Start Scientific, Inc. - Quarter Report: 2011 September (Form 10-Q)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

[ X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarter ended September 30, 2011

OR

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to ___________

Commission file number: 000-52227

SECURE NETWERKS, INC.

(Name of Small Business Issuer in Its Charter)

(Former name or former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-

accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,”

“accelerated filer,” and “smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ ]

Smaller reporting company [X]

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. As of October 31, 2011 the Company had outstanding 500,000 shares of common stock.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-Q

The Financial Statements of the Company are prepared as of September 30, 2011.

SECURE NETWERKS, INC.

Notes to the Financial Statements

September 30, 2011

(Unaudited)

NOTE 1 BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited financial statements have been prepared by Secure Netwerks, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim financial statements be read in conjunction with the Company’s audited financial statements and notes thereto included in its Form 10-K filed on March 31, 2011. Operating results for the nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011.

NOTE 2 GOING CONCERN CONSIDERATIONS

The accompanying condensed financial statements have been prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As reported in its Annual Report on Form 10-K for the year ended December 31, 2010, the Company has incurred operating losses of approximately $442,000 from inception of the Company through December 31, 2010. The Company’s stockholders’ deficit at September 30, 2011 was approximately $471,000 and had a working capital deficit, continued losses, and negative cash flows from operations. These factors combined, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address and alleviate these concerns are as follows:

The Company’s management continues to develop a strategy of exploring all options available to it so that it can develop successful operations and have sufficient funds, therefore, as to be able to operate over the next twelve months. The Company is attempting to improve these conditions by way of financial assistance through issuances of additional equity and by generating revenues through sales of products and services. No assurance can be given that funds will be available, or, if available, that it will be on terms deemed satisfactory to management. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually attain profitable operations. The accompanying condensed financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties.

NOTE 3 PREFERRED STOCK AND COMMON STOCK

On July 6, 2011, a majority of disinterested members of the board of directors (the “Board”) of the Company approved the conversion of $25,000 in debts held by Kenneth I. Denos, P.C. a corporation beneficially owned by Kenneth Denos, a member of the Company’s Board of Directors, into 100 shares of Series “A” shares of Preferred Stock

 SECURE NETWERKS, INC.

Notes to the Financial Statements

September 30, 2011

(Unaudited)

NOTE 3 PREFERRED STOCK AND COMMON STOCK (Continued)

(“Preferred Stock”). The Preferred Stock was issued to Acadia Group, Inc. (“AGI”), a wholly-owned subsidiary of Kenneth I. Denos, P.C. The Preferred Stock contains certain rights, preferences, privileges, restrictions and other characteristics as further detailed in the Certificate of Designation to the Company’s Certificate of Incorporation. Significantly, although the Preferred Stock carries no dividend, distribution, liquidation, or rights of conversion into common stock, each share of Preferred Stock holds 10,000,000 votes per share, giving AGI an aggregate of 1,000,000,000 voting rights, resulting in AGI’s voting control over the election of the Board and other substantive matters requiring consent of holders of a majority of the voting shares of the Company.

NOTE 4 SUBSEQUENT EVENTS

The Company has evaluated subsequent events for the period of September 30, 2011 through the date the financial statements were issued, and concluded there were no other events or transactions occurring during this period that required recognition or disclosure in its financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion of the company's financial condition and results of operations in conjunction with the audited financial statements and related notes included in the filing of the company’s latest annual 10-K. This discussion may contain forward-looking statements, including, without limitation, statements regarding our expectations, beliefs, intentions, or future strategies that are signified by the words "expects," "anticipates," "intends," "believes," or similar language. Actual results could differ materially from those projected in the forward looking statements. You should carefully consider the information under the caption "Risk Factors" in this filing, in addition to the other information set forth in this report. We caution you that Secure Netwerks’ business and financial performance is subject to substantial risks and uncertainties.

Overview

Secure Netwerks is a computer and technology hardware reseller to businesses and other organizations. Most of our clients are small and medium sized organizations, although we do attempt to market our products and services to larger organizations. We also outsource technology-related services to provide a full solution basket of technology products and services including hardware, software, network development and services. Our clients consist of some retail purchasers and small to medium-sized organizations, operating mostly in North America, but do have occasional clients in Europe. Our website is located at www.securenetwerks .com.

Every company is different, and we treat every company differently depending on their needs assessment. Our assessment of client technology needs does not just involve building technology systems. We focus on the business strategies of our clients. The highlights of Secure Netwerks' approach include a phase, often around eight weeks, entitled Technology Discovery Session (TDS), which identifies the data, technical, business and functional requirements, creates a conceptual design of the overall solution, develops a visual prototype of the application, and delivers a solution roadmap for implementation.

We first focus on collecting current hardware, software and procedures, business processes, personnel requirements and any other additional information that is deemed necessary. We then document the collected information to the extent required to adequately define the desired result. Subsequently, we focus on developing the future hardware, software and procedures to support the technology drivers for the organization. As part of this approach, we identify gaps between the client’s technology and their desired technology. We identify improvement / effectiveness measures that will assist the organization in achieving its current and future vision.

Results of Operations

Following is our discussion of the relevant items affecting results of operations for the periods ended September 30, 2011 and 2010.

Revenues. Our products and services are broken down into two categories for revenue recognition purposes – (i) off-the-shelf hardware/software product sales, and (ii) outsourced information technology services. Our revenue recognition policy for these categories is as follows:

Revenue is recognized upon completion of services or delivery of goods where the sales price is fixed or determinable and collectibility is reasonably assured. Advance customer payments are recorded as deferred revenue until such time as they are recognized.

Product sales are derived from the resale of off-the-shelf hardware and software packages. Product sales are not warranted by Secure Netwerks and may be subject only to warranties that may be provided by the product manufacturer. Therefore, product warranties have no effect on the financial statements. We have no sales arrangements encompassing multiple deliverables.

Secure Netwerks generated net revenues of $2,991 for the three month period ended September 30, 2011 compared to $1,807 in net revenues for the third quarter of 2010. For the nine months ended September 30, 2011, the Company generated net revenues of $30,096 compared to $44,011 during the nine months ended September 30, 2010. During the nine months ended September 30, 2011 and 2010, we received $28,296 and $40,008, respectively, in gross revenues from software and hardware product resales and equipment leasing, and $1,800 and $4,003, respectively, in gross revenues from information technology and other miscellaneous services. The decrease in revenues is mainly the result of the sale of a computer hardware and telephone system which was associated with an equipment lease during the first nine months of 2010. Although Secure Netwerks continues to pursue equipment leases, these transactions are sporadic and no leases materialized during the first nine months of 2011. Our business model and objective is to receive recurring revenue from established clients. In addition, we procure and resell hardware and software packages to our clients as well as single transaction customers.

Cost of Sales. Expenses which comprise cost of sales are the wholesale cost of hardware, software, any accompanying licenses, product sales commissions, and commissions paid in connection with information technology consulting contracts. Also included in cost of sales are personnel and materials costs to administer these information technology services. As more organizations utilize our technology services, future expenses included in cost of goods sold will increase as well as potential fee sharing expenses to organizations that assist us in providing these services.

Cost of sales for the three month period ended September 30, 2011 was $1,841, compared to $1,060 during the third quarter of 2010. For the nine months ended September 30, 2011, cost of sales was $24,186 compared to $36,355 during the nine months ended September 30, 2010. The decrease is mainly the result of decreased sales and the related need to purchase products. While revenues decreased 32%, cost of sales decreased 33%. The cost of sales will fluctuate depending on the sales mix. The margins on hardware and telephone systems are much lower than the cost of providing services.

Salaries and Consulting Expenses. Salaries and consulting expenses consist of salaries and benefits, company paid payroll taxes and outside consulting expenses. Salaries and consulting expenses for the three month period ended September 30, 2011 were $-0- compared to $107 during the third quarter of 2010. During the nine months ended September 30, 2011, salaries and consulting expenses were $2,298 compared to $2,713 during the nine months ended September 30, 2010. The decrease is mainly the result of decreased sales, and the corresponding commissions, as the Company continues to push sales commission incentives rather than base salaries. We anticipate salaries expenses to remain at these levels in the future.

Professional Fees. Professional fees consist of legal and accounting fees associated with the preparation, audits and reviews of the Company’s financial statements. Professional fees for the three month period ended September 30, 2011 were $5,492 compared to $8,175 during the third quarter of 2010. For the nine months ended September 30, 2011, professional fees were $23,329 compared to $18,245 during the nine months ended September 30, 2010. No major change was expected in professional fees and the Company expects professional fees to remain at these levels in the future.

Selling, General and Administrative Expenses. Selling, general and administrative expenses

have been comprised of advertising; bad debts; occupancy and office expenses; equipment leases; travel and other miscellaneous administrative expenses. Selling, general and administrative expenses for the

three month period ended September 30, 2011 were $237 compared to $13,042 during the third quarter of 2010. During the nine months ended September 30, 2011, selling, general and administrative expenses were $7,523 compared to $20,958 during the nine months ended September 30, 2010. No major change was expected in selling, general and administrative expenses and the Company expects these expenses to remain at these levels in the future.

Other Income (Expense). Other income and expenses for the three month period ended June 30, 2011 were $8,642 compared to $8,014 during the third quarter of 2010. We incurred net other expense of $27,074 for the nine month period ended September 30, 2011 compared to $26,338 during the first nine months of 2010. Other expenses incurred were comprised primarily of interest expenses related to the promissory notes and other liabilities of the Company. We do not anticipate any major changes in other income and expenses.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Personnel

Secure Netwerks has one full-time employee, two part-time employees, and other project-based contract personnel that we utilize to carry out our business. We utilize contract personnel on a continuous basis, primarily in connection with service contracts which require a high level of specialization for one or more of the service components offered. We expect to hire more full-time employees in the future. Although competition for technology sales personnel in the metropolitan Salt Lake City area is intense, because we offer competitive compensation and maintain a productive and collegial work environmental, we don’t believe we will have significant difficulty retaining additional employees or contract personnel in the future.

Liquidity and Capital Resources

Since inception, the Company has financed its operations through a series of loans, credit accounts with hardware vendors, and the use of Company credit to procure goods and services. As of September 30, 2011, Secure Netwerks’ primary source of liquidity consisted of $538 in cash and cash equivalents. We may seek to secure additional debt or equity capital to finance substantial business development initiatives or acquire another hardware reseller. At present, however, we have no plans to seek any such additional capital or to engage in any business development or acquisition activity.

FORWARD LOOKING STATEMENTS AND RISK FACTORS

Forward Looking Statements

When used in this report, the words, “believes,” “plans,” “expects,” and similar expressions are intended by us to identify forward-looking statements within the meaning of and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are subject to certain risks and uncertainties, including those discussed below, that could cause actual results to differ materially from those we have projected. These forward-looking statements speak only as of the date hereof. All of these forward-looking statements are based on our estimates and assumptions, which although we believe them to be reasonable, are inherently uncertain and difficult to predict. We cannot assure you that the benefits anticipated in these forward-looking statements will be achieved.

We undertake no obligation to update any forward-looking statements, but you are advised to consult any further disclosures by Secure Netwerks on this subject in its subsequent filings pursuant to the Securities Exchange Act of 1934. Furthermore, we are providing these cautionary statements identifying risk factors, listed below, that could cause our actual results to differ materially from expected and historical results. It is not possible for our management to foresee or identify all such factors. Consequently, this list should not be considered an exhaustive statement of all potential risks, uncertainties and inaccurate assumptions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company we are not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES

Management’s Report on Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, to allow for timely decisions regarding required disclosure.

As of September 30, 2011, the end of our third quarter covered by this report, we carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, we concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report. Our board of directors has only one member. We do not have a formal audit committee.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended). In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States. Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of September 30, 2011, our internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles.

This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.

Inherent limitations on effectiveness of controls

Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2011 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 1A. RISK FACTORS

As a smaller reporting company, we are not required to provide the information required by this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 6, 2011, a majority of disinterested members of the board of directors (the “Board”) of the Company approved the conversion of $25,000 in debts held by Kenneth I. Denos, P.C. a corporation beneficially owned by Kenneth Denos, a member of the Company’s Board of Directors, into 100 shares of Series “A” shares of Preferred Stock (“Preferred Stock”). The Preferred Stock was issued to Acadia Group, Inc. (“AGI”), a wholly-owned subsidiary of Kenneth I. Denos, P.C.

On July 6, 2011, the Board approved the issuance of the Preferred Stock to AGI. AGI is an “accredited investor” as such term is defined by rules promulgated by the Securities and Exchange Commission (“SEC”). No solicitation was made and no underwriting discounts were given or paid in connection with this transaction. The Company believes that the issuance of the Preferred Stock was exempt from registration with the SEC pursuant to Section 4(2) of the Securities Act of 1933.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. OTHER INFORMATION

Not applicable.

ITEM 5. EXHIBITS:

The following documents are filed as exhibits to this Form 10-Q:

INDEX TO EXHIBITS

(1) Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.

(2) Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.