UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006
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Commission file Number: 0-28053
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INVESTMENT ASSOCIATES, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
98-0204280
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(I.R.S. Employer Identification Number)
Suite 810
1708 Dolphin Avenue
Kelowna, British Columbia, V1Y 9S4
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(Address of principal executive offices)
(250) 868-8177
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. [ X ] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). (check one): Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,000,000 common shares as
at May 11, 2006
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
INVESTMENT ASSOCIATES, INC.
INDEX
PART 1. FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheet as of March 31, 2006 (unaudited) 1
Statements of Operations for the six months
ended March 31, 2006 and 2005 (unaudited) 2
Statements of Cash Flows for the six months
ended March 31, 2006 and 2005 (unaudited) 3
Condensed Notes to Interim Financial Statements 4
Item 2 Plan of Operation
Item 3 Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 2 Unregistered Sales of Equity Securities and
Use of Proceeds 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8K 13
SIGNATURES 14
INVESTMENT ASSOCIATES, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
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March 31,
2006 September 30,
(unaudited) 2005
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ASSETS
CURRENT ASSETS
Cash $ 2,703 $ 2,258
-------- --------
TOTAL ASSETS $ 2,703 $ 2,258
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 2,542 $ 3,500
Indebtedness to related parties 18,720 11,720
Loans payable 10,000 10,000
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TOTAL CURRENT LIABILITIES 31,262 25,220
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COMMITMENTS AND CONTINGENCIES -- --
-------- --------
STOCKHOLDERS' DEFICIT
Common stock, 25,000,000 shares authorized;
$0.001 par value; 1,000,000 shares
issued and outstanding 1,000 1,000
Additional paid-in capital 29,283 29,283
Accumulated deficit during development stage (58,842) (53,245)
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TOTAL STOCKHOLDERS' DEFICIT (28,559) (22,962)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,703 $ 2,258
======== ========
The accompanying condensed notes are an integral part of these
interim financial statements.
1
INVESTMENT ASSOCIATES, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
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From
July 18,
1997
Three Months Ended Six Months Ended (Inception)
-------------------------- -------------------------- to
March 31, March 31, March 31, March 31, March 31,
2006 2005 2006 2005 2006
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- ----------- -----------
REVENUES $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
EXPENSES
Selling, general and administrative expenses 4,013 1,615 5,597 3,027 62,620
Loss on write-down of note receivable -- -- -- -- 18,679
Gain on forgiveness of note payable -- -- -- -- (22,500)
Interest expense -- -- -- -- 43
----------- ----------- ----------- ----------- -----------
TOTAL EXPENSES 4,013 1,615 5,597 3,027 58,842
----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (4,013) (1,615) (5,597) (3,027) (58,842)
----------- ----------- ----------- ----------- -----------
LOSS BEFORE TAXES (4,013) (1,615) (5,597) (3,027) (58,842)
INCOME TAXES -- -- -- -- --
----------- ----------- ----------- ----------- -----------
NET LOSS $ (4,013) $ (1,615) $ (5,597) $ (3,027) $ (58,842)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON SHARE,
BASIC AND DILUTED nil nil $ (0.01) nil
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 1,000,000 1,000,000 1,000,000 1,000,000
=========== =========== =========== ===========
The accompanying condensed notes are an integral part of these
interim financial statements.
2
INVESTMENT ASSOCIATES, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
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From
July 18,
1997
Six Months Ended (Inception)
------------------------ to
March 31, March 31, March 31,
2006 2005 2006
(unaudited) (unaudited) (unaudited)
------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,597) $(3,027) $(58,842)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss on write-down of note receivable -- -- 18,679
Gain on forgiveness note payable -- -- (22,500)
Increase (decrease) in accounts payable and
accrued liabilities (958) (1,700) 2,542
------- ------- --------
Net cash used by operating activities (6,555) (4,727) (60,121)
------- ------- --------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Issuance of note receivable -- -- (18,679)
------- ------- --------
Net cash used by investing activities -- -- (18,679)
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CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Issuance of common stock -- -- 1,000
Proceeds from issuance of loan payable -- -- 10,000
Proceeds from related party advances 7,000 -- 18,720
Proceeds from issuance of note payable -- -- 22,500
Capital contributed by an affiliate -- 5,500 29,283
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Net cash provided by financing activities 7,000 5,500 81,503
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NET INCREASE IN CASH 445 773 2,703
CASH, BEGINNING OF PERIOD 2,258 93 --
------- ------- --------
CASH, END OF PERIOD $ 2,703 $ 866 $ 2,703
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ -- $ -- $ 43
======= ======= ========
Income taxes paid $ -- $ -- $ --
======= ======= ========
NON-CASH TRANSACTIONS:
1,000,000 shares of common stock issued for services $ -- $ -- $ 1,000
The accompanying condensed notes are an integral part of these
interim financial statements.
3
INVESTMENTS ASSOCIATES, INC.
(A Development Stage Enterprise)
CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS
March 31, 2006
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NOTE 1 - BASIS OF PRESENTATION
The foregoing unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Regulation S-B as promulgated by the
Securities and Exchange Commission. Accordingly, these financial statements do
not include all of the disclosures required by generally accepted accounting
principles in the United States of America for complete financial statements.
These unaudited interim financial statements should be read in conjunction with
the audited financial statements for the period ended September 30, 2005. In the
opinion of management, the unaudited interim financial statements furnished
herein include all adjustments, all of which are of a normal recurring nature,
necessary for a fair statement of the results for the interim period presented.
Operating results for the six-month period ending March 31, 2006 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 2006.
The Company is a "blank check" company. It was organized to evaluate, structure
and complete a merger with, or acquisition of, a privately owned corporation.
Interim financial data presented herein are unaudited.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
- -------------
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company has no revenues, minimal cash, and recurring
losses since inception. These factors, among others, may indicate that the
Company will be unable to continue as a going concern for a reasonable period of
time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. Management's plans are to
engage in evaluating, structuring, and completing a merger with, or acquisition
of, a privately owned corporation. These plans, if successful, will mitigate the
factors which raise substantial doubt about the Company's ability to continue as
a going concern. The Company's continuation as a going concern is dependent upon
continuing capital contributions from an affiliate to meet its obligations on a
timely basis, consummating a business combination with an operating company, and
ultimately attaining profitability. There is no assurance that the affiliate
will continue to provide capital to the Company or that the Company can identify
a target company and consummate a business combination. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
4
INVESTMENTS ASSOCIATES, INC.
(A Development Stage Enterprise)
CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS
March 31, 2006
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Recent Accounting Pronouncements
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In March 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 156, "Accounting for Servicing of Financial
Assets, an Amendment of FASB Statement No. 140," (hereinafter "SFAS No. 156).
This statement requires an entity to recognize a servicing asset or servicing
liability each time it undertakes an obligation to service a financial asset by
entering into a servicing contract in any of the following situations: a
transfer of the servicer's financial assets that meets the requirements for sale
accounting; a transfer of the servicer's financial assets to a qualifying
special-purpose entity in a guaranteed mortgage securitization in which the
transferor retains all of the resulting securities and classifies them as either
available-for-sale securities or trading securities; or an acquisition or
assumption of an obligation to service a financial asset that does not relate to
financial assets of the servicer or its consolidated affiliates. The statement
also requires all separately recognized servicing assets and servicing
liabilities to be initially recorded at fair value, if practicable and permits
an entity to choose either the amortization or fair value method for subsequent
measurement of each class of servicing assets and liabilities. The statement
further permits, at its initial adoption, a one-time reclassification of
available-for-sale securities to trading securities by entities with recognized
servicing rights, without calling into question the treatment of other
available-for-sale securities under Statement No. 115, provided that the
available-for-sale securities are identified in some manner as offsetting the
entity's exposure to changes in fair value of servicing assets or servicing
liabilities that a servicer elects to subsequently measure at fair value and
requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial position and
additional disclosures for all separately recognized servicing assets and
servicing liabilities. This statement is effective for fiscal years beginning
after September 15, 2006, with early adoption permitted as of the beginning of
an entity's fiscal year. Management believes the adoption of this statement will
have no impact on the Company's financial condition or results of operations.
In February 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 155, "Accounting for Certain Hybrid Financial
Instruments, an Amendment of FASB Standards No. 133 and 140," (hereinafter SFAS
No. 155). This statement established the accounting for certain derivatives
embedded in other instruments. It simplifies accounting for certain hybrid
financial instruments by permitting fair value remeasurement for any hybrid
instrument that contains an embedded derivative that would otherwise require
bifurcation under SFAS No. 133 as well as eliminating a restriction on the
passive derivative instruments that a qualifying special-purpose entity may hold
under SFAS No. 140. This statement allows a public entity to irrevocably elect
to initially and subsequently measure a hybrid instrument that would be required
to be separated into a host contract and derivative in its entirety at fair
value (with changes in fair value recognized in earnings) so long as that
instrument is not designated as a hedging instrument pursuant to the statement.
SFAS No. 140 previously prohibited a qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. This statement is effective
for fiscal years beginning after September 15, 2006, with early adoption
permitted as of the beginning of an entity's fiscal year. Management believes
the adoption of this statement will have no impact on the Company's financial
condition or results of operations.
5
INVESTMENTS ASSOCIATES, INC.
(A Development Stage Enterprise)
CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS
March 31, 2006
- --------------------------------------------------------------------------------
In May 2005, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 154, "Accounting Changes and Error
Corrections," (hereinafter "SFAS No. 154") which replaces Accounting Principles
Board Opinion No. 20, "Accounting Changes", and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion
No. 28". SFAS No. 154 provides guidance on accounting for and reporting changes
in accounting principle and error corrections. SFAS No. 154 requires that
changes in accounting principle be applied retrospectively to prior period
financial statements and is effective for fiscal years beginning after December
15, 2005. The Company does not expect SFAS No. 154 to have a material impact on
its consolidated financial position, results of operations, or cash flows.
In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 153, "Exchange of Nonmonetary Assets an
amendment of ARB Opinion No. 29." This statement addresses the measurement of
exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, "Accounting
for Nonmonetary Transactions," is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. The guidance in that opinion, however, included certain exceptions to
that principle. This statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. Management believes the adoption of this statement will have no
impact on the financial statements of the Company.
In December 2004, the Financial Accounting Standards Board issued to Statement
of Financial Accounting Standards No. 123 (R), "Accounting for Stock Based
Compensation" (hereinafter "SFAS No. 123R"). This statement supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
implementation guidance. This statement establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for goods
or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. This statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
SFAS No. 123. This statement does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans." The Company has
determined that there was no impact to its financial statements from the
adoption of this statement.
6
INVESTMENTS ASSOCIATES, INC.
(A Development Stage Enterprise)
CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS
March 31, 2006
- --------------------------------------------------------------------------------
In November 2004, the Financial Accounting Standards Board issued SFAS No. 151,
"Inventory Costs-- an amendment of ARB No. 43, Chapter 4." This statement amends
the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that ". . . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may
be so abnormal as to require treatment as current period charges. . . ." This
statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. Management does not believe the adoption of this statement will have
any immediate material impact on the Company as the Company maintains no
inventory.
Use of Estimates
- ----------------
The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
NOTE 3 - LOAN PAYABLE
During the year ended September 30, 2002, an unrelated third party made an
unsecured, non-interest bearing loan to the Company for working capital. The
loan remains unpaid at December 31, 2005 and is due on demand.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company maintains a mailing address at the offices of RD Capital, Inc. ("RD
Capital"), an affiliate under common control. At this time, the Company has no
need for an office.
RD Capital has assumed responsibility for funding the Company's limited
operations. The Company accounts for such proceeds as contributed capital or as
indebtedness to a related party. During the year ended September 30, 2004, RD
Capital made contributions to the Company totaling $6,092. No capital
contributions were made during the year ended September 30, 2005. Through March
31, 2006, RD Capital has contributed a total of $29,283 on behalf of the
stockholders, which is included in the accompanying financial statements as
"additional paid-in capital". RD Capital does not expect to be repaid for its
capital contributions to the Company.
7
INVESTMENTS ASSOCIATES, INC.
(A Development Stage Enterprise)
CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS
March 31, 2006
- --------------------------------------------------------------------------------
At March 31, 2006, the Company owed $18,270 to related parties. This
indebtedness is non-interest bearing, not collateralized and due on demand.
During the period ended December 31, 2005, RD Capital loaned $7,000 to the
Company. During the year ended September 30, 2005, RD Capital loaned $9,000 to
the Company. During the year ended September 30, 2001, Strathmore Minerals Corp,
an affiliate corporation under common control, loaned $2,720 to the Company.
NOTE 5 - COMMON STOCK
During the year ended September 30, 1997, the Company issued 1,000,000 shares of
common stock in exchange for services. There have been no issuances of the
Company's common stock after September 30, 1997.
8
PLAN OF OPERATIONS
The following discussion of the plan of operations of the Company should be read
in conjunction with the financial statements and the related notes thereto
included elsewhere in this quarterly report for the six months ended March 31,
2006. This quarterly report contains certain forward-looking statements and the
Company's future operation results could differ materially from those discussed
herein.
We intend to seek to acquire assets or shares of an entity actively engaged in a
business that generates revenues, in exchange for its securities. We have not
identified a particular acquisition target and have not entered into any
negotiations regarding an acquisition. As soon as this registration statement
becomes effective under Section 12 of the '34 Act, we intend to contact
investment bankers, corporate financial analysts, attorneys and other investment
industry professionals through various media. None of our officers, directors,
promoters or affiliates have engaged in any preliminary contact or discussions
with any representative of any other company regarding the possibility of an
acquisition or merger with us as of the date of this registration statement.
Depending upon the nature of the relevant business opportunity and the
applicable state statutes governing how the transaction is structured, the
Company's Board of Directors expects that it will provide our shareholders with
complete disclosure documentation concerning a potential business opportunity
and the structure of the proposed business combination prior to consummation.
Disclosure is expected to be in the form of a proxy or information statement, in
addition to the post-effective amendment.
While any disclosure must include audited financial statements of the target
entity, we cannot assure you that such audited financial statements will be
available. As part of the negotiation process, the Board of Directors does
intend to obtain certain assurances of value, including statements of assets and
liabilities, material contracts, accounts receivable statements, or other
indicia of the target entity's condition prior to consummating a transaction,
with further assurances that an audited statement would be provided prior to
execution of a merger or acquisition agreement. Closing documents will include
representations that the value of the assets transferred will not materially
differ from the representations included in the closing documents, or the
transaction will be voidable.
Due to our intent to remain a shell corporation until a merger or acquisition
candidate is identified, it is anticipated that its cash requirements shall be
minimal, and that all necessary capital, to the extent required, will be
provided by the directors or officers. We do not anticipate that we will have to
raise capital in the next twelve months. We also do not expect to acquire any
plant or significant equipment.
We have not and do not intend to enter into, any arrangement, agreement or
understanding with non-management shareholders allowing non-management
shareholders to directly or indirectly participate in or influence our
management of the Company. As a result, management is in a position to elect a
majority of the directors and to control our affairs.
We have no full time employees. Our President and Secretary have agreed to
allocate a portion of their time to our activities, without compensation. These
officers anticipate that our business plan can be implemented by their devoting
approximately five (5) hours each per month to our business affairs and,
consequently, conflicts of interest may arise with respect to their limited time
commitment. We do not expect any significant changes in the number of employees.
See "Management."
Our officers and directors may become involved with other companies who have a
business purpose similar to ours. As a result, potential conflicts of interest
may arise in the future. If a conflict does arise and an officer or director is
presented with business opportunities under circumstances where there may be a
doubt as to whether the opportunity should belong to the Company or another
"blank check" company they are affiliated with, they will disclose the
opportunity to all the companies. If a situation arises where more than one
company desires to merge with or acquire that target company and the principals
9
of the proposed target company have no preference as to which company will merge
with or acquire the target company, the company that first filed a registration
statement with the Securities and Exchange Commission will be entitled to
proceed with the proposed transaction. See "Risk Factors - Affiliation With
Other "Blank Check" Companies."
General Business Plan
- ---------------------
Our purpose is to seek, investigate and, if investigation warrants, acquire an
interest in business opportunities presented to it by persons or firms that
desire to seek the perceived advantages of an Exchange Act registered
corporation. We will not restrict our search to any specific business, industry,
or geographical location and we may participate in a business venture of
virtually any kind or nature. This discussion of the proposed business is
purposefully general and is not meant to restrict our discretion to search for
and enter into potential business opportunities. Management anticipates that it
may be able to participate in only one potential business venture because we
have nominal assets and limited financial resources. This lack of
diversification should be considered a substantial risk to our shareholders
because it will not permit us to offset potential losses from one venture
against gains from another.
We may seek a business opportunity with entities that have recently commenced
operations, or that wish to utilize the public marketplace in order to raise
additional capital in order to expand into new products or markets, to develop a
new product or service, or for other corporate purposes. We may acquire assets
and establish wholly owned subsidiaries in various businesses or acquire
existing businesses as subsidiaries.
We anticipate that the selection of a business opportunity will be complex and
extremely risky. Due to general economic conditions, rapid technological
advances being made in some industries and shortages of available capital,
management believes that there are numerous firms seeking the perceived benefits
of a publicly registered corporation. The perceived benefits may include
facilitating or improving the terms for additional equity financing that may be
sought, providing liquidity for incentive stock options or similar benefits to
key employees, providing liquidity (subject to restrictions of applicable
statutes) for all shareholders and other factors. Potentially, available
business opportunities may occur in many different industries and at various
stages of development, all of which will make the task of comparative
investigation and analysis of these business opportunities extremely difficult
and complex.
We have, and will continue to have, no capital to provide the owners of business
opportunities with any significant cash or other assets. However, management
believes we will be able to offer owners of acquisition candidates the
opportunity to acquire a controlling ownership interest in a publicly registered
company without incurring the cost and time required to conduct an initial
public offering. The owners of the business opportunities will, however, incur
significant legal and accounting costs in connection with acquisition of a
business opportunity, including the costs of preparing Form 8-K's, 10-KSB's, or
10-QSB's, agreements and related reports and documents. The '34 Act specifically
requires that any merger or acquisition candidate comply with all applicable
reporting requirements, which include providing audited financial statements to
be included within the numerous filings relevant to complying with the `34 Act.
Nevertheless, the officers and directors of the Company have not conducted
market research and are not aware of statistical data that would support the
perceived benefits of a merger or acquisition transaction for the owners of a
business opportunity.
The analysis of new business opportunities will be undertaken by our officers
and directors, none of whom is a professional business analyst. Management
intends to concentrate on identifying preliminary prospective business
opportunities that may be brought to our attention through present associations
of our officers and directors, or by our shareholders. In analyzing prospective
business opportunities, management will consider:
- the available technical, financial and managerial resources;
- working capital and other financial requirements;
- history of operations, if any;
- prospects for the future;
10
- nature of present and expected competition;
- the quality and experience of management services that may be
available and the depth of that management;
- the potential for further research, development, or exploration;
- specific risk factors not now foreseeable but could be anticipated to
impact our proposed activities;
- the potential for growth or expansion;
- the potential for profit;
- the perceived public recognition of acceptance of products, services,
or trades;
- name identification; and - other relevant factors.
Our officers and directors expect to meet personally with management and key
personnel of the business opportunity as part of their "due diligence"
investigation. To the extent possible, the Company intends to utilize written
reports and personal investigations to evaluate the above factors. We will not
acquire or merge with any company that cannot provide audited financial
statements within a reasonable period of time after closing of the proposed
transaction.
Our management, while probably not especially experienced in matters relating to
the prospective new business of the Company, shall rely upon their own efforts
and, to a much lesser extent, the efforts of our shareholders, in accomplishing
our business purposes. We do not anticipate that any outside consultants or
advisors, except for our legal counsel and accountants, will be utilized by us
to accomplish our business purposes. However, if we do retain an outside
consultant or advisor, any cash fee will be paid by the prospective
merger/acquisition candidate, as we have no cash assets. We have no contracts or
agreements with any outside consultants and none are contemplated.
We will not restrict our search for any specific kind of firms, and may acquire
a venture that is in its preliminary or development stage or is already
operating. We cannot predict at this time the status of any business in which we
may become engaged, because the business may need to seek additional capital,
may desire to have its shares publicly traded, or may seek other perceived
advantages that we may offer. Furthermore, we do not intend to seek capital to
finance the operation of any acquired business opportunity until we have
successfully consummated a merger or acquisition.
We anticipate that we will incur nominal expenses in the implementation of its
business plan. Because we has no capital to pay these anticipated expenses,
present management will pay these charges with their personal funds, as interest
free loans, for a minimum of twelve months from the date of this registration
statement. If additional funding is necessary, management and or shareholders
will continue to provide capital or arrange for additional outside funding.
However, the only opportunity that management has to have these loans repaid
will be from a prospective merger or acquisition candidate. Management has no
agreements with us that would impede or prevent consummation of a proposed
transaction. We cannot assure, however, that management will continue to provide
capital indefinitely if a merger candidate cannot be found. If a merger
candidate cannot be found in a reasonable period of time, management may be
required reconsider its business strategy, which could result in our
dissolution.
Acquisition of Opportunities
- ----------------------------
In implementing a structure for a particular business acquisition, we may become
a party to a merger, consolidation, reorganization, joint venture, or licensing
agreement with another corporation or entity. It may also acquire stock or
assets of an existing business. On the consummation of a transaction, it is
probable that our present management and shareholders will no longer be in
control. In addition, our directors may, as part of the terms of the acquisition
transaction, resign and be replaced by new directors without a vote of our
shareholders. Furthermore, management may negotiate or consent to the purchase
of all or a portion of our stock. Any terms of sale of the shares presently held
by officers and/or directors will be also afforded to all other shareholders on
similar terms and conditions. Any and all sales will only be made in compliance
with the securities laws of the United States and any applicable state.
11
While the actual terms of a transaction that management may not be a party to
cannot be predicted, it may be expected that the parties to the business
transaction will find it desirable to avoid the creation of a taxable event and
thereby structure the acquisition in a so-called "tax-free" reorganization under
Sections 368(a)(1) or 351 of the Internal Revenue Code (the "Code"). In order to
obtain tax-free treatment under the Code, it may be necessary for the owners of
the acquired business to own 80% or more of the voting stock of the surviving
entity. In that event, the shareholders of the Company would retain 20% or less
of the issued and outstanding shares of the surviving entity, which would result
in significant dilution in the equity of the shareholders.
As part of the "due diligence" investigation, our officers and directors will
meet personally with management and key personnel, may visit and inspect
material facilities, obtain independent analysis of verification of certain
information provided, check references of management and key personnel, and take
other reasonable investigative measures to the extent of our limited financial
resources and management expertise. How we will participate in an opportunity
will depend on the nature of the opportunity, the respective needs and desires
of the parties, the management of the target company and our relative
negotiation strength.
With respect to any merger or acquisition, negotiations with target company
management are expected to focus on the percentage of our Company that the
target company shareholders would acquire in exchange for all of their
shareholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, our shareholders will probably hold a
substantially lesser percentage ownership interest following any merger or
acquisition. The percentage ownership may be subject to significant reduction in
the event we acquire a company with substantial assets. Any merger or
acquisition effected by us can be expected to have a significant dilutive effect
on the percentage of shares held by our then shareholders.
We will participate in a business opportunity only after the negotiation and
execution of appropriate written agreements. Although we cannot predict the
terms of the agreements, generally the agreements will require some specific
representations and warranties by all of the parties, will specify certain
events of default, will detail the terms of closing and the conditions that must
be satisfied by each of the parties prior to and after the closing, will outline
the manner of bearing costs, including costs associated with our attorneys and
accountants, will set forth remedies on default and will include miscellaneous
other terms.
As stated previously, we will not acquire or merge with any entity that cannot
provide independent audited financial statements concurrent with the closing of
the proposed transaction. We are subject to the reporting requirements of the
'34 Act. Included in these requirements is our affirmative duty to file
independent audited financial statements as part of its Form 8-K to be filed
with the Securities and Exchange Commission upon consummation of a merger or
acquisition, as well as our audited financial statements included in our annual
report on Form 10-K (or 10-KSB, as applicable) and quarterly reports on Form
10-Q (or 10-QSB, as applicable). If the audited financial statements are not
available at closing, or if the audited financial statements provided do not
conform to the representations made by the candidate to be acquired in the
closing documents, the closing documents will provide that the proposed
transaction will be voidable at the discretion of our present management. If the
transaction is voided, the agreement will also contain a provision providing for
the acquisition entity to reimburse us for all costs associated with the
proposed transaction.
Competition
- -----------
We will remain an insignificant participant among the firms that engage in the
acquisition of business opportunities. There are many established venture
capital and financial concerns that have significantly greater financial and
personnel resources and technical expertise than we do. In view of our combined
extremely limited financial resources and limited management availability, we
will continue to be at a significant competitive disadvantage compared to our
competitors.
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Item 3 - Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this report, being March 31, 2006, we have carried out an evaluation
of the effectiveness of the design and operation of our company's disclosure
controls and procedures. This evaluation was carried out under the supervision
and with the participation of our management, including our president and chief
executive officer. Based upon that evaluation, our president and chief executive
officer concluded that our disclosure controls and procedures are effective as
of the end of the period covered by this report. There have been no significant
changes in our internal controls over financial reporting that occurred during
our most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect our internal controls over financial reporting.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our company's
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to management, including our president and chief
executive officer as appropriate, to allow timely decisions regarding required
disclosure.
PART II
OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
None
Item 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
Item 3 DEFAULTS UPON SENIOR SECURITIES
None
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5 OTHER INFORMATION
None
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32 Section 906 Certification
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(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INVESTMENT ASSOCIATES, INC.
Dated: May 12, 2006 Per: /s/ Robert Hemmerling
-----------------------------------------
Robert Hemmerling,
C.F.O., Secretary, Treasurer and Director
14