UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER: 0-21279
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ABSOLUTE POTENTIAL, INC.
--------------------------------------------
(Name of small business issuer in its charter)
FLORIDA 59-3223708
------------------------------ -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
141 West Jackson Boulevard, Suite 2182, Chicago, Illinois 60604
----------------------------------------------------------
(Address of principal executive offices, including zip code)
(312) 427-5457
-------------------------
(Issuer's Telephone Number)
ABSOLUTE WASTE SERVICES, INC.
-----------
(Former name)
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.
YES [ ] NO [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. YES [X] NO [ ]
As of November 24, 2006, the registrant had 646,103 shares of common
stock, $0.0001 par value, issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Absolute Potential, Inc
(f/k/a Absolute Waste Services, Inc, and
Thermacell Technologies, Inc).
INDEX
Six Months Ended March 31, 2004 and 2003
(Unaudited)
Page
----
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31, 2004................................................ 4
Consolidated Statements of Operations -
Three & six months ended March 31, 2004 and 2003.............. 6
Consolidated Statements of Changes in Stockholders' Equity
Six months ended March 31, 2004............................... 7
Consolidated Statements of Cash Flows -
Six months ended March 31, 2004 and 2003...................... 8
Notes to Consolidated Financial Statements. ..................... 9
Item 2. Management's Plan of Operation................................... 13
Item 3. Controls and
Procedures................................................................ 17
Part II - Other Information
Item 1. Legal Proceedings................................................. 18
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds........ 18
Item 3. Defaults Upon Senior Securities................................... 18
Item 4. Submission of Matters to a Vote of Security Holders............... 18
Item 5. Other Information................................................. 18
Item 6. Exhibits and Reports on Form 8-K.................................. 18
Signatures............................................................... 19
Explanatory Note
This Amendment No. 1 on Form 10-QSB (this "Amendment") amends the Quarterly
Report on Form 10-QSB (the "Original Report") for the three & six months ended
March 31, 2004 and 2003, which was originally filed with the Commission on May
27, 2005. We are filing this amendment in response to a comment letter received
from the Commission in connection with the review of the Original Report.
We have restated our consolidated financial statements for the fiscal years
ended September 30, 2003 and 2004, to add information related to the Merger with
Absolute Industries, LLC for the period from the effective date of the Merger
through the date the Merger was unwound. Except for the restated financial
2
information set forth in Part I-Item 1 and the description of the unwinding of
the Merger in Part I-Item 2 and Part II-Item 4, no other information included in
the Original Report is amended by this Amendment. All applicable financial
information contained in this Quarterly Report on Form 10-QSB gives effect to
these restatements. Consequently, you should not rely upon the financial
statements originally filed with the Commission on May 27, 2005, in our Forms
10-KSB for the fiscal years ended September 30, 2003 and 2004 and the related
auditor's report therein, our audited financial statements for all interim
periods through June 30, 2004, and any financial statements for above-mentioned
fiscal periods that have been included in previous announcements.
For information concerning the background of the restatements and the specific
adjustments made on an annual and quarterly basis, see the Notes to Consolidated
Financial Statements included in "Item 1. Financial Statements."
3
PART I
Item 1. Financial Statements
- ----------------------------
Absolute Potential, Inc.
(f/k/a Absolute Waste Services, Inc. and
Thermacell Technologies, Inc).
Consolidated Balance Sheet
March 31, 2004
(Unaudited)
Assets
Current assets:
Cash $ 3,036
Accounts receivable, net of allowance of $30,182 1,787,629
Related party receivables 23,472
Other receivables 22,655
Prepaid expense 372,772
Inventory 22,879
----------
Total current assets 2,232,443
----------
Property and equipment, net $2,988,735
----------
Other assets:
Other intangible assets, net $1,434,264
Deposits 48,432
----------
Total other assets 1,482,696
----------
Total assets $6,703,874
==========
See notes to consolidated financial statements.
4
Absolute Potential, Inc.
(f/k/a Absolute Waste Services, Inc. and
Thermacell Technologies, Inc).
Consolidated Balance Sheet
March 31, 2004
(Unaudited)
Liabilities and Stockholders' Deficit
Current liabilities:
Bank overdraft $ 70,124
Accounts payable 1,512,029
Related party payables 45,869
Deferred revenue 175,301
Accrued expenses 799,168
Deferred federal income tax 231,091
Current portion of long term debt
1,704,015
-----------
Total current liabilities 4,537,597
-----------
Long term liabilities:
Notes payable $ 2,266,359
Due to shareholders 142,061
-----------
Total long term liabilities 2,408,420
-----------
Stockholders' deficit:
Series A Convertible Preferred Stock
($.001 par value; 27,500,000 shares authorized;
27,000,000 shares issued and outstanding 27,000
Common stock; $.0001 par value; 150,000,000 shares authorized;
700,000 shares issued and outstanding 70
Additional paid-in capital (88,823)
Common stock payable 539,983
Retained deficit (720,373)
-----------
Total stockholders' deficit (242,143)
-----------
Total liabilities and stockholders' deficit $ 6,703,874
===========
See notes to consolidated financial statements.
5
Absolute Potential, Inc.
(f/k/a Absolute Waste Services, Inc. and
Thermacell Technologies, Inc.)
Statements of Operations
(Unaudited)
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- --------------------------
2004 2003 2004 2003
-------------------------- --------------------------
Operating revenues $ 2,488,306 $ 620,119 $ 4,226,904 $ 1,950,238
----------- ----------- ----------- -----------
Operating Expenses 1,845,813 438,873 3,202,700 1,587,557
Selling, general and administrative 513,927 152,874 1,004,922 207,547
Depreciation and amortization 163,184 68,889 324,325 203,637
----------- ----------- ----------- -----------
Net loss from operations (34,618) (40,517) (305,043) (48,503)
Other Income (Expense)
Interest expense (61,691) (91,517) (134,565) (129,694)
Other income (expense) 6,831 (77,520) 8,465 (79,495)
Gain (loss) on Sale of Assets 8,106 11,867 8,106 (1,975)
----------- ----------- ----------- -----------
Loss before federal income tax (81,372) (197,687) (423,037) (259,667)
Income tax (expense) benefit
Current -- -- -- --
Deferred -- -- 3,909 6,682
----------- ----------- ----------- -----------
Operating Loss $ (81,372) $ (197,687) $ (429,128) $ (252,985)
=========== =========== =========== ===========
Net loss per share $ (.12) $ (.98) $ (.97) $ (1.26)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 683,516 200,000 440,437 200,000
=========== =========== =========== ===========
See notes to consolidated financial statements.
6
Absolute Potential, Inc.
(f/k/a Absolute Waste Services, Inc. and
Thermacell Technologies, Inc.)
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Six Months Ended March 31, 2004
Series A Con Pref Stock Common Stock Additional Common
Number of Number of Paid-In Stock Retained
Shares Amount Shares Amount Capital Payable Deficit Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at October 1, 2003 27,000,000 $ 27,000 200,000 $ 20 $ (102,523) $ 539,983 $ (301,245) $ 163,235
Issuance of common stock -- -- 500,000 50 13,700 -- -- 13,750
Net Loss -- -- -- -- -- -- (419,128) (419,128)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 2004 27,000,000 $ 27,000 700,000 $ 70 $ (88,823) $ 539,983 $ (720,373) $ (242,143)
========== ========== ========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements.
7
Absolute Potential, Inc.
f/k/a Absolute Waste Services, Inc and
Thermacell Technologies, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
March 31,
2004 2003
---- ----
Cash Flows from Operating Activities
Net Income (Loss) (419,128) (252,985)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided by
Operating Activities:
(Gain) Loss on Sale of Property and Equipment (8,106) 1,975
Provision for Bad Debts 43,366 --
Depreciation and Amortization 324,325 203,637
Deferred Federal Income Tax (3,909) 6,682
Changes in Operating Assets and Liabilities:
Accounts Receivables (1,030,412) 601,001
Related Party Receivables 165,900 (602,127)
Prepaid Expenses and Other Assets (249,644) (93,942)
Accounts Payable 812,205 (63,701)
Related Party Payables (55,356) 48,510
Deferred Revenue 113,894 (42,646)
Accrued Expenses 205,271 (4,188)
----------- -----------
Net Cash Used by Operating Activities (101,594) (197,784)
Cash Flows from Investing Activities:
Proceeds from Sale of Property and Equipment 62,500 1,975
Purchase of Property and Equipment (279,292) (263,064)
Purchase of Intangible Asset (352,000) --
Purchase of Partnership Interest -- (269,629)
----------- -----------
Net Cash Used by Investing Activities (568,792) (530,718)
Cash Flows from Financing Activities:
Bank Overdraft 70,124 (6,305)
Increase in Stockholder Payable 142,061 --
Net proceeds from Line of Credit 122,841 --
Distribution to Partners -- 149,776
Principal Payments of Long-Term Debt (727,037) (350,229)
Proceeds from Long-Term Debt 1,048,952 975,670
----------- -----------
Net Cash Provided by Financing Activities 656,941 775,217
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (13,445) 40,410
Cash and Cash Equivalents, Beginning of Period 16,481 3,305
----------- -----------
Cash and Cash Equivalents, End of Period $ 3,036 $ 43,715
=========== ===========
Supplemental Disclosures:
Cash Paid for Interest $ 134,565 $ 129,694
Non-Cash Transactions:
Intangible Assets Received for Stock 13,750 $ --
See notes to consolidated financial statements.
8
Absolute Potential, Inc.
(f/k/a Absolute Waste Services, Inc. and
Thermacell Technologies, Inc.
Notes to Consolidated Financial Statements
Six Months Ended March 31, 2004
(Unaudited)
1. Basis of Presentation
In the opinion of management, all adjustments consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three and six months ended March 31, 2004 and 2003, (b) the
financial position at March 31, 2004, and (c) cash flows for the six months
ended March 31, 2004 and 2003, have been made.
The unaudited financial statements and notes are presented as permitted by Form
10-QSB. Accordingly, certain information and note disclosures normally included
in the financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted. The
accompanying financial statements and notes of Absolute Potential, Inc. (f/k/a
Absolute Waste Services, Inc. and ThermaCell Technologies, Inc.)(the "Company")
should be read in conjunction with the audited financial statements and notes of
the Company for the fiscal year ended September 30, 2003. The results of
operations for the six-month period ended March 31, 2004 are not necessarily
indicative of those to be expected for the entire year.
2. Organization and Nature of Operations
Absolute Potential, Inc. (the "Company") was originally incorporated under the
name ThermaCell Technologies, Inc. ("ThermaCell") as a Florida corporation in
August 1993. In March 1997, ThermaCell closed on an initial public offering
generating gross proceeds of approximately $4,950,000. In November 2001,
ThermaCell filed a voluntary petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code with the U.S. Bankruptcy Court. On August 30, 2002, the
U.S. Bankruptcy Court for the Middle District of Florida, Tampa Division, Case
No. 01-20854-8G1, issued an order confirming our Plan of Reorganization. On July
31, 2003, ThermaCell amended its articles of incorporation changing its name to
Absolute Waste Services, Inc. and subsequently completed a reverse merger with
Absolute Industries, LLC. On June 3, 2004, this agreement was rescinded as
described in Note 3 to these financial statements. On June 15, 2005, Absolute
Waste Services, Inc. amended its Articles of Incorporation changing its name to
Absolute Potential, Inc. The Company's corporate headquarters are now located in
Chicago, Illinois.
Absolute Industries, LLC was a Texas limited liability company and was engaged
in collection, disposal, remediation and transportation of waste for residential
and commercial companies primarily in South Texas. In addition, this company
rented containers for waste storage and disposal. During 2005, this company
filed Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court.
3. Reverse Merger
On August 23, 2003, the Company closed on an Agreement and Plan of Merger
("Merger Agreement") with Absolute Industries, LLC ("Absolute"). The merger with
Absolute was management's initial step to effect a consolidation of small to
medium size businesses in the solid waste disposal industry.
Pursuant to the terms of the Merger Agreement, Absolute merged into a newly
formed Texas corporate subsidiary of the Company with the newly formed
subsidiary being the surviving entity. As such, the prior business and
operations of Absolute were contained in the Company's wholly owned Texas
subsidiary, Absolute Waste Acquisitions, Inc.
In accordance with the terms of the Merger Agreement, 100% of the equity
interests of Absolute were exchanged for 27,000,000 shares of the Company's
Class A Convertible Preferred Stock. Each share of preferred stock was
convertible into one (1) share of common stock and entitled to three (3) votes.
9
Absolute Potential, Inc.
f/k/a Absolute Waste Services, Inc. and
Thermacell Technologies, Inc.
Notes to Financial Statements
Six Months Ended March 31, 2004
(Unaudited)
3. Reverse Merger (continued)
Prior to the Merger Agreement, the Company had 100,000 new common shares
outstanding which were approved for issuance under their Plan of Reorganization.
All of such shares have been issued to the existing shareholders, creditors and
debtor in possession funding source. As part of the Merger with Absolute, an
additional 100,000 new restricted common shares were issued. 40,000 of such new
restricted common shares were issued to Private Capital Group, Inc. - one of the
managers of Pac Funding, LLC ("Pac"), the former debtor in possession funding
source. 10,000 new restricted common shares were issued to Thomas F. Duszynski,
who is an affiliate of Augustine Fund, LP, the other co-manager of Pac. 30,000
new restricted common shares were issued to The Harrelson Group, which acted as
a finder and facilitator for this Merger. 20,000 new restricted common shares
were issued as consideration for additional capital.
Accordingly, after the Merger the Company has 200,000 common shares outstanding
and 27,000,000 preferred shares outstanding, each of which is converted into one
(1) common share. The Company agreed not to enter into any reverse stock splits
until their stock is closed at or above $300.00 per share for 90 consecutive
trading days, or until August 24, 2004, whichever occurs first.
The acquisition has been accounted for as a reverse merger using the purchase
method, and accordingly, for financial statement reporting purposes, the net
assets of Absolute have been included in the consolidated balance sheet at book
values, and the net assets of the former ThermaCell operations have been
recorded at fair value at the date of acquisition. The historical stockholders'
equity gives effect to the newly issued common and preferred shares issued
pursuant to the merger. The consolidated operations of the Company for the
period from January 1, 2003 to the date of acquisition, August 23, 2003, are
those of Absolute and exclude the results of operations of the former
ThermaCell. The results of the former ThermaCell operations are included in the
consolidated statement of operations after the date of acquisition.
On the date of acquisition, the former Thermacell operations had a net deficit
of $442,298 which included accounts payable and accrued liabilities of $340,237
and stockholder advances of $102,061. It was determined that the fair value of
the liabilities at that date approximate their carrying value.
In June 2004, the Board of Directors of the Company unanimously adopted, and
shareholders holding a majority of the Company's common stock approved, a
resolution authorizing and approving a Mutual Settlement Agreement (the
"Settlement Agreement") unwinding the effects of the Merger Agreement. Pursuant
to the Settlement Agreement, the effects of the Merger were unwound. In
addition, each party released and discharged the other from any and all claims,
actions and liabilities arising from or in connection with the Merger Agreement
and the events leading up to and including the unwinding of the Merger. By its
terms, these actions became effective on June 3, 2004, the effective date of the
Settlement Agreement (the "Effective Date"). In connection with the unwinding of
the Merger, the Company redeemed 27,000,000 shares of it Class A convertible
preferred stock that were issued to the former members of Absolute. In
consideration for such redemption, the Company transferred to these parties all
of the issued and outstanding stock of the Merger Sub. In addition, 70,000
shares of common stock issued in connection with the Merger have been returned
to the Company and canceled. The Company no longer has any ownership interest in
Absolute, which is now 100% owned by the previous owners, and the previous
owners no longer have any ownership interest in the Company.
10
Absolute Potential, Inc.
f/k/a Absolute Waste Services, Inc. and
Thermacell Technologies, Inc.
Notes to Consolidated Financial Statements
Six Months Ended March 31, 2004
(Unaudited)
4. Going Concern Considerations
The Company has a working capital deficit of approximately $2,245,000 at March
31, 2004 and a net loss for the six months then ended of approximately $419,000.
In order to pay current liabilities on a timely basis, the Company will have to
obtain additional capital or extend the terms of their borrowings. There are no
assurances however, that management would be successful in obtaining the
required additional capital or revising the repayment terms of their borrowings.
The working capital deficit, net loss, and the rescission of the Merger
Agreement as discussed in Note 3 all raise substantial doubt about the Company's
ability to continue as a going concern.
5. Per Share Calculations
Per share data was computed by dividing net loss by the weighted average number
of shares outstanding during the three and six month periods ended March 31,
2004 and 2003. After giving effect to the one-for-100 reverse stock split (Note
10).The weighted average shares outstanding for the three and six month period
ended March 31, 2004 and 2003 was 683,516 and 440,437 and 200,000 and 200,000
respectively.
6. Shareholder Advances
During the six-month period ended March 31, 2004, a shareholder advanced
approximately $142,000 to the Company to cover operating expenses. This advance
is unsecured and has no specific repayment terms.
The above transaction is not necessarily indicative of a transaction that would
have been entered into had a comparable transaction been entered into with
independent parties.
7. Long-Term Debt
The Company entered into a $250,000 demand note with a financial institution
during the six months ended March 31, 2004. The Company entered into three
additional debt agreements totaling approximately $103,000 during the same
period.
8. Segment Information
Effective October 1, 2003, the Company discontinued managing and evaluating
their operations through reportable segments.
11
Absolute Potential, Inc.
f/k/a Absolute Waste Services, Inc. and
Thermacell Technologies, Inc.
Notes to Consolidated Financial Statements
Six Months Ended March 31, 2004
(Unaudited)
9. Commitments and Contingencies
The Company is involved in certain legal actions arising in the ordinary course
of business. While it is not feasible to predict or determine the outcome of
these matters, the Company does not anticipate that any of these matters in
aggregate will have a material adverse effect on the Company's business or
consolidated financial position or results of operations.
10. Purchase Agreement
Effective January 4, 2004, the Company entered into a purchase agreement with
The Bob James Company, Inc. to purchase their Austin, Houston, and San Antonio
routes and related equipment for approximately $500,000 cash and 500,000 in
stock. The stock has been valued by management at $0.0295 per share, or $13,750
on the date of transfer. Concurrently, the Company entered into a consulting
agreement with Bob James. On June 30, 2005 the company entered into a Mutual
Final Settlement Agreement and Release, whereby the consulting agreement was
terminated and the issuance of stock was cancelled.
11. Subsequent Events
Settlement Agreement
In June 2004, the Board of Directors of the Company unanimously adopted, and
shareholders holding a majority of the Company's common stock approved, a
resolution authorizing and approving a Mutual Settlement Agreement (the
"Settlement Agreement". Pursuant to the Settlement Agreement, the effects of the
Merger were unwound. In addition, each party released and discharged the other
from any and all claims, actions and liabilities arising from or in connection
with the Merger Agreement and the events leading up to and including the
unwinding of the Merger. By its terms, these actions became effective on June 3,
2004, the effective date of the Settlement Agreement (the "Effective Date"). In
connection with the unwinding of the Merger, the Company redeemed 27,000,000
shares of it's class A convertible preferred stock that were issued to the
former members of Absolute. In consideration for such redemption, the Company
transferred to these parties all of the issued and outstanding stock of the
Merger Sub. In addition, 70,000 shares of common stock issued in connection with
the Merger have been returned to the Company and canceled. The Company no longer
has any ownership interest in Absolute, which is now 100% owned by the previous
owners, and the previous owners no longer have any ownership interest in the
Company.
Reverse Stock Split
On October 5, 2005, the Company authorized and approved a reverse stock split
whereby one share of common stock will be issued for each 100 shares of common
stock outstanding as of September 30, 2005, resulting in the number of
outstanding shares being reduced from 60,469,250 to approximately 604,693. All
references to the number of common shares and the per common share amounts have
been restated to give retroactive effect to the above reverse stock split.
12
Item 2. Management's Plan of Operation
- --------------------------------------
Information included in this Report may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). This information may involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from future results, performance or
achievements expressed or implied by any forward-looking statements.
Forward-looking statements, which involve assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may," "will," "should," "expect," "anticipate," "estimate," "believe,"
"intend" or "project" or the negative of these words or other variations on
these words or comparable terminology. These forward-looking statements are
based on assumptions that may be incorrect, and there can be no assurance that
these projections included in these forward-looking statements will come to
pass. Our actual results could differ materially from those expressed or implied
by the forward-looking statements as a result of various factors. We undertake
no obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
See the" Risk Factors" section of our Annual Report on Form 10-KSB filed on May
27, 2005.
Overview
- --------
We were incorporated in Florida in August 1993. In November 2001, we filed a
voluntary petition for reorganization under Chapter 11 of the U. S. Bankruptcy
Code with the U.S. Bankruptcy Court. On August 30, 2002, the United States
Bankruptcy Court for the Middle District of Florida, Tampa Division, Case No.
01-20854-8G1 issued an order confirming our Plan of Reorganization under Chapter
11 of the Bankruptcy Code, dated as of February 25, 2002 (the "Plan"). Although
the Plan became effective on August 30, 2002 and we commenced implementation of
the Plan on that date, distributions of common stock to our pre-bankruptcy
creditors did not occur until July 31, 2003.
In July 2003, we changed our name to Absolute Waste Services, Inc. On August 23,
2003, we entered into an Agreement and Plan of Merger (the "Merger Agreement")
with Absolute Industries, LLC, a Texas limited liability company, pursuant to
which Absolute Industries, LLC merged into our newly formed wholly owned
subsidiary (the "Merger Sub"), with the Merger Sub being the surviving entity
and succeeding to the business operations of Absolute Industries, LLC (the
"Merger"). In June 2004, we and the former members of Absolute Industries, LLC
agreed to unwind the effects of the Merger, for each party to return the other
party the consideration received in connection with the Merger, and to release
each other from all claims relating to the Merger Agreement and the Merger. In
connection with this transaction, all of the issued and outstanding stock of the
Merger Sub was transferred to the former members of Absolute Industries, LLC.
Prior to the Merger, we had no material assets, liabilities or business
operations. In substance, we were a publicly held shell corporation whose sole
business activity was the search for a suitable business opportunity. As a
result of the Merger, we engaged in certain business operations as of March 31,
2004, the end of the fiscal quarter to which this report relates. Because the
effects of the Merger have been unwound, and because we no longer have any
ownership interest in Merger Sub and therefore no longer engage in the type of
business previously engaged in by the Merger Sub, this Report on Form 10-QSB
will treat us as a publicly held shell.
We are a company that is intended to serve as a vehicle for the acquisition of a
target business which we believe has significant growth potential. We are not
presently engaged in, and we will not engage in, any substantive commercial
business for an indefinite period of time. While we may seek to effect business
combinations with more than one target business, we will probably have the
ability, as a result of our limited resources, to effect only a single business
combination.
Current Trends
- --------------
As a result of the recent declines in the United States equity markets, many
privately held companies have been shut off from the public marketplace.
Additionally, as the economy has slowed, many companies are attempting to divest
non-core assets and divisions. Due to these factors, we believe that there are
substantial opportunities to effect attractive acquisitions and that, as a
public entity, we are well positioned to identify target acquisitions and to
effect a business combination to take advantage of these current trends.
Effecting a Business Combination
- --------------------------------
General
A business combination may involve the acquisition of, or merger with, a company
that does not need substantial additional capital but that desires to establish
a public trading market for its shares, while avoiding what it may deem to be
13
adverse consequences of undertaking a public offering itself. These include time
delays, significant expense, loss of voting control and compliance with various
federal and state securities laws. In the alternative, a business combination
may involve a company which may be financially unstable or in its early stages
of development or growth.
We have not identified a target business or target industry
Our efforts in identifying a prospective target business will not be limited to
a particular industry and we may ultimately acquire a business in any industry
we deem appropriate. To date, we have not selected any target business on which
to concentrate our search for a business combination. While we intend to focus
on target businesses in the United States, we are not limited to those entities
and may consummate a business combination with a target business outside of the
United States. Accordingly, there is no basis to evaluate the possible merits or
risks of the target business or the particular industry in which we may
ultimately operate. To the extent we effect a business combination with a
financially unstable company or an entity in its early stage of development or
growth, including entities without established records of sales or earnings, we
may be affected by numerous risks inherent in the business and operations of
financially unstable and early stage or potential emerging growth companies. In
addition, to the extent that we effect a business combination with an entity in
an industry characterized by a high level of risk, we may be affected by the
currently unascertainable risks of that industry. An extremely high level of
risk frequently characterizes many industries which experience rapid growth. In
addition, although our management will endeavor to evaluate the risks inherent
in a particular industry or target business, there can be no assurance that we
will properly ascertain or assess all significant risk factors.
Sources of target businesses
We anticipate that target business candidates will be brought to our attention
from various unaffiliated sources, including securities broker-dealers,
investment bankers, venture capitalists, bankers and other members of the
financial community, who may present solicited or unsolicited proposals. Our
sole executive officer and his affiliates may also bring to our attention target
business candidates. While we do not presently anticipate engaging the services
of professional firms that specialize in business acquisitions on any formal
basis, we may engage these firms in the future, in which event we may pay a
finder's fee or other compensation. We do not currently intend to pay our
existing officer or our shareholders or any entity with which they are
affiliated any finder's fee or other compensation for services rendered to us
prior to or in connection with the consummation of a business combination.
Selection of a target business and structuring of a business combination
Subject to the requirement that our initial business combination must be with a
target business with a fair market value that is at least 80% of our net assets
at the time of such acquisition, we will have virtually unrestricted flexibility
in identifying and selecting a prospective target business. In evaluating a
prospective target business, we will consider, among other factors, the
following:
o financial condition and results of operation;
o growth potential;
o experience and skill of management and availability of additional
personnel;
o capital requirements;
o competitive position;
o stage of development of the target business's products, processes or
services;
o degree of current or potential market acceptance of the target
business's products, processes or services;
o proprietary features and degree of intellectual property or other
protection of the target business's products, processes or services;
o regulatory environment of the industry; and
o costs associated with effecting the business combination.
These criteria are not intended to be exhaustive. Any evaluation relating to the
merits of a particular business combination will be based, to the extent
relevant, on the above factors as well as other considerations deemed relevant
by our management in effecting a business combination consistent with our
business objective. In evaluating a prospective target business, we plan to
conduct an extensive due diligence review which will encompass, among other
things, meetings with incumbent management and inspection of facilities, as well
as review of financial and other information which will be made available to us.
We will endeavor to structure a business combination so as to achieve the most
favorable tax treatment to us, the target business and both companies'
shareholders. There can be no assurances, however, that the Internal Revenue
Service or appropriate state tax authority will agree with our tax treatment of
the business combination.
14
The time and costs required to select and evaluate a target business and to
structure and complete the business combination cannot presently be ascertained
with any degree of certainty. Any costs incurred with respect to the
identification and evaluation of a prospective target business with which a
business combination is not ultimately completed will result in a loss to us and
reduce the amount of capital available to otherwise complete a business
combination.
Fair market value of target business
We anticipate that the initial target business that we acquire will have a fair
market value equal to at least 80% of our net assets at the time of such
acquisition. The fair market value of such business will be determined by our
Board of Directors based upon standards generally accepted by the financial
community, such as actual and potential sales, earnings and cash flow and book
value. If our board is not able to independently determine that the target
business has a sufficient fair market value, we may obtain an opinion from an
unaffiliated, independent investment banking firm which is a member of the
National Association of Securities Dealers, Inc. with respect to the
satisfaction of such criteria. Since any opinion, if obtained, would merely
state that fair market value meets the 80% of net assets threshold, it is not
anticipated that copies of such opinion would be distributed to our
shareholders, although copies will be provided to shareholders who request it.
Rights of dissenting shareholders
A business combination may require the approval of the holders of the
outstanding shares of both participating companies. Shareholders who vote
against a business combination in certain instances may be entitled to dissent
and to obtain payment for their shares. The requirement of approval of our
shareholders in any business combination may be limited to those transactions
identified as a merger or a consolidation. We may enter into a business
combination that would not require the approval of our shareholders, in which
case our shareholders may not be entitled to dissent and obtain payment for
their shares. Accordingly, unless the acquisition requires shareholder approval,
we will not provide shareholders with a disclosure document containing audited
or unaudited financial statements prior to such acquisition.
Prior to any business combination for which shareholder approval is required, we
intend to provide our shareholders disclosure documentation concerning the
business opportunity or target company and its business. Such disclosure will in
all likelihood be in the form of a proxy statement which will be distributed to
shareholders at least 20 days prior to any shareholder's meeting.
Competition
- -----------
In identifying, evaluating and selecting a target business, we expect to
encounter intense competition from other entities having a business objective
similar to ours. Many of these entities are well established and have extensive
experience identifying and effecting business combinations directly or through
affiliates. Many of these competitors possess greater technical, human and other
resources than us and our financial resources will be relatively limited when
contrasted with those of many of these competitors. While we believe there are
numerous potential target businesses that we could acquire, our ability to
compete in acquiring certain sizable target businesses will be limited by our
available financial resources. This inherent competitive limitation gives others
an advantage in pursuing the acquisition of a target business. Further, if we
need to seek shareholder approval of a business combination, that may delay the
completion of a transaction.
Any of these obligations may place us at a competitive disadvantage in
successfully negotiating a business combination. Our management believes,
however, that our status as a public entity and potential access to the United
States public equity markets may give us a competitive advantage over
privately-held entities having a similar business objective as us in acquiring a
target business with significant growth potential on favorable terms.
Significant Transactions
- ------------------------
In June 2004, we and the former members of Absolute Industries, LLC agreed to
unwind the effects of the Merger, for each party to return the other party the
consideration received in connection with the Merger, and to release each other
from all claims relating to the Merger Agreement and the Merger. In connection
with this transaction, all of the issued and outstanding stock of the Merger Sub
was transferred to the former members of Absolute Industries, LLC.
Employees
- ---------
Thomas F. Duszynski is our sole employee, director and officer. Mr. Duszynski is
not obligated to contribute any specific number of hours per week and intends to
devote only as much time as he deems necessary to our affairs. The amount of
time he will devote in any time period will vary based on the availability of
suitable target businesses to investigate. We do not intend to have any full
time employees prior to the consummation of a business combination. We have no
salaried employees and we anticipate that none of our officers, directors or
principal shareholders will receive any compensation for any assistance they may
15
provide us. Our management expects to use consultants, attorneys and accountants
as necessary, and does not anticipate a need to engage any full-time employees
so long as we are seeking and evaluating business opportunities. The need for
employees and their availability will be addressed in connection with the
decision whether or not to acquire or participate in a specific business
opportunity.
Our Office
- ----------
Our office is located at 141 West Jackson Boulevard, Suite 2182, Chicago,
Illinois 60604, and the telephone number is (312) 427-5457. Our office is
located in the office of Augustine Fund, L.P.; Thomas Duszynski, our sole
employee, director and officer, is a principal of Augustine Fund, L.P. We
anticipate that our office will remain at the offices of Augustine Fund, L.P.
until an acquisition has been concluded. All corporate records will be
maintained at this office, and it is anticipated that all shareholders' meetings
will take place in Chicago, Illinois. In the event that a merger or acquisition
takes place, no assurance can be given that the corporate records or
headquarters will continue to be maintained at 141 West Jackson Boulevard, Suite
2182, Chicago, Illinois 60604, or that shareholders' meetings will be held in
Chicago, Illinois. We are not responsible for reimbursement for out-of-pocket
office expenses, such as telephone, postage or supplies. There are no written
documents memorializing the foregoing. We consider our current office space
adequate for our current operations.
There are no agreements or understandings with respect to our offices subsequent
to the completion of an acquisition. Upon a merger or acquisition, we will
likely relocate our office to that of the acquisition candidate.
Reports to Security Holders
- ---------------------------
We are subject to reporting obligations under the Exchange Act. These
obligations include an annual report under cover of Form 10-KSB, with audited
financial statements, unaudited quarterly reports and the requisite proxy
statements with regard to annual shareholder meetings. The public may read and
copy any materials we file with the Commission at the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information of the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0030. The Commission maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.
We will not acquire a target business if audited financial statements cannot be
obtained for the target business. Additionally, our management will provide
shareholders with audited financial statements, prepared in accordance with
generally accepted accounting principles, of the prospective target business as
part of the proxy solicitation materials sent to shareholders to assist them in
assessing the target business. Our management believes that the requirement of
having available audited financial statements for the target business will not
materially limit the pool of potential target businesses available for
acquisition.
Liquidity and Capital Resources
- -------------------------------
We do not have sufficient funds to engage in significant operating activities.
Our future operating activities are expected to be funded by loans from a major
shareholder. However, none of our shareholders has any obligation to provide
such loans to us.
As of March 31, 2004, we have accounts payable of $115,269, and a payroll tax
obligation of $273,812. We do not have sufficient cash reserves to satisfy these
amounts. We anticipate that we will need to borrow funds from a major
shareholder in order to satisfy these obligations. However, none of our
shareholders has any obligation to provide such loans to us.
Critical Accounting Policies
- ----------------------------
Management's Discussion and Analysis discusses our audited consolidated
financial statements, which have been prepared in accordance with accounting
policies generally accepted in the United States. The preparation of these
audited consolidated financial statements requires us to make estimates and
assumptions that affect the assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. We believe the following critical accounting policies require
significant judgments, estimates and assumptions used in the preparation of the
audited consolidated financial statements.
Basic loss per common share (EPS) is computed by dividing loss available to our
common stockholders by the weighted average number of shares of common stock
outstanding for the year. Diluted EPS reflect the potential dilution from the
exercise or conversion of securities into common stock. Diluted EPS is not
presented because it is anti-dilutive.
16
We issue stock in lieu of cash for certain transactions. The fair value of our
common stock, which is based on comparable cash purchases or the value of
services, whichever is more readily determinable, is used to value the
transaction.
We record the receipt of payment for common stock that has not been issued to
the stockholder as a common stock payable in the financial statements.
We follow Financial Accounting Standards Board Statement No. 121 (FASB No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." FASB No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. In performing the review
of recoverability, we estimate the future cash flows that are expected to result
from the use of the assets and their eventual disposition. Because events and
circumstances frequently do not occur as expected, there will usually be
differences between the estimated and actual future cash flows, and these
differences may be material.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective income
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. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income in the
period that included the enactment date.
Material Off-Balance Sheet Arrangements
- ---------------------------------------
We have no material off-balance sheet arrangements.
Item 3. Controls and Procedures
- -------------------------------
(a) Evaluation of Disclosure Controls and Procedures.
- -------------------------------------------------------
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time period
specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in the reports filed under the
Exchange Act is accumulated and communicated to management, as appropriate, to
allow timely decisions regarding required disclosure. Our current principal
executive officer, who is also our principal financial officer, evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
quarterly period covered by this report pursuant to Rule 15d-15(b) promulgated
under the Exchange Act. Based upon that evaluation, our principal executive and
financial officer has concluded that our disclosure controls and procedures were
not effective in alerting management in a timely fashion to all material
information required to be included in our periodic filings with the Commission,
which has contributed to significant delays in filing our periodic reports.
Based on this evaluation, our principal executive officer and principal
financial officer will accelerate plans to implement additional financial
reporting controls and procedures to ensure that information in reports that we
file or submit under the Exchange Act are recorded, processed, summarized and
reported within the time periods specified in Commission rules and forms.
Furthermore, when and if we acquire an operating business, management will
implement operating controls and procedures to ensure timely disclosure.
A control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system's objectives will be
met. Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs. 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, with the company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, that breakdowns can occur because of simple
errors or mistakes, and that controls can be circumvented by the acts of
individuals or groups. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected.
17
(b) Changes in Internal Controls.
- -----------------------------------
There were no significant changes in our internal control over financial
reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
PART II
Item 1. Legal Proceedings
- --------------------------
The Commission has notified us that it is considering initiating administrative
proceedings to have our common stock deregistered. We have submitted a written
response to the Commission's notice and are engaged in discussions with the
Commission regarding this notice. We cannot predict whether such administrative
proceedings will go forward, and, if so, what the outcome of those proceedings
will be.
In the ordinary course of our business, we may at times be subject to various
legal proceedings. However, except as set forth above, we are not party to, and
are not aware of, pending or threatened litigation that we currently anticipate
would have a material adverse effect on our business or operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
- -------------------------------------------------------------------
In connection with the Merger in August 2003, we issued 27,000,000 shares of
Class A convertible preferred stock to the former members of Absolute Services,
LLC, and we also issued 10,000,000 shares of common stock to certain other
parties that provided services in connection with the Merger. The issuance of
our preferred stock has been rescinded in connection with the Merger. In
addition, 7,000,000 shares of common stock issued in connection with the Merger
have been returned to us. The above shares are on a pre-split basis.
In May 2005, Augustine Fund, L.P., one of our shareholders, converted $189,877
in advances previously made to us into 47,469,250 shares of our common stock on
a pre-split basis.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
In June 2004, pursuant to a written consent in lieu of a special meeting, the
holders of a majority of our common stock and all of our Series A preferred
stock approved the unwinding of the effects of the Merger.
Item 5. Other Information
- -------------------------
None.
Item 6. Exhibits.
- -----------------
Exhibit 31.1 - Certification of CEO/CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 - Certification of CEO/CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, we have duly caused this report to be signed on our
behalf by the undersigned, thereunto duly authorized.
ABSOLUTE POTENTIAL, INC.
(Registrant)
By: /s/ Thomas F. Duszynski Date: November 28, 2006
-------------------------------
Thomas F. Duszynski
Chief Executive Officer,
Chief Financial Officer and
Director
(Principal Executive Officer and
Principal Financial and Accounting Officer)
19