UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x]
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 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 registrant in its charter)
Delaware
33-0619262
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
24351 Pasto Road, Suite B, Dana Point, California 92629
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (949) 489-2400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act: YES NO X
Indicate by check mark if the registrant is not required to filed reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer __ Accelerated filer __ Non-accelerated filer __ Smaller reporting company_X__
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
State issuer's revenues for its most recent fiscal year: None
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2008 was not determinable since the Common Stock was not traded.
The number of shares outstanding of the issuer's classes of Common Stock as of June 30, 2008: Common Stock, $.001 Par Value - 1,000,000 shares
PART I
Item 1.
DESCRIPTION OF BUSINESS
Background
Cozumel Corporation, a Delaware corporation (the "Company") was incorporated on April 20, 1994. Until January 2005, the Company had no operating history other than organizational matters, and was formed specifically to be a "clean public shell" and for the purpose of either merging with or acquiring an operating company with operating history and assets. On January 25, 2005, the Company organized a Florida subsidiary, Cozumel Yacht Brokers, Inc. (“Cozumel Yachts” and collectively with the Company, “Cozumel” or “we”) and entered the business of refitting and reselling yachts for its own account and carrying on yacht brokerage activities incidental to that business. We do not at this time refit yachts for other parties although we are considering doing so, and we are no longer seeking to acquire any other business.
The executive offices of the Company are located at 24351 Pasto Road, Suite B, Dana Point, California 92629. Its telephone number is (949) 489-2400.
Yacht Refit Business
We purchase, refit or repair yachts and market them for resale. Our first and main project is a Burger Aft cockpit motor yacht originally launched in 1965. This yacht has an aluminum hull and superstructure, with an overall length of 74’. The Burger is being completely refit, with new propulsion, mechanical and electrical systems and cosmetic renewal. Most of the basic structure has been retained, but otherwise the Burger will be functionally a brand new boat. The refit is expected to be completed 6 months from the time we obtain the remaining funds at which time it will be marketed for sale. The Burger Boat Company is a well established brand of luxury yachts which is still in business and has an excellent reputation. We do not have any relationship with Burger Boat Company or any other manufacturer mentioned herein.
We have several other projects of lesser magnitude. We purchased a 60’ Nautical sailboat at a U.S. Marshall’s auction in late 2005 which was repaired and upgraded. We also purchased a 52’ Hatteras yacht at the U.S. Marshall’s auction in late 2005. We have purchased two smaller sailboats for refit, one of which we sold to our President for a nominal amount of cash during fiscal 2006 and for services rendered. The second sailboat, a Pacific Seacraft 20’, was acquired in June 2006 as a salvage boat (it suffered minor hurricane damage from Hurricane Katrina) and we completed its repair in October 2006. None of these yachts have been sold to date.
Generally, in selecting yachts for refit, we try to choose those with no serious structural problems from well regarded manufacturers. For example, although the 20’ sailboat mentioned above is a small yacht, it is extremely well built and commands a premium in the used boat market. In our opinion there is no better 20’ sailboat commercially manufactured. We try to buy for an attractive price and generally hear of acquisition opportunities by word of mouth.
Refit Operations
Refit operations are carried out at a Miami boatyard, where we rent approximately 1,000 square feet of workshop space and the required boat slips. We have a crew of 8-10 persons supervised by a project manager. Our crew includes marine craftsmen but from time to time, specialty tradesmen such as welders or engine mechanics are engaged for specific repair items. South Florida, including Miami, Fort Lauderdale and the surrounding cities is one of the major yachting regions in the United States, with a complete range of craftsmen and marine suppliers. However, the 2005 hurricane season severely affected south Florida. Although none of our operations or assets suffered damage, many yachts were damaged in 2005, leading to a shortage of tradesmen. This shortage was alleviated by summer of 2006; however, a repeat of a hurricane season like 2005 could result in another shortage. In early 2007, we suspended refit operations for two reasons. First, because our public listing was delayed, we were unable to obtain the required funding to complete the refit of the Burger. Secondly, the owner of the boatyard determined to prohibit owner refit work at the boatyard for larger boats. We have not yet found an alternative boatyard for our activities and will not do so until we have sufficient funding.
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Marketing
We market our yachts through yacht brokerage and co-brokerage agreements. We have a web site at cozumelyachts.com To date we have not had sufficient funds to do so, but we intend in the future to advertise our yachts in print media and at boat shows. We may employ professional yacht brokers on a commission basis to market them as well.
Employees
The Company's only employee at the present time is its sole officer and director, who will devote as much time as the Board of Directors determine is necessary to carry out the affairs of the Company. (See "Management"). Remaining consultants and craftsmen are paid as independent contractors.
Competition
Competition within the yacht repair and refitting industry is intense. We face competition at the local, regional, national and international levels. Our largest competitors for yacht refitting include several large boatyards in the southeastern U.S., but we also compete with innumerable independent persons who buy and fix up boats. We have tried to find a niche by emphasizing quality and by keeping our costs down. However, foreign repair facilities (Venezuela, for example) have much lower labor costs and do not need to meet U.S. environmental standards.
To the extent that we are buying and selling the yachts for our own account, we compete with innumerable boat dealers and brokers and individual sellers, as well as new boat manufacturers.
Regulations
Certain materials used in boat manufacturing are toxic, flammable, corrosive or reactive and classified by state and federal governments as "hazardous materials". Control of hazardous materials is regulated by the U.S. Environmental Protection Agency and state environmental protection agencies. If it is ever determined that our operations have resulted in hazardous waste contamination, the costs of cleaning up those wastes could be substantial and could have a material adverse effect on our business, financial condition and results of operations. We cannot predict our future regulatory compliance costs with precision and we cannot be certain of any costs that we may be forced to incur in connection with our historical on-site or off-site waste disposal.
Certain states have required or are considering requiring a license to operate a recreational boat. These licensing requirements are not expected to be unduly restrictive. They may, however, discourage potential first-time buyers, which could, in turn, adversely affect our business. In addition, certain state and local governmental authorities are contemplating regulatory efforts to restrict boating activities on certain inland bodies of water. While the scope of these potential regulations is not yet known, their adoption and enforcement could have a material adverse effect on our business.
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Effect of Fuel Prices and General Economy
Almost all higher end yachts are powered by diesel engines. A significant increase in the price or tax on the sale, or an interruption in the supply of diesel fuel on a regional, national or international basis could adversely affect our sales and operating results. At various times in the past, diesel or gasoline fuel has been difficult to obtain, and we cannot assure you that the supply of those fuels will not be interrupted. In 2007 and 2008, fuel prices did increase substantially and, in conjunction with the real estate crisis in South Florida, the resale market for yachts has been severely affected. Until the market recovers, we will have a difficult time moving inventory.
Sales trends in the recreational boating industry are influenced by several factors, including general economic growth, consumer confidence, spending habits and household income and net worth levels. Interest rates and fuel prices also have a direct impact on boat sales, as well as demographic trends at the local, regional and national level. Competition from other leisure and recreational activities, such as vacation properties and travel, can also affect sales of recreational boats. We target a narrow market of wealthy or very wealthy individuals who can afford yachts. We believe that sales of recreational power boats have grown steadily since 1971, except for the 1989 to 1992 time frame. During that four-year period, the effects of a recession, the imposition of a luxury tax, and other adverse political and economic events had a material adverse impact on sales of all boats, but particularly in the upper end of the segment including cruisers and luxury yachts. Currently the industry is in a severe downturn, and we do not know when the industry will recover.
Item 1A. RISK FACTORS
Investors should review the following risk factors which apply specifically to the Company.
We have no cash to complete our projects
We lack approximately $400,000 cash in order to finish the refit of the Burger yacht. We have no plans or sources of capital to fund this refit. All cash to date for our projects has been loaned by a related party. Until such time as we obtain more cash, we will not be able to finish this project and sell it.
The current economy and fuel prices have caused a down market in the yacht industry, so we are unable to sell our inventory. .
For the past two years, the market for new and used yachts has declined due to the worsening economic conditions in the USA. The lower and mid markets (combined, less than $10 million sale price) have been adversely effected by the increases in fuel prices. In the industry, inventory levels are high. Until such time as an economic turnaround occurs and fuel prices moderate, we will likely be unable to realize any sale of our inventory or will be forced to sell at significant losses. This will likely be a matter of years and not months.
Lack of full time personnel and lack of funds means Company is at a standstill.
Our management devotes only part time to the business of the Company. We have no full time employees. Until we have found personnel and have funds to recommence our refit, the Company is unable to further its business plan.
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Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.
DESCRIPTION OF PROPERTY
The Company shares administrative space with its sole officer. The Company pays its own charges for long distance telephone calls and other miscellaneous secretarial, photocopying and similar expenses. The Company rented workshop space through 2006 and rents boat slips as needed on a month-to-month basis at several boatyards in the Miami area. We have the use of sales facilities provided by our President without charge in St. John, USVI and on Antigua, WI to accommodate potential foreign purchasers.
Item 3.
LEGAL PROCEEDINGS
Not Applicable.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 2008.
PART II
Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Common Stock has not traded. As of June 30, 2008, there were 111 stockholders of record.
Sales of Unregistered Securities - Not Applicable.
Report of Offering of Securities and Use of Proceeds Therefrom. - not applicable
Company repurchases of common stock during the year ended June 30, 2008.
There were no Company repurchases of common stock during the year ended June 30, 2008.
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Equity Compensation Plans
We have no equity compensation plans.
Securities and Exchange Commission Rule 15g
Our Company’s shares are covered by Rule 15g of the Securities and Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser’s written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) of the Exchange Act also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one-page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important in understanding of the function of the penny stock market, such as “bid” and “offer” quotes, a dealers “spread” and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers rights and remedies in causes of fraud in penny stock transactions; and, the NASD’s toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.”
Change of Control.
There have been no changes of control.
Item 6.
SELECTED FINANCIAL DATA.
We are not required to supply this information because we are a smaller reporting company.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
We have not yet enjoyed any revenues. As of June 30, 2008, we have expended $2,045,231 for the acquisition of four yachts and their refit. All of our capital needs have been supplied by advances from an officer and director or proceeds on a convertible debenture that have been advanced by an affiliate of that officer and director. The interest rate on the note is 8%, but due to the related party nature of the note, the interest expense is forgiven and accounted for as additional paid in capital. The refit is complete on three yachts and we estimate that the refit of the remaining yacht will require an additional $400,000. We understand that this amount is beyond the financial capability of the current funding source and we intend to carry out a public or private offering of stock or debt as soon as the Registrant can obtain a listing of its common stock. However, we have no arrangement or understanding for any funding. The affiliate is under no legal obligation to continue to supply funding. An additional yacht which we refitted was transferred to our officer in June 2006 at its cost of $154,157, to repay accrued compensation of $55,000 to this person and to furnish a credit against his future compensation, which credit was wholly utilized in the year ended June 30, 2008.
In the years ended June 30, 2008 and 2007, we received dividend income from invested funds of $0 and $13, respectively.
As of June 30, 2008, we had a cash overdraft of $141. Our cash needs to complete all projects is estimated to be $400,000. A party affiliated with a shareholder has indicated that it can loan only a portion of these funds to the Company, but is under no legal obligation to do so. If we are unable to obtain sufficient funding, we will not be able to complete projects and realize revenue upon their sale. In the year ended June 30, 2008, our cash needs were met by related party loans of $33,617.
Information included in this report includes forward looking statements, which can be identified by the use of forward-looking terminology such as may, expect, anticipate, believe, estimate, or continue, or the negative thereof or other variations thereon or comparable terminology. The statements in "Risk Factors" and other statements and disclaimers in this report constitute cautionary statements identifying important factors, including risks and uncertainties, relating to the forward-looking statements that could cause actual results to differ materially from those reflected in the forward-looking statements.
Since we have not yet generated any revenues, we are a development stage company as that term is defined in paragraphs 8 and 9 of SFAS No. 7. Our activities to date have been limited to seeking capital; seeking supply contracts and development of a business plan. Our auditors have included an explanatory paragraph in their report on our financial statements, relating to the uncertainty of our business as a going concern, due to our lack of operating history or current revenues, its nature as a start up business, management's limited experience and limited funds. We do not believe that conventional financing, such as bank loans, is available to us due to these factors. We have no bank line of credit available to us. Management believes that it will be able to raise the required funds for
operations from one or more future offerings, in order to effect our business plan.
Our future operating results are subject to many facilities, including:
o our success in completing refits and reselling yachts;
o our ability to attract and retain qualified personnel;
o the effects of rising fuel prices and general economic conditions affecting the market for luxury yachts;
o our ability to obtain additional financing; and
o other risks which we identify in future filings with the SEC.
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Any or all of our forward looking statements in this annual report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward looking statement can be guaranteed. In addition, we undertake no responsibility to update any forward-looking statement to reflect events or circumstances which occur after the date of this report.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have no risk sensitive market instruments that would be reportable under this item.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company required to be included in Item 7 are set forth following the signature page hereof.
Item 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On September 14, 2005, the Company terminated its relationship with Pritchett, Siler & Hardy, P.C. (“PSH”) the principal accountant previously engaged to audit the Company’s financial statements. The Company’s board of directors approved the dismissal of PSH. The audit reports of PSH on the Company’s financial statements for the fiscal years ending June 30, 2004 and 2003 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, except such report was modified to include an explanatory paragraph for a going concern uncertainty. In connection with the audits of the fiscal years ending June 30, 2004 and 2003 including the subsequent interim periods since engagement through September 14, 2005, the date of termination, the Company had no disagreements with PSH with respect to accounting or auditing issues of the type discussed in Item 304(a)(iv) of Regulation S-B. Had there been any disagreements that were not resolved to their satisfaction, such disagreements would have caused PSH to make reference in connection with their opinion to the subject matter of the disagreement. In addition, during that time there were no reportable events (as defined in Item 304(a)(1)(iv) of Regulation S-B).
During the fiscal year ending June 30, 2004, including the subsequent interim periods since engagement through September 14, 2005, the date of PSH’s termination, the Company (or anyone on its behalf) did not consult with any other accounting firm regarding any of the accounting or auditing concerns stated in Item 304(a)(2) of Regulation S-B. Since there were no disagreements or reportable events (as defined in Item 304(a)(2) of Regulation S-B), the Company did not consult any other firm in respect to these matters during the time periods detailed herein.
The Company provided PSH with a copy of a Current Report on Form 8-K dated September 14, 2005. The Company requested that PSH furnish the Company with a letter to the Securities and Exchange Commission stating whether PSH agreed with the above statements. A copy of that letter dated September 16, 2005, is filed as an Exhibit to the Form 8-K.
In February 2007, the Company engaged De Joya Griffith & Company, LLC as its independent auditors.
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On September 8, 2008, Cozumel Corporation (the “Company”) terminated its relationship with De Joya Griffith & Company LLC the principal accountant previously engaged to audit the Company’s financial statements. The Company’s board of directors approved the dismissal of De Joya Griffith & Company LLC. The audit reports of PSH on the Company’s financial statements for the fiscal year ending June 30, 2005 and did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, except such report was modified to include an explanatory paragraph for a going concern uncertainty. In connection with the audit of the fiscal year ending June 30, 2005 including the subsequent interim periods since engagement through September 8, 2008, the date of termination, the Company had no disagreements with De Joya Griffith & Company LLC with respect to accounting or auditing issues of the type discussed in Item 304(a)(iv) of Regulation S-K, except as set forth in the following paragraph. Had there been any disagreements that were not resolved to their satisfaction, such disagreements would have caused De Joya Griffith & Company LLC to make reference in connection with their opinion to the subject matter of the disagreement. In addition, during that time there were no reportable events (as defined in Item 304(a)(1)(iv) of Regulation S-K), except as set forth in the following paragraphs.
As set forth in Item 8A of the Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005, respectively, the Company and De Joya Griffith & Company LLC identified significant deficiencies and material weaknesses that existed in the design or operation of the Company's internal controls over financial reporting and such items are incorporated herein by reference. The Company has authorized De Joya Griffith & Company LLC to respond fully to any inquiries by The Blackwing Group LLC LLC regarding the significant deficiencies and material weaknesses in internal control set forth in the Annual Report on Form 10-KSB.
During the fiscal year ending June 30, 2005, including the subsequent interim periods since engagement through September 18, 2008, the date of De Joya Griffith & Company LLC s termination, the Company (or anyone on its behalf) did not consult with any other accounting firm regarding any of the accounting or auditing concerns stated in Item 304(a)(2) of Regulation S-K. The Company did not consult any other firm in respect to these matters during the time periods detailed herein.
The Company provided De Joya Griffith & Company LLC with a copy of the Form 8-K. The Company requested that De Joya Griffith & Company LLC furnish the Company with a letter to the Securities and Exchange Commission stating whether PSH agreed with the above statements. A copy of that letter dated September 26, 2005 was filed as an Exhibit to the Form 8-K.
On September 8, 2008 the Registrant engaged The Blackwing Group, LLC as its new independent auditor. Prior to the engagement of The Blackwing Group, LLC, the Registrant did not consult with The Blackwing Group, LLC on the application of accounting principles to any specific transaction nor the type of audit opinion that might be rendered on the Registrant's financial statements.
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Item 9A.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2008. Based on this evaluation, our management has concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
Internal Control over Financial Reporting
Our management’s evaluation did not identify any change in our internal control over financial reporting that occurred during the fiscal year ended June 30, 2008 that has materially affected or is reasonably likely to materially affect our internal control over such reporting.
The term "internal control over financial reporting" is defined as a process designed by, or under the supervision of, the registrant's principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, or use or disposition of the registrant's assets that could have a material effect on the financial statements.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2008 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of June 30, 2008, we determined that the following deficiencies constituted a material weakness, as described below.
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1.
Certain entity level controls establishing a “tone at the top” were considered material weaknesses. The Company has no audit committee. There is no policy on fraud and no code of ethics at this time. A whistleblower policy is not necessary given the small size of the organization.
2.
Management override of existing controls is possible given the small size of the organization and lack of personnel.
3.
There is no system in place to review and monitor internal control over financial reporting. The Company maintains an insufficient complement of personnel to carry out ongoing monitoring responsibilities and ensure effective internal control over financial reporting.
Management is currently evaluating remediation plans for the above control deficiencies.
Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of June 30, 2008 based on criteria established in Internal Control—Integrated Framework issued by COSO.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Item 9B.
OTHER INFORMATION.Not Applicable.
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PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Directors and Executive Officers
The members of the Board of Directors of the Company serve until the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the Board of Directors. Information as to the director and executive officer of the Company is as follows.
Jehu Hand, age 52, has been President, Chief Financial Officer and Secretary of the Company since its inception. Mr. Hand has been engaged in corporate and securities law practice and has been a sole practitioner since May 1994 when Hand & Hand incorporated as a law corporation in May 1994. From 1999 to June 2003, Mr. Hand was semi-retired, but began working again in June 2003 as sole shareholder of Hand & Hand, a professional corporation. From January 1992 to December 1992 he was the Vice President-Corporate Counsel and Secretary of Laser Medical Technology, Inc., which designs, manufactures and markets dental lasers and endodontics equipment. He was a director of Laser Medical from February 1992 to February 1993. From January to October 1992, Mr. Hand was Counsel to the Law Firm of Lewis, D'Amato, Brisbois & Bisgaard. From January 1991 to January 1992, he was a shareholder of McKittrick, Jackson, DeMarco & Peckenpaugh, a law corporation. From January to December 1990, he was a partner of Day, Campbell & Hand, and was an associate of its predecessor law firm from July 1986 to December 1989. From 1984 to June 1986, Mr. Hand was an associate attorney with Schwartz, Kelm, Warren & Rubenstein in Columbus, Ohio. Jehu Hand received a J.D. from New York University School of Law and a B.A. from Brigham Young University. He is a registered principal (Series 7, 24 and 63) of Jackson, Kohle & Co., a broker-dealer and member of FINRA, and also Jackson, Kohle SE, a European broker dealer. Mr. Hand was a director and president of Albion Aviation, Inc. from 2000 to March 2003, and is the sole officer and director of Russian Athena, Inc. He was the Secretary of DanaPC.com from 2006 to January 2008 and he currently devotes 10 hours per week to Cozumel Corporation. In 2006, he was a director of Worldwide Manufacturing Company USA, Inc.
Audit Committee
We do not have an audit committee. The entire Board of Directors serve as the audit committee. Because of the small size of the Company and the risk attendant to a small public company, we are currently unable to attract an audit committee financial expert to our Board of Directors.
Code of Ethics
We have not adopted a code of ethics which applies to the chief executive officer or principal financial accounting officer, because of our level of operations at this time.
Item 11. EXECUTIVE COMPENSATION
Mr. Hand was accrued compensation of $5,000 per month commencing on July 1, 2005. Of this amount, $55,000 was satisfied in June 2006 by the transfer of inventory to Mr. Hand at cost. In the month of June 2006 $5,000 was credited from a related party receivable of $99,157 as of the transfer. This related party receivable was substantially utilized in the year ended June 30, 2008, and the accounts payable related party as of June 30, 2008 payable included $25,000 in accrued compensation to Mr. Hand. See “Certain Transactions.”
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Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information relating to the beneficial ownership of Company common stock by those persons beneficially holding more than 5% of the Company’s capital stock, by the Company's directors and executive officers, and by all of the Company's directors and executive officers as a group. The address of each person is “care of” the Company.
Percentage
Name of
Number of
of Outstanding
Stockholder
Shares Owned
Common Stock
Jehu Hand(1)
800,000
80.0%
Kimberly Peterson
93,850
9.4%
All officers and
directors as a group
(1 person)
800,000
80.0%
(1) Mr. Hand controls a family limited partnership which is the record holder of these shares.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Mr. Hand from time to time has advanced certain amounts for the Company. These amounts are unsecured, due on demand and bear no interest. The amount outstanding at June 30, 2008 and 2007 was $79,534 and $54,534, respectively; all of the increase from 2007 to 2008 represents accrued compensation. In June 2006, the Company transferred a yacht held in inventory to Mr. Hand at its cost of $154,197. This amount was credited against Mr. Hand’s compensation of $5,000 per month for the months of July 2005 to May 2006, inclusive, and the remainder of $99,157 was accounted for as a non-interest bearing advance to Mr. Hand, to be amortized against his monthly compensation. As of June 30, 2008 and 2007, the amount of this advance was $0, $36,532, respectively, which includes expenses paid by the Company and Mr. Hand’s behalf in 2007 of $2,375.
An investment fund controlled by Mr. Hand has loaned funds to the Company under a Convertible Debenture. The funds bear interest at 8% per annum and are secured by a lien on the assets of the Company. The amount outstanding at June 30, 2008 and 2007 was $2,166,260 and $2,132,643, respectively. The interest has been forgiven by the holder and classified as contributed capital.
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Item 14. Principal Accountant Fees and Services.
Audit Fees
Our accountants, The Blackwing Group, LLC, billed us $12,000 for audit fees and review of quarterly filings for the fiscal years ended June 30, 2006, 2007 and 2008; these fees were paid in fiscal 2009.
Less than 50% of the hours expended by our auditors on the audit for the years ended June 30, 2006, 2007 and 2008 were performed by persons’ other than The Blackwing Group, LLC permanent full time employees.
There were no funds paid in audit related fees, tax fees and all other fees to such firm during the years ended June 30, 2006, 2007 or 2008.
Our former principal accountants, De Joya Griffith & Company, LLC, billed us $7,000 for audit fees and review of quarterly filings for the fiscal year ended June 30, 2005; these fees were paid in fiscal 2008. An additional $8,000 was billed in 2008 for the 2005 audit.
Less than 50% of the hours expended by our auditors on the audit for the year ended June 30, 2005 were performed by persons’ other than De Joya Griffith & Company, LLC permanent full time employees.
There were no funds paid in audit related fees, tax fees and all other fees to such firm during the year ended June 30, 2005. No fees were paid to auditors in 2006 or 2007.
Audit Committees pre-approval policies and procedures.
We do not have an audit committee. Our engagement of The Blackwing Group, LLC was approved by the Board of Directors. No services described in Item 9(e) (2) through 9(e) (4) of Schedule 14A were performed by our auditors.
14
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(b)
The following financial statements are filed herewith
Report of Independent Certified Public Accounting Firm
Consolidated Balance Sheet as of June 30, 2008
Consolidated Statements of Income and Comprehensive Income (Loss) for the years ended June 30, 2008 and 2007 and the period Inception to June 30, 2008
Consolidated Statement of Stockholder’s Equity (Deficit) from Inception to June 30, 2008
Consolidated Statement of Cash Flows for the years ended June 30, 2008 and 2007 and the period Inception to June 30, 2008
Notes to Consolidated Financial Statements
No financial statement schedules are required to be filed.
(b)
Exhibits. The following exhibits of the Company are included herein.
Exhibit No.
Document Description
3. Charter and Bylaws
3.1. Articles of Incorporation(1)
3.2 Bylaws(1)
10. Material Contracts
10.1 Convertible Debenture. Filed herewith.
16. Changes in Accountants
16.1 Letter from Pritchett, Siler and Hardy, P.C. Filed with our Current Report on Form 8-K dated September 14, 2005.
16.2
Letter from De Joya Griffith & Company LLC. Filed with our Current Report on Form 8-K/ A dated September 8, 2008.
Exhibit
31.
Certification of the Chief Executive and Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2003. Filed herewith.
Exhibit 32,
Certification of the Chief Executive and Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003. Filed herewith.
--------------------------------------------------------------------------
(1) Filed with the Company's original Form 10-SB.
(b)
Reports on Form 8-K.
Not Applicable.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on October 14, 2008.
COZUMEL CORPORATION
By:
/s/ Jehu Hand
Jehu Hand
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on October 14, 2008.
By:
/s/ Jehu Hand
President, Chief Financial Officer
Jehu Hand
and Director (chief financial officer
and accounting officer and duly
authorized officer)
16
THE BLACKWING GROUP, LLC
18921G E VALLEY VIEW PARKWAY #325
INDEPENDENCE, MO 64055
816-813-0098
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cozumel Corporation
Dana Point, California
We have audited the accompanying balance sheet of Cozumel Corporation as of June 30, 2008 and 2007, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the periods ended June 30, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Cozumel Corporation (A Developmental Stage Company) as of June 30, 2008, and the results of its operations and its cash flows for the periods ended June 30, 2008 and 2007 in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the financial statements, the Company has faced recurring losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
![[jun08kcozfinal002.gif]](https://capedge.com/proxy/10-K/0001002334-08-000135/jun08kcozfinal002.gif){kind=small}
The Blackwing Group, LLC
Issuing Office: Independence, MO
October 12, 2008
17
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
JUNE 30, 2008
As of
June 30,
2008
____________
ASSETS
Cash and cash equivalents
$
--
Prepaid expenses
5,800
Total current assets
5,800
Inventory
2,045,438
Other asset – advance to related party
3,134
Total assets
$
2,054,372
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft
$
141
Accounts payable
13,183
Advances due to – related party
79,534
Note payable – related party
2,166,260
Total current liabilities
2,258,977
STOCKHOLDERS' EQUITY (Note 4)
Preferred stock, $.001 par value, 1,000,000 shares
authorized; - -0- shares issued and outstanding
--
Common stock, $.001 par value, 20,000,000 shares
authorized; 1,000,000 shares issued and outstanding
1,000
Additional paid in capital
480,935
Accumulated deficit during the development stage
(686,681)
Total stockholders’ equity
(204,746)
Total liabilities and stockholders’ equity
$
2,054,372
The accompanying notes are an integral part of these financial statements.
18
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 2008 AND 2007
For the
Years ended
From Inception
June 30,
(April 20, 1994)
______________________
Through
2008
2007
June 30, 2008
____________
___________
__________
REVENUE
$
--
$
--
$
--
EXPENSES:
General and administrative
78,555
99,398
(267,387)
LOSS BEFORE OTHER
INCOME (EXPENSE)
(75,555)
(99,398)
(267,387)
OTHER INCOME (EXPENSE)
Gain on sale of available-for-sale securities
--
--
21,882
Dividend income
--
13
8,019
Interest expense – related party
(171,648)
(159,212)
(449,155)
Total other income (expense)
(171,648)
(159,199)
(419,254)
LOSS BEFORE PROVISION FOR INCOME TAXES
(250,203)
(258,597)
(686,641)
PROVISION FOR INCOME TAXES (See Note 3)
--
--
39
NET INCOME (LOSS) AFTER PROVISION FOR INCOME
TAXES
$
(250,203)
$
(258,597)
$
(686,681)
PER SHARE INFORMATION:
NET INCOME (LOSS) PER SHARE
-
1,000,000 SHARES ISSUED
$
(.25)
$
(.26)
$
(.69)
BASIC WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
1,000,000
1,000,000
1,000,000
DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
1,000,000
1,000,000
1,000,000
The accompanying notes are an integral part of these financial statements.
19
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
From Inception (April 20, 1994) through June 30, 2008
|
|
|
|
|
|
| Deficit |
|
|
|
|
|
|
|
| Accumulated | Total |
| Preferred Stock | Common Stock | Additional | Other | During the | Stockholders | ||
| ____________ | _________ | _____________ | ____________ | Paid In | Comprehensive | Development | Equity |
| Shares | Amount | Shares | Amount | Capital | Income | Stage | (Deficit) |
| __________ | _________ | ___________ | __________ | __________ | __________ | __________ | _________ |
BALANCE, April 20, 1994 | - | $ - | - | $ - | $ - | $ - | $ - | $ - |
|
|
|
|
|
|
|
|
|
Issuance of 1,000,000 shares of common |
|
|
|
|
|
|
|
|
stock for cash of $1,015, or $.001 per |
|
|
|
|
|
|
|
|
share, April 20, 1994 | - | - | 1,000,000 | 1,000 | 15 | - | - | 1,015 |
|
|
|
|
|
|
|
|
|
Net loss | - | - | - | - | - | - | (42) | (42) |
| __________ | _________ | ___________ | __________ | __________ | __________ | __________ | _________ |
BALANCE,June 30, 1994 | - | - | 1,000,000 | 1,000 | 15 | - | (42) | 973 |
|
|
|
|
|
|
|
|
|
Net loss | - | - | - | - | - | - | (338) | (338) |
| __________ | _________ | ___________ | __________ | __________ | __________ | __________ | _________ |
BALANCE,June 30, 1995 | - | - | 1,000,000 | 1,000 | 15 | - | (380) | 635 |
|
|
|
|
|
|
|
|
|
Net loss | - | - | - | - | - | - | (320) | (320) |
| __________ | _________ | ___________ | __________ | __________ | __________ | __________ | _________ |
BALANCE,June 30, 1996 | - | - | 1,000,000 | 1,000 | 15 | - | (700) | 315 |
|
|
|
|
|
|
|
|
|
Net loss | - | - | - | - | - | - | (314) | (314) |
| __________ | _________ | ___________ | __________ | __________ | __________ | __________ | _________ |
BALANCE,June 30, 1997 | - | - | 1,000,000 | 1,000 | 15 | - | (1,014) | 1 |
|
|
|
|
|
|
|
|
|
Net loss | - | - | - | - | - | - | (312) | (312) |
| __________ | _________ | ___________ | __________ | __________ | __________ | __________ | _________ |
BALANCE,June 30, 1998 | - | - | 1,000,000 | 1,000 | 15 | - | (1,326) | (311) |
|
|
|
|
|
|
|
|
|
Net loss | - | - | - | - | - | - | (790) | (790) |
| __________ | _________ | ___________ | __________ | __________ | __________ | __________ | _________ |
BALANCE,June 30, 1999 | - | - | 1,000,000 | 1,000 | 15 | - | (2,116) | (1,101) |
The accompanying notes are an integral part of this financial statement.
20
Net loss | - | - | - | - | - | - | (1,134) | (1,134) |
| __________ | __________ | ___________ | __________ | __________ | __________ | __________ | __________ |
BALANCE,June 30, 2000 | - | - | 1,000,000 | 1,000 | 15 | - | (3,250) | (2,235) |
Net loss | - | - | - | - | - | - | (947) | (947) |
| __________ | __________ | ___________ | __________ | __________ | __________ | __________ | __________ |
BALANCE,June 30, 2001 | - | - | 1,000,000 | 1,000 | 15 | - | (4,197) | (3,182) |
Net loss | - | - | - | - | - | - | (1,519) | (1,519) |
| __________ | __________ | ___________ | __________ | __________ | __________ | __________ | __________ |
BALANCE,June 30, 2002 | - | - | 1,000,000 | 1,000 | 15 | - | (5,716) | (4,701) |
Net loss | - | - | - | - | - | - | (154) | (154) |
| __________ | __________ | ___________ | __________ | __________ | __________ | __________ | __________ |
BALANCE,June 30, 2003 | - | - | 1,000,000 | 1,000 | 15 | - | (5,870) | (4,855) |
Unrealized holding gain | - | - | - | - | - | 2,980 | - | 2,980 |
|
|
|
|
|
|
|
|
|
Accrued interest expense forgiven by |
|
|
|
|
|
|
|
|
related party accounted for as |
|
|
|
|
|
|
|
|
contribution to capital | - | - | - | - | 1,414 | - | - | 1,414 |
Net loss | - | - | - | - | - | (764) | (764) | (764) |
| __________ | __________ | ___________ | __________ | __________ | __________ | __________ | __________ |
BALANCE,June 30, 2004 | - | - | 1,000,000 | 1,000 | 1,429 | 2,980 | (6,634) | (1,225) |
Contribution to Capital | - | - | - | - | 49,915 | - | - | 49,915 |
Realization of holding loss |
|
|
|
|
| (2,980) |
| (2,980) |
Net loss | - | - | - | - | - | - | (2,330) | (2,330) |
| __________ | __________ | ___________ | __________ | __________ | __________ | __________ | __________ |
BALANCE,June 30, 2005 | - | $ - | 1,000,000 | $ 1,000 | $ 51,344 | $ - | $ (8,964) | $ 43,380 |
Contribution to Capital | - | - | - | - | 98,732 | - | - | 98,732 |
Net loss | - | - | - | - | - | - | (168,917) | (168,917) |
| __________ | __________ | ___________ | __________ | __________ | __________ | __________ | __________ |
BALANCE,June 30, 2006 | - | $ - | 1,000,000 | $ 1,000 | $ 150,575 | $ - | $ 177,880 | $ (26,805) |
Contribution to Capital | - | - | - | - | 159,212 | - | - | 159,212 |
Net Capital loss | - | - | - | - | - | - | (258,597) | (258,597) |
| __________ | __________ | ___________ | __________ | __________ | __________ | __________ | __________ |
BALANCE,June 30, 2007 | - | $ - | 1,000,000 | $ 1,000 | $ 309,287 | $ - | $ (436,477) | $ (126,190) |
| __________ | __________ | ___________ | __________ | __________ | __________ | __________ | __________ |
Contribution to Capital | - | - | - | - | 171,648 | - | - | - |
Net Capital loss | - | - | - | - | - | - | (250,203) | (250,203) |
| __________ | __________ | ___________ | __________ | __________ | __________ | __________ | __________ |
BALANCE,June 30, 2008 | - | $ - | 1,000,000 | $ 1,000 | $ 480,935 | $ - | $ (686,681) | $ (204,746) |
| _________ | _________ | __________ | _________ | _________ | _________ | _________ | _________ |
The accompanying notes are an integral part of this financial statement.
21
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30, 2008 AND 2007
For the
From Inception
Years ended
April 20, 1994
June 30,
Through
_____________________
June 30, 2008
2008
2007
____________
___________
__________
Cash Flows From Operating Activities:
Net loss
$
(250,203)
$
(258,597)
$
(686,681)
Adjustments to reconcile net loss to net cash used by
operating activities:
(Increase) decrease in:
Inventory
(27,790)
(352,807)
(2,045,438)
Prepaid expenses
3,000
(8,799)
(5,800)
Related party advances
33,398
57,625
(3,134)
Increase (decrease) in:
Accounts payable
9,991
2,649
13,183
Net cash provided (used) by operating activities
(231,604)
(559,930)
(2,727,870)
Cash Flows From Investing Activities:
Gain on sale of available-for-sale securities
--
--
(21,882)
Forgiveness of interest – related party
171,648
159,212
479,156
Purchase of available-for-sale securities
--
--
(202,139)
Proceeds from sale of available-for-sale securities
--
--
225,785
Net cash provided (used) by investing activities
171,648
159,212
480,920
Cash Flows From Financing Activities:
Cash deficit
141
--
141
Advances from related party
25,000
--
137,574
Repayment of advances due to related party
--
--
(58,040)
Proceeds from note payable - related party
33,616
377,702
2,166,260
Proceeds from sale of common stock
--
1,015
Net cash (used) provided by financing activities
58,757
377,702
2,246,950
Net Increase (Decrease) in Cash
(1,199)
(23,156)
--
Cash at Beginning of Period
1,199
24,715
--
Cash at End of Period
$
--
$
1,199
$
--
Supplemental Disclosures 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- related party
$
171,648
$
159,212
$
479,156
Asset contribution of asset in lieu of
inventory purchase
$
--
$
--
$
30,000
The accompanying notes are an integral part of these financial statements.
22
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDING JUNE 30, 2008 AND 2007
A summary of significant accounting policies of Cozumel Corporation (A Development Stage Company) (the Company) is presented to assist in understanding the Company’s financial statements. The accounting policies presented in these footnotes conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the accompanying financial statements. These financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. The Company has not realized revenues from its planned principal business purpose and is considered to be in its development state in accordance with SFAS 7, “Accounting and Reporting by Development State Companys.”
NOTE 1 - DESCRIPTION OF THE BUSINESS, HISTORY AND SUMMARY OF
SIGNIFICANT POLICIES
Organization - 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 financial position, 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.
Cash and Cash Equivalents - For purposes of the statement of cash flows, the Company considers all highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
Inventory -Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method. At June 30, 2008, inventory includes one Burger 74’ motor yacht in process of refit and three smaller yachts whose refits have been completed.
Loss Per Share - The Company computes net loss per share in accordance with SFAS No. 128, “Earnings per Share” (SFAS 128) and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS 128 and SAB 98, basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is antidilutive. For the years ended June 30, 2005 and 2004, no options and warrants were included in the computation of diluted earnings per share because their effect would be antidilutive.
Fair Value -The carrying amounts reflected in the consolidated balance sheet for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items.
Reclassifications– Certain amounts in prior year financial statements have been reclassified for comparative purposes to conform to presentation in the current year financial statements.
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.
23
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDING JUNE 30, 2008 AND 2007
NOTE 1 - DESCRIPTION OF THE BUSINESS, HISTORY AND SUMMARY OF
SIGNIFICANT POLICIES (cont)
New 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. SFAS No. 153 was applicable for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The implementation of SFAS 2005 is not expected to have any material impact on the financial statements.
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.
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. Since the Company has not and does not intend to acquire any hybrid financial instrument, the application of SFAS 155 will have no impact on the Company.
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
24
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDING JUNE 30, 2008 AND 2007
NOTE 1 - DESCRIPTION OF THE BUSINESS, HISTORY AND SUMMARY OF
SIGNIFICANT POLICIES (cont)
New Accounting Pronouncements (continued)
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 December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. This standard replaces SFAS No. 123 and supersedes APB Opinion No. 25, “Accounting for Stock-based compensation.” This standard requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This eliminates the exception to account for such awards using the intrinsic method previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective for interim or annual reporting periods beginning on or after June 15, 2005. The Company does not believe that the application of SFAS 123(R) will have any material impact on the Company.
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 do not believe this will impact our financial statements.
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
25
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDING JUNE 30, 2008 AND 2007
NOTE 1 - DESCRIPTION OF THE BUSINESS, HISTORY AND SUMMARY OF
SIGNIFICANT POLICIES (cont)
New Accounting Pronouncements (continued)
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 expandeddisclosures 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.
In May 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162). This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The sources of accounting principles that are generally accepted are categorized in descending order of authority as follows: a. FASB Statements of Financial Accounting Standards and Interpretations, FASB Statement 133 Implementation Issues, FASB Staff Positions, and American Institute of Certified Public Accountants (AICPA) Accounting Research Bulletins and Accounting Principles Board Opinions that are not superseded by actions of the FASB b. FASB Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and Accounting Guides and Statements
26
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDING JUNE 30, 2008 AND 2007
New Accounting Pronouncements (continued)
of Position c. AICPA Accounting Standards Executive Committee Practice Bulletins that have been cleared by the FASB, consensus positions of the FASB Emerging Issues Task Force (EITF), and the Topics discussed in Appendix D ofEITF Abstracts(EITF D-Topics) d. Implementation guides (Q&As) published by the FASB staff, AICPA Accounting Interpretations, AICPA Industry Audit and Accounting Guides and Statements of Position not cleared by the FASB, and practices that are widely recognized and prevalent either generally or in the industry.
In May 2008, the Financial Accounting Standards Board (“FASB��) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts – An interpretation of FASB Statement No. 60”. SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise’s risk-management activities. SFAS 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.
NOTE 2 - 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 the lesser 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 further provided, 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 demand and accrues interest at 8% per annum. During the year ended June 30, 2008 and 2007, respectively, interest expense was $171,648 and $160,522. During the years ended June 30, 2008 and 2007, respectively, the related party forgave accrued interest of $171,648 and $160,522. 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 June 30, 2008.
27
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDING JUNE 30, 2008 AND 2007
NOTE 3 - INCOME TAXES
At June 30, 2008 and 2007, the Company had a federal operating loss carryforward of approximately $686,681 and $437,772, respectively, which expires in varying amounts between 2008 and 2027.
Components of net deferred tax assets, including a valuation allowance, are as follows at June 30:
|
| 2008 |
| 2007 |
Deferred tax assets: |
|
|
|
|
Net operating loss carryforward |
| $ 231,775 |
| $ 153,220 |
Total deferred tax assets |
|
|
|
|
|
| (231,775) |
| (153,220) |
Less: Valuation Allowance |
| -- |
| -- |
|
|
|
|
|
Net Deferred Tax Assets |
| $ -- |
| $ -- |
The valuation allowance for deferred tax assets as of June 30, 2008 and 2007 was $231,775 and $153,220, respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of June 30, 2008 and 2007 and, accordingly, recorded a full valuation allowance.
Reconciliation between the statutory rate and the effective tax rate is as follows at June 30:
|
| 2008 |
| 2007 |
|
|
|
|
|
Federal statutory tax rate |
| (35.0)% |
| (35.0)% |
State taxes, net of federal benefit |
| (8.7)% |
| (8.7)% |
Change in valuation allowance |
| 43.7 % |
| 43.7 % |
|
|
|
|
|
Effective tax rate |
| 0.0 % |
| 0.0 % |
|
|
|
|
|
NOTE 4 - STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock- The Company has authorized 1,000,000 shares of preferred stock, $.001 par value, with such rights, preferences and designations and to be issued in such series as determined by the Board of Directors. No shares are issued and outstanding at June 30, 2008.
Common Stock- The Company has authorized 20,000,000 shares of common stock with a par value of $.001. On April 20, 1994, in connection with its organization, the Company issued 1,000,000 shares of its previously authorized, but unissued common stock. The shares were issued for cash of $1,015 (or $.001 per share).
28
COZUMEL CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIODS ENDING JUNE 30, 2008 AND 2007
NOTE 4 - STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
1994 Stock Option Plan -On April 20, 1994, the Company adopted the 1994 Stock Option Plan. The plan expired in 2004.
NOTE 5 - RELATED PARTY TRANSACTIONS
Advances -During the years ended June 30, 2008 and 2007, a former officer/shareholder of the Company directly paid expenses totaling $0 and $0 on behalf of the Company. No interest is being accrued on the advances. In the years ended June 30, 2008 and 2007, the Company directly paid $1,602 and $2,375 on behalf of this officer. These amounts were added to the related party advances account.
Note Payable -The Company has a note payable to an entity related to a shareholder of the Company (see note 3 – “Note payable Related Party”).
Management Compensation -For the year ended June 30, 2008 and 2007, the Company accrued $5,000 a month in compensation to the officer/director of the Company. These amounts were first netted against the advances to related party ($60,000 in 2007 and $35,000 in 2008) and $25,000 in 2008 was attributed to accounts payable 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 and has not yet been successful in establishing profitable operations. The Company has an accumulated deficit of $686,681, and a working capital deficit of $2,253,177 as of June 30, 2008. 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. 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 adjustmentsthat might result from the outcome of these uncertainties.
29
