Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(Mark
One)
x QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended December 31, 2007
o TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For
the
transition period from _______ to ______
Commission
File Number 000-50098
PUBLIC
COMPANY MANAGEMENT CORPORATION
(Exact
name of small business issuer as specified in its charter)
Nevada
(State
or other jurisdiction of incorporation or
organization)
|
|
88-0493734
(IRS
Employer Identification No.)
|
5770
El Camino Road, Las Vegas, NV 89118
(Address
of principal executive offices)
(702)
222-9076
(Issuer's
telephone number)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.Yes
x
No o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes
oNo
x
As
of
January 24, 2008, there were 28,251,816 outstanding shares of the registrant's
common stock, $.001 par value per share.
Transitional
Small Business Disclosure Format (Check one): Yes oNox
TABLE
OF CONTENTS
PART
I - FINANCIAL INFORMATION
| |
|
Page
No. |
| |
|
|
|
Item
1.
|
Financial
Statements
|
1
|
| |
|
|
|
Item
2.
|
Management's
Discussion and Analysis
|
5
|
| |
|
|
|
Item
3.
|
Controls
and Procedures
|
15
|
| |
|
|
| |
PART
II - OTHER INFORMATION
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities
|
15
|
| |
|
|
|
Item
5.
|
Other
Information
|
16
|
| |
|
|
|
Item
6.
|
Exhibits
|
16
|
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements.
PUBLIC
COMPANY MANAGEMENT CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
ASSETS
|
|
|
December
31,
2007
|
|
|
September
30,
2007
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
15,701
|
|
$
|
18,166
|
|
|
Accounts
receivable, net
|
|
|
32,717
|
|
|
16,887
|
|
|
Marketable
securities
|
|
|
1,057,532
|
|
|
981,987
|
|
|
Total
current assets
|
|
|
1,105,950
|
|
|
1,017,040
|
|
|
Receivables
under contract, net
|
|
|
4,500
|
|
|
16,500
|
|
|
Non-marketable
securities
|
|
|
673,878
|
|
|
1,032,628
|
|
|
Furniture
and equipment, net
|
|
|
34,704
|
|
|
39,412
|
|
|
TOTAL
ASSETS
|
|
$
|
1,819,032
|
|
$
|
2,105,580
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
316,570
|
|
$
|
385,244
|
|
|
Accounts
payable and accrued expenses to related parties
|
|
|
532,135
|
|
|
459,717
|
|
|
Current
portion of installment notes payable
|
|
|
19,269
|
|
|
23,433
|
|
|
Bank
line of credit
|
|
|
39,492
|
|
|
38,281
|
|
|
Advances
from related party
|
|
|
54,384
|
|
|
-
|
|
|
Deferred
revenues
|
|
|
674,967
|
|
|
1,099,967
|
|
|
Total
current liabilities
|
|
|
1,636,817
|
|
|
2,006,642
|
|
| |
|
|
|
|
|
|
|
|
LONG
TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Long-term
portions of installment note payable
|
|
|
6,290
|
|
|
9,367
|
|
|
TOTAL
LIABILITIES
|
|
|
1,643,107
|
|
|
2,016,009
|
|
| |
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value; 50,000,000 shares
authorized,
28,149,316 and 28,099,316 shares issued and
outstanding,
respectively
|
|
|
28,149
|
|
|
28,099
|
|
|
Paid-in-capital
|
|
|
3,865,534
|
|
|
3,862,083
|
|
|
Accumulated
deficit
|
|
|
(3,717,758
|
)
|
|
(3,800,611
|
)
|
|
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
175,925
|
|
|
89,571
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
1,819,032
|
|
$
|
2,105,580
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PUBLIC
COMPANY MANAGEMENT CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
The
Three Months Ended December 31, 2007 and 2006
(Unaudited)
| |
|
|
2007
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
488,591
|
|
$
|
381,582
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
289,518
|
|
|
347,718
|
|
|
Bad
debt expense
|
|
|
5,387
|
|
|
6,428
|
|
|
Depreciation
and amortization
|
|
|
4,708
|
|
|
8,980
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
299,613
|
|
|
363,126
|
|
| |
|
|
|
|
|
|
|
|
Net
income from operations
|
|
|
188,978
|
|
|
18,456
|
|
| |
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(3,213
|
)
|
|
(12,544
|
)
|
|
Interest
income
|
|
|
1,687
|
|
|
645
|
|
|
Realized
loss on sale of securities
|
|
|
(17,076
|
)
|
|
(1,589
|
)
|
|
Impairment
of non-marketable securities
|
|
|
(296,042
|
)
|
|
-
|
|
|
Unrealized
gain (loss) on marketable securities
|
|
|
208,520
|
|
|
61,871
|
|
| |
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
(106,124
|
)
|
|
48,383
|
|
| |
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
82,854
|
|
$
|
66,839
|
|
| |
|
|
|
|
|
|
|
|
Basic
and diluted weighted average shares outstanding
|
|
|
28,140,077
|
|
|
23,780,324
|
|
| |
|
|
|
|
|
|
|
|
Basic
and diluted net income per share
|
|
$
|
0.00
|
|
$
|
0.00
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PUBLIC
COMPANY MANAGEMENT CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the
Three Months Ended December 31, 2007 and 2006
(Unaudited)
| |
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities
Net
income
|
|
$
|
82,854
|
|
$
|
66,839
|
|
|
Adjustments
to reconcile net income to net
cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
4,708
|
|
|
8,980
|
|
|
Bad
debt expense
|
|
|
5,387
|
|
|
6,428
|
|
|
Stock
issued for services
|
|
|
3,500
|
|
|
22,850
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Marketable
and non-marketable securities
|
|
|
283,205
|
|
|
(332,588
|
)
|
|
Accounts
and stock receivable
|
|
|
(9,217
|
)
|
|
(59,571
|
)
|
|
Accounts
payable and accrued expenses
|
|
|
(68,674
|
)
|
|
40,468
|
|
|
Accounts
payable and accrued expenses to related parties
|
|
|
72,418
|
|
|
88,734
|
|
|
Deferred
revenue
|
|
|
(425,000
|
)
|
|
(16,320
|
)
|
|
Net
Cash Used in Operating Activities
|
|
|
(50,819
|
)
|
|
(174,180
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Net
change in bank line of credit
|
|
|
1,211
|
|
|
1,165
|
|
|
Payments
on installment notes payable
|
|
|
(7,241
|
)
|
|
(6,823
|
)
|
|
Repayment
of advances from related party
|
|
|
-
|
|
|
-
|
|
|
Advances
from related party
|
|
|
58,134
|
|
|
349,699
|
|
|
Payments
to related party
|
|
|
(3,750
|
)
|
|
-
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
48,354
|
|
|
344,041
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(2,465
|
)
|
|
169,861
|
|
|
Cash
at beginning of period
|
|
|
18,166
|
|
|
11,043
|
|
|
Cash
at end of period
|
|
$
|
15,701
|
|
$
|
180,904
|
|
| |
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,212
|
|
$
|
12,544
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Supplemental
non-cash disclosures:
|
|
|
|
|
|
|
|
|
Common
stock issued for accrued share-based compensation
|
|
$
|
-
|
|
$
|
19,575
|
|
|
Common
stock issued for accrued share-based compensation
|
|
|
-
|
|
|
27,100
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PUBLIC
COMPANY MANAGEMENT CORPORATION
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 -
BASIS OF PRESENTATION
The
accompanying unaudited interim financial statements of Public Company Management
Corporation (“PCMC”) have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission, and should be read in conjunction with
the
audited financial statements and notes thereto filed with the SEC on Form 10-KSB
filed with the SEC on December 28, 2007. In the opinion of management, all
adjustments necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosures
contained in the audited financial statements for fiscal year 2007 as reported
in the Form 10-KSB have been omitted.
NOTE
2 -
COMMON STOCK
During
the three months ended December 31, 2007, PCMC issued 50,000 shares to a third
party for services rendered. These shares were valued at their fair market
value
using quoted market prices on the date of grant of $0.07 per share, resulting
in
total share-based compensation expense of $3,500.
At
December 31, 2007, PCMC had accrued a total of 626,276 shares valued at $82,620
for services to be paid in stock in the future, of which 598,776 shares valued
at $80,440 were accrued to current and former executive officers of
PCMC.
NOTE
3 -
RELATED PARTY
During
the three months ended December 31, 2007, the President and CEO made personal
advances to PCMC of $58,134 for funding of operating activities for which no
current period re-payments have been made.
NOTE
4 -
SUBSEQUENT EVENTS
Subsequent
to December 31, 2007, PCMC issued 102,500 shares valued at $6,380 for current
period services.
Item
2. Management's Discussion and Analysis.
The
following discussion may contain “forward-looking statements” within the meaning
of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), which can be identified by the use of forward-looking
terminology such as, “may,” “believe,” “expect,” “intend,” “anticipate”,
“estimate,” or “continue” or the negative thereof or other variations thereon or
comparable terminology. Although we believe that the expectations reflected
in
such forward-looking statements are reasonable, we can give no assurance that
such expectations will prove to have been correct. Our operations involve a
number of risks and uncertainties, including those described under the heading
“Risk Factors” in our Annual Report on Form 10-KSB and other documents filed
with the Securities and Exchange Commission. Therefore, these types of
statements may prove to be incorrect.
Overview
We
are a
management consulting firm that educates and assists small businesses to improve
their management, corporate governance, regulatory compliance and other business
processes, with a focus on capital market participation. We provide solutions
to
clients at various stages of the business lifecycle:
| · |
Educational
products to improve business processes or explore entering the capital
markets;
|
| · |
Startup
consulting to early-stage companies planning for
growth;
|
| · |
Management
consulting to companies seeking to enter the capital markets via
self-underwriting or direct public offering or to move from one capital
market to another; and
|
| · |
Compliance
services to fully reporting, publicly traded companies.
|
We
help
companies
to understand and prepare to meet the obligations incumbent upon public
reporting companies, to access the public capital markets
primarily through the companies’ self underwriting or direct public offerings of
their securities. We also guide and assist them in maintaining their periodic
reporting compliance process. We offer our services under the trademarks Pubco
WhitePapers™, GoPublicToday™ and Public Company Management Services™ (“PCMS”).
We focus on the small business market which we believe is underserved by larger
management consulting services firms. As a fully reporting, small business
issuer with our common stock quoted and traded on the over-the-counter Bulletin
Board (or OTCBB) under the symbol “PUBC”, we strive to lead by
example.
Our
clients consist primarily of growing small-to-middle market private companies
that:
| · |
Have
a business plan showing a potential for profitable operation and
above
normal growth within three to five
years;
|
| · |
Operate
in either established markets, high growth potential niche markets
and/or
market segments that are differentiated, driven by pricing power
or mass
scale standardized product/service delivery;
and
|
| · |
Have
an experienced management team that owns a significant portion of
their
current equity.
|
During
fiscal 2007, we began requiring potential clients to show that they have at
least $1 million in current annual revenue and high double digit sales growth
before we will enter an engagement with them. Also, we encourage clients to
change their state of incorporation to Nevada if they are organized in another
state or a foreign country.
How
We Generate Revenue
We
derive
revenue from the following activities:
Educational
White Papers, Open Lines and Consultations.
We have
a database of over 140 educational white papers that serve growth-stage business
owners and financial executives. We sell these white papers at retail prices
ranging from $9.95 to $194.95 per paper. We also conduct open lines
communications and consultations with potential clients regarding their
prospects of becoming public companies. We expect that a certain number of
these
sales, open lines and consultations will translate into clients seeking to
become fully reporting, publicly traded companies, and that we can enter into
contracts with them to provide our management consulting and regulatory
compliance services.
Management
Consulting Services.
We
provide management consulting services to small businesses. We currently
generate most of our revenue from management consulting services that we provide
under the PCMC Roadmap to our clients seeking to become fully reporting,
publicly traded companies. Rather than charging these clients cash at a fair
market rate of $425 per hour, we offer them contracts with a fee structure
consisting of a mix of stock and cash. Under this structure, we currently
receive 1.25 million shares of common stock of the client which are
nonrefundable plus $85,000 for management consulting services and, as discussed
below, $48,000 for compliance services.
Effective
with the second quarter ended March 31, 2005, we adopted a revenue recognition
policy in which we recognize a portion of the revenue related to our consulting
contracts at the completion of each of the following four
milestones:
| (i) |
initial
analysis of client’s business and operations and private round(s) of
initial financing from up to thirteen investors
(20%);
|
| (ii) |
clients’
preparation of a second round of financing in the form of a private
placement memorandum or registration statement for filing with the
SEC
(20%);
|
| (iii) |
effectiveness
of clients’ registration statement (25%);
and
|
| (iv) |
clients’
qualification for quotation on the OTCBB or listing on a securities
market
or exchange (35%).
|
During
fiscal 2007, some of our clients expressed a need for immediate, seed-type
capital from one to three potential investors prior to conducting the private
offering of initial financing from up to ten accredited or sophisticated
investors for which we normally recognize 20%. We believe that the client’s
ability to conduct this type of offering is a measurable milestone related
to
the management consulting services that we provide under our contracts. We
estimated that the value of the services we provide for this purpose is
approximately 10% of the total contract. Accordingly, effective October 1,
2007,
we revised our revenue recognition policy to bifurcate the first milestone
in
the event we provide management consulting services to a client to raise
seed-type capital, otherwise we continue to recognize 20% for services we
provide for the first milestone.
We
also
derive revenue from a broad range of value-added management consulting services
that we provide on an hourly basis. Our current rate for these services is
$425
per hour. These services are designed to improve corporate structures, business
practices and procedures, record keeping, accounting and corporate governance
in
order for small private companies to advance and sustain themselves in the
capital markets. We receive payment for these services in the form of cash;
however, for those clients receiving services under our PCMC Roadmap, discussed
above, we may receive payment in the form of cash or additional client stock
for
time delays caused by the client or additional management consulting services
outside of the scope of the contract that the client may ask us to
perform.
Compliance
Services.
We offer
regulatory compliance services to public companies. These services also include
corporate governance matters under the Sarbanes-Oxley Act of 2002. Our rate
for
these services is $425 per hour; however as part of our management consulting
services contracts with clients seeking to become a fully reporting, publicly
traded company, we provide these services for $48,000 for the first twelve
months after a client becomes a public company.
Known
Trends, Events and Uncertainties
Valuation
of Non-marketable Securities
Having
clients that have made it through the process of becoming publicly traded
companies and developed markets for their common stock underlies our ability
to
sell the shares we hold for cash. Our clients have experienced delays becoming
publicly traded companies (see the discussion below under the heading “Revenue
Recognition”) and developing markets for their common stock. In addition, our
clients have had a limited number of shares sold for cash to unrelated third
parties relative to the number of shares we receive for services.
Historically,
we have valued our shares at the price per share of contemporaneous sales of
common stock by our clients to unrelated third parties which occurred at our
first revenue recognition milestone, classified the shares as non-marketable
securities, credited deferred revenue in an equal amount and recognized revenue
related to the shares under our revenue recognition policy, discussed above
under the heading “How We Generate Revenue”, “Management
Consulting Services”.
We
received 500,000 shares of our client’s issued and outstanding common stock as
part of our compensation for management consulting services prior to the first
milestone, but we have since increased our stock compensation to 1,250,000
shares. Also, the third-party sales prices and the length of time for a client
to complete the process to become a public company and develop a market for
its
securities generally have increased in the last two years.
During
the audit of fiscal 2007 we considered whether, in light of the changes in
our
business (discussed in the paragraph above), the clients’ sales of shares at the
first milestone was high enough in quantity compared to the number of shares
we
own at that time for us to use the third-party sales price to value our shares.
When the clients’ third party stock sales at the first milestone are not
representative of the fair value of our shares, we will either obtain a
third-party valuation of the stock or record the expected net realizable value
of shares based on our historical business activity. When neither of these
are
available, the stock is recorded at $-0-. We determined that the fair value
of
an aggregate of 5,500,000 shares of non-marketable securities of various clients
were not supportable based on the third-party sales price because the number
of
shares we owned was significantly greater than the number of shares sold at
that
time. Accordingly, we recorded impairment of $2,723,480 related to these
securities. These clients are still actively engaged in the process of becoming
public companies and have sold shares to unrelated third parties at prices
ranging from $0.50 per share to $4.00 per share in relatively small offerings;
therefore, the shares are recorded at $-0- on our balance sheet. We will not
assign any value to the shares until such time as a client has sold a sufficient
number of shares to unrelated third parties in a reasonable period of time
relative to the number of shares we receive for services or such time as we
have
a sufficient history of selling shares for cash in the market to use as a basis
for valuing new client common stock. Until such time as a client’s stock
sales are high enough, or we obtain third-party valuations or develop a method
of valuing new client shares based on our selling history, we initially will
record only the cash portion of our client engagements, which will have a
material adverse effect on our financial condition and result of operations
until such time as we can sell the stock portion and record gains on the sale.
Marketing
and Nevada Economic Development
Historically,
we directed our marketing efforts to potential clients throughout the U.S.
and
in Canada. While we will continue to accept clients on a national and
international basis, we believe that there are significant advantages to
concentrating our marketing efforts in the State of Nevada. Further, we believe
that supporting Nevada economic development based on the state’s unique capital
markets and business regulatory climate will drive business directly to us
as
well as have long term benefits for the state.
According
to the Nevada Secretary of State, there are approximately 310,000 corporations
domiciled in Nevada. During 2006, 41,083 corporations were formed in Nevada
and
39,052 and 35,186 corporations were formed in Nevada during 2005 and 2004,
respectively. We perceive Nevada as offering the following
benefits:
| · |
Favorable
securities, corporate and tax laws and regulations for small businesses;
and
|
| · |
Large
number of small businesses that could benefit from raising capital,
expanding their business and growing nationally and internationally
by
successful entry and sustained participation in the public capital
markets.
|
We
created the Nevada Economic Development Advisory Board (NEDAB), a council of
prominent businesspeople and legislators who share a vision of diversified
economic growth through capital marketing participation and are working with
other businesses and the government to make that vision a reality. NEDAB
believes that:
| · |
Nevada
has the potential to become the premier destination in the U.S. for
small
business issuers looking to enter the capital
markets;
|
| · |
Nevada
corporations across a variety of industries can benefit from participating
in the capital markets as a way to build long term shareholder value,
provide access to capital, increase visibility and improve business
practices to meet the standards of being a public company;
and
|
| · |
An
increased number of Nevada corporations successfully entering and
sustaining participation in the capital markets will create diversified
economic growth, increase the number of companies that physically
relocate
to Nevada, create new jobs and increase revenue for the
state.
|
Activities
of NEDAB include:
| · |
Outreach
to other economic development groups, legislators, regulators, business
owners, and business and industry
leaders;
|
| · |
Educational
Programs for companies seeking to learn about capital markets and
the
advantages of domiciling in Nevada as a private or public
company;
|
| · |
Policy
Research and Recommendations to make Nevada even more attractive
as a home
for companies wanting to participate in capital markets;
and
|
| · |
Locally-based
Industry Screening Committees to help identify and screen companies
that
are good candidates for participation in the public
markets.
|
We
have
significantly increased our public awareness in the State of Nevada. For
example, in November 2007, we held our first Capital Markets Seminar. We are
planning to hold our second Capital markets Seminar in February 2008 and every
other month thereafter. We believe that increased public awareness of our
educational materials, services and Nevada roots could bring new resources
and
create jobs in Nevada as well as assist in turning Nevada into a platform to
develop capital markets for small business issuers.
Our
President, CEO and majority shareholder is a Nevada resident. He has a network
of business contacts who can assist us in creating our public awareness in
Nevada and assist us in the development of Nevada companies.
Third-Party
Financing
Although
we offer a contract that allows a substantial portion of our fees to be paid
in
client stock, some growth stage companies that are ready and qualified to enter
the capital markets are still reluctant to utilize cash in the process that
could be used to fund their marketing or expansion of their operations. We
believe that if our clients can obtain third-party project financing, it would
increase our ability to sign new clients and shorten the amount of time it
takes
for us to sign a potential client after we first meet them.
We
have
established relationships with state and federal banks for them to offer our
qualified clients loans up to $250,000. The funds would be used to pay our
management consulting and compliance services fees and other expenses related
to
the client becoming a fully reporting, publicly traded company and entering
the
capital markets. We are also in talks with a national bank to expand the project
financing to include 48-hour approval on loans up to $100,000 and to provide
loans up to $2 million for equipment, acquisitions, commercial real estate
and
other capital expenditures.
While
this type of financing traditionally has been applied to property purchases,
such as vehicles, equipment and real estate, it may work when applied creatively
to the services industry.
Client
Progress Reports or Requests for Payment
We
have
been exploring ways to convey to each of our preexisting and new clients the
value of the management consulting services that we provide to them in terms
of
estimated hours at our hourly rates throughout the entire process for them
to
become fully reporting, publicly traded companies. We have developed a list
of
tasks that reflect the activities that we typically perform during an engagement
for each milestone on which we generate revenue from management consulting
services. As discussed in more detail below, we are in the process of reviewing
each client engagement to date to determine what we would have charged (in
the
case of performing clients) or what we may seek to recover (for slow performing
or inactive clients) for our services on an hourly basis. We have decided to
present this information in the form of a progress report for a performing
client and a request for payment for a slow-performing or inactive
client.
We
began
a project of reviewing our client contracts (some of which we had entered into
as far back as 2004) to assess the value of management consulting services
that
we have provided on each engagement in terms of estimated hours at our hourly
rates. The review consists of identifying the last milestone reached by each
client, reviewing our files for each client, and reviewing each client’s
intranet and email communications between us and the client as well as various
consultants that provided services to the client. During the review, we document
the work, both within and outside of the scope of each engagement, in terms
of
estimated hours that we performed for the client. We initially based our
estimates on a study that we conducted several years ago to assess the number
of
hours that it took to complete each milestone; however, in most cases, we
determined that it was necessary to adjust that estimate upwards due to
specifically identified delays related to a particular engagement and general
changes in the statutory, regulatory and accounting environment that have
occurred since the date of our study. As a result, we have determined that
it
takes approximately 1,600 hours, rather than 1,100 hours to complete a
management consulting services engagement.
We
use
the documentation to provide our performing clients with a progress report
showing their current status in the process of becoming a fully reporting,
publicly traded company and the value of our services as of the date of the
report. In performing our reviews, we discovered that we had provided management
consulting services with an estimated value of several hundreds of thousands
of
dollars on certain client engagements which we consider as slow performing
or
inactive. We have received a limited amount of cash from these engagements
and
hold (or are owed) shares of their common stock. These shares have become (or
would be) worthless to us since our business model is driven by clients that
have made it through the process of becoming fully reporting, publicly traded
companies. We are using the documentation to provide our slow-performing and
inactive clients with a request for payment for the value of our services and/or
accelerate their active engagement in completing the milestones.
Providing
progress reports and requests for payment is an ongoing process. We hope that
the progress reports will keep our performing clients focused on their efforts
to become fully reporting, publicly traded companies and that the requests
for
payment will reengage our slow-performing and inactive clients or serve as
a
basis for us to collect from or negotiate a settlement with them. However,
there
can be no assurance that we will achieve any of these results. As of the filing
of this report, one of our clients refocused on the process of becoming publicly
traded and renegotiated with us for six months of regulatory compliance
services. In addition, we and one of our inactive clients have agreed to terms
in principal regarding a settlement and mutual release where the client would
pay us cash for services that they received from us.
Revenue
Recognition
We
have
experienced delays in recognizing revenue from our contracts for management
consulting services. Whether or not we meet the milestones for recognizing
such
revenue is dependent on the time it takes for our clients to make it through
the
process of becoming fully reporting, publicly traded companies. Our clients
face
obstacles in undertaking this process. The primary obstacles which they face
relate to their ability to provide suitable non-financial statement information
and financial statement information. In addition, some of our clients have
experienced delays in reorganizing or restructuring their organizations to
suit
that of a public company and others have run out of financial resources due
to
unexpected events including the delays themselves.
Oftentimes
the small, privately held companies that we service do not have personnel with
the skills necessary to prepare audited financial statements suitable for filing
with the SEC. Even when these companies have audited financial statements,
generally, the financial statements do not comply with SEC regulations and/or
the audit was not performed by an accounting firm that is registered with the
PCAOB. The SEC has specific regulations that govern the form and content of
and
requirements for financial statements required to be filed with the SEC. The
Sarbanes-Oxley Act of 2002 prohibits accounting firms that are not registered
with the PCAOB from preparing or issuing audit reports on U.S. public companies
and from participating in such audits. It is imperative that our clients’
financial statements comply with SEC regulations and that they be audited by
an
accounting firm registered with PCAOB. In addition to audited financial
statements, in certain circumstances, SEC regulations also require our clients
to file unaudited interim financial statements that have been reviewed by the
clients’ PCAOB registered independent auditor. As discussed above, our clients
have faced obstacles in preparing their financial statements.
We
continue to use audit coordinators in our business model to assist our clients
in preparing their financial statements in compliance with SEC regulations.
In
many cases, we mandate that our clients engage an audit coordinator as a
condition to contracting with us. Initially, an audit coordinator will interview
a client’s personnel, accounting systems and methodology, and financial records
to determine their proficiency and level of adherence to accounting standards.
If a client does not have suitable personnel, the audit coordinator will
recommend early in the process that the client hire someone internally who
can
fulfill the client’s accounting function. Audit coordinators also serve as a
liaison between the client and their independent auditor during the audit or
financial statement review process. Audit coordinators teach our clients how
to
accumulate and communicate financial information within their organizations’ and
record, process, summarize and report their financial information within the
time periods specified by the SEC.
Technology
We
are
leading by example and pioneering the use of technology to manage our
decentralized, virtual operational infrastructure under a program that we call
Always-On Management™. The program addresses the challenges of using technology
to manage a geographically disbursed team. While many of these
technologies have been available for several years, the management practices
around their use are typically not mature in small businesses like us outside
of
the technology industry. We believe that our use of these technologies allows
us
to better serve our clients and improve operational efficiency and
profitability. We hope that our efforts will create publicity for us and provide
additional management consulting services opportunities for us.
We
aim to
implement a web-based system for project planning and time tracking. As
discussed above under the heading “Client Progress Reports or Requests for
Payment”, we are placing more importance on keeping track of time allocation on
client engagements in order to fully realize revenue for additional services
provided to clients beyond the scope of our basic engagement. We expect
that a web-based system will support our ongoing process of improving
operational efficiency and profitability. The web-based interface will
allow us and the professional service providers who serve our clients to track
our time on client engagements. We also aim to integrate the system with our
accounting system which we expect will accelerate our accounts receivable
process for additional services which we can bill by the hour.
Results
of Operations for the Three Months Ended December 31, 2007 Compared to the
Three
Months Ended December 31, 2006.
Our
revenue was $488,591 for the three months ended December 31, 2007, as compared
to $381,582 for the three months ended December 31, 2006. During the three
months ended December 31, 2007 and 2006, we generated most of our revenue from
management consulting services. We accept restricted shares of common stock
of
our clients as the predominate portion of our fee for services. Historically,
we
have valued the shares at the price per share of contemporaneous sales of common
stock by our clients to unrelated third parties, classified the shares as
non-marketable securities, credited deferred revenue in an equal amount and
recognized revenue related to the shares under our revenue recognition policy,
discussed above under the heading “How We Generate Revenue”, “Management
Consulting Services”.
During
the audit of fiscal 2007, we considered whether, in light of the changes in
our
business (discussed above under the heading “Known Trends, Events and
Uncertainties”, “Valuation of Non-marketable Securities”), the clients’ sales of
shares at the first revenue recognition milestone was high enough in quantity
compared to the number of shares we own at that time for us to use the
third-party sales price to value our shares. When the clients’ third party stock
sales at the first milestone are not representative of the fair value of these
shares, we will either obtain a third-party valuation of the stock or record
the
expected net realizable value of shares based on our historical business
activity. When neither of these are available, the stock is recorded at $-0-.
We
determined that the fair values of an aggregate of 5,500,000 shares of
non-marketable securities of various clients were not supportable based on
the
third-party sales price because the number of shares we owned was significantly
greater than the number of shares sold at that time. As a result, we are not
recognizing revenue during the three months ended December 31, 2007 related
to
the shares of certain clients’ common stock which is the primary reason for our
decrease in revenue.
General
and administrative expense decreased $58,200, or 17%, to $289,518 for the three
months ended December 31, 2007, as compared to general and administrative
expense of $347,718 for the three months ended December 31, 2006. The decrease
in general and administrative expense was primarily due to outside consulting
fees.
Bad
debt
expense was $5,387 for the three months ended December 31, 2007, as compared
to
bad debt expense of $6,428 for the three months ended December 31,
2006.
Depreciation
and amortization expense decreased $4,272, or 48%, to $4,708 for the three
months ended December 31, 2007, as compared to depreciation and amortization
expense of $8,980 for the three months ended December 31, 2006. The decrease
in
depreciation and amortization was primarily a result of having certain
capitalized website costs becoming fully depreciated.
Total
operating expenses decreased $63,513, or 17%, to $299,613 for the three months
ended December 31, 2007, as compared to total operating expenses of $363,126
for
the three months ended December 31, 2006. The decrease in total operating
expenses was primarily due to the decrease in general and administrative expense
discussed above.
Interest
expense decreased $9,331, or 43%, to $3,213 for the three months ended December
31, 2007, as compared to interest expense of $12,544 for the three months ended
December 31, 2006. We had a larger amount of liabilities on which we incurred
interest during the three months ended December 31, 2007, which caused the
increase in interest expense.
Interest
income was $1,696 for the three months ended December 31, 2007, as compared
to
interest income of $645 for the three months ended December 31, 2006. The
increase in interest income was due to an increase in our cash
balances.
We
had
realized loss on sale of securities of $17,076 for the three months ended
December 31, 2007, as compared to realized loss on sale of securities of $1,589
for the three months ended December 31, 2006. The change from realized gain
to
realized loss on sale of securities was due to transactions at a lower market
value than book value of securities sold.
Unrealized
gain on marketable securities of $208,520 for the three months ended December
31, 2007, as compared to unrealized gain on marketable securities of $61,871
for
three months ended December 31, 2006. The increase in unrealized gain on
marketable securities was primarily due to changes in the values of marketable
securities.
Net
income increased $16,015, or 24%, to $82,854 (and net income per share of $0.00)
for the three months ended December 31, 2007, as compared to net income of
$66,839 (and net income per share of $0.00) for the three months ended December
31, 2006. The increase in net income was primarily attributable to the decrease
in general and administrative expense discussed above.
We
had an
accumulated deficit of $3,717,758 as of December 31, 2007.
Liquidity
and Capital Resources
We
had
total current assets of $1,105,950 as of December 31, 2007, which consisted
of
cash of $15,701, net accounts receivable of $32,717 and marketable securities
of
$1,057,532.
We
had
total current liabilities of $1,636,817 as of December 31, 2007, which consisted
of deferred revenues of $674,967, advances from related party of $54,384 that
we
received from Stephen Brock, our President and CEO, accounts payable and accrued
expenses to related parties of $532,135, accounts payable and accrued expenses
of $316,570, bank line of credit of $39,492 and current portion of installment
notes payable of $19,269. Accounts payable and accrued expenses to related
parties includes accrued cash compensation of $405,000 to Mr. Brock and cash
and
stock compensation of $46,695 and $80,440 to other executive
officers.
We
had
negative working capital of $530,867 as of December 31, 2007. The ratio of
current assets to current liabilities was 68% as of December 31,
2007.
The
underlying driver which impacts our working capital is having clients that
have
made it through the process of becoming fully reporting, publicly traded
companies and developed markets for their securities. Rather than charging
clients cash payments at $425 per hour, we offer them contracts with a fee
structure consisting primarily of the client’s stock and 19% to 22% cash. We are
currently using cash collected from clients, sales of our client securities
and
net cash payments from Stephen Brock, our President, CEO, majority shareholder
and a director, to cover our overhead.
Having
clients that have made it through the process of becoming publicly traded also
drives our ability to generate cash flows from operations. Until a client
becomes a publicly traded company, there is no market for the shares of our
clients’ common stock which we receive in lieu of cash payments for our
services. There is no assurance that a market will develop for these securities
and, even if markets do develop, those markets will most likely be illiquid
and
highly volatile.
The
majority of our potential value is in the common stock we own of our clients.
These shares are divided on our balance sheet into marketable securities (a
current asset) and non-marketable securities. Until such time as our clients’
common stock becomes publicly traded and there is evidence of a market in those
securities to sustain sales of the shares that we hold, we classify
non-marketable securities as a long-term asset; however, we classify deferred
revenue associated with our contracts as a current liability. As a result,
the
common stock of any particular client will have a negative effect on our working
capital until such time as the client becomes a fully reporting, publicly traded
company and there is evidence that we could sell our shares in the market.
Classifying non marketable securities as a long-term asset and deferred revenue
as a current liability creates less working capital and a lower ratio of current
assets to current liabilities than what they otherwise would be if deferred
revenue was classified as a long-term liability. As our current clients reach
milestones, we would recognize revenue and offset deferred revenues, which
balance was $674,967 as of December 31, 2007. As our clients become fully
reporting, publicly traded companies and there is a market in which we could
sell our shares, non-marketable securities, which balance was $1,057,532 as
of
December 31, 2007, would become marketable securities. Both of these results
would have a significant positive impact on our working capital; however, new
client contracts would create additional non-marketable securities and deferred
revenues which would offset such positive effect.
During
the three months ended December 31, 2007, we had a net decrease in cash of
$2,465; consisting of $48,354 provided by financing activities which was offset
by $50,819 used in operating activities. We did not have any cash flows from
investing activities during the three months ended December 31, 2007.
Net
cash
used in operating activities was $50,819
for
fiscal 2007, consisting of net profit of $82,854 adjusted by non-cash expenses
for depreciation and amortization of $4,708, bad debt expense of $5,387 and
shares issued for services of $3,500, an increase in marketable and non
marketable securities of $283,205 and a increases in accounts payable and
accrued expenses to related parties of $72,418 offset by a decrease in deferred
revenue of $425,000, a decrease in accounts and stock receivable of $9,217
and a
decrease in accounts payable and accrued expenses to outside parties of $68,674.
Net
cash
provided by financing activities was $48,354 for fiscal 2007, consisting of
proceeds from related party advances of $58,134 by Stephen Brock, our President,
CEO, majority shareholder and a director, a net change in our bank line of
credit of $1,211, payments to a related party of $3,750 and payments on
installment notes payable of $7,241.
We
believe that we can meet our cash requirements during the next twelve months
from sales of marketable securities, new clients, client milestone cash payments
and certain capital raising efforts being undertaken. Further, in the past,
Stephen Brock has provided personal capital funding to us for operations. Mr.
Brock has expressed his intent to continue to support our operations with
additional funds in the event other outside funding sources or sales of
marketable securities do not provide sufficient funds during the next twelve
months; provided, however, that Mr. Brock is financially able to do so, of
which
there can be no assurance. In addition, we increased our efforts, which involved
litigation in some instances, to collect cash payments owed to us from clients
who breached our agreements. We plan to continue these efforts during the next
twelve months. We do not have any firm commitments or other identified sources
of additional capital from third parties or from our officers including Mr.
Brock or from shareholders.
During
the three months ended December 31, 2007, Stephen Brock provided us with $58,134
of funding for our operations. Further, we may seek a greater line of credit
or
private equity capital to finance our operations until more clients’ common
stock becomes publicly traded and we are able to dispose of our shares of their
common stock.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations
is
based upon our financial statements, which have been prepared in accordance
with
accounting principals generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses,
and
related disclosure of any contingent assets and liabilities. On an on-going
basis, we evaluate our estimates. We base our estimates on various assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about 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.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our financial
statements:
Revenue
Recognition.
Revenue
is recognized when the earning process is complete and the risks and rewards
of
ownership have transferred to the customer, which is generally considered to
have occurred upon performance of the services provided. Providing management
consulting services may take several months. Effective with the second quarter
ended March 31, 2005, we adopted a revenue recognition policy for management
consulting services that we provide under the PCMC Roadmap™ based on the value
received by our clients at measurable milestones in the public reporting
process. We concluded that the relative values of our consulting services for
each of the milestones are as follows: (i) initial analysis of client’s business
and operations and private round of initial financing from up to ten investors
(20%), (ii) client’s preparation of a second round of financing in the form of a
private placement memorandum or a registration statement for filing with the
SEC
(20%), (iii) effectiveness of client’s registration statement (25%) and (iv)
client’s qualification for quotation on the OTCBB or listing on a securities
market or exchange (35%). During fiscal 2007, some of our clients expressed
a
need for immediate, seed-type capital from one to three potential investors
prior to conducting the private offering of initial financing from up to ten
investors. We identified this as a measurable milestone the public reporting
process. We estimated that the value of the services we provide for this purpose
is approximately 10% of the total contract. Accordingly, effective October
1,
2007, we revised our revenue recognition policy to bifurcate the first milestone
in the event we provide management consulting services to a client under the
PCMC Roadmap™ to raise seed-type capital, otherwise we continue to recognize the
full 20% for the first milestone after we perform services for the private
round
of initial financing from up to ten investors. Revenues are not recognized
for
the value of securities received as payment for services when there is no public
trading market and there have been no recent private sales of the
security.
If
we
find that the relative amount of man hours and other expenditures required
by us
has materially changed for one or more of the milestones and that this change
is
of such a nature that it would likely also be incurred by our competitors in
the
marketplace or would change the relative value received by the clients for
that
milestone, it could warrant changing the percentages prospectively. As of the
period covered by this report, we had deferred revenues of $674,967, which
were
subject to changes in the percentage revenue earned for the remaining
milestones.
Valuation
of marketable securities. Marketable
securities are classified as trading securities, which are
carried at their fair value based upon quoted market prices of those securities
at each period-end.
Accordingly, net realized and unrealized gains and losses on trading securities
are included in net income. The marketable securities that we hold are traded
on
the OTCBB. The market price for these securities is subject to wide fluctuations
from period to period which may cause fluctuations in our net
income.
Valuation
of non-marketable securities.
Non-marketable securities are not publicly traded and therefore do not have
a
readily determinable fair value. Non-marketable securities are reflected on
our
balance sheet at historical cost. As
our
clients become fully reporting, publicly traded companies and there is evidence
of a market in those securities to sustain sales of the shares that we hold,
non-marketable securities would become marketable securities which are carried
at their fair value based upon quoted market prices of those securities at
each
period-end. During the three months ended December 31, 2007, one of our
clients
became a fully
reporting, publicly traded company resulting in non-marketable
securities valued at $673,878, as of December 31, 2007.
During
the audit of fiscal 2007, we considered whether, in light of the changes in
our
business (discussed above under the heading “Known Trends, Events and
Uncertainties”, “Valuation of Non-marketable Securities”), the clients’ sales of
shares at the first revenue recognition milestone was high enough in quantity
compared to the number of shares we own at that time for us to use the
third-party sales price to value our shares. When the clients’ third party stock
sales at the first milestone are not representative of the fair value of these
shares, we will either obtain a third-party valuation of the stock or record
the
expected net realizable value of shares based on our historical business
activity. When neither of these are available, the stock is recorded at $-0-.
Due
to
the uncertainty inherent in valuing securities that are not publicly traded,
our
determinations of fair value of non-marketable securities may differ
significantly from the values that would exist if a ready market for these
securities existed; therefore, the
value
of securities we hold as non-marketable securities could be significantly
different than their value as marketable securities.
Item
3. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Our
Chief
Executive Officer and our Chief Financial Officer, after evaluating the
effectiveness of our “disclosure controls and procedures” (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end
of
the period covered by this report (the “Evaluation Date”), have concluded that
as of the Evaluation Date, our disclosure controls and procedures were effective
to provide reasonable assurance that information required to be disclosed by
us
in the reports that we file or submit under the Exchange Act (i) is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure, and (ii) is recorded, processed, summarized and reported
within the time periods specified in the Commission’s rules and forms. Our
auditors identified material adjustments in the areas of valuation of marketable
securities.
Changes
in Internal Control over Financial Reporting
There
were positive changes in our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
At
our
most recent fiscal year end, we had material weaknesses in our internal control
over financial reporting related to the valuation on non-marketable securities
which no longer persist. During the period covered by this report we began
to
evaluate non-marketable
security values
at the
inception of when we receive them based on factors such as the number and timing
of shares a client has sold compared to the number of shares we own to determine
if a third-party sales price is representative of the fair value of our shares.
When the clients’ third party stock sales are not representative of the fair
value of our shares, we will either obtain a third-party valuation of the stock
or record the expected net realizable value of shares based on our historical
business activity. When neither of these are available, the stock is recorded
at
$-0-. We also re-evaluate non-marketable security values at each subsequent
balance sheet date.
PART
II - OTHER INFORMATION
Item
2. Unregistered Sales of Equity Securities.
The
following table lists unregistered sales of our securities during the quarterly
period ended December 31, 2007.
|
Name
|
Shares
of
Common Stock(1)
|
|
Consideration
|
Value
|
Date(2)
|
| |
|
|
|
|
|
|
|
Robert
Beers
|
7,500
|
|
NEDAB
services rendered
|
$ |
597
|
(3)
|
|
Dan
Burdish
|
7,500
|
|
NEDAB
services rendered
|
$ |
597
|
(3)
|
|
Tim
Carlson
|
5,000
|
|
NEDAB
services rendered
|
$ |
387
|
(4)
|
|
Paul
Henderson
|
7,500
|
|
NEDAB
services rendered
|
$ |
597
|
(3)
|
|
John
Vise
|
50,000
|
|
Consulting
services rendered
|
$ |
3,500
|
10/18/07
|
|
Trae
O'Neil High
|
25,000
|
|
CLO
bonus for services rendered
|
$ |
1,250
|
12/06/07
|
|
Kipley
J. Lytel
|
50,000
|
|
COO
bonuses for services rendered
|
$ |
2,950
|
(5)
|
|
(1)
|
As
of December 31, 2007, an aggregate of 102,500 of the shares had not
been
issued and an aggregate expense of $6,378 had been
accrued.
|
|
(2)
|
Represents
the date used to value the common
stock.
|
|
(3)
|
On
October 31, 2007, November 30, 2007 and December 31, 2007, 2,500
shares
were earned and valued as of each of such
dates.
|
|
(4)
|
On
October 31, 2007 and November 30, 2007, 2,500 shares were earned
and
valued as of each of such dates.
|
|
(5)
|
On
November 12, 2007 and December 06, 2007, 25,000 shares were earned
and
valued as of each of such dates.
|
We
claim
an exemption from registration afforded by Section 4(2) of the Securities Act
since the foregoing issuances did not involve a public offering, the recipients
took the securities for investment and not resale and we took appropriate
measures to restrict transfer.
Item
5. Other Information.
Item
5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
On
January 6, 2008, Kipley J. Lytel tendered his resignation as a director and
as
our Secretary and Chief Operating Officer, which resignations were accepted
by
our remaining directors.
Item
6. Exhibits.
|
Exhibit
No.
|
|
Description
|
| |
|
|
|
31.1*
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
| |
|
|
|
31.2*
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
| |
|
|
|
32.1*
|
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant
to Section
906 of the Sarbanes-Oxley Act of
2002
|
* Filed
herein.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
| |
|
| |
PUBLIC
COMPANY MANAGEMENT CORPORATION
|
| |
|
|
Date:
January
31, 2007
|
By: /s/
Stephen
Brock
|
| |
Name: Stephen Brock |
|
|
Title:
Chief Executive Officer
|
| |
|
| |
|
|
Date:
January
31, 2007
|
By: /s/
Trae O'Neil
High |
| |
Name: Trae O'Neil High |
| |
Title:
Chief Financial Officer
|
| |
|