The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
NOTE 1 - - ORGANIZATION AND BASIS OF PRESENTATION
The unaudited financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Company’s annual statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the December 31, 2007 10-KSB and audited financial statements and the accompanying notes thereto. While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.
These unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.
Driver Passport, Inc. (the “Company”), was incorporated on December 7, 2005 to be effective, January 1, 2006 as a North Dakota corporation.
On January 1, 2006, the Company issued 25,500,000 shares of its common stock in exchange for 100% of the membership interest of Driver Passport, LLC, a North Dakota limited liability company formed on October 12, 2004. On January 2, 2006, Driver Passport, LLC was dissolved.
The Company is considered a development stage company and has presented financial information since the inception of Driver Passport, LLC which was October 12, 2004. The business combination that took place was a reverse merger whereby the operating company, Driver Passport, LLC was acquired by a shell company, the Company. The Company has treated this as a purchase for accounting purposes.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
NOTE 1 - - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The Company is a real-time, internet, driver security program allowing shippers to verify and validate the driver prior to loading cargo. The Company provides an online system with photo, driver license and transport equipment verification that provides one more check for shippers prior to loading their cargo. The Company has recognized no revenue since inception. In July of 2007, the Company ceased marketing operations under its current business plan and is considering other business ventures. The Company impaired the remaining $9,975 of software development costs that remained at June 30, 2007 in the quarter ended September 30, 2007.
Commencing in the fourth quarter of 2007, the Company established an agreement with an independent consultant that will attempt to attract new business for the Company. The Company agreed on December 18, 2007 to pay the consultant 50,000 shares of stock for his efforts. In the first quarter of 2008, the agreement was terminated. The shares were paid to the consultant in the second quarter of 2008. (See Note 9)
NOTE 2 - - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by Development Stage Enterprises”. The Company has devoted substantially all of its efforts to business planning and development. Additionally, the Company has allocated a substantial portion of their time and investment in bringing their services to the market and the raising of capital.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Start-up Costs
In accordance with the American Institute of Certified Public Accountants Statement of Position 98-5, “Reporting on the Costs of Start-up Activities”, the Company expenses all costs incurred in connection with the start-up and organization of the Company.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
| NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Revenue Recognition
Although, the Company has not recognized revenue to date, the Company will account for the licensing of its software in accordance with the American Institute of Certified Public Accountants Statement of Position (SOP) 97-2, “Software Revenue Recognition.” The Company will recognize revenue when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) the ability to collect is reasonably assured. For software arrangements with multiple elements, revenue will be recognized dependent upon whether vendor-specific objective evidence (VSOE) of fair value exists for each of the elements. When VSOE does not exist for all the elements of a software arrangement and the only undelivered element is post-contract customer support (PCS), the entire licensing fee is recognized ratably over the contract period.
Revenue attributable to undelivered elements, including technical support, will be based on the sales price of those elements, and will be recognized ratably on a straight-line basis over the term of the license. Post-contract customer support revenue will be recognized ratably over the contract period.
If there are licensing fees collected in advance, revenues from these license fees will be recognized on a prorated-basis over the life of the license.
The Company will assess probability of collection based on a number of factors, including the creditworthiness of the customer. New customers will be subject to a credit review process that evaluates the customers’ financial position and ultimately its ability to pay according to the original terms of the arrangement. Based on this review process, if it is determined from the outset of an arrangement that collection of the resulting receivable is not probable, the Company will establish an allowance for uncollectibility.
Income Taxes
The Company accounts for income taxes utilizing the liability method of accounting. Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
| NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets; computer equipment – 5 years.
When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals or betterments.
Impairment of Long-Lived Assets
Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company does not perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable.
Impairment of Long-Lived Assets
For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.
(Loss) Per Share of Common Stock
Basic net (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants.
Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
| NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(Loss) Per Share of Common Stock (Continued)
The following is a reconciliation of the computation for basic and diluted EPS:
| | | September 30, | | | September 30, | |
| | | 2008 | | | 2007 | |
| Net loss | | $ | (34,788 | ) | | $ | (92,512 | ) |
| | | | | | | | | |
| Weighted-average common shares | | | | | | | | |
| outstanding (Basic) | | | 29,877,292 | | | | 29,495,901 | |
| | | | | | | | | |
| Weighted-average common stock | | | | | | | | |
| Equivalents | | | | | | | | |
| Stock options | | | - | | | | - | |
| Warrants | | | - | | | | - | |
| | | | | | | | | |
| Weighted-average common shares | | | | | | | | |
| outstanding (Diluted) | | | 29,877,292 | | | | 29,495,901 | |
Advertising
The Company’s policy is to expense the costs of advertising and marketing as incurred. All advertising and marketing costs are included in the statements of operations for the nine months ended September 30, 2008 and 2007.
Software Development Costs
Internal use software costs are recorded in accordance with Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Qualifying costs incurred during the application development stage, which consist primarily of outside services, are capitalized and amortized over the estimated useful life of the asset. All other costs, such as the cost of routine maintenance and minor modifications to the software, are expensed as incurred. The Company, upon the acquisition of Driver Passport, LLC, acquired $14,250 of software development costs that related to the application development stage and therefore have capitalized these costs. These costs were to be depreciated over a five-year period. The Company determined in July 2007, that they will cease the marketing of their software, and as a result, the Company impaired the remaining $9,975 in July 2007. No balance remains at September 30, 2008. Total amortization for the nine months ended September 30, 2008 and 2007 was $0 and $1,425, respectively.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
| NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Uncertainty in Income Taxes
In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes.” This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. Management adopted FIN 48 in 2007, and they evaluate their tax positions on an annual basis, and have determined as of September 30, 2008, that no additional accrual for income taxes is necessary.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of SFAS 157 has not had a material impact on the financial statements.
In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115”, (“FAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. FAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is determining the impact that the adoption of SFAS No. 160 will have on the Company’s financial position, results of operations or cash flows.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
| NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Recent Accounting Pronouncements (Continued)
In December 2007, the FASB issued SFAS 141R, Business Combinations (“SFAS 141R”), which replaces FASB SFAS 141, Business Combinations. This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R 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. SFAS 141R will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition. SFAS 141R will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date. This compares to the cost allocation method previously required by SFAS No. 141. SFAS 141R will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met. Finally, SFAS 141R will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date. This Statement will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption of this standard is not permitted and the standards are to be applied prospectively only. Upon adoption of this standard, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed. The adoption of SFAS No. 141R is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110, “Use of a Simplified Method in Developing Expected Term of Share Options” (“SAB 110”). SAB 110 expenses the current view of the staff that it will accept a company’s election to use the simplified method discussed in Staff Accounting Bulletin No. 107, “Share Based Payment”, (“SAB 107”), for estimating the expected term of “plain vanilla” share options regardless of whether the company has sufficient information to make more refined estimates. SAB 110 became effective for the Company on January 1, 2008. The adoption of SAB 110 did not have a material impact on the Company’s financial position.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date and are not expected to have a material impact on the consolidated financial statements upon adoption.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
NOTE 3- FIXED ASSETS
Fixed assets as of September 30, 2008 and December 31, 2007 were as follows:
| | | Estimated Useful Lives (Years) | | | September 30, 2008 | | | December 31, 2007 | |
| Computer equipment | | | 5 | | | $ | 7,281 | | | $ | 7,281 | |
| | | | | | | | | | | | | |
| Less: accumulated depreciation | | | | | | | (3,444 | ) | | | (1,800 | ) |
| Fixed assets, net | | | | | | $ | 3,837 | | | $ | 5,481 | |
There was $1,644 and $1,127 charged to operations for depreciation expense for the nine months ended September 30, 2008 and 2007, respectively.
NOTE 4- SHARING ARRANGEMENT
The Company has a bank account, however, runs most of its operations and banking activity through a related party, its majority shareholder and the majority shareholders related entities. Since Driver Passport, LLC’s inception, October 12, 2004, most of the Company’s transactions involving its cash disbursements had been provided by a related company who was funded by the Company’s former sole member. At December 31, 2005 and December 31, 2004, the Company had a note payable with this member in the amount of $130,081 and $537, respectively. However, on December 31, 2005, the former sole member converted these amounts to contributed capital. Therefore, Driver Passport, LLC had no amounts outstanding on December 31, 2005 to the sole member. Upon acquisition of Driver Passport, LLC by the Company, the majority shareholder and former sole member of the Company funded all activity either personally or through an entity controlled by him, and the Company entered into a note payable with this majority shareholder for repayment of these amounts funded. (See Note 5). As of September 30, 2008, the Company has $274,863 outstanding to this majority shareholder, as well as $37,113 in accrued interest.
NOTE 5- NOTE PAYABLE
The Company entered into an unsecured promissory note with a shareholder in a maximum amount of $500,000, due on demand. The shareholder has charged the Company interest at the prime rate (5.00% as of September 30, 2008). Interest is calculated on a monthly basis on the principal balance owing on the last day of the month. The balance as of September 30, 2008 is $311,976 which includes accrued interest of $37,113. Interest expense for the nine months ended September 30, 2008 and 2007 included in the statements of operations is $11,107 and $13,581, respectively.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
NOTE 5- NOTE PAYABLE (CONTINUED)
Driver Passport, LLC entered into a note payable with its member for the payment of all the costs that Driver Passport, LLC incurred. The member charged prime rate (7.00% at December 31, 2005 and 5.25% at December 31, 2004) on all amounts owed by Driver Passport, LLC. The note was dated January 1, 2005, and interest was assessed monthly based on the principal balance owing as of the last day of the month. On December 31, 2005, the sole member converted these amounts to contributed capital. Driver Passport, LLC had no amounts outstanding on December 31, 2005 to the sole member.
NOTE 6- PROVISION FOR INCOME TAXES
Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
At September 30, 2008, deferred tax assets consist of the following:
| Net operating losses | | $ | 175,253 | |
| | | | | |
| Valuation allowance | | | (175,253 | ) |
| | | | | |
| | | $ | - | |
At September 30, 2008, the Company had a net operating loss carryforward in the approximate amount of $528,484, available to offset future taxable income through 2028. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
NOTE 6- PROVISION FOR INCOME TAXES (CONTINUED)
A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the nine months ended September 30, 2008 and 2007 is summarized as follows:
| | | 2008 | | | 2007 | |
| Federal statutory rate | | | (34.0 | )% | | | (34.0 | )% |
| State income taxes, net of federal benefits | | | 4.5 | | | | 4.5 | |
| Valuation allowance | | | 29.5 | | | | 29.5 | |
| | | | 0 | % | | | 0 | % |
As shown in the accompanying financial statements, as is typical of companies going through the development stage, the Company incurred a net loss for the nine months ended September 30, 2008 and 2007 of $34,788 and $92,512, respectively and since inception has losses of $633,165 of which $473,231 occurred in Driver Passport, Inc. The Company had a working capital deficit of $319,538 and $290,394 at September 30, 2008 and December 31, 2007, respectively.
The Company acquired a development stage company on January 1, 2006, and there is no guarantee that the Company will be able to generate enough revenue and/or raise capital to support current operations and generate anticipated sales. This raises substantial doubt about the Company’s ability to continue as a going concern. The Company did sell 1,197,000 shares for $39,900 in cash in June of 2006. Management believes that the Company’s future capital requirements will depend on many factors including the success of the Company’s product development efforts.
In July of 2007, the Company has ceased marketing operations under its current business plan and is considering other business ventures. Commencing in the fourth quarter of 2007, the Company established an agreement with a consultant that will attempt to attract new business for the Company. The Company agreed on December 18, 2007 to pay the consultant 50,000 shares of stock. In the first quarter of 2008, the agreement with the independent consultant was terminated.
As discussed in Note 10, the Company has acquired a patent for the proprietary interlocking Inca Block Construction System™ (IBCS). The Company will cease being a shell company and execute a different business plan for future growth.
The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
NOTE 8- STOCKHOLDERS’ EQUITY (DEFICIT)
The Company was established with 50,000,000 shares of authorized stock; 40,000,000 of common stock and 10,000,000 of preferred stock. Each class of stock has a par value of $.001.
On January 1, 2006, the Company acquired Driver Passport, LLC for 25,500,000 shares of common stock. The value of the stock was par or $25,500.
In June 2006, the Company issued 2,217,000 shares of common stock. Of these shares, 1,197,000 shares were issued for $39,900 in cash, and 1,020,000 shares were issued for consulting services valued at $34,000. The Company also received $1,500 of contributed capital in the year ended December 31, 2006 and $1,383 of contributed capital for the year ended December 31, 2007.
In July 2006, the Company received acknowledgement from the Securities and Exchange Commission of an effective registration. No additional shares have been traded or issued under this registration.
The Company accrued at December 31, 2006 the issuance of 2,130,000 shares of common stock valued at $.05 per share (the opening bid price of the common stock) or $106,500. These shares were earned under agreements due when the Company was deemed effective by the SEC and commenced trading. The shares were issued on February 15, 2007.
The Company accrued at December 18, 2007 the issuance of 50,000 shares of common stock valued at $0.08 per share or $4,000. These shares were earned by Jay Mitchell, an independent consultant, as part of an agreement to promote the Company. The shares were issued on April 18, 2008.
As of September 30, 2008, the Company had 29,897,000 shares issued and outstanding.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
NOTE 9- COMMITMENTS
The Company has entered into several contracts for services as follows:
a) Product development and marketing – fees were $0 and $23,900 for the nine months ended September 30, 2008 and 2007, respectively.
b) Accounting and administrative services, including website development – fees were $5,426 and $11,227 for the nine months ended September 30, 2008 and 2007, respectively and is based on time at standard billing rates.
The Company has recognized expenses as incurred under the accrual method of accounting. As of September 30, 2008 there are no amounts accrued for these services. These fees were paid through the note payable with the majority shareholder.
The Company in February 2007, formed a strategic partnership with Corporate Security Services Group in order to enhance existing security services. These services will focus on providing a variety of services including comprehensive employment screening services both domestically and internationally to site specific security plans.
The Company in December 2007 entered into an agreement with Jay Mitchell. Jay Mitchell is an independent consultant that will utilize the Company’s name, website and marketing materials to promote the Company’s services. Jay Mitchell in return received 50,000 shares of common stock. In addition, the potential to receive additional shares was to be based on various levels of drivers he was able to sign up under the program established. As of March 31, 2008, there were no drivers signed up under this agreement. In the first quarter of 2008, the agreement was terminated.
NOTE 10- ACQUISITION
On September 19, 2008, Driver Passport, Inc. signed a Letter of Intent to acquire the patent for the proprietary interlocking Inca Block Construction System™ (IBCS). In exchange for the IBCS, Driver Passport, Inc. would issue an option to Inca Block International, LLC to purchase twenty million (20,000,000) shares of common stock in Driver Passport, Inc. conditioned upon their availability. Additionally, CEO and majority shareholder, Randy Brown, agrees upon closing to cancel sixteen million five hundred seventy-five thousand (16,575,000) shares of common stock in exchange for the assets of Driver Passport, Inc. On October 30, 2008, the agreements were executed by Driver Passport, Inc. and Inca Block International, LLC to complete the acquisition.
DRIVER PASSPORT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008 AND 2007
NOTE 10- ACQUISITION (CONTINUED)
Pursuant to EITF 98-3, “Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business”, a transferred set of of activities and assets fails the definition of a business if it excludes one or more of the “inputs”, “processes”, or “outputs” as defined in paragraph 6, and in accordance with the guidance set forth in Article 11.01 (d) of Regulation S-X, the Company does not believe that this transaction represented the acquisition of a business, and therefore has not applied purchase accounting on FASB 141R.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, the Financial Statements of the Company and Notes thereto included elsewhere in this Report. Historical results and percentage relationships among any amounts in these financial statements are not necessarily indicative of trends in operating results for any future period. The statements, which are not historical facts contained in this Report, including this Plan of Operations, and Notes to the Financial Statements, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information, and are subject to various risks and uncertainties. Future events and the Company's actual results may differ materially from the results reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, dependence on existing and future key strategic and strategic end-user customers, limited ability to establish new strategic relationships, ability to sustain and manage growth, variability of operating results, the Company's expansion and development of new service lines, marketing and other business development initiatives, the commencement of new engagements, competition in the industry, general economic conditions, dependence on key personnel, the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the service requirements of its clients, the potential liability with respect to actions taken by its existing and past employees, risks associated with international sales, and other risks described herein and in the Company's other SEC filings.
The safe harbors of forward-looking statements provided by Section 21E of the Exchange Act are unavailable to issuers of penny stock. As we issued securities at a price below $5.00 per share, our shares are considered penny stock and such safe harbors set forth under the Reform Act are unavailable to us.
General
We are a real-time, internet, driver security program allowing shippers to verify and validate the driver prior to loading cargo. We provide an online system with photo, driver license and transport equipment verification that provides one more check for shippers prior to loading their cargo.
We are:
| | · | a development stage company; |
| | · | that has no operating history; and |
| | · | has earned no revenues. |
Since our inception, we have devoted our activities to the following:
| | · | Developing our business plan |
| | · | Obtaining our products |
| | · | Determining the market for the services we intend to offer on our website |
| | · | Developing a marketing plan. |
Plan of Operations
Our proposed plan of operations involves the following:
| Event | | Actions | | Lead Time | | Itemized estimated cost |
| Customized enhancement of driver validation screen. | | Additional verification field to include driver pickup or load reference number. | | One week from first client contract. | | Contracted IT labor. 10 hours @ $80/hr billable rate. Total estimated cost of $800. |
| Testing of Load Reference field before broad customer release. | | Active testing of field and potential negative impact on software | | One week dedicated testing from completion of field creation. | | Contracted IT labor. 15 hours @ $80/hr billable rate. Total estimated cost of $1,200. |
| Addition of upgraded badge printer allowing for hologram technology on badges. | | Faster badge printer will be necessary to expedite client badge shipments. | | Six weeks from closure of first recorded sales month. | | Contracted IT labor. 10 hours @ $80/hr billable rate. Labor cost $800. Estimated cost of badge printer, software and shipping $10,000. Total: $10,800 |
| Research potential program and business expansion to offer driverhiring research services such as: criminal background check, reference checks, MVR verification, credit history research. | | Research contractors providing various services, negotiate terms, create business plan and SOP's, evaluate benefits of incorporating business model into DPP. | | Six months after initial sales commence. | | Internal management resources to research contractors, create business model and evaluate potential. 20 hours at $125 hourly rate. $2,500 estimated research cost. |
Creation of online 'Click for Help' queries for customers. | | Create individual field 'help' descriptive screens. | | Two month lead time from closure of first year. | | Contracted IT labor. 120 hours @ $80/hr billable rate. Total estimated cost $9,600. Should provide additional on-line support reducing need for additional IT and customer service support staff. |
We entered into an unsecured promissory note with Mr. Brown in a maximum amount of $500,000, due on demand. Mr. Brown has charged the Company interest at the prime rate (5.00% as of Sept 30, 2008). Interest is calculated on a monthly basis on the principal balance owing on the first day of the month.. The balance as of September 30, 2008 is $311,976 which includes accrued interest of $37,113. Until financing described below has been received, all our costs, which we will incur irrespective of our business development activities, including bank service fees and those costs associated with on-going SEC reporting requirements, estimated to be less than $2,000 per quarter in which a report on Form 10-QSB is required to be filed and $10,000 in the quarter in which a report on Form 10-KSB is required to be filed, will be funded as a loan from management, to the extent that funds are available to do so. Management has advanced $ 633,165 for our operating expenses and any capital expenditures we have acquired as of September 30, 2008. Management is not obligated to provide these or any other funds. If we fail to meet these requirements, we will be unable to secure a qualification for quotation of our securities on the over the counter bulletin board, or if we have secured a qualification, may lose the qualification and our securities would no longer trade on the over the counter bulletin board. Further, if we fail to meet these obligations and as a consequence we fail to satisfy our SEC reporting obligations, investors will now own stock in a company that does not provide the disclosure available in quarterly and annual reports filed with the SEC and investors may have increased difficulty in selling their stock as we will be non-reporting.
We will need to secure a minimum of approximately $50,000 in funds to finance development of our business in the next 12 months, which funds will be used for product development and sales and marketing. However in order to become profitable we may still need to secure additional debt or equity funding. We hope to be able to raise additional funds from an offering of our stock in the future. However, this offering may not occur, or if it occurs, may not raise the required funding. We do not have any plans or specific agreements for new sources of funding, except for the anticipated loans from management as described above, or any planned material acquisitions.
We are a development stage company that as of September 30, 2008 had no cash on hand., We incurred a net loss for the nine months ended September 30, 2008 and 2007 of $34,788 and $92,512 , respectively and since inception has losses of $633,165 of which $473,231 occurred in Driver Passport Inc.
We did raise $39,900 in cash from a private offering of our shares in June 2006. In order to commence operations and become profitable we will need to secure additional debt or equity funding. We have no source of other funding identified. We also hope to be able to raise additional funds from an offering of our stock in the future. We have no agreements, commitments or understandings in place concerning this type of offering. This offering may not occur, or if it occurs, may not raise the required funding.
Our ability to continue as a going concern is dependent on our ability to raise funds to implement our planned development; however we may not be able to raise sufficient funds to do so. Our independent auditors have indicated that there is substantial doubt about our ability to continue as a going concern over the next twelve months. Our poor financial condition could inhibit our ability to achieve our business plan. Because we have not commenced operations, an investor cannot determine if we will ever become profitable.
In February 2007, we entered into a strategic partnership with Corporate Security Services Group in order to enhance existing security services. These services will focus on providing comprehensive employment screening services to site specific security plans.
On September 19, 2008, Driver Passport signed a Letter of Intent to acquire the patent for the proprietary interlocking Inca Block Construction System (ICBS). In Exchange for ICBS, Driver Passport would issue an opinion to Inca Block International, LLC to purchase twenty million shares of common stock of Driver Passport, Inc conditioned upon their availability. Additionally, CEO and majority Shareholder Randy Brown, agrees upon closing to cancel sixteen million five hundred seventy –five thousand shares of common stock in exchange for the assets of Driver Passport, Inc. and Inca Block International, LLC to complete the acquisition
On October 30, 2008, per the LOI, the Company and Inca entered into and closed an Assignment Agreement pursuant to which Inca transferred and assigned the Patent to the Company in consideration for an option to purchase 20,000,000 shares of common stock for an aggregate purchase price of $1.00 per share and 2% of the net sale price of all products manufactured by the Company using the technology in the Patent and then sold or disposed of.
In addition, on October 30, 2008, the Company and Randy Brown, an executive officer, director and shareholder of the Company, entered into and closed an Agreement and Release whereby Mr. Brown agreed to return 16,575,000 shares of common stock of the Company to the Company in consideration for the sale of all of the assets of the Company relating to the driver security program. Further, except for the Promissory Note in the principal amount of approximately $319,000, Mr. Brown agreed to assume all of the liabilities of the Company.
On November 4, 2005, following the cancellation of the 16,575,000 shares of common stock of the Company by Mr. Brown, Inca exercised its option and received 20,000,000 shares of common stock of the Company. Upon issuance of the new shares, Inca became the new majority shareholder of the Company.
Concurrent with the assignment of the Patent to the Company, Daniel D. Correa was appointed as the Chief Executive Officer, Chief Financial Officer and Secretary of the Company as well as a director of the Company. In addition, Mr. Brown resigned as an executive officer of the Company.
Item 3. Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (ÒCEOÓ) and Chief Financial Officer (ÒCFOÓ), of the effectiveness of the Company’s disclosure controls and procedures as of Septemeber 30, 2008. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that: (i) information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure by the Company; and (ii) information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. During the quarter ended September 30, 2008 there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
As of December 31, 2007 management conducted an assessment of the effectiveness of Company's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in ÒInternal Control — Integrated Framework,Ó issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based upon this assessment, we determined that there was a material weakness affecting our internal control over financial reporting and, as a result of that weakness, our disclosure controls and procedures were not effective as of December 31, 2007. The material weakness is as follows:
We did not maintain effective controls to ensure appropriate segregation of duties as the same employees were responsible for the initiating and recording of transactions, thereby creating segregation of duties weaknesses. Due to the (1) significance of segregation of duties to the preparation of reliable financial statements, (2) the significance of potential misstatement that could have resulted due to the deficient controls and (3) the absence of sufficient other mitigating controls, we determined that this control deficiency resulted in more than a remote likelihood that a material misstatement or lack of disclosure within the annual or interim financial statements will not be prevented or detected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A: Risk Factors
A smaller reporting company is not required to provide the information required by this Item.
Item 2. Changes in Securities
The Company accrued at December 18, 2007 the issuance of 50,000 shares of common stock valued at $0.08 per share or $4,000. These shares were earned by Jay Mitchell, an independent consultant, as part of an agreement to market the Company. The shares were issued on April 18, 2008.
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits
| Exhibit # | Name and/or Identification of Exhibit |
| 31.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Attached. |
| | |
| 32.1 | Certification of the Chief Executive Officer and Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
