SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
[ ] 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 0-27835
CIK Number 0001092793
COZUMEL CORPORATION
(Exact Name of small business issuer as specified in its charter)
Delaware 33-0619262
(State or other Jurisdiction of I.R.S. Employer Identi-
Incorporation or Organization fication No.)
24351 Pasto Road, #B, Dana Point, California 92629
(Address of Principal Executive Offices) (Zip Code)
(949) 489-2400
(Issuer's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (i) has filed all reports required to be filed by Section 13, or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (of for such shorter period that the Registrant was required to file such reports) and (ii) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.
Common Stock, $.001 par value 1,000,000
Title of Class Number of Shares outstanding
at December 31, 2004
Transitional Small Business Format Yes No X
COZUMEL CORPORATION
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
December 31, June 30,
2004 2004
ASSETS (Unaudited) (Audited)
Cash and cash equivalents $ 3,171 $ 5,635
Investment - available-for-sale securities 173,703 147,841
Total current assets 176,874 153,476
Total assets $ 176,874 $ 153,476
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 139 $ 669
Advances - related party 992 4,032
Convertible note payable – related party 150,000 150,000
Deferred tax liability 2,989 - --
Total current liabilities 154,120 154,701
Total liabilities 154,120 154,701
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; 1,000,000 shares
authorized; no shares issued and outstanding - -- - --
Common stock, $.001 par value; 20,000,000 shares
authorized; 1,000,000 shares issued and outstanding 1,000 1,000
Additional paid in capital 7,429 1,429
Accumulated other comprehensive income 23,847 2,980
Accumulated deficit during the development stage (9,522) (6,634)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 22,754 (1,225)
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) $ 176,874 $ 153,476
The accompanying notes are an integral part of the financial statements.
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COZUMEL CORPORATION
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
FROM
&nbs p; INCEPTION
FOR THE THREE FOR THE SIX (APRIL 20
MONTHS ENDED MONTHS ENDED 1994) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31
2004 2003 2004 2003 2004
REVENUES REVENUES $ - -- $ - -- $ - -- $ - -- $ - --
OPERATING EXPENSES
G General and administrative 156 50 3,744 50 10,163
Operating loss (156) (50) (3,744) (50) (10,163)
OTHER INCOME (EXPENSE)
Gain on sale of Available-for-sale
Securities 2,422 - -- 4,314 - -- 4,931
Dividend income 2,650 - -- 5,531 - -- 6,152
Interest expense - related party (3,000) - -- (6,000) - -- (7,414)
Total other income (expense) 2,072 - -- 3,845 - -- 3,669
INCOME INCOME (LOSS) BEFORE
INCOME TAXES 1,916 (50) 101 (50) (6,494)
CU CURRENT TAX EXPENSE 2,674 - -- 2,989 - -- 3,028
N
&nbs p; & nbsp;
NET LOSS NET LOSS $ (758) $ (50) $ (2,888) $ (50) $ (9,522)
BASIC LOSS
PER COMM BASIC LOSS ; OMMO PER COMMON SHARE $ (.00) $ (.00) $ (.00) $ (.00)
WEIGHTED AVERAGE NUMBER
OF OF COMMON SHARES 1,000,000 1,000,000 1,000,000 1,000,000
NET LOSS NET LOSS $ (758) $ (50) $ (2,888) $ (50) $ (9,522)
OTHER COMPREHENSIVE INCOME:
Unrealized holding gains on available for
Sale securities 9,900 - -- 26,126 - -- 29,723
&nbs p; �� & nbsp;
Less: reclassification adjustment for
g gains included in net income (2,422) - -- (4,314) - -- (4,931)
COMPREHENSIVE INCOME
(LOSS) $ 6,720 $ (50) $ 18,924 $ (50) $ 15,270
The accompanying notes are an integral part of these unaudited condensed financial statements.
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COZUMEL CORPORATION
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
CUMULATIVE
FOR THE SIX FROM INCEPTION
MONTHS ENDED (April 20, 1994)
December 31, TO
2004 2003 December 31, 2004
Cash Flows from Operating Activities:
Net loss Net loss $ (2,888) $ (50) $ (9,522)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization - -- - -- 1,015
Gain on sale of available-for-sale securities (4,314) - -- (4,931)
Accrued interest – related party 6,000 - -- 7,414
Changes in assets and liabilities:
Increase (decrease) in accounts payable (530) 50 139
Increase in deferred tax liability 2,989 - -- 2,989
Net cash provided (used) by
operating activities 1,257 - -- (2,896)
Cash Flows from Investing Activities:
Purchase of available-for-sale securities (46,686) - -- (203,903)
Proceeds from sale of available-for-sale
securities 46,005 -- 58,978
Payments of organization costs - -- - -- (1,015)
Net cash used by investing activities (681) - -- (145,940)
C Cash Flows from Financing Activities:
Advances from related party - -- -- 4,032
Repayment of related party advances (3,040) - -- (3,040)
Proceeds from note payable-related party -- - -- 150,000
Proceeds from sale of common stock - -- - -- 1,015
Net cash provided (used) by
financing activities (3,040) - -- 152,007
Net Increase (decrease) in cash (2,464) - -- 3,171
Cash, balance at beginning of period 5,635 - - - -
Cash, at end of period $ 3,171 $ - - $ 3,171
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ - -- $ - -- $ - --
Income taxes $ - -- $ - -- $ --
Supplemental Schedule of Non-cash Investing and Financing Activities:
Forgiveness of Debt $ 6,000 $ - -- $ 7,414
The accompanying notes are an integral part of these unaudited condensed financial statements.
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Financial Statements - The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position as of December 31, 2004 and results of operations and cash flows for the three and six months ended December 31, 2004 and 2003, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2004. The results of operations for the period ended December 31, 2004 and 2003 is not necessarily indicative of the operating results for the full year.
Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimated.
Reclassifications - - Certain amounts in prior year financial statements have been re-classified for comparative purposes to conform to presentation in the current-year financial statements.
NOTE 2 - AVAILABLE-FOR-SALE SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair value of available-for-sale securities by major security type are as follows at:
December 31, June 30,
2004 2004
Publicly-traded equity securities
Cost $ 149, 949 $ 144,861
Gross Unrealized gains 23,889 2,980
Gross Unrealized losses (135) - --
Estimated Fair Value $ 173,703 $ 147,841
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NOTE 2 - AVAILABLE-FOR-SALE SECURITIES – (continued)
The Company uses the average cost method to determine the cost of securities sold. Changes in the unrealized gains on available-for-sale securities during the three months ended December 31, 2004 are as follows:
December 31, June 30,
2004 2004
Beginning balance - other comprehensive $ 2,980 $ 3,598
Increase (decrease) in unrealized
holding gains 23,289 (618)
Less: reclassification adjustment for
loss included in net income (2,422) --
Ending balance – other comprehensive $ 23,847 $ 2,980
Proceeds from sales of available-for-sale securities and the resulting gross realized gains and losses are as follows:
For the Three Months Ended For the Six Months Ended
December 31, December 31,
2004 2003 2004 2003
Proceeds from sales $ 21,528 $ -- $ 45,843 $ --
Gross realized gains $ 2,422 $ -- $ 4,314 $ - --
Gross realized losses - -- - -- - -- - --
Net realized gain (loss) on sales $ 2,422 $ - -- $ 4,314 $ - --
NOTE 3 - NOTE PAYABLE - RELATED PARTY
In May, 2004, the Company issued a $150,000 note payable to an entity related to a shareholder of the Company The conversion price for the Debentures in effect on any Conversion Date shall be thelesser of (a) $0.01 (the “Fixed Conversion Price”)and (b) one hundred percent (100%) of the average of the three (3) lowest closing bid prices per share of the Common Stock during the forty (40) Trading Days immediately preceding the Conversion Date (the “Floating Conversion Price”);provided,however, that the aggregate maximum number of shares of Common Stock that the First Debenture and Second Debenture may be converted into shall be Three Million (3,000,000) shares (the “Maximum Conversion”); and furtherprovided,however, that upon the Maximum Conversion, the Company may, at its option
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NOTE 3 NOTE PAYABLE - RELATED PARTY – (continued)
(a) increase the Maximum Conversion or redeem the unconverted amount of the Debentures in whole or in part at one hundred twenty five percent (125%) of the unconverted amount of such Debentures being redeemed plus accrued interest thereon. For purposes of determining the closing bid price on any day, reference shall be to the closing bid price for a share of Common Stock on such date on the OTCBB (or such other exchange, market, or other system that the Common Stock is then traded on), as reported on Bloomberg, L.P. (or similar organization or agency succeeding to its functions of reporting prices). The note is due on demand and accrued interest at 8% per annum. During the three months ended December 31, 2004 and 2003, interest expense was $3,000 and $0, respectively. During the three months ended December 31, 2004 and 2003, the related party forgave accrued interest of $3,000 and $0, respectively. Due to the related party nature of the forgiveness, the Company accounted for it as a capital contribution.
NOTE 4 - INCOME TAXES
At December 31, 2004, the Company has net operating loss carry-forwards of approximately $8,200 available to offset future taxable income and expiring beginning in 2014 through 2025. Also as a result of the expected taxable income in 2005, the Company expects to have income in the 15% federal income tax bracket rather than the 34% bracket previously estimated.
NOTE 5 - RELATED PARTY TRANSACTIONS
Advances - - During the six months ended December 31, 2004, a shareholder was repaid $2,500. At December 31, 2004 and June 30, 2004, the Company owed the shareholder $993 and $4,032, respectively. No interest is being accrued on the advances.
Note Payable - The Company has a note payable to an entity related to a shareholder of the Company [see note 3 Related Party].
Office Space - The Company has not had a need to rent office space. An officer/shareholder of the Company is allowing the Company to use his offices as a mailing address, as needed, at no expense to the Company.
NOTE 6 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has incurred losses since its inception of approximately $9,500 and has not yet been successful in establishing profitable operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of its common stock or through a possible acquisition with another company.
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NOTE 6 - GOING CONCERN – (continued)
There is no assurance that the Company will be successful in raising this additional capital or achieving profitable operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
NOTE 7 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29” (“SFAS No. 153”). SFAS No. 153 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. APB Opinion No. 29, “Accounting for Nonmonetary Transactions”, provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. Under APB Opinion No. 29, an exchange of a productive asset for a similar productive asset was based on the recorded amount of the asset relinquished. SFAS No. 153 eliminates this exception and replaces it with an exception of exchanges of nonmonetary assets that do not have commercial substance.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principles unless it is impracticable. APB Opinion No. 20 “Accounting Changes” previously required that most voluntary changes in accounting principles be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement is effective for the Company as of January 1, 2006. The Company does not believe that the adoption of SFAS No. 154 will have a material impact on its financial statements.
New accounting pronouncements - In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments ("SFAS No. 155"), which amends Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133") and Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS No. 140").
SFAS No. 155 permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or hybrid financial instruments containing embedded derivatives. The Company will apply SFAS 155 for all financial instruments acquired, issued, or subject to a re-measurement, occurring after our first fiscal year that begins after September 15, 2006.
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NOTE 7 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS – (continued)
In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” (“SFAS 156”), which amends SFAS No. 140. SFAS No. 156 may be adopted as early as January 1, 2006 by calendar year-end entities, provided that no interim financial statements have been issued. Those not choosing to early adopt are required to apply the provisions as of the beginning of the first fiscal year that begins after September 15, 2006 (e.g., January 1, 2007 for calendar year-end entities). The intention of the new statement is to simplify accounting for separately recognized servicing assets and liabilities, such as those common with mortgage securitization activities, as well as, to simplify efforts to obtain hedge-like accounting. SFAS No. 156 permits a servicer using derivative financial instruments to report both the derivative financial instrument and related servicing asset or liability by using a consistent measurement attribute or fair value. The Company does not service any financial assets or liabilities and the adoption of SFAS No. 156 had no impact on the Company’s consolidated financial position, results of operations or cash flows.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes” - an interpretation of FASB Statement No. 109" (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that we recognize in our financial statements the benefit of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 become effective as of the beginning of our 2008 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact that FIN 48 will have on our financial statements.
In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements" (FAS 157), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of FAS 157 become effective as of the beginning of our 2009 fiscal year. We are currently evaluating the impact that FAS 157 will have on our financial statements.
In September 2006, the FASB issued Statement No. 158, "Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans” - an amendment of FASB Statements No. 87, 88, 106, and 132(R)" (FAS 158). FAS 158 requires that employers recognize the funded status of their defined benefit pension and other postretirement plans on the balance sheet and recognize as a component of other comprehensive income, net of tax, the plan-related gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost. We will do not believe this will impact our financial statements.
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NOTE 7 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS – (continued)
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" (SAB 108), which addresses how to quantify the effect of financial statement errors. The provisions of SAB 108 become effective as of the end of our 2007 fiscal year. We do not expect the adoption of SAB 108 to have a significant impact on our financial statements.
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115" (FAS159). FAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The provisions of FAS 159 become effective as of the beginning of our 2009 fiscal year. We are currently evaluating the impact that FAS 159 will have on our financial statements.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 will require entities to classify noncontrolling interests as a component of stockholders’ equity and will require subsequent changes in ownership interests in a subsidiary to be accounted for as an equity transaction. Additionally, SFAS 160 will require entities to recognize a gain or loss upon the loss of control of a subsidiary and to re-measure any ownership interest retained at fair value on that date. This statement also requires expanded disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective on a prospective basis for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which are required to be applied retrospectively. Early adoption is not permitted.
NOTE 8 - SUBSEQUENT EVENTS
On January 25, 2005, the Company organized a Florida subsidiary, Cozumel Yacht Brokers, Inc. to engage in brokering and remodeling yachts in Florida.
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Item 2:MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
