FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 333-93383
ADRIATIC HOLDINGS LIMITED
(Exact name of registrant as specified in charter)
Nevada 91-1918326
(State of Incorporation) (I.R.S. Employer Identification No.)
114 W. Magnolia Street, Suite 446, Bellingham, WA 98225
(Address of principal executive offices)
Registrant's telephone number, including area code (800) 661-7830
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. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 2001
Common Stock, par value $.001 per share 2,090,000
Page 2
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
ADRIATIC HOLDINGS CORPORATION
BALANCE SHEET
MARCH 31, 2001 AND DECEMBER 31, 2000
MARCH 31, DECEMBER 31,
ASSETS 2001 2000
------ ---------- ------------
(UNAUDITED)
Current Assets-Cash: $ 168 $ 214
Deferred Offering Costs 39,635 34,635
---------- ----------
$ 39,803 34,849
========== ==========
LIABILITIES
-----------
Current liabilities:
Accounts payable $ 39,848 36,894
Due to Shareholder 35,989 24,008
---------- ----------
Total Current Liabilities $ 75,837 60,902
---------- ----------
SHAREHOLDERS' DEFICIT
--------------------
Common stock, par value $0.001 per share
25,000,000 authorized shares,
2,090,000 shares issued and outstanding 2,090 2,090
Paid-in capital 15,733 15,733
Deficit accumulated during the development stage (53,857) (43,876)
---------- ----------
Total shareholders' deficit (36,034) (26,053)
---------- ----------
Total liabilities and
shareholders' deficit $ 39,803 $ 34,849
========== ==========
See notes to financial statements.
Page 3
ADRIATIC HOLDINGS CORPORATION
STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
AND FROM INCEPTION THROUGH MARCH 31, 2001 (UNAUDITED)
Period from
Inception
For the Three (July 9, 1998)
Month through
Ended March 31, March 31,
2001 2000 2001
------- ------- -------
Revenue $ 0 $ 0 $ 0
Expenses (Note 3)
General and Administrative 84 3,293 7,576
License Fee 2,500 2,500 20,743
Professional Fees 6,981 0 17,651
Management Fees 0 0 1,450
Rent Expense 416 416 6,437
------- ------- --------
Total Expenses 9,981 6,209 53,857
------- ------- --------
Net Loss $(9,981) $(6,209) $ (53,857)
======== ======== ========
Basic and Fully Diluted
Loss Per Share $ (.01) $ (.01) $ (.02)
======== ======== ========
Weighted Average Number of
Common Shares Outstanding 2,090,000 2,090,000 2,020,133
======== ======== ========
See notes to financial statements.
Page 4
ADRIATIC HOLDINGS LIMITED
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
AND FROM INCEPTION THROUGH MARCH 31, 2001 (UNAUDITED)
Period from
Inception
For the Three (July 9, 1998) Month Period through
Ended March 31, March 31,
2001 2000 2001
------ ------ -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $(9,981) $(6,209) $(53,857)
Adjustment to reconcile net loss to
net cash provided by (used in)
operating activities:
Rental Expense Contributed by Shareholder - 416 4,773
Increase in Accounts Payable 2,954 5,785 39,848
------- ------- ------
Total cash from operating activities (7,027) (8) (9,236)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Issuance of Common Stock 0 0 13,050
Increase in due to Shareholders 11,981 0 35,989
Increase in deferred offering costs (5,000) 0 (39,635)
------ ------ ------
Total cash from financing activities 6,981 0 9,404
------ ------ ------
Net Increase (Decrease) in Cash (46) (8) 168
Cash at Beginning of Period 214 82 0
Cash at End of Period 168 74 168
See notes to consolidated financial statements.
ADRIATIC HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
NOTE-1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and business
Adriatic Holdings Limited (the "Company") was incorporated in the state of
Nevada on July 9, 1998 and is in the development stage. Activities through
March 31, 2001 include organization of the Company, raising equity capital
and acquiring a license agreement as discussed below. The Company plans to
become a provider of quality electrical products to the commercial and
industrial electrical industry in the United States and Canada. In the
opinion of management, the interim financial statements contain all
adjustments, consisting only for normal recurring adjustments, necessary
to present fairly the financial position of the Company as of March 31,
2001 and its results of its interim operation and cash flows for the three
month ended March 31, 2001 and 2000, in accordance with generally accepted
accounting principles. The results for interim periods are not necessarily
indicative of results for a full year.
Cash flows
For purposes of reporting cash flows, cash includes those investments which are
short-term in nature (three months or less to original maturity), are readily
convertible to cash, and represent insignificant risk of changes in value.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Deferred offering costs
Offering costs represent costs incurred to March 31, 2001 in connection with
the SB-2 public offering (see Note 5). In the event that such offering is
successful, costs incurred as of March 31, 2001 and additional costs incurred
subsequent to that date will be charged against the proceeds of the offering. If
the offering is not successful, the costs will be charged to operations.
Fair value of financial instruments
The carrying amount of cash and accounts payable approximates fair value.
Net loss per share of common stock
Net loss per share of common stock is based on the weighted average number of
shares of common stock outstanding during the period.
ADRIATIC HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
NOTE-2 SHAREHOLDERS' EQUITY
The Company has the authority to issue 25,000,000 shares of common stock $0.001
par value. The Company issued 1,000,000 shares of common stock to one of its
founders for $1,000 and 50,000 shares of common stock to another of its founders
for services rendered valued at $50 in July, 1998. The Company issued 1,000,000
shares of common stock in connection with a private offering for $10,000 in
September, 1998. In February 1999, we issued 40,000 shares of common stock in
connection with an additional private placement offering for $2,000.
NOTE-3 RELATED PARTY TRANSACTIONS
A shareholder of the Company contributed office facilities valued at $1,666 for
the year ended December 31, 2000. During the period ended March 31, the Company
accrued $416 to a shareholder for rent.
NOTE-4 LICENSING AGREEMENT
On August 15, 1998, the Company acquired the rights to manufacture and
distribute an underground electrical junction box for a period of 10 years. The
box patent is owned by J.A. Industries (Canada) Inc. ("J.A. Canada"). Pursuant
to the license agreement the Company must pay $5.00 per junction box sold or a
minimum fee of $10,000 per year for the life of the license. In connection with
the agreement, J.A. Canada agreed not to compete, directly or indirectly, with
the Company's marketing or distribution of the junction boxes for a period of
twenty-four months. The Company has not yet begun the manufacturing or selling
of the junction boxes.
NOTE-5 PUBLIC OFFERING
The Company's SB-2 public offering of its common stock for the sale of a
maximum of 5,000,000 shares of common stock at $0.10 per share.
NOTE-6 CONTINGENCIES
As discussed in Note 4, the Company has the right to manufacture and distribute
an underground electrical junction box patented by J.A. Canada. J.A. Canada is
currently the defendant in a lawsuit with regards to its product. The statement
of claims, among other things, alleges that the Canadian patent issued on the
electrical box is invalid. If the plaintiffs are successful in this action, the
patent would be declared invalid and would not provide the Company with
protection from competition. If the patent is declared invalid, the Company has
the option to cancel the licensing agreement without affecting the manufacturing
of the product.
ADRIATIC HOLDINGS LIMITED
NOTES TO FINANCIAL STATEMENTS
NOTE-6 CONTINGENCIES (continued)
Currently, the plaintiff in the lawsuit is manufacturing a similar box to the
J.A. Canada box. J.A. Canada, through its lawyers, threatened litigation with
the plaintiffs if they did not cease and desist producing a copy of the J.A.
Canada junction box. The plaintiffs took the position that the box did not
infringe on the J.A Canada junction box and initiated the lawsuit to invalidate
the patent held by J.A. Canada. It is J.A. Canada's position that in the event
the J.A. Canada patent on the junction box is successfully invalidated by the
plaintiffs in the lawsuit, then the design of the junction box belongs in the
public domain and therefore no patent could be issued to anyone on this specific
design. Furthermore, the current plaintiffs would be able to continue to
manufacture their junction box whose design would also belong in the public
domain.
If the patent is declared invalid by the courts, the Company will not assert any
exclusive rights to the patent. The Company will be in a position to cancel its
licensing agreement with J.A. Canada and the Company will be able to manufacture
the junction box using the J.A. Canada design without any recourse from J.A.
Canada. As the design will belong to the public domain and no patent will be
available on the J.A. Canada junction box design, the Company will or may have
to compete directly with other manufacturers of the J.A. Canada junction box
design.
The Company has suffered recurring losses from operations and has a working
capital deficiency of $53,857 that raise substantial doubt about its ability to
continue as a going concern. The continuation of the Company as a going concern
is dependent upon the Company attaining and maintaining profitable operations
and raising additional capital. Management's plans in this regard is to raise
additional capital through an equity offering. The financial statements do not
include any adjustment relating to the recovery and classification of recorded
asset amounts or the amount and classification of liabilities that might be
necessary should the Company discontinue operations.
NOTE-7 INCOME TAX CARRYFORWARDS
The Company has net operating loss carryforwards for financial and income tax
reporting of approximately $44,000 of which approximately $12,000 expires in
2013, $12,000 in 2014, and $20,000 in 2015.
The deferred tax assets that result from such operating loss carryforwards of
approximately $6,600 and $3,600 at December 31, 2000 and 1999, respectively,
have been fully reserved in the accompanying financial statements. During the
year ended December 31, 2000 and 1999, the valuation allowance established
against the net operating loss carryforwards increased by $3,000 and $1,800,
respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OR PLAN OF OPERATION
The information contained below includes statements of Adriatic management's
beliefs, expectations, hopes, goals and plans that are forward-looking
statements subject to certain risks and uncertainties that could cause actual
results to differ materially form those anticipated in the forward-looking
statements. For a description of such risks and uncertainties, see the
information set forth under the caption "Forward-Looking Statements," which
information is incorporated herein by reference.
The following discussion and analysis should be read in conjunction with the
information set forth under the caption "Selected Financial Data" and the
financial statements and notes thereto included elsewhere in this prospectus.
Plan of Operation
Since our inception on July 9, 1998, we have not been engaged in any significant
operations nor have we had any revenues, as we are in the development stage. Our
only recent activities through March 31, 2001 include organization of the
Company and the raising of equity capital.
Until an infusion of capital from the SB-2 offering is completed, we will not
be able to commence operations. We currently have insufficient capital to
commence operations and are dependent on the proceeds of this offering to begin
such operations. We have suffered recurring losses from operations and have a
working capital deficiency of $53,857 which raise substantial concern regarding
our ability to continue as a going concern. We believe that the maximum
proceeds of this offering will enable us to maintain our operations and
working capital requirements approximately for the next 12 months, without
taking into account any internally generated funds from operations. We will
need to raise $500,000 to continue operations for the next 12 months based
on our capital expenditure requirements.
We have the authority to issue 25,000,000 shares of common stock, $0.001 par
value. Prior to this filing, we have raised all funds through private
placements. In July 1998, we issued 1,000,000 shares of common stock to one of
our founders for $1,000 and 50,000 shares of common stock to another founder for
$50. In September 1998, we issued 1,000,000 shares of common stock in connection
with an additional private offering for $10,000. In February 1999, we issued
40,000 shares of common stock in connection with an additional private placement
offering for $2,000.
After the current SB-2 offering, we will require additional funds to maintain
and expand our operations. These funds may be raised through equity financing,
debt financing, or other sources, which may result in further dilution in the
equity ownership of the shares being offered in this prospectus. There is
still no assurance that, even with the funds from this offering, we will be
able to maintain operations at a level sufficient for an investor to obtain a
return on his investment in our common stock. Further, we may continue to be
unprofitable. At the current time, we have not begun manufacturing any junction
boxes, but expect to do so when the additional funds have been made available.
Currently we have $75,837 in liabilities. Our financial statements report a
Loss of $12,303 for the fiscal period ended December 31, 1998. For this
period, we paid $4,444 in office expenses and $1,050 in management fees to
the original founding shareholders. For the period ended December 31, 1999,
we report a loss of $11,875. We paid $176 in office expenses and $8,103 in
license fees. For the period ended December 31, 2000 we report a loss of
$19,698 we report a loss of $19,698 and for the three month period ended
March 31, 2001 we report a loss of $9,981. After we raise additional
funds through this current offering, we anticipate an increase in the
number of employees to five.
Management believes that the J.A. Junction Box has a competitive advantage over
the traditional steel and concrete junction boxes. The J.A. Junction Box is
manufactured with high impact polyurethane. Polyurethane is an oil-bases product
which is readily available in the market place. Its price and supply are stable
now, and is expected, in management's opinion, to remain so in the foreseeable
future, although there can be no assurance. The design of the Junction box is
cylindrical so that the lid, which provides access to the wiring connections,
cannot fall into the box while installation or repairs are being made.
Polyurethane construction allows for a much lighter product in comparison with
steel or concrete, allowing for easier production, installation and
transportation of the junction boxes. Further, the polyurethane J.A. Junction
Box is earthquake proof, impact resistant, and does not corrode or deteriorate.
The equipment needed to manufacture J.A. Junction Boxes include RIM cell
machinery, presses and molds. The RIM cell machinery is used to compress
certain materials into polyurethane. The polyurethane is then poured into
moulds where it solidifies into the shape of the junction box.
Upon receipt of the funds from the SB-2 offering, we plan to use $150,000 to
purchase the mentioned plant equipment. It is evident that the production
process will use an above normal amount of electricity and will require facility
upgrades and improvements to electrical sources. We anticipate spending a
further $50,000 on such facility upgrades in the first year of production. There
is a patent on the junction box and we do not anticipate any further need for
Research and Development at this time. The Company entered into a licensing
agreement with J.A. Canada, the terms require the Company to pay a monthly
royalty fee of $1,000 CDN for use of the license. The Company anticipates first
year production costs to be $200,000 for supplies and $60,000 for labor.
The Company has the right to manufacture and distribute and underground
electrical junction box patented by J.A. Canada. J.A. Canada is currently the
defendant in a lawsuit with regards to its product. The statement of claims,
among other things, alleges that the Canadian patent issued on the electrical
box is invalid. If the plaintiffs are successful in this action, the patent
would be declared invalid and would not provide the Company with protection from
competition. If the patent is declared invalid, then the design of the J.A.
Canada junction box will revert to the public domain and no further patents
would be able to be issued on such a design. If the patent is declared invalid,
the Company has the option to cancel the licensing agreement without affecting
the manufacturing of the product.
Currently, the plaintiff in the lawsuit is manufacturing a similar box to the
J.A. Canada box and is selling the box successfully in Canada. J.A. Canada,
through its lawyers, threatened litigation with the plaintiffs if they did not
cease and desist producing a copy of the J.A. Canada junction box. The
plaintiffs took the position that the box did not infringe on the J.A. Canada
junction box and initiated the lawsuit to invalidate the patent held by J.A.
Canada. It is J.A. Canada's position that in the event the J.A. Canada patent on
the junction box is successfully invalidated by the plaintiffs in the lawsuit,
then the design of the junction box belongs in the public domain and therefore
no patent could be issued to anyone on this specific design. Furthermore, the
current plaintiffs would be able to continue to manufacture their junction box
whose design would also belong in the public domain.
If the patent is declared invalid by the courts, the Company will (a) not assert
any exclusive rights to the patent and (b) be in a position to cancel its
licensing agreement with J.A. Canada. The Company will also be able to
manufacture the junction box using the J.A. Canada design without any recourse
from or payments to J.A. Canada. As the design will belong to the public domain
and no patent will be available on the J.A. Canada junction box design, the
Company may have to compete directly with other manufacturers of the J.A. Canada
junction box design.
The Company has suffered recurring losses from operations and has a working
capital deficiency of $53,857 that raise substantial doubt about its ability to
continue as a going concern. The continuation of the Company as a going concern
is dependent upon the Company attaining and maintaining profitable operations
and raising additional capital. Management's plans in this regard is to raise
additional capital through an equity offering. The financial statements do not
include any adjustment relating to the recovery and classification of recorded
asset amounts or the amount and classification of liabilities that might be
necessary should the Company discontinue operations.
Our functional currency is the United States Dollar and our consolidated
financial statements are reported in United States Dollars unless otherwise
stated.
ADRIATIC HOLDINGS LIMITED
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
ADRIATIC HOLDINGS LIMITED
(Registrant)
DATE: May 17, 2001 BY: /s/ Robert Knight/
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