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 September 30, 2006
[ ] 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
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 September 30, 2006
Transitional Small Business Format Yes No X
COZUMEL CORPORATION
(A Development Stage Company)
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
September 30, June 30,
2006 2006
(unaudited) (audited)
ASSETS
Cash and cash equivalents $ 40,047 $ 24,112
Total current assets 40,047 24,112
Inventory 1,778,797 505,862
Other assets – advances to related parties 79,652 94,157
Total assets $ 1,898,496 $ 529,974
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 6,759 $ 11,941
Advances - related party 54,534 49,523
Convertible - note payable – related party 1,901,396 425,130
Total current liabilities 1,962,689 486,594
Total liabilities 1,962,689 486,594
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 186,613 51,344
Deficit accumulated during the
development stage (251,806) (8,964)
Total stockholders’ equity (deficit) (64,193) 43,380
Total liabilities and stockholders’ equity (deficit) $ 1,898,496 $ 529,974
The accompanying notes are an integral part of these unaudited condensed financial statements.
(A Development Stage Company)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
&nb sp; FOR THE THREE INCEPTION
&nb sp; MONTHS ENDED (April 20, 1994)
&nb sp; September 30, TO
2006 2005 September 30, 2006
REVENUE $ - -- $ - -- $ --
OPERATING EXPENSES:
General and administrative 37,399 17,212 126,834
Operating loss (37,399) (17,212) (126,834)
OTHER INCOME (EXPENSE)
Gain on sale of
available-for-sale securities -- - -- 21,882
Dividend income 11 14 8,017
Interest expense – related party (36,537) (11,958) (154,832)
Total other income (expense) (36,526) (11,944) (124,936)
LOSS BEFORE
INCOME TAXES (73,925) (29,156) (251,767)
CURRENT TAX EXPENSE - -- - -- 39
NET LOSS $ (73,925) $ (29,156) $ (251,806)
BASIC LOSS
PER COMMON SHARE $ (.07) $ (.00)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES $ 1,000,000 $ 1,000,000
NET LOSS $ (73,925) $ (29,156) $ (251,806)
OTHER COMPREHENSIVE INCOME:
Unrealized (realized) holding gains on available
for sale securities) $ - -- $ - -- $ 21,882
Less: reclassification adjustment for (gains)
included in net income $ - -- $ - -- $ (21,882)
OTHER COMPREHENSIVE INCOME (LOSS) $ (73,295) $ (29,156) $ (251,806)
The accompanying notes are an integral part of these unaudited condensed financial statements.
(A Development Stage Company)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
&nb sp; CUMULATIVE
FOR THE THREE FROM INCEPTION
MONTHS ENDED (April 20, 1994)
September 30, TO
2006 2005 September 30, 2006
&n bsp;
Cash Flows from Operating Activities:
Net loss $ (73,925) $ (29,156) $ (251,806)
Adjustments to reconcile net loss to net cash used by
operating activities:
Gain on sale of
available-for-sale securities - -- - -- (21,882)
Changes in assets and liabilities:
Increase (decrease) in accounts payable 6,216 (2,158) 6,759
Increase in accrued interest - related party 36,537 11,958 484,834
Increase in deferred tax liability - -- - -- - --
Net cash used by
operating activities (16,667) (19,356) (161,747)
Cash Flows from Investing Activities:
Purchase of available-for-sale securities - -- - -- (202,139)
Cash provided by sale of
available-for-sale securities - -- -- 225,785
Cash used in purchasing inventory (113,955) (343,83) (1,778,797)
Net cash used by
investing activities (113,955) (343,833) (1,755,151)
Cash Flows from Financing Activities:
Advances from related party - -- - -- 112,574
Repayment of related party advances - -- (1,500) (58,040)
Proceeds from convertible note payable - related party 155,955 325,345 1,901,396
Proceeds from sale of common stock - -- - -- 1,015
Net cash provided used by
financing activities (155,955) (340,345) 1,956,945
Net increase (decrease) in cash (15,332) (22,844) 40,040
Cash balance at beginning of period 24,715 24,112 - -
Cash at end of period $ 40,047 $ 1,268 $ 40,040
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 $ 36,537 $ 11,958 $ 184,834
The accompanying notes are an integral part of these unaudited condensed financial statements.
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 September 30, 2006 and results of operations and cash flows for the three months ended September 30, 2006 and 2005, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles 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, 2006. The results of operations for the periods ended September 30, 2006 and 2005 are not necessarily indicative of the results of operations to be expected for the full fiscal year.
Reclassifications- Certain amounts in prior year financial statements have been reclassified for comparative purposes to conform with presentation in the current year financial statements.
NOTE 2 - CONVERTIBLE NOTE PAYABLE - RELATED PARTY
In May 2004, the Company issued an 8% convertible note for $150,000 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 (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 matured on December 31, 2005 and is now due on demand. During the three months ended September 30, 2006 and 2005 interest expense was $36,537 and $11,958, respectively. The related party has forgiven the accrued interest as incurred. Due to the related party nature of the forgiveness, the Company accounted for it as a capital contribution.The Company has determined the convertible debentures to not have a beneficial conversion feature; therefore, no beneficial conversion feature has been recorded as of September 30, 2006.
NOTE 3 - INCOME TAXES
At September 30, 2006, the Company has net operating loss carryforwards of approximately $251,806 available to offset future taxable income and expiring beginning in 2015 through 2026
NOTE 4 - RELATED PARTY TRANSACTIONS
Advances - - During the quarter ended September 30, 2006, the officer/shareholder advanced $5,000. At September 30, 2006, the Company owed the shareholder $54,534. The shareholder owed the Company $79,652 as an advance related to the June 2006 transfer of inventory to the shareholder. This advance is being amortized by crediting the shareholder’s compensation of $5,000 per month. No interest is being accrued on the advances.
Note Payable - The Company has a note payable to an entity related to an officer/shareholder of the Company [see note 2].
NOTE 5 - 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 of approximately $251,806 since its inception 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. 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 6 - 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.
In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets ("SFAS No. 156"), which amends FASB Statement No. 140 ("SFAS No. 140"). SFAS 156 may be adopted as early as January 1, 2006, for 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. Specifically, the FASB said FAS 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. We do not expect the adoption of SFAS 156 to have a material impact on the Company's 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 prospectively adopt FAS 158 on April 30, 2007.
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 remeasure 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.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133,” (SFAS “161”) as amended and interpreted, which requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. Disclosing the fair values of derivative instruments and their gains and losses in a tabular format provides a more complete picture of the location in an entity’s financial statements of both the derivative positions existing at period end and the effect of using derivatives during the reporting period. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Early adoption is permitted.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company has a working capital deficit of $1,922,642. The Company is being funded by related party advances and loans. We have no revenues to date.
Item 3. Controls and Procedures.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
31. Certifications
31.1 Certification of Jehu Hand as Chief Executive and Financial Officer
32. Certifications
32.1 Certification pursuant to 18 U.S.C. Section 1350 of Jehu Hand as Chief Executive and Financial Officer
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.
COZUMEL CORPORATION
Date: October 14, 2008 By:/s/ Jehu Hand
Jehu Hand,
President and Chief Financial
Officer (chief financial officer
and accounting officer and duly
authorized officer)
