U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
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: 33-5902
CITY CAPITAL CORPORATION
(Exact Name of Company as Specified in Its Charter)
Nevada 22-2774460
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
2535 Pilot Knob Road, Suite 118, Mendota Heights, Minnesota 55120
(Address of Principal Executive Offices) (Zip Code)
(651) 452-1606
(Company's Telephone Number)
______________________________________________________________
(Former Name, Former Address, and Former Fiscal Year, if Changed
Since Last Report)
Indicate by check mark whether the Company (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 Company was required to file such reports),
and (2) been subject to such filing requirements for the past 90
days. Yes X No .
Indicate by check mark whether the Company is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act): Yes
No X .
As of March 31, 2005, the Company had 2,553,458 shares of common
stock issued and outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
REVIEW REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 3
BALANCE SHEETS AS OF
MARCH 31, 2005 AND DECEMBER 31, 2004 5
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2005 AND MARCH 31, 2004 6
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2005 AND MARCH 31, 2004 7
SCHEDULE OF INVESTMENTS 8
NOTES TO FINANCIAL STATEMENTS 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 28
ITEM 4. CONTROLS AND PROCEDURES 28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 29
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS 30
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 30
ITEM 5. OTHER INFORMATION 31
ITEM 6. EXHIBITS 31
SIGNATURE 31
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
George Brenner, CPA
A Professional Corporation
10680 W. PICO BOULEVARD, SUITE 260
LOS ANGELES, CALIFORNIA 90064
310/202-6445 - Fax 310/202-6494
REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of City Capital Corporation, a Business Development Company
I have reviewed the accompanying balance sheet of City Capital
Corporation, a Business Development Company ("BDC"), as of March 31,
2005, and the related statements of operations and cash flows for the
three months ended March 31, 2005 and 2004. These financial
statements are the responsibility of the Company's management.
I conducted my review in accordance with standards of the Public
Company Accounting Oversight Board (United States). A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, I do not express
such an opinion.
As set forth in the "Schedule of Investments" included in the
financial statements, investments amounting to $379,417 (100% of
total assets) at March 31, 2005 have been valued at fair value as
determined by the Board of Directors. Determination of fair value
involves subjective judgment which is not susceptible to
substantiation by the audit process.
Based on my review, I am not aware of any material modifications that
should be made to the accompanying financial statements for them to
be in conformity with accounting principles generally accepted in the
United States.
As discussed in Note 3, certain conditions indicate that the Company
may be unable to continue as a going concern. The accompanying
financial statements do not include any adjustments to the financial
statements that might be necessary should the Company be unable to
continue as a going concern.
The accounting principles used in the preparation of the financial
statements for the quarter ended March 31, 2004 are prior to the
December 6, 2004 date when the Company converted to a BDC under the
Investment Company Act of 1940. Because of this current and prior
periods are not directly comparable.
/s/ George Brenner, CPA
George Brenner, CPA
Los Angeles, California
May 12, 2005
CITY CAPITAL CORPORATION
BALANCE SHEETS
ASSETS
March 31,
2005 December 31,
(Unaudited) 2004
Investment and advances in portfolio
company at fair market value $ 331,625 $ 257,657
Investment - InZon Corporation 47,792 40,792
Total Assets 379,417 298,449
LIABILITIES AND STOCKHOLDERS' DEFICIT
Bank overdraft 9,037 773
Notes payable including accrued interest; $288,666
as of March 31, 2005 and $ 263,666 as of December
31, 2004 825,240 700,814
Accounts payable and accrued expenses 235,755 225,553
Accrued consulting-officer 60,000 44,000
Convertible debentures 237,050 238,550
Total Liabilities 1,367,082 1,209,690
Stockholders' Deficit
Common stock, $0.001 par value;
authorized 235,000,000 shares;
issued and outstanding: 2,553,458 as of
March 31 2005 and 2,233,458 as of
December 31, 2004 2,553 2,233
Preferred stock, $0.001 par value
authorized 15,000,000 shares;
issued and outstanding; 157,260 as of March 31
and 101,259 as of December 31, 2004 157 101
Additional paid-in capital (726,166) (849,790)
Accumulated deficit (264,209) (63,785)
Total Stockholders' Deficit (987,665) (911,241)
Total Liabilities and Stockholders' Deficit 379,417 298,449
Net Asset ( Deficit) Value per Share (0.3828) (0.4080)
See accompanying notes to financial statements
CITY CAPITAL CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
As a BDC Prior to BDC
Status
2005 2004
Revenues $ -- $ 1,074
Cost of Revenues -- --
Gross Profit -- 1,074
Selling, General, and Administrative Expenses 183,124 129,915
Other Expense (11,650) --
Interest Charges (net of interest income) 28,493 15,581
199,967 145,496
Net Loss Before Income Taxes (199,967) (144,422)
Income Tax Expense (Benefit) -- --
Net Income (Loss) (199,967) (144,422)
Basic and Diluted Loss Per Common Share
Net Loss (0.0787) (0.0739)
Weighted Average Number of Common Shares
Used to Compute Net Income (Loss) per
Weighted Average Share 2,539,394 (1) 1,954,227
(1) Adjusted for a one for one hundred reverse split of the common
stock that was effective on December 15, 2004.
See accompanying notes to financial statements
CITY CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
As a BDC Prior to BDC
Status
2005 2004
Cash Flows From Operating Activities
Net profit (loss $ (199,967) $ (144,422)
Adjustments to reconcile net profits (loss)
to net cash used in operating activities:
Bank overdraft 9,037
Stock issued for expenses 96,000 94,500
Accrued expense - related party 16,000 --
Accounts payable and accrued expenses 8,972 2,469
Net Cash Used In Operating Activities (69,958) (47,453)
Cash Flow From Investing Activities
Advances to portfolio company (73,968) --
Investment - InZon Corporation (7,000) --
Net Cash Used In Investment Activities (80,968) --
Cash Flows From Financing Activities
Loans 152,426 18,500
Payment on debenture 1,500 --
Sale of common stock -- 5,000
Net Cash Provided By Financing Activities 150,926 23,500
Increase (Decrease) In Cash and Cash Equivalents -- (23,953)
Cash and Cash Equivalents at Beginning of Period -- 23,953
Cash and Cash Equivalents at End of Period -- --
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest -- --
Income taxes -- --
Noncash Investing and Financing Activities
320,000 shares @ 0.30 for services 96,000 --
(1) 43,000 shares @ $1.50 for service -- 64,500
(1) 60,000 shares @ $0.50 for service -- 30,000
(1) Adjusted for a one for one hundred reverse split of the common
stock that was effective on December 15, 2004.
See accompanying notes to financial statements
CITY CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS
(unaudited)
MARCH 31, 2005
Title of Securities Percentage of
Portfolio Company Industry Held by Company Class Held Fair Value
Perfect Turf, Inc Artificial Turf Common Stock 100% $331,625 (1)
InZon Corporation Voice over IP Loan 100% 47,792
Total Investments $379,417 (2)
(1) Fair value includes advances of $92,093.
(2) Fair value was determined by the Company's board of directors.
See accompanying notes to financial statements
CITY CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The Company.
City Capital Corporation, a Nevada corporation ("Company"), was
incorporated in Nevada on July 24, 1984, as Diversified Ventures,
Ltd. On March 27, 1987, the Company changed its name to M.V.I.D.
International Corporation; on April 6, 1994, the name was changed to
Micro-Lite Television. On October 25, 1996, the Company changed its
name to Superior Wireless Communications, Inc.; on August 18, 1999,
the name was changed to JustWebit.com, Inc. On November 6, 2002, the
Company changed its name to City Capital Corporation. The Company's
fiscal year ends on December 31. 2004.
Effective December 1, 2004 the Company commenced operating as a
Business Development Company ("BDC") under Section 54(a) of the
Investment Company Act of 1940 ("1940 Act").
Basis of Presentation.
In accordance with Securities and Exchange Commission ("SEC") rules
and regulations for BDC's, the Company does not consolidate or use
the equity method to account for its controlling investment in the
Portfolio Company. Rather, the Company's investment in such entity
is reported at fair value. Any future fluctuations in such fair
value since the date of the conversion to a BDC will be reflected as
an unrealized gain on investment in the statements of operations.
The Company's accompanying unaudited condensed financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and the instructions to Form 10-Q and Regulation S-X of
the SEC. Accordingly, these unaudited condensed financial statements
do not include all of the footnotes required by accounting principles
generally accepted in the United States of America. In management's
opinion, all adjustments (consisting of normal and recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31,
2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005. The accompanying
condensed financial statements and the notes thereto should be read
in conjunction with the Company's audited financial statements as of
and for the year ended December 31, 2004 contained in the Form 10-KSB.
Although the nature of the Company's operations and its reported
financial position, results of operations and cash flows are
dissimilar for the periods prior and subsequent to becoming a BDC,
its unaudited operating results and cash flows for the periods ended
March 31, 2005 and March 31, 2004 are presented in the accompanying
financial statements pursuant to Regulation S-X.
NOTE 2: CRITICAL ACCOUNTING POLICIES
Use of Estimates.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America
requires management of the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the
date of the interim financial statements and the reported amounts of
revenues and expenses during the reporting period. Such estimates
include, but are not limited to, revenue recognition and allowances,
accrued liabilities, deferred revenue, loss contingencies and
accounting for income taxes. Actual results could differ from these
estimates.
Impaired Fair Value of Financial Instruments.
The carrying amounts for the Company's cash, accounts payable,
accrued liabilities, due to stockholder and officers approximate fair
value due to the short-term maturity of these instruments.
Income Taxes.
In February 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". SFAS No. 109 required a change from
the deferred method of accounting for income taxes of Accounting
Principles Board Opinion No. 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to 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. Under SFAS No. 109, the effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted SFAS No. 109.
Earnings (Loss) per Share.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share."
SFAS No. 128 simplifies the standards for computing earnings per
share ("EPS") and was effective for financial statements issued for
periods ending after December 15, 1997, with earlier application not
permitted. Effective January 1, 1998, the Company adopted SFAS No.
128. Basic EPS is determined using net income divided by the
weighted average shares outstanding during the period. Diluted EPS
is computed by dividing net income by the weighted average shares
outstanding, assuming all dilutive potential common shares were
issued. Since the fully diluted losses per share for the first
quarter of fiscal years 2005 and 2004 were antidilutive, basic and
diluted losses per share are the same. Accordingly, rights to
purchase common issuable upon conversion of convertible debentures
were not included in the calculation of diluted earnings per common
share.
NOTE 3: GOING CONCERN CONSIDERATIONS
As shown in the accompanying interim financial statements, the
Company has incurred a net loss of $199,967 for the quarter ended
March 31, 2005. As of March 31, 2005, the Company reported an
accumulated deficit of $1,015,605. The industry in which the Company
operates is very dynamic and extremely competitive. The Company's
ability to generate financial gains and positive cash flows is
dependent on the ability to make investments which yield returns as
well as the ability to raise additional capital. Management is
following strategic plans to accomplish these objectives, but success
is not guaranteed. As of March 31, 2005, these factors raise
substantial doubt about the Company's ability to continue as a going
concern. 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 classification of
liabilities that may result from the outcome of this uncertainty.
NOTE 4: RELATED PARTIES
In October 2004, the Company entered contract with Gary Borglund,
President and the CEO of the Company. Under the terms of the
agreement Mr Borglund is paid a base amount of $80,000 per annum plus
certain incentives as approved by the Board of Directors of the
Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of the Company's financial
condition and results of operations is based upon, and should be read
in conjunction with, its unaudited condensed financial statements and
related notes included elsewhere in this Form 10-Q, which have been
prepared in accordance with accounting principles generally accepted
in the United States.
Overview.
On December 6, 2004, the Company elected, by the filing of a
Form N-54A, to be regulated as a business development company ("BDC")
under the Investment Company Act of 1940 ("1940 Act"). On December
1, 2004, the Company moved its assets into Perfect Turf, Inc.
("Portfolio Company") in exchange for 100% of the outstanding shares
of the Portfolio Company's common stock (1,000 shares) in order to
meet the requirements of the 1940 Act. The Portfolio Company will
continue to focus on the sale and distribution of artificial turf, a
synthetic product used for artificial home lawns, childcare
playground surfacing, soccer and football fields and in numerous
other areas applications conditions prohibit the use of natural grass
surfaces.
The Company intends to invest in companies with historically
profitable results, strong balance sheets, high profit margins, and
solid management teams in place. The Company will seek to leverage
the combined talents of an experienced management team to invest in
those types of companies and to enhance shareholder value.
A business development company is defined and regulated by the
1940 Act. A business development company must be organized in the
United States for the purpose of investing in or lending primarily to
private companies and making managerial assistance available to them.
A business development company may use capital provided by public
shareholders and from other sources to invest in long-term, private
investments in businesses. A business development company provides
shareholders the ability to retain the liquidity of a publicly traded
stock, while sharing in the possible benefits, if any, of investing
primarily in privately owned companies.
As a business development company, the Company may not acquire
any asset other than "qualifying assets", unless, at the time we
make the acquisition, the value of our qualifying assets represents
at least 70% of the value of our total assets.
The principal categories of qualifying assets relevant to our
business are:
- Securities purchased in transactions not involving any public
offering, the issuer of which is an eligible portfolio company;
- Securities received in exchange for or distributed with respect
to securities described in the bullet above or pursuant to the
exercise of options, warrants or rights relating to such
securities; and
- Cash, cash items, government securities or high quality debt
securities (within the meaning of the 1940 Act), maturing in one
year or less from the time of investment.
An eligible portfolio company is generally a domestic company
that is not an investment company (other than a small business
investment company wholly owned by a business development company);
and
- Does not have a class of securities registered on an exchange or
a class of securities with respect to which a broker may extend
margin credit; or
- Is actively controlled by the business development company and
has an affiliate of a business development company on its board
of directors.
To include certain securities described above as qualifying
assets for the purpose of the 70% test, a business development
company must make available to the issuer of those securities
significant managerial assistance such as providing significant
guidance and counsel concerning the management, operations, or
business objectives and policies of a portfolio company or making
loans to a portfolio company. The Company offers to provide
managerial assistance to each of its portfolio companies.
As a business development company, the Company is entitled to
issue senior securities in the form of stock or senior securities
representing indebtedness, including debt securities and preferred
stock, as long as each class of senior security has asset coverage of
at least 200% immediately after each such issuance. See "Risk Factors."
The Company may be prohibited under the 1940 Act from knowingly
participating in certain transactions with our affiliates without the
prior approval of our board of directors who are not interested
persons and, in some cases, prior approval by the Securities and
Exchange Commission ("SEC").
As a business development company, the Company's primary goal is
to increase its net assets by investing in private development stage
or start-up companies that possess or will likely identify emerging
and established technologies and markets for those technologies.
These private businesses are thinly capitalized, unproven, small
companies that lack management depth, are dependent on new,
commercially unproven technologies and have no history of operations.
It is the goal of the Company to assemble a diverse portfolio of
companies, which will leverage the combined talents of an experienced
management team to incubate these companies and seek to enhance
shareholder value. As a result, the Company will focus on making
equity and not debt investments.
The Company will likely be periodically examined by the SEC for
compliance with the 1940 Act. As with other companies regulated by
the 1940 Act, a business development company must adhere to certain
substantive regulatory requirements. A majority of our directors
must be persons who are not interested persons, as that term is
defined in the 1940 Act. Additionally, we are required to provide
and maintain a bond issued by a reputable fidelity insurance company
to protect us against larceny and embezzlement. Furthermore, as a
business development company, the Company is prohibited from
protecting any director or officer against any liability to the
Company or our shareholders arising from willful malfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of such person's office.
The Company must maintain a code of ethics that establishes
procedures for personal investment and restricts certain transactions
by our personnel. The Company's code of ethics generally does not
permit investment by our employees in securities that may be
purchased or held by us. As a business development company under the
1940 Act, we are entitled to provide loans to our employees in
connection with the exercise of options. However, as a result of
provisions of the Sarbanes-Oxley Act of 2002, the Company is
prohibited from making new loans to, or materially modifying existing
loans with, its executive officers in the future.
The Company may not change the nature of its business so as to
cease to be, or withdraw our election as, a business development
company unless authorized by vote of a "majority of the outstanding
voting securities," as defined in the 1940 Act, of our shares. A
majority of the outstanding voting securities of a company is defined
under the 1940 Act as the lesser of: (i) 67% or more of such
company's shares present at a meeting if more than 50% of the
outstanding shares of such company are present and represented by
proxy or (ii) more than 50% of the outstanding shares of such
company. Since the Company made its business development company
election, it has not made any substantial change in the nature of its
business.
The Company intends to fund new investments using cash, through
the issuance of its common stock, the reinvestment of previously
accrued interest and dividends in debt or equity securities, or the
current reinvestment of interest and dividend income through the
receipt of a debt or equity security (payment-in-kind income). From
time to time, the Company may also opt to reinvest accrued interest
receivable in a new debt or equity.
(a) Valuation Methodology.
The Company will determine the value of each investment in our
portfolio on a quarterly basis, and changes in value result in
unrealized gains or losses being recognized. At March 31, 2005,
approximately 87% of our total assets represented an investment in
the Portfolio Company at fair value. Fair value is defined in
Section 2(a)(41) of the 1940 Act as (i) the market price for those
securities for which a market quotation is readily available and (ii)
for all other securities and assets, fair value is as determined in
good faith by the board of directors. Since there is typically no
readily ascertainable market value for the investments in our
portfolio, we value substantially all of our portfolio investments at
fair value as determined in good faith by the board of directors
pursuant to a valuation policy and a consistently applied valuation
process. Because of the inherent uncertainty of determining the fair
value of investments that do not have a readily ascertainable market
value, the fair value of our investments determined in good faith by
the board of directors may differ significantly from the values that
would have been used had a ready market existed for the investments,
and the differences could be material.
There is no single standard for determining fair value in good
faith. As a result, determining fair value requires that judgment be
applied to the specific facts and circumstances of each portfolio
investment while employing a consistently applied valuation process
for the types of investments we make.
The Company's investment in the Portfolio Company is carried at
cost (which approximates fair value) as this investment represents a
continuation of the Company's former business prior to its election
as a BDC, and is under common control at date of transfer.
Unlike banks, the Company is not permitted to provide a general
reserve for anticipated loan losses. Instead, the Company is required
to specifically value each individual investment on a quarterly
basis. The Company will record unrealized depreciation on
investments when it believes that an investment has become impaired.
Conversely, the Company will record unrealized appreciation if it
believes that the underlying portfolio company has appreciated in
value and, therefore, our equity security has also appreciated in value.
As a business development company, the Company will invest in
liquid and illiquid securities, including debt and equity securities
primarily of private companies. Our investments will generally be
subject to restrictions on resale and generally have no established
trading market. Because of the type of investments that the Company
makes and will make, and the nature of its business, its valuation
process requires an analysis of various factors. Our fair value
methodology includes the examination of, among other things, the
underlying investment performance, financial condition, and market
changing events that impact valuation.
(b) Investment in Portfolio Company
On December 1, 2004, the Company moved assets into the Portfolio
Company, which will continue to focus on the sale and distribution of
artificial turf, a synthetic product used for artificial home lawns,
childcare playground surfacing, soccer and football fields and in
numerous other areas applications conditions prohibit the use of
natural grass surfaces.
The Portfolio Company specializes in the sale and distribution
of artificial turf, a synthetic product used for artificial home
lawns, childcare playground surfacing, soccer and football fields and
in numerous other areas applications conditions prohibit the use of
natural grass surfaces. The Portfolio Company believes that the
artificial turf business will see a dramatic increase due the ongoing
advancements in the technology of artificial turf. Additionally, the
current drought affecting much of the United States is experiencing
and the related increase in watering restrictions favors the
introduction of artificial turf as an economic and environmentally
friendly alternative. The Portfolio Company believes it is well
positioned to be a significant player in the artificial turf business.
The Portfolio Company has an exclusive license from Avery Sports
Turf, Inc. (a related company) to market and resell a unique and
patented artificial turf product which provides durability and
quality on the upper half of the synthetic system, and can provide a
stable shock absorbing pad for low G-Max levels on the bottom half of
the synthetic system. These features provide excellent shock
absorbing capability, and increases durability significantly when
crumb rubber is added to the system. This means the system not only
has superior materials but also provides additional safety.
In the Portfolio Company's view, the artificial turf industry as
a whole is faced with two diverging issues and no single
understanding on how to profitably address the future. The first
area is the proliferation of synthetic turf uses within the drought
ridden southwest as well as worldwide, from state and county run
facilities to residential applications. The second is the need for
educating the community on the benefits of synthetic turf systems as
a viable and cost saving alternative to traditional grass environments.
The Company has historically experienced operating losses and
negative cash flow. The Company expects that these operating losses
and negative cash flows may continue through additional periods. In
addition, the Portfolio Company only has a limited record of revenue-
producing operations and there is only a limited operating history
upon which to base an assumption that it will be able to achieve its
business plans.
During the quarter ending March 31, 2005 the Company invested an
additional $92,093 in the Portfolio Company. In addition, the
Company loaned an additional $7,000 to InZon Corporation. These
investments were done in cash for the purpose of supporting the
ongoing working capital and general and administrative expense needs
of the Portfolio Company and InZon Corporation. This brings the
total investment in the Portfolio Company to $331,625 and in InZon
Corporation to $47,792 as of March 31, 2005.
Results of Operations.
The results of operations reflected in this discussion include
historical operations of the Company prior to becoming a BDC.
(a) Revenues.
The Company reported zero income for the three months ended
March 31, 2005. and for the three months ended March 31, 2004, the
Company generated revenues of $1,074. The decrease in revenues was a
result of the Company's change in 2004 to a BDC.
(b) Selling, General, and Administrative Expenses.
The operating loss for the three months ended March 31, 2005,
totaling $199,967 was attributable to selling, general and
administrative expenses of which salaries and professional services
made up the largest portion. Professional fees and outside services
in the current quarter totaled $141,313 or approximately 71% of the
total of such expenses. Professional fees of $116,233, approximately
71% of the total of such expenses, were incurred in the three months
ended March 31, 2004. Expense was further reduced by a debt
settlement of $11,650 during the three months ended March 31, 2005.
(c) Interest Expense.
The Company incurred interest charges (net of interest income)
of $28,493 in the three months ended March 31, 2005, compared with
such charges of $15,581 in the three months ended March 31, 2004.
Most of the interest expense in the quarter ended March 31, 2005 is
in the accrual on the amounts owed to Newport Financial (as discussed
below), and to former officers of the Company.
(d) Income Tax Benefit.
At March 31, 2005, the Company had available net operating loss
carryforwards of approximately $9 million that may provide future tax
benefits expiring beginning in June of 2006; this compares with net
operating loss carryforwards of approximately $7 million at March 31,
2004. Approximately $1,000,000 of this net operating loss was
carried forward from the business of Marrco Communications, Inc. and
is limited under Internal Revenue Code Section 381. This limits the
use of this portion of the Company's net operating loss carryforward
to approximately $70,000 per year. The Company has not recognized
any of this tax benefit as an asset due to uncertainty of future
income. The annual limitation could result in the expiration of the
net operating loss before utilization.
(e) Net Loss.
The Company reported a net loss of $199,967 for the three months
ended March 31, 2005, compared to net loss of $144,422 for the three
months ended March 31, 2004. The difference is due to higher
consulting and other selling , general, and administrative expenses.
Operating Activities.
The net cash used in operating activities was $69,958 for the
three months ended March 31, 2005 compared to $47,453 for the three
months ended March 31, 2004, an increase of $22,505 or approximately
47%. A significant portion of cash used in the three months ended
March 31, 2005 is attributed to stock issued for expenses.
Investing Activities.
Net cash used in investing activities was $80,968 for the year
three months ended March 31, 2005 compared to $0 during the three
months ended March 31, 2004 as a result of investments made by the
Company. These loans represent the principal portion of the
investment of $379,417, and are comprised of an investment by the
Company in the Portfolio Company in the amount of $331,625 and a loan
by the Company to InZon Corporation in the amount of $47,792.
Liquidity and Capital Resources.
As of March 31, 2005, the Company had no cash. In addition to
the loss of $199,967 during the three months ended March 31, 2005,
the Company incurred losses of $510,931 for the year ended December
31, 2004. As of March 31, 2005, the Company had an accumulated
deficit of $264,209. These factors raise substantial doubt as to the
Company's ability to continue as a going concern. In fact, the
Company's independent accountants' audit report included in the Form
10-KSB for the year ended December 31, 2004 includes a substantial
doubt paragraph regarding the Company's ability to continue as a
going concern.
The accompanying financial statements have been prepared
assuming that the Company continues as a going concern that
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business assuming the Company
will continue as a going concern. However, the ability of the
Company to continue as a going concern on a longer-term basis will be
dependent upon its ability to generate sufficient cash flow from
operations to meet its obligations on a timely basis, to retain its
current financing, to obtain additional financing, and ultimately
attain profitability.
Management plans to continue raising additional capital through
a variety of fund raising methods during 2005 and to pursue all
available financing alternatives in this regard. Management may also
consider a variety of potential partnership or strategic alliances to
strengthen its financial position. In addition, we will continue to
seek additional funds to ensure our successful growth strategy
and to allow for potential investments into a diverse portfolio
of companies with strategic information and communications
technologies or applications. Whereas the Company has in the past
raised capital, no assurance can be given that sources of financing
will continue to be available to us and/or that demand for our
equity/debt instruments will be sufficient to meet our capital needs,
or that financing will be available on terms favorable to the
Company. 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.
If funding is insufficient at any time in the future, the
Company may not be able to take advantage of business opportunities
or respond to competitive pressures, or may be required to reduce the
scope of its planned product development and marketing efforts, any
of which could have a negative impact on its business and operating
results. In addition, insufficient funding may have a material
adverse effect on the Company's financial condition, which could
require the Company to:
- curtail operations significantly;
- sell significant assets;
- seek arrangements with strategic partners or other parties that
may require the Company to relinquish significant rights to
products, technologies or markets; or
- explore other strategic alternatives including a merger or sale
of the Company.
To the extent that the Company raises additional capital through
the sale of equity or convertible debt securities, the issuance of
such securities will result in dilution to existing stockholders. If
additional funds are raised through the issuance of debt securities,
these securities may have rights, preferences and privileges senior to
holders of common stock and the terms of such debt could impose
restrictions on the Company's operations. Regardless of whether the
Company's cash assets prove to be inadequate to meet the Company's
operational needs, the Company may seek to compensate providers of
services by issuing stock in lieu of cash, which will also result in
dilution to existing shareholders.
Inflation.
The impact of inflation on our costs and the ability to pass on
cost increases to its customers over time is dependent upon market
conditions. We are not aware of any inflationary pressures that have
had any significant impact on our operations over the past quarter,
and the company does not anticipate that inflationary factors will
have a significant impact on future operations.
Off Balance Sheet Arrangements.
The Company does not engage in any off balance sheet
arrangements that are reasonably likely to have a current or future
effect on our financial condition, revenues, results of operations,
liquidity or capital expenditures.
Risk Factors.
Investing in the Company involves a number of significant risks
relating to our business and investment objective. As a result, there
can be no assurance that we will achieve our investment objective. In
addition to the risk factors described below, other factors that
could cause actual results to differ materially include:
- The ongoing global economic uncertainty, coupled with war or the
threat of war;
- Risks associated with possible disruption in our operations due
to terrorism;
- Future regulatory actions and conditions in our operating areas;
and
- Other risks and uncertainties as may be detailed from time to
time in our public announcements and SEC filings.
(a) General Risk of Operation as a Business Development Company.
The Company has elected to be treated as a BDC under the 1940
Act. The 1940 Act imposes numerous restrictions on our activities,
including restrictions on the nature of our investments and
transactions with affiliates. Any change in the law or regulations
that govern our business could have a material impact on us or our
operations. Laws and regulations may be changed from time to time,
and the interpretations of the relevant laws and regulations also are
subject to change.
Although the Company is limited by the 1940 Act with respect to
the percentage of its assets that must be invested in qualified
investment companies, the Company is not limited with respect to the
minimum standard that any investment Company must meet, or the
industries in which those investment companies must operate. The
Company may make investments without shareholder approval and such
investments may deviate significantly from its historic operations.
Any change in our investment policy or selection of investments could
adversely affect our stock price, liquidity, and the ability of our
shareholders to sell their stock.
The Company intends to make investments into qualified companies
that will provide the greatest overall return on its investment.
However, certain of those investments may fail, in which case the
Company will not receive any return on its investment. In addition,
our investments may not generate income, either in the immediate
future, or at all. As a result, the Company may have to sell
additional stock, or borrow money, to cover its operating expenses.
The effect of such actions could cause its stock price to decline or,
if the Company is not successful in raising additional capital, it
could cease to continue as a going concern.
(b) Investing in Private Companies Involves a High Degree of Risk.
The Company's portfolio will consist of primarily long-term
loans to and investments in private companies. Investments in
private businesses involve a high degree of business and financial
risk, which can result in substantial losses and accordingly should
be considered speculative. There is generally no publicly available
information about the companies in which we invest, and we rely
significantly on the diligence of our employees and agents to obtain
information in connection with our investment decisions. In addition,
some smaller businesses have narrower product lines and market shares
than their competition, and may be more vulnerable to customer
preferences, market conditions or economic downturns, which may
adversely affect the return on, or the recovery of, our investment in
such businesses.
(c) The Company's Portfolio of Investments Will Be Illiquid.
The Company intends to acquire its investments directly from the
issuer in privately negotiated transactions. The majority of the
investments in our portfolio will typically be subject to
restrictions on resale or otherwise have no established trading
market. The Company intends to exit its investments when the
portfolio company has a liquidity event such as a sale,
recapitalization, or initial public offering of the company. The
illiquidity of our investments may adversely affect our ability to
dispose of debt and equity securities at times when it may be
otherwise advantageous for us to liquidate such investments. In
addition, if the Company is forced to immediately liquidate some or
all of the investments in the portfolio, the proceeds of such
liquidation would be significantly less than the current value of
such investments.
Pursuant to the requirements of the 1940 Act, the Company will
value substantially all of its investments at fair value as
determined in good faith by its board of directors on a quarterly
basis. Since there is typically no readily ascertainable market
value for the investments in our portfolio, our board of directors
has to determine in good faith the fair value of these investments
pursuant to a valuation policy and a consistently applied valuation
process. Such policies and procedures shall fall in the exclusive
purview of the Audit Committee of the board of directors.
There is no single standard for determining fair value in good
faith. As a result, determining fair value requires that judgment be
applied to the specific facts and circumstances of each portfolio
investment while employing a consistently applied valuation process
for the types of investments we make. Unlike banks, the Company is
not permitted to provide a general reserve for anticipated loan
losses; we are instead required by the 1940 Act to specifically value
each individual investment on a quarterly basis, and record
unrealized depreciation for an investment that we believe has become
impaired, including where collection of a loan or realization of an
equity security is doubtful, or when the enterprise value of the
company does not currently support the cost of our debt or equity
investment. Conversely, the Company will record unrealized
appreciation if it believes that the underlying portfolio company has
appreciated in value and, therefore, our equity security has also
appreciated in value. Without a readily ascertainable market value
and because of the inherent uncertainty of valuation, the fair value
of our investments determined in good faith by the board of directors
may differ significantly from the values that would have been used
had a ready market existed for the investments, and the differences
could be material.
The Company will adjust quarterly the valuation of its portfolio
to reflect the board of directors' determination of the fair value of
each investment in its portfolio.
(d) The Company May Need to Make Additional Cash Investments in Its
Portfolio Companies.
The Company may have to make additional cash investments in its
portfolio companies to protect its overall investment value in the
particular company. The Company retains the discretion to make any
additional investments as its management determines. The failure to
make such additional investments may jeopardize the continued
viability of a portfolio company, and our initial (and subsequent)
investments. Moreover, additional investments may limit the number
of companies in which we can make initial investments. The Company
has no established criteria in determining whether to make an
additional investment except that its management will exercise its
business judgment and apply criteria similar to those used when
making the initial investment. The Company cannot provide assurance
that it will have sufficient funds to make any necessary additional
investments, which could adversely affect its success and result in
the loss of a substantial portion or all of its investment in a
portfolio company.
(e) The Company May Borrow Money Which Magnifies the Potential
For Gain or Loss on Amounts Invested.
Borrowings, also known as leverage, magnify the potential for
gain or loss on amounts invested and, therefore, increase the risks
associated with investing in our securities. The Company can borrow
from and issue senior debt securities to banks, insurance companies,
and other lenders. Lenders of these senior securities would have
fixed dollar claims on the consolidated assets that are superior to
the claims of the common shareholders. If the value of the
consolidated assets increases, then leveraging would cause the net
asset value attributable to the common stock to increase more sharply
than it would have had the Company not leveraged. Conversely, if the
value of the consolidated assets decreases, leveraging would cause
net asset value to decline more sharply than it otherwise would have
had the Company not leveraged. Similarly, any increase in the
consolidated income in excess of consolidated interest payable on the
borrowed funds would cause the net income to increase more than it
would without the leverage, while any decrease in the consolidated
income would cause net income to decline more sharply than it would
have had the Company not borrowed.
(f) Changes in Interest Rates May Affect the Cost of Capital
and Net Investment Income.
Because the Company can borrow money to make investments, the
net investment income before net realized and unrealized gains or
losses, or net investment income, can be dependent upon the
difference between the rate at which the Company borrow funds and the
rate at which the Company invest these funds. As a result, there can
be no assurance that a significant change in market interest rates
will not have a material adverse effect on our net investment income.
In periods of rising interest rates, the cost of funds would
increase, which would reduce the net investment income. The Company
can use a combination of long-term and short-term borrowings and
equity capital to finance our investing activities.
(g) The Company Operates in a Competitive Market for Investment
Opportunities.
The Company competes for investments with a large number of
private equity funds and mezzanine funds, investment banks and other
equity and non-equity based investment funds, and other sources of
financing, including traditional financial services companies such as
commercial banks. Some of the competitors have greater resources than
the Company does. Increased competition would make it more difficult
for us to purchase or originate investments at attractive prices. As
a result of this competition, the Company may sometimes be precluded
from making otherwise attractive investments.
(h) The Securities the Company Will Hold in Its Portfolio Companies
are Subject to Restriction on Resale.
The Company's portfolio companies will be private entities and
the Company will acquire their securities in private transactions.
As a result, all of the securities the Company will hold in its
portfolio companies are subject to legal restrictions on resale.
Furthermore, our ability to sell the securities in our portfolio may
be limited by, and subject to, the lack of or limited nature of a
trading market for such securities. Therefore, the Company cannot
provide assurance that it will be able to sell its portfolio company
securities for amounts equal to the values that have ascribed to
them or at the time the Company desires to sell.
(i) The Company is Dependent Upon the Efforts of Its Portfolio
Companies to Successfully Commercialize Their Products and Services.
The Company's portfolio companies may face intense competition,
including competition from companies with greater financial
resources, more extensive research and development, manufacturing,
marketing and service capabilities and a greater number of qualified
and experienced managerial and technical personnel. They may need
additional financing which they are unable to secure and we are
unable or unwilling to provide or they may be subject to adverse
developments unrelated to the technologies they acquire.
They may lose the rights granted to them for a technology or a
licensing agreement. The Company cannot provide assurance that its
portfolio companies will be successful or that it will be able to
sell the securities it receive at a profit or for sufficient amounts
to even recover the Company's initial investment in a portfolio
company or that its portfolio company will not take actions that
could be detrimental to us.
(j) Economic Recessions or Downturns Could Impair the Portfolio
Companies and Harm Operating Results.
Many of the companies in which the Company may make investments
may be susceptible to economic slowdowns or recessions. An economic
slowdown may affect the ability of a company to engage in a liquidity
event. Non-performing assets are likely to increase and the value of
the portfolio is likely to decrease during these periods. These
conditions could lead to financial losses in the portfolio and a
decrease in the revenues, net income, and assets.
The business of making private equity investments and
positioning them for liquidity events also may be affected by current
and future market conditions. The absence of an active senior lending
environment may slow the amount of private equity investment activity
generally. As a result, the pace of the investment activity may slow.
In addition, significant changes in the capital markets could have an
effect on the valuations of private companies and on the potential
for liquidity events involving such companies. This could affect the
amount and timing of gains realized on our investments.
(k) The Company is Dependent on Its Key Personnel.
The Company's success is largely dependent on the
personal efforts and abilities of its senior management. The loss of
certain members of the Company's senior management could have a
material adverse effect on the Company's business and prospects.
The Company intends to recruit in fiscal year 2005 employees who
are skilled in its industry. The failure to recruit these key
personnel could have a material adverse effect on the Company's
business. As a result, the Company may experience increased
compensation costs that may not be offset through either improved
productivity or higher revenue. There can be no assurances that the
Company will be successful in retaining existing personnel or in
attracting and recruiting experienced qualified personnel.
(l) Limitations on Liability and Indemnification May Result in
Payments by the Company.
The Company's bylaws include provisions to the effect that it
may indemnify any director, officer, or employee. In addition,
provisions of Nevada law provide for such indemnification, as well as
for a limitation of liability of our directors and officers for
monetary damages arising from a breach of their fiduciary duties.
Any limitation on the liability of any director or officer, or
indemnification of any director, officer, or employee, could result
in substantial expenditures being made by the Company in covering any
liability of such persons or in indemnifying them.
(m) The Company's Quarterly and Annual Operating Results Fluctuate
Significantly.
The Company's quarterly and annual operating results could
fluctuate significantly due to a number of factors. These factors
include the small number and range of values of the transactions that
are completed each quarter, fluctuations in the values of our
investments, the timing of the recognition of unrealized gains and
losses, the degree to which we encounter competition in our markets,
the volatility of the stock market and its impact on our unrealized
gains and losses, as well as other general economic conditions. As a
result of these factors, quarterly and annual results are not
necessarily indicative of our performance in future quarters and years.
(n) The Company's Common Stock Price May Be Volatile.
The trading price of our common stock may fluctuate
substantially. The price of the common stock may be higher or lower
than the price you pay for your shares, depending on many factors,
some of which are beyond our control and may not be directly related
to our operating performance. These factors include the following:
- Price and volume fluctuations in the overall stock market from
time to time;
- Significant volatility in the market price and trading volume of
securities of business development companies or other financial
services companies;
- Changes in regulatory policies with respect to business
development companies;
- Actual or anticipated changes in our earnings or fluctuations in
our operating results;
- General economic conditions and trends;
- Loss of a major funding source; or
- Departures of key personnel.
(o) No Assurance of Public Trading Market and Risk of Low Priced
Securities May Affect Market Value of the Company's Common Stock.
The SEC has adopted a number of rules to regulate "penny
stocks." Such rules include Rule 3a51-1 and Rules 15g-1 through 15g-
9 under the Securities Exchange Act of 1934, as amended. Because the
securities of the Company may constitute "penny stocks" within the
meaning of the rules (as any equity security that has a market price
of less than $5.00 per share or with an exercise price of less than
$5.00 per share, largely traded in the Over the Counter Bulletin
Board or the Pink Sheets), the rules would apply to the Company and
to its securities.
The SEC has adopted Rule 15g-9 which established sales
practice requirements for certain low price securities. Unless the
transaction is exempt, it shall be unlawful for a broker or dealer to
sell a penny stock to, or to effect the purchase of a penny stock by,
any person unless prior to the transaction: (i) the broker or dealer
has approved the person's account for transactions in penny stock
pursuant to this rule and (ii) the broker or dealer has received from
the person a written agreement to the transaction setting forth the
identity and quantity of the penny stock to be purchased. In order
to approve a person's account for transactions in penny stock, the
broker or dealer must: (a) obtain from the person information
concerning the person's financial situation, investment experience,
and investment objectives; (b) reasonably determine that transactions
in penny stock are suitable for that person, and that the person has
sufficient knowledge and experience in financial matters that the
person reasonably may be expected to be capable of evaluating the
risks of transactions in penny stock; (c) deliver to the person a
written statement setting forth the basis on which the broker or
dealer made the determination (i) stating in a highlighted format
that it is unlawful for the broker or dealer to affect a transaction
in penny stock unless the broker or dealer has received, prior to the
transaction, a written agreement to the transaction from the person;
and (ii) stating in a highlighted format immediately preceding the
customer signature line that (iii) the broker or dealer is required
to provide the person with the written statement; and (iv) the person
should not sign and return the written statement to the broker or
dealer if it does not accurately reflect the person's financial
situation, investment experience, and investment objectives; and (d)
receive from the person a manually signed and dated copy of the
written statement. It is also required that disclosure be made as to
the risks of investing in penny stock and the commissions payable to
the broker-dealer, as well as current price quotations and the
remedies and rights available in cases of fraud in penny stock
transactions. Statements, on a monthly basis, must be sent to the
investor listing recent prices for the penny stock and information on
the limited market.
There has been only a limited public market for the common stock
of the Company. Our common stock is currently traded on the Over the
Counter Bulletin Board. As a result, an investor may find it
difficult to dispose of, or to obtain accurate quotations as to the
market value of our securities. The regulations governing penny
stocks, as set forth above, sometimes limit the ability of broker-
dealers to sell the Company's common stock and thus, ultimately, the
ability of the investors to sell their securities in the secondary
market.
Potential shareholders of the Company should also be aware that,
according to SEC Release No. 34-29093, the market for penny stocks
has suffered in recent years from patterns of fraud and abuse. Such
patterns include (i) control of the market for the security by one or
a few broker-dealers that are often related to the promoter or
issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii)
"boiler room" practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales persons; (iv)
excessive and undisclosed bid-ask differential and markups by selling
broker-dealers; and (v) the wholesale dumping of the same securities
by promoters and broker dealers after prices have been manipulated to
a desired level, along with the resulting inevitable collapse of
those prices and with consequent investor losses.
Critical Accounting Policies.
The SEC has issued Financial Reporting release No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting
Policies" ("FRR 60"); suggesting companies provide additional
disclosure and commentary on their most critical accounting policies.
In FRR 60, the SEC defined the most critical accounting policies as
the ones that are most important to the portrayal of a company's
financial condition and operating results, and require management to
make its most difficult and subjective judgments, often as a result
of the need to make estimates of matters that are inherently
uncertain. Based on this definition, the Company's most critical
accounting policies include: (a) the use of estimates; and (b)
valuation of investments. The methods, estimates and judgments the
Company uses in applying these most critical accounting policies have
a significant impact on the results reported in its financial statements.
(a) Use of Estimates.
The preparation of these financial statements requires our
company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate these estimates, including those related to
revenue recognition and concentration of credit risk. We base our
estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
(b) Valuation of Investments.
Pursuant to the requirements of the 1940 Act, our board of
directors is responsible for determining in good faith the fair value
of our securities and assets for which market quotations are not
readily available. The board of directors is required to value such
securities if the validity of the market quotations appears to be
questionable, or if the number of quotations is such as to indicate
that there is a thin market in the security. In making its
determination, the board of directors may consider valuation
appraisals provided by independent valuation service providers.
The board of directors bases its determination of fair value
upon, among other things, applicable quantitative and qualitative
factors. These factors may include, but are not limited to, type of
securities, nature of business, marketability, market price of
unrestricted securities of the same issue (if any), comparative
valuation of securities of publicly-traded companies in the same or
similar industries, current financial conditions and operating
results, sales and earnings growth, operating revenues, competitive
conditions and current and prospective conditions in the overall
stock market.
Unlike banks, the Company is not permitted to provide a general
reserve for anticipated loan losses; we are instead required by the
1940 Act to specifically value each individual investment on a
quarterly basis, and record unrealized depreciation for an investment
that we believe has become impaired. Conversely, we will record
unrealized appreciation if we believe that the underlying portfolio
company has appreciated in value and, therefore, our equity security
has also appreciated in value. Without a readily ascertainable
market value and because of the inherent uncertainty of valuation,
the fair value of our investments determined in good faith by the
board of directors may differ significantly from the values that
would have been used had a ready market existed for the investments,
and the differences could be material.
The Company will adjust quarterly the valuation of our portfolio
to reflect the board of directors' determination of the fair value of
each investment in our portfolio.
The Company's Audit Committee reviews each report along with
information provided by management which may include correspondence
that could materially affect the value of the investment, recent SEC
filings that have information that could materially affect the
valuations, answers to questions that management has posed on a
quarterly basis to the CEO of the investments which make up the
majority of the total value.
The Audit Committee reviews the information provided and makes a
recommendation to the board of directors regarding the valuation
reports and other information pertinent to the final valuation. The
board of directors then determines the value of the investments based
on all the information provided. Due to the uncertainty inherent in
the valuation process, such estimates of fair value may differ
significantly from the values that would have been obtained had a
ready market for the securities existed, and the differences could be
material.
Additionally, changes in the market environment and other events
that may occur over the life of the investments may cause the gains
or losses ultimately realized on these investments to be different
than the valuations currently assigned. No single standard for
determining fair value in good faith exists since fair value depends
upon circumstances of each individual case. In general, fair value is
the amount that we might reasonably expect to receive upon the
current sale of the security.
Forward Looking Statements.
Information in this Form 10-Q contains "forward looking
statements" within the meaning of Rule 175 of the Securities Act of
1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as
amended. When used in this Form 10-Q, the words "expects,"
"anticipates," "believes," "plans," "will" and similar expressions
are intended to identify forward-looking statements. These are
statements that relate to future periods and include, but are not
limited to, statements regarding our adequacy of cash, expectations
regarding net losses and cash flow, our need for future financing,
our dependence on personnel, and our operating expenses.
Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from those projected. These risks and uncertainties include, but are
not limited to, those discussed above, and the risks set forth under
"Risk Factors." These forward-looking statements speak only as of
the date hereof. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in
its expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our business activities contain elements of risk. The Company
considers the principal types of risk to be portfolio valuations.
The Company considers the management of risk essential to conducting
its businesses. Accordingly, our risk management systems and
procedures are designed to identify and analyze our risks, to set
appropriate policies and limits and to continually monitor these
risks and limits by means of reliable administrative and information
systems and other policies and programs.
As a business development company, the Company invest in
illiquid securities including equity securities of primarily private
companies. Our investments are generally subject to restrictions on
resale and generally have no established trading market. The Company
values substantially all of its investments at fair value as
determined in good faith by the board of directors in accordance with
its valuation policy. There is no single standard for determining
fair value in good faith. As a result, determining fair value
requires that judgment be applied to the specific facts and
circumstances of each portfolio investment while employing a
consistently applied valuation process for the types of investments
we make.
The Company determines fair value to be the amount for which an
investment could be exchanged in an orderly disposition over a
reasonable period of time between willing parties other than in a
forced or liquidation sale. Our valuation policy considers the fact
that no ready market exists for substantially all of the securities
in which we invest. Our valuation policy is intended to provide a
consistent basis for determining the fair value of the portfolio.
The Company will record unrealized depreciation on investments when
it believes that an investment has become impaired, including where
collection of a loan or realization of an equity security is
doubtful, or when the enterprise value of the company does not
currently support the cost of our debt or equity investments.
Conversely, the Company will record unrealized appreciation if it
believes that the underlying portfolio company has appreciated in
value and, therefore, its equity security has also appreciated in
value. The value of investments in public securities is determined
using quoted market prices discounted for restrictions on resale.
Without a readily ascertainable market value and because of the
inherent uncertainty of valuation, the fair value of our investments
determined in good faith by the board of directors may differ
significantly from the values that would have been used had a ready
market existed for the investments, and the differences could be
material. In addition, the illiquidity of our investments may
adversely affect our ability to dispose of debt and equity securities
at times when it may be otherwise advantageous for us to liquidate
such investments. In addition, if the Company were forced to
immediately liquidate some or all of the investments in the
portfolio, the proceeds of such liquidation would be significantly
less than the current value of such investments.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
The Company maintains disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities
Exchange Act of 1934, as amended ("Exchange Act")) that are designed
to ensure that information required to be disclosed in our periodic
reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our principal executive
officer/principal financial officer to allow timely decisions
regarding required disclosure.
As of the end of the period covered by this report, our
management carried out an evaluation, under the supervision and with
the participation of our principal executive officer/principal
financial officer, of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act).
Based upon the evaluation, our principal executive officer/principal
financial officer concluded that our disclosure controls and
procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the SEC's rules and forms.
Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, will be or have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by collusion
of two or more people, and/or by management override of the control.
The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time,
controls may become inadequate because of changes in conditions,
and/or the degree of compliance with the policies and procedures may
deteriorate. Because of the inherent limitations in a cost-effective
internal control system, misstatements due to error or fraud may
occur and not be detected.
Changes in Disclosure Controls and Procedures.
There were no significant changes in the Company's disclosure
controls and procedures, or in factors that could significantly
affect those controls and procedures, since their most recent
evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Other than as set forth below, the Company is not a party to any
material pending legal proceedings and, to the best of its knowledge,
no such action by or against the Company has been threatened.
(a) On October 4, 1999 the Company was named as a defendant in
a lawsuit filed in Jefferson County, Texas. The plaintiff,
Engineering & Wireless Services, Inc. ("EWS") demanded payment of
$27,748.71 for services rendered to the Company in 1996 and 1997.
The Company's President at the time, John C. Spradley, had written a
check for this same amount on April 2, 1997 that was returned, unpaid
and marked "NSF". Mr. Spradley wrote this check without proper
authority by the Company, and actually was strictly forbidden by a
board resolution to write any checks in excess of $5,000. The
writing of the check to EWS left the Company legally obligated to
honor this check. The Company has not had any communications with
any of the parties of this suit for over 3 years.
On December 1, 1999, EWS was granted a final default judgment in
the amount of $37,214.27, which included $9,249.56 in attorney fees.
The Company was notified of such judgment and was not in a position
to pay it. On June 9, 2001, a writ of execution was issued by the
Third District Court of the State of Utah directing the Salt Lake
County Sheriff to collect $39,521.00 from the Company; this amount
included post judgment costs of $1412.44 and other costs of $894.29.
On July 19, 2000, the Company entered into a settlement
agreement with EWS. The Company agreed to pay EWS $31,000 over a
four month period and issued to EWS 45,000 shares of the Company's
common stock. The Company has made the initial payment of $5,000 and
delivered the stock due to EWS; but no other payments under the
settlement were made. The Company has not reached an agreement with
EWS nor has it pursued any agreement during the past year.
(b) In the Company's September 30, 2004 Form 10-QSB it was
disclosed that on March 9, 2004, the Metropolitan Airport Commission
in the City of Minneapolis, Minnesota, as plaintiff issued to the
Company a summons and complaint to collect the sum of $15,936 for
alleged unpaid rent during the year 2002. In December 2004, this
matter was settled and dismissed by the full payment of $4,000.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The Company made the following sales of unregistered
(restricted) securities during the quarter ended on March 31, 2005:
On January 28, 2005, the Company issued 56,000 shares of Series
A preferred stock for debt valued at $28,000 ($0.50 per share).
No commissions were paid in connection with this sale. This
sale was undertaken under Rule 506 of Regulation D under the
Securities Act of 1933. The transaction did not involve a public
offering and the investor represented that it was a "sophisticated"
or "accredited" investor as defined in Rule 502 of Regulation D.
There were no purchases of common stock of the Company by the
Company or its affiliates during the three months ended March 31, 2005.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
In connection with the vote of security holders as disclosed in
the Form 10-KSB for the year ended December 31, 2004, the Company
inadvertently failed to disclose that the Company inadvertently did
not file with the SEC, and mail out to shareholders of record from
whom the Company did not seek consent, a Definitive Information
Statement as required by Regulation 14C under the Securities Exchange
Act of 1934. The Company intends to file and mail this out shortly.
ITEM 6. EXHIBITS
Exhibits included or incorporated by reference herein are set
forth in the attached Exhibit Index.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
City Capital Corporation
Dated: May 18, 2005 By: /s/ Gary Borglund
Gary Borglund,
President/Secretary/Treasurer
EXHIBIT INDEX
Number Description
2.1 Agreement and Plan of Reorganization between the Company,
Media Rage Of Utah, Inc., and the shareholders of Media
Rage Of Utah, Inc., dated June 1, 1999 (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed on August
11, 1999).
2.2 Agreement of Sale of Shares between the Company and
shareholders of H.J. Ventures, Inc., dated November 15,
2001 (incorporated by reference to Exhibit 2 of the Form 8-
K/A filed on December 14, 2001).
2.3 Agreement and Plan of Merger between the Company, ISC
Acquisition Inc., and International Surfacing of Colorado,
Inc. and its shareholders), dated December 9, 2002
(incorporated by reference to Exhibit 2 of the Form 8-K
filed on January 21, 2003).
3.1 Articles of Incorporation, dated July 17, 1984
(incorporated by reference to Exhibit 3.1 of the Form 10-
KSB filed on April 13, 2001).
3.2 Articles of Amendment to the Articles of Incorporation,
dated February 20, 1987 (incorporated by reference to
Exhibit 3.2 of the Form 10-KSB filed on April 13, 2001).
3.3 Certificate of Amendment of Articles of Incorporation,
dated March 28, 1994 (incorporated by reference to Exhibit
3.3 of the Form 10-KSB filed on April 13, 2001).
3.4 Certificate of Amendment of Articles of Incorporation,
dated October 31, 1996 (incorporated by reference to
Exhibit 3.4 of the Form 10-KSB filed on April 13, 2001).
3.5 Certificate of Amendment to Articles of Incorporation,
dated August 17, 1999 (incorporated by reference to Exhibit
3.5 of the Form 10-KSB filed on April 13, 2001).
3.6 Certificate of Amendment to Articles of Incorporation,
dated April 12, 2002 (incorporated by reference to Exhibit
3.6 of the Form 10-KSB filed on April 15, 2003).
3.7 Certificate of Amendment to Articles of Incorporation,
dated November 6, 2002 (incorporated by reference to
Exhibit 3.7 of the Form 10-KSB filed on April 15, 2003).
3.8 Certificate of Amendment to Articles of Incorporation,
dated August 4, 2004 (incorporated by reference to Exhibit
3.8 of the Form 10-KSB filed on April 25, 2005).
3.9 Certificate of Amendment to Articles of Incorporation,
dated December 10, 2004 (incorporated by reference to
Exhibit 3.9 of the Form 10-KSB filed on April 25, 2005).
3.10 Certificate of Amendment to Articles of Incorporation,
dated December 10, 2004 (incorporated by reference to
Exhibit 3.10 of the Form 10-KSB filed on April 25, 2005).
3.11 Bylaws, dated March 1, 2001 (incorporated by reference to
Exhibit 3.6 of the Form 10-KSB filed on April 13, 2001).
4.1 1999 Equity Incentive Plan, dated May 1, 1999 (incorporated
by reference to Exhibit 4.1 of the Form S-8 filed on
October 1, 1999).
4.2 Employee Stock Incentive Plan, dated March 5, 2001
(incorporated by reference to Exhibit 4.1 of the Form S-8
filed on March 13, 2001).
4.3 Non-Employee Directors and Consultants Retainer Stock Plan,
dated March 5, 2001 (incorporated by reference to Exhibit
4.2 of the Form S-8 filed on March 13, 2001).
4.4 Debenture Agreement executed by the Company in favor of Jon
Richard Marple and Jon H. Marple, dated February 8, 2001
(incorporated by reference to Exhibit 4.3 of the Form 10-
QSB filed on May 15, 2001).
4.5 Common Stock Purchase Agreement between the Company and
Silverwood Opportunity Fund, dated June 11, 2001
(incorporated by reference to Exhibit 4.4 of the Form SB-2
filed on August 31, 2001).
4.6 Amended and Restated Non-Employee Directors and Consultants
Retainer Stock Plan, dated December 17, 2001 (incorporated
by reference to Exhibit 4.2 of the Form S-8 POS filed on
December 21, 2001).
4.7 Amended and Restated Employee Stock Incentive Plan, dated
November 20, 2002 (incorporated by reference to Exhibit 4.1
of the Form S-8 POS filed on January 9, 2003).
4.8 Amended and Restated Non-Employee Directors and Consultants
Retainer Stock Plan (Amendment No. 2), dated November 20,
2002 (incorporated by reference to Exhibit 4.2 of the Form
S-8 POS filed on January 9, 2003).
4.9 Amended and Restated Non-Employee Directors and Consultants
Retainer Stock Plan (Amendment No. 3), dated July 1, 2004
(incorporated by reference to Exhibit 4 of the Form S-8 POS
filed on July 13, 2004).
4.10 Certificate of Designation, dated November 5, 2004
(incorporated by reference to Exhibit 4.10 of the Form 10-
QSB filed on November 15, 2004).
10.1 Employment Agreement between the Company and Richard
Dunning, dated January 3, 2003 (incorporated by reference
to Exhibit 10.1 of the Form 10-QSB filed on November 13, 2003).
10.2 Employment Agreement between the Company and Gary Borglund,
dated January 15, 2003 (incorporated by reference to
Exhibit 10.5 of the Form 10-KSB filed on April 15, 2003).
10.3 Amendment to Employment Agreement between the Company and
Gary Borglund, dated January 15, 2003 (incorporated by
reference to Exhibit 10.6 of the Form 10-KSB filed on April
15, 2003).
10.4 Separation Agreement between the Company, and Richard
Dunning and Dennis McElhinney, dated January 22, 2004
(incorporated by reference to Exhibit 10.4 of the Form 10-
KSB filed on April 5, 2004).
10.5 Employment Agreement between the Company and Gary Borglund,
dated October 1, 2004 (incorporated by reference to Exhibit
10.5 of the Form 10-QSB filed on November 15, 2004).
10.6 Contribution Agreement between the Company and Perfect
Turf, Inc. (the following to this agreement have been
omitted: Schedule 1: List of Assets; and Schedule 2: List
of Liabilities), dated December 1, 2004 (filed herewith).
14 Code of Business Conduct and Ethics, adopted by the
Company's board of directors (incorporated by reference to
Exhibit 14 of the Form 10-KSB filed on April 25, 2005).
21 Subsidiaries of the Company (incorporated by reference to
Exhibit 21 of the Form 10-KSB filed on April 25, 2005).
31 Rule 13a-14(a)/15d-14(a) Certification of Gary Borglund
(filed herewith).
32 Section 1350 Certification of Gary Borglund (filed herewith).
99 Audit Committee Charter, dated April 19, 2005 (incorporated
by reference to Exhibit 99 of the Form 10-KSB filed on
April 25, 2005).