B2 DIGITAL, INCORPORATED Statements of Cash Flows (Unaudited) | | | For the Three
Months Ended
June 30, | | | | | 2006 | | 2005 | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | | | | | Net loss | | $ | (413,353 | ) | $ | (371,526 | ) | | Adjustments to reconcile net loss to net cash | | | | | | | | | provided (used) by operating activities: | | | | | | | | | Depreciation | | | 5,357 | | | 6,731 | | | Bad debt expense | | | 40,000 | | | | | | Common stock issued for services | | | 90,000 | | | 450,810 | | | Changes in operating assets and liabilities | | | | | | | | | Increase in accounts receivable | | | (4,358 | ) | | 1,548 | | | Increase in inventory | | | - | | | 1,050 | | | Increase in prepaid expenses | | | - | | | 12,790 | | | Increase (decrease) in accounts payable | | | 185,896 | | | (107,055 | ) | | | | | | | | | | | Net Cash Used by Operating Activities | | | (96,458 | ) | | (5,652 | ) | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | Payment for B2 Digital | | | - | | | (50,000 | ) | | | | | | | | | | | Net Cash Used in Investing Activities | | | - | | | (50,000 | ) | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | Contributed capital | | | - | | | - | | | Sale of common stock for cash | | | 92,621 | | | 50,000 | | | | | | | | | | | | Net Cash Provided by | | | | | | | | | Financing Activities | | | 92,621 | | | 50,000 | | | | | | | | | | | | NET DECREASE IN CASH | | | (3,837 | ) | | (5,652 | ) | | | | | | | | | | | CASH AT BEGINNING OF PERIOD | | | 8,203 | | | 5,711 | | | | | | | | | | | | CASH AT END OF PERIOD | | $ | 4,366 | | $ | 59 | | | | | | | | | | | | SUPPLEMENTAL DISCLOSURES OF | | | | | | | | | CASH FLOW INFORMATION | | | | | | | | | | | | | | | | | | CASH PAID FOR: | | | | | | | | | | | | | | | | | | Interest | | $ | - | | $ | - | | | Income Taxes | | $ | - | | $ | - | | | | | | | | | | | | SUPPLEMENTAL SCHEDULE OF NON-CASH AND | | | | | | | | | INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | Common stock issued for services | | $ | 318,685 | | $ | 450,810 | |
The accompanying notes are an integral part of these financial statements.
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B2 DIGITAL, INCORPORATED Notes to the Financial Statements June 30, 2006 and March 31, 2006
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at June 30, 2006 and 2005 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's March 31, 2006 audited financial statements. The results of operations for the periods ended June 30, 2006 and 2005 are not necessarily indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred losses from operations which have resulted in an accumulated deficit of $11,612,602 at June 30, 2006, which together raises substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. Management believes that the Company will generate sufficient revenue and commissions through its licensing agreements and hotel pay-per-view to cover operating expenses in the future, although no assurance of this can be given.
NOTE 3 - SIGNIFICANT EVENTS
On February 7, 2006 the Company elected to perform a reverse-split of its common stock. On February 23, 2006, the Company selected a one share for 1,000 share basis for the reverse split. The Company had 1,493,971 post-split shares issued and 1,751,341 post-split shares outstanding immediately following the completion of the stock-split, which became effective on June 16, 2006.
During the three months ended June 30, 2006, the Company issued 180,000 post-split shares of common stock for services rendered at $0.50 per share. In addition, the Company issued 350,000 post-split common shares in exchange for cash and subscriptions receivable. As of June 30, 2006, the Company has received cash in the amount of $92,623 on this issuance, with $27,377 remaining as subscriptions receivable.
At June 30, 2006, the Company elected to write-off $40,000 in stock subscriptions receivable pertaining to common stock issued in prior period. Management made the determination that the collection of this receivable within the next fiscal year was very unlikely. The Company recorded bad debt expense in the amount of $40,000 pertaining to this action.
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B2 DIGITAL, INCORPORATED Notes to the Financial Statements June 30, 2006 and March 31, 2006
NOTE 3 - SIGNIFICANT EVENTS (Continued)
At June 30, 2006, the Company had 1,493,971 shares issued and 1,751,341 shares outstanding. The difference of 257,370 shares represents shares being held for sale by an unrelated trustee (“the Trustee”) in Europe. In January 2006, we initiated an offering in Europe pursuant to Regulation S. Pursuant to this offering, we transferred certain shares to the Trustee for the sole purpose of selling shares in a Regulation S offering. Under the agreement with the Trustee, the Company is entitled to receive the net proceeds from the sale of any of these shares, and any common stock not sold by the Trustee is to be returned to the Company upon request. The Trustee is entitled to 2.5% of the volume of the trade of the administered assets.
NOTE 4 - SUBSEQUENT EVENTS
Subsequent to June 30, 2006 the Company was notified that an independent investment company had obtained a legal judgment against the Company in the amount of $93,148. This amount has been accrued as a current liability in the June 30, 2006 financial statements.
On July 19, 2006, an the Company issued 48,000,000 post-split common shares to an officer of the Company, in exchange for the officer converting 200,000 Series A preferred shares at a one share for 240 shares basis.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB contains forward-looking statements, including, without limitation, statements concerning our possible or assumed future results of operations. These statements are preceded by, followed by or include the words "believes," "could," "expects," "intends" "anticipates," or similar expressions. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons including: our ability to continue as a going concern, adverse economic changes affecting markets we serve; competition in our markets and industry segments; our timing and the profitability of entering new markets; greater than expected costs, customer acceptance of wireless networks or difficulties related to our integration of the businesses we may acquire and other risks and uncertainties as may be detailed from time to time in our public announcements and SEC filings. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and our future results, levels of activity, performance or achievements may not meet these expectations. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.
The discussion and financial statements contained herein are for the three months ended June 30, 2006 and 2005. The following discussion should be read in conjunction with our financial statements and the notes thereto included herewith.
THREE MONTHS PERIOD ENDED JUNE 30, 2006 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 2005
RESULTS OF OPERATIONS
NET REVENUE
We generated consolidated net revenues of $84,358 for the three month period ended June 30, 2006, as compared to $130,687 for the three month period ended June 30, 2005. The decrease in revenues for this quarter when compared to the same quarter last year is due primarily to the loss of one client of Hotel Movie Network.
COST OF SALES
We incurred Cost of Sales of $38,155 for the three month period ended June 30, 2006, as compared to $48,739 for the three month period ended June 30, 2005. Our Cost of Sales decreased for this quarter when compared to the same quarter last year due primarily to the loss of one client of Hotel Movie Network.
GROSS PROFIT
We generated gross profit of $46,203 for the three month period ended June 30, 2006, as compared to $81,948 for the three month period ended June 30, 2005. The decrease in gross profit for this quarter when compared to the same quarter last year is due primarily to decreased sales and cost of sales, partially offset by a decrease in programming costs.
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GENERAL, ADMINISTRATIVE AND SELLING EXPENSES
We incurred general and administrative costs of $628,491 for the three month period ended June 30, 2006 as compared to $428,224 for the three month period ended June 30, 2005, respectively. General and administrative expenses in the current period increased due to primarily to fees incurred through the issuance of common stock for professional and consulting fees.
NET INCOME (LOSS)
We had a loss before taxes of $388,806 for the three month period ended June 30, 2006 as compared to a loss before taxes of $371,526 for the three month period ended June 30, 2005. The increase in loss is due primarily to an increase in professional fees, some of which were paid for in the form of common stock during the period.
BASIC AND DILUTED INCOME (LOSS) PER SHARE
Our basic and diluted income (loss) per share for the three month period ended June 30, 2006 was $(0.34) and $(1.01) compared to the same period ended June 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
Our independent auditor has issued a "going concern" qualification as part of its opinion in the Audit Report. We do not currently have sufficient capital to meet our short-term cash requirements. We will continue to need to raise additional funds to conduct our business activities in the next twelve months. We owe approximately $1,080,303 in current liabilities. Additionally, we currently estimate that we will need approximately $2,000,000 to continue operations through the end of the fiscal year 2007. These operating costs include general and administrative expenses and the deployment of inventory.
ITEM 3. CONTROLS AND PROCEDURES
We have established disclosure controls and procedures to ensure that material information relating to us, including our subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.
Evaluation of disclosure controls and procedures. Our management, with the participation of our chief executive officer and interim chief financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-QSB. Based on this evaluation, our chief executive officer and interim chief financial officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the requisite time periods.
Changes in internal controls. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
In July 2003, we were served with a lawsuit from William B. Krusheski in United States District Court for Southern District of California. The complaint sought in excess of $75,000 on a note allegedly due and $135,000 in other compensatory damages. In June 2004, the county court of San Diego, California awarded a default judgment in favor of Mr. Krusheski in the amount of $135,000. The company has offered payments of $5,000 per month until the debt is settled. We have to date had no response from Mr. Krusheski.
In July, 2006, the company was advised that Golden Gate Investors, Inc. holds a default judgment in the amount of $93,148 (including costs and attorney’s fees) against the Company allegedly pursuant to a stock sale agreement dated January 14, 2005, as amended. We are in preliminary negotiations to settle this matter with Golden Gate, although there is no assurance that we will be able to do so.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Equity
Reverse Stock-Split
Effective June 16, 2004, the Company implemented a 1-for-1000 reverse split of its common stock. All references to the financial statements and notes thereto, numbers of shares and share amounts outstanding, have been retroactively restated to reflect the reverse stock-split.
Issuance of common stock for services
During the 3 months ended June 30, 2006, The Company issued 180,000 shares of its common stock registered under Form S-8 at $0.50 per share to various consultants for current and past services
Sale of common stock for cash and subscriptions receivable During the three months ended June 30, 2006, the Company sold 350,000 shares of common stock for $120,000 which were issued pursuant to Section 4(2) and/or Regulation S of the Securities Act . As of June 30, 2006, the Company received an amount of $92,623, with $27,377 remaining which has been recorded as a subscriptions receivable. Recovery of Shares Issued in Error
During the three months ended June 30, 2006, the Company issued and recovered 50,000 shares of common stock valued at $25,000 previously issued in error.
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