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| AGAC.OB > SEC Filings for AGAC.OB > Form 10-Q on 19-Nov-2008 | All Recent SEC Filings |
19-Nov-2008
Quarterly Report
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those which are not within our control.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. In this Form 10-Q report, unless otherwise specified, all references to "common shares" refer to the common shares in our capital stock.
Overview
Actiga was incorporated in the State of Nevada on April 27, 2005 under the name Puppy Zone Enterprises, Inc. Prior to our reverse merger, we changed our name from Puppy Zone Enterprises, Inc. to Actiga Corporation. On January 7, 2008, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with QMotions, Inc. (QMotions) which Merger Agreement we closed on January 14, 2008. Pursuant to the Merger Agreement, QMotions became a wholly-owned subsidiary of the Company. Actiga acquired and adopted the business operations of QMotions (as discussed below). Prior to the acquisition of QMotions, we were a public shell with nominal assets and our business focus was the development of a franchise system to offer dog day care services under the brand name The Puppy Zone. Following the acquisition of QMotions, we terminated our dog day care services and adopted the business of QMotions, consisting of the development, manufacture, distribution, marketing and sale of motion-based controllers for video games and online video games.
Our common stock is traded on the Over-the-Counter Bulletin Board under the symbol "AGAC" and on the Frankfurt Exchange under the symbol "3668363.F".
Aptus Games, a wholly-owned subsidiary of Actiga ("Aptus") was incorporated in the state of Delaware on February 4, 2008. Aptus uses proprietary motion controllers combined with a browser-based 3D game engine. Aptus is scheduled to commence on line operations in the fourth quarter of 2008.
Results of Operation
Since inception to September 30, 2008, we have generated minimal revenues. Inflation and currency fluctuations have not previously had a material impact upon our sales, revenues and income from operations.
As a result of turmoil in the financial markets and tightening of credit throughout the United Stated and the global capital markets, the Company has been unable to raise additional capital and currently cannot pay its debts. The strain on the Company's working capital has resulted in the Company receiving notice that some purchase orders previously received by QMotions have been cancelled. There is currently $270,000 in purchase orders for the QMotions product "Big Vert" still pending.
Additionally, the Company has not met its payroll obligations to its employees since October 17, 2008. The Company has scaled down its workforce to a few key employees, who have also agreed to accept stock compensation in lieu of payroll. The Company has minimized its operations in order to conserve its working capital. The loss of any of our management or other key personnel could harm our ability to implement our business strategy and our business, financial condition, results of operations and cash flows may be adversely affected. The Company is currently seeking and reviewing financing and other strategic options to correct this situation. If the Company is unable to obtain adequate financing in the near future it most likely will cease operations, sell its assets or its business or declare bankruptcy.
Comparison of the three and nine months ended September 30, 2008 and three and nine months ended September 30, 2007.
Net Sales
Sales for the three months ended September 30, 2008 totaled $4,316 compared to $11,458 for the three months ended September 30, 2007. Sales for the nine months ended September 30, 2008 totaled $29,790 compared
Cost of Sales
Cost of Sales for the three months ended September 30, 2008 totaled $39,294 compared to $48,245 for the three months ended September 30, 2007. Cost of sales for the nine months ended September 30, 2008 totaled $247,371 compared to $235,355 for the nine months ended September 30, 2007. Freight cost which are a component of Cost of Sales, were $62,661 for the nine months ended September 30, 2008 as compared to $46,299 in the 2007 nine month period. Increase in Cost of Sales is due to cost of product placement between warehouse and distribution centers. Valuation reserves accounted for $75,782 of the cost of sales for the nine and three months ended September 30, 2008. The combination of items described above resulted in Cost of Sales exceeding net sales.
Operating Expenses
Our operating expenses for the three and nine months ended September 30, 2008 compared to the three and nine months ended September 30, 2007 are classified primarily into the following three categories:
1. General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2008 of $792,400 consist primarily of payroll of $413,892 and professional fees of $54,325 which includes legal fees, accounting and auditing fees. General and administrative expenses for three months ended September 30, 2007 of $214,358 consist of payroll $72,034 and professional fees of $37,015. Rent expense primarily for office space and warehouse totaled $12,856 for the first three months of 2008 as compared to $35,376 for the comparable three months of 2007. General and administrative expenses for the nine months ended September 30, 2008 of $2,737,118 consist primarily of payroll $1,219,018, professional fees of $619,449 which includes legal fees, accounting and auditing fees. General and administrative expenses for nine months ended September 30, 2007 of $735,633 consist of payroll of $221,098 and professional fees of $49,227. The expense for allowance for doubtful accounts for September 30, 2008 was $370,213 compared to $26,000 in the comparable period of 2007. Rent expense primarily for office space and warehouse totaled $45,059 for the nine months of 2008 as compared to $67,506 for the comparable period 2007.
2. Research and Development Expenses. Research and development expenses consist primarily of fees paid for payroll, engineering and other research and development cost. The amount incurred by the Company during the three months ended September 30, 2008 was $101,708 compared to $48,537 for the three months ended September 30, 2007. Tooling cost associated with research and development for the three months ended September 30, 2008 totaled $75,163 compare to $3,270 for the comparable period in 2007. The amount incurred by the Company during the nine months ended September 30, 2008 was $199,873 compared to $141,013 for the nine months ended September 30, 2007. Tooling cost for the nine months ended September 30, 2008 totaled $118,404 compare to $14,064 for the comparable period in 2007.
3. Sales and Marketing Expenses. Sales and marketing expense totaled $209,954 for the three months ended September 30, 2008 as compared to $67,668 for the three months ended 2007. Sales and marketing expense totaled $522,626 for the nine months ended September 30, 2008 as compared to $111,245 for the nine months ended 2007. Print Advertising, trade shows and other media expenses totaled $57,493 for the three months ended September 30, 2008 and $133,380 for the nine months ended September 30, 2008 as compared to $37,526 and $41,028 for the comparable periods in 2007, respectively. The increase is in anticipation of various product launches in the fourth quarter of 2008.
Net Loss
As a result of the foregoing, the Company reported a net loss for the quarter ended September 30, 2008 of $1,238,043 compared to a loss of $429,799 for the quarter ended September 30, 2007. The Company reported a net
Liquidity and Capital Resources
The Company's principal capital requirements during the year of 2008 are to fund the internal operations and introduce new product lines to the market. The Company has raised funds for operations by selling shares of its common stock to selected investors and by issuing notes and convertible notes as is discussed herein. The Company continues to actively pursue additional credit facilities with accredited investors and financial institutions in Europe, Middle East and USA as a means to obtain new funding.
There is substantial doubt about our ability to continue as a going concern, and in their report on our financial statements for the year ended December 31, 2007, our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The continuation of the minimized operations of our business are dependent upon an immediate infusion of cash and further long term financing, successful and sufficient market acceptance of our products and achieving a profitable level of operations. We have historically incurred losses, and from inception through September 30, 2008, have incurred losses of $10,701,833. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. Presently, our revenues are not sufficient to meet our operating and capital expenses. Management projects that we will require substantial additional funding to expand our current operations as the Company is currently nearly out of cash. Management has taken the following steps to revise its operating and financial requirements: Management has devoted considerable efforts during the period ended September 30, 2008 and subsequently towards (i) obtaining additional equity financing (ii) controlling of salaries and general and administrative expenses (iii) management of accounts payable (iv) settlement of debt by issuance of common shares and (v) strategically forming subsidiaries that bring synergies to the Company's products and services.
The Company relies on a combination of debt and equity financings to fund its ongoing cash requirements. The Company has scaled down its workforce to a few key employees, who have also agreed to accept stock compensation in lieu of payroll. The Company has minimized its operations in order to conserve its working capital.
In light of the need to raise additional funds in the immediate short term, the Company has been focused on capital raising activities in addition to continuing to control operating costs, aggressively managing working capital and attempting to settle certain debt by the issuance of common shares. As of January 1, 2008 to the date of this filing, the Company has received $4.1 million of equity financing and loans in order to fund cash requirements.
Although the Company has previously been able to raise capital, there can be no assurance that such capital will continue to be available at all or, if available, that the terms of such financing will not be highly dilutive to existing stockholders or otherwise on terms unfavorable to us. The Company may review capital raising transactions on terms that are unfavorable to the Company and that the Company would not otherwise review but for tightening of credit through the global capital market. If the Company is unable to secure additional capital as circumstances require, it may not be able to continue its operations.
On October 17, 2008 the Company filed a Form 8-K with the SEC. As a result of the financing conditions reported, the Company is in default of a 12% Note with an Option to convert due on May 15, 2009 (the "Note") between the Company and a lender in the amount of $50,000 that was subscribed for as part of our bridge offering reported in our Current Report on Form 8-K as filed with the SEC on April 18, 2008. Upon an event of default, the lender at its election may call for the repayment in cash of the full principal amount of the Note together with interest and other amounts owing under the Note. The Company has received a waiver from the lender of the breach provision.
Since October 17, 2008 the Company has not met its payroll obligations to its employees. The Company has scaled back on its workforce to a few key employees. The Company is currently seeking and reviewing financing and other strategic options to correct this situation.
As of November 11, 2008 the Company was negotiating an asset purchase agreement with the former employees of QMotions to dispose of certain QMotions assets and liabilities. Total net assets to be transferred are approximately $214,690 comprised primarily of inventory of $6,687 and accounts receivable of $208,003. The disposition will include $435,512 of related liabilities. The liabilities exceed the assets. For the nine months ended September 30, 2008 the QMotions subsidiary incurred net losses of $2,200,113 and $439,513 for the three months ended September 30, 2008. For the comparable periods of 2007 the amounts consisted entirely of QMotions.
Financing Activities: Net cash received by financing activities for the nine months ended September 30, 2008 of $4,115,404came primarily from notes payable of $1,580,479 and proceeds from private placements of $1,875,025.
As a result of the above activities, the Company recorded a cash and cash equivalent balance of $3,943 as of September 30, 2008 and a net decrease in cash and cash equivalent of $244,024for the nine months ended September 30, 2008 as compared to a net increase in cash of $219,978 for the nine months ended September 30, 2007. The ability of the Company to continue as a going concern is still dependent on its success in obtaining immediate additional financing.
Application of Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects (i.e. Allowance for Doubtful Account and Product Returns) of our financial statements is critical to an understanding of our financials.
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
Off-balance Sheet Arrangements
We are not a party to any off-balance sheet arrangement.
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