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 September 30, 2008
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______to______.
CATALYST VENTURES INCORPORATED
(Exact name of registrant as specified in Charter
FLORIDA | 333-147529 | 26-1095171 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File No.) | (IRS Employee Identification No.) |
2049 Century Park East, Suite 4200, Los Angeles, CA 90067
(Address of Principal Executive Offices)
_______________
(310) 451-7400
(Issuer Telephone number)
_______________
(Former Name or Former Address if Changed Since Last Report)
Check whether the issuer (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 Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company x |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes o No x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 20, 2008: 55,153,750 shares of Common Stock.
CATALYST VENTURES INCORPORATED
FORM 10-Q
September 30, 2008
INDEX
PART I-- FINANCIAL INFORMATION
Item 1. | Financial Statements |
Item 2. | Management’s Discussion and Analysis of Financial Condition |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk |
Item 4T. | Control and Procedures |
PART II-- OTHER INFORMATION
Item 1 | Legal Proceedings |
Item 1A | Risk Factors |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 3. | Defaults Upon Senior Securities |
Item 4. | Submission of Matters to a Vote of Security Holders |
Item 5. | Other Information |
Item 6. | Exhibits and Reports on Form 8-K |
SIGNATURE
Item 1. Financial Information
CATALYST VENTURES INCORPORATED
(A Development Stage Company)
FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)
Index to Financial Statements
FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 2008 | PAGE |
Balance Sheets | F-1 |
Statements of Operations | F-2 |
Statement of Stockholders’ Deficit | F-3 |
Statements of Cash Flows | F-4 |
Notes to Financial Statements | F-5 |
Catalyst Ventures Incorporated | ||||||||
(A Development Stage Company) | ||||||||
Balance Sheets | ||||||||
September 30, 2008 | December 31, 2007 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 41 | $ | 25,950 | ||||
Total current assets | 41 | 25,950 | ||||||
Property and equipment (net of accumulated depreciation) | - | 812 | ||||||
Other assets | ||||||||
Deposit on investment | - | 100,000 | ||||||
Deferred acquisition costs | - | 6,000 | ||||||
Total assets | $ | 41 | $ | 132,762 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 22,919 | $ | 8,000 | ||||
Accrued expense reimbursement - related party | 216,275 | 214,732 | ||||||
Notes payable - related party | 75,255 | 127,498 | ||||||
Accrued interest payable - related party | 53,375 | 30,055 | ||||||
Accrued executive compensation | - | 2,400,000 | ||||||
Accrued payroll taxes | - | 69,731 | ||||||
Total current liabilities | 367,824 | 2,850,016 | ||||||
Commitments and contingencies | ||||||||
Stockholders' deficit: | ||||||||
Preferred stock, $.001 par value, 10,000,000 shares | ||||||||
authorized, no shares issued or outstanding | ||||||||
Common stock, $.001 par value, 100,000,000 shares authorized | ||||||||
65,103,750 and 55,047,000 shares issued and outstanding | 55,154 | 55,047 | ||||||
Additional paid in capital | 3,412,264 | 46,953 | ||||||
Common stock payable | - | 34,250 | ||||||
Deficit accumulated during development stage | (3,835,201 | ) | (2,853,504 | ) | ||||
Total stockholders’ deficit | (367,783 | ) | (2,717,254 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 41 | $ | 132,762 | ||||
The accompanying notes are an integral part of these financial statements.
F-1
Catalyst Ventures Incorporated | |||||||||||||
(A Development Stage Company) | |||||||||||||
Statements of Operations | |||||||||||||
(unaudited) | |||||||||||||
For the three months ended | For the nine months ended | For the period September 17, 2007 (Inception to) September | For the period September 17, 2007(inception to) | ||||||||||
September 30, 2008 | September 30, 2008 | 30, 2007 | September 30, 2008 | ||||||||||
Income | $ | - | $ | - | $ | - | |||||||
Expenses | |||||||||||||
Professional services - related party | 29,210 | 55,000 | 84,210 | ||||||||||
Failed acquisition costs | 143,200 | ||||||||||||
Executive compensation | - | 200,000 | 20,833 | 2,600,000 | |||||||||
General & administrative expenses | 15,887 | 621,373 | 3,352 | 845,810 | |||||||||
Depreciation expense | 217 | 651 | - | 1,463 | |||||||||
Deposit on investment written off | 100,000 | 100,000 | - | 100,000 | |||||||||
Deferred acquisition costs written off | 6,000 | 6,000 | - | 6,000 | |||||||||
Loss on property and equipment | 1,143 | 1,143 | - | 1,143 | |||||||||
Total expenses | 123,247 | 958,377 | 79,185 | 3,781,826 | |||||||||
Net operating (loss) | (123,247) | (958,377 | ) | (79,185) | (3,781,826) | ||||||||
Other expense | |||||||||||||
Interest expense - related party | 7,491 | 23,320 | 323 | 53,375 | |||||||||
Total other expense | 7,491 | 23,320 | 323 | 53,375 | |||||||||
Net loss before provision for income taxes | (130,738) | (981,697) | (79,508) | (3,835,201) | |||||||||
Provision for income taxes | - | - | - | ||||||||||
Net (loss) | $ | (130,738) | $ | (981,697) | (79,508) | $ | (3,835,201) | ||||||
Weighted average number of common | |||||||||||||
shares outstanding - basic and fully diluted | 59,814,620 | 67,302,419 | 5,003,357 | ||||||||||
Net loss per share - basic and fully diluted | $ | (0.00) | $ | (0.02) | (0.00) | ||||||||
The accompanying notes are an integral part of these financial statements.
F-2
Catalyst Ventures Incorporated | ||||||||||||||||||||||||||
(A Development Stage Company) | ||||||||||||||||||||||||||
Statement of Stockholders' Deficit | ||||||||||||||||||||||||||
Deficit | ||||||||||||||||||||||||||
Common | Accumulated | |||||||||||||||||||||||||
Additional | Stock Issued | Common | During | Total | ||||||||||||||||||||||
Common Stock | Paid-In | for Prepaid | Stock | Development | Stockholders' | |||||||||||||||||||||
Shares | Amount | Capital | Services | Payable | Stage | Deficit | ||||||||||||||||||||
Shares issued for services - September 17, 2007 | 55,000,000 | $ | 55,000 | $ | - | $ | - | $ | 55,000 | |||||||||||||||||
Shares issued for cash - September 30, 2007 | 47,000 | 47 | 46,953 | 47,000 | ||||||||||||||||||||||
Cash received for common stock payable | 34,250 | 34,250 | ||||||||||||||||||||||||
Net loss for the period | ||||||||||||||||||||||||||
September 17, 2007 (inception) | ||||||||||||||||||||||||||
to December 31, 2007 | (2,853,504) | (2,853,504) | ||||||||||||||||||||||||
Balance, December 31, 2007 | 55,047,000 | 55,047 | 46,953 | 34,250 | (2,853,504) | (2,717,254) | ||||||||||||||||||||
Shares issued for cash - January 18, 2008 | 56,750 | 57 | 56,693 | (34,250) | 22,500 | |||||||||||||||||||||
Common stock issued for prepaid services - March 11, 2008 | 30,000,000 | 30,000 | 22,470,000 | (22,500,000) | ||||||||||||||||||||||
Common stock for prepaid services cancelled - June 9, 2008 | (20,000,000) | (20,000) | (14,455,806) | 14,475,806 | ||||||||||||||||||||||
Amortization of prepaid services paid in common stock | 576,613 | 576,613 | ||||||||||||||||||||||||
Contribution of accrued executive compensation and related payroll taxes | 2,682,055 | 2,682,055 | ||||||||||||||||||||||||
Cash received for common stock payable June 19, 2008 | 50,000 | 50,000 | ||||||||||||||||||||||||
Shares issued for common stock payable- July 25, 2008 | 50,000 | 50 | 49,950 | (50,000) | ||||||||||||||||||||||
Common stock for Prepaid services cancelled - August 13, 2008 | (10,000,000) | (10,000) | (7,437,581) | 7,447,581 | ||||||||||||||||||||||
Net loss for the nine months ended September 30, 2008 | - | - | - | - | - | (981,697) | (981,697) | |||||||||||||||||||
Balance, September 30, 2008 (unaudited) | 55,153,750 | $ | 55,154 | $ | 3,412,264 | $ | - | $ | $ | (3,835,201) | $ | (367,783) | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-3
Catalyst Ventures Incorporated | ||||||||
(A Development Stage Company) | ||||||||
Statements of Cash Flows (unaudited) | ||||||||
For the nine | For the period September 17, | For the period September 17, 2007 | ||||||
months ended September 30, 2008 | 2007 (Inception) to September - 30, 2007 | (inception) to September 30, 2008 | ||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (981,697) | (79,508) | $ | (3,835,201) | |||
Adjustments to reconcile net loss to | ||||||||
net cash used by operating activities: Shares issued for services | - | 55,000 | 55,000 | |||||
Depreciation expense | 651 | 1,463 | ||||||
Amortization of prepaid services paid in common stock | 576,613 | 576,613 | ||||||
Property and equipment written off | 1,143 | 1,143 | ||||||
Deferred acquisition costs written off | 6,000 | 6,000 | ||||||
Deposit on investment written off | 100,000 | 100,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Increase in prepaid expenses | - | (44,275) | - | |||||
Increase in accounts payable | 14,919 | 22,919 | ||||||
Increase in accrued expense reimburse-related party | 1,543 | 216,275 | ||||||
Increase in accrued interest payable - related party | 23,320 | 323 | 53,375 | |||||
Increase in accrued executive compensation | 200,000 | 20,833 | 2,600,000 | |||||
Increase in accrued payroll taxes | 12,324 | 1,729 | 82,055 | |||||
Net cash used by operating activities | (45,184) | (45,898) | (120,358) | |||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (982) | (2,606) | ||||||
Deferred acquisition costs | - | (6,000) | ||||||
Deposit on investment | - | (100,000) | (100,000) | |||||
Net cash used by investing activities | (982) | (100,000) | (108,606) | |||||
Cash flows from financing activities | ||||||||
Proceeds from notes payable - related party | 145,998 | 145,998 | ||||||
Payments on notes payable - related party | (52,243) | (70,743) | ||||||
Proceeds from sales of common stock | 72,500 | 153,750 | ||||||
Net cash provided from financing activities | 20,257 | 145,998 | 229,005 | |||||
Net increase (decrease)/increase in cash | (25,909) | 100 | 41 | |||||
Cash – beginning | 25,950 | - | ||||||
Cash – ending | $ | 41 | 100 | $ | 41 | |||
Supplemental disclosures: | ||||||||
Interest paid | $ | - | $ | - | ||||
Income taxes paid | $ | - | $ | - | ||||
Non-cash transactions: | ||||||||
Common stock issued for prepaid services | $ | 22,500,000 | 55,000 | $ | 22,500,000 | |||
Common stock for prepaid services cancelled | $ | 21,923,387 | $ | 21,923,387 | ||||
Contribution of accrued executive compensation | ||||||||
and related payroll taxes | $ | 2,682,055 | $ | 2,682,055 | ||||
The accompanying notes are an integral part of these financial statements. |
F-4
Catalyst Ventures Incorporated
(A Development Stage Company)
Notes to Financial Statements
(unaudited)
Note 1: Description of Business and Summary of Significant Accounting Policies
Description of Business
Catalyst Ventures Incorporated (A Development Stage Company) (hereafter the “Company”) was organized September 17, 2007 (Date of Inception) under the laws of the State of Florida, as Catalyst Ventures Incorporated. The Company is authorized to issue 10,000,000 shares of its $.001 par value preferred stock and 100,000,000 shares of its $.001 par value common stock.
The business of the Company is focused in the energy industry by providing consulting services while pursuing acquisitions of entities active in the industry. The Company is considered a development stage company and in accordance with Statement of Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by Development Stage Enterprises”.
Cash and Equivalents
For the purpose of the statement of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of September 30, 2008.
Investments
Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such Investee companies is not included in the Balance Sheet or Statement of Operations. However, impairment charges are recognized in the Statement of Operations. If circumstances suggest that the value of the Investee Company has subsequently recovered, such recovery is not recorded.
When a cost method Investee company initially qualifies for use of the equity method, the Company’s carrying value is adjusted for the Company’s share of the past results of the Investee’s operations. Therefore, prior losses could significantly decrease the Company’s carrying value in that Investee Company at that time.
The Company has reviewed its investment for impairment as of September 30, 2008 and has decided to take a full write-off of this investment because management feels that there is no significant operations or revenues in the Investee company to substantiate a value on our financial statements.
Revenue Recognition
The Company has not recognized any revenues as of September 30, 2008. The Company will recognize revenues from consulting engagements when all of the following criteria for revenue recognition have been met; pervasive evidence that an agreement exists; the services have been rendered; the fee is fixed and determinable and not subject to refund or adjustment; and collection of the amount due is reasonably assured. The Company will primarily derive its revenue from business consulting.
Stock-based compensation
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R (revised 2004), “Share-Based Payment,” requiring the Company to recognize expense related to the fair value of its employee stock option awards. SFAS-123R eliminates accounting for share-based compensation transactions using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB-25), Accounting for Stock Issued to Employees, and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
Dividends
The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception.
Loss per Common Share
The Company presents basic loss per share (“EPS”) and diluted EPS on the face of the statement of operations. Basic EPS is computed by dividing reported losses by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if stock options and warrants were exercised into common stock. For the period ended September 30, 2008, the denominator in the diluted EPS computation is the same as the denominator for basic EPS because the Company has no stock options and warrants outstanding.
F-5
Income Taxes
The Company follows Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes” (SFAS No. 109) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense 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 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.
Use of Estimates
The preparation of 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 disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company has financial instruments whereby the fair value of the financial instruments could be different than that recorded on a historical basis in the accompanying balance sheet. The Company’s financial instruments consist of cash and payables. The carrying amounts of the Company’s financial instruments approximate their fair values as of September 30, 2008 due to their short-term nature.
Recent accounting pronouncements
In July 2006, FASB issued Financial Accounting Standards Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 utilizes a two-step approach for evaluating tax positions. Step one, Recognition, occurs when a company concludes that a tax position is more likely than not to be sustained upon examination, Step two, Measurement, is based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle to be recorded as an adjustment to the beginning balance of retained earnings. The Company has adopted the provisions of FIN 48 and the adoption of this standard did not have an impact on the financial position or the results of the Company’s operations.
In September 2006, FASB issued Statement of Financial Accounting Standards (“SFAS”) 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of SFAS 157 will change current practice. The provisions of SFAS 157 are effective as of the beginning of the Company’s 2009 fiscal year. The Company has adopted the provisions of SFAS 157 and the adoption of this standard did not have an impact on the financial position or the results of the Company’s operations.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements” (SAB 108). SAB 108 addresses how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 requires an entity to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. The guidance is applicable for fiscal years ended after November 15, 2006. The Company has adopted the provisions of SAB 108 and the adoption of this standard did not have an impact on the financial position or the results of the Company’s operations.
In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company has adopted the provisions of SFAS 159 and the adoption of this standard did not have an impact on the financial position or the results of the Company’s operations.
F-6
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for the Company with respect to business combinations for which the acquisition date is on or after January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on the consolidated financial position, results of operations, and disclosures.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of noncontrolling owners. SFAS 160 is effective for the Company as of January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on the consolidated financial position, results of operations, and disclosures.
Fiscal Year End
The Company’s fiscal year end is December 31.
Note 2: Going Concern
The accompanying 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 accumulated net losses of $3,835,201 through the period September 30, 2007 (Inception) to September 30, 2008. The Company’s current liabilities exceed its current assets by $367,783 as of September 30, 2008.
These conditions give rise to substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as going concern. The Company’s continuation as a going concern is dependent upon its ability to obtain additional financing or sale of its common stock as may be required and ultimately to attain profitability.
Management’s plan, in this regard, is to raise financing in an amount to be determined through a combination of equity and debt financing. Management believes it will be able to finance the continuing development for the next twelve months. However, there is no assurance that the Company will be successful in raising such financing. As of the date of these financial statements the Company has not secured a firm commitment under its financing plan.
Note 3: Deposit on Investment
On September 25, 2007 the Company signed a Memorandum of Understanding whereby, in return for a debt/equity investment of $200,000 in Oil & Gas Petroleum Corporation (“OGPC”), the Company will earn 4% of the gross profits generated for OGPC under a certain transaction, which OGPC was in the process of finalizing. The Company will earn 4% for all related sales made within the first five years of the agreement up to a maximum commission earned of $400,000. Upon receipt of the first payment to OGPC on the transaction; (1) an initial payment of $25,000 will be paid by Daniel Correa, the chief executive officer of OGPC to the Company; and (2) the Company will begin to be paid monthly payments equal to 15% of prior month’s net profits.
The $200,000 investment shall also entitle the Company to 200,000 shares of restricted voting common stock in OGPC. The stock issued to the Company is restricted in that the Company cannot sell, transfer or otherwise convey the common stock without the prior written approval of OGPC.
As of September 30, 2008 the Company has paid $100,000 for the Debt/Equity Investment. The transaction being negotiated by OGPC had not been finalized as of September 30, 2008. Due to management concerns about the value of the Investment it was written off during the period ended September 30, 2008.
Note 4: Accrued expense reimbursement – Related Party
The Board of Directors of the Company approved the reimbursement to Kenneth Green, an officer and director of the Company of costs and expenses paid by Mr. Green on behalf of the Company totaling $216,275. The reimbursement relates to costs and expenses paid by Mr. Green prior to the organization of the Company including costs and expenses associated with a failed acquisition. The total liability bears interest at 10% per annum with accrued interest totaling $42,519 as of September 30, 2008. See also Note 8. This debt has been purchased by ZumaHedgeFund, LLC an unrelated party.
F-7
Note 5: Note Payable – Related Party
On September 18, 2007, the Company entered into a line of credit promissory note with Kenneth Green, an officer and director of the Company. The note is due upon demand and bears interest at 10% per annum. During the period of September 17, 2007 (Inception) to September 30, 2008, Mr. Green has advanced a total of $145,998 under the note of which the Company has repaid a total of $70,743. The note has accrued interest totaling $10,856 through September 30, 2008. This debt has been purchased by ZumaHedgeFund, LLC an unrelated party.
Note 6: Other Related Party Transactions
On September 17, 2007, the Company hired Kenneth Green to serve as the President of the Company. Mr. Green will be paid an annual salary of $400,000. Mr. Green will also be paid an annual director’s fees of $200,000. The company paid Mr. Ken Green the sum of $29,210 for consulting services in the period ended September 30, 2008 and the sum of $55,000 in the period ended September 30, 2007. These sums were made prior to June 30, 2008 and anyongoing fees relating to this agreement have been suspended as of June 30, 2008.
On September 17, 2007, the Company hired Patricia Hendricks to serve as the Secretary and Treasurer of the Company. Ms. Hendricks will be paid an annual salary of $100,000. Ms. Hendricks is also being paid an annual director’s fees of $100,000. All fees relating to this agreement have been suspended as of June 30, 2008.
The Board of Directors of the Company authorized payments to Mr. Green and Ms. Hendricks of the annual salaries and director fees for years 2005, 2006 and 2007. Accordingly the Company charged $2,400,000 plus the associated payroll taxes of approximately $69,731 to its operation in 2007. An additional amount of $200,000 in salaries and director fees and $12,324 in payroll taxes were charged to operations in 2008.
In 2008 Mr. Green and Ms. Hendricks agreed to waive payment of the accrued compensation of $2,600,000 and the Company classified this accrual and the related payroll taxes of $82,055 as additional paid-in capital.
On March 8, 2008 the Company entered into a professional services contract with Catalyst Financial Group, Inc. (“CFGI”) wherein for a term of five years CFGI will provide the company with business development and executive corporate strategic planning. The Company issued 5,000,000 of restricted common stock as compensation for the services to be performed (see Note 9). Kenneth Green is the Chief Executive Officer, director and shareholder of CFGI. This contract was cancelled and the stock was returned to the company as part of the return of 30,000,000 (See Note 9)
Note 7: Equity
On September 17, 2007, the Company issued 55,000,000 shares of restricted stock in exchange for consulting services rendered valued at $55,000. The common stock was issued to entities that are controlled and owned by the officers and directors. The shares were valued at the fair value of the services.
On September 30, 2007, the Company issued 47,000 shares of our common stock in exchange for a subscription receivable of $47,000. On October 3, 2007, the Company received $47,000 and reduced its subscription receivable balance.
In December 2007, the Company received $34,250 in payment of subscriptions for 34,250 shares of common stock. As the shares of common stock were issued January 18, 2008, the Company recorded a common stock payable for the $34,250 on December 31, 2007.
On June 9, 2008 the company cancelled 20,000,000 shares pursuant to the cancellation of the consulting contracts.
On June 19, 2008, the Company received $50,000 in payment for 50,000 shares of unrestricted common stock. As the shares were issued in July 2008, the Company recorded the $50,000 as a common stock payable.
On July 25, 2008 the Company Issued 50,000 shares in satisfaction of common stock payable totaling $50,000.
On August 13, 2008 the company cancelled 10,000,000 shares pursuant to the cancellation of the consulting contracts.
Note 8: Deferred Acquisition Cost
The Company is in the process of acquiring Stephens Oil Company Incorporated, Aviation Atlanta Incorporated and Ingram Flying Service, Incorporated and in April 2008 executed buy/sell agreements with each of three companies, see Note 9, Commitments and Contingencies. As a part of the negotiations for these acquisitions the Company has paid legal fees associated with the efforts totaling $6,000. The $6,000 was recognized as deferred acquisition costs. Due to the fact that the agreements are in default and any new agreements to complete this acquisition will have to be renegotiated, management believes that the deferred acquisition cost should be written off during the current period ended, September 30, 2008.
F-8
Note 9: Commitments and Contingencies
On December 5, 2007 and March 8, 2008 the Company entered into six contracts to provide professional services in return for 20,000,000 and 10,000,000 shares of restricted common stock respectively, including 5,000,000 shares of restricted common stock issued to Catalyst Financial Group, Inc., (see Note 6). All of the agreements have been assigned an effective date concurrent with the date of issuance of the stock, which is March 18, 2008. The stock has been valued at $.75 (seventy five cents) per share, as the estimated fair market value of the common stock. Accordingly on March 18, 2008, $22,500,000 in prepaid professional fee contracts was recorded on the books of the Company. The prepaids were to be amortized over the lives of the contracts, which bear either one year or five years terms. As of this time all six contracts have been cancelled and the 30,000,000 shares have been returned to treasury. On June 9, 2008 the Company cancelled four of the six contracts to provide professional services and the stock certificates for 20,000,000 shares of the restricted common stock, which represented all of the stock issued for those contracts, were also cancelled and returned to the Company. The related prepaid professional fees recorded on the books of the Company of $15,000,000 less $524,194 of amortization have been reversed on the books of the Company as of June 30, 2008. The agreements provide for the development and implementation of advertising and marketing programs and concurrent efforts at business development.
On August 13, 2008 the Company cancelled the remaining two of the six contracts to provide professional services and the stock certificates for 10,000,000 shares of the restricted common stock, which represented all of the stock issued for those contracts, were also cancelled and returned to the Company. The agreements provide for the development and implementation of advertising and marketing programs and concurrent efforts at business development.
In April 2008 the Company executed a buy/sell agreement with Stephens Oil Company Incorporated (“SOCI”) wherein the Company agreed to exchange 905,000 shares of its common stock for all of the issued and outstanding voting common stock of SOCI. The Company may elect, in lieu of a stock for stock exchange, to purchase all of the issued and outstanding voting common stock of SOCI for $905,000. Further the Company has an option to purchase certain real property associated with the operations of SOCI for the properties fair market value as established by independent MAI appraisal. The agreement provides for a closing date in October 2008 and is contingent only upon the receipt and review by the Company of audited financial statements of SOCI. At this time these agreement remain unclosed and in default. The company is currently completing further due diligence and working with its investment bankers to analyze the viability of closing this acquisition transaction.
Also in April 2008 the Company executed a buy/sell agreement with Aviation Atlanta Incorporated (“AAI”) wherein the Company agreed to exchange 3,000,000 shares of its common stock for all of the issued and outstanding voting common stock of AAI. The Company may elect, in lieu of a stock for stock exchange, to purchase all of the issued and outstanding voting common stock of AAI for $3,000,000. The agreement provides for a closing date in October 2008 and is contingent only upon the receipt and review by the Company of audited financial statements of AAI. At this time these agreement remain unclosed and in default. The company is - currently completing further due diligence and working with its investment bankers to analyze the viability of closing this acquisition transaction.
Also in April 2008 the Company executed a buy/sell agreement with Ingram Flying Service, Incorporated (“IFSI”) wherein the Company agreed to exchange 900,000 shares of its common stock for all of the issued and outstanding voting common stock of IFSI. The Company may elect, in lieu of a stock for stock exchange, to purchase all of the issued and outstanding voting common stock of IFSI for $900,000. The agreement provides for a closing date in October 2008 and is contingent upon both the receipt and review by the Company of audited financial statement of IFSI and approval by the City Council of Dalhart, Texas of the transaction. At this time these agreement remain unclosed and in default. The company is currently completing further due diligence and working with its investment bankers to analyze the viability of closing this acquisition transaction.
Note 10: Subsequent Events
On November 13, 2008, Catalyst Holding Group, LLLP transferred 51,000,000 shares of our common stock to Wilmington Rexford International, Inc. for a price of twenty thousand dollars ($20,000) pursuant to a stock purchase agreement. As of November 13, 2008, Wilmington Rexford International, Inc, assigned 20,000,000 shares of the common stock to Wilmington WorldVest Partners, 20,000,000 shares to CaboWest Group, Inc. and 11,000,000 shares to Javalon Investment Partners. The total of 51,000,000 shares represents 91.9% of our issued and outstanding common stock. Garrett K Krause is the beneficial owner of Wilmington WorldVest Partners, Inc., CaboWest Group, Inc., and Javalon Investment Partners.
On November 13, 2008, Kenneth S. Green resigned as our President, Chief Executive Officer and Chairman of the Board of Directors, and Patricia Hendricks resigned from her position as our Secretary, Treasurer and member of the Board of Directors. Their resignations were not the result of any disagreement with us on any matter relating to our operations, policies and practices.
On November 13, 2008, Garrett K. Krause was appointed as our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer, and Chairman of the Board of Directors.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of the Registration Statement includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
Plan of Operations
During the next twelve months, we expect to take the following steps in connection with the further development of our business and the implementation of our plan of operations:
Fourth Quarter 2008:
We have brokerage sale arrangements with other companies and do not actually recognize revenues from selling any petroleum products under these arrangements. However, we expect to generate fees from our current clients through the brokerage sale arrangements and we will continue to seek out opportunities to enter into new broker agreements representing companies with products focused on various forms of gas, diesel, gasoline, and raw crude. We receive a basic commission on net proceeds of the products sold by the Principal for services under our broker agreements. . During this period we will continue to strengthen our distribution base, broaden our specialized broker relationships and generate fees from the brokerage arrangements.
During this quarter, we may also begin to expand our consulting business and review potential acquisitions outside the energy industry and with our new management team we intend to seek new investment partners in order to raise the necessary funds to acquire operating business. At this time we have not located any specific such investment partners but such partners may include banks, investment funds and broker-dealers.
First Quarter 2009:
We intend to implement our sales and marketing efforts discussed above by preparing sales materials and management's attendance at various industry shows with an emphasis on petroleum products. We also plan to initiate our program to create alliances with other brokerage firms to increase our revenue base and broaden our service offerings.
Second Quarter 2009:
We plan to continue to seek out opportunities to expand our operations and intend to enhance our capabilities by adding personnel or entering into joint ventures with other petroleum brokerage firms. We intend to raise an undetermined amount through debt or equity financing to support our efforts to hire additional consulting staff during this period.
Third Quarter 2009:
If we have not already completed the financing transaction during the last quarter, we intend to close on such additional financing for working capital and corporate overhead. We will also take steps to increase our management staff during this period; specifically seeking personnel who will broaden our current service offerings with a key emphasis on sales and marketing. We intend to actively recruit new board members with appropriate experience to guide the Company's growth plans.
In summary, as of this date we will hopefully be ready to start earning revenue from new consulting contracts introduced by new management. However, there is no assurance that we will be successful in our plan of operations.
Limited Operating History
We have generated one full year of financial information and have not previously demonstrated that we will be able to expand our business through an increased investment in our consulting business. We cannot guarantee that the expansion efforts described in this Registration Statement will be successful. Our business is subject to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our new consulting business, products and/or sales methods.
If financing is not available on satisfactory terms, we may be unable to continue expanding our operations. Equity financing will result in a dilution to existing shareholders.
Results of Operations
For the period from inception through September 30, 2008, we had no revenue. Expenses for the three months ended September 30, 2008 totaled $ 130,738 resulting in a loss of $130,738. Expenses of $ 123,247 for the period consisted of $15,887 for general and administrative expenses, and $217 for depreciation expense, $7,491 for interest expenses - related party. The company recorded a loss of $ 100,000 on Deposit on investment; Deferred Acquisition Cost of $ 6,000 was written off, and Property and equipment of $1,143 was also written off.
Expenses for the nine months ended September 30, 2008 totaled $ 981,697 resulting in a loss of $981,697. These expenses consisted of $29,210 for professional fees - related party, $200,000 for executive compensation, $621,373 for general & administrative expenses, $ 651 in depreciation expense, $23,320 in interest expense. The company recorded a loss of $ 100,000 on Deposit on investment; Deferred Acquisition Cost of $ 6,000 was written off, and Property and equipment of $1,143 was also written off.
Capital Resources and Liquidity
As of September 30, 2008 we had $41 in cash and the Company’s current liabilities exceed its current assets by $367,783 as of September 30, 2008.
Completion of our plan of operation is subject to attaining adequate revenue. We cannot assure investors that adequate revenues will be generated to continue to satisfy our cash requirements for the next twelve months. In the absence of our projected revenues, we may be unable to proceed with our plan of operations. Even without adequate revenues within the next twelve months, we still expect to continue with our present activities, but we may require financing to potentially achieve our profit, revenue, and growth goals.
We anticipate that our operational, and general and administrative expenses for the next 12 months will total approximately $1,000,000. We do not anticipate the purchase or sale of any significant equipment. We also do not expect any significant additions to the number of employees. The foregoing represents our best estimate of our cash needs based on current planning and business conditions. The exact allocation, purposes and timing of any monies raised in subsequent private financings may vary significantly depending upon the exact amount of funds raised and our progress with the execution of our business plan.
In the event we are not successful in reaching our initial revenue targets, additional funds may be required, and we may not be able to proceed with our business plan for the development and marketing of our core services. Should this occur, we would likely seek additional financing to support the continued operation of our business. We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
Critical Accounting Policies
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience 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 or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report
Investments
Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such Investee companies is not included in the Balance Sheet or Statement of Operations. However, impairment charges are recognized in the Statement of Operations. If circumstances suggest that the value of the Investee Company has subsequently recovered, such recovery is not recorded.
When a cost method Investee company initially qualifies for use of the equity method, the Company’s carrying value is adjusted for the Company’s share of the past results of the Investee’s operations. Therefore, prior losses could significantly decrease the Company’s carrying value in that Investee Company at that time.
The Company has reviewed its investment for impairment as of September 30, 2008 and has decided to take a full write-off of this investment because management feels that there is no significant operations or revenues in the Investee Company to substantiate a value on our financial statements.
Revenue Recognition
The Company has not recognized any revenues to date. The Company will recognize revenues from consulting engagements when all of the following criteria for revenue recognition have been met; pervasive evidence that an agreement exists; the services have been rendered; the fee is fixed and determinable and not subject to refund or adjustment; and collection of the amount due is reasonably assured. The Company will primarily derive its revenue from business consulting.
Stock-based compensation
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R (revised 2004), “Share-Based Payment,” requiring the Company to recognize expense related to the fair value of its employee stock option awards. SFAS-123R eliminates accounting for share-based compensation transactions using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB-25), Accounting for Stock Issued to Employees, and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
Recent accounting pronouncements
In July 2006, FASB issued Financial Accounting Standards Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 utilizes a two-step approach for evaluating tax positions. Step one, Recognition, occurs when a company concludes that a tax position is more likely than not to be sustained upon examination, Step two, Measurement, is based on the largest amount of benefit, which is more likely than not to be realized on ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle to be recorded as an adjustment to the beginning balance of retained earnings. The Company has adopted the provisions of FIN 48 and the adoption of this standard did not have an impact on the financial position or the results of the Company’s operations.
In September 2006, FASB issued Statement of Financial Accounting Standards (“SFAS”) 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of SFAS 157 will change current practice. The provisions of SFAS 157 are effective as of the beginning of the Company’s 2009 fiscal year. The Company has adopted the provisions of SFAS 157 and the adoption of this standard did not have an impact on the financial position or the results of the Company’s operations.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements” (SAB 108). SAB 108 addresses how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 requires an entity to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. The guidance is applicable for fiscal years ended after November 15, 2006. The Company has adopted the provisions of SAB 108 and the adoption of this standard did not have an impact on the financial position or the results of the Company’s operations.
In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company has adopted the provisions of SFAS 159 and the adoption of this standard did not have an impact on the financial position or the results of the Company’s operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for the Company with respect to business combinations for which the acquisition date is on or after January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on the consolidated financial position, results of operations, and disclosures.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of noncontrolling owners. SFAS 160 is effective for the Company as of January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on the consolidated financial position, results of operations, and disclosures.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4T. Controls and Procedures
a) Evaluation of Disclosure Controls. Garrett Krause, our Chief Executive Officer and Principal Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of our third fiscal quarter 2008 pursuant to Rule 13a-15(b) of the Securities and Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation, Mr. Krause concluded that our disclosure controls and procedures were effective as of September 30, 2008.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions
(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our management team will continue to evaluate our internal control over financial reporting in 2008 as we implement our Sarbanes Oxley Act testing.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Currently we are not aware of any litigation pending or threatened by or against the Company.
Item 1A. Risk Factors.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
Item 6. Exhibits and Reports of Form 8-K.
(a) Exhibits
31.1 Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1 Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
(b) Reports of Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CATALYST VENTURES INCORPORATED | ||
Date: November 19, 2008 | By: | /s/ GARRETT K. KRAUSE |
GARRETT K. KRAUSE | ||
Chairman, CEO, and Director |