UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| S | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended March 31, 2013 | |
| OR | |
| £ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from __________ to __________ |
Commission file number 000-54426
PIVOTAL GROUP INC.
(Exact name of registrant as specified in its charter)
| Delaware | 45-1876246 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
53 Cahaba Lily Way
Helena, Al 35080
(Address of principal executive offices) (zip code)
205-977-7755
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YesS No£
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).YesS No£
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", "non-accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer£ | Accelerated filer£ |
| Non-accelerated filer£ | Smaller reporting companyS |
| (do not check if smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes£ NoS
Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date.
| Class | Outstanding as of May 12, 2013 |
| Common Stock, par value $0.0001 | 11,950,000 shares |
Documents incorporated by reference:None
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | 3 |
| ITEM 1. FINANCIAL STATEMENTS | 3 |
| ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 12 |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | 15 |
| ITEM 4. CONTROLS AND PROCEDURES. | 15 |
| PART II. OTHER INFORMATION | 15 |
| ITEM 1A. RISK FACTORS | 15 |
| ITEM 6. EXHIBITS | 15 |
| SIGNATURES | 16 |
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Pivotal Group Inc.
(formerly known as Driftwood Acquisition Corporation)
(a Development Stage Company)
Condensed Consolidated Balance Sheets
| March 31, 2013 | December 31, 2012 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 17,887 | $ | 55,100 | ||||
| Prepaid expenses | 16,500 | 26,500 | ||||||
| Escrowed cash deposits | 50,000 | 45,000 | ||||||
| TOTAL ASSETS | $ | 84,387 | $ | 126,600 | ||||
| LIABILTIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 29,859 | $ | 9,132 | ||||
| Accrued expenses | 200 | 200 | ||||||
| Due to related party | 147,902 | 162,902 | ||||||
| Stock deposit payable | 100,000 | 100,000 | ||||||
| Total liabilities | 277,961 | 272,234 | ||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $.0001 par value: 20,000,000 shares authorized; no shares issued | – | – | ||||||
| Common stock, $.0001 par value: 500,000,000 shares authorized; 11,950,000 shares issued and outstanding | 1,195 | 1,195 | ||||||
| Additional paid-in capital | 281,178 | 187,428 | ||||||
| Deficit accumulated during the development stage | (475,947 | ) | (334,257 | ) | ||||
| Total stockholders' deficit | (193,574 | ) | (145,634 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 84,387 | $ | 126,600 | ||||
The accompanying notes are an integral part of these financial statements.
| 3 |
Pivotal Group Inc.
(formerly known as Driftwood Acquisition Corporation)
(a Development Stage Company)
Condensed Consolidated Statements of Operations
| For the Three Months Ended March 31, 2013 | For the Three Months Ended March 31, 2012 | Cumulative From Inception of Development on December 19, 2011 to March 31, 2013 | ||||||||||
| Revenues | $- | $- | $- | |||||||||
| Operating expenses | $ | 141,690 | $ | – | $ | 475,947 | ||||||
| Net loss | $ | (141,690 | ) | $ | – | $ | (475,947 | ) | ||||
| Net loss per common share - basic and diluted | $ | (0.01 | ) | $ | – | |||||||
| Weighted average common shares outstanding - basic and diluted | 11,950,000 | 11,275,275 | ||||||||||
The accompanying notes are an integral part of these financial statements.
| 4 |
Pivotal Group Inc.
(formerly known as Driftwood Acquisition Corporation)
(a Development Stage Company)
Condensed Consolidated Statement of Stockholders' Deficit
For the Three Months Ended March 31, 2013
| Common Stock | Additional paid-in | Deficit accumulated during thedevelopment | Total stockholders' | |||||||||||||||||
| Shares | Amount | capital | stage | deficit | ||||||||||||||||
| Balance, December 31, 2012 | 11,950,000 | 1,195 | 187,428 | (334,257 | ) | (145,634 | ) | |||||||||||||
| Contributed services by officers | – | – | 93,750 | – | 93,750 | |||||||||||||||
| Net loss | – | – | – | (141,690 | ) | (141,690 | ) | |||||||||||||
| Balance, March 31, 2013 | 11,950,000 | $ | 1,195 | $ | 281,178 | $ | (475,947 | ) | $ | (193,574 | ) | |||||||||
The accompanying notes are an integral part of these financial statements.
| 5 |
Pivotal Group Inc.
(formerly known as Driftwood Acquisition Corporation)
(a Development Stage Company)
Condensed Consolidated Statements of Cash Flows
| For the Three Months Ended March 31, 2013 | For the Three Months Ended March 31, 2012 | Cumulative From Inception of Development on December 19, 2011 to March 31, 2013 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net loss | $ | (141,690 | ) | $ | – | $ | (475,947 | ) | ||||
| Contributed services | 93,750 | – | 281,250 | |||||||||
| Changes in operating assets and liabilities | ||||||||||||
| Decrease in prepaid expenses | 10,000 | – | 233,500 | |||||||||
| Increase in accounts payable | 20,727 | – | 29,859 | |||||||||
| Increase in accrued liabilities | – | – | 200 | |||||||||
| Net cash used in operating activities | (17,213 | ) | – | 68,862 | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Increase in escrowed cash deposits | (5,000 | ) | – | (50,000 | ) | |||||||
| Net cash used in investing activities | (5,000 | ) | – | (50,000 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Net cash received in reverse merger | – | – | 4,225 | |||||||||
| Capital contribution | – | – | 200 | |||||||||
| Borrowings from related party | (15,000 | ) | – | (105,400 | ) | |||||||
| Increase in stock deposit | – | – | 100,000 | |||||||||
| Net cash provided by financing activities | (15,000 | ) | – | (975 | ) | |||||||
| Net increase in cash | (37,213 | ) | – | 17,887 | ||||||||
| Cash at beginning of period | 55,100 | – | – | |||||||||
| Cash at end of period | $ | 17,887 | $ | – | $ | 17,887 | ||||||
| Non-Cash Transactions for Investing and Financing Activities: | ||||||||||||
| Issuance of stock in reverse merger | $ | – | $ | – | $ | 500 | ||||||
The accompanying notes are an integral part of these financial statements.
| 6 |
Pivotal Group Inc.
(formerly known as Driftwood Acquisition Corporation)
(a Development Stage Company)
Notes to the Consolidated Financial Statements
Note 1 – Description of business and nature of operations
Pivotal Group Inc. (a Delaware Corporation) (“Pivotal” or the “Company”), formerly known as Driftwood Acquisition Corporation (“Driftwood”), was incorporated on April 20, 2011 and was formed to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. As described in Note 2 below, Pivotal completed a merger transaction with PKCCR, LLC (a Florida limited liability company) (“PKCCR”) on August 24, 2012. The merger transaction is treated as a reverse acquisition with PKCCR as the accounting acquirer. The “Company” hereafter refers to the legal parent, Pivotal, and its wholly owned subsidiary, PKCCR. The Company has not commenced operations and, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, Development Stage Entities, is considered a development stage company.
On January 30, 2012, the shareholders and the Board of Directors of Driftwood unanimously approved the change of the Company’s name to Pivotal Group Inc. and filed such change with the State of Delaware. On February 1, 2012, new officers and directors were appointed and elected and the prior officers and directors resigned, resulting in the change of control of the company.
The Company’s primary business activity is to develop and operate resort hotels in the Southeastern United States.
The Company has entered into a contract to acquire land for the Company’s planned development of the Perdido Key conference center and resort located near Pensacola, Florida and intends to manage all goods and services pertaining to this project. Pivotal plans to partner with travel agencies to help promote and schedule tour groups, align with local convention and visitors bureaus to assist in targeting new and existing business travel opportunities and work closely with meeting and event planners to attract conferences, tradeshows, association meetings, tournaments and special events.
The Company has entered into preliminary negotiations to develop an additional property in D’Iberville Mississippi that will contain a hotel and casino. The hotel is contemplated to be approximately 300 rooms and includes a gaming floor that is approximately 75,000 square feet. The Company is working to acquire all the rights to develop this property.
No assurances can be given that Pivotal will be successful in developing the Perdido Key conference center or the D’Iberville Mississippi resorts.
Note 2 – Agreement and plan for merger
On August 24, 2012, Pivotal entered into a Stock Exchange Agreement with PKCCR to acquire PKCCR in a stock-for-stock transaction (the “Acquisition”). The Acquisition was effected by Pivotal through the exchange of all of the outstanding membership interests of PKCCR for 5,000,000 shares of common stock of Pivotal. All of the outstanding membership interests of PKCCR were formerly owned by its sole member Lanny Smartt, who also serves as an officer and director of Pivotal. Upon completion of the transaction, the primary shareholder of PKCCR became the controlling shareholder of Pivotal, thus the acquisition was accounted for as a reverse merger for accounting purposes. As a result of the Acquisition, PKCCR has become a wholly owned subsidiary of Pivotal and Pivotal (as the sole current member of PKCCR) has taken over the operations and business plan of PKCCR.
Note 3 – Significant accounting policies
These financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“US GAAP”) for quarterly financial information, as well as the instructions to Form 10-Q. Accordingly, they include all of the information and notes required by US GAAP for complete interim financial statements.
| 7 |
Pivotal Group Inc.
(formerly known as Driftwood Acquisition Corporation)
(a Development Stage Company)
Notes to the Consolidated Financial Statements
a) Principles of Consolidation
The consolidated financial statements include the accounts and operations of Pivotal from the date of the reverse merger, August 24, 2012, through March 31, 2013 and the accounts of PKCCR from inception on December 19, 2011 to March 31, 2013. All significant intercompany balances and transactions have been eliminated in consolidation.
b) Use of Estimates
The preparation of financial statements, in conformity with US GAAP, requires management to make judgments, estimates, and assumptions that could affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company based its estimates and assumptions on historical experience and on various other assumptions we believed to be applicable, and evaluated them on an on-going basis to ensure they remain reasonable under current conditions. Actual results could differ significantly from those estimates.
c) Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high quality banking institutions. The Company did not have any cash balances in excess of the Federal Deposit Insurance Corporation limit as of March 31, 2013 and December 31, 2012.
d) Contributed Services
In the event that the Company lacks the cash resources to compensate its management team, management may elect to contribute the estimated fair value of those services to additional paid in capital. During the three months ended March 31, 2013, management elected to not be compensated for the time they worked helping the Company to get started and to raise capital. Management estimated that the value of the services contributed during the first quarter of 2013 was $93,750. The Company did not record any value for services contributed during the three months ended March 31, 2012 as the fair value of the services contributed was deemed to be De minimis.
e) Income Taxes
Under ASC 740, “Income Taxes”, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of March 31, 2013 and December 31, 2012, there were no deferred taxes.
f) Loss Per Common Share
Basic earnings or loss per common share is computed on the basis of the weighted average number of shares outstanding during the periods. Diluted earnings or loss per common share is calculated on the basis of the weighted average number of common shares outstanding during the period plus the effect of potential dilutive shares during the period. Potential dilutive shares include outstanding stock options and warrants and convertible debt instruments. For periods in which a net loss is reported, potential dilutive shares are excluded because they are antidilutive. Therefore, basic loss per common share is the same as diluted loss per common share for the three months ended March 31, 2013 and 2012.
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Pivotal Group Inc.
(formerly known as Driftwood Acquisition Corporation)
(a Development Stage Company)
Notes to the Consolidated Financial Statements
g) Fair Value of Financial Instruments
The Company follows guidance for accounting for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Additionally, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
| · | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
| · | Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
| · | Level 3 inputs are unobservable inputs for the asset or liability. |
The level in the fair value hierarchy within which a fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
Note 4 – Going Concern
The Company has an accumulated deficit of $475,947 as of March 31, 2013. The Company does not have positive cash flow from operating activities and its ability to continue as a going concern is dependent on obtaining additional financing or the continuing financial support of its stockholders and other related parties. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. The Company plans to obtain additional financing through the sale of equity or debt securities in order to finance operations until it can generate positive cash flows from operating activities. There can be no assurance that the Company will be successful in its efforts to obtain financing through sale of equity or debt securities. If the Company is not able to obtain additional financing, it will be unable to construct its resort hotel facilities which could result in the Company being forced to cease operations.
Note 5 – Escrowed Cash Deposits
In April 2012, MLD, LLC, a Delaware limited liability company (“MLD”), entered into a Vacant Land Contract (“Original Land Contract”) with WCI Communities, LLC, a Delaware limited liability company (“WCI”), regarding the purchase of several parcels of land totaling two acres of beachfront land and 48 acres of adjacent property on Perdido Key Drive. The land represents the property that would be used to construct PKCCR.
The purchase price (pursuant to the Original Land Contract of April 2012) was $15.9 million, consisting of an initial $5,000 deposit, $95,000 to be payable by a second deposit, and the remainder of $15.8 million at the closing of the transaction. The Company had paid $50,000 in earnest money deposits towards the purchase of the land as of March 31, 2013.
Effective June 22, 2012, MLD entered into a new agreement for the purchase of the land, an Agreement for the Sale and Purchase of Real Property (“New Land Contract”). Subsequently, on June 30, 2012, MLD conveyed and assigned its interests and rights in the Original Land Contract to PKCCR, LLC and WCI. The New Land Contract supersedes the previous Original Land Contract and specifies that the purchase price for the land will be $9,750,000 million. The $50,000 deposits made by the Company in connection with the Original Land Contract was transferred and credited toward the purchase price under the New Land Contract. The funds for the deposit were obtained through advances made to the Company by Mr. Smartt who is an officer and director of the Company.
| 9 |
Pivotal Group Inc.
(formerly known as Driftwood Acquisition Corporation)
(a Development Stage Company)
Notes to the Consolidated Financial Statements
Within two business days after the expiration of the Company’s right to inspect the physical and other conditions of or with respect to the land (the “Inspection Period”), the Company is required to deliver an additional $150,000 to the seller. The balance of $9,550,000 is due upon closing; which is required to be held within 30 days after the seller obtains (i) a permit to extend and modify the Army Corps of Engineers permit for the Lost Key Community (the “Permit Modification”), (ii) a transfer from the county approving the transfer of an aggregate of 250 hotel units to the portion of the property to be developed by the Company, and (iii) a height variance from the county approving a height of up to 28 stories. In the event the Permit Modification is not obtained within the designated time frame, the New Land Contract will automatically terminate. The parties have entered into the following amendments to the New Land Contact:
| · | The first amendment dated September 20, 2012, extended the Inspection Period to November 30, 2012; |
| · | The second amendment dated November 29, 2012, MLD extended the Inspection Period to January 31, 2013; |
| · | The third amendment dated January 30, 2013, extends the Inspection Period to May 1, 2013; and |
| · | The fourth amendment dated March 29, 2013, extends the Permit Modification date to June 28, 2013. |
Based upon the current status of seller’s requirements for closing and the obligation of the Company to secure funding for the remaining balance of the purchase price, management anticipates that closing could occur in July 2013. The Company has been in negotiations with a California based hedge fund for the funding of the Perdido Key project in an amount of $120 million. The Company expects to finalize and execute agreements for funding developments during the second quarter of 2013. In the event that the negotiations with the hedge fund break down, the Company will reach out to other hedge funds with whom it has previously had discussions regarding financing.
The sole member and officer of MLD is Mr. Smartt, who is also an officer and director of the Company.
Note 6 – Prepaid Expenses
In December 2011, the Company prepaid $125,000 to Tiber Creek Corporation for professional services to assist the Company with merging PKCCR into Pivotal Group Inc., a public reporting company. The merger was completed August 24, 2012 and is more fully described in Note 2. As of March 31, 2013, all but $15,000 of the services had been expensed.
Note 7 – Related Party Transactions
As of March 31, 2013, the Company had a liability totaling $147,902 owed to Lanny Smartt, its Secretary, Treasurer and Director, which was used to make the prepayments for professional services related to the merger, make earnest money deposits towards purchasing the land as indicated above in Note 5, and fund continuing operations. This related party payable is non-interest bearing, has no specified repayment date, and is due on demand.
Note 8 – Income Taxes
As of March 31, 2013, the Company had net operating loss carry-forwards for federal and state income taxes of approximately $195,000 and $8,000, respectively that may be offset against future taxable income through 2033. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements because the Company believes there is a 50% or greater chance that the carry-forwards will expire unused. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance of the same amount.
| 10 |
Pivotal Group Inc.
(formerly known as Driftwood Acquisition Corporation)
(a Development Stage Company)
Notes to the Consolidated Financial Statements
The Company files income tax returns in the U.S. federal and Alabama jurisdictions. Tax years 2011 to current remain open to examination by U.S. federal and state tax authorities.
Note 9 – Subsequent Events
On May 1, 2013, the designated inspection period for the Perdido Project was completed and an additional $150,000 was paid to the seller.
Management is working with its funding source to finance its commercial real estate development activities. Currently, the Company anticipates completing its financing of the Perdido Project during the third quarter of 2013 and completing a financing for its D'Iberville project during the fourth quarter of 2013 although to date, no definitive agreements have been executed. Management expects the financing to consist of both debt and equity instruments.
The Company continues to negotiate with architectural and design firms as well as with general contractors to work on the Perdido and D’Iberville projects. The Company expects to contract for these services during the second quarter of 2013.
| 11 |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, and with the unaudited condensed consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position, potential growth opportunities, potential operating performance improvements, ability to retain and recruit personnel, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.
Factors that may cause actual results to differ materially from current expectations include, but are not limited to:
| · | risks associated with the real estate industry, including competition, increases in wages, labor relations, energy and fuel costs, actual and threatened pandemics, actual and threatened terrorist attacks, and downturns in domestic and international economic and market conditions, particularly in the state of Florida; |
| · | risks associated with the real estate industry, including changes in real estate and zoning laws or regulations, increases in real property taxes, rising insurance premiums, costs of compliance with environmental laws and other governmental regulations; |
| · | the availability and terms of financing and capital and the general volatility of securities markets; |
| · | changes in the competitive environment in the hotel industry; |
| · | risks related to natural disasters; |
| · | litigation; and |
| · | other risk factors discussed below in this report. |
Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether as a result of new information, future events or otherwise.
Overview
On August 24, 2012, the Company entered into a Stock Exchange Agreement with PKCCR, LLC to acquire PKCCR, LLC in a stock-for-stock transaction (the “Acquisition”). The Acquisition was effected by Pivotal through the exchange of all of the outstanding membership interests of PKCCR, LLC for 5,000,000 shares of common stock of Pivotal. All of the outstanding membership interests of PKCCR, LLC were formerly owned by its sole member, Lanny Smartt, who also serves as an officer and director of the Company. Upon completion of the transaction, the primary shareholder of PKCCR, LLC became the controlling shareholder of the Company, thus the acquisition was accounted for as a reverse merger for accounting purposes. As a result of the Acquisition, PKCCR, LLC has become a wholly owned subsidiary of the Company and the Company (as the sole current member of PKCCR, LLC) has taken over the operations and business plan of PKCCR, LLC.
| 12 |
As of March 31, 2013, the Company had not generated revenues and had no income or cash flows from operations since inception and had accumulated a deficit of $475,947 and a net loss of $141,690 for the fiscal quarter ended March 31, 2013.
PKCCR, LLC has entered into a contract to acquire land for the Company’s planned development of Perdido Key conference center and resort and intends to manage all goods and services pertaining to this project. The Company plans to partner with travel agencies to help promote and schedule tour groups, align with local convention and visitors bureaus to assist in targeting new and existing business travel opportunities and work closely with meeting and event planners to attract conferences, tradeshows, association meetings, tournaments and special events.
The Company is also planning to develop a 300 room resort hotel and casino in D’Iberville Mississippi. Management of the Company is currently working to acquire all of the rights needed to develop this property.
The Company does not currently engage in any business activities that generate revenues. The Company’s independent auditors have issued a report raising substantial doubt about the Company’s ability to continue as a going concern. At present, the Company has no revenue generating operations and the continuation of the Company as a going concern is dependent upon financial support from its stockholders, its ability to obtain necessary equity financing to continue operations and/or to successfully locate and negotiate with a business entity for the combination with a target company.
Management plans to use their personal funds to pay all expenses incurred by the Company in 2013 and beyond. There is no assurance that the Company will ever be profitable. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
Background
The Company was incorporated on April 20, 2011, under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.
The Company has been in the developmental stage since inception and its operations to date have been limited to filing a registration statement and issuing shares of its common stock to the original shareholders and to the subsequent shareholders to whom control of PKCCR, LLC was transferred. The Company was initially formed to provide a method for a foreign or domestic private company to become a reporting company with a class of securities registered under the Securities Exchange Act of 1934.
The Company registered its common stock on a Form 10 registration statement filed pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 12(g) thereof. The Company files with the Securities and Exchange Commission periodic and current reports under Rule 13(a) of the Exchange Act, including quarterly reports on Form 10-Q and annual reports Form 10-K.
The Company has also filed a Form S-1 registration statement pursuant to the Securities Exchange Act of 1934 to register 950,000 shares of the Company’s common stock to be sold at $1.00 per share. The shares being offered are currently held by officers and directors of the Company as well as 45 individual selling shareholders.
Going forward, the Company estimates that it will need to raise approximately $400 million in capital to complete its development of its planned resort hotels. It is anticipated that any securities issued in connection with raising these funds will be from a combination of both public and private placement equity offerings as well as through potential debt financing. Any private placement equity offering would be made in reliance upon exemption from registration under applicable federal and state securities laws. In some circumstances, however, as a negotiated element of its transaction, the Company may agree to register all or a part of such securities immediately after the transaction is consummated or at specified times thereafter. The issuance of additional securities and their potential sale into any trading market which may develop in the Company’s securities may depress the market value of the Company’s securities in the future if such a market develops, of which there is no assurance.
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Results of Operations
As of March 31, 2013, the Company had not generated any revenues, had no income or cash flows from operations since inception, and had an accumulated deficit of $475,947. The Company has no operations nor does it currently engage in any business activities that generate revenue. Expenses incurred by the Company relate primarily to legal and accounting fees as required in connection with assisting the Company with its SEC filings as well as helping the Company obtain a stock symbol. In addition, management recorded $93,750 for the estimated fair value of services contributed by management for which they received no compensation for the three months ended March 31, 2013.
Liquidity and Capital Resources
As of March 31, 2013, the Company had $17,887 in cash and negative working capital of $193,574. The Company’s total assets were $84,387 consisting of cash, prepaid expenses and escrowed cash deposits. Total liabilities were $277,961 and consisted of $147,902 from related party advances, $100,000 deposit from a potential investor, and $30,029 in accounts payable and accrued liabilities. Management had initially contemplated raising the money for its commercial real estate development activities through a private placement but as described below, management believes that they will be able to obtain the necessary capital from a hedge fund coupled with bank financing. As a result, it is expected that the Company will repay the $100,000 deposit back to the investor later this year.
The Company has entered into a contract to acquire land to build the Perdido Key Conference Center. Management possesses significant experience and expertise in commercial real estate development. Management is currently working to obtain the financing necessary to purchase the land and construct its resort facilities. The purchase price of the land is $9.75 million, of which we have paid $50,000 as a deposit. Upon completion of a designated inspection period, which is required to be completed on or before May 1, 2013, an additional $150,000 is required to be paid to the seller. On May 1, 2013, the designated inspection period was completed and an additional $150,000 was paid to the seller. Closing is required to be held within 30 days following the obtaining by the seller of certain variances or clearances. If an extension of the permit from the Army Corps of Engineers is not obtained on or before June 28, 2013, the contract to purchase the land will automatically terminate.
The Company has entered into preliminary negotiations to develop an additional property in D’Iberville Mississippi on which management intends to build and develop another hotel and casino. The hotel is contemplated to be approximately 300 rooms and will include a gaming floor that is approximately 75,000 square feet. The Company plans to acquire all the rights to develop this property during the fourth quarter of 2013.
The Company has been in negotiations with a California based hedge fund for the funding of the Perdido Key project in the amount of $120 million. Additionally, the Company has been negotiating a debt service for the D’Iberville project in the amount of $174 million. Although no formal letters of intent have been entered into, the Company expects to finalize and execute agreements for funding both developments during the second quarter of 2013.
The Company has also been negotiating with architectural and design firms as well as general contractors to work on the Perdido and D’Iberville projects. The Company expects to contract for these services during the third quarter of 2013.
Management anticipates that we will be dependent, for the near future, on additional capital to fund operating expenses and anticipated growth. The report of the Company’s independent registered public accounting firm for the year ended December 31, 2012, expressed substantial doubt about the Company’s ability to continue as a going concern. The Company’s operating losses have been funded primarily through shareholder advances and other borrowings. We will need additional funding in the future in order to continue our business operations. While we continually look for additional financing sources, in the current economic environment, the procurement of outside funding is extremely difficult and there can be no assurance that such financing will be available, or, if available, that such financing will be at a price that will be acceptable to us. Failure to generate sufficient revenue or raise additional capital would have an adverse impact on our ability to achieve our longer-term business objectives, and would adversely affect our ability to continue operating as a going concern.
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Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is deemed by our management to be material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information not required to be filed by Smaller Reporting Companies.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Our principal executive officer, Malcolm Duane Lewis, and our principal financial and accounting officer, P.K. Smartt, have concluded, based on their evaluation, as of the end of the period covered by this report, that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are (1) effective to ensure that material information required to be disclosed by us in reports filed or submitted by us under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and (2) designed to ensure that material information required to be disclosed by us in such reports is accumulated, organized and communicated to our management, including our principal executive officer and principal financial officer, as appropriated, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
See “Item 1A – Risk Factors” as disclosed in Form 10-K as filed with the Securities and Exchange Commission on April 12, 2013.
ITEM 6. EXHIBITS
| SEC Ref. No. | Title of Document |
| 31.1 | Rule 13a-14(a) Certification by Principal Executive Officer |
| 31.2 | Rule 13a-14(a) Certification by Principal Financial Officer |
| 32.1 | Section 1350 Certification of Principal Executive Officer |
| 32.2 | Section 1350 Certification of Principal Financial Officer |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PIVOTAL GROUP INC. | |
| Dated: May 13, 2013 | By:/s/ Malcolm Duane Lewis_______ |
Malcolm Duane Lewis, President Principal Executive Officer | |
| Dated: May 13, 2013 | By:/s/ P.K. “Lanny” Smartt_________ |
P.K. “Lanny” Smartt, Treasurer Principal Financial Officer |
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