| |
|
|
|
| |
 |
|
|
Form 10QSB for PHANTOM FIBER CORP
Press Release
Nov. 15, 2004
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
Certain matters discussed in this Quarterly Report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and as such may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market and statements regarding the Company's goals. The Company's actual results, performance, or achievements expressed or implied in such forward-looking statements may differ.
|
 |
Return to News articles |
| To return to the press page, click below. |
 |
|
|
 |
| |
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND 2003
The Company recorded a net income for the three month period ended September 30, 2004 of $89,152 ($0.0003 per share) compared to a net loss of $163,830 ($0.002 per share) during the comparative period in the prior year.
Most of the Company's revenue was derived from licensing of software.
Total operating expenses were $301,052 during the quarter ended September 30, 2004 compared to $186,028 in the prior year. The increase reflects the additional development and sales personnel and costs from larger premises required for planned future growth. There were also increases interest expense resulting from increased short term borrowings.
During the three month period ended September 30, 2004 the Company recorded a foreign exchange translation gain of $43,561 arising from the translation of the Canadian dollar denominated subsidiary financial statement to US dollars.
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND 2003
The Company recorded a net loss for the nine month period ended September 30, 2004 of $494,806 ($0.0035 per share) compared to a net loss of $359,392 ($0.0048 per share) during the comparative period in the prior year. The largest proportion of revenue in both these periods was derived from licensing of software.
Total operating expenses were $926,477 during the nine month period ended September 30, 2004 compared to $404,684 in the prior year. The increase is primarily the result of the increasing the number of sales and development personnel and increased occupancy costs. Interest expenses also increased during the period resulting from an increase in short term borrowings.
The Company recorded a foreign exchange gain of $43,561 during the nine month period ended September 30, 2004 compared to a loss of $252 in the comparative period in the prior year. Foreign exchange gains arise from the translation of the Company's Canadian dollar denominated assets into US dollars during periods of weakening of the US dollar vis-a-vis the Canadian dollar.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of results of operations and financial condition are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates the estimates on an on-going basis, including those related to bad debts, inventories, investments, customer accounts, intangible assets, income taxes, and contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that they believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Note 2 of the "Notes to Consolidated Financial Statements" of the Company's Annual Audited Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements. The following is a brief description of the more significant accounting policies and methods the Company uses.
Investment
The Company's investment in marketable securities is classified as available for sale securities. Unrealized holding gains and losses are reported as a net amount in a separate component of shareholders' equity until realized.
Revenue Recognition
Revenue from product sale is recognized when the rights of ownership of the product are transferred to the purchaser on shipment or delivery and collection is reasonably assured.
Allowance for Doubtful Accounts
The Company records an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. The criteria for allowance provision are determined based on historical experience and the Company's assessment of the general financial conditions affecting its customer base. If the Company's actual collections experience changes, revisions to the allowance may be required.
Intangible Assets
Long-lived assets, including intangible assets, are reviewed when facts and circumstances indicate that the carrying value of the asset may not be recoverable. When necessary, impaired assets are written down to estimated fair value based on the best information available. Fair value is determined by estimated future cash flows and appraised value of the assets.
FINANCIAL CONDITION
Total assets increased from $704,144 at June 30, 2004 to $1,807,387 as at September 30, 2004. The increase is due to an increase in accounts receivable, marketable securities, investment tax credits receivable and other current assets.
Other current assets includes the unamortized value of 6,000,000 shares of the Company's common stock issued for investor and public relations consulting services. The Company entered into a one year consulting agreement under which a total of 6,000,000 common shares are issuable based on performance under the contract. The Company has valued these services at $402,000 and is amortizing the costs to expense at $100,500 per quarter.
At September 30, 2004, the Company held 1,184,910 common shares of Wireless Age Communications, Inc., and 3,000,000 shares of Trackpower Inc., both publicly traded entities whose share price is quoted on the NASD's Over-The-Counter Bulletin Board under the symbols "WLSA" and "TPWR" respectively. The Wireless Age securities were obtained in the sale of the Prime Wireless subsidiary on March 13, 2003 and in the sale of the Battery Business on September 14, 2004. The Company has valued these securities at $936,079 ($0.79 per share). The Trackpower securities were obtained as partial payment for a receivable. The Company has valued these shares at $83,977 ($0.028).
Total liabilities increased from $510,418 at June 30, 2004 to $963,980 as at September 30, 2004. The increase was the result of Accounts payable, Notes payable and Senior subordinated convertible debentures assumed in the reverse takeover and an increase in short term borrowings and accounts payable from operations.
Stockholders' equity increased from $193,727 at June 30, 2004 to $843,407 at September 30, 2004. The increase is the result of:
1. A reorganization of the equity accounts resulting from the reverse acquisition of Phantom Fiber Corporation. This reorganization resulted in a reduction in the deficit of $1,083,100.
2. Unrealized foreign exchange translation gains of $62,062 (recorded in accumulated other comprehensive income), and
3. The net income of $89,152 during the quarter.
offset by
1. Unrealized loss on available for sale marketable securities of $544,659.
The financial statements of the Company are prepared in conformity with generally accepted accounting principles, which require 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. Some of the significant estimates required to be made by management include the realizable value of intangible assets and the fair value of common stock and common stock equivalents issued for services or in settlement of obligations. Actual results could differ from those estimates.
LIQUIDITY AND CAPITAL RESOURCES
For the nine month period ended September 30, 2004, cash used in operating activities amounted to $841,903 primarily as a result of operating losses. Cash provided by financing activities during the nine month period ended September 30, 2004 amounted to $723,397 resulting from $38,000 reduction in notes payable offset by an increase in short term borrowings of $135,767 and common stock, issued by Phantom Fiber Corporation prior to the acquisition date, of $625,630. Cash provided by investing activities was $103,219 mostly from proceeds from the sale of Wireless Age Communications, Inc. common shares.
The Company has commenced liquidating its investment in Wireless Age Communications, Inc. common shares. These securities, which have been valued at $936,079 for balance sheet purposes, have certain resale restrictions. Management believes that it will be in a position to sell all of these securities within the next twelve months and utilize the proceeds for working capital purposes and settle certain historic liabilities of the parent entity.
In addition the Company has been successful in raising capital through private placements of its common shares. Although, this type of financing continues to be dilutive to the existing common shareholders, it may be necessary to continue to do so in the interim before certain resale restrictions on its marketable securities lapse.
The Company does not have any material sources of liquidity on off balance sheet arrangements or transactions with unconsolidated entities.
|
|
