UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedMarch 31, 2008
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934
For the transition period from ________to ________
COMMISSION FILE NUMBER000-32011
BALSAM VENTURES, INC.
(Exact name of registrant as specified in its charter)
| NEVADA | 52-2219056 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1480 Gulf Road, Suite 204 | |
| Point Roberts, WA | 98281 |
| (Address of principal executive offices) | (Zip Code) |
(360) 318-3886
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) 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 [X]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 13, 2008, the registrant had 36,226,663 shares of common stock outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that can be expected for the year ending December 31, 2008.
As used in this Quarterly Report, the terms "we,” "us,” "our,” “Balsam” and the “Company” mean Balsam Ventures, Inc. unless otherwise indicated. All dollar amounts in this Quarterly Report are in U.S. dollars unless otherwise stated.
2
BALSAM VENTURES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
MARCH 31, 2008
(Unaudited)
(Stated in U.S. Dollars)
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| BALANCE SHEETS |
| (Stated in U.S. Dollars) |
| MARCH 31, | DECEMBER 31, | |||||
| 2008 | 2007 | |||||
| (unaudited) | (audited) | |||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash | $ | 454 | $ | 165 | ||
| Deferred tax asset, less valuation allowance of $10,850 (2007 -$490,117 ) | - | - | ||||
| Total Assets | $ | 454 | $ | 165 | ||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||
| Current Liabilities | ||||||
| Accounts payable and accrued liabilities | $ | 97,085 | $ | 83,699 | ||
| Accounts payable and accrued liabilities –related parties (Note 6) | 287,854 | 272,870 | ||||
| Loans payable (Note 4 and 5) | 122,944 | 119,119 | ||||
| Total Current Liabilities | 507,883 | 475,688 | ||||
| Commitments and Contractual Obligations(Note 8) | ||||||
| Stockholders’ Deficiency | ||||||
| Common Stock (Note 6) | ||||||
| Authorized: | ||||||
| 100,000,000 common shares with a par value of $0.001 per share | ||||||
Issued and outstanding: | ||||||
March 31, 2008 -36,226,663 common shares | ||||||
| December 31, 2007 -36,226,663 common shares | 36,227 | 36,227 | ||||
| Additional paid-in capital | 929,773 | 929,773 | ||||
| Deficit accumulated during the development stage | (1,473,429 | ) | (1,441,523 | ) | ||
| Total Stockholders’ Deficiency | (507,429 | ) | (475,523 | ) | ||
| Total Liabilities and Stockholders’ Deficiency | $ | 454 | $ | 165 |
Subsequent Event (Note 10)
The accompanying notes are an integral part of these financial statements.
F-2
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| STATEMENTS OF OPERATIONS |
| (Unaudited) |
| (Stated in U.S. Dollars) |
| CUMULATIVE | |||||||||
| FROM | |||||||||
| THREE | THREE | INCEPTION | |||||||
| MONTHS | MONTHS | (AUGUST 17, | |||||||
| ENDED | ENDED | 1999) TO | |||||||
| MARCH 31, | MARCH 31, | MARCH 31, | |||||||
| 2008 | 2007 | 2008 | |||||||
| EXPENSES | |||||||||
| Accretion of discount on convertible notes | $ | - | $ | - | $ | 260,000 | |||
| Bank charges and interest | 1,395 | 69 | 84,501 | ||||||
| Consulting services | 15,000 | 15,000 | 480,947 | ||||||
| Domain registration | - | - | 436 | ||||||
| Foreign exchange loss (gain) | (450 | ) | 106 | 2,501 | |||||
| License and royalty payments | - | 15,000 | 328,000 | ||||||
| Office and sundry | 375 | 150 | 15,541 | ||||||
| Professional fees | 15,331 | 875 | 261,522 | ||||||
| Regulatory | - | - | 15,832 | ||||||
| Stock transfer services | 255 | 60 | 6,375 | ||||||
| Travel | - | - | 9,099 | ||||||
| Write-off of developmental costs software | - | - | 8,675 | ||||||
| - | |||||||||
| 31,906 | 31,260 | 1,473,429 | |||||||
| Provision for income taxes | - | - | - | ||||||
| NET LOSS | $ | 31,906 | $ | 31,260 | $ | 1,473,429 | |||
| BASIC AND DILUTED NET LOSS PER SHARE | $ | (0.00 | ) | $ | (0.00 | ) | |||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |||||||||
| - BASIC AND DILUTED | 36,226,663 | 36,226,663 |
The accompanying notes are an integral part of these financial statements.
F-3
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| (Stated in U.S. Dollars) |
| CUMULATIVE | |||||||||
| FROM | |||||||||
| THREE | THREE | INCEPTION | |||||||
| MONTHS | MONTHS | (AUGUST 17, | |||||||
| ENDED | ENDED | 1999) TO | |||||||
| MARCH 31, | MARCH 31, | MARCH 31, | |||||||
| 2008 | 2007 | 2008 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||
| Net loss for the period | $ | (31,906 | ) | $ | (31,260 | ) | $ | (1,473,429 | ) |
| Adjustments to reconcile net loss to cash used in operating activities: | |||||||||
| Write off of software development costs | - | - | 8,675 | ||||||
| Interest accrued on convertible notes payable | - | - | 78,000 | ||||||
| Shares issued to extend license agreement | - | - | 293,000 | ||||||
| Accretion of discount on convertible debentures | - | - | 260,000 | ||||||
| Changes in non-cash working capital items: | |||||||||
| Decrease in prepaid expenses | - | 50 | - | ||||||
| Increase in accounts payable and accrued liabilities | 13,386 | 29,312 | 586,686 | ||||||
| Increase in accounts payable and accrued liabilities–related parties | 14,984 | - | 92,854 | ||||||
| Increase in accrued interest payable | 1,325 | - | 4,743 | ||||||
| Net cash used in operating activities | (2,211 | ) | (1,898 | ) | (149,471 | ) | |||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
| Software development costs | - | - | (8,675 | ) | |||||
| Net cash used in investing activities | - | - | (8,675 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
| Issuance of common stock for cash | - | - | 75,000 | ||||||
| Proceeds from loans payable, net of repayments | 2,500 | - | 83,600 | ||||||
| Net cash provided by financing activities | 2,500 | - | 158,600 | ||||||
| NET INCREASE (DECREASE) IN CASH | 289 | (1,898 | ) | 454 | |||||
| CASH, BEGINNING OF PERIOD | 165 | 2,426 | - | ||||||
| CASH, END OF PERIOD | $ | 454 | $ | 528 | $ | 454 |
Supplemental Disclosure with respect to Cash Flows (Note 8)
The accompanying notes are an integral part of these financial statements.
F-4
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| NOTES TO FINANCIAL STATEMENTS |
| MARCH 31, 2008 |
| (Unaudited) |
| (Stated in U.S. Dollars) |
| 1. | HISTORY AND ORGANIZATION OF THE COMPANY |
Balsam Ventures, Inc. (the “Company”) was incorporated on August 17, 1999 in the State of Nevada. The Company was in the business of developing and marketing a patented, proprietary technology for self-chilling beverage containers (the “Cool Can Technology”) that it had licensed in 2004 until it was advised that the patents for the Cool Can Technology had expired. The Company intends to terminate the Agreement and is currently negotiating with the Licensor to settle its rights under the Agreement (see Note 8). The Company is in the process of reorganizing the Company’s business and is seeking and evaluating alternative business opportunities. | |
The Company is considered to be in the development stage. The accompanying financial statements represent those of a development stage enterprise and therefore, are subject to the usual business risks of development stage companies. The Company has not yet generated any revenue from operations. | |
These financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America for interim financial information. The accompanying financial statements do not include all information and footnote disclosures required for an annual set of financial statements prepared under United States of America generally accepted accounting principles. In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows as at March 31, 2008 and for all periods presented, have been included. Interim results for the period ended March 31, 2008 are not necessarily indicative of the results that may be expected for the fiscal year as a whole. | |
| 2. | GOING CONCERN |
These financial statements have been prepared with the on-going assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. However, certain conditions noted below raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. | |
As shown in the accompanying financial statements, the Company has incurred a net loss of $1,473,429 for the period from inception (August 17, 1999) to March 31, 2008, and has no revenue. The operations of the Company have primarily been funded by the sale of common stock and loans payable. Continued operations of the Company are dependent on the Company’s ability to complete equity financings, obtain additional loans or generate profitable operations in the future. Management’s plan in this regard is to secure additional funds through future equity financings and loans payable. Such financings or loans payable may not be available or may not be available on reasonable terms to the Company. |
F-5
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| NOTES TO FINANCIAL STATEMENTS |
| MARCH 31, 2008 |
| (Unaudited) |
| (Stated in U.S. Dollars) |
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are stated in U.S. dollars. The significant accounting policies adopted by the Company are as follows: | ||
| (a) | Use of estimates | |
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates. | ||
| (b) | Foreign currency translation | |
The functional currency of the Company is the U.S. dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations. Exchange gains and losses arising on translation of foreign currency items are included in the statement of operations. | ||
| (c) | Cash and cash equivalents | |
The Company considers cash held at banks and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. At March 31, 2008 and December 31, 2007, the Company had no cash equivalents. | ||
| (d) | Income taxes | |
A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expenses (benefit) result from the net change during the period of deferred tax assets and liabilities. | ||
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. | ||
F-6
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| NOTES TO FINANCIAL STATEMENTS |
| MARCH 31, 2008 |
| (Unaudited) |
| (Stated in U.S. Dollars) |
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
| (e) | Fair value of financial instruments | |
The Company's financial instruments consist of cash, accounts payable and accrued liabilities, accounts payable and accrued liabilities –related parties and loans payable. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, unless otherwise noted. | ||
| (f) | Net loss per share | |
Basic net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share takes into consideration shares of common stock outstanding (computed under basic earnings per share) and potentially dilutive shares of common stock. As of March 31, 2008 and 2007, there were no potentially dilutive securities outstanding. | ||
| (g) | Development stage | |
The Company is a development stage company as defined in Statement of Financial Accounting Standards (“SFAS”) 7, “Accounting and Reporting by Development Stage Enterprises,”as it is devoting substantially all of its efforts to establish a new business and planned principal operations have not commenced. | ||
| (h) | Concentration of credit risk | |
Cash is the only financial instrument that potentially subjects the Company to concentration of credit risk. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. | ||
| (i) | Recent accounting pronouncements | |
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements”.SFAS No. 157 establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. | ||
F-7
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| NOTES TO FINANCIAL STATEMENTS |
| MARCH 31, 2008 |
| (Unaudited) |
| (Stated in U.S. Dollars) |
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
| (j) | Recent accounting pronouncements (continued) | |
FASB Staff Position 157-2 (“FSP SFAS 157-2”) delayed the effective date of SFAS 157 until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company adopted SFAS 157 on January 1, 2008, and utilized the one year deferral for nonfinancial assets and nonfinancial liabilities that was granted by FSP FAS 157-2. The adoption of SFAS 157 did not have a material impact on the Company’s consolidated financial statements. | ||
In February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of FAS 159 did not have a material impact on the Company’s consolidated financial statements. | ||
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, and how derivative instruments and related hedged items affect an entity’s operating results, financial position, and cash flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008. Earlier adoption is permitted. The Company is currently reviewing the provisions of FAS 161 and has not yet adopted the statement. However, as the provisions of SFAS 161 are only related to disclosure of derivative and hedging activities, the Company does not believe the adoption of SFAS 161 will have a material impact on its consolidated operating results, financial position, or cash flows. | ||
| (k) | Reclassifications | |
Certain amounts reported in the prior periods have been reclassified to conform to the current period’s presentation. | ||
F-8
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| NOTES TO FINANCIAL STATEMENTS |
| MARCH 31, 2008 |
| (Unaudited) |
| (Stated in U.S. Dollars) |
| 4. | LOANS PAYABLE |
During the year ended December 31, 2007, two loans were granted from a third party company for $60,000 and $4,100, respectively. The first loan bears interest at 8% per annum, compounded annually and was due April 19, 2008. Subsequent to March 31, 2008, the first loan was verbally extended and continues to bear interest at 8% per annum, compounded annually and is due on demand. The second loan bears interest at 10%, compounded annually and is due on demand. Interest expense accrued for the three months ended March 31, 2008 and 2007 totalled $1,296 and $0, respectively. | |
| 5. | RELATED PARTY TRANSACTIONS |
Accounts payable and accrued liabilities | |
At March 31, 2008 and December 31, 2007, included in accounts payable and accrued liabilities – related parties is $8,074 and $8,090, respectively, owed to a director and officer and $9,000 and $9,000, respectively, owed to a former director and officer. | |
At March 31, 2008 and December 31, 2007, included in accounts payable and accrued liabilities – related parties is $270,780 and $255,780 owed to a shareholder for consulting fees and reimbursement of expenses. Consulting fees for the three months ended March 31, 2008 and 2007 were $15,000 and $15,000, respectively. | |
Loans payable | |
During the period ended March 31, 2008, two loans were granted from a shareholder for $1,500 and $1,000, respectively. The loans bear interest at 10% per annum, compounded annually and are due on demand. Interest expense accrued for the three months ended March 31, 2008 totalled $29. | |
During the period ended December 31, 2006, a series of loans totalling $46,601 were granted from a shareholder. During the year ended December 31, 2007, an additional $5,000 was granted. The loans are non-interest bearing, unsecured and due on demand. |
F-9
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| NOTES TO FINANCIAL STATEMENTS |
| MARCH 31, 2008 |
| (Unaudited) |
| (Stated in U.S. Dollars) |
| 6. | COMMON STOCK |
The Company’s articles of incorporation allow it to issue up to 100,000,000 shares of common stock, par value $0.001. Effective April 3, 2002 the Company effected a stock split of its common stock by issuing two new shares for every one old share. Except as otherwise stated to the contrary in these financial statements, all references to shares and prices per share have been adjusted to give retroactive effect to the stock split. | |
On August 17, 1999, the Company issued 10,000,000 shares of its common stock at $0.0005 per share in a private placement transaction. | |
On October 29, 1999, the Company issued 10,000,000 shares of its common stock at $0.005 per share in a private placement transaction. | |
On December 24, 1999, the Company issued 200,000 shares of its common stock at $0.10 per share in a private placement transaction. | |
On November 18, 2003, the Company issued 300,000 shares of its common stock with a value of $63,000 to initiate and extend the arrangement for a chilling beverage container technology. | |
On May 18, 2004, the Company issued 5,000,000 shares of its common stock with a value of $200,000, as consideration for a license. | |
On January 14, 2006, the Company issued 500,000 shares of its common stock with a value of $30,000, as consideration for the extension of a license. | |
On October 1, 2006, the Company issued 8,666,663 common shares, with a value of $260,000 on conversion of convertible notes payable | |
On October 1, 2006, the Company issued 1,560,000 common shares, with a value of $78,000 for settlement of accrued interest payable on $260,000 convertible notes payable. |
F-10
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| NOTES TO FINANCIAL STATEMENTS |
| MARCH 31, 2008 |
| (Unaudited) |
| (Stated in U.S. Dollars) |
| 7. | LICENSE AGREEMENT | |
Pursuant to an exclusive license agreement (the “Agreement”) with NorPac Technologies, Inc (formerly Cool Can Technologies, Inc.) (the “Licensor”), dated November 30, 2003, the Company acquired the exclusive right and license (the “License”), for a period of 40 years, to use, commercialize and exploit the Licensor’s proprietary trademarks, patents, process information, technical information, designs and drawings associated with the Licensor’s self-chilling beverage containers technology (the “Cool Can Technology”), including the right to manufacture, use and sell apparatus and products embodying the Technology within the countries comprising the European Union and the People’s Republic of China. The Company also has the right to sub-license the right to manufacture, use and sell products embodying the Cool Can Technology. | ||
In consideration for the Agreement, the Company agreed to: | ||
| a) | issue 5,000,000 restricted shares of its common stock (issued in 2004); | |
| b) | pay royalties on the following basis: | |
| i) | a sales royalty equal to 2% of gross profits from sales of all apparatus and/or commercial goods or products incorporating the Cool Can Technology; | |
| ii) | a license royalty equal to 5% of revenues received from sub-licensing the Cool Can Technology, and; | |
| iii) | a minimum royalty payment of $5,000 per month commencing January 15, 2006, which is to be credited toward all royalty payments under the Agreement that have been paid by the Company or become payable by the Company during the course of the Agreement. |
On January 14, 2006, the Company entered into an agreement (the “Extension Agreement”) with the Licensor, to amend the terms of their Agreement. Under the Extension Agreement, the Licensor agreed to extend the date on which the Company is required to commence paying the minimum royalty payments to January 15, 2007. | ||
| In consideration for the Extension Agreement, the Company agreed to: | ||
| a) | issue 500,000 shares of its common stock (issued in 2006); | |
| b) | pay $20,000 on or before January 31, 2006 (paid 2006). | |
The Cool Can Technology and patents and trademarks of the Licensor included in the Cool Can Technology remain the property of the Licensor subject to the terms of the License granted under the Agreement. However, the Company has a right of first refusal to acquire the intellectual property subject to the Agreement should the Licensor seek to dispose of the Cool Can Technology during the Agreement. The Agreement supercedes all prior arrangements and agreements between the Company and the Licensor in respect of the Cool Can Technology. | ||
F-11
| BALSAM VENTURES, INC. |
| (A Development Stage Company) |
| NOTES TO FINANCIAL STATEMENTS |
| MARCH 31, 2008 |
| (Unaudited) |
| (Stated in U.S. Dollars) |
| 7. | LICENSE AGREEMENT (continued) |
During the period ended March 31, 2007, the Company paid royalty fees of $15,000. In June 2007, the Licensor notified the Company that its intellectual property rights to the Cool Can Technology had possibly expired. As a result, the Company suspended the minimum royalty payments required under the Agreement effective April 1, 2007. The Company has been advised that the patents for the Cool Can Technology have, in fact expired. As a result, the Company has advised the Licensor that it intends to terminate the Agreement and is currently negotiating with the Licensor to settle its rights under the Agreement. | |
| 8. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS |
| CUMULATIVE | ||||||||||
| FROM | ||||||||||
| THREE | THREE | INCEPTION | ||||||||
| MONTHS | MONTHS | (AUGUST 17, | ||||||||
| ENDED | ENDED | 1999) TO | ||||||||
| MARCH 31, | MARCH 31, | MARCH 31, | ||||||||
| 2008 | 2007 | 2008 | ||||||||
| Cash paid for: | ||||||||||
| Interest | $ | - | $ | - | $ | 1,110 | ||||
| Income taxes | $ | - | $ | - | $ | - | ||||
| 9. | SEGMENT INFORMATION |
The Company’s business is considered as operating in one segment based upon the Company’s organization structure, the way in which the operation is managed and evaluated, the availability of separate financial results and materiality considerations. | |
| 10. | SUBSEQUENT EVENT |
On April 1, 2008, a loan was granted from a shareholder for $3,000. The loan bears interest at 10%, compounded annually and is due on demand. |
F-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q constitute "forward-looking statements.” These statements, identified by words such as “plan,” "anticipate,” "believe,” "estimate,” "should,” "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under the caption "Part II, Item 1A. Risk Factors” and elsewhere in this Quarterly Report. We advise you to carefully review the reports and documents we file from time to time with the United States Securities and Exchange Commission (the “SEC”), particularly our periodic reports filed with the SEC pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”).
INTRODUCTION
We were incorporated on August 17, 1999 under the laws of the State of Nevada.
The following discussion and analysis summarizes our plan of operation for the next twelve months, our results of operations for the three month period ended March 31, 2008 and changes in our financial condition from December 31, 2007. This discussion should be read in conjunction with the Management’s Discussion and Analysis or Plan of Operation included in our Annual Report on Form 10-K for the year ended December 31, 2007.
PLAN OF OPERATION
Until recently, we were in the business of developing and marketing a technology for self-chilling beverage containers (the “Cool Can Technology”) that we licensed from NorPac Technologies, Inc. (formerly Cool Can Technologies, Inc.) (“NorPac”). In 2007, it came to our attention that NorPac’s patents for the Cool Can Technology expired. As a result, our management decided to abandon the development of the Cool Can Technology. We are currently negotiating with NorPac to settle our rights under the terms of our license agreement with NorPac. We are currently in the process of reorganizing our business and are seeking and evaluating alternative business opportunities.
As a result, we are unable to provide an accurate estimate of our financial requirements for the next twelve months. However, as at March 31, 2008, we currently have a working capital deficit of $507,429 and will need substantial financing in the near term in order to meet our current obligations as they become due and to meet our ongoing reporting obligations under the Exchange Act. In addition, if our management is successful in identifying a suitable business opportunity for us to pursue, we will likely need significantly more financing in order to pursue the new business opportunity. Currently, we do not have any financial arrangements in place and there is no assurance that we will be able to obtain sufficient financing on terms acceptable to us, if at all.
3
RESULTS OF OPERATIONS
First Quarter Summary
| Three Months Ended | Three Months Ended | Percentage | |||||||
| March 31, 2008 | March 31, 2007 | Increase / (Decrease) | |||||||
| Revenue | $ | - | $ | - | n/a | ||||
| Expenses | (31,906 | ) | (31,260 | ) | 2.1% | ||||
| Net Income (Loss) | $ | (31,906 | ) | $ | (31,260 | ) | 2.1% |
Revenue
We did not earn any revenues during the fiscal quarter ended March 31, 2008 and we do not anticipate earning revenues in the near future. We are a development stage company and presently have only nominal operations.
Expenses
Our operating expenses for the three months ended March 31, 2008 and 2007 consisted of the following:
| Three Months Ended | Three Months Ended | Percentage | |||||||
| March 31, 2008 | March 31, 2007 | Increase / (Decrease) | |||||||
| Bank Charges and Interest | $ | 1,395 | $ | 69 | 1,921.7% | ||||
| Consulting Services | 15,000 | 15,000 | n/a | ||||||
| Foreign Exchange Loss (Gain) | (450 | ) | 106 | (524.5% | ) | ||||
| License and Royalty Payments | - | 15,000 | (100% | ) | |||||
| Office and Sundry | 375 | 150 | 150% | ||||||
| Professional Fees | 15,331 | 875 | 1,652.1% | ||||||
| Stock Transfer Services | 255 | 60 | 325% | ||||||
| Total Operating Expenses | $ | 31,906 | $ | 31,260 | 2.1% |
Consulting fees accrued during the period were incurred with respect to general administrative and accounting work performed in connection with our business activities and in connection with meeting our regulatory filings.
Professional fees for the three months ended March 31, 2008 represent fees incurred in respect of legal and audit services provided in connection with meeting our ongoing reporting obligations under the Exchange Act.
Effective April 1, 2007, we suspended our royalty payments to NorPac as NorPac’s patents for the Cool Can Technology expired. As a result, we had no expenses relating to the license and royalty payments during the three months ended March 31, 2008.
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LIQUIDITY AND CAPITAL RESOURCES
Working Capital
| Percentage | |||||||||
| At March 31, 2008 | At December 31, 2007 | Increase / (Decrease) | |||||||
| Current Assets | $ | 454 | $ | 165 | 175.2% | ||||
| Current Liabilities | (507,883 | ) | (475,688 | ) | 6.8% | ||||
| Working Capital | $ | (507,429 | ) | $ | (475,523 | ) | 6.7% |
Cash Flows
| Three Months Ended | Three Months Ended | |||||
| March 31, 2008 | March 31, 2007 | |||||
| Cash Flows (Used In) Operating Activities | $ | (2,211 | ) | $ | (1,898 | ) |
| Cash Flows (Used in) Investing Activities | - | - | ||||
| Cash Flows From Financing Activities | 2,500 | - | ||||
| Net Increase (Decrease) In Cash During Period | $ | 289 | $ | (1,898 | ) |
Our working capital deficit increased during the three months ended March 31, 2008 as we had no sources of revenue during the period and the fact that our only source of financing during the period came from two short-term loans from a shareholder totaling $2,500. The loans bear interest at a rate of 10%, compounded annually and are due on demand.
Subsequent to our three months ended March 31, 2008, we received a loan from a shareholder of $3,000. The loan bears interest at a rate of 10%, compounded annual and is due on demand.
Future Financings
From inception to March 31, 2008, we have suffered cumulative losses in the amount of $1,473,429. We expect to continue to incur substantial losses as we continue the development of our business. Since our inception, we have funded operations through common stock issuances, related party loans, and the support of creditors in order to meet our strategic objectives. Our management believes that sufficient funding will be available to meet our business objectives, including anticipated cash needs for working capital, and are currently evaluating several financing options, including a public offering of securities. However, there can be no assurance that we will be able to obtain sufficient funds to continue the development of and, if successful, to commence the sale of, our products. As a result of the foregoing, our independent auditors believe there exists substantial doubt about our ability to continue as a going concern.
There is no assurance that we will be able to obtain additional financing if and when required. We anticipate that additional financing may come in the form of sales of additional shares of our common stock which may result in dilution to our current shareholders.
At the end of our fiscal year ended December 31, 2003, we reached a verbal agreement with BIG K.G. (“BIG”), a German company, pursuant to which BIG agreed to act as our agent for the purpose of locating European placees for a proposed private placement of 40,000,000 units at a price of $0.025 per unit for total potential proceeds of $1,000,000 (the “Private Placement”). Under the terms of our verbal agreement, each unit to be issued under the proposed Private Placement will consist of one share in our common stock and one share purchase warrant entitling the warrant holder to purchase one additional share of our common stock at a price of $0.05 per share. BIG is to receive a commission of $100,000 for services provided in connection with the proposed Private Placement.
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On May 10, 2007, we formally approved an offering of 4,000,000 units under the terms of our verbal agreement with BIG, for total expected proceeds of $100,000. However, BIG will not receive a finder’s fee or commission in connection with this offering. As of the date of filing of this Quarterly Report, we had not yet completed the sale of any units under our agreement with BIG. As disclosed above, we are no longer pursuing the development of the Cool Can Technology. As a result, although our agreement with BIG remains in place, and the formal offering of the above securities remains outstanding, there is a substantial doubt that we will be able to complete the sale of any of the securities offered.
OFF-BALANCE SHEET ARRANGEMENTS
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with United States generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain.
We have identified certain accounting policies, described below, that are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in the notes to our audited financial statements for the year ended December 31, 2007 included in our Annual Report on Form 10-K filed with the SEC on April 14, 2008.
Foreign Currency Translation
Our functional currency is the U.S. dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations. Exchange gains and losses arising on translation of foreign currency items are included in the statement of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 4T. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2008 (the “Evaluation
6
Date”). This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the Evaluation Date as a result of the material weaknesses in internal control over financial reporting discussed below.
Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Notwithstanding the assessment that our internal control over financial reporting was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements contained in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 fairly present our financial condition, results of operations and cash flows in all material respects.
Material Weaknesses
Management assessed the effectiveness of the Company’s internal control over financial reporting as of Evaluation Date and identified the following material weaknesses:
Insufficient Resources:We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.
Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement control procedures.
Lack of Audit Committee & Outside Directors on the Company’s Board of Directors:We do not have a functioning audit committee and outside directors on the Company’s Board of Directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.
Changes in internal control over financial reporting
As of the Evaluation Date, there were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2008 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
The following are some of the important factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in our forward-looking statements. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect our business, financial condition or results of operation
We Do Not Have Any Business Operations Or Any Significant Assets. We Have Not Identified Any Alternative Business Opportunities. Our Plan Of Operation For The Next Twelve Months Will Consist Solely Of Seeking Suitable Business Opportunities.
We are in the process of reorganizing our business and are seeking alternative business opportunities. We have not yet identified any suitable business opportunities and there is no assurance that we will be able to do so in the future. Even if we are able to identify suitable business opportunities, there are no assurances that we will be able to acquire an interest in those opportunities or that we will have the resources to pursue such opportunities. As such, an investment in our shares at this time would be highly speculative.
We may not be able to continue our business as a going concern.
We have suffered recurring losses and net cash outflows since our inception and we expect to continue to incur substantial losses to complete the development of our business.
Our ability to continue as a going concern is dependent upon our ability to obtain alternative business opportunities and financing, restructure our debt, and reduce our costs. We are currently in the process of identifying business opportunities, sources of additional financing, negotiating changes to our debt structure and evaluating our strategic options. However, there are no assurances that these plans can be accomplished on satisfactory terms, or at all, or that they will provide sufficient cash to fund our operations, pay the principal of, and interest on, our indebtedness, fund our other liquidity needs or permit us to refinance our indebtedness. Our inability to obtain business opportunities, additional financing, restructure our indebtedness, or reduce our costs would have a material adverse effect on our financial condition, results of operations and ability to satisfy our obligations, and may result in our pursuing a restructuring of our indebtedness either on a consensual basis or under the provisions of bankruptcy legislation, or liquidating our business and operations. Further, our inability to obtain additional financing or restructure our indebtedness, or our pursuing a restructuring of our indebtedness either on a consensual basis or under the provisions of bankruptcy legislation, may result in our stockholders losing all or a material portion of their investment in our securities.
We have yet to earn revenues, and, because our ability to sustain new operations is dependent on our ability to raise financing, our accountants have expressed a substantial doubt about our ability to continue as a going concern.
Since our inception, we have suffered recurring losses and net cash out flows from our activities. To date, we have funded our activities through issuances of our common stock, related party loans and the support of creditors. There are no assurances that we will be able to obtain financing sufficient to
8
support our ongoing activities. As a result, Davidson & Company LLP, Chartered Accountants, our independent auditors, expressed a substantial doubt about our ability to continue as a going concern in their audit report on our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on April 14, 2008.
Because our stock is a penny stock, stockholders will be more limited in their ability to sell their stock.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system.
Because our securities constitute "penny stocks" within the meaning of the rules, the rules apply to us and to our securities. The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the quotation price of our common stock is less than $5.00 per share, the common stock will be subject to Rule 15g-9 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:
| 1. | contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; |
| 2. | contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws; |
| 3. | contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; |
| 4. | contains a toll-free telephone number for inquiries on disciplinary actions; |
| 5. | defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and |
| 6. | contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation. |
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| Exhibit | |
| Number | Description of Exhibit |
| 3.1 | Articles of Incorporation.(1) |
| 3.2 | Bylaws.(1) |
| 10.1 | Exclusive License Agreement dated November 30, 2003 with Cool Can Technologies, Inc.(2) |
| 10.2 | Extension Agreement dated January 16, 2006 with NorPac Technologies, Inc.(4) |
| 10.3 | Loan Agreement dated April 19, 2007 between Balsam Ventures, Inc. and Black Pointe Holdings Inc.(5) |
| 10.4 | Promissory Note executed by Balsam Ventures, Inc. dated as of April 19, 2007.(5) |
| 14.1 | Code of Ethics.(3) |
| 16.1 | Letter of Telford Sadovnick, PLLC.(6) |
| 31.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| (1) | Previously filed as an Exhibit to our Form SB-2 Registration Statement originally filed with the SEC on March 30, 2000. |
| (2) | Previously filed as an Exhibit to our Current Report on Form 8-K filed on January 9, 2004. |
| (3) | Previously filed as an Exhibit to our Annual Report on Form 10-KSB on May 17, 2005. |
| (4) | Previously filed as an Exhibit to our Current Report on Form 8-K filed on January 19, 2006. |
| (5) | Previously filed as an Exhibit to our Current Report on Form 8-K filed on April 23, 2007. |
| (6) | Previously filed as an Exhibit to our Current Report on Form 8-K filed on November 2, 2007. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BALSAM VENTURES, INC. | |||
| Date: | May 13, 2008 | By: | /s/ John Boschert |
| JOHN BOSCHERT | |||
| Chief Executive Officer, Chief Financial Officer | |||
| President, Secretary and Treasurer | |||
| (Principal Executive Officer | |||
| and Principal Accounting Officer) |
