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 ended March 31, 2008
| 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 333-124829
DRIFTWOOD VENTURES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 71-1033391 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2121 Avenue of the Stars, Suite 2550, Los Angeles, CA | 90067 |
| (Address of principal executive offices) | (Zip Code) |
| |
(310) 601-2500 |
| (Registrant’s telephone number, including area code) |
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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer o | Accelerated filer o |
Non-accelerated filer o (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 o
As of May 14, 2008, there were 5,807,000 shares of the Registrant’s common stock, par value $.001 per share, issued and outstanding.
DRIFTWOOD VENTURES, INC.
Table of Contents
PART I - FINANCIAL INFORMATION
| Item 1. Financial Statements | Page |
| | | |
| | Balance Sheet March 31, 2008 (Unaudited) and December 31, 2007 (Audited) | 3 |
| | | |
| | Statement of Operations (Unaudited) For the Three Months Ended March 31, 2008 and 2007 | 4 |
| | | |
| | Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2008 and 2007 | 5 |
| | | |
| | Notes to Financial Statements | 6 |
| | | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 |
| | | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 11 |
| | | |
| Item 4T. Controls and Procedures | 11 |
PART II - OTHER INFORMATION
| Item 1. | Legal Proceedings | 12 |
| | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 12 |
| | | |
| Item 3. | Defaults Upon Senior Securities | 12 |
| | | |
| Item 4. | Submission of Matters to a Vote of Security Holders | 12 |
| | | |
| Item 5. | Other Information | 12 |
| | | |
| Item 6. | Exhibits | 11 |
| | | |
| Signatures | 13 |
Driftwood Ventures, Inc. | |
Balance Sheet | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | March 31, 2008 | | December 31, 2007 | |
| | | (Unaudited) | | (Audited) | |
| | | | | | |
ASSETS | | | | | |
| | | | | | |
| Current Assets | | | | | |
| Cash | | $ | 5,453 | | $ | - | |
| | | | | | | | |
| Total Assets | | $ | 5,453 | | $ | - | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | |
| | | | | | | | |
| Current Liabilities | | | | | | | |
| Loan payable - related party | | $ | 120,000 | | | - | |
| Accounts payable and accrued expenses | | | 94,876 | | $ | 78,542 | |
| | | | | | | | |
| Total Liabilities | | | 214,876 | | | 78,542 | |
| | | | | | | | |
| Stockholders' Deficit | | | | | | | |
| Preferred stock - $0.001 par value, 5,000,000 shares | | | | | | | |
| authorized, none issued and outstanding | | | - | | | | |
| Common stock - $0.001 par value, 75,000,000 shares | | | | | | | |
| authorized, 5,807,000 issued and outstanding | | | 5,807 | | | 5,807 | |
| Additional paid-in capital | | | 46,793 | | | 46,793 | |
| Accumulated Deficit | | | (262,023 | ) | | (131,142 | ) |
| | | | | | | | |
| Total Stockholders' Deficit | | | (209,423 | ) | | (78,542 | ) |
| | | | | | | | |
| Total Liabilities and Stockholders' Deficit | | $ | 5,453 | | $ | - | |
See notes to financial statements.
Driftwood Ventures, Inc. | |
Statement of Operations | |
(Unaudited) | |
| | | | | | |
| | | Three Months Ended March 31, | |
| | | 2008 | | 2007 | |
| | | | | | |
| Expenses | | | | | |
| Donated services and rent | | | - | | $ | 2,100 | |
| General and administrative | | $ | 130,881 | | | 4,100 | |
| | | | | | | | |
| Net Loss | | $ | (130,881 | ) | $ | (6,200 | ) |
| | | | | | | | |
| Basic and Diluted Net Loss Per Common Share | | $ | (0.02 | ) | | * | |
| | | | | | | | |
| Weighted Average Number of Common Shares | | | | | | | |
| Outstanding - Basic and Diluted | | | 5,807,000 | | | 5,807,000 | |
| | | | | | | | |
| | | | | | | | |
| * Less than $0.01, per share | | | | | | | |
See notes to financial statements.
Driftwood Ventures, Inc. | |
Statement of Cash Flows | |
(Unaudited) | |
| | | | | | |
| | | Three Months Ended March 31, | |
| | | 2008 | | 2007 | |
| | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net Loss | | $ | (130,881 | ) | $ | (6,200 | ) |
| Adjustments to reconcile net loss to net cash | | | | | | | |
| used in operating activities: | | | | | | | |
| Donated management services and rent | | | | | | 2,100 | |
| Changes in operating assets and liabilities | | | | | | | |
| Accounts payable and accrued expenses | | | 16,334 | | | 2,591 | |
| | | | | | | | |
| Net Cash Used In Operating Activities | | | (114,547 | ) | | (1,509 | ) |
| | | | | | | | |
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | | | | | | | |
| Proceeds from loan payable - related party | | | 120,000 | | | - | |
| | | | | | | | |
| | | | | | | | |
| Net Change in Cash | | | 5,453 | | | (1,509 | ) |
| | | | | | | | |
| Cash, beginning of period | | | - | | | 1,764 | |
| | | | | | | | |
| Cash, end of period | | $ | 5,453 | | $ | 255 | |
See notes to financial statements.
DRIFTWOOD VENTURES, INC. |
| |
NOTES TO FINANCIAL STATEMENTS |
MARCH 31, 2008 |
(Unaudited) |
1. DESCRIPTION OF ORGANIZATION
Driftwood Ventures, Inc., (the “Company”) was incorporated under the laws of the State of Nevada on February 13, 2003. On December 20, 2007, the Company reincorporated in Delaware and increased its authorized capital stock from 75,000,000 shares to 80,000,000 shares, consisting of 75,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. No terms have been established for the preferred stock.
The Company was engaged in acquiring and exploring mineral properties until September 30, 2007, when this activity was abandoned, and the Company has been inactive since then.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and with the rules and regulations under Regulation S-X of the Securities and Exchange Commission for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for interim periods have been included. These financial statements should be read in conjunction with the financial statements of the Company together with the Company's management discussion and analysis in the Company's Form 10-KSB for the year ended December 31, 2007. Interim results are not necessarily indicative of the results for a full year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.
Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
3. GOING CONCERN
These financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred losses since inception, resulting in an accumulated deficit of $262,023 as of March 31, 2008, a working capital deficiency of $209,423 as of March 31, 2008, negative cash flows from operations $114,547 for the three months ended March 31, 2008, and further losses are anticipated. These factors raise substantial doubt about the Company's ability to continue as a going concern. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligation and repay its liabilities arising from normal business operations when they come due. Management has plans to seek additional financing through private placements of its common stock and/or loans from stockholders. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue.
4. RELATED PARTY TRANSACTIONS
On October 24, 2007, as amended on November 21, 2007, the Company entered into a loan agreement (the "Loan Agreement") with the Company's majority stockholder, Trinad Capital Master Fund, Ltd. ("TCMF “) to borrow up to a principal amount of $250,000 (the “Loan”). TCMF shall make advances to the Company in such amounts as the Company shall request from time to time. The borrowings under the Loan bear interest at 10%, per annum. Accrued but unpaid interest is added to the outstanding principal balance of the loan. The outstanding principal balance of the Loan and any accrued interest thereon shall be payable by the Company upon the sale of shares (other than a sale of shares of the Company’s common stock, par value $0.001 per share, to officers, directors or employees of or consultants to, the Company in connection with services provided to the Company) to a third party or parties with proceeds to the Company of not less than $500,000 (a “Next Financing”).
On April 18, 2008, the Company entered into a second amendment to the Loan Agreement, whereby TCMF agreed to: (i) increase the principal amount of the loan to $500,000 and (ii) increase the amount of Next Financing to an amount of not less than $750,000.
Through March 31, 2008, the Company has borrowed $120,000 under the loan agreement.
On October 24, 2007, the Company entered into a management agreement (the “Management Agreement”) with Trinad Management, LLC (“Trinad”), an affiliate of TCMF. Pursuant to the Management Agreement, which is for a term of five years, Trinad will provide certain management services, including, without limitation, the sourcing, structuring and negotiation of a potential business combination transaction involving the Company. The Company has agreed to pay Trinad a management fee of $90,000 per quarter, plus reimbursement of all expenses reasonably incurred by Trinad in connection with the provision of management services. Either party may terminate the Management Agreement with prior written notice. However, in the event the Company terminates the Management Agreement, it shall pay to Trinad a termination fee of $1,000,000. Management fees were waived for 2007 by Trinad.
Management fees in the amount of $90,000 were incurred in the three months ended March 31, 2008.
5. INCOME TAXES
Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No.109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with FASB Statement 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance under recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.
The Company’s policy is to classify assessments, if any, for tax-related interest as interest expenses and penalties as general and administrative expenses.
6. FAIR VALUE MEASUREMENTS
Effective January 1, 2008, the Company adopted both FAS 157 and FAS 159 without any effect.
Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements" (SFAS 157), defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require the use of fair value measurements. A fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability, or, in the absence of a principal market, the most advantageous market for the asset or liability.
SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement 115", (SFAS 159) 159 permits an entity to elect to measure various financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings at each subsequent reporting date.
7. SUBSEQUENT EVENT
On May 1, 2008, the Company agreed to a month-to month sublease for 15% of the premises leased by Trinad with rent of $3,500, per month.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with, and is qualified in its entirety by, the Financial Statements and the Notes thereto included in this report. This discussion contains certain forward-looking statements that involve substantial risks and uncertainties. When used in this report, the words "anticipate," "believe," "estimate," "expect” and similar expressions as they relate to our management or us are intended to identify such forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Historical operating results are not necessarily indicative of the trends in operating results for any future period.
This Form 10-Q for the quarter ended March 31, 2008 includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: “believe,” “expect,” “estimate,” “anticipate,” “intend,” “project” and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
We are inactive as of the date of this report. Our objective is to identify an operating company to purchase or merge with and to raise capital to make the Company a more attractive merger candidate. No assurance can be given that we will be successful in meeting our objective.
Most of the Company’s activity from February 13, 2003 (date of inception) to March 31, 2008 relates to its formation and the maintenance of its public filings.
Liquidity and Capital Resources
As of the date of this report, we have yet to generate any revenues from our business activities.
On October 24, 2007, the Company executed a loan agreement, as subsequently amended on November 21, 2007 and April 18, 2008, respectively (the “Loan Agreement”), with Trinad Capital Master Fund (“TCMF”), whereby TCMF agreed to loan the Company up to a principal amount of $500,000 (the “Loan”). TCMF shall make advances to the Company in such amounts as the Company shall request from time to time. $120,000 was advanced during the quarter ended March 31, 2008. The Loan bears interest at the rate of 10% per annum. The entire outstanding principal amount of the Loan and any accrued interest thereon shall be due and payable by the Company upon, and not prior to, the consummation of a sale of securities (other than a sale of shares of the Company’s common stock, par value $0.001 per share, to officers, directors or employees of, or consultants to, the Company in connection with their provision of services to the Company), to a third party or parties with proceeds to the Company of not less than $750,000 (a “Next Financing”).
Results of Operations for the Three Months Ended March 31, 2008
The Company had a net loss for the three months ended March 31, 2008 of $130,881 consisting of general and administrative expenses.
Results of Operations for the Three Months Ended March 31, 2007
The Company had a net loss for the three months ended March 31, 2008 of $6,200 consisting of general and administrative expenses and donated services and rent.
Critical Accounting Policies
The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are as follows:
Fair Value of Financial Instruments
Our carrying values of cash and due to related party approximate their fair values because of the short-term maturity of these instruments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.
Income (Loss) per Common Share
Basic net income (loss) per share was computed by dividing the net income (loss) for the period by the basic weighted average number of shares outstanding during the period. Diluted net income (loss) per share was computed by dividing the net income (loss) for the period by the weighted average number and any potentially diluted shares outstanding during the period.
Income Taxes
The Company provides for deferred income taxes using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and the tax effect of net operating loss carry-forwards. A valuation allowance has been provided as it is more likely than not that the deferred tax assets will not be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141(R)”). This statement replaces SFAS No. 141 “Business Combinations” (“SFAS 141”). This statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. This statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exemptions specified in the statement. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the expected effect, if any, SFAS 141(R) will have on its financial statements.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interest in Consolidated Financial Statements” (“SFAS 160”), an amendment of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” (“ARB 51”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Minority interest will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interest that do not result in a change in control will be accounted for as equity transactions.
In addition, net income attributable to the noncontrolling interest will be included in net income on the face of the income statement and upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. This pronouncement is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on its financial position, results of operations and cash flows.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Impact of Inflation
We believe that inflation has not had a material impact on our results of operations for the three months ended March 31, 2008 and 2007. We cannot assure you that future inflation will not have an adverse impact on our operating results and financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable as we are a smaller reporting company.
Item 4T. Controls and Procedures.
As required by Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of March 31, 2008, the end of the period covered by this report, our management concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management does not expect that our disclosure controls and procedures will prevent all error and fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. 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.
As of the evaluation date, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. | Legal Proceedings. |
| | |
| | None. |
| | |
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. |
| | Certification of Chief Executive Officer * |
| | | |
| 31.2 | | Certification of Chief Financial Officer * |
| | | |
| 32.1 | | Certification of Principal Executive Officer pursuant to U.S.C. Section 1350 * |
| | | |
| 32.2 | | Certification of Principal Financial Officer pursuant to U.S.C. Section 1350 * |
*Filed herewith
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
May 19, 2008
Driftwood Ventures, Inc.
| | | | |
| /s/ Robert Ellin | | | |
| Robert Ellin, President and Chief Executive Officer | | | |
