UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended February 28, 2009.
o 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: 000-33255
NEWTECH RESOURCES, LTD.
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) | 98-0342217 (I.R.S. Employer Identification No.) |
Seestrasse 8, Zollikon, CH-8702, Switzerland
(Address of principal executive offices) (Zip Code)
41 44 202 0080
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 þ No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act:
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes þ No o
At April 19, 2009 the number of shares outstanding of the registrant's common stock, $0.001 par value (the only class of voting stock), was 29,686,996.
PART I. - FINANCIAL INFORMATION | ||||||
ITEM 1. FINANCIAL STATEMENTS | 3 | |||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
14 | ||||||
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk | 19 | |||||
ITEM 4T. Controls and Procedures | 19 | |||||
PART II. - OTHER INFORMATION | ||||||
ITEM 1. Legal Proceedings | 20 | |||||
ITEM 1A. Risk Factors | 20 | |||||
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds | 22 | |||||
ITEM 3. Defaults upon Senior Securities | 22 | |||||
ITEM 4. Submission of Matters to a Vote of Securities Holders | 23 | |||||
ITEM 5. Other Information | 23 | |||||
ITEM 6. Exhibits | 23 | |||||
Signatures | 24 | |||||
Index to Exhibits | 25 |
PART I – FINANCIAL INFORMATION
As used herein the terms “Company,” “it,” “its,” “we,” “us,” and “our,” refer to Newtech Resources, Ltd., a Nevada corporation.
In the opinion of management, the accompanying unaudited financial statements included in this Form 10-Q reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
Return to Table of Contents(A Development Stage Company) | ||||
February 28, | August 31, | |||
2009 | 2008 | |||
(Unaudited) | (Audited) | |||
$ | $ | |||
ASSETS | ||||
Current assets - cash | - | 337 | ||
Total current assets | - | 337 | ||
Total assets | - | 337 | ||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) | ||||
Current liabilities: | ||||
Accounts payable | 90,015 | 63,161 | ||
Due to related parties | 297,611 | 277,611 | ||
Total current liabilities | 387,626 | 340,772 | ||
Total liabilities | 387,626 | 340,772 | ||
Commitments and Contingencies | ||||
Stockholders' (deficit): | ||||
Common stock, $.001 par value, 30,000,000 shares authorized, 29,686,996 shares issued and | ||||
Outstanding at February 28, 2009 and August 31, 2008 | 29,687 | 29,687 | ||
Share subscriptions | 10,000 | 10,000 | ||
Additional paid-in capital | 934,101 | 934,101 | ||
(Deficit) accumulated during the development stage | (1,361,414) | (1,314,223) | ||
Total stockholders' (deficit) | (387,626) | (340,435) | ||
Total liabilities and stockholders' (deficit) | - | 337 |
The accompanying notes are an integral part of these financial statements
Return to Table of Contents(A Development Stage Company) | ||||||||||
STATEMENTS OF OPERATIONS | ||||||||||
Three months ended | Six months ended | From inception on | ||||||||
February 28, | February 29, | February 28, | February 29, | July 27, 1998 through | ||||||
2009 | 2008 | 2009 | 2008 | February 28, 2009 | ||||||
$ | $ | $ | ||||||||
Revenue | $ | - | - | - | - | - | ||||
General and administrative costs | 33,873 | 23,325 | 47,191 | 58,125 | 1,393,339 | |||||
Gain on forgiveness of debt | - | - | - | - | (31,925) | |||||
Loss before income taxes | (33,873) | (23,325) | (47,191) | (58,125) | (1,361,414) | |||||
Provision for income taxes | - | - | - | - | - | |||||
Net income (loss) | $ | (33,873) | (23,325) | (47,191) | (58,125) | (1,361,414) | ||||
Loss per common share - basic and diluted | $ | (0.00) | (0.00) | (0.00) | (0.00) | |||||
Weighted average common shares - | ||||||||||
basic and diluted | 29,686,996 | 29,686,996 | 29,686,996 | 29,686,996 |
The accompanying notes are an integral part of these financial statements
Return to Table of Contents(A Development Stage Company) | ||||||
(UNAUDITED) | ||||||
Six months ended | From inception on July 27, 1998 through | |||||
February 28, | February 29, | February 28, | ||||
2009 | 2008 | 2009 | ||||
$ | $ | $ | ||||
Cash flows from operating activities: | ||||||
Net loss | (47,191) | (58,125) | (1,361,414) | |||
Adjustments to reconcile net loss to net cash | ||||||
used in operating activities: | ||||||
Gain on forgiveness of debt | - | - | (31,925) | |||
Increase (decrease) in due to related parties | 15,000 | 10,000 | 137,111 | |||
Increase (decrease) in accounts payable | ||||||
and accrued liabilities | 26,854 | 12,302 | 218,478 | |||
Net cash used in operating activities | (5,337) | (35,822) | (1,037,750) | |||
Cash flows from investing activities: | - | - | - | |||
Cash flows from financing activities: | ||||||
Related party notes payable | - | - | 460,000 | |||
Advances from related parties | 5,000 | 25,000 | 170,500 | |||
Repayments to related parties | - | - | (8,000) | |||
Share subscriptions | - | 10,000 | 10,000 | |||
Issuance of common stock | - | - | 405,250 | |||
Net cash provided by financing activities | 5,000 | 35,000 | 1,037,750 | |||
Net increase (decrease) in cash | (337) | (822) | - | |||
Cash beginning of period | 337 | 836 | - | |||
Cash, end of period | - | 14 | - |
The accompanying notes are an integral part of these financial statements
Return to Table of ContentsNEWTECH RESOURCES LTD.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
February 28, 2009
Note 1 – Nature of Operations and Basis of Presentation
(a) Organization
The Company was organized under the laws of the State of Nevada on July 27, 1998 (date of inception). The Company proposes to seek business ventures that will allow for long-term growth. Further, the Company is considered a development stage company as defined in SFAS No. 7 and has not, thus far, commenced planned principal operations.
(b) Going Concern
The financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any revenues or completed development of any commercially acceptable products or services to date, has a working capital deficit of $387,626 at February 28, 2009 and has incurred losses of $1,361,414 since inception, and further significant losses are expected to be incurred in its development stage. The Company will depend almost exclusively on outside capital through the issuance of common shares, and advances from related parties to finance ongoing operating losses. The ability of the Company to continue as a going concern is dependent on raising additional capital and ultimately on generating future profitable operations. There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing costs. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
Note 2 – Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.
(b) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(c) Income Taxes
The Company follows the liability method of accounting for income taxes in accordance with SFAS No. 109 “Accounting for Income Taxes”. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled.
NEWTECH RESOURCES LTD.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
February 28, 2009
Note 2 – Summary of Significant Accounting Policies (continued)
(c) Income Taxes (continued)
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. As of February 28, 2009, the Company had net operating loss carryforwards; however, due to the uncertainty of realization the Company has provided a full valuation allowance for the deferred tax assets resulting from these loss carryforwards.
(d) Loss per Share
The Company computes loss per share in accordance with SFAS No. 128, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury method, and preferred stock, using the if-converted method. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. The Company had no common stock equivalents outstanding at February 28, 2009 and February 29, 2008.
Six months ended | Six months ended | ||||
February 28, 2009 | February 28, 2009 | ||||
Basic Earnings per share: | |||||
Income (Loss) (numerator) | $ (47,191) | $ (58,125) | |||
Shares (denominator) | 29,686,996 | 29,686,996 | |||
Per Share Amount | $ (0.00) | $ (0.00) | |||
Fully Diluted Earnings per share: | |||||
Income (Loss) (numerator) | $ (47,191) | $ (58,125) | |||
Shares (denominator) | 29,686,996 | 29,686,996 | |||
Per Share Amount | $ (0.00) | $ (0.00) |
(e) Financial Instruments
In accordance with the requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The carrying values of cash, accounts payable, and amounts due to a related party approximate fair value due to the short-term maturity of the instruments.
NEWTECH RESOURCES LTD.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
February 28, 2009
Note 2 – Summary of Significant Accounting Policies (continued)
(f) Stock-Based Compensation
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. In January 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107, which provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and instead generally requires that such transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes-Merton (“BSM”) option-pricing model to determine the fair-value of stock-based awards under SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS No. 123, Accounting for Stock-Based Compensation. The Company has elected the modified prospective transition method as permitted by SFAS No. 123R and accordingly prior periods have not been restated to reflect the impact of SFAS No. 123R. The modified prospective transition method requires that stock-based compensation expense be recorded for all new and unvested stock options, restricted stock, restricted stock units, and employee stock purchase plan shares that are ultimately expected to vest as the requisite service is rendered beginning on January 1, 2006 the first day of the Company’s fiscal year 2006. Stock-based compensation expense for awards granted prior to January 1, 2006 is based on the grant date fair-value as determined under the pro forma provisions of SFAS No. 123.
Prior to the adoption of SFAS No. 123R, the Company measured compensation expense for its employee stock-based compensation plans using the intrinsic value method prescribed by APB Opinion No. 25. The Company applied the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, as if the fair-value-based method had been applied in measuring compensation expense. Under APB Opinion No. 25, when the exercise price of the Company’s employee stock options was equal to the market price of the underlying stock on the date of the grant, no compensation expense was recognized.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force (“EITF”) in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.
NEWTECH RESOURCES LTD.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
February 28, 2009
Note 2 – Summary of Significant Accounting Policies (continued)
(g) Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) has issued Statement of Financial Accounting Standards (“SFAS”) No. 163, Accounting for Financial Guarantee Insurance Contracts. SFAS No. 163 clarifies how SFAS No. 60, Accounting and Reporting by Insurance Enterprises, applies to financial guarantee insurance contracts issued by insurance enterprises, and addresses the recognition and measurement of premium revenue and claim liabilities. It requires expanded disclosures about contracts, and recognition of claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also requires disclosure about (a) the risk-management activities used by an insurance enterprise to evaluate credit deterioration in its insured financial obligations, and (b) the insurance enterprise's surveillance or watch list. The Company does not believe the adoption of SFAS No. 163 will have an impact on its financial statements.
In May 2008, FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants.”
Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We will adopt FSP APB 14-1 beginning in the first quarter of 2009, and this standard must be applied on a retrospective basis. We are evaluating the impact the adoption of FSP APB 14-1 will have on our financial position and results of operations.
On May 8, 2008, FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, which will provide framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. With the issuance of SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from auditing literature to accounting literature. The adoption of SFAS No. 162 did not have an impact on the Company’s financial statements.
In April 2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The Company does not believe the adoption of FSP 142-3 will have an impact on its financial statements.
NEWTECH RESOURCES LTD.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
February 28, 2009
Note 2 – Summary of Significant Accounting Policies (continued)
(g) Recent Accounting Pronouncements (continued)
In March 2008, FASB issued SFAS 161 which amends and expands the disclosure requirements of SFAS 133 to provide an enhanced understanding of an entity’s use of derivative instruments, how they are accounted for under SFAS 133 and their effect on the entity’s financial position, financial performance and cash flows. The adoption of SFAS No. 161 did not have an impact on the Company’s financial statements.
Note 3 – Due to Related Parties
Related party payables consist of the following:
February 28, | August 31, | |||
2009 | 2008 | |||
Unsecured payable to a shareholder with no specific terms and due on demand | $ | 297,611 | $ | 277,611 |
Note 4 – Related Party Transactions
The following represents related party transactions paid or accrued during the six months ended February 28, 2009 and February 29, 2008.
Six months ended | ||||
February 28, | February 29, | |||
2009 | 2008 | |||
Loans received from a company with a director in common | $ | - | $ | 8,000 |
Loans received from a shareholder | 5,000 | 17,000 | ||
Rent charged by a shareholder | 15,000 | 15,000 | ||
Rent paid to a shareholder | - | 5,000 |
The above transactions are in the normal course of operation and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Return to Table of ContentsNEWTECH RESOURCES LTD.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
February 28, 2009
Note 5 – Income Taxes
The Company accounts for its income taxes in accordance with the FASB No. 109, “Accounting for Income Taxes.” As of February 28, 2009, the Company had net operating loss carry forwards that may be available to reduce future years’ taxable income. Availability of loss usage is subject to change of ownership limitations under Internal Revenue Code 382. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carryforwards.
There were no changes in share capital for the six months ended February 28, 2009.
During the year ended August 31, 2008, the Company received $10,000 for common share subscriptions.
There were no changes in share capital for the year ended August 31, 2008 and 2007.
The Company has not issued any stock options or warrants to date.
Since inception:
| • In fiscal 1999, the Company issued 2,750,000 shares of common stock for cash of $2,750. |
| • In fiscal 1999, the Company issued 8,250,000 shares of common stock for cash of $82,500. |
• In fiscal 1999, the Company issued 60,000 shares of common stock for cash of $150,000. |
• In fiscal 2003, the Company issued 1,483,871 shares of common stock in exchange for related party notes payable and accrued interest of $460,000 and $84,225, respectively. |
• In fiscal 2004, the Company issued 143,125 shares of common stock in exchange for accounts payable of $14,313. |
• In fiscal 2005, the Company issued 16,000,000 shares of common stock for cash of $160,000. |
• In fiscal 2006, the Company issued 1,000,000 shares of common stock for cash of $10,000. |
Return to Table of Contents
NEWTECH RESOURCES LTD.
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
February 28, 2009
Note 7 – Supplemental Cash Flow Information
Actual amounts paid for interest and income taxes for the six months ended February 28, 2009 and February 29, 2008 are as follows:
Six months ended | From inception on July 27, 1998 through | |||||
February 28, | February 29, | February 28, | ||||
2009 | 2008 | 2009 | ||||
Interest | $ | - | $ | - | $ | - |
Income taxes | $ | - | $ | - | $ | - |
Non cash financing activities:
During the six months ended February 28, 2009 and February 29, 2008, the Company did not have any other significant non-cash transactions.
| • The Company has issued $1,483,871 shares of common stock in exchange for related party notes payable and accrued interest of $460,000 and $84,225, respectively. |
| • The Company has issued 143,125 shares of common stock in exchange for accounts payable of $14,313. |
Return to Table of Contents
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this quarterly report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include but are not limited to those discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition below. The following discussion should be read in conjunction with our financial statements and notes thereto included in this report. Our fiscal year end is August 31. All information presented herein is based on the six month period ended February 28, 2009.
The Company’s plan of operation for the coming year is to identify and acquire or develop a revenue producing business through merger or acquisition. We do not plan to limit our options to any particular industry, but will evaluate each opportunity on its merits.
We have not yet entered into any agreement, nor do we have any commitment or understanding to enter into or become engaged in any transaction, as of the date of this filing.
The Company’s plan of operation will require $100,000 in funding over the next 12 months which funding is not currently available. Should we merge with or acquire a suitable business opportunity within the next 12 months our funding requirements will change.
Results of Operations
During the six month period ended February 28, 2009, our operations were limited to the process of identifying a prospective business opportunity for merger or acquisition and satisfying continuous public disclosure requirements.
The Company has been funded since inception through private debt or equity placements or by major shareholders in the form of loans. Virtually all of the capital raised to date has been allocated for general and administrative costs or financial obligations tied to the now defunct option agreement with Kaizen Food Corporation.
We do not expect to receive revenues within the next twelve months of operation or ever since we have yet to acquire a business opportunity, which opportunity if acquired may or may not produce revenue. Accordingly, we expect to continue to operate at a loss.
Net Losses
For the period from July 27, 1998, the date of inception, to February 28, 2009, the Company recorded net losses of $1,361,414. Net losses for the three month period ended February 28, 2009 were $33,873 as compared to $23,325 for the three month period ended February 29, 2008. Net losses for the six month period ended February 28, 2009 were $47,191 as compared to $58,125 for the six month period ended February 29, 2008.
Return to Table of ContentsThe Company’s net losses are attributable to general and administrative expenses. General and administrative expenses include financing costs, accounting costs, consulting fees, leases, employment costs, professional fees and costs associated with the preparation of disclosure documentation. The increase in net losses over the comparable three month periods can be primarily attributed to the increase in consulting fees due to the addition of one consultant. The decrease in net losses over the comparable six month periods can be primarily attributed to the decrease in professional fees associated with the preparation of disclosure documentation.
We have not generated any revenues since inception. The Company expects to incur losses through the fiscal year ended 2009 and, due to the nature of our search for a suitable business opportunity for development, we cannot determine whether we will ever generate revenues from operations.
The Company has a prospective income tax benefit resulting from a net operating loss carryforward and start up costs that may offset any future operating profit.
Impact of Inflation
The Company believes that inflation has had a negligible effect on operations over the past three years.
Capital Expenditures
The Company expended no amounts on capital expenditures for the period from inception to February 28, 2009.
Liquidity and Capital Resources
The Company is in the development stage and, since inception, has experienced significant changes in liquidity, capital resources, and stockholders’ equity.
As of February 28, 2009, the Company had no current or total assets and a working capital deficit of $387,626. The Company had current and total liabilities of $387,626, consisting of $90,015 in accounts payable and $297,611 in amounts due to related parties. Net stockholders’ deficit in the Company was $387,626 at February 28, 2009.
Cash flow used in operating activities was $1,037,750 for the period from inception to February 28, 2009. Cash flow used in operating activities for the six month period ended February 28, 2009 was $5,337 as compared to $35,822 for the six month period ended February 29, 2008. The cash flow used in operating activities in the current period was due to net losses which were partially offset by an increase in the amount due to related parties of $15,000 as well as increases in accounts payable of $26,854.
Cash flow provided by financing activities was $1,037,750 for the period from inception to February 28, 2009. Cash flow provided by financing activities for the six month period ended February 28, 2009 was $5,000 as compared to $35,000 for the six month period ended February 29, 2008. Cash flow provided by financing activities in the current period can be attributed to an advance from a related party.
The Company has had no cash flows from investing activities since inception.
The Company’s current assets are insufficient to conduct its intended plan of operation over the next twelve months and it will have to realize debt or equity financing to fund its operations. We have no current commitments or arrangements with respect to funding or immediate sources of funding. Further, no assurances can be given that funding would be available or available to us on acceptable terms. Therefore, our stockholders would be the most likely source of new funding in the form of loans or equity placements though none have made any commitment for future investment and we have no agreement formal or otherwise. Our inability to obtain funding would have a material adverse affect on our plan of operation.
The Company had no formal long term lines or credit or other bank financing arrangements as of February 28, 2009.
The Company does not expect to pay cash dividends in the foreseeable future.
The Company has no defined benefit plan or contractual commitment with any of its officers or directors.
The Company has no current plans for any significant purchase or sale of any plant or equipment.
The Company has no current plans to make any changes in the number of employees.
Off Balance Sheet Arrangements
As of February 28, 2009, the Company has no significant 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 stockholders.
Going Concern
The Company’s auditors have noted substantial doubt as to the Company’s ability to continue as a going concern as a result of an accumulated deficit of $1,314,223 as of August 31, 2008 which increased to $1,361,414 as of February 28, 2009. The Company’s ability to continue as a going concern is subject to the ability of the Company to realize a profit and/or obtain funding from outside sources. Management’s plan to address the Company’s ability to continue as a going concern includes: (i) obtaining funding from private placement sources; (ii) obtaining additional funding from the sale of the Company’s securities; (iii) establishing revenues from prospective business opportunities; and (iv) obtaining loans and grants from various financial institutions where possible. Although management believes that it will be able to obtain the necessary funding to allow the Company to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful.
Forward Looking Statements and Factors That May Affect Future Results and Financial Condition
The statements contained in the section titled “Results of Operations” and “Description of Business”, with the exception of historical facts, are forward looking statements. A safe-harbor provision may not be applicable to the forward looking statements made in this current report. Forward looking statements reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These statements include, but are not limited to, statements concerning:
Return to Table of Contents· | our anticipated financial performance and business plan; |
· | the sufficiency of existing capital resources; |
· | our ability to raise additional capital to fund cash requirements for future operations; |
· | uncertainties related to the Company’s future business prospects; |
· | the ability of the Company to generate revenues to fund future operations; |
· | the volatility of the stock market; and |
· | general economic conditions. |
We wish to caution readers that our operating results are subject to various risks and uncertainties that could cause our actual results to differ materially from those discussed or anticipated, including the factors set forth in the section entitled “Risk Factors” included elsewhere in this report. We also wish to advise readers not to place any undue reliance on the forward looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other that is required by law.
Stock-Based Compensation
On January 1, 2006, we adopted SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. In January 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107, which provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and instead generally requires that such transactions be accounted for using a fair-value-based method. We use the Black-Scholes-Merton (“BSM”) option-pricing model to determine the fair-value of stock-based awards under SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS No. 123, Accounting for Stock-Based Compensation. We have elected the modified prospective transition method as permitted by SFAS No. 123R and accordingly prior periods have not been restated to reflect the impact of SFAS No. 123R. The modified prospective transition method requires that stock-based compensation expense be recorded for all new and unvested stock options, restricted stock, restricted stock units, and employee stock purchase plan shares that are ultimately expected to vest as the requisite service is rendered beginning on January 1, 2006, the first day of our fiscal year 2006. Stock-based compensation expense for awards granted prior to January 1, 2006 is based on the grant date fair-value as determined under the pro forma provisions of SFAS No. 123.Prior to the adoption of SFAS No 123R, we measured compensation expense for our employee stock-based compensation plans using the intrinsic value method prescribed by APB Opinion No. 25. We applied the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, as if the fair-value-based method had been applied in measuring compensation expense. Under APB Opinion No. 25, when the exercise price of our employee stock options was equal to the market price of the underlying stock on the date of the grant, no compensation expense was recognized.
Return to Table of ContentsWe account for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force (“EITF”) in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.
Critical Accounting Policies
In the notes to the audited financial statements for the year ended August 31, 2008 included in the Company’s Form 10-K, the Company discusses those accounting policies that are considered to be significant in determining the results of operations and its financial position. The Company believes that the accounting principles utilized by us conform to accounting principles generally accepted in the United States of America.
The preparation of financial statements requires Company management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. The Company bases its estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) has issued Statement of Financial Accounting Standards (“SFAS”) No. 163, Accounting for Financial Guarantee Insurance Contracts. SFAS No. 163 clarifies how SFAS No. 60, Accounting and Reporting by Insurance Enterprises, applies to financial guarantee insurance contracts issued by insurance enterprises, and addresses the recognition and measurement of premium revenue and claim liabilities. It requires expanded disclosures about contracts, and recognition of claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also requires disclosure about (a) the risk-management activities used by an insurance enterprise to evaluate credit deterioration in its insured financial obligations, and (b) the insurance enterprise's surveillance or watch list. The Company does not believe the adoption of SFAS No. 163 will have an impact on its financial statements.
In May 2008, FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants.”
Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We will adopt FSP APB 14-1 beginning in the first quarter of 2009, and this standard must be applied on a retrospective basis. We are evaluating the impact the adoption of FSP APB 14-1 will have on our financial position and results of operations.
On May 8, 2008, FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, which will provide framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. With the issuance of SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from auditing literature to accounting literature. The adoption of SFAS No. 162 did not have an impact on the Company’s financial statements.
In April 2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The Company does not believe the adoption of FSP 142-3 will have an impact on its financial statements.
In March 2008, FASB issued SFAS 161 which amends and expands the disclosure requirements of SFAS 133 to provide an enhanced understanding of an entity’s use of derivative instruments, how they are accounted for under SFAS 133 and their effect on the entity’s financial position, financial performance and cash flows. The adoption of SFAS No. 161 did not have an impact on the Company’s financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this quarterly report, an evaluation was carried out by the Company’s management, with the participation of the chief executive officer and the chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of February 28, 2009. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms, and that such information was accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting
During the period ended February 28, 2009, there has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
PART II – OTHER INFORMATION
The Company is currently not a party to any pending legal proceeding.
ITEM 1A. RISK FACTORS
The Company’s operations and securities are subject to a number of risks. Below we have identified and discussed the material risks that we are likely to face. Should any of the following risks occur, they will adversely affect our business, financial condition, and/or results of operations as well as the future trading price and/or the value of our securities.
Risks Related to the Company’s Business
Our future operating results are highly uncertain. Before deciding to invest in us or to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this quarterly report. If any of these risks actually occur, our business, financial condition or results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.
We have a history of significant operating losses and such losses may continue in the future.
Since our inception in 1998, our expenses have substantially exceeded our revenue, resulting in continuing losses and an accumulated deficit of $1,361,414 at February 28, 2009. During the six months ended February 28, 2009, we recorded a net loss of $47,191. The Company has never realized revenue from operations. We will continue to incur operating losses as we maintain our search for a suitable business opportunity and satisfy our ongoing disclosure requirements with the Securities and Exchange Commission (“Commission”). Such continuing losses could result in a decrease in share value.
The Company’s limited financial resources cast severe doubt on our ability to acquire a profitable business opportunity.
The Company’s future operation is dependent upon the acquisition of a profitable business opportunity. However, the prospect of such an acquisition is doubtful due to the Company’s limited financial resources. Since we have no current business opportunity, the Company is not in a position to improve this financial condition through debt or equity offerings. Therefore, this limitation may act as a deterrent in future negotiations with prospective acquisition candidates. Should we be unable to acquire a profitable business opportunity the Company will, in all likelihood, be forced to cease operations.
Risks Related to the Company’s Stock
The market for our stock is limited and our stock price may be volatile.
The market for our common stock has been limited due to low trading volume and the small number of brokerage firms acting as market makers. Because of the limitations of our market and volatility of the market price of our stock, investors may face difficulties in selling shares at attractive prices when they want to. The average daily trading volume for our stock has varied significantly from week to week and from month to month, and the trading volume often varies widely from day to day.
The Company does not pay cash dividends.
The Company does not pay cash dividends. We have not paid any cash dividends since inception and have no intention of paying any cash dividends in the foreseeable future. Any future dividends would be at the discretion of our board of directors and would depend on, among other things, future earnings, our operating and financial condition, our capital requirements, and general business conditions. Therefore, shareholders should not expect any type of cash flow from their investment.
The Company incurs significant expenses as a result of the Sarbanes-Oxley Act of 2002, which expenses may continue to negatively impact our financial performance.
The Company incurs significant legal, accounting and other expenses as a result of the Sarbanes-Oxley Act of 2002, as well as related rules implemented by the Commission, which control the corporate governance practices of public companies. Compliance with these laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002, as discussed in the following risk factor, has substantially increased our expenses, including legal and accounting costs, and made some activities more time-consuming and costly. Further, expenses related to our compliance may increase in the future, as legislation affecting smaller reporting companies comes into effect that may negatively impact our financial performance to the point of having a material adverse effect on our results of operations and financial condition.
The Company’s internal controls over financial reporting may not be considered effective in the future, which could result in a loss of investor confidence in its financial reports and in turn have an adverse effect on the stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 we are required to furnish a report by our management on our internal controls over financial reporting. Such report must contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of the year, including a statement as to whether or not our internal controls over financial reporting are effective. This assessment must include disclosure of any material weaknesses in our internal controls over financial reporting identified by management. If we are unable to continue to assert that our internal controls are effective, our investors could lose confidence in the accuracy and completeness of our financial reports, which in turn could cause our stock price to decline.
The Company’s shareholders may face significant restrictions on their stock.
The Company’s stock differs from many stocks in that it is a “penny stock.” The Commission has adopted a number of rules to regulate “penny stocks” including, but not limited to, those rules from the Securities Act as follows:
Return to Table of Contents3a51-1 which defines penny stock as, generally speaking, those securities which are not listed on either NASDAQ or a national securities exchange and are priced under $5, excluding securities of issuers that have net tangible assets greater than $2 million if they have been in operation at least three years, greater than $5 million if in operation less than three years, or average revenue of at least $6 million for the last three years;
15g-1 which outlines transactions by broker/dealers which are exempt from 15g-2 through 15g-6 as those whose commissions from traders are lower than 5% total commissions;
15g-2 which details that brokers must disclose risks of penny stock on Schedule 15G;
15g-3 which details that broker/dealers must disclose quotes and other information relating to the penny stock market;
15g-4 which explains that compensation of broker/dealers must be disclosed;
15g-5 which explains that compensation of persons associated in connection with penny stock sales must be disclosed;
15g-6 which outlines that broker/dealers must send out monthly account statements; and
15g-9 which defines sales practice requirements.
Since the Company’s securities constitute a “penny stock” within the meaning of the rules, the rules would apply to us and our securities. Because these rules provide regulatory burdens upon broker-dealers, they may affect the ability of shareholders to sell their securities in any market that may develop; the rules themselves may limit the market for penny stocks. Additionally, the market among dealers may not be active. Investors in penny stock often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers may be greater than any profit a seller may make. Because of large dealer spreads, investors may be unable to sell the stock immediately back to the dealer at the same price the dealer sold the stock to the investor. In some cases, the stock may fall quickly in value. Investors may be unable to reap any profit from any sale of the stock, if they can sell it at all.
Shareholders should be aware that, according to Commission Release No. 34-29093 dated April 17, 1991, the market for penny stocks has suffered from patterns of fraud and abuse. These patterns include:
· | control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
· | manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
· | “boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; |
· | excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
· | the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None.
Return to Table of ContentsITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page 25 of this Form 10-Q, and are incorporated herein by this reference.
Return to Table of ContentsPursuant 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.
Newtech Resources, Ltd. Date
/s/ Kurt Dalmata April 19, 2009
Kurt Dalmata
Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director
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Exhibit ��
No. Description
3(i) * Articles of Incorporation of the Company (incorporated by reference to the Form 10-SB filed with the Commission on October 16, 2001).
3(ii) * By-laws of the Company (incorporated by reference to the Form 10-SB filed with the Commission on October 16, 2001).
14 * Code of Ethics adopted October 24, 2004 (incorporated by reference to the Form 10-KSB/A filed with the Commission on September 13, 2005).
* Incorporated by reference to previous filings of the Company.
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