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UNILAVA CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) Special Note Regarding Forward Looking Statements Statements contained herein include "forward-looking statements" within the meaning of such term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned "Risk Factors" below. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "will," "would" and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to: · our anticipated growth strategies and our ability to manage the expansion of our business operations effectively; · our dependence on the growth of our target market in the areas in which we do business; and · our ability to maintain or increase our market share in the competitive markets in which we do business. Also, forward-looking statements represent our estimates and assumptions only as of the date hereof. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. You should read this discussion in conjunction with the consolidated financial statements, accompanying notes and management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2013. Use of Terms Except as otherwise indicated by the context, references herein to "Unilava," "we," "us," "our," "our Company," or "the Company" are to the combined business of Unilava Corporation, a Wyoming corporation, and its consolidated subsidiaries, Telava Networks, Inc. (100% owned), Telava Acqusitions, Inc. (100% owned), Telava Wireless, Inc. (75% owned), Telava Mobile, Inc. (80% owned), Local Info Pages, Inc. (100% owned Korea-based entity) and IBFA Acqusitions LLC (100% owned) which are 100% consolidated in the financial statements as adjusted for various minority interests. In addition, unless the context otherwise requires: · "Exchange Act" refers to the Securities Exchange Act of 1934, as amended; · "IBFA" refers to IBFA Acquisitions LLC, a Michigan limited liability company and wholly owned subsidiary of the Company; · "LIP" refers to Local Info Pages, Inc., a Korean corporation and wholly owned subsidiary of Telava Networks; · "SEC" refers to the Securities and Exchange Commission; · "Securities Act" refers to the Securities Act of 1933, as amended; · "Telava Acquisitions" refers to Telava Acquisitions, Inc., a Delaware corporation and wholly owned subsidiary of the Company; · "Telava Networks" refers to Telava Networks, Inc., a Nevada corporation and wholly owned subsidiary of the Company; · "Telava Mobile" refers to Telava Mobile, Inc., a Delaware corporation and 80% owned subsidiary of the Company; · "Telava Wireless" refers to Telava Wireless, Inc., a Wyoming corporation and 75% owned subsidiary of Telava Networks; and · "U.S. dollars," "dollars" and "$" refer to the legal currency of the United States. 21--------------------------------------------------------------------------------ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Overview of Our Business Unilava Corporation, a Wyoming corporation, was formerly known as IWI Holding Limited ("IWI"), and was engaged in the international jewelry business through a US subsidiary. IWI went public via an initial public offering in 1994, and disposed of the subsidiary on December 31, 2007. On September 21, 2009, IWI entered into an Agreement pursuant to which IWI acquired all of the outstanding shares of Telava Networks, Inc., a Nevada corporation ("Telava Networks"), in exchange for 55 million shares of stock. In addition, certain preferred stock of IWI which had been issued in 1994 for 3,644,880 was converted into 45 million shares of common stock. In connection with the closing of the acquisition, the Telava management was appointed as the members of IWI management, the name of IWI was changed to Unilava Corporation ("Unilava" or the "Company") and the corporation was reincorporated from the British Virgin Islands to Wyoming via Articles of Continuation. Unilava, with its operations primarily conducted by its subsidiaries, provides a variety of communications services, products, and equipment that address the needs of small and medium sized enterprise businesses and consumers under the Unilava corporate brand which includes our retail brands consisting of TelavaTM, CountryconnectTM, TelavaTM Mobile, Local Area Yellow Pages, Ttoore, Counia, and Nationwide Roadside Assistance. We are licensed to provide long distance services in 41 States and local phone services in 11 States. Through our carrier-grade microwave wireless broadband infrastructure and broadband Internet access partners, we offer mobile and high-definition IP-hosted voice services to residential, small and medium enterprises. We deliver small business a comprehensive and integrated suite of fee-based online and mobile advertising and web services. Headquartered in San Francisco, we have regional offices in Chicago, Seoul, Hong Kong, and Beijing. Our goal is to become a leading provider of communications services in the United States and the world. We offer our services and products to consumers, businesses, and other providers in the U.S. and worldwide. The services and products that we offer vary by market, and include: wireless communications, local exchange services, long-distance services, data/broadband and Internet services, video services telecommunications equipment, wholesale services and directory advertising and publishing. We group our operating subsidiaries as follows, corresponding to our operating segments for financial reporting purposes: · Wireless subsidiaries provide both wireless voice and data communications services across the U.S. and, through agreements, in a substantial number of foreign countries; · Wireline subsidiaries provide primarily landline voice and data communication services, high-speed broadband and voice services; · Advertising solutions subsidiaries publish Local Area Yellow Pages directories and sell directory advertising and Internet-based advertising and local search; and The following summarizes certain key financial information for the fiscal quarter ended June 30, 2014. · Total Sales: Total Sales were $507,279 for the three months ended June 30, 2014, a decrease of $182,905, or 27%, from $690,184 for the same period last year. · Gross Profit and Margin: Gross profit was $274,017 for the three months ended June 30, 2014, a decrease of $53,410, or 16%, from $327,427 for the same period last year. Gross margin was 54% for the three months ended June 30, 2014, as compared to 47% for the same period last year. · Net Loss: Net loss was $583,328 for the three months ended June 30, 2014, an increase of $246,4207, or approximately 115%, from $336,902 for the same period of last year. · Basic net income per share: Basic net loss per share was approximately $0.00 for the three months ended June 30, 2014, as compared to approximately $0.00 for the same period last year. 22--------------------------------------------------------------------------------ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Results of Operations Comparison of Three Months Ended June 30, 2014 and 2013 The following table shows key components of our results of operations during the three months ended June 30, 2014 and 2013, in both dollars and as a percentage of our total sales. Three Months Ended Three Months Ended U.S. dollars, except percentages June 30, 2014 June 30, 2013 Percent of Percent of Dollars Total Sales Dollars Total Sales Total sales $ 507,729 100 % $ 690,184 100 % Cost of sales 233,362 46 % 362,757 53 % Gross profit 274,017 54 % 327,427 47 % Salaries and payroll 208,916 41 % 273,305 40 % Depreciation and amortization 20,961 4 % 26,961 4 % Selling, general and administrative expenses 178,181 35 % 351,860 51 % Income (loss) from operations (134,042 ) (26) % (324,698 ) (47) % Other income (expense) (426,397 ) (84) % (18,474 ) (3) % Loss before non-controlling interest (560,439 ) (110) % (343,172 ) (50) % Net loss allocable to non-controlling interest (22,890 ) (5) % 6,270 1 % Net loss $ (583,328 ) (115) % $ (336,902 ) (47) % Total Sales . Our total sales decreased 27% to $507,279 in the three months ended June 30, 2014 from $690,184 in the same period last year, primarily as a result of a decrease in sales in our online advertising business and attrition of customer base of a subsidiary. Cost of sales . Our cost of sales decreased 36% to $233,262 in the three months ended June 30, 2014, from $362,757 in the same period last year, mainly due to a proportional decrease in our sales associated with our marketing campaign and training costs for our underperforming marketing centers during the 2014 period. Gross profit and gross profit margin . Our gross profit decreased 16% to $274,017 in the three months ended June 30, 2014, from $327,427 in the same period last year. The gross profit margin (gross profit as a percentage of total sales) was 54% for the three months ended June 30, 2014 and 47% for the three months ended June 30, 2013. The decrease in the gross profit margin was primarily due to a decrease in overall sales. Salaries and payroll. Our salaries and payroll expenses decreased 24% to $208,916 in the three months ended June 30, 2014 from $273,305 in the same period last year, mainly due to a continued reduction in personnel and related payroll expenses during the 2014 period. Selling, general and administrative expenses. Our selling, general and administrative expenses decreased 49% to $178,181 in the three months ended June 30, 2014, from $351,860 in the same period last year, mainly due to an active management of our administrative costs to eliminate unnecessary expenses in connection with our operations. Other income and expenses. Interest expense decreased 2% to $42,470 in the three months ended June 30, 2014, from $43,243 in the same period in 2013, primarily due to a decrease in loan interest associated with the Thermo Credit LLC loan. 23--------------------------------------------------------------------------------ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Comparison of Three Months Ended June 30, 2014 and 2013 - continued Income taxes. Income taxes remained flat at zero dollars in the three months ended June 30, 2014 from the same period in 2013, mainly due to recurring losses. Net loss. As a result of the foregoing reasons, net loss decreased 41% to $199,392 in the three months ended June 30, 2014, from $336,902 in the same period last year. Segment Data Net (loss) for the advertising solutions segment decreased 37% to $(212,764) in the three months ended June 30, 2014, from $(337,129) in the same period last year, mainly due to an increase in our operations support areas, less efforts in direct marketing and higher attrition ratio. Total assets for the advertising solutions segment decreased 20% to $1,574,784 as of June 30, 2014 from $1,977,407 as of June 30, 2013, mainly due to decrease in receivables from intercompany accounts. Net (loss) for the wireless segment increased 694% to $(59,429) in the three months ended June 30, 2014, from net loss of $(10,003) in the same period last year, mainly due to increases in costs associated with the increased sales. Total assets for the wireless segment decreased 6% to $1,430,019 as of June 30, 2014, from $1,524,734 as of June 30, 2013, mainly due to amortization on tower assets. Net income for the wireline segment decreased 418% to $(43,485) in the three months ended June 30, 2014, from $13,656 in the same period last year, mainly due to a decrease in marketing of wireless marketing and operating costs. Total assets for the wireline segment increased 0.43% to $375,714 as of June 30, 2014, from $374,102 as of June 30, 2013, mainly due to capital assets purchased for the Companies new offices and leasehold improvements. Comparison of Six Months Ended June 30, 2014 and 2013 The following table shows key components of our results of operations during the six months ended June 30, 2014 and 2013, in both dollars and as a percentage of our total sales. Six Months Ended Six Months Ended U.S. dollars, except percentages June 30, 2014 June 30, 2013 Percent of Percent of Dollars Total Sales Dollars Total Sales Total sales $ 1,051,336 100 % $ 1,454,080 100 % Cost of sales 600,985 46 % 775,407 53 % Gross profit 450,351 54 % 678,673 47 % Salaries and payroll 385,555 41 % 543,838 37 % Depreciation and amortization 41,951 4 % 60,860 4 % Selling, general and administrative expenses 354,216 35 % 771,538 53 % Income (loss) from operations (331,371 ) (26) % (697,562 ) (48) % Other income (expense) (466,269 ) (8) % (91,761 ) (6) % Loss before non-controlling interest (797,640 ) (35) % (789,323 ) (53) % Net loss allocable to non-controlling interest (15,338 ) (5) % 24,141 2 % Net loss $ (812,977 ) (39) % $ (765,183 ) (53) % 24--------------------------------------------------------------------------------ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Comparison of Six Months Ended June 30, 2014 and 2013 - continued Total Sales . Our total sales decreased 28% to $1,051,336 in the six months ended June 30, 2014 from $1,454,080 in the same period last year, primarily as a result of a decrease in sales in our online advertising business and attrition of customer base of a subsidiary. Cost of sales . Our cost of sales decreased 22% to $600,985 in the six months ended June 30, 2014, from $775,407 in the same period last year, mainly due to a proportional decrease in our sales associated with our marketing campaign and training costs for our underperforming marketing centers during the 2014 period. Gross profit and gross profit margin . Our gross profit decreased 34% to $450,351 in the six months ended June 30, 2014, from $678,673 in the same period last year. The gross profit margin (gross profit as a percentage of total sales) was 43% for the six months ended June 30, 2014 and 47% for the six months ended June 30, 2013. The decrease in the gross profit margin was primarily due to a decrease in overall sales. Salaries and payroll. Our salaries and payroll expenses decreased 29% to $385,555 in the six months ended June 30, 2014 from $543,838 in the same period last year, mainly due to a reduction in personnel and related payroll expenses during the 2014 period. Selling, general and administrative expenses . Our selling, general and administrative expenses decreased 54% to $354,216 in the six months ended June 30, 2014, from $771,538 in the same period last year, mainly due to an active management of our administrative costs to eliminate unnecessary expenses in connection with our operations. Other income and expenses . Interest expense decreased 29% to $82,359 in the six months ended June 30, 2014, from $116,552 in the same period in 2013, primarily due to an decrease in loan interest associated with the Thermo Credit LLC loan. Income taxes . Income taxes remained flat at zero dollars in the six months ended June 30, 2014 from the same period in 2013, mainly due to recurring losses. Net loss . As a result of the foregoing reasons, net loss increased 6% to $812,977 in the six months ended June 30, 2014, from $765,183 in the same period last year. Segment Data Net (loss) for the advertising solutions segment decreased 5% to $(770,764) in the six months ended June 30, 2014, from $(731,977) in the same period last year, mainly due to a decrease in sales, less efforts in direct marketing and higher attrition ratio. Total assets for the advertising solutions segment decreased 20% to $1,574,784 as of June 30, 2014 from $1,977,407 as of June 30, 2013, mainly due to decrease in receivables from intercompany accounts. Net (loss) for the wireless segment decreased 170% to $(83,820) in the six months ended June 30, 2014, from net loss of $(65,586) in the same period last year, mainly due to increases in costs associated with the increased sales. Total assets for the wireless segment decreased less than 6% to $1,430,019 as of June 30, 2014, from $1,524,734 as of June 30, 2013, mainly due to amortization on tower assets. Net (loss) for the wireline segment decreased 205% to $40,883 in the six months ended June 30, 2014, from $38,836 in the same period last year, mainly due to an decrease in marketing of wireless marketing and operating costs. Total assets for the wireline segment increased less than 1% to $375,714 as of June 30, 2014, from $374,102 as of June 30, 2013, mainly due to impairment of goodwill during the year ended December 31, 2012. 25--------------------------------------------------------------------------------ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Liquidity and Capital Resources As of June 30, 2014, we had cash and cash equivalents of approximately $28,167. The following table provides a summary of our net cash flows from operating, investing, and financing activities. To date, we have financed our operations primarily through net cash flow from operations, augmented by short-term bank and personal borrowings and equity contributions by our shareholders. Six Months Ended U.S. Dollars June 30, 2014 2013 Net cash provided by (used in) operating activities $ (40,938 ) $ (203,868 ) Net cash provided by (used in) investing activities (105 ) (4,510 ) Net cash provided by (used in) financing activities 40,789 196,014 Net increase in cash and cash equivalents $ -- $ -- Operating Activities Net cash provided by/ (used in) operating activities was $(40,938) in the six months ended June 30, 2014, compared with $(203,868) used in operating activities in the same period last year. Net loss after adjustment for noncash items was $371,365 in the six months ended June 30, 2014. This decrease was primarily due to increased operating and legal costs of underperforming subsidiaries. Investing Activities Net cash used in investing activities in the six months ended June 30, 2014 was $105, compared with $4,510 used in investing activities in the same period last year. The decrease was mainly due to purchases of equipment in the previous years period. Financing Activities Net cash provided by/ (used in) financing activities in the six months ended June 30, 2014 was $40,789, compared with $196,014 of net cash provided by financing activities in the same period in 2013. The decrease in net cash provided by financing activities was mainly due to cash proceeds from unrelated third-party loans and proceeds from related party loans offset by a repayment of the related party loans. Capital Expenditures Our capital expenditures for the six months ended June 30, 2014 and 2013 were none and $4,494, respectively. As of June 30, 2014, we had cash and cash equivalents of $28,167, primarily consisting of demand deposits. To date, we have financed our operations primarily through cash flows from operations, augmented by short-term bank and personal loans and unrelated third-party loans. We believe that our cash on hand and cash flow from operations will meet a portion of our present cash needs and we will require additional cash resources, including loans, to meet our expected capital expenditures and working capital requirements for the next 12 months. We may, however, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our marketing efforts and increase brand awareness, or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects. 26--------------------------------------------------------------------------------ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Loan Commitments As of June 30, 2014, the amount, maturity date and term of each of our loans were as follows: Principal Lender Amount Interest Rate Maturity Date Thermo Credit LLC $ 1,651,632 17.00 % January 17, 2011 AHAP 40,000 Various Upon Demand Brilliant Capital 996,421 8.00 % Upon Demand InfoCity, LLC and Others 1,130,111 8.00 % Upon Demand WC Fund 20,000 8.00 % Upon Demand Dr. Dicken Yung (related party) 226,782 0.00 % Upon Demand Baldwin Yung (related party) 326,200 0.00 % Upon Demand Boaz Yung (related party) 1,125 0.00 % Upon Demand Cherie Yung (related party) 338,066 0.00 % Upon Demand $ 4,730,337 We have a $2,000,000 revolving line of credit with the Thermo Credit LLC, pursuant to a credit agreement, dated July 17, 2010, between the Company and the bank. This revolving line of credit is guaranteed/secured by the all of the assets of the Company including cash, accounts receivable and fixed assets. The credit agreement had certain debt covenants that the Company did not comply with during the year ended December 31, 2012 and the quarter ended June 30, 2013. The first covenant was that the Company must maintain a ratio of cash flow to scheduled principal payments plus all accrued interest payments on funded debt of not less than 1-to-1 as of the end of each fiscal quarter. The second covenant was that the Company must maintain a tangible net worth of not less than $0 as of the last day of each fiscal quarter. The credit agreement terminated on January 17, 2011 and the Company is renegotiating the terms with the lender. Although the line of credit is currently in default status, the Company believes that a plan or an amendment of the facility can be negotiated. Due to default of the credit facility between the company and Thermo Credit LLC. A UCC1 Auction was held on July 24, 2014. The final sale price of IBFA was approximately $550,000.00 for all of the assets of IBFA, excluding (1) cash and (2) local dial tone service. The sale was conducted in two lots, the first lot included all of the assets except cash - there were no bidders for the lot including the dial tone service, so the sale proceeded to the second lot - all of the assets of IBFA, excluding cash and local dial tone service. This was bid up to $430,000.00 (the final sale price). The winning bidder was First Choice Technology - which was represented at the sale by the receiver Scott Howsare. There were two other qualified bidders, but only Wholesale Carrier Service and First Choice Technology bid on IBFA. Inflation Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in the economies and industries in which we operate and continually maintain effective cost controls in operations. Off Balance Sheet Arrangements We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities. Seasonality Our operating results and operating cash flows historically have not been subject to dramatic seasonal variations, although there is an increase in advertising and selling expenses when we begin sales of new products or services. New market opportunities or new product and new service introductions could change any perceived patterns, seasonal or operational. 27 --------------------------------------------------------------------------------ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements. · Basis of Consolidation and Presentation. The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). In the opinion of management, the accompanying balance sheets, and statements of operations, and cash flows and include all adjustments, consisting only of normal recurring items, considered necessary to give a fair presentation of operating results for the periods presented. All material intercompany transactions and balances have been eliminated in consolidation. · Business Combinations. The Company adopted the accounting pronouncements relating to business combinations (primarily contained in ASC Topic 805 "Business Combinations"), including assets acquired and liabilities assumed arising from contingencies. These pronouncements established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. Our adoption of these pronouncements will have an impact on the manner in which we account for any future acquisitions. · Use of estimates. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. · Allowance for doubtful accounts. The Company reduces gross trade accounts receivable by an allowance for doubtful accounts. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company reviews its allowance for doubtful accounts on a regular basis and all past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. · Impairment of long-lived assets. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. For periods ended September 30, 2013 and December 31, 2012, the Company determined no impairment charges were necessary. · Property, plant and equipment, net. Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. Any gain or loss arising on the sale or disposal of the asset is included in the income statement in the period the item is sold or otherwise disposed. Maintenance and repairs of property and equipment are charged to operations when incurred. 28--------------------------------------------------------------------------------ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Recent Accounting Pronouncements The Company has evaluated the recent accounting pronouncements through March 2014 and believes that none of them will have a material effect on the Company's financial statements. |