit of EMH’s secured creditors. In addition, the Agreement calls for the Company to issue, within sixty (60) days from the effective date of the Agreement, and upon receiving signed releases from the unsecured creditors, up to 676,739 Shares to EMH on a pro rata basis, for the benefit of EMH’s unsecured creditors. The Agreement includes the forfeiture of 728,326 of the shares to be issued to EMH in the event that the domain name, “waterchannel.com”, is not delivered to and accepted by the Company, within sixty (60) days from execution date of the Agreement. All Shares to be issued are subject to a cumulative lock-up agreement that calls for fifty (50) percent of the Shares to be eligible for resale after six (6) months, with another twenty-five (25) percent being eligible after one year, and the remaining twenty-five (25) percent being eligible for resale after eighteen (18) months.
The Agreement also provides for customary representations, warranties, and indemnification from the parties.
NOTE 7.SUBSEQUENT EVENTS
In April 2012, the Company sold in a private placement 100,000 shares of its common stock and warrants to acquire 100,000 shares of the Company stock at an exercise price of $0.15 for total proceeds of $5,000. The warrants have a contractual term of three years.
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). Internet Media Services, Inc. desires to avail itself of certain “safe harbor” provisions of the 1995 Reform Act and is therefore including this special note to enable us to do so. Except for the historical information contained herein, this report contains forward-looking statements (identified by the words "estimate," "project," "anticipate," "plan," "expect," "intend," "believe," "hope," "strategy" and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements, including, without limitation, those discussed under Part I, Item 1A “Risk Factors” in our annual report as filed on Form 10-K dated March 30, 2012 as filed with the Securities and Exchange Commission, and those described herein that could cause actual results to differ materially from the results anticipated in the forward-looking statements, and the following:
The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition and should be read in conjunction with the financial statements and footnotes that appear elsewhere in this report.
Internet Media Services, Inc. (referred to in this report as “Internet Media,” “IMS,” “we,” “us,” “our” or “Company”) is a diversified digital media company created to develop, own and operate a portfolio of integrated “Internet properties” (websites), offering complementary business models and components, high levels of customer appeal, lower cost of goods sold (“COGS”) and significantly higher margins than other Internet-based service companies in similar sectors. We operate our branded websites within discrete vertical business channels or markets allowing us to utilize cross-promotion marketing activities between our websites within a channel. A vertical market is a distinct business category, or sector, within a broader industry such as "Elective Medical," “Home Reconstruction” or "Travel and Leisure." For example, the "Legal" vertical market (a part of the Professional Services Industry) would include Web properties, domains and business opportunities focusing on legal services, legal case opportunities, and related instruments, procedures and transactions. Vertical markets are often identified as “niche” markets, with companies involved in transacting trade – primarily -- with other businesses in the same niche or sector. Currently, we operate one website within one business channel.
The Company is primarily focused on creating, acquiring and partnering with companies with customer acquisition- customer relationship management solutions; however, the Company is also interested in information technology / content acquisition opportunities -- whether the content is informational, educational, or entertaining. On October 8, 2009, the Company completed its first acquisition in the legal vertical market through the purchase of the assets and assumption of certain liabilities of LegalStore.com. LegalStore.com is an Internet based company that primarily sells legal supplies and legal forms. This acquisition was then leveraged by the creation and development of simplyprospects.com -- a proprietary “auction-based marketplace” that promises to revolutionize the lead-sale industry in the legal field, and in numerous other key niche markets, including: elective medical; home reconstruction; health and medicine; leisure and travel; et al.
SimplyProspects.com was released in July 2011 as part of a six-month beta program. At the end of this six-month period in December 2011, the Company, based on the feedback obtained during the beta program, decided to further develop the service prior to releasing the service into production. In addition, the success of the SimplyProspects.com service is contingent on the Company raising sufficient investment capital to support the national release and operational needs of the service.
Results of Operations
For the Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011
Our revenue for the three months ended March 31, 2012 decreased by $4,443 or 3.2% to $135,783 compared to revenue of $140,226 during the three months ended March 31, 2011. Our revenue was derived from the sale of legal products through our web property, LegalStore.com. Our planned new service, SimplyProspects.com did not generate any revenue in the three months ended March 31, 2012 and 2011, respectively. We continue to market our products offered through LegalStore.com on a national level. We have started a number of price increases during the last six months of 2011 and during the first three months of 2012 on certain products to increase our gross profit margins. However, we do not expect a decrease in the overall number of orders through our LegalStore.com property as a result of this action. We continue to expect relatively modest revenue growth through our LegalStore.com service. We do not expect to generate any revenue from our SimplyProspects.com service until the Company is successful in raising the necessary capital to release the service on the national level.
Cost of Revenue and Gross Profit
Our cost of revenue includes supplies associated with the sale of products through our LegalStore.com website. Our cost of revenue for the three months ended March 31, 2012 decreased by $5,067 or 6.5% to $72,494 compared to $77,561 for the three months ended March 31, 2011. As a percentage of revenue, our gross profit was 46.6% in for the first three months of 2012 compared to 44.7% attained during the comparable period in 2011. The improvement in the gross profit percentage was due to various profit improvement measures implemented in late 2011 including a number of product price increases.
General and Administrative
During the three months ended March 31, 2012, we incurred general and administrative expenses of $99,829 compared to $130,064 incurred during the comparable period in 2011. In 2012, general and administrative expenses decreased by $30,235 or 23.2% from 2011. The decrease was principally due to decreased salaries and benefits of $24,031. We reduced our headcount early in 2012 due to cost reduction measures resulting in reduced salaried and benefits expense for the three month period ended March 31, 2012. Additional cost reduction measures were implemented resulting in further expense reductions. We expect an overall increase in general and administrative expenses in subsequent periods as we continue to execute our business plan pending the successful raising of additional financing.
Selling and marketing
For the three months ended March 31, 2012, selling and marketing expenses, consisting of search engine and web marketing expenses, credit card processing fees, and customer delivery fees were $22,067, compared to $22,024 during the three months ended March 31, 2011. In line with our revenue, our selling and marketing expenses stayed flat in 2012 compared to 2011. We anticipate search engine marketing expense to increase in the future as we continue to implement our SimplyProspects.com business plan pending the successful raising additional financing.
Interest expense for the three months ended March 31, 2012 increased by $3,381 or 93.7% compared to our interest expense incurred during the three months ended March 31, 2011. The increase was due to the increased levels of borrowings in 2012. During the three months ended March 31, 2012, we also incurred an expense of $3,946 associated with the change in the fair value of our convertible promissory notes.
As a result of the foregoing, our net loss for the three months ended March 31, 2012 decreased by $23,489 or 25.2% to $69,541 compared to a net loss of $93,030 incurred in 2011.
Liquidity and Capital Resources
At March 31, 2012, we had a working capital deficiency of $481,210 compared to working capital deficiency of $230,547 at December 31, 2011. The increase in working capital deficiency was due to our operating losses and reclassification of revolving note from a related party from a long-term liability at December 31, 2011 to a current liability at March 31, 2012. During the three months ended March 31, 2012, our operating activities used cash of approximately $38,000 compared to approximately $72,000 used during the three months ended March 31, 2011.
During the three months ended March 31, 2012, our operating losses, after adjusting for non-cash items, utilized approximately $54,000 of cash, and working capital items provided approximately $16,000 of cash. The principal component of these working capital changes was a decrease in our accounts receivable and an increase in our accrued expenses. During the three months ended March 31, 2011, our operating losses, after adjusting for non-cash items, utilized approximately $88,000 of cash, and working capital items provided approximately $16,000 of cash.
During the three months ended March 31, 2012, we received $5,000 from a private sale of shares of our common stock and had approximately $33,000 of net additional borrowings from related party.
In reviewing our 2012 operational plans and associated risks, we have determined it will be necessary to raise additional financing during 2012. In January 2012, we engaged an investment banker to assist us in this effort. We are seeking to raise funds in 2012 to support the execution of our business plans. As of date we have not entered into any definitive agreements for additional financing. No assurances can be given that we can obtain these funds through the sale of common stock or other securities, the issuance of indebtedness or otherwise or on terms acceptable to us. Further, no assurances can be given that any such equity financing will not result in a further substantial dilution to the existing stockholders or will be on terms satisfactory to us. If we are unable to obtain additional equity or loan financing, our financial condition and results of operations will be materially adversely affected and we may need to significantly restrict our operations.
Management recognizes that the Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis. The Company believes that it will be able to complete the necessary steps in order to meet its cash requirements throughout fiscal year 2012 and continue its business development efforts.
Management's plans in this regard include, but are not limited to current discussions and negotiations with a number of additional financing alternatives, one or more of which it believes will be able to successfully close to provide the necessary working capital. There is no assurance that the Company will be successful in completing the financing. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
To fund the Company’s operations for fiscal year 2012, the Company needs to raise additional financing and generate cash flows from its operations. Should additional cash flows not be available, the Company believes that it will have the ability to restructure its operations, and if necessary, initiate significant expense reductions. In addition, the Company will have to negotiate with its lenders to extend the repayment dates of its indebtedness. There can be no assurance, however, that the Company will be able to successfully restructure its operations or debt obligations in the event it fails to obtain additional financing.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s chief executive officer also acting as chief financial officer , as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our chief executive officer, also acting as chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2012. Based on this evaluation, management concluded that, as of such date, that our disclosure controls and procedures were not effective and that material weaknesses exists in our internal control over financial reporting. The material weaknesses consist of an insufficient complement of qualified accounting personnel and controls associated with segregation of duties and ineffective controls associated with identifying and accounting for complex and non-routine transactions in accordance with U.S. generally accepted accounting principles. To address the material weaknesses we performed additional analyses and other post-closing procedures and retained the services of a consultant to ensure that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Notwithstanding these material weaknesses, management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, result of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The shares of common stock to be issued in this transaction have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were issued and sold in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
Item 4. Mine Safety Disclosures
Item 6. Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.