FERO INDUSTRIES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2010
Statements of Cash Flows (unaudited)
| | | |
| | | From |
| | | December 11, |
| For the | For the | 2000 |
| six | six | (Date of |
| months | months | inception) |
| ended | ended | to |
| Dec 31, | Dec 31, | Dec 31, |
| 2010 | 2009 | 2010 |
Cash Flows Used in Operating Activities: | | | |
Net Loss | $ (238,485) | $ (14,155) | $ (567,490) |
Adjustments to reconcile net (loss) to net cash | | | |
provided by operating activites: | | | |
Impairment of bioceutical assets | | | 250,000 |
Issuance of stock for services rendered | 210,000 | - | 211,600 |
(Increase) in prepaid expense | (28,000) | - | (28,000) |
Increase in accounts payable | 22,615 | 14,155 | 28,765 |
Increase in accured interest | 5,813 | - | 5,813 |
| | | |
Net Cash Used in Operating Activities | (28,057) | - | (99,312) |
| | | |
Cash Flows from Investing Activities: | - | - | - |
| | | |
Cash Flows from Financing Activities: | | | |
Issuance of common stock for cash | - | - | 35,000 |
Advances from shareholder | 28,057 | - | 64,312 |
| | | |
Net Cash Provided by Financing Activities | 28,057 | - | 99,312 |
| | | |
Net Increase (Decrease) in Cash | - | - | - |
| | | |
Cash at Beginning of Period | - | - | - |
| | | |
Cash at End of Period | $ - | $ - | $ - |
| | | |
Non-Cash Investing & Financing Activities | | | |
Issuance of stock for management services rendered | $ - | $ - | $ 1,600 |
Acquisition of bioceutical assets for promisorry note | $ - | $ - | 250,000 |
| | | |
FERO INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2010
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
NATURE OF OPERATIONS
Fero Industries, Inc. (the “Company”) was incorporated under the laws of the State of Colorado on December 11, 2000. The Company’s activities to date have been limited to organization and capital formation. The Company is a “development stage company”.
BASIS OF PRESENTATION
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars.
The accompanying unaudited financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. In the opinion of management, all adjustments considered necessary for a fair presentation of the results for the interim periods have been made and are of a normal, recurring nature. Operating results for the three months ended December 31, 2010 are not necessarily indicative of the results that may be expected for any interim period or the entire year. For further information, these financial statements and the related notes should be read in conjunction with the Company’s audited financial statements for the year ended June 30, 2010 included in the Company’s report on Form 10-K.
NOTE 2 – NATURE OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue at the time services are performed.
USE OF ESTIMATES
The preparation of the Company’s financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s short-term financial instruments consist of cash and cash equivalents and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short-term maturities. The Company does not hold or issue financial instruments for trading purposes nor does it hold or issue interest rate or leveraged derivative financial instruments.
F-4
FERO INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2010
EARNINGS PER SHARE
Basic Earnings per Share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. Basic and diluted EPS are the same for the Company, as of December 31, 2010, as the Company does not have any common share equivalents outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s short-term financial instruments consist of cash and cash equivalents and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short-term maturities. The Company does not hold or issue financial instruments for trading purposes nor does it hold or issue interest rate or leveraged derivative financial instruments.
EARNINGS PER SHARE
Basic Earnings per Share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. Basic and diluted EPS are the same for the Company, as of December 31, 2010, as the Company does not have any common share equivalents outstanding.
INCOME TAXES
The Company uses the asset and liability method of accounting, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of certain assets and liabilities. Deferred income tax assets and liabilities are computed annually for the difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities.
Deferred income taxes may arise from temporary differences resulting from income and expanse items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. As of December 31, 2010, the Company has recorded a valuation allowance to fully offset the deferred tax asset of approximately $116,000 related to its cumulative net operating losses of $342,177.
F-5
FERO INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2010
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash. During the year the Company did not maintain cash deposits at financial institution in excess of the $100,000 limit covered by the Federal Deposit Insurance Corporation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect that the adoption of recent accounting pronouncements will have a material impact on its financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned and majority owned subsidiaries, including businesses acquired since their respective dates of acquisition. All intercompany transactions and balances have been eliminated.
NOTE 3 – ACQUISITION OF DOMAIN NAMES AND DEPOSITS
On April 20, 2007, the Company entered into an asset purchase and sale agreement with Mr. Jerry Capehart of Grand Prairie, Texas whereby he sold to us a 100% undivided right title and interest in seventeen internet domain names for a total purchase price of $180,000. Terms of the purchase are as follows: $5,000 to Mr. Capehart and 12,500,000 shares of our common stock as a non-refundable deposit (recorded as Deposits on the Balance Sheet) and an additional $75,000 on or before June 30, 2008. All domain names are fully valid and registered and ready for construction. The Company did not execute this contract by the closing date of June 30, 2010. As such, the Company has not recorded the liability or corresponding asset related to this sale agreement in its financial statements.
NOTE 4– ACQUISITION OF SUCANON
On May 23, 2010, Fero Industries, Inc., a Colorado corporation, (the "Company") entered that certain Asset Acquisition Agreement (the "Agreement") with Gvest, Inc., (“Gvest”) an Ontario, Canada corporation. Pursuant to the terms and conditions of the Agreement, the Company acquired certain assets directly related to the manufacturing, sale and distribution of that certain product known as Sucanon, which is an herbal remedy for Type II Diabetes. The acquired assets include all of the intellectual property rights, training, and “know how” to manufacture and produce Sucanon, including sources and suppliers of Sucanon ingredients and mixing equipment; certain associated trademarks and patents ("Acquired Assets"). The Acquired Assets include the exclusive world-wide rights to manufacture, sell and distribute Sucanon. The Company purchased the Acquired Assets for an aggregate purchase price of $250,000. The Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions. Breaches of the representations and warranties were subject to customary indemnification provisions, subject to specified aggregate limits of liability. This transaction closed on July 7, 2010.
F-6
FERO INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2010
NOTE 5 – COMMON STOCK
On December 11, 2000 the Company issued 15,00,000 shares of its common stock to its President and Chief Executive Officer, Kyle Schlosser at a deemed price of $0.001 per share or $600 in return for his time effort and expense of forming the company and keeping it in good standing.
On December 28, 2006 the Company issued 12,500,000 shares of our common stock to our Secretary/Treasurer and Chief Financial Officer, Leigh-Ann Squire at a deemed price of $0.001 per share or $500 in return for her agreement to join our Board of Directors, become an officer of the registrant and his agreement to provide the computer and internet expertise in constructing our websites and providing the server for operation of the sites, at no charge.
As referred to in Note 4 above, on April 20, 2007 the Company issued 12,500,000 shares of our common stock to Mr. Jerry Capehart of Grand Prairie, Texas at a deemed price of $0.001 per share, or $500, as a good faith deposit for seventeen domain names relating to the oil and gas industry.
On April 30, 2007 the Company issued 77,500,000 shares of our common stock to thirty-one non US persons at a price of $0.01 per share.
On May 10, 2007 the Company issued 10,000,000 shares of our common stock to three US individuals (one representing a Grandchildren’s Trust), at a price of $0.01 per share.
On November 18, 2008 the Board of Directors of the registrant passed unanimously a resolution authorizing a forward split of the authorized and issued and outstanding common shares on a three to one (5 – 1) basis bringing the total common shares issued and outstanding to 25,500,000. The forward split has been retroactively recorded in the financial statements of the Company as if the forward split had occurred at the inception of the Company and the authorized common shares have increased to 500,000,000.
On April 15, 2010 the Board of Directors of Fero Industries (the Registrant) passed a resolution declaring a stock dividend of four (4) shares of common stock for each share held, of record as of April 20, 2010. The common shares of the Registrant will be considered Ex Dividend on April 21, 2010. This brings the total issued and outstanding common shares to 127,500,000. All share references in these financial statements have been retroactively adjusted for this stock dividend.
On September 22, 2010, the Company issued 5,250,000 shares of stock for legal and consulting services, valued at $.04 per share, which was the closing price of the stock on that date.
NOTE 6- ADVANCES
As of December 31, 2010 and June 30, 2010, the Company has received advances from a shareholder in the amount of $64,312 and $36,255, respectively. These advances are non-interest bearing, unsecured, and have no fixed terms of repayment.
F-7
FERO INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2010
NOTE 7- PROMISSORY NOTE
On June 24, 2010, we issued a Two Hundred Fifty Thousand Dollars ($250,000) Promissory Note (the “Note”) in favor of Mr. Peter Hogendoorn (the “Lender”). The Note contains standard representations, and warranties and affirmative and negative covenants, and is described in greater detail below. The Note
memorializes a loan made by the Lender to the Company, in order for the Company to close that certain Asset Acquisition Agreement with Gvest. The Note accrues simple interest at a rate equal to 1% over the average Canadian Prime Rate and is due 30 days from the date executed, or thereafter by mutual agreement of the parties hereto, the principal and all accrued interest thereon shall be due and payable within ten (10) days of written demand by Holder. Additionally, the Note may be repaid in whole or in part by the Company without penalty or premium at any time and from time to time prior to the Maturity Date.
NOTE 8- PREPAID EXPENSES
During the quarter ended December 31 2010 the company advanced to Pharmaroth SA de CV 28,000
For the future production of the Sucanon Type II Diabetes treatment.
NOTE 8– GOING CONCERN
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has no sales and has incurred a net loss of $567,490 since inception. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its mineral properties. Management has plans to seek additional capital through a private placement and public offering of its common stock. The financial statements do not include any adjustments relating to the recoverability and classifications of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
NOTE 9-SUBSEQUENT EVENTS
On January 26, 2011 The Company filed a registration statement on Form S-8 with the Securities and Exchange Commission registering 14,000,000 shares and subsequently issued 14,000,000 shares for Legal and consulting services.
F-8
ITEM2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis or Plan of Operation (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should specifically consider various factors, including the risk factors outlined below. These factors may cause our actual results to differ materially from any forward-looking statements. A lthough we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
On May 23, 2010, Fero Industries, Inc., a Colorado corporation, (the "Company") entered that certain Asset Acquisition Agreement (the "Agreement") with Gvest, Inc., (“Gvest”) an Ontario, Canada corporation. Pursuant to the terms and conditions of the Agreement, the Company acquired certain assets directly related to the manufacturing, sale and distribution of that certain product known as Sucanon, which is an herbal remedy for Type II Diabetes.
The acquired assets include all of the intellectual property rights, training, and “know how” to manufacture and produce Sucanon, including sources and suppliers of Sucanon ingredients and mixing equipment; certain associated trademarks and patents ("Acquired Assets"). The Acquired Assets include the exclusive world-wide rights to manufacture, sell and distribute Sucanon. The Company purchased the Acquired Assets for an aggregate purchase price of $250,000. The Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions. Breaches of the representations and warranties were subject to customary indemnification provisions, subject to specified aggregate limits of liability.
On June 29, 2010, the Company and Gvest determined that all closing conditions had been met and that the transaction should therefore close based on the terms and conditions thereof. On July 1, 2010, the Company received such documents necessary to conduct complete and full due diligence relating to the Acquired Assets.
On July 7, 2010, the Company determined, based on a full review and the completion of due diligence related to the Acquired Assets, the Company has determined that the Acquired Assets will allow the Company to move forward with its new business plan to make, manufacture and distribute Sucanon world-wide.
Overview
Fero’s mission is to acquire healthcare related companies, products, and technologies that have large market potential, improve the quality of care, or have unmet needs. Fero is focused on the medical device, biotechnology, pharmaceutical, nutraceutical, and healthcare IT industries. Fero's mission is to create and enhance shareholder value via a growth-by-acquisition strategy by acquiring synergistic companies, products, and technologies that have large market potential, improve the quality of care, or have unmet needs.
Fero’s initial focus is on diabetes. The Company has acquired the intellectual property and other exclusive world-wide rights related to the production, marketing, and distribution of Sucanon also known as Diab II, a treatment for Type II diabetes.
Sucanon is approved and is sold as an Over-The-Counter ("OTC") herbal remedy for Type II diabetes in Mexico and as a prescription pharmaceutical in Peru. Sucanon has also undergone clinical trials in China and Brazil. Application for United States Food and Drug Administration (“FDA”) approval of Sucanon has not been made. As such, it is not offered for sale nor approved for sale in the United States at this time. The Company will consider applying for FDA approval in the near future.
Current Product
Sucanon is one of only several drugs in the world, belonging to a class of diabetic medications called insulin sensitizers. Insulin sensitizers lower blood sugar by increasing the muscle, fat and liver’s sensitivity to insulin. Insulin sensitizers are blood sugar normalizing or euglycemic drugs that help return the blood sugar to the normal range without the risk of low blood sugars.
| |
|
| 1. Insulin binding to receptors and entering the cell, (which is impeded in NIDDM patients), is essential for the uptake of glucose; 2. Sucanon increases the binding of insulin to its receptors; |
| 3. Sucanon increases the internalization of insulin; and, 4. As a result, Sucanon increases the intracellular level of insulin, which then increases the uptake of glucose. |
Sucanon is a medication that helps the body make better use of its own insulin, the hormone that controls blood sugar levels. Type II Diabetics produce insulin, but their cells gradually lose the ability to absorb and use insulin to get sugar out of the blood stream. Sucanon transports sugar out of the blood stream and into cells where it can be burned. Sucanon particularly helps muscle cells use insulin and thus draws sugar out of the blood stream.
Sucanon increases sensitivity to insulin which leads to decreased blood sugar levels and a reduction of a wide range of Type II Diabetes symptoms, including: weight gain, fatigue, excess thirst and excess urination. The reduction in blood sugar levels also reduces the possibility of peripheral nerve damage; this damage caused to peripheral nerves by chronic high blood sugar can ultimately lead to impotence in men and amputation of limbs in both men and women.
Sucanon is an herbal medication. It is derived from the combination of the dried root oftricosanthis and molybdenum, a light metal. Sucanon’s chemical name is manitolatodimolybdate.
Clinical Trial Summary:
Clinical trials on Sucanon were performed in China. After submission of a New Drug Application ("NDA") Sucanon was approved by the State Food and Drug Administration (SFDA) of China. Subsequent clinical trials were also performed on Sucanon in Brazil, yet the trials have not yet been completed.
Sucanon clinical trials (seeClinical Results for more detailed information on trial results) were shown to reduce the problems and symptoms of Type II Diabetes:
High blood sugar: Clinical studies have shown that Sucanon reduces blood sugar readings by about 25% - 30% and brings high blood sugar back into the normal range (non-fasting blood sugar is above 200 mg/dL (milligrams per deciliter) or fasting blood sugar is above 126 mg/dL).
Fatigue: Clinical studies have shown that Sucanon reduces fatigue. Fatigue is a frequent symptom of Type II Diabetes or a pre-diabetic condition called Impaired Glucose Tolerance.
Weight gain: Clinical studies have shown that people who have taken Sucanon report weight loss along with increased energy. Very often, people who are diabetic or pre-diabetic gain weight because their insulin-resistance leads to sugar being converted into fat instead of being burned to produce energy.
Excess thirst and urination: Clinical studies have shown that Sucanon reduces excess thirst and excess urination. Higher-than-normal levels of blood sugar instigate thirst, which in turn leads to increased frequency of urination.
High cholesterol and triglyceride levels: Clinical studies have shown that Sucanon reduces the levels of cholesterol and triglycerides. People who are diabetic or pre-diabetic often have elevated cholesterol and triglyceride levels. Elevated cholesterol and triglycerides significantly increase the risk of heart disease.
Side effects: Clinical studies have shown that Sucanon showed no side effects. This setsSucanon apart from many other anti-diabetic products, which can have effects on digestion, the liver, or the heart.
Toxicity: Clinical studies have shown that Sucanon toxicity was undistinguishable from the placebo. Inaddition, Sucanon showed no carcinogenicity, mutagenicity, and teratogenicity in mice.
Clinical Results
Clinical Experience
The clinical benefits of Sucanon were convincingly demonstrated in a double-blind, randomized, placebo- & Glibenclamide-controlled, multi-center, efficacy and safety study in 370 adult patients with Type II diabetes. Sucanon was administered as tablets, one in the morning and one in the evening. The duration of the study was 6 months: four months treatment, preceded by one month screening evaluation, and followed by one month post-treatment follow-up. Glibenclamide is a commonly prescribed sulfonylurea; its benefits and limitations have been well known to diabetologists for over a decade. The parameters of response to therapy included an evaluation of the changes in clinical signs and symptoms of diabetes, an alteration in the blood and urine measurements of glucose metabolism, and an alteration in blood lipid levels.
The results indicated that the parameters of disease activity in patients receiving either Glibenclamide or Sucanon responded in a highly relevant clinical manner and that the differences from baseline measurements were statistically highly significant (p values <0.01). The lack of response in the group of patients who were randomized to receive placebo was also unequivocal, where the effect of administration was clinically small or non-existent, and the baseline to treatment difference was statistically insignificant (p value >0.05). An extract of the data is summarized in the following graphs and tables.
Table 1
Changes in glucose abnormalities in 370 Type II diabetic patients in 3 treatment groups of the randomized, double-blind, controlled study (before treatment and at the end of treatment analyses)
Table 2
Results from table 1 expressed as “Percent Improvement” (baseline to end of treatment)
Response to therapy was documented not only by a loss of, or a reduction in, disease related symptoms which included polyuria, polvdipsia, polyphagia, and fatigue, but also by the improvement in objective parameters of disease, namely, a reduction to normal or near normal levels in the elevated fasting blood glucose, and urinary sugar, and a normalization of the 100 g - oral glucose tolerance test. The objective results are given in table 1 above where the mean and standard deviations for these Values are listed, as well as the calculated "t" and “p" values. Given that the coefficient of variance of baseline values for the three treatment groups is small, and the patient number per group relatively large (n = 123), a between treatment group comparison is not unreasonable.
These calculations (not shown) reveal that the improvements associated with therapy for both the Glibenclamide group of patients and the Sucanon group of patients were both better than placebo for all objective parameters measured to a level that was statistically significant (p Values <0.05 to <0.01 respectively. This was not surprising from the t values listed in table 1. The difference in reduction of fasting blood glucose between the latter treatment groups was not statistically significant (p value >.0.05).
Table 3
Sucanon associated improvements in blood lipid levels
Pre-clinical pharmacology
Pre-clinical in vivo and in vitro studies have identified that intravenous and oral Sucanon is pharmacodynamically active in diabetic rats, and out-performed all biguanides and sulfonylureas tested in those models. When added to rat muscle cells, its critical influence commences in seconds as it up-regulates insulin receptors, in a manner not yet understood, with the resultant increase in insulin endocytosis, uptake of glucose, and L-leucine effects, all of which last more than an hour.
In single-dose rat studies, peak response in lowering blood glucose takes 2 to 4 hours to occur, and the effect is lost by about 10 hours. Multiple oral dosing in rats (48 days) and up to 4 months in man, shows no loss of activity. Clear-cut pharmacological dose-response features were documented. Sucanon is also superior to other hypoglycemic agents in these models.
Toxicity
The therapeutic index is so large (10,000 in mice) that its margin of safety must be unique in the armamentarium of drugs for the treatment of diabetes. Carcinogenicity, mutagenicity, and teratogenicity toxicities were not found in mice. Chronic dosing in dogs and rats at 2000 times the therapeutic dose was free of any toxicity.
Sucanon Regulatory Approvals:
Sucanon has been approved for prescription sale in Peru and has been approved as an over-the-counter (non-prescription) product in Mexico. Application for United States FDA regulatory approval has not yet been made. Thus, doctors cannot prescribe nor purchase Sucanon in the United States. However, Type II diabetics can buy Sucanon for their own use and have it delivered to them from Mexico under the U.S. FDA’s “personal importation” guidelines. A similar program exists for Type II diabetics in Canada who wish to buy Sucanon for their own use.
RESULTS OF OPERATIONS
We are an development stage company and have no revenues to date.
We incurred operating expenses of $3,500 and $1,750 for the three month periods ended December 31, 2010 and 2009, respectively. The increase of $1,750 is a result of general and administrative expenses over the prior period.
During the three months ended December 31, 2010, we recognized a net loss of $15,313 compared to a net loss of $1,750 for the three months ended December 31, 2009. The increase was a result of the increase in operational expenses and interest expense as discussed above.
Liquidity and Capital Resources
At December 31, 2010, we had total assets of $28,000 consisting of cash in the form of prepaid expenses. At December 31, 2010, we had total current liabilities of $348,890 consisting of accounts payable of $28,765, advances from shareholders of $64,312, and a promissory note for $250,000 and accrued interest expense $5,813.
During the six months ended December 31, 2010, we used cash of $28,057 in operations. During the six months ended December 31, 2010, net losses of $238,485 were adjusted for any non-cash items. During the six months ended December 31, 2009, net losses of $14,155 were not adjusted for any non-cash items.
During the six months ended December 31, 2010 and 2009, we did not have any cash flows from investment activities.
During the six months ended December 31, 2010, we received $28,057 from our financing activities. During the three months ended December 31, 2009, we received $0 from our financing activities
Quarterly Developments
On August 31, 2010, the Company’s Board of Directors appointed Luis Manuel Ornelas Lopez as a member of the Board of Directors by unanimous written consent.
On September 20, 2010, the Company registered on Form S-8, the 2010 Share Incentive Plan, under which the Company is authorized to issue up to twenty million (20,000,000) shares of the Company’s common stock to the Company’s employees, executives and consultants.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in note 1 of the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.” The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.
In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 2010-10), “Consolidation (Topic 810): Amendments for Certain Investment Funds.” The amendments in this Update are effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009 and for interim periods within that first reporting period. Early application is not permitted. The Company’s adoption of provisions of ASU 2010-10 did not have a material effect on the financial position, results of operations or cash flows.
In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements.” ASU No. 2010-06 amends FASB Accounting Standards Codification (“ASC”) 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers’ disclosures about postretirement benefit plan assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statements.
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.
In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect th e timing or amount of revenue recognition. This standard, for which the Company is currently assessing the impact, will become effective on January 1, 2011.
In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. This standard, for which the Company is currently assessing the impact, will become effective on January 1, 2011.
In June 2009, the FASB issued guidance now codified as FASB ASC Topic 105,Generally Accepted Accounting Principles, as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP, aside from those issued by the SEC. ASC 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. The adoption of ASC 105 did not have a material impact on the Company’s consolidated financial statements, but did eliminate all references to pre-codification standards.
In May 2009, FASB issued ASC 855,Subsequent Events, which establishes general standards of for the evaluation, recognition and disclosure of events and transactions that occur after the balance sheet date. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards. The standard, which includes a new required disclosure of the date through which an entity has evaluated subsequent events, is effective for interim or annual periods ending after June 15, 2009. The adoption of ASC 855-10 did not have a material effect on the Company’s consolidated financial statements. Refer to Note 5.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act, as of December 31, 2010. Based on this evaluation, our principal executive officer and principal financial officer concluded as of December 31, 2010, that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to management, including our principal executive officer/principal financial officer, as appropriate, to allow timely decisions regarding requ ired disclosure.
Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are 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. Due to 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, within the Company have been detected.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") inInternal Control-Integrated Framework. Our management has concluded that, as of December 31, 2010, our internal control over financial reporting is effective based on these criteria.
Changes in Internal Control over Financial Reporting
Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.
The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 1A.
RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
1. Quarterly Issuances:
During the quarter, we did not issue any unregistered securities other than as previously disclosed.
2. Subsequent Issuances:
Subsequent to the quarter, we did not issue any unregistered securities other than as previously disclosed.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.
[REMOVED AND RESERVED]
ITEM 5.
OTHER INFORMATION.
ITEM 6.
EXHIBITS
