U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2010 |
OR
| o | 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: 0-13187
XXX ACQUISITION CORP.
(Exact Name of Registrant as Specified in Its Charter)
| Nevada | | 73-1554122 |
(State or Other Jurisdiction of Incorporation or Organization) | | (IRS Employer Identification No.) |
| | | |
11 East 44th Street-19th Floor, New York, NY | | 10017 |
| (Address of Principal Executive Offices) | | (Zip Code) |
(212) 687-1222
(Registrant’s Telephone Number)
N/A
(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) been subject to such filing requirements for the past 90 days. Yes £ No T
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, non-accelerated filer, or a smaller reporting company.
| | Large accelerated filer o | Accelerated filed 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 Exchange Act). Yes T No £
The number of shares outstanding of the Company’s $.001 Par Value Common Stock as of July 18, 2011 was 806,644. The aggregate number of shares of the voting stock held by non-affiliates on July 18, 2011 was 806,394. The market value of these shares, on July 18, 2011 was zero. For the purposes of the foregoing calculation only, all directors and executive officers of the registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
TABLE OF CONTENTS
| PART I |
| Item 1: | Business | 3 |
| Item 1A: | Risk Factors | 3 |
| Item 1B: | Unresolved Staff Comments | 3 |
| Item 2: | Properties | 3 |
| Item 3: | Legal Proceedings | 3 |
| Item 4: | [REMOVED AND RESERVED] | 4 |
| | | |
| PART II |
| Item 5: | Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 4 |
| Item 6: | Selected Financial Data | 4 |
| Item 7: | Management’s Discussion and Analysis of Financial Condition and Plan of Operation | 4 |
| Item 7A: | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 8: | Financial Statements and Supplementary Data | 7 |
| Item 9: | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 7 |
| Item 9A (T): | Controls and Procedures | 7 |
| Item 9B: | Other Information | 8 |
| | | |
| PART III |
| Item 10: | Directors, Executive Officers and Corporate Governance | 8 |
| Item 11: | Executive Compensation | 9 |
| Item 12: | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 12 |
| Item 13: | Certain Relationships and Related Transactions, and Director Independence | 12 |
| Item 14: | Principal Accounting Fees and Services | 13 |
| | | |
| PART IV |
| Item 15: | Exhibits, Financial Statement Schedules | 13 |
| | Signatures | 14 |
FORWARD LOOKING STATEMENTS
Information in this Form 10-K contains "forward looking statements" within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Exchange Act of 1934, as amended. When used in this Form 10-K, the words "expects," "anticipates," "believes," "plans," "will" and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include, but are not limited to statements regarding adequacy of cash, expectations regarding net losses and cash flow, statements regarding growth, need for future financing, dependence on personnel and operating expenses.
Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those discussed below, as well as risks related to the Company's ability to obtain future financing and the risks set forth above under "Factors That May Affect Operating Results." These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based
PART I.
ITEM 1 – BUSINESS
The description of the Company's current business and the risk factors section of this Report on Form 10-K reflect the Company's current position as a shell corporation and the risks and concerns arising from that status. The Company has not materially altered this presentation because as of the time of filing this Report these concerns and conditions are still relevant to the proper presentation of the Company, its business and its prospects.
Business of the Company
XXX Acquisition Corp. (until March 11, 2010 Continan Communications, Inc. and from March 11, 2010 to April 8, 2010 Consorteum Holdings, Inc. and hereinafter “Company") was originally incorporated on October 6, 1998, under the laws of the State of Oklahoma as Texxon, Inc. ("Texxon"). The Company was organized to obtain and exploit a license agreement covering a platinum extraction process invented by Russell Twiford. The process was one to extract platinum from mineralized water using a series of electro-chemical steps. The license was obtained from Mr. Twiford on February 22, 2001. Thereafter, however, the Company experienced difficulty attracting the capital necessary to exploit the license. While retaining the license, on October 16, 2003 the Company sold the majority of its manufacturing equipment to a company owned by Mr. Twiford. The Company ceased all process enhancements and focused its efforts on raising capital. The Company's business plan at that point was to obtain the necessary funding to outsource the process enhancement to an independent laboratory that would finalize the process.
ITEM 1 – RISK FACTOR
Because we are a “smaller reporting company” as that term is defined by the SEC, we are not required to present risk factors at this time.
ITEM 1B – UNRESOLVED STAFF COMMNETS
NONE
ITEM 2 – PROPERTY
The Company currently maintains its principal executive offices at counsel for the Company on a rent free basis.
ITEM 3 – LEGAL PROCEDINGS
The Company is not a party to any material pending legal proceedings and, to the best of its knowledge, no such action by or against the Company has been threatened.
ITEM 4 – [REMOVE AND RESERVE]
PART II
ITEM 5 – MARKET FOR COMMON EQUITY AND RELATED MARKET MATTERS
The Company's shares of common stock was traded on the Over the Counter Bulletin Board under the symbol "CNTN.OB" From November 4, 2004 (when trading commenced on the Bulletin Board) through November 30, 2006, the stock traded under the symbol "TXXN." The range of closing bid prices shown below is as reported by the Over the Counter Bulletin Board. The quotations shown reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions. These prices reflect the 1 for 20 reverse split of the Company's common stock on December 1, 2006. On April 1, 2009, the Company stock ceased trading under a cease trading order from the Securities and Exchange Commission.
Per Share Common Stock Bid Prices by Quarter | | | | | | |
For the Fiscal Year Ended on December 31, 2009 | | | | | | |
| | | HIGH | | | LOW | |
| | | | | | | |
| Quarter Ended December 31, 2009 | | | NA | | | | NA | |
| Quarter Ended September 30, 2009 | | | NA | | | | NA | |
| Quarter Ended June 30, 2009 | | | NA | | | | NA | |
| Quarter Ended March 31, 2009 | | | NA | | | | NA | |
| | | | | | | | | |
| Per Share Common Stock Bid Prices by Quarter | | | | | | | | |
| For the Fiscal Year Ended on December 31, 2010 | | | | | | | | |
| | | HIGH | | | LOW | |
| | | | | | | | | |
| Quarter Ended December 31, 2010 | | NA | | | NA | |
| Quarter Ended September 30, 2010 | | NA | | | NA | |
| Quarter Ended June 30, 2010 | | NA | | | NA | |
| Quarter Ended March 31, 2009 | | NA | | | NA | |
Dividend information
The Company has not declared or paid a cash dividend to stockholders since it was organized. The board of directors presently intends to retain any earnings to finance operations and does not expect to authorize cash dividend sin the foreseeable future. Any payment of cash dividends in the future would depend upon earnings, capital requirements and other factors.
ITEM 6 – SELECT FINANCIAL DATA
Not applicable.
ITEM 7 – MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its audited consolidated financial statements and related notes included elsewhere in this Form 10-K.
Overview
Effective April 2, 2008 the Company sold substantially all of the assets of Vocalenvision to Tourizoom, Inc. The terms and conditions of the sale are described above in Item 1 "Note concerning recent developments." Upon the closing of the asset sale, the Company was no longer engaged in any active business including the business conducted through its former subsidiary Vocalenvision. Instead, the Company is pursuing other business activities with a company not yet selected in an industry or business area not yet identified by the Company. There can be no assurance that the Company will be successful in this effort.
Accordingly, the discussion below is divided into two parts: the first presents a plan of operation for the Company in light of its status after the closing of the sale of assets transaction. The second is a historical comparison of the operations of the Company in 2010 as compared with 2009. With regard to the latter, it must be understood that the Company is no longer engaged in this business, and that the information is presented for disclosure compliance purposes only.
Future plan of operation
As a result of the sale of assets transaction, pursuant to which the Company sold all the assets of its operating subsidiary, the Company has become a reporting shell corporation within the meaning of Rule 12b-2 under the Securities Act. The Company will investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly held corporation. Our principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.
The Company does not currently engage in any business activities that provide cash flow. The costs of investigating and analyzing business combinations for the next 12 months and beyond such time will be paid with additional money contributed or loaned to the Company by our stockholders, or another source.
Our sole officer and our sole director has not had any preliminary contact or discussions with any representative of any other entity regarding a business combination with us, except for one potential transaction earlier in 2009 which was terminated at the letter of intent stage. Any target business that is selected may be a financially unstable company or an entity in its early stages of development or growth, including entities without established records of sales or earnings. In that event, we will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, we may effect a business combination with an entity in an industry characterized by a high level of risk, and, although our management will endeavor to evaluate the risks inherent in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks.
Results of Operations
(a) Revenues.
Revenues were zero for the year ended December 31, 2010 and 2009.
(b) General and Administrative Expenses.
General and administrative expenses was zero for the year ended December 31, 2010 compared to $62,565 for the year ended December 31, 2009, a decrease of $62,565. The decrease in expenses was primarily due no activity in the Company and the only expense during the year was accrued interest.
(c) Other income (expenses).
The Company realized total other expense of $69,435 for the year ended December 31, 2010 compared to total other expense of $157,251 for the year ended December 31, 2009, an increase of $63,199. The primary components of other expense for the year ended December 31, 2010 was interest expense.
(d) Net gain (loss).
The net loss was $219,816 for the year ended December 31, 2009 compared to a loss of $69,435 for the year ended December 31, 2010. The loss in 2010 was attributable to interest expense and in 2009 to interest expense plus general and administrative plus the write down of a receivable.
OPERATING ACTIVITIES
Net cash used in operating activities was zero and $99,122 for the years ended December 31, 2010 and 2009, respectively.
INVESTING ACTIVITIES
Net cash used in investing activities was zero for both years ended December31, 2010 and 2009.
FINANCING ACTIVITIES
Net cash provided from financing activities was zero in the year ended December 31, 2010 and $99,122 for the same period in 2009.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2010, the Company had no current assets and current liabilities of $1,212,169, resulting in a working capital deficit of $1,212,169. As a development stage company that began operations in 2002, the Company has incurred $7,975,534 in cumulative total losses from inception through December 31, 2010.
The above factors raise substantial doubt as to the Company's ability to continue as a going concern. The Company's independent registered public accounting firm's audit report included in this Form 10-K include explanatory paragraphs regarding the Company's ability to continue as a going concern.
OFF BALANCE SHEET ARRANGEMENTS
NONE
DERIVATIVE LIABILITIES
During the year ended December 31, 2010, the Company did not issue warrants and options. During the period up until the recapitalization performed on December 1, 2006, the Company did not have sufficient authorized shares in order to issue these options should they be exercised. Because of the lack of authorized shares, the Company therefore needed to follow derivative accounting rules for its accounting of options and warrants.
The Company evaluates the conversion feature of options and warrant indexed to its common stock to properly classify such instruments within equity or as liabilities in its financial statements, pursuant to the requirements of the EITF No. 00-19, "Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company's Own Stock," EITF No. 01-06, "The Meaning of Indexed to a Company's Own Stock," and SFAS No. 133, "Accounting for derivative Instruments and Hedging Activities," as amended.
Pursuant to EITF 00-19, the Company was to recognize a liability for derivative instruments on the balance sheet to reflect the insufficient amounts of shares authorized, which would have otherwise been classified into equity. An evaluation of specifically identified conditions was then made to determine whether the fair value of warrants or options issued was required to be classified as a derivative liability. The fair value of warrants and options classified as derivative liabilities was adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss was recorded in the corresponding period earnings.
In December 2006, the Company completed a reincorporation by merger with Texxon-Nevada, which, therefore, allowed the Company to increase its authorized preferred and common shares from 5,000,000 to 10,000,000 shares and from 45,000,000 to 100,000,000 shares, respectively.
At the date of recapitalization, the Company recalculated the value of its options and warrants at the current fair value, and recorded an increase to equity and a decrease to derivative liabilities for the fair value of the options and warrants. The difference between the liability and the recalculated fair value was recorded as a gain or loss.
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements are audited and included herein beginning are incorporated herein by this reference.
ITEM 9 – CHANGE AND DISAGREEMNTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
ITEM 9A – DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Act”) (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that 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. As of the end of the period covered by this Annual Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our CEO and CFO has concluded that the Company’s disclosure controls and procedures are not effective because of the identification of a material weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures.
Changes in Internal Controls over Financial Reporting
We have not yet made any changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed 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. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management carried out an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. The Company’s management based its evaluation on criteria set forth in the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on that assessment, management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2010. Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control 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.
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 the attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
ITEM 9B – OTHER INFORMATION
None
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Identification of Director and Executive Officer of the Company
The following table sets forth the names and ages of all directors and executive officers of the Company and all persons nominated or chosen to become a director, indicating all positions and offices with the Company held by each such person and the period during which they have served as a director:
The principal executive officer and sole director of the Company is as follows:
| Name | | Age | | Positions Held and Tenure |
| Marcia Rosenbaum | | 48 | | CEO,CFO and Director |
The Director named above will serve until the next annual meeting of the Company’s stockholders. Thereafter, Directors will be elected for one-year terms at the annual stockholders’ meeting. Officers will hold their positions at the pleasure of the Board of Directors, absent any employment agreement, of which none currently exist. There is no arrangement or understanding between the Director and Officer of the Company and any other person pursuant to which any Director or Officer was or is to be selected as a Director or Officer of the Company.
The Director and Officer of the Company will devote her time to the Company’s affairs on an “as needed” basis. As a result, the actual amount of time which each will devote to the Company’s affairs is unknown and is likely to vary substantially from month to month.
The Company has no audit or compensation committee.
On April 2, 2008, as a result of the Company's sale of substantially all of the assets of its subsidiary Vocalenvision to Tourizoom, Inc., Mr. Claude Buchert, the former Chairman of the Board of Directors and CEO of the Company, and Ms. Helene Legendre, the Company's former Executive Vice President, Secretary and a director, resigned their positions with the Company. Mr. Buchert and Ms. Legendre are the stockholders, directors and officers of Tourizoom, the buyer of Vocalenvision. Prior to their resignation, they elected Mr. Geoffrey A .Fox as Chief Executive Officer and Chief Financial Officer of the Company. Mr. Fox served in these capacities until his resignation on October 24, 2008. On October 24, 2008, Ms. Marcia Rosenbaum, the Company's sole director appointed herself an interim officer, and on November 18, 2008 she became the Chief Executive Officer and the Chief Financial Officer of the Company. Ms. Marcia Rosenbaum remains the sole director of the Company, and will serve until the next annual meeting of the Company's directors or until her successors are duly elected and have qualified. Directors are elected for a term ending upon the date of the next annual stockholders' meeting Officers will hold their positions.
Ms. Rosenbaum, age 48, has served as an independent director of the Company since May 2005, and as the Company's Chief Executive Officer and Chief Financial Officer since November 2008. From 1999 to the present, she has been an independent investment banker, specializing in the field of biotechnology. She earned both a Bachelor of Science degree in biology and chemistry, and a Master’s of Science degree in microbiology, both from the University of Texas at El Paso. She also earned her First Level Medical degree in General Medicine from The Technical University in Aachen, Germany.
There are no material proceedings to which any of the above persons or any of their associates is a party adverse to the Company, nor do any of the above persons hold any material interest adverse to the Company.
Conflict of Interest
The Officer and Director of the Company will not devote most of her time to the Company and there may be occasions when the time requirements of the Company’s business conflict with the demands of her other business and investment activities. Such conflicts may require that the Company attempt to employ additional personnel. There is no assurance that the services of such persons will be available or that they can be obtained upon terms favorable to the Company. See “Risk Factors”
There is no procedure in place which would allow the Officer and Director to resolve potential conflicts in an arms-length fashion. Accordingly, she will be required to use their discretion to resolve them in a manner which they consider appropriate.
The Company’s Officer and Director may actively negotiate or otherwise consent to the purchase of a portion of their common stock as a condition to, or in connection with, a proposed merger or acquisition transaction. It is anticipated that a substantial premium over the initial cost of such shares may be paid by the purchaser in conjunction with any sale of shares by the Company’s Officer and Director which is made as a condition to, or in connection with, a proposed merger or acquisition transaction. The fact that a substantial premium may be paid to the Company’s Officer and Director to acquire her shares, creating a potential conflict of interest in satisfying the fiduciary duties to the Company. Even though such a sale could result in a substantial profit, she would be legally required to make the decision based upon the best interests of the Company and the Company’s other shareholders.
ITEM 11 – EXECUTIVE COMPENSATION
During fiscal year ending December 31, 2010 the officer or director did not received compensation from the Company.
The following tables sets for the compensation for all officers and directors during the past three years:
Directors and Officers Compensation
| | | Annual compensation | Long-term compensation |
| | | | | | Awards | Payouts | |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Other annual compensation ($) | Restricted stock award(s) ($) | Securities underlying options/ SARs (#) | LTIP payouts ($) | All other compensation ($) |
| Marcia Rosenbaum | 2010 | - | - | - | - | - | - | - |
| CEO,CFO(4) | 2009 | - | - | - | - | - | - | - |
| | 2008 | - | - | - | - | - | - | 10,000 |
| Claude Buchert | 2010 | - | - | - | - | - | - | - |
| CEO(1) | 2009 | - | - | - | - | - | - | - |
| | 2008 | - | - | - | - | - | - | 20,000 |
| Helene Legendre, | 2010 | - | - | - | - | - | - | - |
| EVP (2) | 2009 | - | - | - | - | - | - | - |
| | 2008 | - | - | - | - | - | - | 16,000 |
| Geoffrey Fox, | 2010 | | | | | | | - |
| CEO(3) | 2009 | | | | | | | - |
| | 2008 | | | | | | | |
1) Mr. Buchert was appointed Chief Executive Officer and a director of the Company on May 31, 2006 and held that positions until his resignation on April 2, 2008. In 2007 the Company issued 700,000 shares of its common stock to Mr. Buchert pursuant to the terms and conditions of the Company's 2007 Stock and Option Plan (the "2007 Plan") having an aggregate value of $54,350 calculated using the closing price of the common stock on the date of issuance which was used to pay a portion of the management incentive fee due Mr. Buchert under his employment agreement with the Company. The other compensation Mr. Buchert received in 2008 represents a management incentive fee under the terms of his employment agreement with the Company which terminated on March 31, 2008. As part of the sale of Vocalenvision, the Company's operating subsidiary, Mr. Buchert waived his right to receive any portion of his accrued and unpaid management fees or other compensation. See "Employment Arrangements."
(2) Ms. Legendre was appointed Executive Vice President, Secretary and a director of the Company on October 15, 2007 and held those positions until her resignation on April 2, 2008. In 2007 the Company issued 779,000 shares of its common stock to Ms. Legendre pursuant to the terms and conditions of the Company’s 2007 Plan having an aggregate value of $62,295 calculated using the closing price of the stock on the date of issuance which was used to pay a portion of the management incentive fee due Ms. Legendre under her employment agreement with the Company. The other compensation Ms. Legendre received in 2008 represents a management incentive fee under the terms of her employment agreement with the Company. As part of the sale of Vocalenvision, the Company's operating subsidiary, Ms. Legendre waived her right to receive any portion of her accrued and unpaid management fees or other compensation.
(3) Mr. Fox was appointed Chief Executive Officer, Treasurer and Secretary of the Company in April 2008 and served in all those capacities until his resignation on October 24, 2008. The Company paid Mr. Fox $2,500 for his services in 2008 and accrued $5,000 as additional compensation which he was paid in 2010.
(4) Ms. Rosenbaum was appointed an interim officer of the Company on October 24, 2008 and became the Company's Chief Executive Officer and Chief Financial Officer on November 18, 2008. The Company accrued $10,000 for Ms. Rosenbaum's Services in 2008; which she will be paid in 2010.
(5) The Company did not issue any stock or options to its directors or officers in 2010. Officers and directors of the Company are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meeting of the Board of Directors.
The Company has no material bonus or profit-sharing plans pursuant to which cash or non-cash compensation is or may be paid to the Company’s directors or executive officers.
The Company has no compensatory plan or arrangements, including payments to be received from the Company, with respect to any executive officer or director, where such plan or arrangement would result in any compensation or remuneration being paid resulting from the resignation, retirement or any other termination of such executive officer’s employment or from a change-in-control of the Company or a change in such executive officer’s responsibilities following a change-in-control and the amount, including all periodic payments or installments where the value of such compensation or remuneration exceeds $100,000 per executive officer.
During the last completed fiscal year, no funds were set aside or accrued by the Company to provide pension, retirement or similar benefits for Directors or Executive Officers.
The Company has no written employment agreements.
Compensation of Directors
For the fiscal years ended December 31, 2010 and December 31, 2009, none of the directors were compensated for their services as directors
Compensation Arrangements
In 2008, neither Mr. Fox nor Ms. Rosenbaum had a written employment agreement with the Company; however, (i) the Company accrued $7,500 of compensation for Mr. Fox and paid him $2,500 of that compensation in 2008 and the remaining $5,000 in 2010, and (ii) the Company accrued $10,000 of compensation for Ms. Rosenbaum all of which the Company will pay her in 2010.
From January 1, 2007 through and including March 31, 2008 there were employments arrangements covering Mr. Buchert and Ms. Legendre, both of which ended through expiration of their respective terms on March 31, 2008.
Claude Buchert- On January 1, 2004, TelePlus, Inc. entered into an employment agreement with Mr. Buchert for his services as chief executive officer for the supervision of all aspects of the management and operation of the business. Under this agreement, Mr. Buchert was to be paid an annual salary of $120,000, payable in arrears in equal semi-monthly payments (less applicable withholding taxes and customary deductions) during the term hereof or at such other regular periods as the employer may designate. The base compensation is to be reviewed annually by the employer and may be increased, but not decreased, from time to time in the sole discretion of employer. Such increases, if any, may be in the form of additional Base Compensation or as a bonus. In addition to the base compensation, Mr. Buchert is entitled to receive a discretionary annual bonus in an amount to be determined solely by the board of directors, or appropriate committee of the Board, and based upon the growth and performance of the business. Mr. Buchert is to receive certain additional benefits under the agreement was amended to provide Mr. Buchert has the option to receive consultant/management fees in lieu of base compensation. In this event, the Company is not to be held responsible for any applicable withholding taxes and customary deductions. On this basis, Mr. Buchert was paid management fees in the capacity as a consultant to the Company at the rate of $7,000 per month, and the Company accrued $20,000 of management fees for him in 2008. This Agreement terminated on March 31, 2008, at the end of the initial term. As part of the sale of Vocalenvision, the Company's operating subsidiary, Mr. Buchert waived his right to receive any portion of his accrued and unpaid management fees or other compensation.
Helene Legendre- On January 1, 2004, TelePlus, Inc. entered into an employment agreement with Ms. Legendre for her services as executive vice president. Under this agreement, Ms. Legendre was to be paid an annual salary of $90,000, payable in arrears in equal semi-monthly payments (less applicable withholding taxes and customary deductions) during the term hereof or at such other regular periods as the employer may designate. The base compensation is to be reviewed annually by the employer and may be increased, but not decreased, from time to time in the sole discretion of employer. Such increases, if any, may be in the form of additional base compensation or as a bonus. In addition to the base compensation, Ms. Legendre was entitled to receive a discretionary annual bonus in an amount to be determined solely by the board of directors, or appropriate committee of the Board, and based upon the growth and performance of the business. Ms. Legendre is to receive certain additional benefits under the agreement, such as vacation and health insurance. The Company accrued $16,000 of a management fee for Ms. Legendre in 2008. This Agreement terminated automatically at the end of the initial term on March 31, 2008. As part of the sale of Vocalenvision, the Company's operating subsidiary, Ms. Legendre waived her right to receive any portion of her accrued and unpaid management fees or other compensation.
Other Compensation
There are no plans that provide for the payment of retirement benefits, or benefits that will be paid primarily following retirement, including but not limited to tax-qualified defined benefit plans, supplemental executive retirement plans, tax-qualified defined contribution plans and nonqualified defined contribution plans. In addition, there are no contracts, agreements, plans or arrangements, whether written or unwritten, that provide for payment(s)to a named executive officer at, following, or in connection with the resignation, retirement or other termination of a named executive officer, or a change in control of the Company or a change in the named executive officer’s responsibilities following a change in control, with respect to each named executive officer.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END FOR 2008
NAME AND PRINCIPAL POSITION | | EXERCISABLE | | | (#)UNEXERCISABLE | | | PRICE ($) | | | DATE | |
| Claude C. Buchert, CEO | | | -0- | | | | -0- | | | | -0- | | | | -0- | |
| | | | | | | | | | | | | | | | | |
| Helene Legrande, Exec. V.P. | | | -0- | | | | -0- | | | | -0- | | | | -0- | |
| | | | | | | | | | | | | | | | | |
| Ross Nordin, CFO | | | 26,488 | | | | -0- | | | | 0.02 | | | 5/15/2011 | |
| | | | 105,950 | | | | -0- | | | | 0.01 | | | 12/31/2011 | |
| James W. Gibson | | | 26,488 | | | | -0- | | | | 0.02 | | | 5/15/2011 | |
| | | | 105,950 | | | | -0- | | | | 0.01 | | | 12/31/2011 | |
| Claude Sacroun | | | 183,375 | | | | -0- | | | | 0.01 | | | 5/15/2011 | |
| All others | | | 63,288 | | | | -0- | | | | 0.01 | | | 5/15/2011 | |
| | | | 511,539 | | | | | | | | | | | | | |
No equity awards were issued for the year ended December 31, 2010
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
The Company has 100,000,000 shares of common stock with a par value of $0.001 authorized. There were 806,644 shares of the Company' common stock issued and outstanding on December 31, 2010. The following tabulates holdings of shares of the Company by each person who, subject to the above, at the date of this Report, holds of record or is known by Management to own beneficially more than five percent (5%) of the Common Shares of the Company and, in addition, by all directors and officers of the Company individually and as a group.
| Names and Addresses | | Number of Shares Owned Beneficially | | | Percent of Beneficially Owned Shares | |
| | | | (1) | | | | |
| Marcia Rosenbaum | | | 250 | | | | .03% | |
| 4640 Admiralty Way | | | | | | | | |
| Suite 500 | | | | | | | | |
| | | | | | | | | |
| All directors and officers as a group (1) | | | 250 | | | | .03% | |
(1) Reflects the 1 for 100 reverse split of the Company's common stock that was effective on March 6, 2010.
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had employment agreements with two members of management (Mr. Buchert and Ms. Legendre) that expired on March 31, 2008 (see Item 11 for a further discussion of these agreements). As of December 31, 2008 and December31, 2007, the Company had zero and $285,732, respectively, payable to management in arrears under these agreements. Expenses related to these agreements are recorded in general and administrative expense and amounted to $36,000 and $126,727 for the years ended December 31, 2008 and December 31, 2007, respectively.
In April 2008, the Company entered into an agreement with Vocalenvision, Inc., its wholly-owned subsidiary, and Tourizoom, Inc., pursuant to which the Company sold substantially all of the assets of Vocalenvision to Tourizoom upon the consideration and for the other terms and conditions contained in the asset purchase agreement. See Item 1 above "Business—Note concerning description of the Company's former business” and the Company’s Report on Form 8-K filed on April 4, 2008 with the SEC for details of the transaction and the underlying transaction documents. Mr. Claude Buchert and Ms. Helene Legendre, formerly Chairman of the Board and CEO, and Executive Vice President, Secretary and a director of the Company, respectively, are the stockholders of Tourizoom. As part of the asset purchase and sale transaction, Mr. Buchert and Ms. Legendre resigned their positions with the Company.
As compensation for agreeing to serve in their respective capacities as officers of the Company, the Company agreed to pay Mr. Geoffrey Fox and Ms. Marcia Rosenbaum, $7,500 and $10,000, respectively for the year ended December 31, 2008.
Director Independence
The Company does not have a nominating committee, compensation committee or executive committee of the board of directors, stock plan committee or any other committees.
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents for each of the last two fiscal years the aggregate fees billed in connection with the audits of our financial statements and other professional services rendered by our independent registered public accounting firm Sutton Robinson Freeman & Co., P.C. ("Accountant")
| | | 2010 | | | 2009 | |
| Audit fees | | $ | -- | | | $ | -- | |
| Audit related fees | | | -- | | | | -- | |
| Tax fees | | | -- | | | | -- | |
| All other fees | | | -- | | | | -- | |
Audit fees represent the professional services rendered for the audit of our annual financial statements and the review of our financial statements included in quarterly reports, along with services normally provided by the accounting firm in connection with statutory and regulatory filings or engagements. Audit-related fees represent professional services rendered for assurance and related services by the accounting firm that are reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.
Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning. All other fees represent fees billed for products and services provided by the accounting firm, other than the services reported for in the other categories.
ITEM 15 – EXHIBITS AND REPORTS ON FORM 8-K
| | Description |
| | | |
| 3(i) | | Amended and Restated Articles of Incorporation (filed as an exhibit to that Form 8-K filed on 3-20-10 and incorporated herein by this reference) |
| | | |
| 3(ii) | | Bylaws (filed as an exhibit to Form 10-SB filed on 3-13-2000 and incorporated herein by this reference) |
| | | |
| 31.1* | | Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted 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 |
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.
| | XXX ACQUISITION CORP. | |
| | | | |
| Dated: July 21, 2011 | By: | /s/ Marcia Rosenbaum | |
| | | Marcia Rosenbaum, President and Chief Executive Officer (Principal executive officer) | |
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 and on the date indicated:
| | | Signature | | Title |
| | | | | |
| Date: July 21, 2011 | | /s/ Marcia Rosenbaum | | Chief Executive Officer |
| | | Marcia Rosenbaum | | (Principal executive officer)/ |
| | | | | Chief Financial Officer/ (Principal accounting officer)/ |
| | | | | Director |
XXX ACQUISITION CORP.
FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
CONTENTS
| Report of Independent Registered Accounting Firm | F-1 |
| | |
| Balance Sheets | F-2 |
| | |
| Statements of Operations | F-3 |
| | |
| Statement of Changes in Stockholders' Equity | F-4 |
| | |
| Statements of Cash Flows | F-5 |
| | |
| Notes to Financial Statements | F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
XXX Acquisition Corp.
New York, New York
We have audited the accompanying balance sheets of XXX Acquisition Corp. formerly known as Continan Communications, Inc. (a development stage company) (the "Company") for the years ended December 31, 2010 and 2009 and the related statements of operations, shareholders' equity, and cash flows for the years ended December 31, 2010 and 2009 , and for the period from September 16, 2002 (inception) to December 31, 2010. 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 audit.
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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, the financial statements referred to above present fairly, in all material respects, the financial position of XXX Acquisition Corp. as of December 31, 2010 and 2009 , and the results of its operations and its cash flows for the years ended December 31, 2010 and for the period from September 16, 2002 (inception) to December 31, 2010 in conformity with 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 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sutton Robinson Freeman & Co., P.C.
Sutton Robinson Freeman & Co., P.C.
Certified Public Accountants
Tulsa, Oklahoma
July 20, 2011
XXX ACQUISITION CORP.
BALANCE SHEETS
(A DEVELOPMENT STAGE COMPANY)
| | | | | | | |
| ASSETS | | | | | | |
| CURRENT ASSETS: | | | | | | |
| | | | | | | |
| Total assets | | $ | -- | | | $ | -- | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | |
| Accounts payable | | $ | 177,031 | | | | 177,031 | |
| Accrued interest | | | 340,789 | | | | 271,354 | |
| Notes | | | 694,349 | | | | 694,349 | |
| | | | | | | | | |
| Total current liabilities | | | 1,212,169 | | | | 1,142,734 | |
| | | | | | | | | |
| LONG TERM LIABILITIES | | | 1,212,169 | | | | 1,142,734 | |
| | | | | | | | | |
| SHAREHOLDERS' DEFICIT | | | | | | | | |
Preferred stock, par value of $.001; 10,000,000 shares authorized 0 issued and outstanding | | | | | | | | |
Common stock; par value of $0.001; 100,000,000 shares authorized 806,644 issued and outstanding | | | 806 | | | | 806 | |
| Additional paid in capital | | | 6,762,559 | | | | 6,362,651 | |
| Deficit accumulated during the development stage | | | (7,975,534 | ) | | | (7,906,098 | ) |
| Total shareholders' deficit | | | (1,212,169 | ) | | | (1,142,734 | ) |
| Total liabilities and shareholders' deficit | | $ | - | | | $ | -- | |
The accompanying notes are an integral part of these audited financial statements
XXX ACQUISITION CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
AND FROM INCEPTION TO DECEMBER 31, 2010
(A DEVELOPMENT STAGE COMPANY)
| | | | | | | | | September 16, 2002 | |
| | | | | | | | | (Inception) to | |
| | | 2010 | | | 2009 | | | December 31, 2010 | |
| REVENUES | | $ | -- | | | $ | -- | | | $ | 154,239 | |
| | | | | | | | | | | | | |
| EXPENSES: | | | | | | | | | | | | |
| Direct costs | | | -- | | | | - | | | | 402,081 | |
| Selling expenses | | | -- | | | | - | | | | 1,729,326 | |
| Depreciation and amortization | | | -- | | | | - | | | | 203,734 | |
| General and administrative expenses | | | -- | | | | 62,565 | | | | 4,902,791 | |
| Total expenses | | | -- | | | | (62,565 | ) | | | 7,237,932 | |
| | | | | | | | | | | | | |
| OTHER INCOME (EXPENSES), net: | | | | | | | | | | | | |
| Interest expense | | | (69,435 | ) | | | (75,894 | ) | | | (558,071 | ) |
| Other expense | | | -- | | | | -- | | | | (954 | ) |
| Loss on derivative instruments | | | -- | | | | -- | | | | (841,821 | ) |
| Loss on other receivable | | | -- | | | | (81,357 | ) | | | (81,357 | ) |
| Other income | | | -- | | | | -- | | | | (134,345 | ) |
| Total other income (expenses), net | | | (69,435 | ) | | | (157,357 | ) | | | (1,616,548 | ) |
| | | | | | | | | | | | | |
| Loss Before Discontinued Operations | | | (69,435 | ) | | | (219,816 | ) | | | (8,630,816 | ) |
| | | | | | | | | | | | | |
| Gain From Discontinued Operations | | | -- | | | | -- | | | | 728,718 | |
| | | | | | | | | | | | | |
| INCOME (LOSS) BEFORE PROVISION FOR | | | | | | | | | | | | |
| INCOME TAXES | | | (69,435 | ) | | | (219,816 | ) | | | (7,971,533 | ) |
| | | | | | | | | | | | | |
| PROVISION FOR INCOME TAXES | | | -- | | | | -- | | | | 4,000 | |
| | | | | | | | | | | | | |
| NET INCOME (LOSS) | | $ | (69,435 | ) | | $ | (219,816 | ) | | $ | (7,975,533 | ) |
| | | | | | | | | | | | | |
| Per share data: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income (loss) per share - basic and diluted | | | (0.09 | ) | | | (0.27 | ) | | | | |
| | | | | | | | | | | | | |
| Weighted average shares of common stock outstanding - basic | | | 806,644 | | | | 432,135 | | | | | |
The accompanying notes are an integral part of these audited financial statements
XXX ACQUISITION CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 16, 2002
(INCEPTION) TO DECEMBER 31, 2010
(A DEVELOPMENT STAGE COMPANY)
| | | Shares | | | Par Value | | | Shares | | | Par Value | | | Additional Paid In Capital | | | Accumulated During the Development Stage | | | Deficit Total Shareholders' Equit (Deficit) | |
| Balance at December 31, 2004 | | | 3,000,000 | | | $ | 3,000 | | | $ | -- | | | | - | | | $ | 2,123,608 | | | $ | (958,325 | ) | | $ | 1,168,283 | |
| Net (loss) | | | - | | | | - | | | | -- | | | | - | | | | -- | | | | (1,053,248 | ) | | | (1,053,248 | ) |
| Balance at September 30, 2005 | | | 3,000,000 | | | | 3,000 | | | | -- | | | | - | | | | 2,123,608 | | | | (2,011,573 | ) | | | 115,035 | |
| Net (loss) | | | - | | | | - | | | | -- | | | | - | | | | -- | | | | (305,880 | ) | | | (305,880 | ) |
| Balance at December 31, 2005 | | | | | | | 3,000 | | | | -- | | | | -- | | | | 2,123,608 | | | | (2,317,453 | ) | | | (190,845 | ) |
| Reverse acquisition, May 2006 | | | | | | | - | | | | 1,699,108 | | | | 1,699 | | | | 971,820 | | | | -- | | | | 973,519 | |
Stock options granted for consulting services | | | | | | | | | | | | | | | | | | | 40,343 | | | | | | | | 40,343 | |
Stock options granted to employees | | | | | | | | | | | | | | | | | | | 33,619 | | | | | | | | 33,619 | |
Stock options granted to management | | | | | | | | | | | | | | | | | | | 58,273 | | | | | | | | 58,273 | |
Stock options granted for finder’s fees | | | | | | | | | | | | | | | | | | | 37,737 | | | | | | | | 37,737 | |
| Fees on reverse acquisition | | | | | | | | | | | | | | | | | | | (37,737 | ) | | | | | | | (37,737 | ) |
Issue of common stock upon exercise of warrants | | | | | | | | | | | 290,000 | | | | 290 | | | | (290 | ) | | | | | | | -- | |
Issue of common stock for consulting service | | | | | | | | | | | 249,500 | | | | 250 | | | | 548,750 | | | | | | | | | |
Conversion of preferred stock to common stock | | | (3,000,000 | ) | | | 3,000 | | | | 20,250,000 | | | | 20,250 | | | | (17,250 | ) | | | | | | | -- | |
Conversion of N/P to Common stock-Rackgear Inc. | | | | | | | | | | | 210,914 | | | | 211 | | | | 63,063 | | | | | | | | | |
Conversion of A/P in the amount of $12,698 to Common stock | | | | | | | | | | | 22,650 | | | | 23 | | | | 12,675 | | | | | | | | 12,698 | |
Conversion of Advances to Preferred stock - First Bridge Bank 5,510 | | | | | | | 6 | | | | | | | | | | | | 550,951 | | | | | | | | 550,957 | |
Conversion of N/P to Common stock- Kurt Hiete | | | | | | | | | | | 200,000 | | | | 200 | | | | 60,326 | | | | | | | | 60,526 | |
Conversion of A/P in the amount of $34,865 to common stock | | | | | | | | | | | 35,000 | | | | 35 | | | | 34,830 | | | | | | | | 34,865 | |
Issue of common stock for consulting service | | | | | | | | | | | 2,710,000 | | | | 2,710 | | | | 1,623,290 | | | | | | | | | |
Stock options granted for Consulting services | | | | | | | | | | | | | | | | | | | 48,846 | | | | | | | | 48,846 | |
Stock options granted for Consulting services | | | | | | | | | | | | | | | | | | | 215,748 | | | | | | | | 215,748 | |
Stock options granted to Employees | | | | | | | | | | | | | | | | | | | 93,236 | | | | | | | | 93,236 | |
| Transfer to derivative liability | | | | | | | | | | | | | | | | | | | (307,516 | ) | | | -- | | | | (307,516 | ) |
| Net (loss) | | | | | | | | | | | | | | | | | | | | | | | (4,336,029 | ) | | | (4,336,029 | ) |
| Balance at December 31, 2006 | | | 5,510 | | | $ | 6 | | | $ | 25,667,172 | | | $ | 25,668 | | | $ | 6,154,322 | | | $ | (6,653,482 | ) | | $ | (473,486 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock for consulting services | | | | | | | | | | | 65,000 | | | | 65 | | | | 33,085 | | | | | | | | 33,150 | |
Issuance of common stock for consulting services | | | 80,000 | | | | | | | | 804,000 | | | | 804 | | | | 80,326 | | | | | | | | 81,130 | |
Cancellation of conversion of A/P in the amount | | | | | | | | | | | (22.650 | ) | | | (23 | ) | | | (12,675 | ) | | | -- | | | | (12,698 | ) |
Conversion of A/P and management fees in the amount | | | | | | | | | | | 16,700,000 | | | | 16,700 | | | | 658,544 | | | | | | | | 675,244 | |
Cancellation of conversion of Advances in the amount | | | (5,510 | ) | | | (6 | ) | | | | | | | | | | | (550,951 | ) | | | -- | | | | (550,957 | ) |
| Net (loss) | | | | | | | | | | | | | | | | | | | | | | | (1,396,665 | ) | | | (1,396,665 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2007 | | | - | | | | - | | | | 43,213,522 | | | | 43,214 | | | | 6,362,651 | | | | (8,050,147 | ) | | | (1,644,282 | ) |
| Net Income | | | | | | | | | | | | | | | | | | | | | | | 363,865 | | | | 363,865 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2008 | | | | | | | | | | | 43,213,522 | | | $ | 43,214 | | | $ | 6,362,651 | | | $ | (7,686,282 | ) | | | (1,280,417 | ) |
| Share difference from transfer agent | | | | | | | | | | | 17 | | | | -- | | | | | | | | | | -- | |
| Stock issued for debt | | | | | | | | | | | 56,786,461 | | | | 56,786 | | | | 201,592 | | | | -- | | | | 258,378 | |
| Reverse split of 1 for 100 | | | | | | | | | | | (99,000,000 | ) | | | (99,000 | ) | | | 99,000 | | | | -- | | | | -- | |
| Shares issued for fractional shares | | | | | | | | | | | 12 | | | | -- | | | | -- | | | | -- | | | | -- | |
| Contribution of capital | | | | | | | | | | | -- | | | | -- | | | | 99,122 | | | | -- | | | | 99,122 | |
| Shares returned and cancelled | | | | | | | | | | | (194,063 | ) | | | (194 | ) | | | 194 | | | | | | | | -- | |
| Shares issued | | | | | | | | | | | 695 | | | | -- | | | | -- | | | | -- | | | | -- | |
| Net loss | | | | | | | | | | | -- | | | | -- | | | | -- | | | | (219,817 | ) | | | (219,817 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | | | | | | | | | 806,644 | | | $ | 806 | | | $ | 6,762,559 | | | $ | (7,906,099 | ) | | | (1,142,734 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net | | | | | | | | | | | | | | | | | | | | | | | (69,435 | ) | | | (69,435 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2010 | | | | | | | | | | | 806,644 | | | $ | 806 | | | $ | 6,762,559 | | | $ | (7,975,533 | ) | | $ | (1,212,169 | ) |
The accompanying notes are an integral part of these audited financial statements
XXX ACQUISITION CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
AND FROM INCEPTION TO DECEMBER 31, 2010
(A DEVELOPMENT STAGE COMPANY)
| | | 2010 | | | 2009 | | | Period from September 16, 2002 (inception) to December 31, 2010 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
| Net income (loss) | | $ | (69,435 | ) | | $ | (219,817 | ) | | $ | (7,975,534 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | -- | | | | -- | | | | 218,746 | |
| Gain from discontinued operations | | | -- | | | | -- | | | | (728,718 | ) |
Stock compensation for consulting services and options granted to management and employees | | | -- | | | | -- | | | | 2,521,178 | |
| Loss on Settlement of debt | | | -- | | | | -- | | | | 134,407 | |
| Write-off of prepaid expenses | | | -- | | | | -- | | | | 562,678 | |
| Write-off of notes payable | | | -- | | | | -- | | | | (120,267 | ) |
| Write-off of accounts payable | | | -- | | | | -- | | | | 3,059 | |
| (Increase) decrease in assets: | | | | | | | | | | | | |
| Other receivables | | | -- | | | | 81,357 | | | | 81,357 | |
| Security deposit | | | | | | | -- | | | | (3,595 | ) |
| Increase (decrease) in liabilities: | | | | | | | | | | | | |
| Accounts payable | | | -- | | | | (36,556 | ) | | | 770,183 | |
| Accrued liabilities | | | -- | | | | -- | | | | 177,150 | |
| Accrued interest on notes payable - related party | | | -- | | | | -- | | | | 93,057 | |
| Accrued interest on notes payable | | | 69,435 | | | | 75,894 | | | | 388,452 | |
| Management fees | | | -- | | | | 36,000 | | | | 479,536 | |
| | | | | | | | | | | | | |
| Net cash used in operating activities | | | -- | | | | (99,122 | ) | | | (3,398,311 | ) |
| | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
| Payment for intangible assets | | | -- | | | | | | | | (101,369 | ) |
| Payment for software development costs | | | -- | | | | -- | | | | (428,987 | ) |
| Purchase of equipment | | | -- | | | | -- | | | | (24,123 | ) |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | | | | | -- | | | | (554,479 | ) |
| | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
| Sale of common stock | | | -- | | | | | | | | 247,500 | |
| Payments on note payable-related party | | | -- | | | | -- | | | | (2,063 | ) |
| Borrowings on notes payable - related party | | | -- | | | | -- | | | | 2,427,709 | |
| Borrowings on notes payable | | | -- | | | | -- | | | | 1,206,313 | |
| Payments on capital lease obligations | | | -- | | | | -- | | | | (25,791 | ) |
| Contribution of capital | | | -- | | | | 99,122 | | | �� | 99,122 | |
| | | | | | | | | | | | | |
| Net cash provided by financing activities | | | -- | | | | 99,122 | | | | 3,952,790 | |
| | | | | | | | | | | | | |
| (DECREASE) INCREASE IN CASH | | | - | | | | -- | | | | -- | |
| | | | | | | | | | | | | |
| CASH, beginning of the period | | | - | | | | -- | | | | -- | |
| | | | | | | | | | | | | |
| CASH, end of the period | | $ | - | | | $ | -- | | | $ | -- | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | | | | | |
| Interest paid | | $ | -- | | | $ | -- | | | $ | -- | |
| Income taxes paid | | $ | -- | | | $ | -- | | | $ | 4,000 | |
XXX ACQUISITION CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
AND FROM INCEPTION TO DECEMBER 31, 2010
(A DEVELOPMENT STAGE COMPANY)
(continued)
| | | 2010 | | | 2009 | | | Period from September 16, 2002 | |
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES | | | | | | | | | |
| | | | | | | | | | | | | |
| Furniture and equipment acquired through exchange of stock | | $ | -- | | | $ | -- | | | $ | 30,250 | |
| | | | | | | | | | | | | |
| Developed software acquired through exchange of stock | | $ | -- | | | $ | -- | | | $ | 165,000 | |
| | | | | | | | | | | | | |
| Conversion of notes payable and accrued interest into common stock | | $ | -- | | | $ | -- | | | $ | 2,281,515 | |
| | | | | | | | | | | | | |
| Conversion of A/P into common stock | | $ | -- | | | $ | - | | | $ | 689,407 | |
| | | | | | | | | | | | | |
| Cancellation of conversion of A/P | | $ | -- | | | $ | - | | | $ | 12,698 | |
| | | | | | | | | | | | | |
| Purchase of equipment through capital leases | | $ | -- | | | $ | -- | | | $ | 29,843 | |
| | | | | | | | | | | | | |
| Stock issued for consulting services | | $ | -- | | | $ | -- | | | $ | 82,000 | |
| | | | | | | | | | | | | |
| Issue of common stock upon exercise of warrants | | $ | -- | | | $ | -- | | | $ | 5,800 | |
The accompanying notes are an integral part of these audited financial statements
XXX ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(A DEVELOPMENT STAGE COMPANY)
NOTE 1 – ORGANIZATION
Texxon, Inc. was incorporated on October 6, 1998, under the laws of the state of Oklahoma. Since inception, the Company's primary focus was raising capital and paying for the exclusive licenses. Until April 2, 2008 pursuant to the Company’s Share Agreement with TelePlus, Inc., the Company's focus was centered on the development and marketing of its Multilingual Mobile Services for international travelers in their native languages in collaboration with major wireless providers. On April 2, 2008 the Company sold all the assets of its operating division to another company; subsequent to the sale the Company has not engaged in any business operations while looking for a new business.
In May 2006, Texxon and the shareholders of TelePlus completed a Share Exchange Agreement whereas the Company acquired all of the outstanding capital stock of TelePlus from the TelePlus shareholders in exchange for 3,000,000 shares of voting convertible preferred stock convertible into 81,000,000 shares of Company common stock. This transaction constituted a change of control of the Company whereby the majority of the shares of Texxon are now owed by the shareholders of TelePlus. The accounting for this transaction is identical to that resulting from a reverse-acquisition, except that no goodwill or other intangible assets is recorded. As a result, the transaction was treated for accounting purposes as a recapitalization by the accounting acquirer TelePlus. The historical financial statements will be those of TelePlus. On November 22, 2006, Texxon, the Oklahoma Corporation, for the sole purpose of re-domestication in Nevada, filed Articles of Merger with the Secretaries of state of the states of Oklahoma and Nevada pursuant to which Texxon, the Oklahoma Corporation, was merged with and into Texxon, Inc., a Nevada corporation, with the Nevada Corporation remaining as the surviving entity. Immediately following the merger, the Nevada Company changed its name to Continan Communications, Inc. and its articles of incorporation were amended such that the number of common stock and preferred stock is increased from 45,000,000 to 100,000,000 and from 5,000,000 to 10,000,000, respectively. On December 1, 2006, the Company executed a 1 for 20 reverse stock split of all its issued and outstanding shares of common stock. Additionally, all convertible preferred stocks were converted into 20,250,000 shares of common stock. On March 6, 2009 the Company declared a 1 for 100 reverse stock split and on March 11, 2009 the Company changed its name to XXX Acquisition Corp. (the "Company")
NOTE 2 – BASIS OF PRESENTATION
The accompanying audited financial statements of XXX Acquisition, Corp. (“XXX”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for years presented have been reflected herein.
NOTE 3 – GOING CONCERN CONSIDERATIONS
As shown in the accompanying financial statements, the Company has incurred a net loss of $69,435 for year ended December 31, 2010. As of December 31, 2010, the Company reported an accumulated deficit of $7,975,534. The Company has no sales or revenue. The Company’s ability to generate net income and positive cash flows is dependent on the ability to acquire or start an operating entity as well as the ability to raise additional capital. Management is following strategic plans to accomplish these objectives, but success is not guaranteed. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (US GAAP).
Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has no established source of revenue. This matter raises substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company intends to pursue acquisitions of various business opportunities that, in the opinion of management, will provide a profit to the Company; however, the Company does not have the working capital to be successful in this effort or to service its debt. These factors raise substantial doubt about its ability to continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy that it believes will accomplish this objective through additional equity funding which will enable the Company to operate for the coming year. There is no guarantee that additional funding will be obtained or that the Company will be successful in it funding efforts or acquiring any profitable business opportunities.
Basic and Diluted Earnings (Loss) per Share
The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share are computed by dividing income (loss) available to common stockholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
The Company has no potential dilutive instruments and accordingly, basic loss and diluted share loss per share are equal.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing these financial statements.
Statement of Cash Flows
For the purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.
Revenue Recognition
Revenue is recognized upon completion of the service and or shipment of a product. The Company has not recognized any revenues from its operations in the years ended December 31, 2010 and 2009.
NOTE 5 – RECENT ACCOUNTING PRONOUNCEMENTS
In January 2009, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. This ASU is effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2009-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2009, the FASB issued Accounting Standard Update No. 2009-13 “Stock Compensation” (Topic 718). ASU No.2009-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2009. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.
In February 2010, FASB issued ASU No. 2009-09, “Subsequent Events” (Topic 855) Amendments to Certain Recognition and Disclosure Requirements (“ASU 2009-09”). ASU 2009-09 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC’s requirements. ASU 2009-09 is effective for interim and annual periods ending after September 15, 2009. The Company does not expect the adoption of ASU 2009-09 to have a material impact on its unaudited interim results of operations or financial position.
In January 2009, the FASB issued ASU No. 2009-06, “Improving Disclosures about Fair Value Measurements” (ASU 2009-06) (codified within ASC 820 Fair Value Measurements and Disclosures). ASU 2010-06 improves disclosures originally required under SFAS No. 157. ASU 2009-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2009, and for interim periods within those years. The adoption of the guidance did not have a material effect on the Company's unaudited interim financial position, results of operations, cash flows or related disclosures.
NOTE 6 – NOTE PAYABLE
The Company issued a promissory note to First Bridge Capital Inc., on January 20, 2007 with interest accruing at 10%. The principal along with the accrued interest was due on or before December 31, 2007 or on the date the Company receives proceeds from the public offering of its shares, whichever is earlier. The Company converted $258,378 of debt to 56,786,461 shares of common stock. As neither has occurred the note is in default with the outstanding balance of the note payable as of December 31, 2010 with a principal balance of $ 649,349 plus accrued interest of $340,789 for a total amount of $1,035,138. (See Note: 7 – Equity)
NOTE 7 – EQUITY
In March, 2009 the Company converted $258,378 of debt to 56,786,461 shares of common stock. Subsequently during the same period the Company declared a reverse split in which each shareholder of 100 old shares received in exchange one new share of the Company. In addition the Company retired 194,062 shares of common stock. As a result of the reverse split and its rounding of shares and the retirement of shares, the total outstanding shares of common stock, as of December 31, 2010, are 806,644.(See Note 6: - Note Payable)
NOTE 8- INCOME TAX
At December 31, 2010 and 2009, the Company had a federal operating loss carryforward of approximately $289,251 and $219,816, respectively, which expires in varying amounts between 2030 and 2029.
Components of net deferred tax assets, including a valuation allowance, are as follows at December 31:
| | | 2010 | | | 2009 | |
| Deferred tax assets: | | | | | | |
| Net operating loss carryforward | | $ | 289,251 | | | $ | 219,816 | |
| Total deferred tax assets | | | 101,238 | | | | 76,936 | |
| Less: Valuation Allowance | | | (101,238 | ) | | | (76,936 | ) |
| | | | | | | | | |
| Net Deferred Tax Assets | | $ | -- | | | $ | -- | |
The valuation allowance for deferred tax assets as of December 31, 2010 and 2009 was $101,238 and $76,936, 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 December 31, 2010 and 2009, accordingly, recorded a full valuation allowance.
NOTE 9 – STOCK OPTIONS AND WARRANTS
In October 2006, the Company granted an option to purchase 10,000 (200,000 pre reverse split) restricted shares of common stock, exercisable at $0.01 per share, to a non-employee; this option will expire on October 15, 2011. This option was granted in exchange for consulting services, valued at $11,814 using the Black-Scholes model. Because the Company did not have enough shares authorized to issue if this option was exercised, this amount was recorded as a derivative and are classified on the balance sheet as a liability for derivative instruments. The factors used for the Black-Scholes model were a market price of $0.06 per share; volatility of 178%; risk free interest rate of 4.39%; exercise price of $0.01 per share; and an estimated life of 5 years.
As a result of recapitalization in November 2006, the Company had more shares authorized to be issued. Therefore, the derivative liability in the amount of $11,814 due to a lack of authorized shares had to be eliminated and accounted for as equity. In addition, due to changes in market value for the common stock, the value for the derivative liability had to be recalculated using the Black-Scholes model as of December 1, 2006 (the date of reverse split). The recalculated value for the derivative liability was $6,976, which became an addition to APIC. The remaining difference of $4,838 after elimination of derivative liability was recognized as a gain on derivative. The factors used for the Black-Scholes model were a market price of $0.70 per share; volatility of 178%; risk free interest rate of 4.39%; exercise price of $0.01 per share; and an estimated life of 4.75 years.
In December 2006, the Company granted an option to purchase 70,000 restricted shares of common stock, exercisable at $0.01 per share, to a non-employee; this option will expire on December 31, 2011. This option was granted in exchange for consulting services, valued at $48,846 using the Black-Scholes model. The Company recorded consulting expense and additional paid-in-capital in this amount. The factors used for Black-Scholes model were a market price of $0.70 per share; volatility of 178%; risk free interest rate of 4.39%; exercise price of $0.01; and an estimated lift of 5.00 years.
In December 2006, the Company granted options to purchase 414,900 restricted shares of common stock, exercisable at $0.01 per shares, for consultants (one of which is James Gibson, the Company's vice president business development); these options will expire on December 31, 2011. These options were valued at $215,748 using the Black-Scholes model. The Company recorded consulting expense and additional paid-in-capital in this amount. The factors used for Black-Scholes model were a market price of $0.52 per share; volatility of 178%; risk free interest rate of 4.39%; exercise price of $0.01; and an estimated life of 5.00 years.
In December 2006, the Company granted options to purchase 179,300 restricted shares of common stock, exercisable at $0.01 per share, to various employees (one of which is Ross Nordin, the Company's former chief financial officer, remaining as an advisor to the Company); these options will expire on December 31, 2011. These options were valued at $93,236 using Black-Scholes model. The company recorded consulting expense and additional paid-in-capital in this amount. The factors used for Black-Scholes model were a market price of $0.52 per share; volatility of 178%; risk free interest rate of 4.39%; exercise price of $0.01; and an estimated life of 5.00 years.
A summary of the status of, and changes in, the Company's stock option plan as of and for the year ended December 31, 2010 is presented below for all stock options issued to employees and non-employees.
| | | | | | | | | | |
| Outstanding at Beginning of Year | | | -- | | | | 3,365 | | | $ | 0.68 | |
| Granted | | | - | | | | -- | | | | -- | |
| Forfeited | | | -- | | | | -- | | | | -- | |
| Exercised | | | -- | | | | - | | | | -- | |
| Outstanding at End of Period | | | -- | | | | 3,365 | | | $ | 0.68 | |
| Exercisable at End of Period | | | -- | | | | 3,365 | | | | | |
NOTE 10 – AGREEMENTS
On March 6, 2009 the Company entered into a binding letter of intent with Consorteum, Inc., a corporation organized under the laws of the Province of Ontario ("Consorteum"), pursuant to which Consorteum, all of its stockholders and the Company agreed to an exchange offer under which Consorteum would become a wholly-owned operating subsidiary of the Company. The letter of intent was terminated by mutual agreement on April 8, 2010.
On March 6, 2010 the Company declared a 1 for 100 reverse stock split of all of its issued and outstanding shares of Common Stock. On March 11, 2010 the Company changed its name to Consorteum Holdings, Inc., and as a result of the termination of the letter of intent relinquished the name "Consorteum Holdings, Inc." and changed its name to XXX Acquisition Corp. on April 8, 2010.
NOTE 11 – SUBSEQUENT EVENT
Subsequent to the period ending December 31, 2010, all options and warrants with the exclusion of those dated to expire as of October 15, 2011 and December 31, 2011 have expired either due to the expiration date or the termination of the employee.
F-12
