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BIOLOG, INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION(Edgar Glimpses Via Acquire Media NewsEdge) Forward Looking Statements This Form 10-Q contains forward-looking statements (rather than historical facts) that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. Such forward-looking statements discuss our current expectations of future results of operations or financial condition. However, there may be events in the future that we are unable to accurately predict or control and there may be risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements, which could have a material adverse effect on our business, operating results and financial condition. The forward-looking statements included herein are only made as of the date of the filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. BASIS OF PRESENTATION The unaudited financial statements of Biolog Inc., a Utah corporation ("Biolog," the "Company," "our" or "we"), should be read in conjunction with the notes thereto. In the opinion of management, the unaudited financial statements presented herein reflect all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation. Interim results are not necessarily indicative of results to be expected for the entire year. We prepare our financial statements in accordance with U.S. generally accepted accounting principles, which require that management make estimates and assumptions that affect reported amounts. Actual results could differ from these estimates. DESCRIPTION OF BUSINESS Corporate History We were incorporated under the name "National Treasure Mines Company" on February 18, 1927 under the laws of the State of Utah. Our original purpose was to engage in, carry on and conduct a general mining business in the State of Utah. On October 31, 1986, we approved the merger and reorganization between our Company and Roskamp Manley Associates Inc., a California corporation ("RMA"), resulting in RMA becoming our wholly owned subsidiary. RMA remained our wholly owned subsidiary until when it was unable to remain in good standing and did not reinstate its business charter in California, resulting in the dissolution of RMA. On December 18, 1986, we filed an Amended Articles of Incorporation and changed the name of the Company to "N.T.M. Inc." On June 29, 1994, we completed the acquisition of Larson # 11-28 and Zadow # 23-34, two wells in Radcliff and Mission Canyon in the State of Montana. After discovering after the acquisition that these wells were non-performing, we disposed of such assets. Because we were unable to achieve our intended purpose, we ceased operations and became dormant in 1995, at which time we did not have any assets or liabilities. 9 We remained in this condition until we filed an Application for Reinstatement with the Utah Secretary of State on November 4, 2004. On December 15, 2004, we filed an Amended and Restated Articles of Incorporation, under which we changed our name to "Biolog, Inc." Since 2004, we have not commenced any operations. On January 22, 2009, we filed an Application of Reinstatement with the Utah Secretary of State. On February 17, 2009, we adopted an Amendment to the Amended and Restated Articles of Incorporation that vacated all of the previous Articles of Incorporation in their entirety, effective retroactively, and filed such Amendment on April 20, 2009 with the Utah Secretary of State. On February 17, 2009, our stockholders approved a 1 for 100 reverse stock split (the "Reverse Split") of our common stock, and the filing of an amendment to our Amended and Restated Articles of Incorporation to reflect the Reverse Split. The effective date of the Reverse Split was April 20, 2009. Upon effectiveness of the Reverse Split, each stockholder received one share of common stock for every 100 shares of common stock owned and outstanding as of the record date. The Reverse Split did not affect the number of shares of common stock authorized for issuance. On September 1, 2010, the Company acquired payphone equipment from Amanda Godin, the President of Biolog Inc., in exchange for 3,000,000 shares of common stock and has commenced business operations by providing the use of outdoor payphones, and providing telecommunication services. On November 2, 2010, the Company had a resolution and amended the Articles of Incorporation to include a 10/1 forward stock split, with all fractional shares being dropped. The record date of the forward split was November 2, 2010, with the effect being retroactive back to inception. The Forward Split did not affect the number of shares of common stock authorized for issuance. BUISNESS PLAN Our current principal business activity is to seek a suitable candidate to consummate an acquisition, merger or other suitable business combination method. More specifically, we are seeking the consummation of a merger, acquisition or other business combination transaction with a privately owned entity seeking to become a publicly owned entity. As a "reporting company," we may be more attractive to a private target because our common stock is eligible to be quoted on the OTC Bulletin Board. However, there is no assurance that we will be quoted on the OTC Bulletin Board. It is the intent of management and our significant stockholder, Joseph Passalaqua to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. However, there is no legal obligation for either management or our significant stockholder, Joseph Passalaqua to provide additional future funding. Should this pledge fail to provide financing and we have not identified any alternative sources of funding. There will be substantial doubt about our ability to continue as a going concern. Our need for capital may change dramatically because of any business acquisition or combination transaction. There can be no assurance that we will identify any such business, product, technology or company suitable for acquisition in the future. Further, there can be no assurance that we will be successful in consummating any acquisition on favorable terms or that we will be able to profitably manage the business, product, technology or company we acquire. 10 As a "reporting company," we may be more attractive to a private acquisition target because our common stock is eligible to be quoted on the OTC Bulletin Board although there is no assurance it will be quoted. As a result of filing this registration statement, we will be obligated to file with the Securities and Exchange Commission (the "Commission") certain periodic reports, including an annual report containing audited financial statements. We anticipate that we will continue to file such reports as required under the Exchange Act. On June 10, 2009, we filed a Registration Statement on Form 10SB , or the "Registration Statement", with the Securities and Exchange Commission, or the SEC, to register our common stock under Section 12(g) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Registration Statement went effective in 60 days by operation of law on August 10, 2009, or the Effective Date. Since the Effective Date of the Registration Statement, we have become a reporting company under the Securities Exchange Act and are responsible for preparing and filing periodic and current reports under the Exchange Act with the SEC. Any person or entity may read and copy our reports with the Securities and Exchange Commission at the SEC's Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Room by calling the SEC toll free at 1-800-SEC-0330. The SEC also maintains an Internet site at http://www.sec.gov where reports, proxies and informational statements on public companies may be viewed by the public. SERVICES AND PRODUCTS We own, operate and manage privately owned public payphones in the County of Delaware, State of New York. As of December 31, December 31, 2013, we own, operate, and manage 25 payphones. The Company does not have any long-term agreements with the customers of these payphones and they may terminate their contract at will. We may pay site owners a commission based on a flat monthly rate or on a percentage of sales. Some of the businesses include, but are not limited to, retail stores, convenience stores, bars, restaurants, gas stations, colleges and hospitals. In the alternative, our agreement with business owners may be to provide the telecommunications services without the payment of any commissions. The local telephone switch controls the traditional payphone technology. The local switch does not provide any services in the payphone that can benefit the owner of the phone. When we purchase phones from other companies, they come with "smart card" payphone technology. These phones have a circuit board with improved technology. The "smart card" technology allows us to determine the operational status of the payphone. It also tells us when the coins in the phone have to be collected, the number and types of calls that have been made from each phone, as well as other helpful information that helps us provide better service to our payphone using public. This upgrade of the phones reduces the number and frequency of service visits due to outages and other payphone-related problems and, in turn, reduces the maintenance costs. Other companies manufacture the components of the payphones for the industry, including Universal Communications and TCI, which provides handsets, key pads, totalizers, and relays. Payphone users can circumvent the usual payment method and avoid inserting a coin by using an access code or 800 number provided by a long distance carrier. These "dial-around" numbers, while convenient for users, leave payphone service providers uncompensated for the call made. The Federal Communications Commission, or the FCC, as instructed by Congress in the Telecommunications Act of 1996, created regulations to ensure that payphone service providers receive compensation for these "dial-around" calls. 11 The FCC requires the sellers of long distance toll free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC). Our installed payphone base generates revenue from two principal sources: coin-calls and non-coin calls. Coin calls: Coin calls represent calls paid for by customers who deposit coins into the payphones. Coin call revenue is recorded as the actual amount of coins collected from the payphones. Non-Coin calls: Non-coin revenue includes commissions from operator service telecommunications companies and a "dial-around" commission of $0.494 per call that the FCC requires sellers of long distance toll free services to pay payphone owners. The commissions for operator services are paid 45 days in arrears. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC). Seasonality Our revenues from payphone operation are affected by seasonal variations, geographic distribution of payphones and type of location. Because we operate in the northeastern part of the country with many of the payphones located outdoor, weather patterns affect our revenue streams. Revenues drop off significantly during winter and conversely show an increase in the spring and summer. Revenues are generally lowest in the first quarter and highest in the third quarter. Significant Customers We do not rely on a major customer for our revenue. We have a variety of small single businesses as well as some small chain stores that we service. We do not believe that we would suffer dramatically if any one customer or small chain decided to stop using our phones. Significant Vendors We must buy dial tone for each payphone from the local exchange carrier. As long as we pay the carrier bill, it is required to provide a dial tone. As a regulated utility, the exchange carrier may not refuse to provide us service. Alternate service exists in certain areas where Verizon competitors are located. We use alternate local service providers when we can get a better price for the service. We use long distance providers on all the payphones. Intellectual Property The phones that we purchase from other companies contain "smart card" payphone technology that was developed by Quortec, the founder and manufacturer of the "smart cards. The "smart card" includes a circuit board with improved technology that allows us to determine on a preset time basis the operational status of the payphone. The technology informs us when the coins in the phone have to be collected, the number and types of calls that have been made from each phone, as well as other helpful information that helps us provide better service to our payphone using public. This upgrade of the phones reduces the number and frequency of service visits due to outages and other payphone-related problems and, in turn, reduces the maintenance costs. Other companies manufacture the components of the payphones for the industry including Universal Communications and TCI, which provides handsets, key pads, totalizers, and relays. 12 We do not own any patents or trademarks. Companies in the telecommunications industry and other industries in which we compete own large numbers of patents, copyrights and trademarks and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition, the possibility of intellectual property claims against us grows. We might not be able to withstand any third-party claims or rights against their use. Government Regulation: We are subject to varying degrees of regulation by federal, state, local and foreign regulators. The implementation, modification, interpretation and enforcement of these laws and regulations vary and can limit our ability to provide many of our services. Our ability to compete in our target markets depends, in part, upon favorable regulatory conditions and the favorable interpretations of existing laws and regulations. FCC Regulation and Interstate Rates: Our services are subject to the jurisdiction of the Federal Communications Commission (FCC) with respect to interstate telecommunications services and other matters for which the FCC has jurisdiction under the Communications Act of 1934, as amended. Payphone users can circumvent the usual payment method and avoid inserting a coin by using an access code or 800 number provided by a long distance carrier. These "dial-around" numbers, while convenient for users, leave payphone service providers uncompensated for the call made. The Federal Communications Commission, as instructed by Congress in the Telecommunications Act of 1996, created regulations to ensure that payphone service providers receive compensation for these "dial-around" calls. The FCC requires the sellers of long distance toll free services to pay the payphone owner $0.494 cents per call. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC). If the FCC regulation requiring sellers of long distance toll free services to pay payphone owners $0.494 per call is reduced or repealed, it could have a negative effect upon our revenue stream. We have no control over what rules and regulations the state and federal regulatory agencies require us to follow now or in the future. It is possible for future regulations to be so financially demanding that they cause us to go out of business. We are not aware of any proposed regulations or changes to any existing regulations. Telecommunications Act of 1996 The Telecommunications Act of 1996, regulatory and judicial actions and the development of new technologies, products and services have created opportunities for alternative telecommunication service providers, many of which are subject to fewer regulatory constraints. We are unable to predict definitively the impact that the ongoing changes in the telecommunications industry will ultimately have on our business, results of operations or financial condition. The financial impact will depend on several factors, including the timing, extent and success of competition in our markets, the timing and outcome of various regulatory proceedings and any appeals, and the timing, extent and success of our pursuit of new opportunities resulting from the Telecommunications Act of 1996 and technological advances. 13 Research and Development We have not expended any money in the last two fiscal years on research and development activities. Employees The company does not have any employees. Joseph Passalaqua is our President and Chief Executive Officer and Garry McHenry is our Secretary and Chief Financial Officer, neither of whom have employment agreements. Any person or entity may read and copy our reports with the Commission at the Commission's Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Room by calling the Commission toll free at 1-800-SEC-0330. The Commission also maintains an Internet site at http://www.sec.gov where reports, proxies and other disclosure statements on public companies may be viewed by the public. GOING CONCERN QUALIFICATION Several conditions and events cast substantial doubt about the Company's ability to continue as a going concern. The Company has incurred net losses of approximately $216,637 for the period from February 18, 1927 (inception) to June 30, 2014, has limited revenues and requires additional financing in order to finance its business activities on an ongoing basis. The Company's future capital requirements will depend on numerous factors including, but not limited to, continued progress in finding a merger candidate and the pursuit of business opportunities. The Company is actively pursuing alternative financing and has had discussions with various third parties, although no firm commitments have been obtained. In the interim, shareholders of the Company have committed to meeting its minimal operating expenses. Management believes that actions presently being taken to revise the Company's operating and financial requirements provide them with the opportunity to continue as a going concern. At December 31, 2013, we had $109 cash on hand, $447 in accounts receivable and an accumulated deficit of $202,342. At June 30, 2014, we had $164 cash on hand, $677 in accounts receivable and an accumulated deficit of $216,637. See "Liquidity and Capital Resources." CRITICAL ACCOUNTING POLICIES & ESTIMATES The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change, and the best estimates and judgments routinely require adjustment. The amounts of assets and liabilities reported in our balance sheet, and the amounts of revenues and expenses reported for each of our fiscal periods, are affected by estimates and assumptions which are used for, but not limited to, the accounting for allowance for doubtful accounts, goodwill and intangible asset impairments, restructurings, inventory and income taxes. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of our consolidated financial statements. Revenue Recognition Policies 14 The Company recognizes revenues in accordance with the Securities and Exchange Commission Staff Accounting Bulletin (SAB) number 104, "Revenue Recognition." SAB 104 clarifies application of U. S. generally accepted accounting principles to revenue transactions. As of the year ended December 31, 2013, there was no deferred revenue. The Company derives its primary revenue from the sources described below, which includes dial-around revenues, operator service revenue, coin collections, telephone equipment repairs, and sales. Other revenue generated by the company includes sales commissions. The Dial Around revenue is recognized when the billing and collection agent of the Company, APCC, calculates and compensates the Company for the use of the payphone on a quarterly basis by billing the actual party's long distance carrier that received the calls. The date of the Dial Around revenue recognition is determined when this compensation is collected and deposited into the Company's bank account. The Operator Service revenue is recognized when the collection agents of the Company, Legacy Long Distance and US Intercom calculates and compensates the Company for the use of operator services on a monthly basis. The date of the Operator Service revenue recognition is determined when this compensation is collected and deposited into the Company's bank account. Coin revenues are recorded in an equal amount to the coins collected. Revenues on commissions, telephone equipment and sales are realized when the services are provided and payment for such services is deemed certain. Off- Balance Sheet Arrangements We did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents to the extent the funds are not being held for investment purposes. COSTS RELATED TO OUR OPERATION The principal costs related to the ongoing operation of our payphones include telecommunication costs, commissions and depreciation. Telecommunication expenses consist of payments made by us to local exchange carriers and long distance carriers for access to and use of their telecommunications networks and service and maintenance costs. Commission expense represents payments to owners or operators of the premises at which a payphone is located. LIQUIDITY AND CAPITAL RESOURCES It is the belief of management that sufficient working capital necessary to support and preserve the integrity of the corporate entity will be present. However, there is no legal obligation for either management or significant stockholders to provide additional future funding. Should this pledge fail to provide financing, we have not identified any alternative sources. Consequently, there is substantial doubt about our ability to continue as a going concern. 15 We have no current plans, proposals, arrangements or understandings with respect to the sale or issuance of additional securities prior to the location of a merger or acquisition candidate. Accordingly, there can be no assurance that sufficient funds will be available to us to allow us to cover the expenses related to such activities. Our need for capital may change dramatically because of any business acquisition or combination transaction. There can be no assurance that we will identify any such business, product, technology or company suitable for acquisition in the future. Further, there can be no assurance that we will be successful in consummating any acquisition on favorable terms or that we will be able to profitably manage the business, product, technology or company we acquire. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we might seek to compensate providers of services by issuances of stock in lieu of cash. At December 31, 2013, we had $109 cash on hand, $447 in accounts receivable and an accumulated deficit of $202,342. At June 30, 2014, we had $164 cash on hand, $677 in accounts receivable and an accumulated deficit of $216,637. Our primary source of liquidity for the current quarter has been from loans from related parties. This includes Joseph C. Passalaqua, the President and principal stockholder, Mary Passalaqua spouse of Joseph Passalaqua, and Cobalt Blue LLC of which Mary Passalaqua is President. As of June 30, 2014 we have convertible notes payable to Joseph C. Passalaqua, Mary Passalaqua, and Cobalt Blue LLC in the amount of $70,000. These notes bear a simple interest rate of 8% per annum and are payable upon demand. As of June 30, 2014 the accrued interest on these notes is $15,574. Net cash used in operating activities was $10,695 during the six months ended June 30, 2014. Net cash provided by investing activities was $0 during the six months ended June 30, 2014. Net cash provided by financing activities was $10,750 during the six months ended June 30, 2014. To date, we have had minimal revenues; and we require additional financing in order to finance our business activities on an ongoing basis. Our future capital requirements will depend on numerous factors including, but not limited to, continued progress in finding a merger candidate and the pursuit of business opportunities. We are actively pursuing alternative financing and have had discussions with various third parties, although no firm commitments have been obtained to date. In the interim, shareholders of the Company have committed to meet our minimal operating expenses. We believe that actions presently being taken to revise our operating and financial requirements provide them with the opportunity to continue as a "going concern," although no assurances can be given. NET LOSS FROM OPERATIONS The Company had a net loss of $216,637 for the period from February 18, 1927 (inception) through June 30, 2014. The company had net loss of $14,295 for the six months ended June 30, 2014 as compared to a net loss of $17,400 for the six months ended June 30, 2013. CASH FLOW Our primary source of liquidity has been cash from shareholder loans. 16 WORKING CAPITAL As of December 31, 2013 the Company had total current assets of $556 and total current liabilities of $166,248, which resulted in a working capital deficit of $165,692. As of June 30, 2014, the Company had total current assets of $841 and total current liabilities of $180,328 resulting in a working capital deficit of $179,487. FOR THE THREE MONTHS ENDED JUNE 30, 2014 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2013 REVENUES Our total revenue decreased by $145, from $1,985 for the three months ended June 30, 2013 to $1,840 for the three months ended June 30, 2014. Our coin call revenue was $129 for the three months ended June 30, 2013 and $0 for the three months ended June 30, 2014. Our non-coin call revenue, or commission income, which is comprised primarily of "dial around" revenue, star 88 commission revenue and operator service revenue, was $70 for the three months ended June 30, 2013 and $55 for the three months ended June 30, 2014. The FCC requires the sellers of long distance toll free services to pay the payphone owner $0.494 cents per "dial-around" call. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC). Our local service revenue which is comprised primarily of service for payphone customers was $1,786 for the three months ended June 30, 2013 and $1,785 for the three months ended June 30, 2014. This is the revenue from monthly invoices billed to payphone customers in which the Company owns the payphone and provides service to operate the payphone on the premises. As of June 30, 2014 seven customers made up the local service revenue: Addison Place Apartments, Addison, New York Delaware County Building & Maint. Department, Delaware, New York Delhi Central School District, Delhi, New York Morningstar Foods, Delhi, New York Mountainside Residential Care, Lake Katrine, New York SUNY Delhi, Delhi, New York Town of Meredith, Meredale, New York COST OF SALES Our overall cost of services decreased by $269, from $2,257 in the three months ended June 30, 2013, to $1,988 in the three months ended June 30, 2014. The principal costs related to the ongoing operation of our payphones will include telecommunication costs, commission expense and depreciation. Telecommunication costs consist of payments made by us to local exchange carriers and long distance carriers for access to and use of their telecommunications networks and service and maintenance costs. Commission expense represents payments to owners or operators of the premises at which a payphone is located and APCC commission fees related to "dial-around" processing. 17 Depreciation expense is the quarterly depreciation of the payphone equipment, which is valued at $5,000. The company uses the straight line method, with a useful life of 5 years with $0 salvage value. The payphone equipment was acquired by the company on September 1, 2010. Telecommunication costs were $1,956 in the three months ended June 30, 2013 and $1,709 in the three months ended June 30, 2014. Commission costs were $51 in the three months ended June 30, 2013 and $29 in the three months ended June 30, 2014. Depreciation expense was $250 in the three months ended June 30, 2013 and in the three months ended June 30, 2014. OPERATION AND ADMINISTRATIVE EXPENSES Operating expenses increased by $863, from $4,843 in the three months ended June 30, 2013 to $5,706 in the three months ended June 30, 2014. Operating expenses primarily consist of general and administrative expenses (G&A) and professional fees. G&A expenses, made up primarily of office expenses and outside services consisting of stock transfer fees and filing fees, increased by $756, from $1,360 in the three months ended June 30, 2013 to $2,116 in the three months ended June 30, 2014. Professional fees, made up of accounting, bookkeeping, and legal fees are $2,300, the same for the period three month ended June 30, 2013 and 2014.. These are fees we pay to accountants and attorneys throughout the year for performing various tasks. Our expenses to date are largely due to professional fees that include accounting, consulting and legal fees. FOR THE SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2013 REVENUES Our total revenue decreased by $152, from $3,849 for the six months ended June 30, 2013 to $3,697 for the six months ended June 30, 2014. Our coin call revenue was $129 for the six months ended June 30, 2013 and $0 for the six months ended June 30, 2014. Our non-coin call revenue, or commission income, which is comprised primarily of "dial around" revenue, star 88 commission revenue and operator service revenue, was $149 for the six months ended June 30, 2013 and $127 for the six months ended June 30, 2014. The FCC requires the sellers of long distance toll free services to pay the payphone owner $0.494 cents per "dial-around" call. These funds are remitted quarterly through a service provided by the American Public Communication Council (APCC). Our local service revenue which is comprised primarily of service for payphone customers was $3,571 for the six months ended June 30, 2013 and $3,570 for the six months ended June 30, 2014. This is the revenue from monthly invoices billed to payphone customers in which the Company owns the payphone and provides service to operate the payphone on the premises. As of June 30, 2014 seven customers made up the local service revenue: Addison Place Apartments, Addison, New York Delaware County Building & Maint. Department, Delaware, New York Delhi Central School District, Delhi, New York Morningstar Foods, Delhi, New York Mountainside Residential Care, Lake Katrine, New York SUNY Delhi, Delhi, New York Town of Meredith, Meredale, New York 18 COST OF SALES Our overall cost of services decreased by $408, from $4,518 in the six months ended June 30, 2013, to $4,110 in the six months ended June 30, 2014. The principal costs related to the ongoing operation of our payphones will include telecommunication costs, commission expense and depreciation. Telecommunication costs consist of payments made by us to local exchange carriers and long distance carriers for access to and use of their telecommunications networks and service and maintenance costs. Commission expense represents payments to owners or operators of the premises at which a payphone is located and APCC commission fees related to "dial-around" processing. Depreciation expense is the quarterly depreciation of the payphone equipment, which is valued at $5,000. The company uses the straight line method, with a useful life of 5 years with $0 salvage value. The payphone equipment was acquired by the company on September 1, 2010. Telecommunication costs were $3,916 in the six months ended June 30, 2013 and $3,550 in the six months ended June 30, 2014. Commission costs were $102 in the six months ended June 30, 2013 and $60 in the six months ended June 30, 2014. Depreciation expense was $250 in the six months ended June 30, 2013 and in the six months ended June 30, 2014. OPERATION AND ADMINISTRATIVE EXPENSES Operating expenses decreased by $2,849, from $16,731 in the six months ended June 30, 2013 to $13,822 in the six months ended June 30, 2014. Operating expenses primarily consist of general and administrative expenses (G&A) and professional fees. G&A expenses, made up primarily of office expenses and outside services consisting of stock transfer fees and filing fees, increased by $533, from $5,780 in the six months ended June 30, 2013 to $6,313 in the six months ended June 30, 2014. Professional fees, made up of accounting, bookkeeping, and legal fees decreased by $3,500, from $8,600 for the six months ended June 30, 2013 to $5,100 in the six months ended June 30, 2014. These are fees we pay to accountants and attorneys throughout the year for performing various tasks. The bulk of the decrease in expense was due to the Company's accounting and bookkeeping expenses in 2013, when comparing the same period in 2014. Our expenses to date are largely due to professional fees that include accounting, consulting and legal fees. 19 |