U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended: June 30, 2006
Commission File Number: 0-22991
ONSPAN NETWORKING, INC.
-----------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0460247
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(State of Incorporation) (IRS Employer ID No)
21218 ST ANDREWS BLVD #610, BOCA RATON, FL 33433
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(Address of principal executive office)
(561) 542-1334
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(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 [ ].
The number of shares outstanding of registrant's common stock, par value $.012
per share, as of June 30, 2006 was 1,089,219.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].
OnSpan Networking, Inc.
INDEX
Page
No.
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Part I. Unaudited Financial Information
Item 1. Condensed Consolidated Balance Sheet -
As of June 30, 2006 and September 30, 2005 ..................... 3
Condensed Consolidated Statements of Operations -
For the Three and Nine Months Ended June 30, 2006 and 2005 ..... 4
Condensed Consolidated Statements of Cash Flows -
For the Nine Months Ended June 30, 2006 and 2005 ............... 5
Notes to Financial Statements .................................. 6-14
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 15-21
Part II. Other Information
Item 1. Legal Proceedings .............................................. 21
Item 3. Controls and Procedures ........................................ 22
Item 5. Other Information .............................................. 23
Item 6. Exhibits and Reports Form 8-K .................................. 24
ONSPAN NETWORKING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF JUNE 30, 2006 AND SEPETMBER 30, 2005
June September
30, 2006 30, 2005
----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................ $ 6,510 $ 16,065
Prepaid Expenses ................................. - 2,372
Marketable Securities ............................ 2,306 152,500
Deferred tax asset ............................... - -
----------- -----------
Total current assets ............................... 8,816 170,937
Property and equipment, net ........................ - 1,894
----------- -----------
Total assets ....................................... $ 8,816 $ 172,831
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses ............ $ 14,377 $ 68,475
Notes payable - Shareholder ...................... 310,012 40,209
Accrued wages .................................... 399,600 283,100
Deferred tax liability ........................... - 44,930
----------- -----------
Total current liabilities .......................... 723,989 436,714
Dividend payable ................................. 30,946 30,946
----------- -----------
Total Liabilities .................................. 754,935 467,660
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock; $.001 par value; authorized
12,500 shares; issued and outstanding 2,713
shares; liquidation preference $271,300 ........ 2 2
Common stock, $.012 par value. Authorized
8,333,333 shares; issued and outstanding
1,089,219 shares ............................... 13,071 13,071
Paid-in capital .................................. 7,935,685 7,908,845
Accumulated other comprehensive income, net of tax (3,992) 74,470
Accumulated deficit .............................. (8,690,885) (8,291,217)
----------- -----------
Total stockholders' deficit ........................ (746,119) (294,829)
----------- -----------
Total liabilities and stockholders' deficit ........ $ 8,816 $ 172,831
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
3
ONSPAN NETWORKING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2006 AND 2005
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- -------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
REVENUES .............................. $ - $ - $ - $ -
COSTS AND EXPENSES:
Salaries and wages .................. 39,000 45,600 118,000 106,600
Other selling, general and
administrative expenses ........... 136,691 25,907 281,404 182,675
----------- ----------- ----------- -----------
175,691 71,507 399,404 289,275
----------- ----------- ----------- -----------
Loss from operations .................. (175,691) (71,507) (399,404) (289,275)
OTHER INCOME (EXPENSE):
Other income ........................ - - 17,250 -
Interest income ..................... 1 68 2 814
Loss on disposal of fixed assets .... (1,368) - (1,368) -
Loss on sale of marketable securities (16,148) - (16,148) -
----------- ----------- ----------- -----------
Total other income (expense) ...... (17,515) 68 (264) 814
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES .............. (193,206) (71,439) (399,668) (288,461)
INCOME TAXES .......................... - - - -
----------- ----------- ----------- -----------
NET LOSS .............................. $ (193,206) $ (71,439) (399,668) (288,461)
=========== =========== =========== ===========
BASIC AND DILUTED NET LOSS PER SHARE .. $ (0.18) $ (0.07) $ (0.37) $ (0.26)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED ................... 1,089,219 1,090,677 1,089,219 1,090,677
=========== =========== =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
4
ONSPAN NETWORKING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 2006 AND 2005
2006 2005
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ........................................... $(399,668) $(288,461)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation ..................................... 526 946
Common stock received in exchange for
leasehold improvements .......................... - (6,100)
Loss on disposal of fixed assets ................. 1,368 -
Loss on sale of marketable securities ............ 16,148 -
Contributed legal services by Chief Executive
Officer ......................................... 26,840 -
Change in assets and liabilities
Prepaid expenses ............................... 2,372 (2,372)
Accounts payable ............................... (54,097) (18,434)
Accrued interest ............................... 12,803 -
Accrued wages payable .......................... 116,500 92,200
--------- ---------
Net cash used in operating activities .............. (277,208) (222,221)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase marketable securities ................... - (27,000)
Proceeds from sale of marketable securities ...... 10,653 -
Capital expenditures ............................. - -
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Net cash used in investing activities .............. 10,653 (27,000)
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of notes payable - Shareholder ........ 257,000 -
Bank overdraft ................................... - 7,260
--------- ---------
Net cash provided by financing activities .......... 257,000 7,260
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,555) (241,961)
CASH AND CASH EQUIVALENTS, beginning of period ..... 16,065 241,961
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ........... $ 6,510 $ -
========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
5
ONSPAN NETWORKING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. ORGANIZATION
HISTORY OF BUSINESS
Originally incorporated in 1985, as Network Information Services, Inc., Network
Systems International, Inc. ("NESI"), a Nevada corporation, was the surviving
corporation of a reverse merger completed in April 1996. The Company became a
publicly traded entity in connection with the re-organization. On July 10, 1998,
the Company's stock was officially approved for listing on the NASDAQ Small Cap
market and the Company's common stock began trading on NASDAQ Small Cap under
the symbol NESI. As of April 2, 2002, the securities were de-listed from the
NASDAQ Small Cap market and now trade on the Over-The-Counter Bulletin Board
under the symbol ONSP. Effective February 10, 2001, the Company changed its name
from Network Systems International, Inc., to Onspan Networking, Inc. (the
"Company" or "Onspan"). On October 9, 2001, the Company affected a 1 for 12
reverse stock split of its issued and outstanding common stock. Prior to August
5, 2002, the Company, a Nevada corporation, was a holding company, that through
its wholly owned subsidiary, InterLAN Communications, Inc. ("InterLAN"),
developed data communications and networking infrastructure solutions for
business, government and education. On August 5, 2002, the Company completed the
sale of its operating division InterLAN and announced a change in its strategy
of business as discussed under Discontinued Operations below. April 22, 2003 the
Company created a new subsidiary, Coventry 1 Inc. that is a Nevada Corporation.
The Company's other subsidiary, Onspan SmartHouse, Inc., is a Florida
Corporation. Currently the Company has 3 full time employees.
On May 27, 2004, the Company entered into a stock purchase agreement with
Herbert Tabin, its President and Chief Executive Officer, and Gary Schultheis,
an employee of the Company, pursuant to which the Company sold its wholly-owned
subsidiary, Coventry 1, Inc., to Messrs. Tabin and Schultheis. Messrs. Tabin and
Schultheis also agreed to pay the Company 0.75% of the gross sales amount of the
property upon any subsequent sale provided the gross sales price exceeds
$2,000,001. On March 1, 2006 Messrs. Tabin and Schultheis sold the above
property for $2,300,000 and paid to the Company $17,250. The Company sold the
real estate project in order to service mounting legal expenses associated with
litigation.
BASIS OF PRESENTATION
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments (consisting only of
normal recurring adjustments) that are, in the opinion of management, necessary
for a fair presentation. These financial statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report for the year ended
September 30, 2005, which is included in the Company's Form 10-KSB for the year
ended September 30, 2005. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
6
ONSPAN NETWORKING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
B. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements for the period ended June 30,
2006 include the accounts of Onspan Networking, Inc. and its subsidiary, Onspan
Smarthouse Inc. All significant intercompany accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with maturity
of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts payable and accrued
wages approximate fair value as of June 30, 2006, because of the short maturity
of these instruments.
REVENUE RECOGNITION
The Company will recognize revenue when earned and realizable
MARKETABLE SECURITIES
The Company's marketable securities are classified as available-for-sale and are
stated at fair value determined by the last recorded trading price of each
security at the balance sheet date. Unrealized gains and losses are included in
Accumulated Other Comprehensive Income, net of applicable income taxes. Related
gains or losses and declines in value, if any, judged to be other than temporary
on available-for-sale securities are reported in non operating expenses. For
purposes of determining realized gains and losses the loss of securities sold is
based on specific identification.
PREFERRED STOCK
At June 30, 2006, the Company had 2,713 shares outstanding of its Series A
Convertible Preferred Stock ("Series A"). Series A has a stated liquidation
preference value of $100 per share redeemable at the Company's option, has no
voting rights, and each preferred share is convertible to 4 shares of the
Company's common stock as adjusted for the 1 for 12 reverse stock split.
Dividends on the Series A were to be paid monthly in cash at a rate of 12% of
the original issue. The Company's Board of Directors, elected to suspend the
payment of Series A dividends. This decision was made in light of the general
economic conditions. In particular, the Board took such actions as necessary to
preserve the Company's working capital in order to ensure the continued
viability of the Company. The Board of Directors is unable at this time to
predict if and when the Company will resume the payment of cash dividends on its
Series A 12% Cumulative Convertible Preferred Stock. As of June 30, 2006 the
amount of accumulated unpaid dividends on the preferred stock is approximately
$156,000.
7
ONSPAN NETWORKING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, the liability method is used in accounting for income
taxes and deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK OPTION PLAN
Effective January 1, 2006, the Company adopted SFAS 123R using the modified
prospective approach and accordingly, prior periods have not been restated to
reflect the impact of SFAS 123R.
Prior to the Company's adoption of SFAS No. 123R "Accounting for Stock Based
Compensation" ("SFAS 123R"), the Company applied the intrinsic value-based
method of accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations,
in accounting for its stock option plan. As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price.
SFAS No. 123 requires the Company to disclose pro forma information regarding
option grants made to its employees. SFAS 123 specifies certain valuation
techniques that produce estimated compensation charges that are included in the
pro forma results below. These amounts have not been reflected in the Company's
Condensed Consolidated Statement of Operations, because Accounting Principles
Board Opinion 25, "Accounting for Stock Issued to Employees," specifies that no
compensation charge arises when the price of the employees' stock options equal
the market value of the underlying stock at the grant date, as in the case of
options granted to the Company's employees.
The pro forma amount was as follows for the period ended June 30:
2006 2005
---- ----
Actual net loss .................................... $ (399,668) $ (288,461)
========== ==========
Pro forma net loss ................................. $ (399,668) $ (288,461)
========== ==========
Pro forma basic and diluted net loss per share ..... $ (.37) $ (.26)
========== ==========
8
ONSPAN NETWORKING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
LOSS PER SHARE
The financial statements are presented in accordance with Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share". Basic earnings
per share is computed using the weighted average number of common shares
outstanding during the period. Diluted loss per share do not reflect the
potential dilution from the exercise or conversion of securities into common
stock as such effect was antidilutive.
USE OF ESTIMATES
The preparation of the condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for significant renewals
and improvements are capitalized. Repairs and maintenance are charged to expense
as incurred. Depreciation is computed on a straight-line method based upon the
useful lives of the assets.
C. PROPERTY AND EQUIPMENT
The Company disposed of $6,612 of fixed assets during the nine months ended June
30, 2006, and recognized a loss on disposal of $1,368.
Depreciation expense for the nine month period ended June 30, 2006 and 2005 is
$526 and $946, respectively.
D. MARKETABLE SECURITIES
On October 15, 2004, the Company purchased 150,000 shares for $.18 per share for
an aggregate purchase price of $27,000. (1,200,000 shares post split ) of Evolve
One, Inc, a related party where certain officers and directors of the Company
were also officers and directors of Evolve One Inc. until January 2005, in a
private transaction exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of the Securities Act.
The Company terminated its sub-lease agreement with Evolve One Inc., as of
January 20, 2005. Evolve One, Inc. agreed to compensate the Company 20,000
shares of Evolve One, Inc. restricted common stock for the capital improvements
abandoned by the Company.
On April 28, 2006, the Company entered into a stock purchase agreement with
Progress Partners, Inc., a Florida corporation, and certain individuals to sell
1,191,172 of its 1,200,000 shares of Evolve One, Inc. currently owned by the
Company for $10,653.11. The company recognized a loss on this sale of $16,148.
9
ONSPAN NETWORKING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The basis of equity securities as shown in the accompanying balance sheet and
their estimated market value at June 30, 2006 is as follows:
2006
----
Available-for-sale securities:
Cost .................................. 6,298
Unrealized (loss) ..................... (3,992)
------
2,306
======
E. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash deposits. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000.
At June 30, 2006 and 2005, the Company had no amounts in excess of FDIC insured
limit.
F. OTHER COMPREHENSIVE INCOME (LOSS)
The following represents a reconciliation of other comprehensive income for the
nine months ended June30, 2006:
Cost of marketable equity securities ................. $ (6,298)
Quoted market price .................................. 2,306
--------
Net accumulated other comprehensive income (loss) .... $ (3,992)
========
G. NOTE PAYABLE - SHAREHOLDER
The Company has issued the following Secured Promissory Notes payable to its
President, Herbert Tabin:
DATE AMOUNT INTEREST RATE MATURITY DATE
---- ------ ------------- -------------
July 13, 2005 ............... 15,000 5.25% December 15, 2005
September 20, 2005 .......... 25,000 5.25% December 15, 2005
October 15, 2005 ............ 20,000 5.25% December 15, 2005
December 7, 2005 ............ 45,000 5.25% March 7, 2006
December 14, 2005 ........... 35,000 5.25% March 15, 2006
February 3, 2006 ............ 10,000 5.25% May 15, 2006
March 5, 2006 ............... 25,000 5.25% July 15, 2006
March 27, 2006 .............. 30,000 5.25% July 15, 2006
June 12, 2006 ............... 92,000 5.25% September 15, 2006
Accrued Interest .......... 13,012
-------
Balance, March 31, 2006 ..... 310,012
=======
At June 30, 2006, secured promissory notes in the amount of $150,000 were in
default. As a result, the interest rate on these notes increase an additional
12% per annum.
10
ONSPAN NETWORKING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
H. INCOME TAXES
The provision for income taxes for the nine months ended June 30, 2006 consists
of the following components:
Continuing operations
Federal:
Current ........................................ $ -
Deferred ....................................... -
-----------
$ -
===========
Reconciliation of the Federal Statutory Income Tax rate to the Company's
effective income tax rate is as follows:
Computed at the Statutary rates (34%) ................ $ (135,887)
Non deductible expenses .............................. -
State income taxes (net of federal tax benefit) ...... (14,508)
Realized loss on marketable securities ............... 46,432
-----------
Reinstatement/Change in valuation allowance .......... (103,963)
-----------
Tax provision (benefit) .............................. $ -
===========
The significant temporary differences that give rise to a deferred tax asset as
of June 30, 2006 as follows:
Deferred tax asset:
Accrued compensation ................................. $ 148,978
Capital loss Carryforward ............................ 41,798
NOL Carryforward ..................................... 827,487
Unrealized loss on marketable securities ............. 1,502
-----------
Total deferred tax asset ........................ 1,019,765
-----------
Less valuation allowance ........................ (1,019,765)
-----------
Net deferred tax asset .......................... $ -
===========
The net change in the total valuation allowance for the nine month period ended
June 30, 2006 was an increase of $105,364.
In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. Pursuant to sections 382 and 383 of the internal revenue code,
annual use of any of the Company's net operating loss and credit carryforward
may be limited if cumulative change in ownership of more than 50% occur during
any three year decrease.
11
ONSPAN NETWORKING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
I. RELATED PARTY TRANSACTIONS
For the period ended June 30, 2006 the Company accrued $53,500 in salaries for
its President Herbert Tabin. As of June 30, 2006 the Company had a total of
$191,200 accrued salaries to Mr. Tabin.
On October 15, 2004 The Company purchased 150,000 shares for $.18 per share for
an aggregate purchase price of $27,000. (1,200,000 shares post split ) of Evolve
One, Inc, a related party where certain officers and directors of the Company
were also officers and directors of Evolve One Inc. until January 2005, in a
private transaction exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of the Securities Act.
On April 28, 2006, the Company entered into a stock purchase agreement with
Progress Partners, Inc., a Florida corporation, and certain individuals to sell
1,191,172 of its 1,200,000 shares of Evolve One, Inc, a related party where
certain officers and directors of the Company were also officers and directors
of Evolve One Inc. currently owned by the Company for $10,653.11.
On May 27, 2004, the Company entered into a stock purchase agreement with
Herbert Tabin, its President and Chief Executive Officer, and Gary Schultheis,
an employee of the Company, pursuant to which the Company sold its wholly-owned
subsidiary, Coventry 1, Inc., to Messrs. Tabin and Schultheis. Messrs. Tabin and
Schultheis also agreed to pay the Company 0.75% of the gross sales amount of the
property upon any subsequent sale provided the gross sales price exceeds
$2,000,001. On March 1, 2006 Messrs. Tabin and Schultheis sold the above
property for $2,300,000 and paid to the Company $17,250.
The Company has agreed to indemnify the Directors against losses from
litigation, and has provided for any expected losses resulting from various
legal proceedings.
J. LOSS PER SHARE
Basic loss per share is computed by dividing loss applicable to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflect per share amounts that would have
resulted if options to issue 377,677 shares of dilutive potential common stock
had been converted to common stock.
12
ONSPAN NETWORKING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following reconciles amounts reported in the financial statements:
2006 2005
---------- ----------
Net loss ............................................ $ (399,668) $ (288,461)
========== ==========
Denominator for basic loss per share -
Weighted average shares ............................. 1,089,219 1,090,677
Effect of dilutive securities - stock options ....... - -
---------- ----------
Denominator for diluted loss per share -
Weighted average shares adjusted for dilutive
securities .......................................... 1,089,219 1,090,677
========== ==========
Basic and diluted loss per common share ............. $ (.37) $ (.26)
========== ==========
K. LEGAL PROCEEDINGS
1. Securities Actions:
RICHARD T. CLARK AND JOEL C. HOLT V. HERBERT TABIN AND GARY SCHULTHEIS, United
States District Court Northern District of Oklahoma, Case No. 03-CV-289K(J). On
March 28, 2003, Plaintiffs Richard Clark and Joel Holt ("Plaintiffs") filed a
petition in the Tulsa County District Court alleging claims against the Company
and its President, CEO and Director, Herbert Tabin ("Tabin"), for, among other
things, fraud, breach of fiduciary duty, and breach of contract. On May 1, 2003,
the Company, along with Tabin, removed this action to the United States District
Court for the Northern District of Oklahoma and filed a Motion to Dismiss all
claims. On October 15, 2003, Plaintiffs withdrew their claims and filed an
Amended Complaint asserting claims against Tabin, both individually and
derivatively, on behalf of the Company. Plaintiffs also asserted claims against
the Company. Plaintiffs sought damages in the amount of $300,000 each, as well
as punitive damages. The Company retained independent counsel to conduct an
investigation into the allegations by Plaintiffs made derivatively on behalf of
the Company and, based on that investigation, determined that no action on
behalf of the Company was warranted. Defendants also filed a Motion to dismiss
all of the allegations in the Amended Complaint.
On October 19, 2004, Plaintiffs filed a Second Amended Complaint in which they
dropped the Company as a defendant and dropped the derivative shareholder
claims. Plaintiffs added Gary Schultheis as an individual defendant. The Second
Amended Complaint alleges claims against Tabin and Schultheis individually.
Defendants filed Motions to Dismiss the Second Amended Complaint which was
denied by the Court. On December 2, 2005, Plaintiffs filed a Third Amended
Complaint alleging claims against Tabin and Schultheis individually for breach
of contract, breach of fiduciary duty, civil conspiracy, and violations of
Oklahoma securities laws. Plaintiffs seek damages in the amount of $300,000
each, plus the amount of lost opportunity to gain on their investments, less the
value of their investments at the time of trial, along with interest costs,
attorneys' fees and punitive damages. Plaintiffs also seek rescission of their
investments in Onspan.
13
ONSPAN NETWORKING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On June 21, 2006, Plaintiffs and Defendants entered into a Release and
Settlement Agreement ("Agreement"). Pursuant to the Agreement, the Plaintiffs
agreed, among other things, to (a) release and discharge the Defendants from any
and all claims arising from the Lawsuit and (b) purchase all the Stock in the
Company held by the Defendants for an undisclosed total purchase price; and the
Defendants agreed, among other things, to (c) forgive all indebtedness of the
Company except for the sum of $2,000 in consideration for the receipt of (i) all
the stock of OnSpan Smarthouse, Inc. and (ii) all rights to the internet domain
name or URL "vois.com" previously held within the Company . As of September 15,
2006 the Agreement has not closed.
The Company has agreed to indemnify the directors against losses from litigation
and has provided for any expected losses resulting from various legal
proceedings.
2. Potential Tax Liability:
In 2003, the North Carolina Department of Revenue contacted the Company with
regard to state income taxes for the tax year ended September 30, 1999. Upon
investigation, the Company has determined that former management did not file a
state income tax return in North Carolina for that year, although a return was
filed in Florida for that year and returns were filed in North Carolina for two
then subsidiaries of the company. The Company is in the process of investigating
the situation and of evaluating what action should be taken as a result of the
inquiry by the North Carolina Department of Revenue. The Company has been unable
to estimate with any reasonable certainty what liability it may have to the
State of North Carolina.
L. GOING CONCERN
The accompanying financial statements were prepared assuming that the Company
will continue as a going concern. The Company and certain of the officers and
directors have been a party to several legal proceedings; the Company has
provided indemnifications to its officers and directors against losses sustained
in these proceedings. Although the Company continues to vigorously defend these
actions, the Company is unable to estimate with any reasonable certainty what
liability it may have to these litigants. There are no assurances that the
Company will be successful in defending these legal proceedings, or if
successful the cost of defending these legal proceedings may significantly
deplete the capital of the Company, impairing the Company's ability to continue
as a going concern. Certain employees have agreed to defer receipt of their
compensation, and the Company continues to depend on funding provided by its
president, Herbert Tabin, to pay its operating expenses. Accordingly, there are
no assurances that the Company will be successful in achieving the above plans,
or that such plans, if consummated, will enable the Company to obtain profitable
operations or continue as a going concern.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements relative
to such matters as anticipated financial performance, business prospects,
technological developments and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. All statements other than statements of historical fact included in
this section or elsewhere in this report are, or may be deemed to be,
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Exchange Act of 1934. Important factors that
could cause actual results to differ materially from those discussed in such
forward-looking statements include: 1. General economic factors including, but
not limited to, changes in interest rates and trends in disposable income; 2.
Information and technological advances; 3. Cost of products sold; 4.
Competition; and 5. Success of marketing, advertising and promotional campaigns.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with U.S.
generally accepted accounting principles that require our management to make
estimates and assumptions that affect reported amounts and related disclosures.
Management identifies critical accounting estimates as:
o those that require the use of assumptions about matters that are inherently
and highly uncertain at the time the estimates are made;
o those estimates where, had we chosen different estimates or assumptions, the
resulting differences would have had a material impact on our financial
condition, changes in financial condition or results of operations; and
o those estimates that, if they were to change from period to period, likely
would result in a material impact on our financial condition, changes in
financial condition or results of operations.
Based upon management's discussion of the development and selection of these
critical accounting estimates with the Board of Directors, we believe the
following accounting estimates involve a higher degree of judgment and
complexity.
INCOME TAX ASSETS AND LIABILITIES
We account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
that we recognize a current tax asset or liability for the estimated taxes
payable or refundable based upon application of the enacted tax rates to taxable
income in the current year. Additionally, we are required to recognize a
deferred tax liability or asset for the estimated future tax effects
attributable to temporary differences. Temporary differences occur when
differences arise between: (a) the amount of taxable income and pretax financial
income for a year and (b) the tax basis of assets or liabilities and their
reported amounts in financial statements.
SFAS 109 also requires that any deferred tax asset recognized must be reduced by
a valuation allowance for any tax benefits that, in our judgment and based upon
available evidence, may not be realizable.
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The deferred tax assets and liabilities, as well as the need for a valuation
allowance, are evaluated on a quarterly basis and adjusted if necessary. We use
forecasted future operating results and consider enacted tax laws and rates in
determining if the valuation allowance is sufficient. We operate in multiple
taxing jurisdictions and are therefore subject to varying tax laws and potential
audits, which could impact our assessments and estimates
CONTINGENCIES
We are involved in various legal proceedings and have identified certain loss
contingencies. We record liabilities related to these contingencies when it is
determined that a loss is probable and reasonably estimable. These assessments
are based on our knowledge and experience as well as the advice of legal counsel
regarding current and past events. Any such estimates are also subject to future
events, court rulings, negotiations between the parties and other uncertainties.
If an actual loss differs from our estimate, or the actual outcome of any of the
legal proceedings differs from expectations, operating results could be
impacted.
PLAN OF OPERATION AND GOING CONCERN
Prior to August 5, 2002, the Company, a Nevada corporation, was a holding
Company, that through its wholly owned subsidiary, InterLAN Communications, Inc.
("InterLAN"), developed data communications and networking infrastructure
solutions for business, government and education. Following August 5, 2002, the
Company announced a change in its strategy and subsequently sold its operating
division InterLAN. In April of 2003, the Company changed its focus to investing
in and revitalizing single family homes in established residential neighborhoods
in suburban areas. The Company had acquired its first property on June 19, 2003.
The Company, which had received engineering plans for the real estate project,
had intended to renovate and expand the existing single-family home on this
site. However on May 27, 2004 the Company completed the sale of Coventry 1, Inc.
and utilized the cash received for legal expenses. The Company and certain of
the officers and directors have been a party to several legal proceedings; the
Company has provided indemnifications to its officers and directors against
losses sustained in these proceedings. Although the Company continues to
vigorously defend these actions, the Company is unable to estimate with any
reasonable certainty what liability it may have to these litigants. There are no
assurances that the Company will be successful in defending these legal
proceedings, or if successful the cost of defending these legal proceedings may
significantly deplete the capital of the Company, impairing the Company's
ability to continue as a going concern. Certain employees have agreed to defer
receipt of their compensation, and the Company continues to depend on funding
provided by its president, Herbert Tabin, to pay its operating expenses.
Accordingly, there are no assurances that the Company will be successful in
achieving the above plans, or that such plans, if consummated, will enable the
Company to obtain profitable operations or continue as a going concern.
MARKETABLE SECURITIES
The Company's marketable securities are classified as available-for-sale and are
stated at fair value determined by the last recorded trading price of each
security at the balance sheet date. Unrealized gains and losses are included in
accumulated other comprehensive income, net of applicable income taxes. Related
gains or losses and declines in value, if any, judged to be other than temporary
on available-for-sale securities are reported in non operating expenses. For
purposes of determining realized gains and losses the loss of securities sold is
based on specific identification.
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COMMITMENTS AND CONTINGENCIES
The Company and certain of its officers and directors have been named as
defendants in multiple lawsuits. See Note K to the condensed consolidated
Financial Statements.
The Company has indemnified these officers and directors against any losses
sustained as a result of these actions.
RISK FACTORS
SIGNIFICANT CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL CAPITAL.
The Company's capital requirements have been and will continue to be
significant. The Company had been dependent primarily on existing capital and
Notes provided by related parties. Future capital needs may be satisfied by
either the private placement of equity securities, loans and/or other debt
financings. The Company based on its cash requirements and exposure to liability
from shareholder lawsuits is unsure if current loans will be sufficient for the
next twelve months. The Company is currently contemplating the pursuit of
potential funding opportunities which could be debt or equity. However, there
can be no assurance that any of such opportunities will result in actual funding
or that additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all. If the Company is unable to obtain
additional financing it will likely cease its operations. Any additional
financings may involve substantial dilution to the Company's then-existing
shareholders.
MANAGEMENT OF GROWTH AND ATTRACTION AND RETENTION OF KEY PERSONNEL.
Management of the Company's growth may place a considerable strain on the
Company's management, operations and systems. The Company's ability to execute
any future business strategy will depend in part upon its ability to manage the
demands of a growing business. Any failure of the Company's management team to
effectively manage growth could have a material adverse affect on the Company's
business, financial condition or results of operations. The Company's future
success depends in large part on the continued service of its key management
personnel. The Company believes that its future success also depends on its
ability to attract and retain skilled technical, managerial and marketing
personnel. Competition for qualified personnel is intense. The Company has from
time to time experienced difficulties in recruiting qualified personnel. Failure
by the Company to attract and retain the personnel it requires could have a
material adverse affect on the financial condition and results of operations of
the Company.
VOLATILITY OF MARKET PRICE; ISSUANCE OF SUBSTANTIAL NUMBER OF SHARES; AUTHORIZED
SHARES; PROXY RULES.
The Company's Common Stock has been traded since 1994. The Company believes that
factors such as (but not limited to) the sale of common stock issued on
conversion of the Company's debentures, announcements of developments related to
the Company's business, fluctuations in the Company's quarterly or annual
operating results, failure to meet expectations, general economic conditions,
interest rate changes or money supply fluctuations and developments in the
Company's relationships with clients and suppliers will cause the price of the
Company's Common Stock to fluctuate substantially. In recent years the stock
market has experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. Such fluctuations
could adversely affect the market price of the Company's Common Stock.
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PENNY STOCK REGULATIONS AND REQUIREMENTS FOR LOW PRICED STOCK.
The Commission adopted regulations which generally define a "penny stock" to be
any non-Nasdaq equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Based upon the price of the Company's
Common Stock as currently traded on the OTC Bulletin Board, the Company's stock
is subject to Rule 15g-9 under the Exchange Act which imposes additional sales
practice requirements on broker-dealers which sell securities to persons other
than established customers and "accredited investors." For transactions covered
by this Rule, a broker-dealer must make a special suitability determination for
the purchaser and have received a purchasers' written consent to the transaction
prior to sale. Consequently, the Rule may have a negative effect on the ability
of shareholders to sell common shares of the Company in the secondary market.
MANAGEMENT CONTROLS THE COMPANY'S FUNDS.
Management has broad discretion over how to spend the funds held by the Company.
Although management will endeavor to act in the best interests of the
shareholders, there can be no assurance that the decision to utilize proceeds
will prove profitable to the Company.
THE COMPANY RELIES ON ITS MANAGEMENT.
The Company is dependent upon the members of management set forth herein. If the
current management is no longer able to provide services to the Company, its
business will be negatively affected.
ADDITIONAL DEBT, OR EQUITY FINANCING MAY AFFECT INVESTOR'S ABILITY TO SELL
COMMON STOCK.
The Company's common stock currently trades on the OTC Bulletin Board under the
symbol ONSP. Stocks trading on the OTC Bulletin Board generally attract a
smaller number of market makers and a less active public market and may be
subject to significant volatility. If the Company raises additional money from
the sale of its Common Stock, the market price could drop and investor's ability
to sell stock could be diminished. Further, even if the Company is able to
increase its authorized shares, there can be no assurance that it will be able
to obtain sufficient shareholder votes in the future for any such increase,
which votes are required by Nevada law.
THE COMPANY'S STRATEGY INCLUDES PURSUING STRATEGIC ACQUISITIONS THAT MAY NOT BE
SUCCESSFUL
The Company will consider acquiring businesses that are intended to add products
and or services. Acquisitions involve a number of operational risks that the
acquired business may not be successfully integrated, may distract management
attention, may involve unforeseen costs and liabilities, and possible regulatory
costs, some or all of which could have a materially adverse effect on the
Company's financial condition or results of operations. Additionally, the
Company may make acquisitions with cash or with stock, or a combination thereof.
If the Company does make any such acquisitions, various associated risks may be
encountered, including potential dilution to the Company's then current
shareholders, as a result of additional shares of common stock being issued in
connection with the acquisitions.
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THE COMPANY'S STOCK PRICE WILL FLUCTUATE AND MAY FALL BELOW EXPECTATIONS OF
SECURITIES ANALYSTS AND INVESTORS, WHICH COULD SUBJECT THE COMPANY TO LITIGATION
The market price of the Company's common stock may fluctuate significantly in
response to a number of factors, some of which are beyond its control. These
factors include:
- quarterly variations in operating results;
- changes in accounting treatments or principles;
- existing litigation;
- announcements by the Company or its competitors of new products and services
offerings, significant contracts, acquisitions or strategic relationships;
- additions or departures of key personnel;
- any future sales of the Company's common stock or other securities;
- stock market price and volume fluctuations of publicly-traded companies in
general; and
- general political, economic and market conditions.
It is likely that in some future quarter the Company's operating results may
fall below the expectations of securities analysts and investors, which could
result in a decrease in the trading price of the Company's common stock. In the
past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its securities.
The Company may be the target of similar litigation in the future. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could seriously harm the Company's business and operating
results.
THERE IS A LIMITED PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK AND THERE ARE NO
ASSURANCES OF A CONTINUED TRADING MARKET FOR THE COMPANY'S COMMON STOCK
The Company's common stock is currently quoted on the OTC Bulletin Board (R)
Market (OTCBB) under the symbol "ONSP". The Company's common stock is thinly
traded. There are no assurances the Company will maintain its OTC Bulletin Board
(R) listing. If the Company's common stock should be delisted from the OTC
Bulletin
Board(R) Market, it is likely that the stock would then be quoted on the Pink
Sheets Market, which could materially and / or adversely effect any future
liquidity in the Company's common stock.
INABILITY TO SECURE AN INDEPENDENT AUDIT COMMITTEE MEMBER
Due to the potential exposure to litigation and small compensation, it may be
difficult to secure and Independent Audit Committee Member. If the Company is
unable to secure an Independent Audit Committee Member, it may be in violation
of current standards and may be subject to possible de-listing of which could
have a materially adverse affect on the Company's financial condition or results
of operations.
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HISTORY OF BUSINESS
Originally incorporated in 1985, as Network Information Services, Inc., Network
Systems International, Inc. ("NESI"), a Nevada corporation, was the surviving
corporation of a reverse merger completed in April 1996. The Company became a
publicly traded entity in connection with the re-organization. On July 10, 1998,
the Company's stock was officially approved for listing on the NASDAQ Small Cap
market and the Company's common stock began trading on NASDAQ Small Cap under
the symbol NESI. As of April 2, 2002, the securities were de-listed from the
NASDAQ Small Cap market and now trade on the Over-The-Counter Bulletin Board
under the symbol ONSP. Effective February 10, 2001, the Company changed its name
from Network Systems International, Inc., to Onspan Networking, Inc. (the
"Company" or "Onspan"). On October 9, 2001, the Company effected a 1 for 12
reverse stock split of its issued and outstanding common stock. Prior to August
5, 2002, the Company, a Nevada corporation, was a holding company, that through
its wholly owned subsidiary, InterLAN Communications, Inc. ("InterLAN"),
developed data communications and networking infrastructure solutions for
business, government and education. On August 5, 2002, the Company completed the
sale of its operating division InterLAN and announced a change in its strategy
of business as discussed under Discontinued Operations below. April 22, 2003 the
Company created a new subsidiary, Coventry 1 Inc. that is a Nevada Corporation.
The Company's other subsidiary, Onspan SmartHouse, Inc., is a Florida
Corporation. Currently the Company has 3 full time employees.
On May 27, 2004, the Company entered into a stock purchase agreement with
Herbert Tabin, its President and Chief Executive Officer, and Gary Schultheis,
an employee of the Company, pursuant to which the Company sold its wholly-owned
subsidiary, Coventry 1, Inc., to Messrs. Tabin and Schultheis. Messrs. Tabin and
Schultheis also agreed to pay the Company 0.75% of the gross sales amount of the
property upon any subsequent sale provided the gross sales price exceeds
$2,000,001. On March 1, 2006 Messrs. Tabin and Schultheis sold the above
property for $2,300,000 and paid to the Company $17,250. The Company sold the
real estate project in order to service mounting legal expenses associated with
litigation.
A. LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended June 30, 2006, working capital deficiency increased
$449,396 to ($715,173) from ($265,777). The primary reasons for the increase is
an increase in accrued wages of $116,500, an increase in notes payable of
$269,803, a decrease of cash of $9,555, a decrease in marketable securities of
$150,194, and a decrease in accounts payable of $54,097. During this same
period, stockholders' deficit increased $449,788 to ($744,617) from ($294,829).
The increase in stockholders' deficit is primarily due to the net loss for the
period of ($399,668), and decreases in other comprehensive income of ($76,960)
primarily due to the realized loss on available for sale securities and an
increase in additional paid-in-capital of $26,840. The Company has not budgeted
any significant capital expenditures for the current fiscal year.
There are no assurances that the Company will be successful in achieving the
above plans, or that such plans, if consummated, will enable the Company to
obtain profitable operations or continue as a going concern.
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B. RESULTS OF OPERATIONS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE -
The Company's selling, general and administrative expenses, including salaries
and wages amounted to $399,404 during the nine months ended June 30, 2006, as
compared to $289,275 for the nine months ended June 30, 2005. The increase of
$110,129 is primarily due to an increase in wages of $11,400, an increase of
legal and professional fees of $84,530 and an increase of employee benefits of
$25,372.
INCOME TAXES
The Company recorded $150,394 in deferred income tax benefit for the nine-month
period ended June 30, 2006, a 100% valuation allowance was taken against this
amount as of June 30, 2006.
The North Carolina Department of Revenue has contacted the Company with regard
to state income taxes for the tax year ended September 30, 1999. Upon
investigation, the Company has determined that former management did not file a
state income tax return in North Carolina for that year, although a return was
filed in Florida for that year and returns were filed in North Carolina for two
then subsidiaries of the company. The Company is in the process of investigating
the situation and of evaluating what action should be taken as a result of the
inquiry by the North Carolina Department of Revenue. The Company has been unable
to estimate with any reasonable certainty what liability it may have to the
State of North Carolina.
OTHER COMPREHENSIVE INCOME (LOSS)
During the nine months ended June 30, 2006, the Company recorded a decrease in
its net unrealized gain from available-for-sale securities in the amount of
$76,960 net of tax , due to a decrease in market value and the sale of
securities. Available-for-sale securities consists exclusively of Evolve One,
Inc. (EVLO). There can be no assurance that the Company will realize the value
assigned, under Statement of Accounting Standards No.115 "Accounting for Certain
Investments in Debt and Equity Securities", to these securities.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. Securities Actions:
RICHARD T. CLARK AND JOEL C. HOLT V. HERBERT TABIN AND GARY SCHULTHEIS, United
States District Court Northern District of Oklahoma, Case No. 03-CV-289K(J). On
March 28, 2003, Plaintiffs Richard Clark and Joel Holt ("Plaintiffs") filed a
petition in the Tulsa County District Court alleging claims against the Company
and its President, CEO and Director, Herbert Tabin ("Tabin"), for, among other
things, fraud, breach of fiduciary duty, and breach of contract. On May 1, 2003,
the Company, along with Tabin, removed this action to the United States District
Court for the Northern District of Oklahoma and filed a Motion to Dismiss all
claims. On October 15, 2003, Plaintiffs withdrew their claims and filed an
Amended Complaint asserting claims against Tabin, both individually and
derivatively, on behalf of the Company. Plaintiffs also asserted claims against
the Company. Plaintiffs sought damages in the amount of $300,000 each, as well
as punitive damages. The Company retained independent counsel to conduct an
21
investigation into the allegations by Plaintiffs made derivatively on behalf of
the Company and, based on that investigation, determined that no action on
behalf of the Company was warranted. Defendants also filed a Motion to Dismiss
all of the allegations in the Amended Complaint. On October 19, 2004, Plaintiffs
filed a Second Amended Complaint in which they dropped the Company as a
defendant and dropped the derivative shareholder claims. Plaintiffs added Gary
Schultheis as an individual defendant. The Second Amended Complaint alleges
claims against Tabin and Schultheis individually. Defendants filed Motions to
Dismiss the Second Amended Complaint which was denied by the Court. On December
2, 2005, Plaintiffs filed a Third Amended Complaint alleging claims against
Tabin and Schultheis individually for breach of contract, breach of fiduciary
duty, civil conspiracy, and violations of Oklahoma securities laws. Plaintiffs
seek damages in the amount of $300,000 each, plus the amount of lost opportunity
to gain on their investments, less the value of their investments at the time of
trial, along with interest costs, attorneys' fees and punitive damages.
Plaintiffs also seek rescission of their investments in Onspan.
On June 21, 2006, Plaintiffs and Defendants entered into a Release and
Settlement Agreement ("Agreement"). Pursuant to the Agreement, the Plaintiffs
agreed, among other things, to (a) release and discharge the Defendants from any
and all claims arising from the Lawsuit and (b) purchase all the Stock in the
Company held by the Defendants for an undisclosed total purchase price; and the
Defendants agreed, among other things, to (c) forgive all indebtedness of the
Company except for the sum of $2,000 in consideration for the receipt of (i) all
the stock of OnSpan Smarthouse, Inc. and (ii) all rights to the internet domain
name or URL "vois.com" previously held within the Company . As of September 15,
2006 the Agreement has not closed.
The Company has agreed to indemnify the directors against losses from litigation
and has provided for any expected losses resulting from various legal
proceedings.
2. Potential Tax Liability:
In 2003, the North Carolina Department of Revenue contacted the Company with
regard to state income taxes for the tax year ended September 30, 1999. Upon
investigation, the Company has determined that former management did not file a
state income tax return in North Carolina for that year, although a return was
filed in Florida for that year and returns were filed in North Carolina for two
then subsidiaries of the company. The Company is in the process of investigating
the situation and of evaluating what action should be taken as a result of the
inquiry by the North Carolina Department of Revenue. The Company has been unable
to estimate with any reasonable certainty what liability it may have to the
State of North Carolina.
ITEM 3. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and Principal Financial
Officer, of the effectiveness of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
as of the end of the period covered by this report. Based on that evaluation,
our Chief Executive Officer and Principal Financial Officer have concluded that
our disclosure controls and procedures as of June 30, 2006 (the "Evaluation
Date") were effective to ensure that information required to be disclosed by us
in reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.
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There were no significant changes in our internal controls or in other factors
that could significantly affect these controls during the quarter ended June 30,
2006.
Disclosure controls and procedures (as defined in the Exchange Act Rules
13a-14(c) and 15d-14(c)) are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act is accumulated and
communicated to management to allow timely decisions regarding required
disclosure.
The Certifying Officers have also indicated that there were no significant
changes in our internal controls or other factors that could significantly
affect such controls subsequent to the date of their evaluation, and there were
no corrective actions with regard to significant deficiencies and material
weaknesses.
Our management, including each of the Certifying Officers, does not expect that
our disclosure controls or our internal controls will prevent all error and
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. In addition, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within a company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by management
override of the control. The design of any systems of controls also is based in
part upon certain assumptions about the likelihood of future events, and their
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of these inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
ITEM 5. OTHER INFORMATION
There is no immediate family relationship between or among any of the Directors
and Executive Officers, except Ms. Dermer who is the sister-in-law of Mr. Tabin.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report or are incorporated
by reference to previous filings, if so indicated:
(a) EXHIBITS
31.1 Certification dated September 18, 2006 pursuant to Exchange
Act Rule 13a-14(a) or 15d-14(a) of the Principal Executive
Officer as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, by Herbert Tabin, Chief Executive
Officer
31.2 Certification dated September 18, 2006 pursuant to Exchange
Act Rule 13a-14(a) or 15d-14(a) of the Principal financial
Officer as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, by Marissa Dermer, Chief Financial
Officer
32.1 Certification dated September 18, 2006 pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, made by Herbert Tabin, Chief
Executive Officer.
32.2 Certification dated September 18, 2006 pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, made by Marissa Dermer, Chief
Financial Officer.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONSPAN NETWORKING, INC.
Date: September 18, 2006 By: /s/ Herbert Tabin
------------------------
Herbert Tabin, President
Date: September 18, 2006 By: /s/ Marissa Dermer
--------------------------------
Marissa Dermer, Chief Financial
and Principal Accounting Officer
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