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 March 31, 2008
[ ] 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 March 31, 2008
Transitional Small Business Format Yes No X
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, June 30,
2008 2007
CURRENT ASSETS
Cash and cash equivalents $ 885 $ 1,199
Total current assets 4,735 9,999
Inventory 2,032,994 2,017,648
Prepaid expenses 3,850 8,800
Other asset – advances to related party 1,780 36,532
TOTAL ASSETS $ 2,039,508 $ 2,164,179
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 18,769 $ 3,192
Accounts payable - related party 54,534 54,534
Note payable – related party 2,091,504 2,132,643
Total current liabilities 2,164,808 2,190,369
TOTAL LIABILITIES 2,164,808 2,190,369
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 437,739 309,287
Retained earnings (deficit) accumulated during the development stage (616,216) (436,477)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (177,478) (126,190)
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
$ 2,039,508 $ 2,190,369
The accompanying notes are an integral part of the financial statements.
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
& nbsp; FROM INCEPTION
FOR THE THREE FOR THE NINE (APRIL 20,
MONTHS ENDED MONTHS ENDED 1994) THROUGH
MARCH 31, MARCH 31, MARCH 31,
2008 2007 2008 2007 2008
REVENUES $ - -- $ - -- $ - -- $ - -- $ - --
EXPENSES
General and administrative 17,772 25,960 51,287 82,502 73,285
Operating loss (17,772) (25,960) (51,287) (82,502) (73,285)
OTHER INCOME (EXPENSE)
Gains on sale of available-for-
sale securities - -- - -- - -- - -- 21,882
Dividend income - -- - -- - -- 13 7,996
Interest expense – related party (42,915) (41,079) (128,452) (116,852) (84,287)
Total other income (expense) (42,915) (41,079) (128,452) (116,839) (54,409)
INCOME (LOSS) BEFORE
INCOME TAXES (60,687) (67,039) (179,739) (199,341) (616,177)
PROVISION FOR INCOME TAXES - -- - -- - -- - -- 39
NET INCOME (LOSS) $ (60,687) $ (67,039) $ (179,739) $ (199,341) $ (616,216)
BASIC INCOME (LOSS) PER
COMMON SHARE $ (.06) $ (.06) $ (.20) $ (.20)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000
NET INCOME (LOSS) $ (60,687) $ (67,039) $ (179,739) $ (199,341) $ (616,216)
OTHER COMPREHENSIVE INCOME:
Gains (loss) on sale of available-for-
sale securities arising during the
period - -- - -- - -- -- 21,882
Plus reclassification adjustment for (gains)
losses included in net income - -- - -- - -- - -- (21,882)
INCOME (LOSS) BEFORE
INCOME TAXES $ (60,687) $ (67,039) $ (179,739) $ (199,341) $ (616,216)
The accompanying notes are an integral part of these unaudited condensed financial statements.
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
& nbsp;
FOR THE NINE FROM INCEPTION
MONTHS ENDED (April 20, 1994)
March 31, TO
2008 2007 March 31, 2008
Cash Flows from Operating Activities:
Net Income (loss) $ (179,739) $ (199,341) $ (616,216)
Adjustments to reconcile net loss to net cash used by
operating activities:
Gain on sale of available-for-sale securities - -- - -- (21,882)
Accrued interest – related party 128,452 116,852 435,960
Changes in assets and liabilities:
Increase (decrease) in accounts payable - -- 18,226 3,192
(Increase) decrease in prepaid expenses 4,950 - -- (3,850)
(Increase) decrease in advance to related party �� 34,752 42,625 (1,780)
Net cash used by
operating activities (11,585) (21,637) (204,576)
Cash Flows from Investing Activities:
Purchase of Marketable Securities - -- - -- (202,139)
Proceeds from sale of available for sale securities - -- - -- 225,785
Purchase of inventory (15,345) (321,992) (2,032,994)
Net cash used by
investing activities (321,992) (321,992) (2,009,348)
Cash Flows from Financing Activities:
Advances from related party 10,000 - -- 112,574
Repayment from related party - -- - -- (58,040)
Proceeds from sale of common stock - -- - -- 1,015
Proceeds from note payable-related party (16,616) 336,064 2,149,200
Net cash flows provided by
financing activities (16,616) 336,064 2,214,809
Net increase in cash (314) (7,560) 884
Cash balance at beginning of period 1,199 24,715 - -
Cash at end of period $ 885 $ 17,148 $ 884
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ - -- $ - -- $ - --
Income taxes $ 601 $ 601 $ - --
Supplemental Schedule of Non-cash Investing and Financing Activities
Forgiveness of debt- related party $ 128,452 $ 116,852 $ 435,960
Contribution of asset in lieu of
inventory purchase and prepayment of expenses $ - -- $ - -- $ - --
The accompanying notes are an integral part of these unaudited condensed financial statements.
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2008
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Financial Statements– Cozumel Corporation (“the Company”) was organized under the laws of the State of Delaware on April 20, 1994 for the purpose of seeking out business opportunities, including acquisitions. The Company formed a Florida subsidiary, Cozumel Yacht Brokers, Inc. in January 2005 and has entered the business of buying, selling, remodeling and brokering the sale of yachts. The financial statements present the consolidated balance sheet, results of operations and cash flows for the consolidated entity. The Company has, at the present time, not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factors.
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, results of operations and cash flows at March 31, 2008 and 2007 and for the periods then ended 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 Company’s Annual Report on Form 10-KSB for the year ended June 30, 2007. The results of operations for the periods ended March 31, 2008 and 2007 are 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.
Recent Accounting Pronouncements –
Stock-based compensation:
The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2006), Share-Based Payment (SFAS 123R), effective January 1, 2007. SFAS 123R requires the recognition of the fair value of stock-based compensation in net income. Stock-based compensation primarily consists of stock options. Stock options are granted to employees at exercise prices equal to the fair market value of our stock at the dates of grant. The Company now recognizes the stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. The Company provides newly issued shares to satisfy stock option exercises.
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2008
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In May 2007, 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, 2007. 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 2007, 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, 2007.
In March 2007, 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, 2007 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, 2007 (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.
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2008
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In June 2007, 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 2007, 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 2007, 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 are currently evaluating the impact that FAS 158 will have on our financial statements.
In September 2007, 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" (FAS 159). 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.
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2008
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2008
NOTE 2 - NOTE PAYABLE - RELATED PARTY
In May 2006, the Company issued a $150,000 8% convertible note payable to an entity related to a stockholder 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 is due on December 31, 2007 and accrues interest at 8% per annum. During the nine months ended March 31, 2008 and 2007, interest expense was $64,724 and $0, respectively. During the nine months ended March 31, 2008 and 2007, the related party forgave accrued interest of $116,852 and $64,724, respectively. Due to the related party nature of the forgiveness, the Company accounted for it as a capital contribution. The Company has determined the convertible debenture to not have a beneficial conversion feature; therefore, no beneficial conversion feature has been recorded as of March 31, 2008.
NOTE 3 - RELATED PARTY TRANSACTIONS
Advances -During the nine months ended March 31, 2008 and 2007, an officer/stockholder of the Company advanced amounts to the Company. As of March 31, 2008, the Company owed the officer/stockholder $54,534 and the shareholder owed the Company $51,532. No interest is being accrued on the advances.
Note Payable -The Company has a note payable to an entity related to a stockholder of the Company [see note 2 Note Payable Related Party].
NOTE 4 – STOCKHOLDER’S EQUITY (DEFICIT)
The authorized common stock of the Company consists of 20,000,000 shares of common stock with par value of $0.001 and 1,000,000 shares of preferred stock with a par value of $0.001.
A related party forgave accrued interest for the nine months ended March 31, 2008 in the amount of $116,852. (See note 2 Note Payable Related Party).
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2008
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. The Company has accumulated deficit earnings since its inception of approximately $(377,222) and it has not yet been successful in establishing its operations. This factor raises 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 business combination 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The funds for the refitting of the yacht have been derived from a loan from a party related to the officer/director and from an officer/director. All funds are loaned by the affiliated party at 8% interest. Management estimates an additional $400,000 is required to complete work on its Burger yacht. We have no source of funds other than related party loans. Our working capital deficit as of March 31, 2008 is approximately $2,216,000.
Item 3.Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. The Company’s principal executive officer and its principal financial officer, based on their evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d -14 (c) as of a date within 90 days prior to the filing of this Quarterly Report on Form 10QSB, have concluded that the Company’s disclosure controls and procedures are adequate and effective for the purposes set forth in the definition in Exchange Act rules.
(b) Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls subsequent to the date of their evaluation.
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)
