UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A
(Amendment No. 2)
GENERAL FORM FOR REGISTRATION OF SECURITIES
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
AUSTIN ACQUISITIONS, INC.
Name of Small Business Issuer in its charter)
| Nevada | 27-3768248 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 2328 B Hartford Road, Austin Texas | 78703 |
| (Address of principal executive offices) | (Zip Code) |
Issuer’s telephone number: (512) 750-5844
Securities to be registered under Section 12(b) of the Act:
| Title of each class to be so registered | Name of each exchange on which each class is to be registered |
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Securities to be registered under Section 12(g) of the Act:
common stock, par value $0.0001 per share
(Title of class)
(Title of class)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company x |
| (Do not check if a smaller reporting company) | |
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Item 1. Description of Business
Introduction.
Austin Acquisitions, Inc. (“we”, “us”, the “Company” or like terms) was incorporated in the State of Nevada on October 21, 2010. We are a developmental stage company and have not generated any revenues to date. Since inception, we have not engaged in any business operations other than in connection with our organization and the preparation and filing of this registration statement on Form 10 (the “Registration Statement”). We have no full-time employees and do not own or lease any property.
We were organized to serve as a vehicle for a business combination through a reverse merger, reverse acquisition, capital stock exchange, asset acquisition or other similar business combination (a “Business Combination”) with an operating or development stage business (the “Target Business”) which desires to utilize our status as a reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Based on our proposed business activities, we are a “blank check company” and a “shell company,” as such terms are defined by The U.S. Securities and Exchange Commission (the “SEC”). Under Rule 419 of the Securities Act of 1933, as amended (the “Securities Act”), the SEC defines a "blank check company" as a development stage company that has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person; and that is issuing "penny stock," as defined in under the Exchange Act. Under SEC Rule 12b-2 of the Exchange Act the Company also is a “shell company,” because we have no or nominal assets (other than cash) and no or nominal operations. Many states have enacted statutes, rules and regulations limiting the sale of securities of "blank check" companies in their respective jurisdictions. Management does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination.
We do not have any specific Business Combination under consideration. We have not identified or been provided with the identity of, or had any direct or indirect contact with, potential targets. Additionally, we have not engaged or retained any agent or other representative to identify or locate any suitable target, although we may do so after the effective date of this Registration Statement. Our efforts to identify a prospective Target Business will not be limited to a particular industry or geographic location.
Our current financial condition may negatively impact our ability to consummate a Business Combination. As of the date of this Registration Statement, we are not generating any revenue and at February 14, 2011, we had $360 of cash on hand, total liabilities of $14,150 and losses of $10,150. Over the next twelve months, we estimate that we will incur costs and expenses in connection with the preparation and filing of reports under the Exchange Act and implementing appropriate corporate governance mechanisms and internal controls and procedures of approximately $15,000. We are unable to provide an estimate of the costs we may incur in connection with identifying and evaluating Targets Businesses or costs we may incur in connection with entering into a Business Combination given the multitude of variables associated with such activities. Our ongoing expenses will result in continued net operating losses that will increase until we can consummate a Business Combination with a profitable Target Business, if ever. Our cash on hand will not be sufficient to cover our operating costs over the next twelve months. Though our current stockholders have advised us of their present intention to fund our costs and expenses going forward through loans or further investment in the Company, there is no written agreement binding them to do so.
As a result of our lack of operations and revenues, lack of significant assets or financial resources and net capital deficiency, coupled with our continuing cash requirements, the report of our independent auditor and the notes to the financial statements included in this Registration Statement indicate that there is substantial doubt about the Company’s ability to continue as a going concern.
We cannot assure you that we will be successful in concluding a Business Combination. We will not realize any revenues or generate any income unless and until we successfully merge with or acquire an operating business that is generating revenues and otherwise is operating profitably. Moreover, we can offer no guarantee that the Company will achieve long-term or immediate short-term earnings from any Business Combination.
Effecting a Business Combination.
General.
We are not presently engaged in, and we will not engage in, any substantive commercial business for an indefinite period of time following the effective date of this Registration Statement until we identify a Target Business and enter into a Business Combination, if ever. A Business Combination may involve the acquisition of, or merger with, a company which desires to have a class of securities registered under the Exchange Act, while avoiding what its management may deem to be the adverse consequences of undertaking a public offering itself. These include time delays, significant expenses, possible loss of voting control and compliance with various rigorous federal and state securities laws. As more fully described below under the heading “Form of acquisition; Opportunity for stockholder approval,” the proposed structure of any Business Combination may not require that we seek stockholder approval for the transaction and holders of our common stock may not have the opportunity to vote upon any such Business Combination.
We have not identified a target business or target industry.
To date, we have not selected any Target Business or target industry on which to concentrate our search for a Business Combination. Our sole director and officer has not engaged in discussions on our behalf with representatives of other companies regarding the possibility of a potential merger, reverse acquisition, capital stock exchange, asset acquisition or other similar Business Combination with us, nor have we been approached by any candidates (or representatives of any candidates) with respect to a possible Business Combination with us. Additionally, we have not, nor has anyone on our behalf, taken any measure, directly or indirectly, to identify or locate any suitable Target Business, nor have we engaged or retained any agent or other representative to identify or locate such a Target Business. We have not conducted any research with respect to identifying the number and characteristics of the potential Target Business candidates. As a result, we cannot assure you that we will be able to locate a Target Business or that we will be able to engage in a Business Combination with a Target Business on favorable terms, if at all.
We have not established any specific attributes or criteria (financial or otherwise) for prospective Target Businesses. To the extent we affect a Business Combination with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we may be affected by numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. Although our management will endeavor to evaluate the risks inherent in a particular Target Business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
Sources of target businesses.
Management expects that Target Business candidates could be brought to our attention from various unaffiliated sources, including members of the financial community, as well as accountants and attorneys who represent potential Target Business candidates. Target Business candidates may be brought to our attention by these unaffiliated sources as a result of being solicited by us through calls or mailings. These sources may also introduce us to Target Business candidates in which they believe we may have an interest on an unsolicited basis . Our management, as well as his affiliates, may also bring to our attention Target Business candidates of which he becomes aware through his business contacts, as a result of formal or informal inquiries or discussions he may have, as well as attending trade shows or conventions. After the effective date of this Registration Statement, we may engage the services of professional firms or other individuals that specialize in business acquisitions, in which event we may pay a finder’s fee, consulting fee or other compensation to be determined in an arm’s length negotiation. We have not adopted any policies with respect to utilizing the services of consultants or advisors to assist in the identification of a Target Business, the criteria to be used in selecting such consultants or advisors, the services to be provided, the term of service, or regarding the total amount of fees that may be paid. However, because of our limited resources, it is likely that any such fee we agree to pay would be paid in shares of our common stock.
Selection criteria of a Target Business.
We have not established any specific attributes or criteria (financial or otherwise) for prospective Target Businesses. In evaluating a prospective Target Business, our management will consider, among other factors, the following:
| | ● | financial condition and results of operations; |
| | ● | growth potential; |
| | ● | experience and skill of management and availability of additional personnel; |
| | ● | capital requirements; |
| | ● | competitive position; |
| | ● | barriers to entry; |
| | ● | stage of development of the products, processes or services; |
| | ● | degree of current or potential market acceptance of the products, processes or services; |
| | ● | proprietary features and degree of intellectual property or other protection of the products, processes or services; |
| | ● | regulatory environment of the industry; and |
| | ● | costs associated with affecting the Business Combination. |
These criteria are not intended to be exhaustive or to in any way limit the board of director’s unrestricted discretion to enter into a Business Combination with any Target Business. Any evaluation relating to the merits of a particular Business Combination will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by our management.
Due Diligence Investigation.
In evaluating a prospective Target Business, we will conduct as extensive a due diligence review of potential targets as possible in view of our lack of financial resources and the inexperience of our management in such endeavors. We may enter into a Business Combination with a privately-held company in its early stages of development or that has only a limited operating history on which to base our decision. Generally, very little public information exists about these companies and we will be required to rely on the ability of our management to obtain adequate information to evaluate the potential returns from entering into a Business Combination with such a company. We expect that our due diligence may include, among other things, meetings with the Target Business’s incumbent management and inspection of its facilities, as well as a review of financial and other information that is made available to us. This due diligence review will be conducted by our management, possibly with the assistance of the Company's counsel and accountants, as necessary.
Our limited funds and the lack of full-time management will likely make it impractical to conduct an exhaustive investigation and analysis of a Target Business candidate before we consummate a Business Combination. Management decisions, therefore, will likely be made without detailed feasibility studies, independent analyses, market surveys and the like, which, if we had more funds available to us, would be desirable. We will be particularly dependent in making decisions upon information provided by the promoters, owners, sponsors or others associated with the business opportunity seeking our participation.
It is unlikely that our management at the time of a Business Combination, if we are able to consummate one, will continue in any material capacity with the Company after the consummation of a Business Combination, other than as a stockholder.
Our assessment of a Target Business and its management may not be accurate. If we do not uncover all material information about a Target Business prior to a Business Combination, we may not make a fully informed investment decision and we may lose money on our investment.
The time and costs required to select and evaluate a Target Business and to structure and complete a Business Combination, if we are able to consummate one, cannot presently be ascertained with any degree of certainty. Any costs we incur with respect to the identification and evaluation of a prospective Target Business with which a Business Combination is not ultimately completed may result in a loss to us.
Lack of diversification.
We expect that we will be able to consummate a Business Combination with only one candidate, if we are able to consummate such a transaction at all, given that, among other considerations, we will not have the resources to diversify our operations. Moreover, given that we likely will offer a controlling interest in our Company to a Target Business in order to achieve a tax-free reorganization, as described below, the dilution of interest to present and prospective stockholders will render more than one Business Combination unlikely. Therefore, at least initially, the prospects for our success may be entirely dependent upon the future performance of a single business and we will not benefit from the possible spreading of risks or offsetting of losses that Business Combinations with multiple operating entities would offer. By consummating a Business Combination with a single entity, our lack of diversification may:
| · | result in our dependency upon the development or market acceptance of a single or limited number of products, processes or services; and |
| · | subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to a Business Combination. |
Form of acquisition; Opportunity for stockholder approval.
The manner in which we participate in a Business Combination, if we are able to consummate such a transaction at all, will depend upon, among other things, the nature of the opportunity and the respective requirements and desires of management of our Company and of the Target Business. In addition, the structure of any Business Combination will be dispositive as to whether stockholder approval of the Business Combination is required.
It is likely that we will acquire our participation in a business opportunity by the acquisition of Target Company through the issuance of our common stock or other securities to the shareholders of the Target Business in exchange for all of the outstanding stock of the Target Company. Upon the consummation of such a transaction, our board of directors would resign and appoint to our board persons selected by the Target Company and the Target Company would be a wholly owned subsidiary of our Company. In the case of an acquisition, the transaction may be accomplished in the sole determination of management without any vote or approval by stockholders.
Although the terms of an acquisition of a Target Business cannot be predicted, it is likely that we will seek to structure a Business Combination to qualify as a tax free transaction under the Internal Revenue Code of 1986, as amended (the "Code"). One such form of “tax free” transaction, if structured properly, entails the exchange of capital stock of the Target Business for our capital stock. Under Section 368(a)(1) of the Code, in order for a stock exchange transaction to qualify as a "tax free" reorganization, the holders of the stock of the target must receive a number of shares of our capital stock equal to 80% or more of the voting stock of our Company. If a transaction were structured to take advantage of these provisions rather than other "tax free" provisions provided under the Code, our existing stockholders would in such circumstances retain 20% or less of the total issued and outstanding shares of the surviving entity. Depending upon the relative negotiating strength of the parties, stockholders at the time of the Business Combination may retain substantially less than 20% of the total issued and outstanding shares of our Company. This could result in substantial additional dilution to the equity of those persons who were stockholders of our Company prior to such Business Combination.
In the case of a statutory merger or consolidation directly involving the Company, it might be necessary to call a stockholders' meeting and obtain the approval of the holders of a majority of the outstanding shares of common stock. The necessity to obtain stockholder approval may result in delay and additional expense in the consummation of any proposed transaction, which we may not be able to fund, and will also give rise to certain appraisal rights to dissenting stockholders. Accordingly, management will seek to structure any Business Combination so as not to require stockholder approval.
In the case of either an acquisition or merger, our stockholders prior to the consummation of a Business Combination likely will not have control of a majority of the voting shares of the Company following a Business Combination. As part of such a transaction, all or a majority of the Company's then directors may resign and new directors may be appointed without any vote by stockholders.
Given that we are a “shell company” and the Target Business with which we consummate a Business Combination likely will be involved in business operations at the time of the transaction, the acquisition or merger transaction would be referred to as a “reverse acquisitions” or “reverse merger.”
It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs incurred in the related investigation would not be recoverable. Furthermore, even if an agreement is reached for a Business Combination, the failure to consummate that transaction may result in the loss to the Company of the related costs incurred.
Competition
Our ability to consummate a Business Combination will be constrained by our lack of financial resources to provide to the Target Business. We expect that in the course of identifying, evaluating and selecting a Target Business, we may encounter intense competition from other entities having a business objective similar to ours. These include blank check companies that have raised significant sums through sales of securities registered under federal securities laws that have a business plan similar to ours and consequently possess a significant competitive advantage over our Company both from a financial and personnel perspective. Additionally, we may be subject to competition from other entities having a business objective similar to ours, including venture capital firms, leveraged buyout firms and operating businesses looking to expand their operations through acquisitions. Many of these entities are well established, possess significant capital and have extensive experience identifying and affecting business combinations directly or through affiliates. Moreover, nearly all of these competitors possess greater technical, human and other resources than we do. In addition, we will experience competition from other modestly capitalized shell companies that are seeking to enter into business combinations with targets similar to those we expect to pursue.
If we succeed in affecting a Business Combination, there will be, in all likelihood, intense competition from competitors of the Target Business. We cannot apprise you of any of these risks nor can we assure you that, subsequent to a Business Combination, we will have the resources or ability to compete effectively.
Employees.
We have one executive officer. This individual is not obligated to devote any specific number of hours to our matters and intends to devote only as much time as he deems necessary to our affairs. The amount of time he will devote in any time period will vary based on whether a Target Business has been selected for the Business Combination and the particular stage of the Business Combination process. Accordingly, once a suitable Target Business is identified, we expect that he will spend more time investigating such Target Business and negotiating and processing the Business Combination than he would prior to locating a suitable Target Business. We do not expect to have any full time employees prior to the consummation of a Business Combination.
Our sole officer and director may engage in other business activities similar and dissimilar to those in which we are engaged, including other shell companies, without any limitations or restrictions applicable to such activities. To the extent that he engages in such other activities, he will have possible conflicts of interest in diverting opportunities which would be appropriate for our Company to other companies, entities or persons with which they are or may be associated or have an interest, rather than diverting such opportunities to us. Our management's affiliation with competing businesses in the future would raise possible conflicts of interest in as much as he may divert opportunities which would be appropriate for our Company to such other company or to other entities or persons with which he is or may be associated or have an interest, rather than presenting such opportunities to us. We cannot assure you that potential conflicts of interest will not result in the loss of potential opportunities or that any conflict will be resolved in our favor.
Our officer and director may actively negotiate for or otherwise consent to the disposition of all or any portion of the shares of common stock he owns, as a condition to, or in connection, with a Business Combination. Therefore, it is possible that the terms of any Business Combination will provide for the sale of all or a portion of his shares of common stock which would raise issues relating to a possible conflict of interest with our other security holders.
Periodic Reporting and Audited Financial Statements; Disclosure of Business Combination.
Upon the effective date of this Registration Statement, our class of common stock will be registered under the Exchange Act and we will be subject to the reporting requirements of the Exchange Act, including the obligation to file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports will contain financial statements audited and reported on by our independent registered public accountants. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as we are subject to those requirements. We are not required to deliver an annual report to security holders and at this time, we do not anticipate distributing such report to our security holders.
Upon the consummation of a Business Combination, the Company will file with the Securities and Exchange Commission a current report on Form 8-K to disclose the Business Combination, the terms of the transaction and a description of the business and management of the Target Business, among other things, and will include audited consolidated financial statements of the Company giving effect to the Business Combination.
Holders of the Company’s securities will be able to access the Form 8-K and other filings made by the Company on the EDGAR Company Search page of the Securities and Exchange Commission’s Web site, the address for which is “www.sec.gov.”
An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Registration Statement before making a decision to invest in our securities. If any of the following risks occur, our business, financial condition and results of operations may be materially adversely affected.
We are a newly formed, development stage company with no operating history and no revenues and, accordingly, you will not have any basis on which to evaluate our ability to achieve our business objective.
We are a recently incorporated development stage company with no operating results to date. Because we do not have an operating history, you will have no basis upon which to evaluate our ability to achieve our business objective, which is to acquire an operating business. We have not conducted any discussions and we have no plans, arrangements or understandings with any prospective acquisition candidates and may be unable to complete a Business Combination. We will not generate any revenues until after the consummation of a Business Combination, if at all.
The absence of operations and revenues raises substantial doubt about our ability to continue as a going concern.
The report of our independent auditor and Note H to the financial statements included in this registration statement indicate that the Company is in the development stage, has suffered losses from operations, has a net capital deficiency and has yet to generate cash flow, and that these factors raise substantial doubt about the Company’s ability to continue as a going concern. In addition, we have no significant assets or financial resources. We will continue to sustain operating expenses without corresponding revenues, at least until the consummation of a Business Combination. This will result in continued net operating losses that will increase until we can consummate a Business Combination with a profitable Target Business. In light of our limited resources, we cannot assure you that we will be able to continue operations, that we will be able to identify a suitable Target Business or that we will consummate a Business Combination.
We are not generating any revenue, have limited capital resources and are dependent entirely upon our current stockholders to fund our operations.
We are not generating any revenues and possess limited capital to fund our operations, including for such purposes as preparing and filing periodic reports under the Exchange Act, identifying a Target Business and negotiating a Business Combination. We will not generate revenues unless we consummate a Business Combination with an operating entity that is generating positive cash flow. Over the next twelve months, we anticipate that we will incur costs and expenses in connection with preparing and filing reports under the Exchange Act, implementing appropriate corporate governance mechanisms and internal controls and procedures, identifying and evaluating targets for a Business Combination and, possibly, costs associated with negotiating and entering into a Business Combination. We estimate, based upon discussions with our legal and financial professionals and our EDGAR filing agent, that we will incur costs and expenses in connection with the preparation and filing of reports under the Exchange Act and implementing corporate governance mechanisms and internal controls and procedures of approximately $15,000 over the next twelve months. We are unable to provide an estimate of the costs and expenses we may incur in connection with the identifying and evaluating targets for a Business Combination and, possibly, costs associated with negotiating and entering into a Business Combination at this time given the multitude of variables associated with such activities.
We are dependent entirely on our stockholders to provide funds for our operations. To date, an affiliate of Jonathan Patton, our sole director and officer, has loaned the Company the sum of $14,000 which is evidenced by a promissory note that bears interest at the rate of 8% per year and is payable on demand. Though our stockholders have advised us of their present intention to fund our operations through loans or further investment in the Company, there is no written agreement binding them to do so. Our operating and financial condition renders it unlikely that we would be able to obtain third-party financing to sustain operations, if necessary. In the even that our stockholders do not fund our capital requirements, we may not be able to continue operations and stockholders could lose the entire amount of their investment in our Company.
We do not have a specific plan for identifying Target Businesses and we cannot estimate or predict when or if we ever will affect a Business Combination.
Our management does not have any specific plan or process for identifying a Target Business or effectuating a Business Combination. The business of the Company is predicated upon relationships built by management and the ongoing effort to develop new contacts through which management is introduced to potential Target Businesses. Moreover, given the wide ranging variables inherent in its business, management cannot predict the amount of time required to effectuate a Business Combination nor the amount of funds required therefor. In light of these factors, we cannot assure investors that we ever will consummate a Business Combination.
There may be conflicts of interest between our management and our non-management stockholders.
Conflicts of interest create the risk that management may have an incentive to act adversely to the interests of other investors. A conflict of interest may arise between our management's personal pecuniary interest and its fiduciary duty to our stockholders. Further, our management's own pecuniary interest may at some point compromise its fiduciary duty to our stockholders. For example, the Company has borrowed the sum of $14,000 from an entity that is an affiliate of Jonathan Patton, the sole director and officer and a principal stockholder of the Company, which is evidenced by a promissory note payable on demand. Mr. Patton may demand payment under that promissory note at any time, which, if the Company is unable to pay the amount then due, would jeopardize the Company’s ability to continue operating and place all stockholders’ investment at risk. In addition, Mr. Patton is likely to become involved with other shell companies in the future and conflicts in the pursuit of business combinations with such other blank check companies with which he is, and may in the future be, affiliated with may arise.
Our future success is highly dependent on the ability of management to consummate a Business Combination with an attractive Target Business.
The nature of our operations is highly speculative. The future success of our plan of operation will depend to a great extent on the operations, financial condition and management of the Target Business we may acquire. While management intends to seek a Business Combination with an entity having an established operating history, we cannot assure you that we will be successful in locating candidates meeting that criterion or in our efforts to consummate a Business Combination with such an entity.
The Company has no existing agreement for a Business Combination or other transaction.
We have no arrangement, agreement or understanding with respect to engaging in a Business Combination with an operating entity. We cannot assure you that we will successfully identify and evaluate suitable business opportunities or that we will conclude a Business Combination. Management has not identified any particular industry or specific business within an industry for evaluation. We cannot guarantee that we will be able to negotiate a Business Combination on favorable terms.
The time and cost of preparing a private company to become a public reporting company may preclude us from entering into a Business Combination with the most attractive private companies.
Target companies that fail to comply with SEC reporting requirements may delay or preclude a Business Combination. Sections 13 and 15(d) of the Exchange Act require reporting companies to provide certain information about significant acquisitions, including audited financial statements for the company acquired. The time and additional costs that may be incurred by some target entities to prepare these statements may significantly delay or essentially preclude consummation of a Business Combination. Otherwise suitable acquisition prospects that do not have or are unable to obtain the required audited statements may be inappropriate for acquisition so long as the reporting requirements of the Exchange Act are applicable.
We will have no revenues unless and until we enter into a Business Combination with an operating company that is generating revenues and otherwise is operating profitably.
We are a development stage company and have had no revenues from operations. We will not realize any revenues or generate any income unless and until we successfully merge with or acquire an operating business that is generating revenues and otherwise is operating profitably, if ever. We cannot assure you that we will be successful in concluding a Business Combination with an operating entity that is at the time of the transaction generating revenues.
If we are unable to structure the Business Combination as a “tax free” transaction, potential Target Businesses could be deterred from entering into such a transaction.
We may not be able to structure our acquisition to result in tax-free treatment for the companies or their stockholders, which could deter third parties from entering into certain Business Combinations with us. Currently, a transaction may be structured so as to result in tax-free treatment to both companies, as prescribed by various federal and state tax provisions. We intend to structure any Business Combination so as to minimize the federal and state tax consequences to both us and the Target Business; however, we cannot guarantee that the Business Combination will meet the statutory requirements of a tax-free reorganization or that the parties will obtain the intended tax-free treatment upon a transfer of stock or assets. A non-qualifying reorganization could result in the imposition of both federal and state taxes that may have an adverse effect on both parties to the transaction.
Because we may seek to complete a business combination through a “reverse merger,” following such a transaction we may not be able to attract the attention of major brokerage firms.
Some brokerage firms may be reluctant to cover a security of a company that acceded to public reporting status by way of a revere merger or reverse acquisition because these transactions periodically have been the subject of negative press. In addition, securities analysts of major brokerage firms may not provide coverage of our Company since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our post-merger company in the future.
We likely will complete only one Business Combination, which will cause us to be dependent solely on a single business and a limited number of products, services or assets.
Given our limited financial resources and other considerations, it is likely we will complete a Business Combination with only one Target Business, if we are able to complete one at all. Accordingly, the prospects for our success may be solely dependent upon the performance of a single business and dependent upon the development or market acceptance of a single or limited number of products, processes or services. In this case, we will not be able to diversify our operations or benefit from the possible diversification of risks or offsetting of losses, unlike other entities which may have the resources to complete several Business Combinations or asset acquisitions in different industries or different areas of a single industry so as to diversify risks and offset losses.
Given our limited resources and the significant competition for Target Businesses, we may not be able to consummate an attractive Business Combination.
We will encounter intense competition from other entities having business objectives similar to ours, including blank check companies, finance companies, banks, venture capital funds, leveraged buyout funds, operating businesses and other financial buyers competing for acquisitions. Many of these entities are well established and have extensive experience in identifying and effecting Business Combinations directly or through affiliates. Nearly all of these competitors possess greater technical, human and other resources than we do and our financial resources will be negligible when contrasted with those of many of these competitors.
It is likely that we will consummate a Business Combination with a private company for which limited information will be available to conduct due diligence.
We likely will seek a Business Combination with a privately-held company. Generally, very little public information exists about these companies or their management, and we will be required to rely on the ability of our management to obtain adequate information to evaluate the potential success of entering into a transaction with such a company. In addition, our management will only devote limited time to the business of the Company and will have available to it extremely limited financial resources with which to conduct due diligence. If our assessment of the Target Business’s operations and management is inaccurate or we are unable to uncover all material information about these companies, then we may not make a fully informed investment decision, and we may lose money.
If we consummate a Business Combination by way of an acquisition, we will not be required to submit such transaction to a vote of our stockholders.
If we consummate a Business Combination by way of an acquisition of the capital stock or assets of the Target Business, the transaction may be accomplished in the sole determination of management without any vote or approval by stockholders. Accordingly, holders of our securities at the time of any Business Combination may not have an opportunity to evaluate the Target Business or its management and will have to rely on the judgment of management in assessing the future profitability and viability of the Target Business.
A Business Combination with a foreign company may subject us to additional risks.
If we enter into a Business Combination with a foreign entity, we will be subject to risks inherent in business operations outside of the United States. These risks include:
| | · | unexpected changes in, or impositions of, legislative or regulatory requirements; |
| | · | foreign currency exchange rate fluctuations; |
| | · | potential hostilities and changes in diplomatic and trade relationships; |
| | · | changes in duties and tariffs, taxes, trade restrictions, license obligations and other non-tariff barriers to trade; |
| | · | burdens of complying with a wide variety of foreign laws and regulations; |
| | · | longer payment cycles and difficulties collecting receivables through foreign legal systems; |
| | · | difficulties in enforcing or defending agreements and intellectual property rights; |
| | · | reduced protection for intellectual property rights in some countries; |
| | · | potentially adverse tax consequences; |
| | · | the ability of our stockholders to obtain jurisdiction over non-US based directors and officers; and |
| | · | political and economic instability. |
If the Target Business is not successful managing these risks among others, the Company’s business after the Business Combination may be negatively impacted.
Since we have not yet selected a particular industry or Target Business with which to complete a Business Combination, we are unable to currently ascertain the merits or risks of the industry or business in which we may ultimately operate.
Our plan of operation permits our board of directors to consummate a Business Combination with a company in any industry it chooses and is not limited to any particular industry or type of business. Accordingly, there is no current basis to evaluate the possible merits or risks of the particular industry in which we may ultimately operate or the Target Business which we may ultimately acquire. To the extent we complete a Business Combination with a company that does not have a stable history of earnings and growth or an entity in a relatively early stage of its development, we may be affected by numerous risks inherent in the business operations of those entities. If we complete a Business Combination with an entity in an industry characterized by a high level of risk, we may be affected by the currently unascertainable risks of that industry. Although our management will endeavor to evaluate the risks inherent in a particular industry or Target Business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors. Even if we properly assess those risks, some of them may be outside of our control.
Our long-term success will likely be dependent upon a yet to be identified management team which may be difficult to fully evaluate.
In the event we complete a Business Combination, the success of our operations will be dependent upon management of the Target Business and numerous other factors beyond our control. Although it is possible that our management will remain associated with the Target Business following a Business Combination, it is likely that the management team of the Target Business at the time of the Business Combination will remain in place given that they will have greater knowledge, experience and expertise than our management in the industry in which the Target Business operates as well as in managing the Target Business. Thus, even though our management may continue to be associated with us after a Business Combination, it is likely that we will be dependent upon a yet to be identified management team for our long-term success. As a result, you will not be able to fully evaluate the management team that we will likely be dependent upon for our long-term success prior to any Business Combination. Although we intend to scrutinize management of a prospective Target Business as closely as possible in connection with evaluating the desirability of affecting a Business Combination, we cannot assure you that our assessment of the management team will prove to be correct. These individuals may be unfamiliar with the requirements of operating a public company and the securities laws, which could increase the time and resources we must expend to assist them in becoming familiar with the complex disclosure and financial reporting requirements imposed on U.S. public companies. This could be expensive and time-consuming and could lead to various regulatory issues that may adversely affect our operations.
If we affect a Business Combination with a financially unstable company or an entity in the early stage of development or growth, we will be subject to greater risks than if we were to affect a Business Combination with a more established company with a proven record of earnings and growth.
Given our financial and personnel resources compared to our competitors, we may be limited to consummating a Business Combination with a company that is financially unstable or is in the early stage of development or growth, including an entity without established records of sales or earnings. To the extent we affect a Business Combination with a financially unstable or early stage or emerging growth company, we may be impacted by numerous risks inherent in the business and operations of such company that we would not be subject to if we were to effect a Business Combination with a more established company with a proven record of earnings and growth.
Numerous external forces, including the recent financial crisis, could negatively affect our businesses, results of operations and financial condition.
Numerous external forces, including the state of global financial markets and general economic conditions, lack of consumer confidence, lack of availability of credit, interest rate and currency rate fluctuations and national and international political circumstances (including wars and terrorist acts) could negatively affect our business, results of operations and financial condition. The ongoing global financial crisis affecting the banking system, financial markets and financial institutions has resulted in a tightening in the credit markets, a low level of liquidity in many financial markets and extreme volatility in credit and equity markets. The length of time or severity with which these conditions may persist is unknown. As a consequence, companies that otherwise may have considered becoming public as a result of a reverse acquisition may elect to delay or forego entirely such plans because of the impact of the global financial crisis on their operations, their inability to obtain financing to grow their operations and the costs they will required to incur associated with being a public company, among other reasons. Accordingly, it may be more difficult and take more time to identify a suitable and willing Target Business and consummate a Business Combination.
The Company may be subject to further government regulations which would adversely affect our operations.
Although we are subject to the reporting requirements of the Exchange Act, management believes we will not be subject to regulation under the Investment Company Act of 1940, as amended ( the “Investment Company Act”), since we will not be engaged in the business of investing or trading in securities. If we engage in business combinations which will result in our holding passive investment interests in a number of entities, we could be subject to regulations under the Investment Company Act. If so, we would be required to register as an investment company and could be expected to incur significant registration and compliance costs. We have received no formal determination from the SEC as to our status under the Investment Company Act and, consequently, violation of the Investment Company Act could subject us to material adverse consequences.
As a public company, we will be subject to additional financial and other reporting and corporate governance requirements that may be difficult for us to satisfy, will increase our administrative costs and may divert resources and management attention from operating our business.
Following the effectiveness of this Form 10, we will be obligated to file with the SEC annual and quarterly information and other reports under the Exchange Act. We must ensure that we have the ability to prepare, on a timely basis, financial statements that comply with SEC reporting requirements. We will also become subject to other reporting and corporate governance requirements, including the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the regulations promulgated thereunder, which will impose significant new compliance obligations upon us. As a public company, we will be required, among other things, to:
· | prepare and distribute reports and other stockholder communications in compliance with our obligations under the federal securities laws; |
· | define and expand the roles and the duties of our Board of Directors; |
· | institute more comprehensive compliance and internal audit functions; |
· | evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment thereof, in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and related rules and regulations of the SEC; and |
· | involve and retain outside legal counsel and accountants in connection with the activities listed above. |
We estimate that we will incur costs to comply with our Exchange Act reporting obligations, satisfy regulatory and corporate governance requirements and take the other actions necessary to comply with applicable law of approximately $15,000 over the next twelve months. Though our current stockholders have advised us of their present intention to fund our costs and expenses going forward through loans or further investment in the Company, there is no written agreement binding them to do so. To date, an affiliate of Jonathan Patton, our sole director and officer, has loaned the Company the sum of $14,000 which is evidenced by a promissory note that bears interest at the rate of 8% per year and is payable on demand.
Our management will be required to assess the adequacy of our internal control over financial reporting. Our internal control over financial reporting may not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act. We may incur additional costs in order to improve our internal control over financial reporting and comply with Section 404, including increased auditing and legal fees and costs associated with hiring additional accounting and administrative staff. Ultimately, our efforts may not be adequate to comply with the requirements of Section 404. If we are unable to implement and maintain adequate internal control over financial reporting or otherwise to comply with Section 404, we may not be able to report financial information on a timely basis and may suffer adverse regulatory consequences, among other things.
The changes necessitated by becoming a public company will require a significant commitment of additional resources and management oversight that will increase our costs and might place a strain on our systems and resources. As a result, our management’s attention might be diverted from other business concerns. In addition, we might not be successful in implementing and maintaining controls and procedures that comply with applicable requirements. If we fail to maintain an effective internal control environment or to comply with the numerous legal and regulatory requirements imposed on public companies, we could make material errors in, and be required to restate, our financial statements. Any such restatement could result in a loss of public confidence in the reliability of our financial statements and sanctions imposed on us by the SEC.
We have no independent audit committee. Our full board of directors functions as our audit committee and is comprised of one director who is not considered independent. This may hinder our board of directors’ effectiveness in fulfilling the functions of the audit committee.
Currently, we have no independent audit committee, though we are not required to have one. Our full board of directors functions as our audit committee and is comprised of a single director who is not considered to be “independent” in accordance with the requirements of Rule 10A-3 under the Exchange Act. An independent audit committee plays a crucial role in the corporate governance process, assessing a company’s processes relating to its risks and control environment, overseeing financial reporting, and evaluating internal and independent audit processes. The lack of an independent audit committee may prevent the board of directors from being independent from management in its judgments and decisions and its ability to pursue the committee’s responsibilities without undue influence. We do not expect to create an independent audit committee, which could compromise the management of our business.
Our compliance with changing laws and rules regarding corporate governance and public disclosure may result in additional expenses to us which, in turn, may adversely affect our ability to continue our operations.
Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and, in the event we are ever approved for listing on either an automated quotation system or a registered exchange, and system or stock exchange rules, will require an increased amount of management attention and external resources. We intend to continue to invest all reasonably necessary resources to comply with evolving standards, which may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. This could have an adverse impact on our operations.
Limitations on liability and indemnification matters.
As permitted by the corporate laws of the State of Nevada, we have included in our articles of incorporation a provision to eliminate the personal liability of our directors for monetary damages for breach or alleged breach of their fiduciary duties as directors, subject to certain exceptions, including, for example if the director did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In addition, our bylaws provide that we are required to indemnify our officers and directors under certain circumstances, including those circumstances in which indemnification would otherwise be discretionary, and we will be required to advance expenses to our officers and directors as incurred in connection with proceedings against them for which they may be indemnified.
We expect to issue a significant number of new shares of capital stock in a Business Combination, which will result in substantial dilution and a change in control of ownership of the Company.
Our articles of incorporation authorize the issuance of 100,000,000 shares of common stock and 10,000,000 shares of preferred stock. Any Business Combination affected by us may result in the issuance of additional securities without stockholder approval and may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. Moreover, the common stock issued in any such transaction may be valued on an arbitrary or non-arm's-length basis by our management, resulting in an additional reduction in the percentage of common stock held by our then existing stockholders. Our board of directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of common stock or preferred stock are issued in connection with a Business Combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of common stock might be materially adversely affected
We may issue preferred stock which may have greater rights than our common stock.
Our Articles of Incorporation authorize our Company to issue up to 10,000,000 shares of preferred stock. Currently, no preferred shares have been issued; however, we can issue shares of our preferred stock in one or more series and can set the terms of the preferred stock without seeking any further approval from our common stockholders. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of common stock, which could dilute the value of common stock to current stockholders and could adversely affect the market price, if any, of our common stock.
There are significant restrictions on the transferability of the Shares.
No outstanding shares of our common stock have been registered under the Securities Act, and, consequently, they may not be resold, transferred, pledged as collateral or otherwise disposed of under federal securities laws unless such transaction is registered under the Securities Act or an exemption from the registration requirements of the Securities Act is available. In connection with any transfer of shares of our common stock other than pursuant to an effective registration statement under the Securities Act, the Company may require the holder to provide to the Company an opinion of counsel to the effect that such transfer does not require registration under the Securities Act. Persons who acquired our common stock prior to a Business Combination will not be entitled to rely on Rule 144 under the Exchange Act for the resale of our securities unless and until (i) we cease to be a shell company, (ii) at the time of the sale we are reporting under the Exchange Act, (iii) we have filed all Exchange Act reports and material required to be filed during the preceding 12 months, and (iv) at least one year has elapsed from the time that we file the disclosure required by the SEC reflecting the fact that we are no longer a shell company. These restrictions will limit the ability of our stockholders to liquidate their investment.
We have not registered or qualified any shares of our class of our common stock for resale under the Blue Sky laws of any state, which will limit the liquidity of the common stock.
The Company has not registered or qualified its class of common stock for resale or trading under the Blue Sky laws of any state and current management does not anticipate doing so. Current stockholders and persons who desire to purchase our common stock should be aware that significant state Blue Sky law restrictions may limit our stockholders from selling their shares and potential purchasers from acquiring our common stock.
The absence of an established trading market will limit the ability of stockholders to dispose of their common stock.
There is currently no public trading market for any of our securities. The Company will not seek to list any of our securities on any exchange or have them quoted on an automated quotation system or over-the-counter market. Any decision to initiate public trading of our common stock will be in the discretion of management of a Target Company with which we consummate a Business Combination. Since stockholders will not be able to sell their shares, stockholders should consider their liquidity needs with respect to the securities and should be prepared to hold their shares for an indefinite period.
We cannot assure you that following a Business Combination with an operating business, our common stock will be listed or admitted to quotation on any securities exchange or other trading medium, which will limit the liquidity of the shares.
Following a Business Combination, new management may seek to initiate a public market for our common stock. However, we cannot assure you that following such a transaction, our Company as then constituted will meet the initial listing standards of any stock exchange or that our common stock will be admitted for quotation on the over the counter bulletin board or commence trading on any other medium. If our common stock does not trade publicly, holders may not be able to sell common stock.
The designation of our common stock as a "penny stock" would limit the liquidity of the shares.
Our common stock after a Business Combination may be deemed a “penny stock” as that term is defined under Rule 3a51-1 of the Exchange Act. Generally, a "penny stock" is a common stock that is not listed on a securities exchange and trades for less than $5.00 a share. Prices often are not available to buyers and sellers and the market may be very limited. Penny stocks in start-up companies are among the riskiest equity investments. Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC. The document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also provide purchasers with bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser and obtain the purchaser's written agreement to the purchase. Many brokers choose not to participate in penny stock transactions. Because of the penny stock rules, there may be less trading activity in penny stocks in any market that develops for our common stock in the future and stockholders are likely to have difficulty selling their shares.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock stocks in any market that develops for our common stock in the future, which may limit the ability to buy and sell our stock and which will have an adverse effect on any market that develops for our shares.
We have never paid dividends on our common stock.
We have never paid dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future. In the unlikely event we generated profits prior to a Business Combination, we expect to retain such earnings and re-invest them into the Company to further its business strategy.
Item 2. Financial Information
Management’s Discussion and Analysis of Financial Statements and Results of Operations.
Business Overview.
The Company was organized as a vehicle to enter into a Business Combination with a Target Business that is seeking the advantages of having a class of stock registered under federal securities laws. The Company does not currently engage in any business activities that provide cash flow. Our principal business objective for the next twelve months and beyond will be to achieve long-term growth potential through a combination with an operating business rather than immediate, short-term earnings. The Company will not restrict its potential candidate Target Businesses to any specific business, industry or geographical location and, thus, may acquire any type of business.
We cannot assure you that we will successfully identify and evaluate suitable business opportunities or that we will conclude a Business Combination. We will not realize any revenues or generate any income unless and until we successfully consummate a Business Combination an operating business that is generating revenues and otherwise is operating profitably, if ever. We cannot assure you that we will be successful in concluding a Business Combination with an operating entity that is at the time of the transaction generating revenues nor can we guarantee you that we will achieve long-term growth or immediate short-term earnings from any Business Combination that we may consummate.
As of the date of this Registration Statement, we have not selected any Target Business or target industry on which to concentrate our search for a Business Combination. Our officers and directors have not engaged in discussions on our behalf with representatives of other companies regarding the possibility of a potential Business Combination with us, nor have we been approached by any candidates (or representatives of any candidates) with respect to a possible Business Combination with us. Additionally, we have not, nor has anyone on our behalf, taken any measure, directly or indirectly, to identify or locate any suitable Target Business, nor have we engaged or retained any agent or other representative to identify or locate such a Target Business. We have not conducted any research with respect to identifying the number and characteristics of the potential Target Business candidates.
Management may consider entering into a Business Combination with virtually any business, including a business which has recently commenced operations, has no established record of growth or earnings and which is subject to all of the risks attendant to a development stage operation, including requiring additional capital, or which operates in an industry that is characterized by an unusually high element of risk. In the alternative, a Business Combination may involve the acquisition of, or merger with, an established company which does not require substantial additional capital, but which desires to establish a public trading market for its shares, while avoiding, among other things, the time delays, significant expense, and loss of voting control which may occur in a public offering. Although our management will endeavor to evaluate the risks inherent in a particular Target Business, there can be no assurance that we will properly ascertain or assess all significant risks.
We expect that we will be able to consummate a Business Combination with only one candidate given that, among other considerations, we will not have the resources to diversify our operations and the dilution of interest for present and prospective stockholders, which is likely to occur as a result of our management's plan to offer a controlling interest to a Target Business in order to achieve a tax free reorganization. This lack of diversification should be considered a substantial risk in investing in us, because it will not permit us to offset potential losses from one venture against gains from another.
Management expects that the selection of a Target Business will be a complex, competitive and extremely risky matter. We believe that management of a Target Business may find attractive the benefits of having a class of securities registered under federal securities laws which may include, among other things, facilitating or improving the terms on which additional equity financing may be obtained, creating a means for providing incentive stock options or similar benefits to key employees, and offering greater flexibility in structuring acquisitions, joint ventures and the like through the issuance of capital stock. Target Businesses may be available in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult.
Liquidity and Capital Resources.
At October 31, 2010, we had $4,000 of cash on hand (which decreased to $360 as of February 14, 2011) and liabilities of $14,150, consisting of a promissory note in favor of an affiliate of Jonathan Patton, our sole director and officer and a principal stockholder. Cash on hand will not be sufficient to cover our operating costs and expenses over the next twelve months during which time we anticipate that we will incur costs and expenses in connection with preparing and filing reports under the Exchange Act, implementing appropriate corporate governance mechanisms and internal controls and procedures, identifying and evaluating targets for a Business Combination and, possibly, costs associated with negotiating and entering into a Business Combination. We estimate that we will incur costs and expenses over the next twelve months in connection with preparing and filing reports under the Exchange Act, implementing appropriate corporate governance mechanisms and internal controls and procedures of approximately $15,000. This estimate, which is based upon discussions with service providers, includes $7,500 for accounting and audit related services, $3,500 for legal services and $4,000 for filing reports on the SEC’s EDGAR system We are unable to provide an estimate of the costs and expenses we may incur in connection with identifying and evaluating targets for a Business Combination and, possibly, costs associated with negotiating and entering into a Business Combination at this time given the multitude of variables, including, for example, the location of a Target Business and the expenses we may incur travelling to and from its principal place of business and the extent and cost of the due diligence we will be required to conduct. We anticipate that we will exhaust our existing cash resources by March 1, 2011, without giving effect to any costs or expenses we may incur in connection with identifying Target Businesses, conducting due diligence relating thereto or negotiating and preparing the agreements and other documents in connection with effectuating a Business Combination, which we can not estimate at this time.
To date, we have funded our operations through loans from an affiliated entity which is wholly owned by our sole director and officer. As of October 31, 2010, we had borrowed $14,000 from such entity which is evidenced by a promissory note that bears interest at the rate of 8% per year and that is payable on demand. Our stockholders have advised us that they expect to fund additional costs and expenses that we will incur in connection with our operations, including as may be required to file reports under the Exchange Act, for due diligence activities and to consummate a Business Combination, through loans or further investment in the Company, as and when necessary.
We cannot provide investors with any assurance that we will have sufficient capital resources to identify a suitable Target Business, to conduct effective due diligence as to any Target Business or to consummate a Business Combination. As a result of our negative working capital, our losses since inception and failure to generate revenues from operations, our financial statements include a note in which our auditor has expressed doubt in its report on our financial statements about our ability to continue as a "going concern."
Results of Operations.
Since our inception, we have not engaged in any activities other than in connection with our organization and preparing and filing this Registration Statement and have not generated any revenues to date. As of October 31, 2010, we reported a net loss of $10,150 and used a like amount of cash in our operations, consisting primarily of professional fees, and had negative working of $10,150. We do not expect to engage in any activities, other than seeking to identify a Target Business, unless and until such time as we enter into a Business Combination with a Target Business, if ever. We cannot provide investors with any assessment as to the nature of a Target Business’s operations or speculate as to the status of its products or operations, whether at the time of the Business Combination it will be generating revenues or its future prospects.
We maintain our principal executive offices at 2328 B Hartford Road, Austin Texas, where our President maintains a business office. We use this office space free of charge. We believe that this space is sufficient for our current requirements. The Company does not own or lease any properties at this time and does not anticipate owning or leasing any properties prior to the consummation of a Business Combination, if ever.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the date of this Registration Statement, the number of shares of common stock owned of record and beneficially by our executive officers, our directors, each person who owns five percent or more of the outstanding shares of our common stock and all officers and directors as a group:
Name and Address of Beneficial Owner (1) | | Amount of Beneficial Ownership | | Percent of Outstanding Shares of Class Owned (2) |
| Jonathan Patton (3) | | 500,000 | | 50% |
| Anthony Allison | | 500,000 | | 50% |
| All officers and directors as a group (1 person) | | 500,000 | | 50% |
(1) The address for the person named in the table above is c/o the Company.
(2) Based on 1,000,000 shares outstanding as of the date of this Registration Statement.
(3) The shares attributed to Mr. Patton are owned by AEP Holdings LLC, a limited liability company all of the outstanding interest in which are owned by Mr. Patton’s wife.
Item 5. Directors and Executive Officers
The following table lists our officer and director as of the date of this Registration Statement:
| Name | | Age | | Title |
| Jonathon Patton | | 30 | | President, Secretary and Director |
Jonathan Patton has been a member of the board of directors and the President of the Company since its inception. During the period March 5, 2008 through November 15, 2010, Mr. Patton served as a director and officer and was the sole stockholder of Option Placement, Inc., a shell company the class of common stock of which is registered under the Exchange Act. On November 15, 2010, Option Placement consummated a business combination with Tiga Energy Services, Inc. and Mr. Patton resigned as an officer and director of that company. Since 2003, Mr. Patton has been engaged in the real estate industry as a partner or owner of several firms, including Southern Management Trust since 2005, Capital Property Solutions LLC during 2004 and 2005, and Palmetto Property Solutions, LLC during 2003 and 2004. His experience includes identifying investment properties, arranging financing for and negotiating purchases of properties and disposing of the properties. Since 2006, Mr. Patton has conducted real estate coaching seminars and rendered general real estate consulting services through Palmetto Coaching LLC and Freedom Coaching LLC. Mr. Patton now provides business consulting through his current company, Legacy Holdings LLC.
The Board of Directors has determined that, based upon Mr. Patton’s experience in analyzing companies and investments, negotiating with third parties and his prior experience with a shell company that he managed and owned, he has the qualifications and skills to serve as a member of the Company’s Board of Directors.
The term of office of our director expires at the Company's annual meeting of stockholders or until his successor is duly elected and qualified. Our director is not compensated for serving as such. Officers serve at the discretion of the Board of Directors.
The Company has no employees other than Mr. Patton.
Item 6. Executive Compensation
The Company has not paid any compensation to any person since its inception and will not pay any cash compensation until it affects a Business Combination, at which time compensation shall be in the discretion of then current management. Current management expects to devote only such time to the affairs of the Company as required to affect the Company’s business plan.
It is possible that, after the Company successfully consummates a Business Combination with an unaffiliated entity, that entity may desire to employ or retain our management for the purposes of providing services to the surviving entity. The Company has not adopted any policy with respect to employment of its management by the surviving entity after the consummation of a Business Combination.
The Company has not adopted any retirement, pension, profit sharing, stock option or insurance programs or other similar programs for the benefit of its employees.
There are no understandings or agreements regarding compensation our management will receive after a Business Combination.
Item 7. Certain Relationships and Related Transactions and Director Independence
Related Party Transactions.
The Company utilizes office space provided free of charge by Jonathan Patton, our President and a member of our board of directors. The Company will continue to maintain its offices at this address until the consummation of a Business Combination, if ever.
On October 27, 2010, the Company executed a promissory note in favor of Legacy Holdings LLC, an affiliate of our sole officer and director, in the principal amount of $14,000, payable on demand with interest calculated at the rate of 8% per annum, which evidences funds loaned to the Company since inception. The proceeds from the loan were utilized by the Company to cover the costs and expenses incurred and to be incurred in connection with the organization of the Company and the preparation and filing of this Registration Statement.
Corporate Governance and Director Independence.
The Company has not:
| · | established its own definition for determining whether its directors and nominees for directors are “independent” nor has it adopted any other standard of independence employed by any national securities exchange or inter-dealer quotation system, though our current director would not be deemed to be “independent” under any applicable definition given that he is an officer of the Company; nor |
| · | established any committees of the board of directors. |
Given the nature of the Company’s business, its limited stockholder base and the current composition of management, the board of directors does not believe that the Company requires any corporate governance committees at this time. The board of directors takes the position that management of a Target Business will establish committees that will be suitable for its operations after the Company consummates a Business Combination.
As of the date hereof, the board of directors serves as the Company’s audit committee.
Item 8. Legal Proceedings
The Company presently is not a party to, nor is management aware of any pending, legal proceedings.
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
Market Information
As of the date of this Registration Statement, there were two holders of record of 1,000,000 outstanding shares of our common stock.
The Company's common stock does not trade, nor is it admitted to quotation, on any stock exchange or other trading facility. Management has no present plan, proposal, arrangement or understanding with any person with regard to the development of a trading market in any of our securities. We cannot assure you that a trading market for our common stock will ever develop. The Company has not registered its class of common stock for resale under the blue sky laws of any state and current management does not anticipate doing so. The holders of shares of common stock, and persons who may desire to purchase shares of our common stock in any trading market that might develop in the future, should be aware that significant state blue sky law restrictions may exist which could limit the ability of stockholders to sell their shares and limit potential purchasers from acquiring our common stock.
The Company is not obligated by contract or otherwise to issue any securities and there are no outstanding securities which are convertible into or exchangeable for shares of our common stock. All outstanding shares of our common stock are “restricted securities,” as that term is defined under Rule 144 promulgated under the Securities Act of 1933, because they were issued in a private transaction not involving a public offering. Accordingly, none of the outstanding shares of our common stock may be resold, transferred, pledged as collateral or otherwise disposed of unless such transaction is registered under the Securities Act or an exemption from registration is available. In connection with any transfer of shares of our common stock other than pursuant to an effective registration statement under the Securities Act, the Company may require the holder to provide to the Company an opinion of counsel to the effect that such transfer does not require registration of such transferred shares under the Securities Act.
Rule 144 under the Exchange Act is not available for the resale of securities initially issued by companies that are, or previously were, shell companies, like us, unless the following conditions are met:
| · | the issuer of the securities that was formerly a shell company has ceased to be a shell company; |
| · | the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; |
| · | the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and |
| · | at least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company. |
Neither the Company nor its officers or directors has any present plan, proposal, arrangement, understanding or intention of selling any unissued or outstanding shares of common stock in the public market subsequent to a Business Combination. Nevertheless, in the event that a substantial number of shares of our common stock were to be sold in any public market that may develop for our securities subsequent to a Business Combination, such sales may adversely affect the price for the sale of the Company's common stock securities in any such trading market. We cannot predict what effect, if any, market sales of currently restricted shares of common stock or the availability of such shares for sale will have on the market prices prevailing from time to time, if any.
Dividends
We have not paid any dividends on our common stock to date and do not presently intend to pay cash dividends prior to the consummation of a Business Combination. It is the present intention of our management to retain all earnings, if any, for use in our business operations.
The payment of any dividends subsequent to a Business Combination will be within the discretion of our then seated board of directors. Current management cannot predict the factors which any future board of directors would consider when determining whether or when to pay dividends.
Item 10. Recent Sales of Unregistered Securities
Since inception, the Company has issued and sold the following securities without the benefit of registration pursuant to Section 4(2) of the Securities Act:
On October 20, 2010, the Company sold and issued 1,000,000 shares of common stock to the persons named in the table below at a price equal to the par value per share:
| Name | | No. of Shares | | Purchase Price |
| AEP Holdings LLC | | 500,000 | | $50 |
| Anthony Allison | | 500,000 | | $50 |
Item 11. Description of Securities to be Registered
The following description of our common stock and our preferred stock is a summary. You should refer to our Articles of Incorporation and our By-laws for the actual terms of our capital stock. These documents are filed as exhibits to this Registration Statement.
Authorized Capital Stock
We are authorized to issue up to 100,000,000 shares of common stock and 10,000,000 shares of blank check preferred stock, each with a par value of $0.0001 per share. As of the date of this Registration Statement, there are 1,000,000 shares of common stock and no shares of preferred stock issued and outstanding. Our common stock is held of record by two registered stockholders.
Common Stock
The holders of our common stock are entitled to one vote per share on all matters to be voted on by the stockholders. All shares of common stock are entitled to participate in any distributions or dividends that may be declared by the board of directors, subject to any preferential dividend rights of outstanding shares of preferred stock. Subject to prior rights of creditors, all shares of common stock are entitled, in the event of our liquidation, dissolution or winding up, to participate ratably in the distribution of all our remaining assets, after distribution in full of preferential amounts, if any, to be distributed to holders of preferred stock. There are no sinking fund provisions applicable to the common stock. Our common stock has no preemptive or conversion rights or other subscription rights. Holders of our common stock are not entitled to cumulative voting of their stock in connection with the election of directors.
Preferred Stock
Our board of directors has the authority, without further action by our stockholders, to designate and issue up to 10,000,000 shares of preferred stock in one or more series and to fix the designation, powers, preferences and rights of each series and the qualifications, limitations or restrictions thereof. These rights may include a preferential return in the event of our liquidation, the right to receive dividends if declared by the board of directors, special dividend rates, conversion rights, redemption rights, superior voting rights to the common stock, the right to protection from dilutive issuances of securities or the right to approve corporate actions. Any or all of these rights may be superior to the rights of the common stock. As a result, preferred stock could be issued with terms that could delay or prevent a change in control or make removal of our management more difficult. Additionally, our issuance of preferred stock may decrease the market price of our common stock in any market that may develop for such securities.
The board of directors has the authority to issue the authorized but unissued shares of our capital stock without action by the stockholders. The issuance of any such shares would reduce the percentage ownership held by existing stockholders and may dilute the book value of their shares.
There are no provisions in our Articles of Incorporation or By-laws which would delay, defer or prevent a change in control of the Company.
The foregoing description of our common stock and preferred stock description is a summary of their material provisions of such securities and is subject to the complete description of such securities included in our Articles of Incorporation.
Item 12. Indemnification of Directors and Officers
Our Articles of Incorporation provide for the indemnification of our directors, officers, employees and agents to the fullest extent permitted by the laws of the State of Nevada. Section 78.7502 of the Nevada Revised Statutes permits a corporation to indemnify any of its directors, officers, employees or agents against expenses actually and reasonably incurred by such person in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (except for an action by or in right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, provided that it is determined that such person acted in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 78.751 of the Nevada Revised Statutes requires that the determination that indemnification is proper in a specific case must be made by (a) the stockholders, (b) the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding or (c) independent legal counsel in a written opinion (i) if a majority vote of a quorum consisting of disinterested directors is not possible or (ii) if such an opinion is requested by a quorum consisting of disinterested directors.
Article VII of our By-laws provides that:
| · | no director shall be liable to the Company or any of its stockholders for monetary damages for breach of fiduciary duty as a director except with respect to (i) a breach of the director’s loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) liability which may be specifically defined by law or (iv) a transaction from the director derived an improper personal benefit; and |
| · | the Company shall indemnify to the fullest extent permitted by law each person that such law grants to the Company power to indemnify. |
Any amendment to or repeal of our Articles of Incorporation or by-laws shall not adversely affect any right or protection of any of our directors or officers for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
Item 13. Financial Statements and Supplementary Data
Our financial statements together with the related notes and the report of M&K, CPAS, PLLC, independent registered public accounting firm, are set forth in Item 15 of this Form 10.
Item 14. Changes in and Disagreements with Accountants
There are not and have not been any disagreements between the Company and its independent accountants on any matter of accounting principles, practices or financial statement disclosure.
Item 15. Financial Statements and Exhibits
(a) The following financial statements of the registrant are filed as a part of this Registration Statement:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Austin Acquisitions, Inc.
Austin, TX
We have audited the accompanying balance sheet of Austin Acquisitions, Inc. (the “Company”) (a development stage company) as of October 31, 2010 and the related statement of operations, stockholders' deficit and cash flows for the period from inception (October 21, 2010) through October 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Austin Acquisitions, Inc. as of October 31, 2010 and the results of its operations and cash flows for the period described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
December 13, 2010
| |
| (A Development Stage Company) | |
| Balance Sheet | |
| | | | |
| | | As of | |
| | | October 31, 2010 | |
| | | | |
| ASSETS | | | |
| | | | |
| CURRENT ASSETS: | | | |
| Cash | | $ | 4,000 | |
| TOTAL CURRENT ASSETS | | | 4,000 | |
| | | | | |
| TOTAL ASSETS | | $ | 4,000 | |
| | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | |
| | | | | |
| CURRENT LIABILITIES: | | | | |
| Note Payable to Related Party | | | 14,000 | |
| Accounts Payable | | | 150 | |
| TOTAL CURRENT LIABILITIES | | | 14,150 | |
| | | | | |
| TOTAL LIABILITIES | | | 14,150 | |
| | | | | |
| STOCKHOLDERS' DEFICIT | | | | |
| Preferred stock ($0.0001 par value; 10,000,000 shares authorized; no shares | | | | |
| issued and outstanding) | | | - | |
| Common stock ($0.0001 par value; 100,000,000 shares authorized: | | | | |
| 1,000,000 issued and outstanding) | | | 100 | |
| Stock Subscription Receivable | | | (100 | ) |
| Paid in Capital | | | - | |
| Deficit Accumulated During Development Stage | | | (10,150 | ) |
| TOTAL STOCKHOLDERS' DEFICIT | | | (10,150 | ) |
| | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 4,000 | |
The accompanying notes are an integral part of these financial statements.
| |
| (A Development Stage Company) | |
| Statement of Operations | |
| For the Period from Inception (October 21, 2010) to October 31, 2010 | |
| | | | |
| | | | |
| | | | |
| REVENUES | | | |
| Revenue | | $ | - | |
| TOTAL REVENUES | | | - | |
| | | | | |
| | | | | |
| EXPENSES | | | | |
| Professional Fees | | | 10,150 | |
| TOTAL EXPENSES | | | 10,150 | |
| | | | | |
| Net Income/(Loss) | | $ | (10,150 | ) |
| Net income/(loss) per share--basic and fully diluted | | | | |
| Net income/(loss) per share | | $ | (0.01 | ) |
| Weighted average shares outstanding--basic and fully diluted | | | 1,000,000 | |
The accompanying notes are an integral part of these financial statements.
| |
| (A Development Stage Company) | |
| Statement of Stockholders' Deficit | |
| For the Period from Inception (October 21, 2010) through October 31, 2010 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Deficit | |
| | | | | | | | | | | | Stock | | | Additional | | | Accumulated | |
| | | Common Stock | | | Preferred stock | | | Subscription | | | Paid-in | | | Since Inception | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Receivable | | | Capital | | | October 21, 2010 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Balances, October 21, 2010 | | | - | | | $ | - | | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued | | | 1,000,000 | | | | 100 | | | | - | | | | - | | | | (100 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (10,150 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances, October 31, 2010 | | | 1,000,000 | | | $ | 100 | | | | - | | | $ | - | | | $ | (100 | ) | | $ | - | | | $ | (10,150 | ) |
The accompanying notes are an integral part of these financial statements.
| |
| (A Development Stage Company) | |
| Statement of Cash Flows | |
| For the Period from Inception (October 21, 2010) to October 31, 2010 | |
| | | | |
| | | | |
| | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net loss | | $ | (10,150 | ) |
| Adjustments to reconcile net (loss) to net cash used in operations: | | | | |
| Increase In Accounts Payable | | | 150 | |
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | | | (10,000 | ) |
| | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
| Proceeds from Note Payable to Related Party | | | 14,000 | |
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | | | 14,000 | |
| | | | | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 4,000 | |
| | | | | |
| CASH AND CASH EQUIVALENTS, | | | | |
| BEGINNING OF THE PERIOD | | | - | |
| | | | | |
| END OF THE PERIOD | | $ | 4,000 | |
| | | | | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | |
| CASH PAID DURING THE PERIOD FOR: | | | | |
| Interest | | $ | - | |
| Taxes | | $ | - | |
The accompanying notes are an integral part of these financial statements.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 2010
NOTE A—ORGANIZATION, BUSINESS, AND OPERATIONS
Austin Acquisitions, Inc. (“The Company”) was organized under the laws of the State of Nevada on October 21, 2010 as a corporation with a year end of September 30. The Company’s objective is to acquire or merge with a target business or company in a business combination.
NOTE B-GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which assumes the Company will realize its assets and discharge its liabilities in the normal course of business. As reflected in the accompanying financial statements, the Company has a deficit accumulated during the development stage of $10,150, used cash from operations of $10,000 since its inception, and has a working capital deficiency of $10,150 at October 31, 2010.
The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company’s ability to continue as a going concern is also dependent on its ability to find a suitable target company and enter into a possible reverse merger with such company. Management’s plan includes obtaining additional funds by equity financing through a reverse merger transaction and/or related party advances; however there is no assurance of additional funding being available. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might arise as a result of this uncertainty.
NOTE C—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation- The financial statements included herein were prepared under the accrual basis of accounting.
Cash and Cash Equivalents- For purposes of the Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents.
Management’s 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 disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The financial statements above reflect all of the costs of doing business.
Revenue Recognition- The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned less estimated future doubtful accounts. The Company considers revenue realized or realizable and earned when all of the following criteria are met:
| (i) | persuasive evidence of an arrangement exists, |
| (ii) | the services have been rendered and all required milestones achieved, |
| (iii) | the sales price is fixed or determinable, and |
| (iv) | collectability is reasonably assured. |
NOTES TO THE AUDITED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 2010
NOTE C- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income (Loss) - The Company reports Comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.
Net Income per Common Share- Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were no potentially dilutive shares outstanding as of October 31, 2010.
Deferred Taxes- The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
Fair Value of Financial Instruments- The carrying amounts reported in the balance sheet for cash, accounts receivable and payable approximate fair value based on the short-term maturity of these instruments.
Impairment of Long-Lived Assets- The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during the period ended October 31, 2010.
Stock-Based Compensation- The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 2010
NOTE C- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value for Financial Assets and Financial Liabilities- The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company’s note payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at October 31, 2010.
The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at October 31, 2010, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the period ended October 31, 2010.
Recent Accounting Pronouncements
In March 2010, the FASB issued Accounting Standard Update No. 2010-11 “Derivatives and Hedging” (Topic 815). ASU No. 2010-11 update provides amendments to subtopic 815-15, Derivatives and hedging. The amendments clarify about the scope exception in paragraph 815-10-15-11 and section 815-15-25 as applicable to the embedded credit derivatives. The ASU is effective on the first day of the first fiscal quarter beginning after June 15, 2010. Therefore, for a calendar-year-end entity, the ASU becomes effective on July 1, 2010. Early application is permitted at the beginning of the first fiscal quarter beginning after March 5, 2010
NOTES TO THE AUDITED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 2010
NOTE C- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (continued)
In April 2010, the FASB issued Accounting Standard Update No. 2010-12. “Income Taxes” (Topic 740). ASU No.2010-12 amends FASB Accounting Standard Codification subtopic 740-10 Income Taxes to include paragraph 740-10-S99-4. On March 30, 2010 The President signed the Health Care & Education Affordable Care Act reconciliation bill that amends its previous Act signed on March 23, 2010. FASB Codification topic 740, Income Taxes, requires the measurement of current and deferred tax liabilities and assets to be based on provisions of enacted tax law. The effects of future changes in tax laws are not anticipated.” Therefore, the different enactment dates of the Act and reconciliation measure may affect registrants with a period-end that falls between March 23, 2010 (enactment date of the Act), and March 30, 2010 (enactment date of the reconciliation measure). However, the announcement states that the SEC would not object if such registrants were to account for the enactment of both the Act and the reconciliation measure in a period ending on or after March 23, 2010, but notes that the SEC staff “does not believe that it would be appropriate for registrants to analogize to this view in any other fact patterns.”
In April 2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted.
In April 2010, the FASB issued Accounting Standards Update No.2010-14, “Accounting for Extractive Activities – Oil & Gas” (Topic 932). ASU No. 2010-14 amends FASB accounting Standard paragraph 932-10-S99-1 due to SEC release no. 33-8995 [FR 78], Modernization of Oil and Gas Reporting and provides update as to amendments to SEC Regulation S-X, Rule 4-10.
In April 2010, the FASB issued Accounting Standard Update No. 2010-15. “Financial Services-Insurance” (Topic 944) ASU No.2010-15 gives direction on how investments through separate accounts affect an insurer’s consolidation analysis of those investments. Under the ASU: an insurance entity should not consider any separate account interests held for the benefit of policy holders in an investment to be the insurer's interests and should not combine those interests with its general account interest in the same investment when assessing the investment for consolidation, unless the separate account interests are held for the benefit of a related party policy holder as defined in the Variable Interest Entities Subsections of Subtopic 810-10 and those Subsections require the consideration of related parties. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption is permitted. The amendments in this Update should be applied retrospectively to all prior periods upon the date of adoption.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 2010
NOTE D-SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the period ended October 31, 2010 is summarized as follows:
Cash paid during the period ended October 31, 2010 for interest and income taxes:
| | | 2010 | |
| Interest | | $ | - | |
| Taxes | | $ | - | |
NOTE E-SEGMENT REPORTING
In June, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 131,”Disclosures About Segments of an Enterprises and Related Information”. This Statement requires companies to report information about operating segments in interim and annual financial statements. It also requires segment disclosures about products and services, geographic areas, and major customers. The Company determined that it did not have any separately reportable operating segments as of October 31, 2010.
NOTE F-INCOME TAXES
Due to the operating loss and the inability to recognize an income tax benefit there is no provision for current or deferred federal or state income taxes for the period ended October 31, 2010.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.
The Company’s total deferred tax asset, calculated using federal and state effective tax rates, as of October 31, 2010 is as follows:
| Total Deferred Tax Asset | | $ | 3,451 | |
| Valuation Allowance | | | (3,451 | ) |
| Net Deferred Tax Asset | | | - | |
The reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes for the period from inception through October 31, 2010 is as follows:
| | | 2010 | |
| Income tax computed at the federal statutory rate | | | 34 | % |
| State income tax, net of federal tax benefit | | | 0 | % |
| Total | | | 34 | % |
| Valuation allowance | | | -34 | % |
| Total deferred tax asset | | | 0 | % |
NOTES TO THE AUDITED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 2010
NOTE F-INCOME TAXES (CONTINUED)
Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased by approximately $3,451 for the period ending October 31, 2010.
As of October 31, 2010, the Company had a federal and state net operating loss carry forward in the amount of approximately $ 10,150, which expires in the year ending 2030.
NOTE G-CAPITAL STOCK
The Company is authorized to issue 100,000,000 common shares at $0.0001 par value per share.
During the period from inception (October 21, 2010) to October 31, 2010, the Company has issued the following stock subscriptions for Common Shares:
| Name | | Number of shares | | Cash or Services | | Price per share | | | Total value | |
| AEP Holdings, LLC | | | 500,000 | | founder shares | | $ | 0.0001 | | | $ | 50.00 | |
| Anthony Allison | | | 500,000 | | founder shares | | $ | 0.0001 | | | $ | 50.00 | |
| | | | 1,000,000 | | | | | | | | $ | 100 | |
The Company is authorized to issue 10,000,000 preferred shares at $0.0001 per share.
During the period from inception (October 21, 2010) to October 31, 2010, the company issued no preferred stock.
NOTE H-DEVELOPMENT STAGE COMPANY
The Company is in the development stage as of October 31, 2010 and to date has had no significant operations. Recovery of the Company assets is dependent on future events, the outcome of which is indeterminable. In addition, successful completion of the Company’s development program and its transition, ultimately, to attaining profitable operations is dependent upon obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure.
NOTE I—NOTE PAYABLE TO A RELATED PARTY AND ACCRUED INTEREST
The Company has signed a promissory note with a related party. The total amount outstanding of the note is $14,000 and is payable upon demand and bears interest at 8% per year. The interest accrued, but not paid as of October 31, 2010 is $0.
(b) The following exhibits are filed with this Registration Statement:
| Exhibit No. | | Description of Exhibit |
| 3.1 | | Articles of Incorporation of the registrant.1 |
| 3.2 | | Bylaws of the registrant.1 |
| 10.1 | | Demand promissory note dated October 27, 2010 in the principal amount of $14,000 executed by the registrant in favor of Legacy Holdings, LLC.1 |
1.Previously filed with the SEC on December 17, 2010 as an exhibit to the Company’s registration statement on Form 10.
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
| | AUSTIN ACQUISITIONS, INC. | |
| | | | |
| Date: February 15, 2011 | By: | /s/ Jonathan Patton | |
| | | Jonathan Patton | |
| | | President | |
| | | | |
