SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-11882
B2DIGITAL, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware | 84-0916299 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
4425 Ventura Canyon Ave., Suite 105
Sherman Oaks, CA 91423 (Address of principal executive offices)
Registrant's telephone number, including area code: (310) 281-2571
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 the filing requirements for at least the past 90 days. Yes x No o
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 61,000,869 shares of common stock, with a par value of $.00001 per share, as of November 9, 2006.
PART I- FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Balance Sheets as of September 30, 2006 (Unaudited) and March 31, 2006 | 2 |
Statements of Operations (Unaudited) for the Three and Six Months Ended September 30, 2006 and September 30, 2005 | 3 |
Statement of Cash Flows (Unaudited) for the Three and Six Months Ended September 30, 2006 and September 30, 2005 | 4 |
Notes to Financial Statements (Unaudited) | 5 |
B2 DIGITAL, INCORPORATED
FINANCIAL STATEMENTS
September 30, 2006 and March 31, 2006
B2 DIGITAL, INCORPORATED
Balance Sheets
September 30, | March 31, | ||||||
2006 | 2006 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash | $ | 213,398 | $ | 8,203 | |||
Accounts receivable | 47,014 | 40,243 | |||||
Total Current Assets | 260,412 | 48,446 | |||||
PROPERTY AND EQUIPMENT | |||||||
Hotel equipment | 150,000 | 150,000 | |||||
Office furniture and equipment | 955,226 | 955,226 | |||||
Less: accumulated depreciation | (1,020,883 | ) | (1,010,226 | ) | |||
Total Property and Equipment | 84,343 | 95,000 | |||||
TOTAL ASSETS | $ | 344,755 | $ | 143,446 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |||||||
CURRENT LIABILITIES | |||||||
Accounts payable and accrued expenses | $ | 1,005,072 | $ | 894,407 | |||
Related party loans payable | 14,500 | 14,500 | |||||
Notes payable | 120,000 | 120,000 | |||||
Bonds payable | 71,250 | 71,250 | |||||
Total Current Liabilities | 1,210,822 | 1,100,157 | |||||
LONG-TERM LIABILITIES | |||||||
Convertible notes payable | 1,038,678 | 1,038,678 | |||||
Note payable related party | 800,000 | 800,000 | |||||
Total Long Term Liabilities | 1,838,678 | 1,838,678 | |||||
TOTAL LIABILITIES | 3,049,500 | 2,938,835 | |||||
STOCKHOLDERS' EQUITY (DEFICIT) | |||||||
Preferred stock;$0.00001 par value; 50,000,000 shares | |||||||
authorized; 1,800,000 shares issued and outstanding | - | - | |||||
Common stock; $0.00001 par value; 5,000,000,000 shares authorized; 60,000,089 and | |||||||
963,971 shares issued and outstanding, respectively | 600 | 10 | |||||
Additional paid-in capital | 9,179,314 | 8,443,850 | |||||
Stock subscriptions receivable | (16,045 | ) | (40,000 | ) | |||
Accumulated deficit | (11,868,614 | ) | (11,199,249 | ) | |||
Total Stockholders' Equity (Deficit) | (2,704,745 | ) | (2,795,389 | ) | |||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 344,755 | $ | 143,446 |
The accompanying notes are an integral part of these financial statements.
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B2 DIGITAL, INCORPORATED
Statements of Operations (Unaudited)
For the Three Months Ended September 30, | For the Six Months Ended September 30, | ||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||
REVENUES | $ | 92,958 | $ | 139,920 | $ | 177,316 | $ | 270,607 | |||||
COST OF SALES | 43,249 | 58,358 | 81,404 | 107,097 | |||||||||
GROSS PROFIT | 49,709 | 81,562 | 95,912 | 163,510 | |||||||||
EXPENSES | |||||||||||||
General and administrative | 286,971 | 182,878 | 686,777 | 611,102 | |||||||||
Bad debts | - | - | 40,000 | - | |||||||||
Research and development | - | - | - | 10,000 | |||||||||
Total Expenses | 286,971 | 182,878 | 726,777 | 621,102 | |||||||||
OPERATING LOSS | (237,262 | ) | (101,316 | ) | (630,865 | ) | (457,592 | ) | |||||
OTHER INCOME (EXPENSES) | |||||||||||||
Interest expense | (18,750 | ) | (33,750 | ) | (38,500 | ) | (49,000 | ) | |||||
Total Other Income (Expense) | (18,750 | ) | (33,750 | ) | (38,500 | ) | (49,000 | ) | |||||
NET LOSS | $ | (256,012 | ) | $ | (135,066 | ) | $ | (669,365 | ) | $ | (506,592 | ) | |
BASIC LOSS PER SHARE | $ | (0.01 | ) | $ | (0.37 | ) | $ | (0.03 | ) | $ | (1.38 | ) | |
WEIGHTED AVERAGE | |||||||||||||
NUMBER OF SHARES | |||||||||||||
OUTSTANDING | 39,172,825 | 367,000 | 26,604,440 | 367,000 |
The accompanying notes are an integral part of these financial statements.
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B2 DIGITAL, INCORPORATED
Statements of Cash Flows (Unaudited)
For the Six Months Ended September 30, | |||||||
2006 | 2005 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net loss | $ | (669,365 | ) | $ | (506,592 | ) | |
Adjustments to reconcile net loss to net cash | |||||||
provided (used) by operating activities: | |||||||
Depreciation | 10,657 | 13,462 | |||||
Bad debt expense | 40,000 | ||||||
Common stock issued for services | 137,910 | 490,810 | |||||
Changes in operating assets and liabilities | |||||||
Increase in accounts receivable | (6,771 | ) | (16,049 | ) | |||
Increase in inventory | - | 1,050 | |||||
Increase in prepaid expenses | - | 12,790 | |||||
Increase (decrease) in accounts payable | 238,664 | (10,964 | ) | ||||
Net Cash Used by Operating Activities | (248,905 | ) | (15,493 | ) | |||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Payment for B2 Digital | - | - | |||||
Net Cash Used in Investing Activities | - | - | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Decrease in subscriptions receivable | (23,955 | ) | 10,000 | ||||
Sale of common stock for cash | 478,055 | - | |||||
Net Cash Provided by Financing Activities | 454,100 | 10,000 | |||||
NET DECREASE IN CASH | 205,195 | (5,493 | ) | ||||
CASH AT BEGINNING OF PERIOD | 8,203 | 5,711 | |||||
CASH AT END OF PERIOD | $ | 213,398 | $ | 218 | |||
CASH PAID FOR: | |||||||
Interest | $ | - | $ | - | |||
Income Taxes | $ | - | $ | - | |||
SUPPLIMENTAL SCHEDULE OF NON-CASH AND | |||||||
INVESTING ACTIVITIES | |||||||
Common stock issued for services | $ | 90,000 | $ | 490,810 | |||
Common stock issued for debt | $ | 100,000 | $ | 400,000 |
The accompanying notes are an integral part of these financial statements.
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B2DIGITAL, INCORPORATED
Notes to the Financial Statements
September 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 September 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 September 30, 2006 and 2005 are not necessarily indicative of operating results for the full years.
NOTE 2 - GOING CONCERN
NOTE 3 - SIGNIFICANT EVENTS
On February 7, 2006 the Board of Directors and stockholders with a majority of the voting power authorized the Board of Directors to amend its Certificate of Incorporation, in their sole discretion, to effect a reverse split of all outstanding shares of its common stock at any time within the next twelve months in a range between ten (10) and one thousand (1,000), pursuant to which any whole number of outstanding shares between and including 10 and 1,000 would be combined into one share of common stock. . On February 23, 2006, the Company’s board of directors 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 six months ended September 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 5,457,370 post-split common shares in exchange for cash and subscriptions receivable. The Company also issued 5,000,000 shares as payment on a note receivable.
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B2DIGITAL, INCORPORATED
Notes to the Financial Statements
September 30, 2006 and March 31, 2006
NOTE 3 - SIGNIFICANT EVENTS (Continued)
During the period ended September 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.
During the quarter ended September 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 these 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 and six months ended September 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 SEPTEMBER 30, 2006 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2005
RESULTS OF OPERATIONS
NET REVENUE
We generated consolidated net revenues of $92,958 for the three month period ended September 30, 2006, as compared to $139,920 for the three month period ended September 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 $43,249 for the three month period ended September 30, 2006, as compared to $58,358 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 $49,709 for the three month period ended September 30, 2006, as compared to $81,562 for the three month period ended September 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 $286,971 for the three month period ended September 30, 2006 as compared to $182,878 for the three month period ended September 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 $256,012 for the three month period ended September 30, 2006 as compared to a loss before taxes of $135,066 for the three month period ended September 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 September 30, 2006 was $(0.04), compared a loss per share of ($0.37) during the corresponding period ended September 30, 2005.
SIX MONTHS PERIOD ENDED SEPTEMBER 30, 2006 AS COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2005
RESULTS OF OPERATIONS
NET REVENUE
We generated consolidated net revenues of $177,316 for the six month period ended September 30, 2006, as compared to $270,607 for the six month period ended September 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 $81,404 for the six month period ended September 30, 2006, as compared to $107,097 for the six 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 $95,912 for the six month period ended September 30, 2006, as compared to $163,510 for the six month period ended September 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 $686,777 for the six month period ended September 30, 2006 as compared to $611,102 for the six month period ended September 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 $669,365 for the six month period ended September 30, 2006 as compared to a loss before taxes of $506,592 for the six month period ended September 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 six month period ended September 30, 2006 was $(0.11), compared a loss per share of ($1.38) during the corresponding period ended September 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
Our independent auditor has issued a "going concern" qualification as part of its opinion in the Audit Report dated June 23, 2006 for the year ended March 31, 2006. 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 $1,310,822 in current liabilities. Additionally, we currently estimate that we will need approximately $1,000,000 to continue operations through the end of the fiscal year 2007. These operating costs include general and administrative expenses and the deployment of inventory .The Company is raising funds through the sale of its common stock and is the process of Preferred stock offering.
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
Sale of common stock for cash and subscriptions receivable
During the three months ended September 30, 2006, the Company sold 4,457,370 shares of common stock for $375,000 The shares were sold to a non-U.S. investor in reliance on Section 4(2) and/or Regulation S, with the investor representing that, among other things, it is not a U.S. person within the meaning of Regulation S, with appropriate legends contained within the offering documents and placed on the shares, and with no selling efforts made within the U.S. As of September 30, 2006, the Company received an amount of $358,055.33 with $16,045 remaining which has been recorded as a subscriptions receivable.
Shares Issued for Debt
During the three months ended September 30, 2006, the Company issued 5,000,000 shares of common stock valued at $100,000 and all liabilities attached to certain Inventory the Company purchased December 2002.. The shares were sold to a non-U.S. investor in reliance on Section 4(2) and/or Regulation S, with the investor representing that, among other things, it is not a U.S. person within the meaning of Regulation S, with appropriate legends contained within the offering documents and placed on the shares, and with no selling efforts made within the U.S
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Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
On July 5, 2006, the Board of Directors designated 40,000,000 shares of preferred stock, $.00001 par value, as Series B Convertible Preferred Stock. The Series B does not have any voting rights with the common stockholders and does not have a liquidation preference, does not accrue, earn or participate in any dividends and is not subject to redemption. Twelve months after the original issuance date, but not before, each outstanding share of Series B Convertible Preferred Stock may be converted at the option of the holder into five (5) shares of common stock. Subsequent to September 30, 2006, on or about October 19, 2006, the Company began an overseas offering of the Series B at $.03 per share pursuant to Regulation S. As of the date of this filing, the Company has issued an aggregate of 2,000,000 shares of Series B to two overseas investors, but has not delivered or received payment for the shares, which is dependant on certain conditions including DTC eligibility for the shares. There is no assurance that the Company will be able to obtain DTC eligibility for the Series B and/or complete this offering.
Item 6. Exhibits
EXHIBIT NO. | DESCRIPTION |
2.1 | Asset Purchase Agreement between the Company and Hotel Movie Network, Inc., dated March 31, 2003 (incorporated by reference to Exhibit 10 of the Form 8-K filed on April 18, 2003). |
3.1(a) | Restated Articles of Incorporation (filed as an exhibit to the company's Form 8-K filed on October 19, 2001 and incorporated by reference herein) |
3.1(b) | Amendment to Articles of Incorporation (Incorporated by reference from 10QSB dated December 31, 2004). |
3.1(c) | Certificate of Designation of Series A Convertible Preferred Stock (incorporated by reference to Form 10-KSB for March 31, 2005) |
3.1(d) | Certificate of Amendment to Certificate of Incorporation (incorporated by reference from Schedule 14C filed November 28, 2005) |
3.1(e) | Certificate of Amendment to Certificate of Incorporation (incorporated by reference from Form 8-K filed June 16, 2005) |
3.1(f) | Certificate of Designation of Series B Convertible Preferred Stock (incorporated by reference from Form 10-KSB filed July 14, 2006) |
3.2 | Bylaws (incorporated by reference to Exhibit 3.2 of the company's Registration Statement on Form S-18, Registration No. 2-86781-D) |
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4.1 | 2005 Non-Qualified Stock Compensation Plan (filed as Exhibit 10.1 to the Company's Form S-8 filed on January 11, 2005 and incorporated by reference herein). |
4.2 | August 2005 Non-Qualified Stock Compensation Plan (filed as Exhibit 10.1 to the Company's Form S-8 filed on August 19, 2005 and incorporated by reference) |
10.1 | Consultant Agreement with Marcia A. Pearlstein (incorporated by reference from Form 10-QSB dated September 30, 2004). |
10.2 | Employment Agreement with Robert Russell (Effective January 25, 2005) (Incorporated by reference from 10QSB dated December 31, 2004). |
10.3 | Employment Agreement with Paul La Barre (Filed as Exhibit 10.2 and incorporated by reference to Form 8-K filed October 4, 2005). |
10.4 | Trust Agreement (incorporated by reference from Form 10-KSB filed July 14, 2006) |
31.1 | Section 302 Certification of the Chief Executive Officer. |
31.2 | Section 302 Certification of the Interim Chief Financial Officer. |
32.1 | Section 906 Certification of the Chief Executive Officer and Interim Chief Financial Officer |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated November 10, 2006
B2DIGITAL, INCORPORATED | |||
By: /s/ Robert Russell | |||
Robert Russell, President, Chief Executive Officer | |||
/s/ Marcia Pearlstein | |||
Marcia Pearlstein, Secretary and Interim Chief Financial Officer |
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