SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
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 000-55310
AQUILARTS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 47-2128877 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
| 27979 SW 97th Avenue | |
| Suite 601 | |
| Wilsonville, Oregon | 97070 |
| (Address of principal executive offices) | (zip code) |
503-705-0361
(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.
Yesx 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" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated Filer ¨ |
| Non-accelerated filer ¨ | Smaller reporting company x |
| (do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yesx No¨
Indicate the number of shares outstanding of each of the issuer's classes of stock, as of the latest practicable date.
| Class | Outstanding at August 19, 2015 |
| Common Stock, par value $0.0001 | 67,987,206 |
| Documents incorporated by reference: | None |
UNAUDITED CONDENSED FINANCIAL STATEMENTS
| Unaudited Condensed Financial Statements | 2-4 |
| Notes to Unaudited Condensed Financial Statements | 5-7 |
(formerly Deer Valley Acquisition Corporation)
CONDENSED BALANCE SHEETS
| June 30, 2015 | December 31, 2014 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 18,478 | $ | - | ||||
| Other receivables | 2,472 | - | ||||||
| Advance to supplier | 76,300 | - | ||||||
| Total assets | $ | 97,249 | $ | - | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accrued wages | $ | 84,000 | $ | - | ||||
| Convertible debenture | 100,000 | - | ||||||
| Total liabilities | 184,000 | - | ||||||
| Stockholders' deficit | ||||||||
| Preferred stock, $0.0001 par value, 20,000,000 shares authorized; none issued and outstanding as of June 30, 2015 and December 31, 2014 | - | - | ||||||
| Common stock; $0.0001 par value, 100,000,000 shares authorized; 67,987,206 and 20,000,00 issued and outstanding as of June 30, 2015 and December 31, 2014, respectively | 6,799 | 2,000 | ||||||
| Discount on common stock | (250 | ) | (2,000 | ) | ||||
| Subscription receivable | (4,077 | ) | - | |||||
| Additional paid-in capital | 712 | 712 | ||||||
| Accumulated deficit | (89,934 | ) | (712 | ) | ||||
| Total stockholders' deficit | (86,751 | ) | - | |||||
| Total liabilities and stockholders' deficit | $ | 97,249 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed interim financial statements.
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AQUILARTS, INC.
(formerly Deer Valley Acquisition Corporation)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
| Three Months Ended | Six Months Ended | |||||||
| June 30, 2015 | June 30, 2015 | |||||||
| Revenue | $ | - | $ | - | ||||
| Cost of revenue | - | - | ||||||
| Gross profit | - | - | ||||||
| Salaries and wages | 84,000 | 84,000 | ||||||
| Operating expenses | 5,226 | 5,226 | ||||||
| Operating loss | (89,226 | ) | (89,226 | ) | ||||
| Other income | 4 | 4 | ||||||
| Loss before income taxes | (89,222 | ) | (89,222 | ) | ||||
| Income tax expense | - | - | ||||||
| Net loss | $ | (89,222 | ) | $ | (89,222 | ) | ||
| Loss per share - basic and diluted | $ | (0.01 | ) | $ | (0.00 | ) | ||
| Weighted average shares - basic and diluted | 14,594,706 | 24,539,457 | ||||||
The accompanying notes are an integral part of these unaudited condensed interim financial statements.
| 3 |
AQUILARTS, INC.
(formerly Deer Valley Acquisition Corporation)
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
| Six Months Ended | ||||
| June 30, 2015 | ||||
| OPERATING ACTIVITIES | ||||
| Net loss | $ | (89,222 | ) | |
| Non-cash adjustments to reconcile net loss to net cash: | ||||
| Changes in operating assets and liabilities: | ||||
| Accrued wages | 84,000 | |||
| Prepaid inventory | (76,300 | ) | ||
| Net cash used in operating activities | (81,522 | ) | ||
| FINANCING ACTIVITIES | ||||
| Convertible debenture | 100,000 | |||
| Net cash provided by financing activities | 100,000 | |||
| Net increase in cash | 18,478 | |||
| Cash, beginning of period | - | |||
| Cash, end of period | $ | 18,478 | ||
| Supplemental cash flow information: | ||||
| Interest paid | $ | - | ||
| Income tax paid | $ | - | ||
The accompanying notes are an integral part of these unaudited condensed interim financial statements.
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NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Aquilarts, Inc. ("Aquilarts" or "the Company") was incorporated on September 25, 2014 under the laws of the state of Delaware. The Company intends to develop a business of acquiring art assets and then retailing that art through several channels of distribution including:
A network of U.S. and international art galleries,
A charity auction program,
An art leasing business that leases-to-own sculpture art to businesses, and
A trade show program that retails art through booths at conventions and trade shows.
The Company anticipates that it will develop its business plan through capital contribution and investment.
BASIS OF PRESENTATION
The summary of significant accounting policies presented below is designed to assist in understanding the Company's financial statements. Such financial statements and accompanying notes are the representations of the Company's management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America ("GAAP") in all material respects, and have been consistently applied in preparing the accompanying financial statements.
Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company's Annual Report on Form 10-K filed with the SEC on March 31, 2015. The results for the three and six months ended June 30, 2015, are not necessarily indicative of the results to be expected for the year ending December 31, 2015.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
CASH
Cash and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term investments with original maturities of 90 days or less. The Company had cash of $18,478 as of June 30, 2015 and $0 as of December 31, 2014.
INVENTORY
Inventory is valued at the lower of cost or fair market value. The Company had no inventory on hand as of June 30, 2015 and December 31, 2014.
ADVANCE TO SUPPLIER
On June 10, 2015, the Company entered into a contract to purchase sculpture molds from a private third-party, originally for the sum of $100,000 but subsequently verbally adjusted to $103,600 to more accurately reflect shipping costs of approximately $53,600 in order to ship the molds from Italy to the United States. As of June 30, 2015, the Company had paid for $76,300 of the total $103,600 and intends to pay the remaining shipping cost of $27,300 after generating cash from a private placement offering anticipated in the third quarter of 2015. As of August 19, 2015, the Company does not physically possess the molds and will not be able to physically acquire them until it can pay the remaining $27,300 in shipping costs. The Company believes it will be able to have physical possession of the molds before 2015 year-end.
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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 cash balances in excess of the Federal Deposit Insurance Corporation limit as of June 30, 2015.
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 June 30, 2015, there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.
LOSS PER COMMON SHARE
Basic loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the entity.
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 carrying amounts of financial assets such as cash approximate their fair values because of the short maturity of these instruments.
NOTE 2 - GOING CONCERN
The Company has not yet generated any revenue since inception to date and has sustained a net loss of $89,222 during the six months ended June 30, 2015.
The Company had a working capital deficiency of $86,751 and an accumulated deficit of $89,934 as of June 30, 2015. The Company's continuation as a going concern is dependent on its ability to generate sufficient cash flows from a business combination or other operations to meet its obligations and/or obtaining additional financing from its shareholders or other sources, as may be required.
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The accompanying financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company's ability to do so. 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.
In order to maintain its current level of operations, the Company will require additional working capital from either cash flow from operations or from the sale of its equity. However, the Company currently has no commitments from any third parties for the purchase of its equity. If the Company is unable to acquire additional working capital, it will be required to significantly reduce its current level of operations.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
On June 12, 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) No. 2015-10-Technical Corrections and Improvements. The amendments in this Update cover a wide range of Topics in the Codification. The amendments in this Update represent changes to make minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2014-240-Technical Corrections and Improvements, which has been deleted. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update. Management is in the process of assessing the impact of this ASU on the Company's financial statements.
NOTE 4 – CONVERTIBLE NOTE
On May 15, 2015, the Company borrowed $100,000 pursuant to a convertible promissory note from Greg Horne payable on demand at any time after the Company’s common stock is offered on any public stock exchange. Interest shall accrue commencing on the date of execution of the note at a rate of 12% per annum. The entire principal amount and any accrued interest is convertible into shares of common stock of the Company when or if the market price of the Company’s common stock equals to $1.00 per share. The Company anticipates offering a private placement in the third quarter of 2015 at a price of $1.00 per share of common stock and any purchase of such stock at such price will be deemed to establish the market price of the Company’s stock at $1.00 per share.
NOTE 5 - STOCKHOLDERS’ DEFICIT
On September 25, 2014, the Company issued 20,000,000 founders common stock to the two sole directors and officers. The Company effected a change in control on April 27, 2015 with the redemption and cancellation of 17,500,000 shares of the 20,000,000 outstanding shares of common stock and the issuance of 3,000,000 shares to Karl C. Powell, as well as the resignation of the then officers and directors and the appointment of Karl C. Powell as its Chief Executive Officer and Michael Balter as its President, Chief Operating Officer, Secretary and Treasurer. Karl C. Powell was named director of the Company. As of August 19, 2015, Karl C. Powell is the Chairman, President, and Chief Executive Officer of the Company, and Mark Nishi is the Vice President and Chief Financial Officer of the Company.
On June 2, 2015, the Company issued 62,487,206 shares of its common stock at par, of which 40,774,619 were recognized as subscription receivable as of June 30, 2015.
The Company is authorized to issue 100,000,000 shares of common stock and 20,000,000 shares of preferred stock. As of June 30, 2015, 67,987,206 shares of common stock and no preferred stock were issued and outstanding.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Aquilarts, Inc. (“the Company”) was incorporated on September 25, 2014 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 is a blank check company and qualifies as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act which became law in April, 2012.
On April 27, 2015, the following events occurred which resulted in a change of control of the Company:
1. The Company redeemed an aggregate of 17,500,000 of the then 20,000,000 shares of outstanding common stock at a redemption price of $.0001 per share. The then current officers and directors resigned.
2. Karl C. Powell was named sole director of the Company.
The following persons were appointed to the following positions:
| Karl C. Powell | Chief Executive Officer, and Director |
| Michael Balter | President, Chief Operating Officer, Secretary and Treasurer |
3. The Company issued 3,000,000 shares of its common stock at par to Karl C. Powell, the sole director of the Company.
As of the period covered by this report, the Company has no operations nor engages in any business activities generating revenues.
On August 19, 2015, Michael Balter effectively resigned as Chief Financial Officer and Mark Nishi replaced him. The Company intends to file a Form 8-K on or shortly after Michael Balter’s effective date of resignation.
The Company intends to develop a business of acquiring art assets and then retailing that art through several channels of distribution including:
A network of U.S. and international art galleries,
A charity auction program,
An art leasing business that leases-to-own sculpture art to businesses, and
A trade show program that retails art through booths at conventions and trade shows.
Upon the acquisition of the Chiurazzi molds, into which bronze is poured in order to create sculptures, the Company will have the ability to produce posthumous, first edition originals, which international fine art protocol has defined as a limited production of nine or less. The Chiurazzi Foundry has established a legacy in the world of ancient masterpieces. Many of the premiere museums in the world display works of art immortalized by the artisan and craftsman of the Chiurazzi Foundry.
The Company anticipates that it will develop its business plan through capital contribution and investment.
On May 15, 2015, the Company borrowed $100,000 pursuant to a convertible promissory note from Greg Horne payable on demand at any time after the Company’s common stock is offered on any public stock exchange. Interest shall accrue commencing on the date of execution of the note at a rate of 12% per annum. The entire principal amount and any accrued interest is convertible into shares of common stock of the Company when or if the market price of the Company’s common stock equals to $1.00 per share. The Company anticipates offering a private placement in the third quarter of 2015 at a price of $1.00 per share of common stock and any purchase of such stock at such price will be deemed to establish the market price of the Company’s stock at $1.00 per share.
Results of Operations
The Company reported a net loss of $89,222 for the three and six months ended June 30, 2015, which resulted primarily from salaries and wages of $84,000. The Company had no revenue and no cost of revenue for the three and six months ended June 30, 2015.
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Liquidity and Capital Resources
The Company had cash of $18,487 and $0 as of June 30, 2015 and December 31, 2014, respectively. The Company had a working capital deficiency of $86,751 and $0 as of June 30, 2015 and December 31, 2014, respectively.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Contractual Obligations
There were nomaterial changes outside the ordinary course of business for any contractual obligations during the interim period.
Seasonal Aspects
There were no seasonal aspects of the business that have had a material effect on the financial condition of the Company or results of its operations.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Information not required to be filed by Smaller reporting companies.
ITEM 4. Controls and Procedures.
Disclosures and Procedures
Pursuant to Rules adopted by the Securities and Exchange Commission, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules. This evaluation was done as of the end of the period covered by this report under the supervision and with the participation of the Company's principal executive officer (who was also the principal financial officer).
Based upon that evaluation, the Company's principal executive officer (who was also the principal financial officer) believes that the Company's disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to ensure that the information required to be disclosed by the Company in its periodic reports is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
This Quarterly Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Quarterly Report.
Changes in Internal Controls
There was no change in the Company's internal control over financial reporting that was identified in connection with such evaluation that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company and the Company is unaware of such proceedings contemplated against it.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 25, 2014, the Company issued 20,000,000 shares of its common stock to two shareholders, of which 17,500,000 shares were redeemed on April 27, 2015.
On April 27, 2015, the Company issued 3,000,000 shares of common stock at par to its sole director, Karl C. Powell.
On June 2, 2015, the Company issued 62,487,206 shares of its common stock at par, of which 40,774,619 was recognized as subscription receivable as of June 30, 2015.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
(a) Not applicable.
(b) Item 407(c)(3) of Regulation S-K:
During the quarter covered by this Report, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors.
ITEM 6. EXHIBITS
(a) Exhibits
| 31 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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.
| AQUILARTS, INC. | ||
| By: | /s/ Karl. C. Powell | |
| Chairman | ||
| President | ||
| Chief Executive Officer | ||
| By: | /s/ Mark Nishi | |
| Vice President | ||
| Chief Financial Officer | ||
| Dated: August 19, 2015 | ||
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