UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
ACT OF 1934 | |
For the quarterly period ended: | |
March 31, 2010 | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
ACT OF 1934 | |
For the transition period from: _____________ to _____________ |
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BAY ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
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Delaware | 001-15819 | 13-3883101 |
(State or Other Jurisdiction | (Commission | (I.R.S. Employer |
of Incorporation) | File Number) | Identification No.) |
420 Lexington Avenue, Suite 2320, New York, NY 10170
(Address of Principal Executive Office) (Zip Code)
(212) 661-6800
(Registrant’s telephone number, including area code)
SECURELOGIC CORP.
(Former name, former address and former fiscal year, if changed since last report)
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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. | x | Yes | o | No | ||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. | ||||||||
Large accelerated filer | o | Accelerated filer | o | |||||
Non-accelerated filer | o | Smaller reporting company | x | |||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | x | Yes | o | No | ||||
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. | ||||||||
As of May 17, 2010 there were 22,422,663 shares of common stock outstanding, par value $0.001. | ||||||||
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY | ||||||||
PROCEEDINGS DURING THE PRECEDING FIVE YEARS: | ||||||||
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. | ||||||||
o | Yes | o | No |
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BAY ACQUISITION CORP.
(FORMERLY: SECURELOGIC CORP.)
(UNAUDITED)
TABLE OF CONTENTS
Page Number | ||
PART I. Financial Statements | 3 | |
Item 1. | Financial Information (Unaudited) | 3 |
Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009 | 3 | |
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and March 31, 2009 | 4 | |
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and March 31, 2009 | 5 | |
Notes to Condensed Consolidated Financial Statements – March 31, 2010 | 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 14 |
Item 4. | Controls and Procedures | 14 |
Item 4T. | Controls and Procedures | 14 |
PART II. Other Information | 15 | |
Item 1. | Legal Proceedings | 15 |
Item 1A. | Risk Factors | 16 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
Item 3. | Defaults Upon Senior Securities | 16 |
Item 4. | Removed and Reserved | 16 |
Item 5. | Other Information | 16 |
Item 6. | Exhibits | 16 |
Signatures | 17 |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
BAY ACQUISITION CORP.
(FORMERLY: SECURELOGIC CORP.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in thousands, except share data)
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4 | $ | 4 | ||||
Note receivable | 171 | 171 | ||||||
Other current assets | 14 | 11 | ||||||
Total current assets | 189 | 186 | ||||||
Total assets | $ | 189 | $ | 186 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities: | ||||||||
Trade payables | $ | 45 | $ | 36 | ||||
Total current liabilities | 45 | 36 | ||||||
Commitments and contingencies | ||||||||
Shareholders' equity: | ||||||||
Common stock $0.001 par value; 100,000,000 shares authorized, | ||||||||
55,947,331 issued and 23,422,663 outstanding at March 31, 2010 | ||||||||
and December 31, 2009 | 23 | 23 | ||||||
Additional paid-in capital | 14,247 | 14,247 | ||||||
Treasury stock (32,899,667 shares) | (4,957 | ) | (4,957 | ) | ||||
Accumulated deficit | (9,169 | ) | (9,163 | ) | ||||
Total shareholders' equity | 144 | 150 | ||||||
Total liabilities and shareholders' equity | $ | 189 | $ | 186 |
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
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BAY ACQUISITION CORP.
(FORMERLY: SECURELOGIC CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. Dollars in thousands, except share data)
(unaudited)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2010 | 2009 | |||||||
Revenue | $ | - | $ | - | ||||
Cost of revenue | - | - | ||||||
Gross profit | - | - | ||||||
General and administrative expenses | 9 | 5 | ||||||
Operating loss | (9 | ) | (5 | ) | ||||
Interest income | 3 | 2 | ||||||
Loss before income taxes | (6 | ) | (3 | ) | ||||
Provision for income taxes | - | - | ||||||
Net loss applicable to common shares | $ | (6 | ) | $ | (3 | ) | ||
Net loss per share - Basic and Diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||
Weighted average shares outstanding | ||||||||
Basic and Diluted | 23,422,663 | 23,422,663 |
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
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BAY ACQUISITION CORP.
(FORMERLY: SECURELOGIC CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars in thousands)
(unaudited)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2010 | 2009 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (6 | ) | $ | (3 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Increase in other current assets | (3 | ) | (2 | ) | ||||
Increase in accounts payable | 9 | 5 | ||||||
Net cash provided by operating activities | - | - | ||||||
Cash flows from financing activities: | ||||||||
Loan to stockholder | - | (171 | ) | |||||
Net cash used in financing activities | - | (171 | ) | |||||
Net decrease in cash | - | (171 | ) | |||||
Cash at beginning of period | 4 | 215 | ||||||
Cash at end of period | $ | 4 | $ | 44 | ||||
Supplemental Cash Flow Information | ||||||||
During the period, cash was paid for the following: | ||||||||
Interest | $ | - | $ | - | ||||
Income taxes | $ | - | $ | - |
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
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BAY ACQUISITION CORP.
(FORMERLY SECURELOGIC CORP.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS (UNAUDITED)
March 31, 2010 and 2009
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
The accompanying condensed unaudited interim consolidated financial statements have been prepared by Bay Acquisition Corp. (formerly, SecureLogic Corp.) (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. These financial statements reflect all adjustments, consisting of normal recurring adjustments and accruals, which are, in the opinion of management, necessary for a fair presentation of the financial position of the Company as of March 31, 2010 and the results of operations and cash flows for the interim periods indicated in conformity with generally accepted accounting principles applicable to interim periods. Accordingly, certain information and footnote disclosure s normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the audited financial statements and notes thereto of the Company for the year ended December 31, 2009 that is included in the Company’s Form 10-K filed with the Securities and Exchange Commission on May 18, 2009 (the “2009 10-K”).
The Company is defined as a shell entity and is engaged in a plan to re-enter the homeland security marketplace through a combination of organic development, the acquisition of products and/or the acquisition of companies.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN
As reflected in the accompanying financial statements, the Company’s operations for the three months ended March 31, 2010, resulted in a net loss of $6,000 and the Company's balance sheet reflects an accumulated deficit of $9,169,000. The Company’s ability to continue operating as a “going concern” is dependent on its ability to raise sufficient additional working capital. Management’s plans in this regard include raising additional cash from current stockholders and potential investors and lenders.
These financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue its existence.
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USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported and disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiary (the “Group”). Intercompany transactions and balances have been eliminated upon consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company had no cash equivalents at March 31, 2010 and December 31, 2009. The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally insured limits. At times balances may exceed FDIC insured limits. The Company has not experienced any losses in such accounts.
CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables.
The Group maintains cash and cash equivalents and investments with major financial institutions and limits the amount of credit exposure with any institution.
The Group performs ongoing credit evaluations of its customers and to date, has not experienced any unexpected material losses. An allowance for doubtful accounts is determined with respect to specific accounts receivable that the management evaluates to be uncollectible.
The Company accounts for income taxes using the asset and liability method described in FASB ASC 740-10 (Prior authoritative literature: FASB Statement 109, “Accounting for Income Taxes,”), which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes and liabilities are computed annually for differences between the financial statement and the tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
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The Company adopted the provisions of FASB ASC 740-10 (Prior authoritative literature Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes- an Interpretation of FASB Statement No. 109, on April 1, 2007. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company does not believe it has any unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing FASB ASC 740-10.
The Company estimates that the fair value of all financial instruments at March 31, 2010 and December 31, 2009, as defined in FASB ASC 825-10, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying condensed consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Effective January 1, 2009, we implemented FASB ASC 825-10, Fair Value Measurements, or SFAS 157, for our assets and liabilities that are re-measured at fair value. The adoption of FASB ASC 825-10 for our assets and liabilities that are re-measured at fair value did not impact our financial position or results of operations.
INCOME (LOSS) PER COMMON SHARE
FASB Accounting Standards Codification (“ASC”) 260-10 (Prior authoritative literature: FASB Statement 128, “Earnings Per Share”) requires the presentation of basic earnings (loss) per share ("basic EPS") and diluted earnings (loss) per share ("diluted EPS").
The Company’s basic loss per common share is based on net loss for the relevant period, divided by the weighted average number of common shares outstanding during the period. Diluted loss per common share is based on net loss, divided by the weighted average number of common shares outstanding during the period, including common share equivalents, such as outstanding stock options and beneficial conversion of related party accounts.
Outstanding share options and shares issued and reserved for outstanding share options have been excluded from the calculation of basic and diluted net loss per share to the extent such securities are anti-dilutive
In October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue Recognition (Topic 605)”. This Update provides amendments to the criteria in Subtopic 605-24 for separating consideration in multiple-deliverable revenue arrangements. It establishes a hierarchy of selling prices to determine the selling price of each specific deliverable which includes vendor-specific objective evidence (if available), third-party evidence (if vendor-specific evidence is not available), or estimated selling price if neither of the first two are available. This Update also eliminates the residual method for allocating revenue between the elements of an arrangement and requires that arrangement consideration be allocated at the inception of the arrangement. Finally, this Update expands the disclosure requirements regarding a vendor’s multiple-deliverable revenue arrangements. This Update is effective for fiscal years beginning on or after June 15, 2010. We do not anticipate any material impact from this Update.
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In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (the “Update”), which provides amendments to Accounting Standards Codification 820-10 (Fair Value Measurements and Disclosures – Overall Subtopic) of the Codification. The Update requires improved disclosures about fair value measurements. Separate disclosures need to be made of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements along with a description of the reasons for the transfers. Also, disclosure of activity in Level 3 fair value measurements needs to be made on a gross basis rather than as one net number. The Update also requires: (1) fair value measurement disclosures for each class of assets and liabilities, a nd (2) disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements, which are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The enhanced disclosure requirements have not had a material impact on the Company’s financial reporting.
In January of 2010 the FASB issued seven Accounting Standards Updates (“ASU”s). 2010-01, Equity (Topic 505), standardizes the treatment of the stock portion of a distribution of stock and cash as stock issuance, eliminating the practice of treating such stock issuance as stock dividends. 2010-02, Consolidation (Topic 810), clarifies the scope of accounting and reporting for decreases in ownership of a subsidiary. 2010-03, Extractive Activities, Oil and Gas (Topic 932), deals with reserve estimation and disclosures. 2010-04 covers technical corrections to SEC paragraphs in the Codification. 2010-05, Stock Compensation (Topic 718), covers escrowed share arrangements and presumption of compensation. 2010-06, Fair Value Measurements and Disclosures (Topic 820), improves disclosure by requirin g that: (a) significant transfers in and out of levels 1 and 2 should be reported for each class of assets and liabilities; (b) level 2 and 3 inputs and valuation techniques should be disclosed; and (c) purchases, sales, issuance, and settlements should be reported separately for level 3 assets and liabilities.. 2010-07 applies to mergers and acquisitions of not-for-profit entities. None of these updates has any current applicability to the Company’s financial reporting.
In February of 2010 the FASB issued three ASUs. 2010-08 contains technical corrections clarifying guidance on embedded derivatives and hedging. 2010-10, Consolidation (Topic 810) contains amendments for certain investment funds. Neither of these ASU’s has any current applicability to the Company’s financial reporting. 2010-09, Subsequent Events (Topic 855), however, was adopted by the Company immediately. 2010-09 requires that SEC filers, along with certain bond obligors, are required to evaluate subsequent events through the date that financial statements are issued but are not required to disclose the date through which subsequent events have been evaluated.
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In March of 2010 the FASB issued ASU 2010-11, Derivatives and Hedging (Topic 815), which contains a scope exception related to embedded credit derivatives. 2010-11 has no current applicability to the Company’s financial reporting.
SUBSEQUENT EVENTS
The Company has adopted FASB ASC 855-10, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The Company has evaluated subsequent events after the balance sheet date of March 31, 2010 through the date the financial statements were issued.
NOTE 2 – NOTE RECEIVABLE
On February 11, 2009, the Company made a term bridge loan to a stockholder of the Company in the amount of $171,000. The loan bears interest at a rate of 8% per annum and is due and payable on June 15, 2010. The loan is classified as “Note receivable” on the accompanying condensed consolidated balance sheet.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes included in this Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in those forward-looking statements as a result of certain factors, including, but not limited to, those contained in the discussion on forward-looking statements that follows this section.
OVERVIEW
Prior to the reversal of the acquisition of our SpaceLogic, Ltd. and SecureLogic, Ltd subsidiaries (the “Subsidiaries”) on or about July 15, 2008 through the transfer of those Subsidiaries to the former owners of the Subsidiaries (the “Acquisition Reversal”), the Company was engaged in the business of developing and marketing systems that manage the movement of people and baggage through airports. Subsequent to the Acquisition Reversal, the Company is engaged in reconstituting its business plan to re-enter the homeland security marketplace through a combination of organic development, the acquisition of products and/or the acquisition of companies.
In reading Management’s Discussion and Analysis of Financial Condition and Results of Operations, the reader should keep in mind that the Company’s financial statements reflect the treatment of the transfer of the Subsidiaries in the Acquisition Reversal as a discontinued operation and therefore, does not reflect the business of the Company after July 15, 2008 through the date of this Report.
Results of Operations
Total revenues for the three month periods ended March 31, 2010 and 2009 were $0 which reflects the discontinued operations of our Israeli subsidiary as a result of the Acquisition Reversal which occurred on July 15, 2008.
Gross profit for the three month periods ended March 31, 2010 and 2009 were both $0 which reflects the discontinued operations of our Israeli subsidiary as a result of the Acquisition Reversal which occurred on July 15, 2008.
Expenses
Our total expenses for the three month periods ended March 31, 2010 and 2009 were $9,000 and $5,000 respectively, which reflects professional fees and expenses related to maintaining the Company’s compliance with its obligations under the Securities Exchange Act of 1934, as amended.
Interest Income
During the three months ended March 31, 2010, we recorded $3,000 of interest income in connection with the term bridge loan we made on February 11, 2009 to a stockholder of the Company in the amount of $171,000. The loan bears interest at a rate of 8% per annum and is due and payable on June 15, 2010.
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Loss
Our loss for the three months ended March 31, 2010 was $6,000 which reflects the items shown above. During the same respective periods we had a loss of $3,000. The increase in our net loss was a result of increased professional fees associated with maintaining our status as an OTCBB traded company.
Liquidity and Capital Resources
As of March 31, 2010, total current assets were $189,000 and total current liabilities were $45,000. As of March 31, 2010, the Company had a cash balance of $4,000.
Our financial statements raise doubt to our ability to continue operating as a “going concern”. However, we believe that our existing cash, the repayment of the short term bridge loan made to our stockholder, together with potential revenue from the licenses received in the Acquisition Reversal will be sufficient to support our operations through the end of 2010; provided that, in the event that that Company shall acquire additional products or subsidiaries, we may require significant amounts of additional capital sooner than the end of 2010. In such a case, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. Incurring indebtedness would result in an increase in o ur fixed obligations and could result in borrowing covenants that would restrict our operations. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. If financing is not available when required or is not available on acceptable terms, we may be unable to develop or enhance our products or services, or, we may potentially not be able to continue business activities. Any of these events could have a material and adverse effect on our business, results of operations and financial condition.
Critical Accounting Policies and Estimates
Our discussion and analysis of its financial condition and results of operations are based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, income taxes and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values o f assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Off-Balance Sheet Arrangements
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We do not currently have any off-balance sheet arrangements as defined in Item 303(c)(2) of Regulation S-K.
Forward-Looking Statements
The statement made above relating to the adequacy of our working capital is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. The statements that express the “belief,” “anticipation,” “plans,” “expectations,” “will” and similar expressions are intended to identify forward-looking statements.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include matters relating to the business and financial condition of any company we acquire. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not required for Smaller Reporting Companies
Item 4. Controls and Procedures
Not required for Smaller Reporting Companies
Item 4T. Controls and Procedures
Evaluation of Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation required by Rule 13a-15(b) of the Securities Exchange Act of 1934 under the supervision and with the participation of our chief executive officer and chief financial officer of the effectiveness of the design and operation of our “disclosure controls and procedures” as of the end of the period covered by this Report.
Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in an issuer’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
The evaluation of our disclosure controls and procedures included a review of our objectives and processes and effect on the information generated for use in this Report. This type of evaluation will be done quarterly so that the conclusions concerning the effectiveness of these controls can be reported in our periodic reports filed with the SEC. We intend to maintain these controls as processes that may be appropriately modified as circumstances warrant.
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Based on their evaluation, our chief executive officer and chief financial officer has concluded that our disclosure controls and procedures are not effective in timely alerting him to material information relating to Bay Acquisition Corp. required to be included in our periodic reports filed with the SEC as of the end of the period covered by this Report. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected. Our internal control over financial reporting was not effective for the following reasons:
a. | The deficiency was identified as the Company’s limited segregation of duties amongst the Company’s employees with respect to the Company’s control activities. This deficiency is the result of the Company’s limited number of employees. This deficiency may affect management’s ability to determine if errors or inappropriate actions have taken place. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures. |
b. | The deficiency was identified with respect to the Company’s Board of Directors. This deficiency is the result of the Company’s limited number of external board members. This deficiency may give the impression to the investors that the board is not independent from management. Management and the Board of Directors are required to apply their judgment in evaluating the cost-benefit relationship of possible changes in the organization of the Board of Directors. |
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the three months ended March 31, 2010, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 1A. Risk Factors.
Not Applicable.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Removed and Reserved.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6.Exhibits.
Exhibit
Number Description
31 PEO and PFO certifications required under Section 302 of the Sarbanes-Oxley Act of 2002
32 PEO and PFO certifications required under Section 906 of the Sarbanes-Oxley Act of 2002
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.
Date: May 21, 2010
BAY ACQUISITION CORP. | ||
By: | /s/ Paul Goodman | |
Paul Goodman | ||
President and Chief Financial Officer |
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