Form 10QSB/A for ASIA GLOBAL HOLDINGS CORP.
16-Apr-2007
Quarterly Report
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OR PLAN OF OPERATION
The following discussion should be read in conjunction with AAGH's unaudited condensed consolidated financial statements and notes included herein. The results described below are not necessarily indicative of the results to be expected in any future period. Certain statements in this discussion and analysis, including statements regarding our strategy, financial performance and revenue sources, are forward-looking statements based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Readers are referred to AAGH's Annual Report on Form 10-KSB for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on April 17, 2006 and October 10, 2006, as amended.
Forward Looking Statements
The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. Actual events or results may differ materially. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Overview
Asia Global Holdings Corp. (formerly known as BonusAmerica Worldwide Corporation) ("AAGH" "we" and the "Company") offers a suite of advertising and media services and products that meet the need of marketers and advertisers including Internet marketing, search engine marketing ("SEM"), email marketing and print advertising. We work closely with advertisers to implement integrated online and offline advertising and media solutions and manage campaign planning and execution.
We are further establishing our media and advertising division by working with our current consumer-base to increase printed advertising in a quarterly industrial magazine and direct mailing services.
We are one of the few established providers of Internet marketing services and online advertising technology within the People's Republic of China ("PRC"). We sell our products and services worldwide from 5 sales locations in 3 countries to a consumer base in Asia, North America, Europe, and Canada.
Future Plan of Operations
We are a direct marketing, Internet commerce and media company formerly based in Los Angeles, California with operations in Hong Kong and China, which consists of Media and Advertising. Furthermore, we are moving forward with our plan to expand our efforts of seeking out high growth companies in emerging regions and markets for the purpose of acquisition.
We are in the process of seeking additional financing to forward our business plan, but have not entered into any agreements to obtain such financing. There is no assurance that such financing will be available, or if available, that such financing will be available on reasonable terms. Even if we do obtain such financing, there is no assurance that we will be able to generate profitable operations.
Because we have not yet raised the funding management believes is required to rollout our complete business plan, we have taken, and are continuing to take, steps to reduce our operating costs. We have decided to move a significant portion of our U.S. operations to China where we can benefit from lower overhead costs and further capitalize on the growth potential and success we have already experienced in our Media and Advertising business in Hong Kong and China. Some management and marketing operations will remain in the U.S. In addition, we have suspended operations and development of our consumer portals, RateandSave and More2Save, in our Media and Advertising division.
During the three months ended March 31, 2006, we experienced a net loss of $107,685. We expect our position to improve over the next 12 months while at the same time we expect that expansion may result in losses as we invest more resources in further developing operations in China and Hong Kong. There can be no assurance that we will achieve or maintain profitability or that any revenue growth will take place in the future even if we do obtain the financing that we seek.
Results of Operations for the Three Months Ended March 31, 2006 and March 31, 2005
Revenues
During the three month period ended March 31, 2006, all of our revenue was generated from advertising and list rentals. Overall revenues decreased 40% from the comparable period in the previous year as a result of a significant reduction in sales in China and the U.S.
Total Revenue Three Months Ended March 31, 2006 and March 31, 2005
2006 2005 Variance
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Total Revenue $ 395,618 $ 659,942 -$264,324 (-40%)
Online Retailing $ -- $ 14,675 - $ 14,675 (-100%)
Media & Advertising $ 395,618 $ 645,267 - $ 249,649 (-38%)
Our Online Retailing segment posted no sales during 2006 as a result of our planned cut backs in this segment.
Our Media & Advertising segment had revenues of $395,618 in the three months ended March 31, 2006 as compared to $645,267 for the same period in 2005 representing a decrease of 38%. The decrease in revenues from this segment is attributed to significantly reduced sales in the US in this segment where we have reduced our overhead. US sales in this segment totaled only $22,000.
Cost of Sales
Cost of Sales Three Months Ended March 31, 2006 and March 31, 2005
2006 2005 Variance
Cost of Sales $64,872 $46,527 $18,345 (39%)
Cost of sales for the three month period ended March 31, 2006 totaled $64,872 compared to $46,527 for the same period in 2005 representing an increase of 39%. The increase in cost of sales is attributed entirely to increases in the Advertising and Media segment in China and Hong Kong.
Administrative Expenses - Selling, general and administrative expenses Three Months Ended March 31, 2006 and March 31, 2005
2006 2005 Variance
Administrative Expenses $ 325,721 $ 493,012 -$167,291 (-34%)
Administrative Expenses for the three months ended March 31, 2006, for our US operations totaled $272,630 while administrative expenses associated with our Hong Kong and China operations totaled $53,091. Selling, general and administrative expenses primarily consisted of staffing costs, legal and professional fees, and a non-cash charge of $175,500 representing the fair value of common stock issued for management services, business advisory, and legal and professional services rendered. With the exception of staff reduction costs resulting from the scale-back in our online retailing US operations and our efforts to reduce our overall operating expenses through implementation of staff reduction costs in our Hong Kong and China operations, we expect administrative expenses to increase once we implement our business expansion plan, which will depend on the availability of future debt or equity financing. We expect legal and professional fees associated with adhering to the reporting requirements associated with being a US public company to remain relatively stable, but will increase significantly once we begin to implement internal controls and procedures to comply with the reporting requirements of the Sarbanes-Oxley Act of 2002, which we expect to begin implementing as soon as practicable.
Administrative Expenses for the three months ended March 31, 2005, for our US operations totaled $185,553 while administrative expenses associated with our Hong Kong and China operations totaled $307,459. Selling, general and administrative expenses primarily consisted of staffing costs, rental facilities costs, traveling costs, and legal and professional fees.
The decrease for the period over period represents a decrease in overall staffing costs of approximately $260,600, travel costs of $19,100, and rental facilities costs of $28,000, offset by an increase in legal and professional fees of approximately $15,300, the non-cash charge of $175,500 for common stock issued for services rendered and the reversal of a sales commission fees of $49,550 due to the reconstruction of our sales force in the PRC at the beginning of 2006.
Depreciation and Amortization:
Depreciation for three months period ended March 31, 2006 totaled $11,965 (2005:
$34,967), a decrease of approximately $23,000, resulting from a lower depreciable asset base in 2006 versus 2005. Our depreciation accounting policy has not changed for the periods and is consistent with the estimated useful lives of the remaining assets.
Amortization of intangible assets for the three months period ended March 31, 2006 totaled $69,824 (2005: $74,698) and was consistent with that of the comparative prior period.
Other income (expense)
Other income for both periods primarily presented includes fixed asset rental income of $4,350 which represents assets leased to Stanford International Holding Corporation, a related party, based on a reasonable and agreed upon charge that approximated 25% of the depreciation expense in 2004. The same percentage was used for 2005 since the agreement between the Company and Stanford included no agreed upon percentage. The remaining amounts included in other income are immaterial.
Other expense for 2006 represent interest expense incurred on our banking loans and was immaterial for the period.
Net Income/Loss
Net Income/Loss for the Three Months Ended March 31, 2006 and March 31, 2005
2006 2005
Net Income/Loss -$ 107,685 $1,015
For the three month period ended March 31, 2006 we had a net loss of $107,685 compared to a net income of $1,015 for the same period in 2006. Losses from our US operations totaled for 2006 totaled $293,937 and (2005: $114,921) and Hong Kong and China operations generated a net income of $186,252 (2005: $115,936).
Trends, Events, and Uncertainties
Demand for our services and products will be dependent on, among other things, market acceptance of our concept and general economic conditions, which are cyclical in nature. Our business operations may be adversely affected by our competitors and prolonged recessionary periods. We are in the process of seeking additional financing to forward our business plan, but have not entered into any agreements to obtain such financing. There is no assurance that such financing will be available, or if available, that it will be available on reasonable terms. Even if we do obtain such financing, there is no assurance that we will be able to generate profitable operations.
Liquidity and Capital Resources for the Three Month Period Ended March 31, 2006 and 2005
At March 31, 2006, our principal source of liquidity was cash and cash equivalents of $15,751.
Cash flows from operating activities
We experienced negative cash flows from operating activities for the three month period ended March 31, 2006, primarily resulting from a net loss offset by non-cash charges such as common stock issued for services, depreciation and amortization, and reversal of accrued expenses, and changes in operating activities accounts such as an increase in accounts receivable due to increased sales and an increase in cash paid for other current assets. Net cash flows generated from operating activities for the comparative period in 2005 primarily represents a reduction in net income offset by non-cash charges such as depreciation and amortization, a decrease in accounts receivable due to cash collections on outstanding balances, cash paid for other current assets and cash paid resulting in the reduction of outstanding liabilities from the preceding fourth quarter.
Cash flows from investing activities
Net cash flows used in investing activities for both periods presented primarily consisted of amounts advanced or repaid to related parties. For the three months ended March 31, 2005, cash flows used in investing activities also consisted of cash paid for the acquisition of fixed and intangible assets.
Cash flows from operating activities
Net cash flows provided by financing activities for the first quarter of 2006 consisted of payments and or advances on our banking facilities.
Future liquidity needs
Our future liquidity will depend on our revenue growth and our ability to generate revenues and control our operating expenses. We expect to meet these capital needs from sales revenues and, to the extent we do not have sufficient revenues, from our existing cash reserves or other external sources of financing. However, our growth plans require additional funding from outside sources. We intend to pursue discussions with existing shareholders, third party financing sources and potential lenders to ensure access to funds as required.
On a long-term basis and to implement our business expansion plans, our liquidity will be dependent on establishing and maintaining profitable operations, receipt of revenues, additional infusions of capital and additional financing. If necessary, we may raise capital through an equity or debt offering. The funds raised from this offering will be used to develop and execute our business plan. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected. Additionally, we will have to significantly modify our plans.
Off-Balance Sheet Arrangements
At March 31, 2006, we did not have any relationship with unconsolidated entities or financial partnerships, which other companies have established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Critical Accounting Policies
The financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
Allowance for Doubtful Accounts
Accounts receivable are reviewed to determine the need for an allowance for amounts that may become uncollectible in the future. The necessity of an allowance is based on management's review of accounts receivable balances and historic write-offs. In the event that our accounts receivables become uncollectible, we would be forced to record additional adjustments to receivables to reflect the amounts at net realizable value. The accounting effect of this entry would be a charge to income, thereby reducing our net profit. Although we consider the likelihood of this occurrence to be remote based on past history and the current status of our accounts, there is a possibility of this occurrence.
Income taxes
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have considered future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period in which we make such determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance. In order for us to realize our deferred tax assets we must be able to generate sufficient taxable income in the tax jurisdictions in which the deferred tax assets are located.
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