NEWPORT DIGITAL TECHNOLOGIES, INC. 10-K 2011
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2011
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission File No. 000-33251
NEWPORT DIGITAL TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
(Formerly INTERNATIONAL FOOD PRODUCTS GROUP, INC.)
Registrant’s telephone number: (949) 219-0530
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12 (g) of the Act: 389,570,001 common shares par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the Registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.?
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 31, 2010 was approximately $3,596,935 based upon the closing price of $0.003 reported for such date on The OTC Bulletin Board.
As of August 23, 2011 the registrant had 1,770,755,341 outstanding shares of Common Stock.
Documents incorporated by reference: None.
NEWPORT DIGITAL TECHNOLOGIES, INC.
TABLE OF CONTENTS
Information included or incorporated by reference in this Form 10-K contains forward-looking statements. This information typically involves known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words may, will, should, expect, anticipate, estimate, believe, intend or project or the negative of these words or other variations on these words or comparable terminology.
Forward-looking statements include, without limitation, assumptions that we will be able to successfully obtain additional capital on commercially reasonable terms sufficient to implement our business plan, develop and market products and services which achieve market acceptance and generate sales revenues at reasonable margins, and ultimately increase income streams from sales of products and services. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. These risks and uncertainties include, but are not limited to:
Whether we will continue as a going concern;
Whether we will obtain sufficient additional capital, in the form or debt or equity or some combination, and on commercially reasonable terms, such that we can carry out our business plan;
Whether we will be able to consummate favorable agreements with or strategic partners for the marketing and distribution of products and services which have viable markets and good margins;
Whether our products and services will be received favorably in the market place, and generate significant sales revenues, and reasonable margins which allow us to generate income and cash flow, permit us to grow our business, and ultimately achieve profitability.
Given such uncertainties, among others, undue reliance should not be placed on these forward-looking statements. The Company does not undertake, and the Company specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences, developments, events or circumstances after the date of such statement.
Item 1. Description of Business
The registrant (sometimes referred to the "Company" or "NDT") during the past year has continued to develop broaden a technology marketing and distribution business. As a result, it should be considered a development stage company, and has yet to realize revenues in its business.
From 2009 through late 2010, The Company had underway the development, positioning and initial marketing of several different innovative wireless technology solutions which it hopes to sell to Fortune 500 companies and their clients. The Company had during that time developed through strategic alliances with other companies, a portfolio of competencies in the following wireless technologies: (1) RFID (radio frequency identification); (2) WiMax; (3) Digital Signage/LED lighting; and (4) Security & Surveillance solutions. In July, 2010, the Company has elected to narrow its initial focus on marketing and distributing only RFID and Digital Signage/LED lighting solutions and to hold off on initiating sales and marketing efforts on it WiMax and Security & Surveillance solutions. In early 2011, the Company abandoned its focus on the RFID market, finding that it did not the capital or human resources to effectively compete in that market against other better financed, established companies, and decided to further reduce its focus on the Digital Signage Market. Specifically, the Company is working to sell a network of digital signage kiosks and screens into retail stores that would enable manufacturers of consumer goods to advertise, market and promote their product in-store via interactive, digital signage solutions. By June of 2011, the Company was engaged with national retail sales, marketing and merchandising company and had begun market research and business development in this area of business. The Company is also engaged with a Major League Baseball Team, the San Diego Padres, to develop and deploy certain digital signage solutions with the Padres’ Petco Park baseball stadium. The Company has entered into a strategic joint venture agreement with Convergent Holdings, as described below, in order to design, instill and operated digital signage networks into retail stores.
Newport Digital Technologies, Inc. (NDT or the Company), formerly Golden Choice Foods Corporation dba Golden Choice Foods, was incorporated in April 1996 pursuant to the laws of the state of Delaware and commenced a business in the marketing and distribution of consumer products, with an emphasis on food products.
On June 1, 2000 the Company re-domiciled in the state of Nevada. In April, 2001 the Company changed its name to International Food Products Group, Inc. and became a fully reporting Company under the Securities Exchange Act of 1934 pursuant to Section (g) thereof. In October of 2001, NDT filed with the NASD its application for a listing symbol on the OTC Bulletin Board and initiated trading thereafter of its common shares under the symbol IFDG, on the OTCBB.
In 2008, the Company underwent a significant restructuring of its business, and now focuses its business on the marketing and distribution technology products and solutions, the evolution of which is described above.
As a result, on May 5, 2009 the Company amended its Articles of Incorporation to change the Company’s name from International Food Products Group, Inc., to Newport Digital Technologies, Inc. On April 17, 2009, the Company was issued a new CUSIP number under its new name, Newport Digital Technologies, Inc., and subsequently commenced trading under its new symbol NPDT, on the OTCBB.
Electronic Product Code (EPC) – EPC is a family of coding schemes, created as a low-cost method for tracking goods using RFID technology. It is designed to meet the needs of various industries, while guaranteeing that all EPC-compliant tags have a unique serial number. EPC tags are designed to identify each item manufactured, as opposed to just its manufacturer and product class, as bar codes do today. The EPC accommodates existing coding schemes and defines new schemes where necessary.
The Electronic Product Code promises to become the standard for global RFID usage. EPCglobal, in conjunction with various industries, is also developing standards for sharing data over the EPCglobal Network®. Together, these technologies will enable companies to automate the tracking of goods through the supply chain, as well as reduce inventory, cut shipping errors and increase sales by making sure products are where they need to be when customers want to buy them. Many companies are already achieving these benefits.
RFID tags - RFID tags are devices used for Radio-frequency identification (RFID). RFID is the process or method of automatically identifying radio frequencies. The RFID tag consists of mainly a microchip that is combined with an antenna or coil. The antenna picks up signals from an RFID reader and then returns the signal with additional information. The chip or integrated circuit is used to store the information that is collected from the signals picked up. The chip can also be used to process this information or to modulate and demodulate the tracked signal. However, some RFID tags are chip-less. This means that it does not make use of any integrated circuit to store information. The RFID tag instead uses fiber or materials that reflect a portion of the reader's signal back; the unique return signal can be used as an identifier. Its advantage over traditional RFID tags is that they can be used in several different environments and are also less sensitive to temperature changes and radio frequency interference.
The size of the RFID tag can vary. It can be very small like a grain of sand or large enough to compare with a small book. The RFID tag can be applied to a product, an animal or a human being for the purposes of identification. It does this by tracking the information needed using radio waves and thus can be read from a long distance off even when there is no direct line of sight. RFID data can therefore be read through the human body, clothing and non-metallic materials.
RFID tags can either be active, passive or semi-passive. Active RFID tags require an internal power source to power the integrated circuit and then broadcast the response signal to the reader. The power source can be a replaceable battery or a sealed unit or can be connected to an external power source. Passive RFID tags on the other hand do not contain an internal power source. When radio waves are encountered, an electrical current is induced in the antenna to form a magnetic field. This power is what is used to power up the passive RFID tag. Semi-passive RFID tags have their own internal power source which powers the chip but not the broadcasting of the signal. The response is powered when the energy is reflected back to the reader.
EPC Global RFID readability criteria – EPCglobal is leading the development of industry-driven standards for the Electronic Product Code (EPC) to support the use of Radio Frequency Identification (RFID) in today’s fast-moving, information rich, trading networks. EPC Global sets industry standards and criteria for how RFID tags and readers read.
POS checkout - Point of sales (POS) or checkout refers to both a checkout counter in a shop, and the location where a transaction occurs. Colloquially, a "checkout" refers to a POS terminal or more generally to the hardware and software used for checkouts, the equivalent of an electronic cash register. A POS terminal manages the selling process by a salesperson accessible interface. The same system allows the creation and printing of the voucher.
3G cellular data communication - 3G is the third generation of wireless technologies. It comes with enhancements over previous wireless technologies, like high-speed transmission, advanced multimedia access and global roaming. 3G is mostly used with mobile phones and handsets as a means to connect the phone to the Internet or other IP networks in order to make voice and video calls, to download and upload data and to surf the net.
EPC Class 1 Gen 2 Passive Reader Module - Commonly known as the "Gen 2" standard, this standard defines the physical and logical requirements for a passive-backscatter, Interrogator-talks-first (ITF), radio-frequency identification (RFID) system operating in the 860 MHz - 960 MHz frequency range. The system comprises Interrogators (also known as Readers), and Tags (also known as Labels).
The UHF Class-1 Generation-2 air interface protocol V1.2.0 extends the item-level tagging capabilities of UHF Gen 2. In this protocol, 3 optional features have been added. An indicator is now available to show when there is formatted data in user memory. Addition of permalocking on a block level in user memory now protects contents that have already been written. Recommissioning of a tag after POS operations is now available. The recommissioned action is indicated through the inclusion of extended protocol control bits.
EPC Gen 2 UHF Protocol V.1.0.9 Certification – This is an EPC Global Certification Standard that tests both conformance and interoperability for UHF (Ultra high Frequency) RFID readers/tags. Its operating frequency range is 902MHZ -- 928MHZ on 50 channels with one or two antenna options.
WiMAX, meaning Worldwide Interoperability for Microwave Access, is a telecommunications technology that provides wireless transmission of data using a variety of transmission modes, from point-to-multipoint links to portable and fully mobile internet access. The technology provides broadband speed without the need for cables. The name "WiMAX" was created by the WiMAX Forum, which was formed in June 2001 to promote conformity and interoperability of the standard. The forum describes WiMAX as "a standards-based technology enabling the delivery of last mile wireless broadband access as an alternative to cable and DSL.
Radio-frequency identification (RFID). This is the use of an RFID tag applied to or incorporated into a product, animal, or person for the purpose of identification and tracking using radio waves. Most RFID tags contain at 4 parts, 1) CPU for processing data, 2) Memory to store information, 3) Power supply to provide power to the tag, 4) Antenna system to allow the reader and tag to communicate wirelessly. There are generally two types of RFID tags: active RFID tags, which contain a battery and can transmit signals autonomously, and passive RFID tags, which have no battery and require an external source to invoke signal transmission. The tags are read by specialized RFID readers. The Company and III/ITRI’s RFID readers and tags are intended for enterprise supply chain management and asset tracking to improve the efficiency of inventory tracking and management.
VOIP. Voice Over Internet Protocol or VOIP VoIP is an IP telephony term for a set of facilities used to manage the delivery of voice information over the Internet. VoIP involves sending voice information in digital form in discrete packets rather than by using the traditional circuit-committed protocols of the public switched telephone network (PSTN). A major advantage of VoIP and Internet telephony is that it avoids the tolls charged by ordinary telephone service.
THE COMPANY’S STRATEGIC ALLIANCES
The Company had identified and had planned to commercialize customer-driven technology solutions in its identified competencies through a strategic alliance with two Taiwan technology research and development (R&D) incubators, the Institute Information Industry (III) and Industrial Technology Research Institute (ITRI.). III and ITRI were established in 1979 as non-governmental organizations, jointly sponsored by the Taiwan government and prominent private enterprises, for the purpose of strengthening the developments of information industry in Taiwan. These alliances give us the opportunity to develop, license and sell technology and products developed by III and ITRI, which we can customized to our customers’ specifications for sale into the U.S. and international markets.
The Company’s strategic partner, ITRI, has significant experience in industrial RFID technologies from asset tracking to global container tracking systems. ITRI managed the first EPC Global Certified Performance and Conformance Laboratories in Asia and has developed a range of RFID tags, devices and solutions which have been developed, tested and certified.
Through III, ITRI and The Company's own resources, the Company has access to many IT engineers, manufacturers and suppliers in Taiwan, China, and Japan. Our target markets include medium to large business to business enterprises. Our manufacturing strategy is a demand pull system, where commercial production commences only after customers place orders, thereby mitigating some of the inventory costs and risks to the Company.
ANTICIPATED PRODUCTS TO BY MARKETED AND SOLD BY THE COMPANY
From 2009 through 2010, The Company, in conjunction with III and ITRI, had been working toward commercializing a number of what it considers leading edge RFID technology solutions. These included a comprehensive line of mobile computing products and solutions targeted toward RFID field applications for asset tracking, inventory management and point-of-sale for various vertical business-to-business markets. The Company had expected that these RFID products to include Electronic Product Code (EPC) Global certification laboratories, ruggedized, military/commercial-grade RFID enabled, mobile handheld/tablet computers, RFID Forklifts, RFID tags. In July 2010, the Company decided to forego the risk and expense of developing the EPC Global certification laboratories and instead focused on selling it RFID enabled hand held devises as well as RFID tags. As of March, 2011, it became clear to management, that after significant effort and investment of human and capital resources, that the Company would not be able to effectively compete in the RFID market. The Company was faced with much larger and better capitalized competitors who made it virtually impossible for the Company to compete in this market. Therefore, the Company discontinued its sales, marketing and business development efforts in the RFID handheld devise and RFID tag markets. The Company reduced its sales, marketing, technical sales and engineering support staff and corresponding budgets to reflect the decision to exit the RFID business.
As mentioned, the Company is now focusing all of its efforts in selling, marketing and deploying digital signage solutions into retail stores and into outdoor stadiums in the United States.
Digital Signage: Through its relationship with III, The Company had entered into a strategic relationship with FormoLight Technologies, Inc., a Taiwan-based professional manufacturer specializing in LED Display Systems for both indoors and outdoors and LED Street Lighting Systems. FormoLight also provides proficient integral services in project management, customized software, installations, testing, and maintenance. FormoLight has installed large scale projects in high profile sports arena and stadiums around the world The Company’s intent is to assist FormoLight in expanding its LED Digital Signage capability into large scale, customized Digital Signage solutions that the Company had planned to market and sell through strategic sales channel partners in the United States. The Company had secured non-exclusive worldwide marketing and distribution rights to Formolight’s products and solutions. Additionally, for any technology or solution that The Company and FormoLight jointly develop, the Company will have exclusive global marketing and distribution rights.
The Company had planned to market and sell customized digital signage solutions through collaboration with AT&T, integrating AT&T’s wireless network capabilities into the Digital Signage solution thereby enabling content to be sent to the signage over the wireless network and eliminating the need for direct cable connectivity. This will enable Digital signage to be ubiquitous in many locations, such as on the sides of city buses, trains or taxis as well as in more traditional signage locations.
In June, 2010, the Company formally launched its sales and marketing efforts for its digital signage and LED lighting solutions at the Infocomm trade show in Las Vegas. The response to the product line was strong and the Company began pursuing business development with a number of clients and had anticipated digital signage revenue in the just ended fiscal year. The Company also attempted to establish a distribution arrangement with Ingram Micro to sell its digital signage solutions through to Ingram Micro’s clients.
However, as business development progressed, it became clear that while FormoLight had very high and often superior products, the U.S. market was more focus on pricing than quality, and the Company, despite aggressive sales and marketing efforts, was unable to close business because of pricing, as well as the fact that we are an early stage development company, and the fact that bigger, more established competitors where able to offer similar products and solutions as a lower cost.
That development led the Company to establish a joint venture with TechVentures Capital Investment Corp and at the same time became an authorized LG Electronics commercial display reseller in an effort to overcome pricing issues, to offer branded digital signage solutions in an attempt to compete in the digital signage market.
From June 2011 until today, the Company has been attempting to leverage its status as an authorized LGE reseller in order to sell digital signage into the hospitality, health care, and sports and entertainment markets. Thus far, the Company has determined that digital signage, branded or otherwise, has fast become a commodity product with tremendous competition and very little gross profit margins. Management does not believe it can compete effectively by selling digital signage hardware and has begun, in September 2011, to focus its efforts on selling digital signage network solutions into targeted retail stores.
In September, 2011, the Company announced that we have entered into a strategic business agreement with Convergent Holdings, Inc., a technology driven company with expertise in wireless, interactive digital signage solutions, in order to advance our digital signage projects with the San Diego Padres PetCo Park as well as the deployment of retail in-store digital signage networks currently under development.
The Company has developed a joint venture with Convergent and Convergent’s Founde and CEO, Brooks Pickering, has agreed to join the Company as a strategic advisor to provide end-to-end interactive digital signage solutions design and deployment experience and expertise to the Company’s clients. Mr. Pickering was recently the advisor to Deutsche Bank in designing and deploying all guest experience technologies at the recently opened $3 billion Cosmopolitan of Las Vegas, a project that included: first-of-its-kind interactive room control, specialized projection systems, and the largest high-definition LCD video installation in the world. The Company believes that is now has a resource partner to develop and deploy unique, integrated interactive digital signage solutions to it customers. We believe that because of some of Convertgents’s unique, proprietary technology, that we will be able to offer unique solutions at competitive prices to our prospective clients.
Surveillance: III and ITRI has developed Security and Surveillance Technologies which the Company had intended to market and sell, and which management believed would have had a broad application and provide advanced security solutions for national border, port, home, business and public environments. But as mentioned above, the Company has decided to exit this market.
WIMAX: The Company had signed a licensing agreement for Microsoft’s mobile operating platform, for use in telecommunications products including the Company’s N37B handheld computer with advanced RFID capability. The Company is no longer in the RFID business and has not and will not renew this license.
As the Company has changed its business focus, the Company’s marketing efforts are focus entirely on selling business-to-business interactive digital signage solutions to select clients. We are no engaged in broad based marketing efforts; through we do attend strategic industry trade shows. The Company develops its client based primarily through face-to-face business development meetings. We are focused on key companies who have strong presence in large retail food, drug and general merchandise chains in order to sell in-store, interactive digital signage solutions
NDT’s competitors in the digital signage space are Panasonic, Samsung, Vizio, Sharp and Toshiba as well as many other smaller, non-branded digital signage prodivders. Each of these companies is substantially larger, better capitalized, with more employees, have well funded R & D programs, a strong and loyal customer base, and years of experience in the market place.
Most of NDT's operations are conducted through the use of independent contractors. Independent contractors perform such duties as selling, manufacturing, shipping and computer services. Because of this policy, NDT currently has only 2 full time employees.
The Company may be subject to certain import/export regulations but the Company is not certain as to which regulations will pertain to its business.
Item 1A. Risk Factors
RISKS RELATED TO OUR BUSINESS
We are the subject of a going concern opinion by our independent auditors who have raised substantial doubt as to our ability to continue as a going concern
Our financial statements have been prepared assuming we will continue as a going concern. We have experienced recurring net losses from operations, which losses have caused an accumulated deficit of approximately $23,600,682 at June 30, 2011. In addition, we had a working capital deficit as of June 30, 2011 of $1,895,476. We had net losses of $1,746,329 and $6,593,233 for the years ended June 30, 2011 and 2010, respectively. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty. Assurances cannot be given that adequate financing can be obtained to meet our capital needs. If we are unable to generate profits and are unable to continue to obtain financing to meet our working capital requirements, we may have to curtail our business sharply or cease operations altogether. Our continuation as a going concern is dependent upon our ability to generate additional debt or equity financing, and thereafter establish sufficient cash flow to meet our obligations on a timely basis to retain such financing, to obtain additional financing, and, ultimately, to attain profitability. Should any of these events not occur, we will be adversely affected and we may have to cease operations.
We May Not Be Able to Generate Sales Or Otherwise Successfully Implement Our Business Plan, Which Could Have a Significant Negative Impact on Our Financial Condition.
Our business plan calls for development, marketing and sale of cutting edge technology based products and services, developed based on the technology of our strategic partners. If we are unable negotiate favorable contracts for such technology with our partners, or if the products and services we choose to develop and market are not favorably received in the market place and do not generate significant sales and revenues at reasonable profit margins to us, we will not be able to generate enough revenue to achieve and maintain profitability or to continue our operations..
We are currently dependent on External Financing
Currently, we are dependent upon external financing to fund our operations. It is imperative that we receive this external financing to implement our business plan and to finance ongoing operations. New capital may not be available and adequate funds may not be sufficient for our operations, and may not be available when needed or on terms acceptable to our management. Our failure to obtain adequate additional financing would require us to delay, curtail or scale back some or all of our operations and would hinder our ability to implement our business plan or continue our business.
We Do Not Own or Operate a R&D (RESEARCH and DEVELOPMENT) Engineering Team to Develop New Technology or Products
We do not own or operate a research facility or RSD team, nor do we develop new technology or products. We must rely on the research and development activities or our strategic partners. If our agreements without Strategic partners were to terminate for any reason, we would likely find it difficult to find comparable services and relationships with new strategic partners on comparable terms. This would have an adverse effect on our financial condition and results of operations, and our efforts to implement our business plan.
We Expect Our Targeted Markets to Become Increasingly Competitive and, in the Event We are Unable to Compete against Larger Competitors, Our Business Could Be Adversely Affected
We expect our business to faces competition from other companies developing products and services competitive with our targeted products and services. Competitors with greater access to financial resources may enter our markets and compete with us. We expect that many of our competitors will have longer operating histories, larger customer bases, longer relationships with customers, and significantly greater financial, technical, marketing, and public relations resources than we do. Established companies with competing products or services who have substantially greater financial resources and longer operating histories than us could have a significant adverse impact on our ability to implement our business plan and generate revenues, cash flows and ultimately profitability for our Company.
We Could Fail to Attract or Retain Key Personnel, Which Could Be Detrimental to Our Operations
Our success largely depends on the efforts and abilities of our key executive officers. The loss of the services of any of them could materially harm our business because of the cost and time necessary to find a successor. Such a loss would also divert management’s attention away from operational issues. We do not presently maintain key-man life insurance policies on our key executive officers. We also have other key employees who manage our operations and if we were to lose their services, senior management would be required to expend time and energy to find and train their replacements. To the extent that we are smaller than our competitors and have fewer resources, we may not be able to attract sufficient number and quality of staff.
Trading of our stock may be restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our stock
The Securities and Exchange Commission has adopted regulations which generally define penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
Item 1B. Unresolved Staff Comments
Item 2. Property
Third party contractors would produce and ship the products of NDT. Accordingly we do not maintain manufacturing or warehouse space. Our US Corporate facilities are 500 square feet of office space located 620 Newport Center Drive Suite 570, Newport Beach, California 92660. NDT occupies the space pursuant to a month to at nominal rent of $500.
The Company also maintains Newport Digital Technologies, Pty Ltd., with 500 square feet of office space ABN/ACN 57 111 453 500/111 453 500, 104 Auburn Road, Hawthorn 3122 VIC Australia, at no rent to the Company.
Until November of 2010, NDT also occupied a lab testing office with 1,000 square feet located at 304 SW 16 th St., Suite 10, Bentonville, AR 72756. NDT occupied the space pursuant to a yearly lease at a rent of $1200 per month. NDT terminated that rental agreement in November 2010.
In November, 2010, the Company also closed it offshore facilities located at Newport Digital Technologies, Ltd. with 3,250 square feet of office space located at 12F, No 866-7 Zhongzheng Rd, Zhonghe City, Taipei County, 235, Taiwan, R.O.C., where we were paying rent of $3000 per month. The Company also closes its Newport Digital Technologies, Inc office with 500 square feet of office space located at No. 1-21-4, Taihei, Sumida-Ku, Tokyo, 130-0012, Japan where there was no rent paid by the Company
Item 3. Legal Proceedings
The Company has stipulated to a judgment against the Company in favor of Flair Packaging in the amount of $130,000. The Company and Flair Packaging have not reached a satisfactory agreement on the payment terms.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the share holders during the fiscal year ended June 30, 2011.
Item 5. Market for Registrant’s Common Equity and Related Stockholders Matters and Issuer Purchases of Equity Securities
The common shares of the Company are listed on the OTC Bulletin Board under the symbol NPDT.OB. Following is the high and low sales prices for each of the two years in the period ending June 30, 2011. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
At June 30, 2011 there were approximately 330 record holders of NDT's Common Stock.
NDT has not previously declared or paid any dividends on its common stock and does not anticipate declaring any dividends in the foreseeable future.
There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
(1) We would not be able to pay our debts as they become due in the usual course of business; or
(2) Our total assets would be less than the sum of our total liabilities.
Recent Sales of Unregistered Securities
During the year ended June 30, 2011, the Company issued a total of 87,124,437 restricted shares of its common stock for services rendered. The Company also issued a total of 293,328,903 shares of its restricted common stock to a limited number of accredited shareholders for cash, at prices ranging between $0.002 and $0.007 per share. The transactions were deemed transactions exempt from the registration requirements of section 5 of the Securities Act of 1933 in reliance on section 4(2) of that Act. (See the Company’s reports filed under the Securities And Exchange Act of 1934, which are incorporated herein by reference).
Item 6. Selected Financial Data.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
THE FOLLOWING PRESENTATION OF OUR MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS REPORT.
A Note about Forward-Looking Statements
This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on current management's expectations. Statements that are not historical facts are identified as forward-looking statements. The words estimate, project, intend, expect, believe, plan, and similar expressions, particularly when used in the future tense, are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. These forward-looking statements are necessarily estimates, reflecting the best judgment of senior management that rely on a number of assumptions concerning future events, many of which are outside of NDT’s control, and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.
These uncertainties, among others, include the success of NDT in obtaining sufficient equity and debt capital on commercially reasonable terms to carry out its business plan, whether advantageous contracts can be negotiated on specific products with NDT’s strategic partners, whether new products will find acceptance in the market place and generate significant sales and profits, the status of US and World economies, and various other factors. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements. You should not unduly rely on these forward-looking statements, which speak only as of the date of this Annual Report. Except as required by law, we are not obligated to release publicly, any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.
The Company is a development stage company, and has yet to realize revenues in its business, which is that of developing, marketing and selling cutting edge technology products and services.
From 2009 through late 2010, The Company had underway the development, positioning and initial marketing of several different innovative wireless technology solutions which it hopes to sell to Fortune 500 companies and their clients. The Company had during that time developed through strategic alliances with other companies, a portfolio of competencies in the following wireless technologies: (1) RFID (radio frequency identification); (2) WiMax; (3) Digital Signage/LED lighting; and (4) Security & Surveillance solutions. In July, 2010, the Company has elected to narrow its initial focus on marketing and distributing only RFID and Digital Signage/LED lighting solutions and to hold off on initiating sales and marketing efforts on it WiMax and Security & Surveillance solutions. In early 2011, the Company abandoned its focus on the RFID market, finding that it did not the capital or human resources to effectively compete in that market against other better financed, established companies, and decided to further reduce its focus on the Digital Signage Market. Specifically, the Company is working to sell a network of digital signage kiosks and screens into retail stores that would enable manufacturers of consumer goods to advertise, market and promote their product in-store via interactive, digital signage solutions. By June of 2011, the Company was engaged with national retail sales, marketing and merchandising company and had begun market research and business development in this area of business. The Company is also engaged with a Major League Baseball Tea, the San Diego Padres, to develop and deploy certain digital signage solutions with the Padres’ Petco Park baseball stadium. The Company has entered into a strategic joint venture agreement with Convergent Holdings, as described in this report, in order to design, instill and operated digital signage networks into retail stores.
Results of Operations for the fiscal years ended June 30, 2011 and 2010.
Net Sales: Net sales for the fiscal year ended June 30, 2011 and 2010, were $9,400 and $0, respectively. Fiscal years 2011 and 2010 were development years for the company as it charted a new direction in its business model. The Company is focused on developing new relationships and developing new product lines for distribution.
Research and Development Expenses: R&D expenses for the fiscal year ended June 30, 2011 was $41,625 as compared to $547,929 for fiscal year ended June 30, 2010. The Company placed the majority of its efforts in both fiscal years ended in the development of new products.
General and Administrative expense: General and Administrative expenses for the fiscal year ended June 30, 2011 was $1,486,908 as compared to $6,005,844 for fiscal year ended June 30, 2010. Officer’s salaries were $383,735 in 2010, but were cut back in 2011 to $240,856. Consulting expenses for the year ended June 30, 2011 were $285,220 compared to $4,844,960 in 2010. For the fiscal year 2010 the Company had increased its efforts to develop cutting edge technologies and products. In 2011 those efforts were scaled back as a result of decreased funding. Shareholder expenses decreased to $240,856 in 2011 from $830,380 in 2010, with its continued to raise investor capital and to increase awareness regarding its stock to attract new shareholders to its existing base of shareholders.
Liquidity and Capital Resource: Since inception, we have financed our cash requirements primarily from the sale of equity securities, vendor lines of credit and short-term debt. The Company is currently attempting to raise $1,000,000. This new capital is expected to provide additional bridge financing needed in order for the company to reach the point of commercial sales of its products, and then to increase such sales to the point of profitability.
Our financial statements have been prepared assuming we will continue as a going concern. We have experienced recurring net losses from operations, which losses have caused an accumulated deficit of approximately $23,600,682 at June 30, 2011. In addition, we had a working capital deficit as of June 30, 2011 of $1,895,476. We had net losses of $1,746,329 and $6,593,233 for the years ended June 30, 2011 and 2010, respectively. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty. Assurances cannot be given that adequate financing can be obtained to meet our capital needs. If we are unable to generate profits and unable to continue to obtain financing to meet our working capital requirements, we may not be able to implement our business plan, or we may have to curtail our business activities sharply or cease operations altogether. Our continuation as a going concern is dependent upon our ability to obtain additional financing on reasonable terms, and in the longer term, to generate sufficient cash flow to meet our obligations on a timely basis to retain financing, to obtain additional financing, and, ultimately, to attain profitability. Should any of these events not occur, the accompanying financial statements will be adversely effected and we may have to curtail or cease operations.
Critical Accounting Policies
The preparation of financial statements and related disclosure in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the financial statements and accompanying notes. Results of operations could be impacted significantly by judgments, assumptions, and estimates used in the preparation of the financial statements and actual results could differ materially from the amounts reported based on these policies.
Material events and uncertainties: We anticipate that we will begin to be profitable in the fourth quarter of fiscal year 2012, but there is no assurance that this will occur.. For this to happen, we must gain financing and deliver a very successful product.
While we believe that these statements are accurate, our business is dependent upon general economic conditions and various conditions specific to the technological industry. Accordingly, future trends and results cannot be predicted with certainty.
Under current operating conditions, management believes that our sources of cash are insufficient to last through the next year. For NDT continue to operate and to grow its sales it will need to raise additional capital and have profitable revenue.
Certain Trends and Uncertainties:
NDT has in the past and may in the future make forward-looking statements. Certain of the statements contained in this document involve risks and uncertainties. The future results of NDT could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed in this document. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those predicted. Such risks and uncertainties include, but are not limited to the following:
NDT relies heavily on the technology expertise of outside consultants, advisors, and partners. Without these relationships, the Company would most likely not be able to become competitor in digital signage technologies.
In general the technology software and high technology industries are very competitive and new and improved methodologies and technologies always pose a threat to existing operations. At anytime those standards utilized by NDT could become obsolete.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: THE BOARD OF DIRECTORS OF NEWPORT DIGITAL TECHNOLOGIES, INC.
We have audited the accompanying consolidated balance sheets of Newport Digital Technologies, Inc. (a development stage company) as of June 30, 2011, and 2010 and the related statements of operations, shareholders’ deficit and cash flows for the years then ended and for the period from July 1, 2008 (beginning of development stage) through June 30, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Newport Digital Technologies, Inc. as at June 30, 2011 and 2010 and the results of its’ operations and its’ stockholders equity and cash flows for the periods then ended and for the period from July 1, 2008 (beginning of development stage) through June 30, 2011 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations, has difficulties generating sufficient cash flow to meet its obligations and sustain its operations, and has a working capital deficit, that raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Gruber & Company, LLC
Gruber & Company, LLC
Saint Louis, Missouri
October 27, 2011
NEWPORT DIGITAL TECHNOLOGIES, INC.
(a Development Stage Company)
The accompanying notes are an integral part of these financial statements.
NEWPORT DIGITAL TECHNOLOGIES, INC.
(a Development Stage Company)
The accompanying notes are an integral part of these financial statements.
NEWPORT DIGITAL TECHNOLOGIES, INC.
(a Development Stage Company)
NEWPORT DIGITAL TECHNOLOGIES, INC.
(a Development Stage Company)
The accompanying notes are an integral part of these financial statements.
NEWPORT DIGITAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
As of June 30, 2011
NOTE 1 - Summary of Significant Accounting Policies
On March 30, 2009 a Special Meeting of the Company’s shareholders was held and a majority vote of shareholders approved a name change of the Company to Newport Digital Technologies, Inc. In addition, the number of authorized shares of the Company’s $.001 par value common stock was increased from 600,000,000 shares to 1,800,000,000 shares.
The Company, during the past two years, has continued to broaden its scope of business, leaving the food processing business behind, and devoting all of its resources and attention to developing a technology marketing and distribution business. As a result, it should be considered a development stage company, and has yet to realize significant revenues in its redirected business.
The Company has underway, the development, positioning and initial marketing of several different innovative wireless technology solutions which it hopes to sell to Fortune 500 companies and their clients. The Company has developed through strategic alliances with other companies, a portfolio of competencies in the following wireless technologies: (1) RFID (radio frequency identification); (2) WiMax; (3) Digital Signage/LED lighting; and (4) Security & Surveillance solutions.
The Company is in the development stage as defined under Statement on Financial Accounting Standards Accounting Standards Codification FASB ASC 915-205 "Development-Stage Entities.
The Company recognizes revenue in accordance with Revenue Recognition ASC 605-15-25 which requires that four basic criteria must be met before revenue can be recognized. (1) persuasive evidence of an arrangement exists; (2) title has transferred; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related revenues are recorded.
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents as of June 30, 2011 or 2010.
The Company has no requirement for compensating balances.
Trade Accounts Receivable
The Company intends and has the ability to hold trade accounts receivable until they are paid. Trade accounts receivable are reported at their outstanding principal amount less any charge offs and an allowance for doubtful accounts. When a trade account receivable is deemed uncollectible, the balance is charged off against the allowance for doubtful accounts. An allowance for doubtful accounts is based on the Company's historical loss experience. Recoveries of trade accounts receivable that have been previously charged off are recorded when received as a reduction in bad debt expense in the year of collection. The Company determines trade accounts receivable delinquency based on contractual terms of the specific trade account receivable. The Company's policy for determining past due is 60 days past agreed upon payment terms. As of June 30, 2011 and 2010, the Company had no accounts receivable.
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Market is defined as sales price less cost to dispose and a normal profit margin. Inventory consists of finished products.
Prepaid expenses represent expenses paid prior to the receipt of the related goods or services and consist primarily of prepaid legal fees.
Research and Development
Research and development expenses for new products are expensed as they are incurred. Expenses for new product development totaled $41,625 and $547,929 for the years ended June 30, 2011 and 2010, respectively.
Deferred income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities. Deferred income tax expense (benefit) represents the change during the reporting period in the deferred tax assets and deferred tax liabilities. Deferred tax assets and/or liabilities are classified as current and noncurrent based on the classification of the related asset or liability for financial reporting purposes, or based on the expected reversal date for deferred taxes that are not related to an asset or liability. Deferred tax assets include tax loss and credit carry forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company currently has net operating loss ("NOL") carry forwards that can be utilized to offset future income for federal and state tax purposes. The NOL's generate a significant deferred tax asset. However, the Company has recorded a valuation allowance against this deferred tax asset as it has been determined that it is more likely than not that the Company will not generate future income that the NOL's could offset.
Stock Based Compensation
We account for stock-based compensation in accordance with FASB ASC 718, Compensation – Stock Compensation which requires that companies account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations. Under FASB ASC 718 we are required to measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our statements of operations over the service period that the awards are expected to vest.
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 718, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services. If the fair value of goods or services received in a share-based payment transaction with nonemployees is more reliably measurable than the fair value of the equity instruments issued, the fair value of the goods or services received shall be used to measure the transaction. In contrast, if the fair value of the equity instruments issued in a share-based payment transaction with nonemployees is more reliably measurable than the fair value of the consideration received, the transaction shall be measured based on the fair value of the equity instruments issued.
Advertising costs are expensed as incurred. Advertising costs for the years ended June 30, 2011 and 2010 were $2,100 and $0, respectively.
Interest expense, including loan fees paid through the issuance of shares of the Company’s common stock; relate to borrowings, is expensed in the period it which it is incurred or the stock is issued.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. The most significant assumption that has been made by management with regards to the preparation of their financial statements is the valuation allowance that has been established for the deferred income tax asset and the valuation of share-based compensation. Changes in this and other estimates as well as the assumptions involved in the preparation of the financial statements are considered reasonably possible and may have a material impact on the financial statement
Loss per Share
Basic and diluted loss per common share has been computed by dividing the loss available to common shareholders by the weighted-average number of common shares outstanding.
The effect of any potentially dilutive securities was not included in the computation of diluted loss per share, because to do so would have been anti dilutive for the two periods presented.
New Accounting Pronouncements
In December 2010, the FASB Accounting Standards Update 2010-29 Business Combinations Topic 805, which requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. Effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption did not have an impact on the Company’s financial position and results of operations.
In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives. The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.
In February 2010, the FASB issued ASU No. 2010-09 Subsequent Events (ASC Topic 855) Amendments to Certain Recognition and Disclosure Requirements (ASU No. 2010-09). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events.
In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010.
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis.
In October 2009, the FASB issued SFAS No. 166, Accounting For Transfers of Financial Assets -- An Amendment Of FASB Statement No. 140 ("SFAS 166") [ASC860], which requires entities to provide more information regarding sales of securitized financial assets and similar transactions, particularly if the entity has continuing exposure to the risks related to transferred financial assets. SFAS 166 eliminates the concept of a "qualifying special-purpose entity", changes the requirements for derecognizing financial assets and requires additional disclosures. SFAS 166 is effective for fiscal years beginning after November 15, 2009.
In October 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) ("SFAS 167") [ASC 810-10], which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. SFAS 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. SFAS 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. SFAS 167 also requires additional disclosures about a company's involvement in variable interest entities and any significant changes in risk exposure due to that involvement. SFAS 167 is effective for fiscal years beginning after November 15, 2009.
In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-01, Topic 105 — Generally Accepted Accounting Principles — amendments based on Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. This Accounting Standards Update includes Statement 168 in its entirety, including the accounting standards update instructions contained in Appendix B of the Statement. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for interim and annual periods ending after December 15, 2009, and as of the effective date, all existing accounting standard documents will be superseded. The Codification is effective for us in the second quarter of fiscal 2010, and accordingly, this Registration Statement and all subsequent public filings will reference the Codification as the sole source of authoritative literature.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
The following presents the gross value of assets and liabilities that were measured and recognized at fair value.
At June 30, 2011 and 2010, the Company’s financial instruments are cash, accounts payable-trade, accrued liabilities and notes payable. The recorded values of cash and accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The recorded value of the notes payable approximates the fair value, as interest approximates market rates.
NOTE 2 – Property and Equipment
All equipment was fully depreciated at June 30, 2006.
NOTE 3 – Inventory
In accordance with ASC 330-10-35, Adjustment to Lower of Cost or Market the Company determined that the value of its inventory had fallen below the cost at which it was recorded. As such the Company has written its entire inventory down to cost and has recorded a loss on impairment of $204,434 as of June 30, 2011.
NOTE 4 - Other Accrued Expenses
Included in Other Accrued Expenses is a payable to a vendor of the Company who supplied packaging for the Company's products during the period from fiscal year 2000 through fiscal year 2002 and obtained a judgment in the California Superior Court against the Company for the amounts due for the products that were provided and court-awarded attorney’s fees. This judgment awarded by the court to the vendor has been recorded, and a lien has been filed in the approximate amount of $130,000.
NOTE 5 - Notes Payable
Notes payable for the years ended are as follows:
NOTE 6 - Deferred Income Taxes
Significant components of the Company's deferred income tax assets and liabilities at June 30, 2011 and 2010 are as follows:
The Company, based upon its history of losses and management's assessment of when operations are anticipated to generate taxable income, has concluded that it is more likely than not that none of the net deferred income tax assets will be realized through future taxable earnings and has established a valuation allowance for them.
Reconciliation of the effective tax rate to the U.S. statutory rate is as follows:
The Company also has federal and state net operating loss carry forwards of approximately $22,400,000. The federal net operating loss carry forwards will begin to expire in the years 2027.
NOTE 7 - Commitments
The Company rents its corporate office on a month to month basis.
NOTE 8 - Going Concern
The Company has incurred net losses for the year ended June 30, 2011 totaling $1,746,329, and has a retained deficit of $23,600,682, is in the development stage, and has minimal revenues. Our business plan calls for development, marketing and sale of cutting edge technology based products and services, developed based on the technology of our strategic partners. If we are unable negotiate favorable contracts for such technology with our partners, or if the products and services we choose to develop and market are not favorably received in the market place and do not generate significant sales and revenues at reasonable profit margins to us, we will not be able to generate enough revenue to achieve and maintain profitability or to continue our operations. No assurances can be given that the Company will be able to raise the capital required to implement its business plan.. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern.
NOTE 9 - Share-Based Compensation
In prior years, the Company granted options to its officers and certain consultants. No options were granted during the years ended June 30, 2011 or 2010. The Company does not have a formal plan for granting options. All options granted were fully vested at June 30, 2010 and are exercisable, upon proper notice, in whole or in part at any time. The options granted have contractual lives ranging from ten to sixteen years.
Summary information about the Company's options outstanding all of which were exercisable at June 30, 2011:
The Company issues shares of its common stock to non-employees in payment for services provided, and issued shares to employees in satisfaction of accrued compensation. If the fair value of goods or services received in a share-based payment transaction with nonemployees is more reliably measurable than the fair value of the equity instruments issued, the fair value of the goods or services received shall be used to measure the transaction. In contrast, if the fair value of the equity instruments issued in a share-based payment transaction with nonemployees is more reliably measurable than the fair value of the consideration received, the transaction shall be measured based on the fair value of the equity instruments issued.
NOTE 10 - Common Stock Transactions
During the year ended June 30, 2008 the Company issued 67,605,000 shares of its common stock, 59,200,000 to consultants for services, and 8,405,000 for cash of $64,000 The shares were valued at their value at the date of issuance. The Company also issued 16,000,000 preferred shares to its President, a related party for accrued salary of $80,000.
During the year ended June 30, 2009 the Company issued 565,782,000 shares of its common stock to consultants for services valued at $1,317,250 and 29,000,000 shares for cash proceeds of $531,172. In addition during the year ended June 30, 2009, the Company received cash proceeds totaling $2,957,500 for common stock subscriptions.
During the year ended June 30, 2010 the Company issued 565,782,000 shares of its common stock to consultants for services valued at $3,213,248. In addition during the year ended June 30, 2010, the Company received cash proceeds totaling $1,322,274 for common stock subscriptions.
During the year ended June 30, 2011 the company issued 3,739,768 shares of its common stock for legal services valued at $25,681, 83,384,669 shares of its common stock for consulting and other services valued at $396,595. The Company issued 293,328,903 shares of its common stock for common stock subscriptions received. The Company received $955,972 in stock subscriptions.
NOTE 11 - Related Party Transactions
There is a note payable to a related party who is an officer, director and major shareholder; the note is uncollateralized with interest at 10% due on demand, including interest. The note payable balance was $961,950 at June 30, 2011 and $1,022,904 at June 30, 2010.
During the year the Company’s CFO advanced $4,202 to pay for certain company expenses.
NOTE 12 - Subsequent Events
In accordance with Accounting Standards Codification Topic No. 855 Subsequent Events (ASC 855), the Company has evaluated subsequent events and has found none to report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the SEC), and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, 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, 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. The design of any system of controls 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.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, management concluded that our disclosure controls and procedures are effective as of June 30, 2011 to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of and Report on Internal Control over Financial Reporting
The Management of Newport Digital Technologies, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
Based on its assessment, management concluded that, as of June 30, 2011, the Company’s internal control over financial reporting is effective based on those criteria.
This annual report does not include an attestation report of the Company’s registered accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.
Changes in Internal Control over Financial Reporting
There was no change in our internal controls over financial reporting identified in connection with the requisite evaluation that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth the names, ages, and positions with NPDT for each of the directors and officers of NPDT.
(1) All executive officers are elected by the Board and hold office until the next Annual Meeting of shareholders and until their successors are elected and agree to serve.
Richard Damion has been chairman of NDT since it began operations in 1996. From 1992 through 1996 he was the president and CEO of Pacific Snax Corporation, a snack food company where he was in charge of general operations and product development.
Robert George has been a director of the Company since August 2001. He was owner and operator of RGA, Inc., at one time the largest Health Food Brokerage Company in America which he sold after 18 years. In 1999 he came out of retirement to become the Vice President of Sales and part owner of Dr Soy Nutrition, an Energy bar company that has Distribution in over 12,000 outlets in the U.S. including Wal-Mart, Sam’s Clubs and all U.S. Military Commissaries to name a few.
Michael T. Lutton, age 53, has a long and varied business career dealing with global banks and investors. Mr. Lutton served as President of both The Irvine Industrial Company and the Irvine Office Company, subsidiaries of the Irvine Company, Orange County, California, from 1984 to 1993. In this position, he was responsible for the development of commercial buildings, leasing and sales of commercial buildings, and asset management for the companies. These subsidiaries were responsible for all development and asset management of The Irvine Company's "on and off ranch" portfolios. Mr. Lutton served as Chairman and CEO of PM Realty Group, a large asset management company, holding that position from 1993 to 2000. PM Realty Group was engaged in leasing, selling and asset and property management of large commercial buildings and properties. From 2001 to the present, Mr. Lutton has served as a Managing Member of Centurion Partners, a Company engaged in real estate development. In this position Mr. Lutton oversaw the acquisition and development of the 33 story Sapphire Tower Condominium Project in downtown San Diego. Mr. Lutton has a Bachelor of Science from the University of Southern California.
Donald Danks, age 53, is the CEO of the company. Previously, from January 2001 November 2008 Mr. Danks was the CEO for iMergent, Inc., an e-commerce software and services company listed on the American Stock Exchange. Prior to and after his position at iMergent, Mr. Danks was and has been involved in the creation, funding and business development of several early-stage companies. His activities included attracting early stage capital, assisting in the development of business plans, recruitment of senior management, building institutional ownership and overseeing ongoing corporate finance needs. Mr. Danks has a B.S. from U.C.L.A.
None of our four directors is considered an independent director. The definition the Company uses to determine whether a director is independent is NASDAQ Rule 4200(a)(15).
Item 11. Executive Compensation
The following table sets forth certain information as to our officers and directors.
Summary Compensation Table
None of the stock awards to executives included unexercised options, stock that has not vested or equity incentive plan awards.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table provides the beneficial ownership of our common stock by each person known by us to beneficially own more than 5% of our common stock outstanding as of June 30, 2011 and by the officers and directors of NPDT as a group. Except as otherwise indicated, all shares are owned directly.
(1) All percentages are calculated by giving effect to the potential exercise of options held by the applicable person, entity or group, but without giving effect to the potential exercise of options held by any other person, entity or group.
(2) Of the 319,643,000 common shares held by Mr. Damion, 319,637,000 shares are owned outright. The remaining 6,000,000 shares are shares which can be acquired by Mr. Damion through the exercise of options.
Item 13. Certain Relationships and Related Transactions
There have been no transactions by the company within last two years where either the company as an issuer, or a director, officer or shareholder of the company, had an indirect or direct interest except as follows:
Item 14. Principal Accountant Fees and Services
Audit Fees. The aggregate fees billed by our auditors for professional services rendered in connection with the audit of our annual financial statements for the fiscal years ended June 30, 2011 and 2010 were approximately $25,000 and $25,000, respectively.
Audit-Related Fees. Our auditors did not bill any additional fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements.
Tax/Fees. The aggregate fees billed by our auditors for professional services for tax compliance, tax advice, and tax planning were $0 and $0 for the fiscal years ended June 30, 2011 and 2010
All Other Fees. The aggregate fees billed by our auditors for all other non-audit services, such as attending meetings and other miscellaneous financial consulting, for the fiscal years ended June 30, 2011 and 2010 were $0 and $0 respectively.
Item 15. Exhibits
NEWPORT DIGITAL TECHNOLOGIES, INC.
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities stated and on the dates indicated.