10-Q 1 mainbody.htm MAINBODY mainbody.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X]
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
 
For the quarterly period ended March 31, 2009
   
[  ]
Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
   
 
For the transition period __________ to __________
   
 
Commission File Number: 000-52374

IB3 Networks, Inc.
(Exact name of small business issuer as specified in its charter)

Nevada
61-1433933
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
 

10 South High Street, Canal Winchester, Ohio, 43110
(Address of principal executive offices)

(614) 833-9713 x235
(Issuer’s telephone number)
 
________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes    [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

[ ] Large accelerated filer Accelerated filer
[ ] Non-accelerated filer
[X] Smaller reporting company
  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes   [X] No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 25,747,991 common shares as of March 31, 2009.
 
 
 
 PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements



These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  Operating results for the interim period ended March 31, 2009 are not necessarily indicative of the results that can be expected for the full year.
 
3
IB3 NETWORKS, INC.
(FKA LANGUAGE ACCESS NETWORK, INC.)
Consolidated Balance Sheets
 
 
March 31,
2009
  
December 31,
2008
 
(unaudited)
    
Assets
      
Current Assets
      
Cash and equivalents
 $ 807   $ 13,000
Accounts receivable, net
   50,291     39,410
Inventory
   1,763     8,673
Other current assets
   20,834     3,193
   Total Current Assets
   73,695     64,276
           
Furniture and Equipment, net
   41,201     36,474
Other Assets
          
Deposits
   40,000     -
Goodwill
   269,725     269,725
   Total Other Assets
   309,725     269,725
           
       Total Assets
 $ 424,621   $ 370,475
           
Liabilities and Stockholders' Equity (Deficit)
          
Current Liabilities
          
Accounts payable and accrued expenses
 $ 1,061,861   $ 1,010,477
Bank overdraft
   3,413     -
Payable-related party
   103,419     40,741
Notes payable-short term
   52,628     58,211
Client deposits
   34,432     33,521
   Total Current Liabilities
   1,255,753     1,142,950
Long Term Liabilities
          
Convertible notes payable
   100,000     100,000
   Total Liabilities
   1,355,753     1,242,950
           
Stockholders' Equity (Deficit)
          
Common stock: $0.001 par value; 100,000,000 shares authorized, 25,747,991
and 24,436,491 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively
   25,748     24,436
Additional paid-in capital
   14,706,241     14,034,678
Accumulated deficit
   (15,663,121)     (14,931,589)
   Total stockholders' equity (deficit)
   (931,132)     (872,475)
           
       Total Liabilities and Stockholders' Equity (Deficit)
 $ 424,621   $ 370,475
 
The accompanying notes are an integral part of these financial statements.
F-1
IB3 NETWORKS, INC.
(FKA LANGUAGE ACCESS NETWORK, INC.)
Statements of Operations
(unaudited)
 
 
For the Three
Months Ended
March 31, 2009
  
For the Three
Months Ended
March 31, 2008
       
Net Revenue
 $ 267,290   $ 346,581
Cost of Goods Sold
   155,012     231,071
Gross profit (loss)
   112,278     115,510
           
Operating Expenses
          
  Depreciation and amortization
   5,273     5,455
  Selling, general and administrative
   828,933     149,995
Total operating expenses
   834,206     155,450
Operating Loss
   (721,928)     (39,940)
           
Other Income and Expenses
          
Interest expense
   (9,647)     (48,218)
Other income (expense)
   43     -
Total other income and expenses
   (9,604)     (48,218)
Net loss before income taxes
   (731,532)     (88,158)
Income tax expense
   -     -
Discontinued Operations
   -     599,571
Net Income (Loss)
 $ (731,532)   $ 511,413
           
Basic Earnings (Loss) Per Share
Continuing operations
 $ (0.03)   $ (0.00)
Discontinued operations
   -     0.02
  $ (0.03)   $ 0.02
Weighted Average
          
  Common Shares Outstanding
   25,092,241     26,619,853
 
The accompanying notes are an integral part of these financial statements.
IB3 NETWORKS, INC.
(FKA LANGUAGE ACCESS NETWORK, INC.)
Statements of Stockholders' Equity (Deficit)
(unaudited)
 
Common Stock
  
Additional
  
Accumulated
  
Total
Stockholders'
 
Shares
  
Amount
  
Paid-in Capital
  
Deficit
  
Deficit
                   
Balance, December 31, 2007
   105,537   $ 105   $ 12,739,114   $ (14,972,886)   $ (2,233,667)
                             
Notes converted to common stock at $1.45 per share
   55,125     55     79,945     --     80,000
                             
Notes converted to common stock at $0.80 per share
   333,280     333     268,417     --     268,750
                             
Beneficial conversion feature
   --     --     3,540     --     3,540
                             
Shares issued for cash at $0.001 per share
   5,300,000     5,300     -     --     5,300
                             
Notes converted to common stock at $0.05 per share
   18,642,549     18,643     943,662     --     962,305
                             
Net income for the year ended December 31, 2008
   --     --     --     41,297     41,297
                             
Balance, December 31, 2008
   24,436,491     24,436     14,034,678     (14,931,589)     (872,475)
                             
Shares issued for services at $0.55 per share
   1,150,000     1,150     631,350     --     632,500
                             
Shares issued for equipment at $0.25 per share
   40,000     40     9,960     --     10,000
                             
Shares issued for services at $0.25 per share
   121,500     122     30,253     --     30,375
                             
Net loss for the three months ended March 31, 2009
   --     --     --     (731,532)     (731,532)
                             
Balance, March 31, 2009
   25,747,991   $ 25,748   $ 14,706,241   $ (15,663,121)   $ (931,132)
 
The accompanying notes are an integral part of these financial statements.
IB3 NETWORKS, INC.
(FKA LANGUAGE ACCESS NETWORK, INC.)
Statements of Cash Flows
(unaudited)
 
For the Three
Months Ended
March 31, 2009
  
For the Three
Months Ended
March 31, 2008
OPERATING ACTIVITIES:
      
Net income (loss)
 $ (731,532)   $ 511,413
Discontinued operations
   -     (599,571)
Add back non-cash items:
          
Depreciation
   5,273     5,455
Common stock issued for services
   662,875     -
Adjustments to reconcile net loss to net cash used by operating activities:
          
Change in accounts receivable
   (10,881)     15,672
Change in other assets
   (50,731)     (15,341)
Change in accounts payable and accrued liabilities
   48,884     (464)
Change in other liabilities
   911     56,036
Net cash used in operating activities
   (75,201)     (26,800)
           
INVESTING ACTIVITIES:
          
Purchase of fixed assets
   -     -
Net cash used in investing activities
   -     -
           
FINANCING ACTIVITIES:
          
Repayment of notes payable
   (5,583)     -
Cash proceeds from notes payable
   -     5,000
Proceeds from related party loans
   62,678     -
Proceeds from bank overdraft
   3,413     -
Accrued interest on notes payable
   2,500     20,863
Net cash provided by financing activities
   63,008     25,863
           
Net increase (decrease) in cash and cash equivalents
   (12,193)     (937)
Cash and cash equivalents at beginning of the year
   13,000     1,373
Cash and cash equivalents at end of the year
 $ 807   $ 436
           
SUPPLEMENTAL DISCLOSURE:
          
Cash paid during the year for interest
 $ 48,359   $ 27,355
Cash paid during the year for income taxes
 $ -   $ -
           
Non Cash Financing Activities
          
Common stock issued for convertible debt and accrued interest
 $ 1,311,055   $ 80,000
Common stock issued for equipment
 $ -   $ -
 
The accompanying notes are an integral part of these financial statements.
IB3 NETWORKS, INC.
(FKA LANGUAGE ACCESS NETWORK, INC.)
Notes to the Financial Statements

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2009 and for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2008 audited financial statements.  The results of operations for the period ended March 31, 2009 and 2008 are not necessarily indicative of the operating results for the full years.

NOTE 2 - GOING CONCERN

The Company's financial statements are prepared using accounting principles   generally   accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.  If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the Company will need, among other things, additional capital resources.  Management's plans to obtain such resources for the Company include (1) obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses, and (2) seeking out and completing a merger with an existing operating company. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

IB3 NETWORKS, INC.
(FKA LANGUAGE ACCESS NETWORK, INC.)
Notes to the Financial Statements

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
 
Use of Estimates
 
The preparation of 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 and disclosure 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 could differ from those estimates.
 
Recent Accounting Pronouncements

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings per share under the two-class method as described in FASB Statement of Financial Accounting Standards No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. We are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have material effect on our consolidated financial position and results of operations if adopted.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60”. SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of  premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.
 
 
Item 2.     Management’s Discussion and Analysis or Plan of Operation

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.   These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.  We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview

We are engaged in the businesses of our wholly-owned subsidiaries, iBeam Solutions, LLC (“iBeam”) and NYC Mags, Inc (“NYC Mags”). Through iBeam, a Microsoft Gold Certified Partner, we are engaged in delivering a variety of IT related solutions including scalable hosting solutions, managed hosting, dedicated hosting and Co-location, IT infrastructure, virtual help desk, managed services, staff augmentation, design and implementation of networks, security and Internet monitoring, technical support, web development, application development, database development and support,  and wireless solutions.  We are also a Cisco Certified Select Partner, and are authorized resellers of most IT related hardware and software, including Dell, APC, IBM, HP, 3COM, and many others.  Through NYC Mags, we are engaged in the development, promotion, and operation of our online dating social community MadisonAvenueMatch.com.

Our principal executive offices are located at 10 South High Street, Canal Winchester, OH 43110. Our telephone number is (614) 833-9713.
 

Results of Operations for the three months Ended March 31, 2009 and 2008

Revenues. Revenues are generated through sales. We reported sales of $267,290 for the three months ended March 31, 2009, compared with revenue of $346,581 for the same period ended March 31, 2008.  The decrease in revenues for the three months ended March 31, 2009 compared with the same period in 2008 is attributable to poor economic conditions in the overall economy causing businesses to cut back on IT related projects and expenditures.

Our cost of goods sold for the three months ended March 31, 2009 was $155,012 resulting in gross profits of $112,278. Our cost of goods sold for the three months ended March 31, 2008 was $231,071 resulting in gross profits of $115,510.  We improved our gross profit percentage by increasing the fees we charged for our services. We expect our revenues to increase in 2009 as a result of our sub lease of the data center in Columbus, Ohio.

Operating Expenses. Our operating expenses were $834,206 for the three months ended March 31, 2009, compared to $155,450 for the same reporting period ended March 31, 2008. Our operating expenses will continue to increase in 2009 due to the sub lease of the data center in Columbus, Ohio. We will pay $360,000 for the first year of this sub lease.

Other Expenses. We recorded interest expenses of $9,647 for the three ended March 31, 2009, compared with $48,218 for the three months ended March 31, 2008. Our interest expense decreased because we converted the majority of our convertible notes payable to common stock in 2008. We expect that our interest expense will decrease even further in 2009.

Discontinued Operations. On January 16, 2008, pursuant to an acquisition agreement between the Company and Interim Support, LLC, we sold Language Access Network, LLC. in exchange for the assumption of certain liabilities contained in the Acquisition Agreement. Accordingly, the assets, liabilities and operations of Language Access Network LLC are reclassified as discontinued operations in the accompanying financial statements. We recorded $0 from discontinued operations for the three months ended March 31, 2009, compared to a gain  from discontinued operations of $599,571 for the same period ended March 31, 2008. The gain in the prior quarter is attributable to the disposal of Language Access Network, LLC.

Net Income (Loss). We reported a net loss of $731,532 or $0.03 per share for the three months ended March 31, 2009 compared with income of $511,413 or $0.02 per share for the three months ended March 31, 2008.

Liquidity and Capital Resources

As of March 31, 2009, we had total current assets of $73,695. As of March 31, 2009, we had total current liabilities of $1,255,753. We thus had a working capital deficit of $1,182,058 at March 31, 2009.

Net cash used by operating activities was $75,201 for the three months ended March 31, 2009 compared to net cash used in operating activities of $26,800 for the three months ended March 31, 2008. We had no cash used or provided by investing activities for the three months ended March 31, 2009 and 2008. Net cash flow provided by financing activities amounted to $63,008 for the three months ended March 31, 2009, compared to net cash provided by financing activities of $25,863 for the same period ended March 31, 2008.  During the three months ended March 31, 2009, the primary factor of our cash provided by financing activities was proceeds of related party loan of $62,678.  During the three months ended March 31, 2008, the primary factor of our cash provided by financing activities was accrued interest on notes payable in the amount of $20,863.

We anticipate that we will be dependent, for the immediate future, upon additional investment capital to fund operating expenses.
 

Going Concern

The Company's financial statements are prepared using accounting principles   generally   accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.  If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the Company will need, among other things, additional capital resources.  Management's plans to obtain such resources for the Company include (1) obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses, and (2) seeking out and completing a merger with an existing operating company. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Off Balance Sheet Arrangements

As of March 31, 2009, there were no off balance sheet arrangements.
 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4T.     Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2009.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, Eric Schmidt.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2009, our disclosure controls and procedures are effective.  There have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2009.

Disclosure controls and procedures 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 SEC's rules and forms. 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, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Internal Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level.  Further, 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 the 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 internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there 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.
 

PART II – OTHER INFORMATION

Item 1.     Legal Proceedings

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

Item 1A:  Risk Factors

A smaller reporting company is not required to provide the information required by this Item.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March, 31, 2009, we issued the following shares:

§  
150,000 shares of our common stock at $.55 per share to Mr. Michael Jacobson, our director, in connection with our acquisition of NYC Mags;
§  
1,000,000 shares of our common stock at $.55 per share to Mr. Eric Schmidt, our officer and director, in connection with his employment agreement with our company;
§  
40,000 shares of our common stock at $.25 per share to Trenton Argobright, the Chief Technology Officer of iBeam, in connection with payment for equipment received by the company;  and
§  
121,500 shares of our common stock at $.25 per share to officers and employees of our company for services rendered.

These shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended.

Item 3.     Defaults upon Senior Securities

None

Item 4.     Submission of Matters to a Vote of Security Holders

No matters have been submitted to our security holders for a vote, through the solicitation of proxies or otherwise, during the quarterly period ended March 31, 2009.

Item 5.     Other Information

None

Item 6.      Exhibits


 
SIGNATURES

In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
IB3 NETWORKS, INC.
   
Date:
 May 20, 2009
   
 
By:       /s/ Eric Schmidt                                          
             Eric Schmidt
Title:    Chief Executive Officer and Chief Financial Officer