UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
_______________
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2015
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: 001-34858
___________________________________________________
ALTERNATIVE INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
___________________________________________________
| Nevada | 98-0568076 | ||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||
1900 South Norfolk Street, Suite 350 San Mateo, CA | 94403 | ||
| (Address of principal executive offices) | (Zip Code) |
(650) 577-5933
(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 Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x No o
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company" in Rule 12b-2 of the Exchange Act:
| Large accelerated filer 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. Yesx No o
As of February 11, 2016 the registrant had 8,638,750 shares of its Common Stock, $0.001 par value, outstanding.
ALTERNATIVE INVESTMENT CORPORATION
FORM 10-Q
DECEMBER 31, 2015
INDEX
| Page | ||
| PART I -- FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 3 |
| Balance Sheets as of December 31, 2015 (unaudited) and September 30, 2015 | 3 | |
| Statements of Operations for the Three Months ended December 31, 2015 and 2014 (unaudited) | 4 | |
| Statements of Cash Flows for the Three Months Ended December 31, 2015 and 2014 (unaudited) | 5 | |
| Notes to Financial Statements (unaudited) | 6 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 |
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 12 |
| Item 4. | Controls and Procedures | |
| PART II -- OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 14 |
| Item 1.A. | Risk Factors | 14 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
| Item 3. | Defaults Upon Senior Securities | 14 |
| Item 4. | Mine Safety Disclosures | 14 |
| Item 5. | Other Information | 14 |
| Item 6. | Exhibits | 14 |
| SIGNATURE | 15 | |
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
ALTERNATIVE INVESTMENT CORPORATION
Balance Sheets
| December 31, | September 30, | |||||||
| 2015 | 2015 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 28,507 | $ | 124,531 | ||||
| Acquisition deposit | 50,000 | – | ||||||
| Interest receivable | 8,482 | 4,450 | ||||||
| Total current assets | 86,989 | 128,981 | ||||||
| Investment in cost-method investee | – | – | ||||||
| Investment in commercial paper | 200,000 | 200,000 | ||||||
| Total assets | $ | 286,989 | $ | 328,981 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 60,669 | $ | 47,795 | ||||
| Notes payable | – | 34,882 | ||||||
| Accrued interest | – | 3,465 | ||||||
| Amount due to shareholder | 311,973 | 311,973 | ||||||
| Total current liabilities | 372,642 | 398,115 | ||||||
| Total liabilities | 372,642 | 398,115 | ||||||
| Stockholders' deficit: | ||||||||
| Common stock, $.001 par value, 1,600,000,000 shares authorized,8,648,808 shares issued and 8,638,750 shares outstanding at December 31, 2015 and September 30, 2015, respectively | 8,649 | 8,649 | ||||||
| Additional paid-in capital | 454,241 | 454,241 | ||||||
| Common stock issuable, 1,562,500 shares | 25,000 | – | ||||||
| Treasury stock, at cost | (80 | ) | (80 | ) | ||||
| Accumulated deficit | (573,463 | ) | (531,944 | ) | ||||
| Total stockholders' deficit | (85,653 | ) | (69,134 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 286,989 | $ | 328,981 | ||||
See accompanying notes to financial statements.
| 3 |
ALTERNATIVE INVESTMENT CORPORATION
Statements of Operations
(unaudited)
| For the Three Months Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Net revenue | $ | – | $ | – | ||||
| Cost of revenue | – | – | ||||||
| Gross profit | – | – | ||||||
| General and administrative expenses | 42,965 | 16,786 | ||||||
| Loss from operations | (42,965 | ) | (16,786 | ) | ||||
| Other income (expense): | ||||||||
| Interest income | 4,032 | – | ||||||
| Interest expense | (2,586 | ) | (2,079 | ) | ||||
| Total other income (expense) | 1,446 | (2,079 | ) | |||||
| Loss before income taxes | (41,519 | ) | (18,865 | ) | ||||
| Provision for income taxes | – | – | ||||||
| Net loss | $ | (41,519 | ) | $ | (18,865 | ) | ||
| Net loss per share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Weighted average number of shares outstanding - Basic and Diluted | 9,487,935 | 8,080,058 | ||||||
See accompanying notes to financial statements.
| 4 |
ALTERNATIVE INVESTMENT CORPORATION
Statements of Cash Flows
(unaudited)
| For the Three Months Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (41,519 | ) | $ | (18,865 | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Accretion of beneficial conversion feature as interest | 2,157 | 1,299 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Interest receivable | (4,032 | ) | – | |||||
| Accounts payable | 12,874 | 14,701 | ||||||
| Accrued interest | (3,465 | ) | 780 | |||||
| Net cash used in operating activities | (33,985 | ) | (2,085 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Acquisition deposit | (50,000 | ) | – | |||||
| Net cash used in by investing activities | (50,000 | ) | – | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of notes payable | – | 5,039 | ||||||
| Payments on notes payable | (37,039 | ) | – | |||||
| Proceeds from sale of common stock subscriptions | 25,000 | – | ||||||
| Net cash provided by (used in) financing activities | (12,039 | ) | 5,039 | |||||
| Net (decrease) increase in cash | (96,024 | ) | 2,954 | |||||
| Cash and cash equivalents at beginning of period | 124,531 | – | ||||||
| Cash and cash equivalents at end of period | $ | 28,507 | $ | 2,954 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 3,894 | $ | – | ||||
| Cash paid for taxes | $ | – | $ | – | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Beneficial conversion feature on convertible note payable | $ | – | $ | 1,260 | ||||
See accompanying notes to financial statements.
| 5 |
ALTERNATIVE INVESTMENT CORPORATION
Notes to Financial Statements
December 31, 2015
(unaudited)
Note 1 – Nature of Business, Presentation and Going Concern
Organization
Alternative Investment Corporation (the "Company") was incorporated in Nevada on March 26, 2007 under the name of China Digital Ventures Corporation. The principal business of the Company was its web based telecom and IPTV businesses, both of which were disposed of during the year ended September 30, 2010. As of the date hereof, the Company has no operations.
On July 23, 2010, the Company experienced a change in control. Canton Investments Ltd (“CIL” or “Canton”) acquired a majority of the issued and outstanding common stock of the Company in accordance with stock purchase agreements by and between CIL and Wireless One International Limited (“Wireless One”), Bing HE and Ning HE, the Company’s former directors, and other various shareholders. On the closing date, July 23, 2010, pursuant to the terms of the Stock Purchase Agreement, CIL purchased from Wireless One and Bing HE and Ning HE 28,750,000 shares of the Company’s outstanding common stock for $205,750. Also on July 23, 2010, CIL purchased 6,100,000 shares of the Company’s outstanding common stock for $36,600 from various shareholders. As a result of the change in control, CIL owned a total of 34,850,000 shares of the Company’s common stock representing 91.54%.
On May 10, 2012, the Company filed an amendment to its Articles of Incorporation in the State of Nevada to change its name to Paradigm Resource Management Corporation.
On September 10, 2012, CIL contributed 30,000,000 shares of common stock to the Company’s treasury. The Company immediately retired and canceled these shares. As a result of the contribution of shares, CIL owns a total of 4,850,000 shares of the Company’s common stock representing 60%.
On July 24, 2013, the Company entered into an agreement with AMSA Development Technology Co Ltd (“AMSA”) to acquire 402,300 shares of TOSS Plasma Technologies Ltd. (“TPT”) previously held by AMSA in exchange for 896,667 shares of its common stock. The 402,300 shares of TPT represent 10.1% of TPT’s outstanding common stock. The agreement also provides AMSA an option to acquire an additional 1,120,833 shares of the Company’s common stock and provides the Company an option to acquire an additional 402,300 shares of TPT common stock from AMSA.
On December 4, 2013, the Company and AMSA entered into an Amendment to the Agreement dated July 24, 2013. Under the terms of the amendment, the Company had the option to acquire up to a total of 3,432,000 shares of TPT from AMSA and AMSA had the option to acquire up to a total of 5,746,667 shares of common stock of the Company. The options expired on June 2, 2014.
On September 10, 2015, the Company and AMSA entered into a Rescission Agreement to fully rescind the previous acquisition agreement of shares of TPT and returned previously issued shares of each company to each other.
On September 18, 2015, the Company filed an amendment to its Articles of Incorporation in the State of Nevada to change its name to Alternative Investment Corporation.
The Company is dedicated to managing investments in alternative asset classes with a primary focus on distressed debt and real estate opportunities.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial statement presentation and in accordance with Form 10-Q. Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
These unaudited financial statements should be read in conjunction with our 2015 annual financial statements included in our Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on January 13, 2016.
| 6 |
ALTERNATIVE INVESTMENT CORPORATION
Notes to Financial Statements
December 31, 2015
(unaudited)
Note 1 – Nature of Business, Presentation and Going Concern (Continued)
Going Concern
The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred a net loss of $41,519 for the three months ended December 31, 2015 and has incurred cumulative losses since inception of $573,463. The Company has a stockholders’ deficit of $85,653 at December 31, 2015. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its abilities to generate revenues, to continue to raise investment capital, and develop and implement its business plan. No assurance can be given that the Company will be successful in these efforts.
The unaudited financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern. No assurance can be given that the Company will be successful in these efforts.
Note 2 – Related Party Transactions
As of December 31, 2015 and September 30, 2015, $311,973 was due to Canton. The loan is unsecured, non-interest bearing and there is no repayment date.
Note 3 – Acquisition Deposit
On December 16, 2015, the Company entered into a non-binding Memorandum of Understanding (”MOU”) with Basil and Barns, Inc. (“B&B Inc.”), Fess Holdings LLC, Basil and Barns LLC and JIF Holdings LLC to acquire 55% of the outstanding common shares of B&B Inc. Under the MOU, the Company is to invest $1,215,000 including a $500,000 5 year loan at 7% interest per annum, and $715,000 for its 55% interest in B&B Inc. On November 9, 2015, the Company paid a refundable deposit of $50,000 towards the anticipated amounts. B&B Inc. is to acquire 110 acres of land in Bethel, NY which is to be developed into a hotel property. The parties are still negotiating a definitive agreement as of December 31, 2015.
Note 4 – Investment in Commercial Paper
During the year ended September 30, 2015, the Company invested in two $100,000 convertible bonds from Bullion Japan Inc. for a total investment of $200,000. The bonds mature July 3, 2017 and June 8, 2018, respectively, earn interest at eight percent (8%) per annum paid quarterly, and are convertible into common stock of Bullion Japan Inc. at the Company’s option any time prior to the maturity date at a price of JPY ¥8,035 ($6.46) per share. As of December 31, 2015 and September 30, 2015, $8,482 and $4,450 of interest has been accrued and included in the statement of operations as interest income, respectively.
| 7 |
ALTERNATIVE INVESTMENT CORPORATION
Notes to Financial Statements
December 31, 2015
(unaudited)
Note 5 – Notes Payable
Notes payable consisted of the following at December 31, 2015 and September 30, 2015:
| December 31, 2015 | September 30, 2015 | |||||||||||||||||
| Principal, | Principal, | |||||||||||||||||
| Unamortized | net of | Unamortized | net of | |||||||||||||||
| Principal | Discount | Discounts | Principal | Discount | Discounts | |||||||||||||
| On December 19, 2014 the Company entered into a convertible promissory note with a an investor in the amount of $5,039. Terms include simple interest at fifteen percent (15.0%), the note is due on December 19, 2015 and is convertible at the option of the holder at a price calculated at a twenty percent discount to the average VWAP of the last 30 days trading prior to the date of conversion. The note was fully paid on November 2, 2015. | – | – | – | 5,039 | (276 | ) | 4,763 | |||||||||||
| On January 1, 2015 the Company entered into a convertible promissory note with a an investor in the amount of $22,000. Terms include simple interest at fifteen percent (15.0%), the note is due on January 5, 2016 and is convertible at the option of the holder at a price calculated at a twenty percent discount to the average VWAP of the last 30 days trading prior to the date of conversion. The note was fully paid on November 2, 2015. | – | – | – | 22,000 | (1,446 | ) | 20,554 | |||||||||||
| On May 1, 2015 the Company entered into a convertible promissory note with a an investor in the amount of $10,000. Terms include simple interest at ten percent (10.0%), the note is due on November 1, 2015 and is convertible at the option of the holder at a price calculated at a twenty percent discount to the average VWAP of the last 30 days trading prior to the date of conversion. The note was fully paid on November 2, 2015. | – | – | – | 10,000 | (435 | ) | 9,565 | |||||||||||
| $ | – | $ | – | $ | – | $ | 37,039 | $ | (2,157 | ) | $ | 34,882 | ||||||
As of December 31, 2015 and September 30, 2015, accrued interest on the above loans was $-0- and $3,465, respectively. Interest expense was $2,586 (including accretion of beneficial conversion feature of $2,157) and $2,079 (including accretion of beneficial conversion feature of $1,299) for the three months ended December 31, 2015 and 2014, respectively.
| 8 |
ALTERNATIVE INVESTMENT CORPORATION
Notes to Financial Statements
December 31, 2015
(unaudited)
Note 6 – Stockholders’ Deficit
The Company has authorized 1,600,000,000 shares of Common Stock, $0.001 par value. As of December 31, 2015 and September 30, 2015, the Company had 8,648,808 shares of Common Stock issued and 8,638,750 shares outstanding.
Pursuant to the Agreement dated July 24, 2013, the Company was obligated to issue 896,667 restricted shares of its common stock to AMSA in exchange for 402,300 shares of TOSS Plasma Technologies Ltd. (“TPT”). The value of the shares of $7,173, or $0.008 per share, was based on the price of shares previously sold to investors and is included in common stock issuable in the balance sheet at September 30, 2014. During the year ended September 30, 2014, 10,058 of the shares due to AMSA were issued, reducing the amount of common stock issuable to $7,093 at September 30, 2014.
On September 10, 2015, the Company and AMSA entered into a Rescission Agreement to fully rescind the previous acquisition agreement of shares of TPT. As a result of the Rescission Agreement, The $7,093 of common stock issuable was reduced to $-0- at September 30, 2015 and AMSA returned the 10,058 shares previously issued to them. The returned shares are included Treasury stock at their cost of $80 at December 31, 2015 and September 30, 2015.
During the three months ended December 31, 2015, the Company received a $25,000 subscription for the purchase of 1,562,500 shares. As the shares had not been issued as of December 31, 2015, the $25,000 balance is included in common stock issuable in the balance sheet at December 31, 2015.
Note 7 – Subsequent Events
The Company has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined that there are no such events that warrant disclosure or recognition in the financial statements.
| 9 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-Q are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate and, therefore, there can be no assurance the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
The forward-looking statements included in this Form 10-Q and referred to elsewhere are related to future events or our strategies or future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "believe," "anticipate," "future," "potential," "estimate," "encourage," "opportunity," "growth," "leader," "expect," "intend," "plan," "expand," "focus," "through," "strategy," "provide," "offer," "allow," commitment," "implement," "result," "increase," "establish," "perform," "make," "continue," "can," "ongoing," "include" or the negative of such terms or comparable terminology. All forward-looking statements included in this Form 10-Q are based on information available to us as of the filing date of this report, and the Company assumes no obligation to update any such forward-looking statements, except as required by law. Our actual results could differ materially from the forward-looking statements.
Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 and in our subsequent filings with the Securities and Exchange Commission. The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.
Company Overview
Alternative Investment Corporation (the "Company") was incorporated in Nevada on March 26, 2007 under the name of China Digital Ventures Corporation. The principal business of the Company was its web based telecom and IPTV businesses, both of which were disposed of during the year ended September 30, 2010. As of the date hereof, the Company has no operations.
On July 23, 2010, the Company experienced a change in control. Canton Investments Ltd (“CIL” or “Canton”) acquired a majority of the issued and outstanding common stock of the Company in accordance with stock purchase agreements by and between CIL and Wireless One International Limited (“Wireless One”), Bing HE and Ning HE, the Company’s former directors, and other various shareholders. On the closing date, July 23, 2010, pursuant to the terms of the Stock Purchase Agreement, CIL purchased from Wireless One and Bing HE and Ning HE 28,750,000 shares of the Company’s outstanding common stock for $205,750. Also on July 23, 2010, CIL purchased 6,100,000 shares of the Company’s outstanding common stock for $36,600 from various shareholders. As a result of the change in control, CIL owned a total of 34,850,000 shares of the Company’s common stock representing 91.54%.
On May 10, 2012, the Company filed an amendment to its Articles of Incorporation in the State of Nevada to change its name to Paradigm Resource Management Corporation.
On September 10, 2012, CIL contributed 30,000,000 shares of common stock to the Company’s treasury. The Company immediately retired and canceled these shares. As a result of the contribution of shares, CIL owns a total of 4,850,000 shares of the Company’s common stock representing 60%.
On July 24, 2013, the Company entered into an agreement with AMSA Development Technology Co Ltd (“AMSA”) to acquire 402,300 shares of TOSS Plasma Technologies Ltd. (“TPT”) previously held by AMSA in exchange for 896,667 shares of its common stock. The 402,300 shares of TPT represent 10.1% of TPT’s outstanding common stock. The agreement also provides AMSA an option to acquire an additional 1,120,833 shares of the Company’s common stock and provides the Company an option to acquire an additional 402,300 shares of TPT common stock from AMSA.
| 10 |
On December 4, 2013, the Company and AMSA entered into an Amendment to the Agreement dated July 24, 2013. Under the terms of the amendment, the Company had the option to acquire up to a total of 3,432,000 shares of TPT from AMSA and AMSA had the option to acquire up to a total of 5,746,667 shares of common stock of the Company. The options expired on June 2, 2014.
On September 10, 2015, the Company and AMSA entered into a Rescission Agreement to fully rescind the previous acquisition agreement of shares of TPT and returned previously issued shares of each company to each other.
On September 18, 2015, the Company filed an amendment to its Articles of Incorporation in the State of Nevada to change its name to Alternative Investment Corporation.
Plan of Operation
The Company is dedicated to managing investments in alternative asset classes with a primary focus on distressed debt and real estate opportunities.
Results of Operations
For the Three Months Ended December 31, 2015 and 2014
Revenues
The Company had no revenue for the three months ended December 31, 2015 and 2014.
Operating Expenses
For the three months ended December 31, 2015 total operating expenses were $42,965 compared to $16,786 for the three months ended December 31, 2014 resulting in an increase of $26,179. The increase in operating expenses primarily relates to increases in consulting and professional fees.
We incurred $2,586 of interest expense, of which $2,157 was the accretion of the beneficial conversion features on convertible promissory notes for the three months ended December 31, 2014. We incurred $2,079 of interest expense, of which $1,299 was the accretion of the beneficial conversion features on convertible promissory notes for the three months ended December 31, 2014. We realized $4,032 of interest income from the investment in commercial paper for the three months ended December 31, 2015 compared to $-0- for the three months ended December 31, 2014. Our net loss to our shareholders for the three months ended December 31, 2015 and 2014 was $41,519 and $18,865, respectively.
Liquidity and Capital Resources
Overview
As of December 31, 2015, the Company cash of $28,507 and a deficit in working capital of $285,653. Historically, our operating expenses have been funded and paid by CIL and by the issuance of notes payable and sale of our common stock.
We do not have sufficient resources to effectuate our business. We expect to incur a minimum of $1,600,000 in expenses and acquisitions during the next twelve months of operations.
Liquidity and Capital Resources during the Three Months Ended December 31, 2015 compared to the Three Months ended December 31, 2014
We used cash for operating activities of $33,985 and $2,085 for the three months ended December 31, 2015, and 2014, respectively. The elements of cash flow used in operations for the three months ended December 31, 2015 included a net loss of $41,519 offset by the accretion of beneficial conversion features of $2,157 and by changes in net operating assets and liabilities of $5,377. The elements of cash flow used in operations for the three months ended December 31, 2014 included a net loss of $18,865 offset by interest accrued on notes payable of $780, accretion of beneficial conversion features of $1,299 and increases in accounts payable of $14,701.
We used $50,000 cash in investing activities for a refundable deposit on a potential acquisition during the three months ended December 31, 2015. We used no cash in investing activities during the three months ended December 31, 2014.
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Cash used in our financing activities was $12,039 for the three months ended December 31, 2015, compared to cash generated of $5,039 during the comparable period in 2014. The financing activities for the three months ended December 31, 2015 consisted of $37,039 of repayments on notes payable offset by $25,000 received for a subscription for the sale of our common stock while the cash provided by financing activities for the three months ended December 31, 2014 consisted of $5,039 of proceeds from a note payable.
We will have to raise funds to pay for our expenses. We may have to borrow money from shareholders or issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for our operations will have a severe negative impact on our ability to remain a viable company.
Going Concern
Due to the uncertainty of our ability to meet our current operating and capital expenses, our independent auditors included an explanatory paragraph in their report on the audited financial statements for the year ended September 30, 2015 regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Our unaudited financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our unaudited financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
There is no assurance that our operations will be profitable. Our continued existence and plans for future growth depend on our ability to obtain the additional capital necessary to operate either through the generation of revenue or the issuance of additional debt or equity.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2, “Summary of Significant Accounting Policies” in our audited financial statements for the year ended September 30, 2015, included in our Annual Report on Form 10-K as filed on January 13, 2016, for a discussion of our critical accounting policies and estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The disclosure required under this item is not required to be reported by smaller reporting companies; as such term is defined by Item 503(e) of
Regulation S-K.
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Item 4. Controls and Procedures.
| (a) | Evaluation of Disclosure Controls and Procedures |
In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company's management, with the participation of the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")) as of December 31, 2015. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Company's management concluded, as of the end of the period covered by this report, that the Company's disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission's rules and forms, and that such information was accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.
| (b) | Changes in Internal Control over Financial Reporting |
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company, threatened against or affecting our company or our common stock in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
The disclosure required under this item is not required to be reported by smaller reporting companies; as such term is defined by Item 503(e) of Regulation S-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of equity securities during the quarter ended December 31, 2015.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
| Exhibit 31.1 | Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). |
| Exhibit 31.2 | Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). |
| Exhibit 32.1 | Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Exhibit 32.2 | Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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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.
| Date: February 11, 2016 | By: | /s/ Daniel Otazo |
| Daniel Otazo | ||
Interim Chief Executive Officer Chief Financial Officer (Principal Executive and Financial Officer) |
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