UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-21279
ABSOLUTE POTENTIAL, INC.
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(Exact name of small business issuer as specified 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
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(Address of principal executive offices, including zip code)
(312) 427-5457
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(Issuer's Telephone Number, including area code)
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 September 17, 2008, the registrant had 604,693 shares of common
stock, $0.0001 par value, issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
INDEX
Part I - Financial Information
Item 1. Financial Statements
Balance Sheet - June 30, 2006 (Unaudited)
and September 30, 2005........................................ 3
Statements of Operations - Three months and nine months
ended June 30, 2006 and 2005 (Unaudited)...................... 4
Statements of Changes in Stockholders' Deficit
Nine months ended June 30, 2006 (Unaudited)................... 5
Statements of Cash Flows - Nine months ended
June 30, 2006 and 2005 (Unaudited)............................ 6
Notes to Financial Statements. ................................ 7
Item 2. Management's Discussion and Analysis or Plan of Operation....... 12
Item 3. Controls and Procedures......................................... 19
Part II - Other Information
Item 1. Legal Proceedings............................................... 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 20
Item 3. Defaults Upon Senior Securities................................. 20
Item 4. Submission of Matters to a Vote of Security Holders............. 20
Item 5. Other Information............................................... 20
Item 6. Exhibits........................................................ 20
Signatures................................................................ 21
2
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
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Absolute Potential, Inc.
Balance Sheet
June 30, 2006 (Unaudited) and
September 30, 2005
June 30, 2006 September 30,
(Unaudited) 2005
Assets
Cash $ 130 $ 4,212
=========== ===========
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 124,276 $ 134,477
Accrued payroll taxes 283,541 273,812
----------- -----------
Total current liabilities 407,817 408,289
Long-Term Advances from Related Party 531,335 228,335
Total Liabilities 939,152 636,624
Stockholders' deficit:
Common stock; $.0001 par value; 150,000,000 shares
authorized; 604,693 shares issued and outstanding
60 60
Additional paid-in capital 85,389 85,389
Common stock payable 539,983 539,983
Accumulated deficit (1,564,454) (1,257,844)
----------- -----------
Total stockholders' deficit (939,022) (632,412)
----------- -----------
$ 130 $ 4,212
=========== ===========
The accompanying notes are an integral
part of the financial statements.
3
Absolute Potential, Inc.
Statements of Operations
(Unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2006 2005 2006 2005
---- ---- ---- ----
Operating revenues $ -- $ -- $ -- $ --
--------- --------- --------- ---------
Operating Expenses -- -- -- --
Selling, general and administrative 91,460 121,639 296,882 173,629
--------- --------- --------- ---------
(91,460) (121,639) (296,882) (173,629)
Other Income (Expense)
Interest expense 3,458 -- 9,728 --
--------- --------- --------- ---------
Income (loss) before tax (94,918) (121,639) (306,610) (173,629)
Income tax (expense) benefit -- -- -- --
--------- --------- --------- ---------
Loss before discontinued Operations (94,918) (121,639) (306,610) (173,629)
--------- --------- --------- ---------
Net income (loss) $ (94,918) $(121,639) $(306,610) $(173,629)
========= ========= ========= =========
Net loss per share $ (0.16) $ (0.35) $ (0.51) $ (0.86)
========= ========= ========= =========
Weighted average number of
Common shares outstanding 604,693 349,089 604,693 202,763
========= ========= ========= =========
The accompanying notes are an integral
part of the financial statements.
4
Absolute Potential, Inc.
Statements of Changes in Stockholders' Deficit
(Unaudited)
Nine Months Ended June 30, 2006
Common Stock
------------------------- Additional Common
Number of Paid-in Stock Accumulated
Shares Amount Capital Payable Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2005 604,693 $ 60 $ 85,389 $ 539,983 $(1,257,844) $ (632,412)
Net loss for the period -- -- -- -- (306,610) (306,610)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2006 604,693 $ 60 $ (85,389) $ 539,983 $(1,564,454) $ (939,022)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral
part of the financial statements.
5
Absolute Potential, Inc.
Statements of Cash Flows
Unaudited
Nine Months Ended
June 30,
2006 2005
-----------------------
Cash Flow from Operating Activities
Net Income (Loss) $(306,610) $(173,629)
Changes in Operating Assets and Liabilities:
Accounts Payable (10,201) 56,335
Accrued Expenses 9,729 28,000
--------- ---------
Net Cash (Used) Provided by Operating Activities (307,082) (89,294)
Cash Flows from Financing Activities:
Advances from Related Party 303,000 89,294
--------- ---------
Net Cash Provided by Financing Activities 303,000 89,294
Net Decrease in Cash and Cash Equivalents (4,082) --
Cash and Cash Equivalents,
Beginning of Period 4,212 --
--------- ---------
Cash and Cash Equivalents, End of Period $ 130 $ --
========= =========
Supplemental Disclosures:
Cash Paid for Interest $ -- $ 189,877
Cash Paid for Income Taxes $ -- $ --
The accompanying notes are an integral
part of the financial statements.
6
Absolute Potential, Inc.
Notes to Financial Statements
June 30, 2006
(Unaudited)
1. Background Information
Absolute Potential, Inc. (the "Company" or "Absolute") is a Florida corporation
that was incorporated on August 12, 1993. On July 31, 2003, the Company changed
its name to Absolute Waste Services, Inc., pending a merger described in Note 2.
On June 15, 2005, the Company received the written consent dated June 15, 2005,
from the holders of approximately 90.9% of the outstanding voting stock
approving an amendment to its Certificate of Incorporation to change the
Company's name to Absolute Potential, Inc. On October 24, 2005, the Company
amended its Certificate of Incorporation to reflect this name change. The
Company has no current operations other than incurring professional services to
continue to file its issuer reports.
2. Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles and the rules of the
U.S. Securities and Exchange Commission, and should be read in conjunction with
the audited financial statements and notes thereto contained in the Annual
Report on Form 10-KSB for Absolute Potential(the "Registrant" or the "Company")
for the year ended September 30, 2005. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position, results of operations and cash flows for the
interim periods presented have been reflected herein. The results of operations
for interim periods are not necessarily indicative of the results to be expected
for the full year. Notes to the financial statements which would substantially
duplicate the disclosures contained in the audited financial statements for the
most recent fiscal year ended September 30, 2005, as reported in the Form
10-KSB, have been omitted.
3. Merger and Unwinding
On July 2, 2003, through a wholly owned subsidiary ("Merger Sub"), the Company
entered into an Agreement and Plan of Merger with Absolute Industries LLC
("Industries"), which was approved by the Boards of Directors of each entity. On
August 23, 2003, Industries merged with and into Merger Sub with Merger Sub
being the surviving entity (the "Merger"). Prior to the Merger, the Company had
10,000,000 common shares outstanding that were approved for issuance under the
Plan of Reorganization, which was confirmed by the United States Bankruptcy
Court for the Middle District of Florida in August, 2002.
In connection with the Merger, an additional 100,000 shares of new restricted
stock were issued. In accordance with the Merger Agreement, 100 percent of the
equity interests of Industries were exchanged for 27,000,000 of the Company's
Class A Convertible Preferred Stock. Each share of Class A Convertible Preferred
Stock is convertible into one share of common stock and is entitled to three
votes.
7
In June 2004, the Board of Directors of the Company and the majority of the
Company's shareholders, by written consent, determined that as a result of
breaches of the Merger Agreement, it was equitable and appropriate to unwind the
effects of the Merger, for each party to return to 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 Industries.
4. Financial Restructuring and Going Concern Considerations
In August 2003, the board of directors amended the articles of incorporation to
increase the authorized shares of voting common stock to 150,000,000 at $0.0001
par value and to authorize 50,000,000 shares of preferred stock at $0.001 par
value, with rights and terms to be determined by the board from time to time.
The accompanying financial statements have been prepared on a going concern
basis that contemplates the realization of assets and liabilities. In the
ordinary course of business, operating losses have been incurred each year since
inception, resulting in an accumulated deficit of $1,564,454 and negative
working capital of $407,687 as of June 30, 2006, and total liabilities exceeding
total assets by $939,022 as of June 30, 2006.
Currently, the Company has been provided working capital by a shareholder and is
seeking a merger with an operating company. However, these conditions raise
substantial doubt about the Company's ability to continue as a going concern.
5. Significant Accounting Policies
The significant accounting policies followed are:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The estimated fair value of the Company's liabilities approximated their
carrying value at year-end.
Basic loss per common share (EPS) is computed by dividing loss available to
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.
8
The Company has issued and may issue stock in lieu of cash for certain
transactions. The fair value of the stock, which is based on comparable cash
purchases or the value of services, whichever is more readily determinable, is
used to value the transaction.
The Company records the receipt of payment for common stock that has not been
issued to the stockholder as a common stock payable in the financial statements.
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.
6. Recently Issued Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board issued SFAS No. 151,
"Inventory Costs, an Amendment of ARB No. 43, chapter 4." SFAS No. 151 clarifies
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted materials. SFAS No. 151 is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The application of
SFAS No. 151 did not have a significant impact on the Company's results of
operations or financial position.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB 29, Accounting for Nonmonetary Transactions." This
statement's amendments are based on the principle that nonmonetary exchanges of
assets should be measured by the fair value of the assets exchanged. SFAS 153
eliminates the narrow exception for nonmonetary exchanges of similar productive
assets and replaces it with a broader exception for exchanges of nonmonetary
assets that do not have commercial substance. Provisions of this statement are
effective for fiscal periods beginning after June 15, 2005. The adoption of this
statement did not have an effect on the Company's financial statements.
In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment. This
Statement replaces FASB Statement No. 123 and supersedes APB Opinion No. 25.
Statement No. 123(R) will require the fair value of all stock option awards
issued to employees to be recorded as an expense over the related vesting
period. The Statement also requires the recognition of compensation expense for
the fair value of any unvested stock option awards outstanding at the date of
adoption. This review affects any reporting period beginning after December 15,
2005, and the adoption of this statement did not have an effect on the Company's
financial statements.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"), which is an interpretation
of SFAS No. 143, "Accounting for Asset Retirement Obligations." FIN 47 clarifies
9
terminology within SFAS 143 and requires an entry to recognize a liability for
the fair value of a conditional asset retirement obligation when incurred if the
liability's fair value can be reasonably estimated. FIN 47 is effective for
fiscal years ending after December 15, 2005. The adoption of this interpretation
did not have a material effect on the Company's financial statements.
In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," which will require entities that voluntarily make a change in
accounting principle to apply that change retroactively to prior periods'
financial statements unless this would be impracticable. SFAS No. 145 supersedes
Accounting Principles Board Opinion No. 20, "Accounting Changes" ("APB No. 20"),
which previously required that most voluntary changes in accounting principle be
recognized by including in the current period's net income the cumulative effect
of changing to the new accounting principle. SFAS No. 154 also makes a
distinction between "retrospective application" of an accounting principle and
the "restatement" of financial statements to reflect the correction of an error.
Another significant change in practice under SFAS No. 154 will be that if an
entity changes its method of depreciation, amortization, or depletion for
long-lived, non-financial assets, the change must be accounted for as a change
in accounting principle. SFAS No. 154 applies to accounting changes and error
corrections that are made in fiscal years beginning after December 15, 2005. The
provisions of SFAS No. 154 are not expected to affect the Company's financial
statements.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments," which amends SFAS No. 133, "Accounting for Derivatives
Instruments and Hedging Activities" and SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No.
155 amends SFAS No. 133 to narrow the scope exception for interest-only and
principal-only strips on debt instruments to include only such strips
representing rights to receive a specified portion of the contractual interest
or principle cash flows. SFAS No. 155 also amends SFAS No. 140 to allow
qualifying special-purpose entities to hold a passive derivative financial
instrument pertaining to beneficial interests that itself is a derivative
instrument. This statement shall be effective for all financial instruments
acquired, issued or subject to a remeasurement (new basis) event occurring after
the beginning of an entity's first fiscal year that begins after September 15,
2006. The provisions of SFAS No. 155 are not expected to affect the Company's
financial statements.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets," which provides an approach to simplify efforts to obtain
hedge-like (offset) accounting. This Statement amends FASB SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," with respect to the accounting for separately recognized
servicing assets and servicing liabilities. The Statement (1) requires an entity
to recognize a servicing asset or servicing liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract in
certain situations; (2) requires that a separately recognized servicing asset or
10
servicing liability be initially measured at fair value, if practicable; (3)
permits an entity to choose either the amortization method or the fair value
method for subsequent measurement for each class of separately recognized
servicing assets or servicing liabilities; (4) permits at initial adoption a
one-time reclassification of available-for-sale securities to trading securities
by an entity with recognized servicing rights, provided the securities
reclassified offset the entity's exposure to changes in the fair value of the
servicing assets or liabilities; and (5) requires separate presentation of
servicing assets and servicing liabilities subsequently measured at fair value
in the balance sheet and additional disclosures for all separately recognized
servicing assets and servicing liabilities. SFAS No. 156 is effective for all
separately recognized servicing assets and liabilities as of the beginning of an
entity's fiscal year that begins after September 15, 2006, with earlier adoption
permitted in certain circumstances. The statement also describes the manner in
which it should be initially applied. The provisions of SFAS No. 156 are not
expected to affect the Company's financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or
SFAS No. 157. SFAS No. 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when pricing an asset or
liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. Under the standard, fair value
measurements would be separately disclosed by level within the fair value
hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years, with early adoption permitted. We are currently evaluating the impact of
SFAS No. 157 on our financial statements.
7. Related Party Transactions
During the quarter ended June 30, 2006, Augustine Fund, L.P., the major
shareholder and funding source for the Company, funded the operations of the
Company in the amount of $33,000.
During May 2005, Augustine Fund, L.P. converted its loan to the Company to
common stock. At the time of the conversion, the loan amount was $189,877. This
loan was converted to 474,693 shares of common stock. This conversion was
effected at a value of $0.004 per share. The agreement allows for further
conversion of any additional funds advanced at the same rate ($.004 per share)
on a quarterly basis. The outstanding balance of these advance are $531,335 at
June 30, 2006. These advances are unsecured and have no repayment terms.
The above transactions are not necessarily indicative of the transactions that
would have been entered into had comparable transactions been entered into with
independent parties.
8. Income Taxes
The Company has net operating loss carryforwards of approximately $17 million,
at June 30, 2006. Annual utilization of the Company's net operating loss
carryforwards will be limited due to a change in ownership control of the
company's common stock which took place in 2001. Under federal tax law, this
change in ownership of the Company will significantly restrict future
11
utilization of the net operating loss carryforwards. Other than the net
operating losses which have been limited because of the change in ownership as
described above, any other net operating losses will expire in 2009 through
2022.
A valuation allowance is required by FASB Statement No. 109 if, based on the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. The need for the valuation allowance
is evaluated periodically by management. Based on available evidence, management
concluded that valuation allowances of 100 percent for June 30, 2006 were
necessary.
9. Payroll Taxes
As of June 30, 2006, the Company is delinquent in prior period payroll taxes,
penalties and interest in the approximate amount of $283,500. The Company
currently does not have an agreement with the Internal Revenue Service for
payment of this liability.
10. Stock Split
On November 14, 2005, the Company effectuated a reverse stock split whereby one
share of common stock was issued for each 100 shares of common stock outstanding
as of the record date, resulting in the number of outstanding shares being
reduced from 60,469,250 to approximately 604,693.
11. Legal Proceedings
The Commission has notified the Company that it is considering initiating
administrative proceedings to have our common stock deregistered. The Company
has submitted a written response to the Commission's notice. We cannot predict
whether such administrative proceedings will go forward, and, if so, what the
outcome of those proceedings will be.
Item 2. Management's Discussion and Analysis or Plan of Operation
- -----------------------------------------------------------------
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
12
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. 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
treats 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
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.
13
No Target Business or Target Industry Identified
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
Although the fair market value of our target business must comply with statutory
financial parameters, 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;
14
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.
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 that complies with statutorily imposed financial parameters. 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 statutory 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
15
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.
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, and he will not
be compensated for this time. 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 provide us. Our management
expects to use consultants, attorneys and accountants as necessary, and does not
16
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 or Form 10-K,
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.
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New Regulations
- ---------------
On June 30, 2005, the SEC adopted rules regarding publicly reporting "shell
companies", and the Company will be considered a shell company under the new
definition. The rules are designed to ensure that investors in shell companies
who acquire operations have timely access to the same type of information as is
available to investors in public companies generally. Most of these rules became
effective on August 22, 2005.
As adopted, the rules will:
o require a public shell company to report on Form 8-K an event that
causes it to cease being a shell company and to include in that Form
8-K the same type of detailed financial and other information about
the company as is required to register a class of securities under the
Exchange Act;
o prohibit a public shell company from using Form S-8 (the abbreviated
registration statement used to register securities issued under
employee benefit plans) until 60 days after it ceases to be a shell
company; and
o require every public company to check a box on the cover of all annual
and quarterly reports to identify whether or not it is a shell
company.
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 June 30, 2006, we had accounts payable of $124,276, and a payroll tax
obligation of $283,541. 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 or Plan of Operation discusses our audited
financial statements, which have been prepared in accordance with accounting
policies generally accepted in the United States. The preparation of these
audited 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
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.
18
If full conversion of securities into common stock were to occur, the total
number of shares of fully diluted common stock outstanding would be 1,300,838.
Because we suffered a loss for the three and nine months ended June 30, 2006 and
2005, there was no diluted EPS, as it would have been anti-dilutive.
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.
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.
19
(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 the Company that it is considering initiating
administrative proceedings to have our common stock deregistered. The Company
has submitted a written response to the Commission's 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
- -------------------------------------------------------------------
None.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None.
Item 5. Other Information
- --------------------------
None.
Item 6. Exhibits
- ----------------
The following exhibits are being filed as part of this Report on Form 10-QSB:
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
20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ABSOLUTE POTENTIAL, INC.
(Registrant)
Date: September 17, 2008 By: /s/ Thomas F. Duszynski
--------------------------------
Thomas F. Duszynski
Chief Executive Officer,
Chief Financial Officer
and Director
(Principal Executive
Officer and Principal
Financial and Accounting
Officer)
21