U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER
DOWNER'S GAP, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
DOWNER'S GAP, INC.
350 FIFTH AVENUE
NEW YORK, NEW YORK 10118
(917) 319-8475
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT OF 1934 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 [X ] NO [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN
RULE 12B-2 OF THE SECURITIES EXCHANGE ACT OF 1934) YES [ X] NO []
As of April 14, 2008, we are authorized to issue up to 75,000,000 at
U.S. $0.001 par value per share, of which 2,050,000 common shares are currently
issued and outstanding.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Unaudited Balance Sheets as of February 29, 2008 and
August 31, 2007 3
Unaudited Statements of Operations for the three and
six months ended February 29, 2008 and 2007 4
Unaudited Statements of Cash Flows for the
six months ended February 29, 2008 and 2007 5
Unaudited Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan
of Operation 10
Item 3. Controls and Procedures 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Unregistered Sales of Equity Securities And
Use Of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission Of Matters To A Vote Of Security
Holders 14
Item 5. Other Information 14
Item 6. Exhibits 15
2
PART I - FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
DOWNER'S GAP, INC.
(A Development Stage Company)
Balance Sheets
(Unaudited) As of February 29, 2008 and
August 31, 2007
February 29, August 31,
2008 2007
-------- --------
ASSETS
Current Assets:
Cash $ 100 $ 1,000
-------- --------
Total Current Assets $ 100 $ 1,000
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable 1,107 10,297
-------- --------
Total Current Liabilities 1,107 10,297
Stockholders' deficit
Preferred Stock, par value $0.001,
10,000,000 Authorized, None 0 0
Issued and Outstanding
Common Stock, Par Value $0.001,
75,000,000 Authorized, 2,050,000 2,050 2,050
Issued and Outstanding
Receivable from Shareholder for
Common Stock (1,000) (1,000)
Additional Paid in Capital 10,000 0
Accumulated Deficit (12,057) (10,347)
-------- --------
Total Stockholders' Equity $ (1,007) $ (9,297)
-------- --------
Total Liabilities and Stockholders' Equity $ 100 $ 1,000
======== ========
See Accompanying Notes to the Financial Statements
3
DOWNER'S GAP, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
For the Three and Six Months Ended February 29, 2008 and 2007
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
February 29, February 29, February 29, February 29,
2008 2008 2007 2007
----------- ----------- ----------- -----------
Revenues $ 0 $ 0 $ 0 $ 0
Expenses:
General and Administrative 1,280 1,710 0 0
----------- ----------- ----------- -----------
Total Expenses 1,280 1,710 0 0
----------- ----------- ----------- -----------
Net Income (Loss) $ (1,280) $ (1,710) $ 0 $ 0
=========== =========== =========== ===========
Net Income (Loss) per Share
Basic and Diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
=========== =========== =========== ===========
Weighted Average Shares Outstanding
Basic and Diluted 2,050,000 2,050,000 0 0
=========== =========== =========== ===========
See Accompanying Notes to the Financial Statements
4
DOWNER'S GAP, INC.
(A Development Stage Company)
Statements of Cash Flows
For the Six Months Ended February 29, 2008 and 2007
2008 2007
-------- --------
Cash Flows from Operating Activities:
Net Loss $ (1,710) $ 0
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Changes in Current Assets and Liabilities:
Other Current Assets 0 0
Decrease in Accounts Payable (9,190) 0
-------- --------
Net Cash Used in Operating Activities (10,900) 0
-------- --------
Cash Flows from Investing Activities 0 0
-------- --------
Cash Flows from Financing Activities:
Additional Paid in Capital 10,000 0
-------- --------
Net (Decrease) in Cash (900) 0
-------- --------
Cash, Beginning of Period 1,000 0
-------- --------
Cash, End of Period $ 100 $ 0
======== ========
See Accompanying Notes to the Financial Statements
5
DOWNER'S GAP, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED NOTES TO THE FINANCIAL STATEMENTS
FEBRUARY 29, 2008
NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities, History and Organization:
-----------------------------------------------
Downer's Gap, Inc. (a development stage company) (the "Company") was
incorporated under the laws of the State of Delaware on June 11, 2007.
The principal office of the corporation is 208 Jarvis Road,
Perkinsville, Vermont 05151.
The Company is a new enterprise in the development stage as defined by
Statement No. 7 of the Financial Accounting Standards Board and has not
engaged in any business other than organizational efforts. It has no
full-time employees and owns no real property. The Company intends to
operate as a capital market access corporation and is registered with
the U.S. Securities and Exchange Commission under the Securities
Exchange Act of 1934. The Company intends to seek to acquire one or
more existing businesses that have existing management, through merger
or acquisition. Management of the Company will have virtually unlimited
discretion in determining the business activities in which the Company
might engage.
Significant Accounting Policies:
--------------------------------
The Company's management selects accounting principles generally
accepted in the United States of America and adopts methods for their
application. The application of accounting principles requires the
estimating, matching and timing of revenue and expense.
The financial statements and notes are representations of the Company's
management which is responsible for their integrity and objectivity.
Management further acknowledges that it is solely responsible for
adopting sound accounting practices, establishing and maintaining a
system of internal accounting control and preventing and detecting
fraud. The Company's system of internal accounting control is designed
to assure, among other items, that 1) recorded transactions are valid;
2) valid transactions are recorded; and 3) transactions are recorded in
the proper period in a timely manner to produce financial statements
which present fairly the financial condition, results of operations and
cash flows of the Company for the respective periods being presented.
6
DOWNER'S GAP, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED NOTES TO THE FINANCIAL STATEMENTS
FEBRUARY 29, 2008
Basis of Presentation:
----------------------
The Company prepares its financial statements on the accrual basis of
accounting.
Reclassification:
-----------------
Certain prior year amounts have been reclassified in the balance sheet
to conform to current period presentation. These reclassifications had
no effect on net earnings reported for any period.
Cash and Cash Equivalents:
--------------------------
All highly liquid investments with original maturities of three months
or less are stated at cost which approximates market value, which in
the opinion of management, are subject to an insignificant risk of loss
in value.
Income Taxes:
-------------
Income from the corporation is taxed at regular corporate rates per the
Internal Revenue Code. There are no provisions for current taxes due to
net available operating losses.
Use of Estimates:
-----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE 2 - FIXED ASSETS
- ---------------------
Fixed assets are $0 at February 29, 2008.
NOTE 3 - RELATED PARTY TRANSACTIONS
- -----------------------------------
As of February 29, 2008 the Company's officers and directors owned, or
had beneficial ownership of 2,000,000 shares of its issued and
outstanding common stock, constituting approximately 98% of the
Company's issued and outstanding stock.
7
DOWNER'S GAP, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED NOTES TO THE FINANCIAL STATEMENTS
FEBRUARY 29, 2008
NOTE 4 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Company maintains its corporate office in the office of its CEO,
for which it pays no rent. There are no outstanding agreements with
management for administrative services to be rendered to the Company.
NOTE 5 - EQUITY
- ---------------
The Company has 75,000,000, $.001 par value common shares authorized
and 2,050,000 shares issued and outstanding. These shares have full
voting rights. No preferred shares are authorized or outstanding.
The Company is owed $1,000 from two shareholders related to the initial
capitalization of the Company. These are reflected in equity as due
from shareholders for issuance of common stock.
During January 2008, shareholders contributed $10,000 in additional
paid in capital.
No dividends or distributions have been made or authorized. The Company
had no other comprehensive income for the period covered.
NOTE 6 - INCOME TAXES
- ---------------------
The Company has adopted Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (SFAS No. 109), which requires the use
of the liability method in the computation of income tax expense and
the current and deferred income taxes payable. Under SFAS No. 109,
income tax expense consists of taxes payable for the year and the
changes during the year in deferred assets and liabilities. Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases and financial reporting bases of
assets and liabilities. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
Since the realization of any deferred tax benefits is contingent upon
future earnings, no deferred tax asset has been accrued since the
likelihood of future earnings has not been demonstrated.
The Company had net losses for the period ended August 31, 2007 and
therefore incurred no tax liabilities.
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In June 2003, the Securities and Exchange Commission ("SEC") adopted
final rules under Section 404 of the Sarbanes-Oxley Act of 2002
8
DOWNER'S GAP, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED NOTES TO THE FINANCIAL STATEMENTS
FEBRUARY 29, 2008
("Section 404"), as amended by SEC Release No. 33-8760 on December 15,
2006. Commencing with the Company's Annual Report for the year ending
December 31, 2008, the Company is required to include a report of
management on the Company's internal control over financial reporting.
The internal control report must include a statement of management's
responsibility for establishing and maintaining adequate internal
control over financial reporting for the Company; of management's
assessment of the effectiveness of the Company's internal control over
financial reporting as of year-end and of the framework used by
management to evaluate the effectiveness of the Company's internal
control over financial reporting. Furthermore in the following year the
Company's independent accounting firm has to issue an attestation
report separately on the Company's internal control over financial
reporting on whether it believes that the Company has maintained, in
all material respects, effective internal control over financial
reporting.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the
accounting for income taxes by prescribing a minimum probability
threshold that a tax position must meet before a financial statement
benefit is recognized. The minimum threshold is defined in FIN 48 as a
tax position that is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of
any related appeals or litigation processes, based on the technical
merits of the position. The tax benefit to be recognized is measured as
the largest amount of benefit that is greater than fifty percent likely
of being realized upon ultimate settlement. FIN 48 must be applied to
all existing tax positions upon initial adoption. The cumulative effect
of applying FIN 48 at adoption, if any, is to be reported as an
adjustment to opening retained earnings for the year of adoption. FIN
48 is effective for the Company's year-end 2007, but is not expected to
have a material impact on our consolidated financial statements, with
the possible exception of certain disclosures relative to our net
operating loss carryovers and the related valuation allowance.
In 2006, the Financial Accounting Standards Board issued the following:
- SFAS No. 155: Accounting for Certain Hybrid Financial
Instruments
- SFAS No. 156: Accounting for Servicing of Financial Assets
- SFAS No. 157: Fair Value Measurements
- SFAS No. 158: Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans
In 2007, the Financial Accounting Standards Board issued the following:
9
DOWNER'S GAP, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED NOTES TO THE FINANCIAL STATEMENTS
FEBRUARY 29, 2008
- SFAS No. 159: The Fair Value Option for Financial Assets
and Financial Liabilities; Including an amendment of FASB
Statement No. 115
- SFAS No. 141: (Revised 2007), Business Combinations
- SFAS No. 160: Noncontrolling Interest in Consolidated
Financial Statements
Management has reviewed these new standards and believes that, with
their current status as a shell company, they will not have a material
impact on the financial statements of the Company.
10
ITEM 2
PLAN OF OPERATION
THE FOLLOWING PLAN SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS
AND THE NOTES THERETO WHICH APPEAR ELSEWHERE IN THIS REPORT. THIS PLAN CONTAINS
FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS, WHICH INVOLVE
UNCERTAINTIES. ACTUAL RESULTS AND THE TIMING OF EVENTS COULD DIFFER MATERIALLY
FROM THE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS.
We were organized as a vehicle to investigate and, if such investigation
warrants, acquire a target company or business seeking the perceived advantages
of being a publicly held corporation. Our principal business objective for the
next 12 months and beyond such time will be to achieve long-term growth
potential through a combination with a business rather than immediate,
short-term earnings. We will not restrict our potential candidate target
companies to any specific business, industry or geographical location and, thus,
may acquire any type of business.
We do not currently engage in any business activities that provide cash flow.
The costs of investigating and analyzing business combinations for the next 12
months and beyond such time will be paid with money in our treasury, if any, or
with additional money contributed by directors, officers or other sources.
(a) Plan of Operation
During the next 12 months we anticipate incurring costs related to:
(i) filing of Exchange Act reports, and
(ii) costs relating to consummating an acquisition.
We believe we will be able to meet these costs through use of funds in our
treasury and additional amounts, as necessary, to be loaned to or invested in us
by our stockholder, management or other investors.
We may consider a business which has recently commenced operations, is a
developing company in need of additional funds for expansion into new products
or markets, is seeking to develop a new product or service, or is an established
business which may be experiencing financial or operating difficulties and is in
need of additional capital. In the alternative, a business combination may
involve the acquisition of, or merger with, a company which does not need
substantial additional capital, but which desires to establish a public trading
market for its shares, while avoiding, among other things, the time delays,
significant expense, and loss of voting control which may occur in a public
offering.
None of our officers or directors have had any preliminary contact or
discussions with any representative of any other entity regarding a business
combination with us. Any target business that is selected may be a financially
11
unstable company or an entity in its early stages of development or growth,
including entities without established records of sales or earnings. In that
event, we will be subject to numerous risks inherent in the business and
operations of financially unstable and early stage or potential emerging growth
companies. In addition, we may effect a business combination with an entity in
an industry characterized by a high level of risk, and, although our management
will endeavor to evaluate the risks inherent in a particular target business,
there can be no assurance that we will properly ascertain or assess all
significant risks.
Our management anticipates that it will likely be able to effect only one
business combination, due primarily to our limited financing, and the dilution
of interest for present and prospective stockholders, which is likely to occur
as a result of our management's plan to offer a controlling interest to a target
business in order to achieve a tax-free reorganization. This lack of
diversification should be considered a substantial risk in investing in us,
because it will not permit us to offset potential losses from one venture
against gains from another.
We anticipate that the selection of a business combination will be complex and
extremely risky. Because of general economic conditions, rapid technological
advances being made in some industries and shortages of available capital, our
management believes that there are numerous firms seeking even the limited
additional capital that we will have and/or the perceived benefits of becoming a
publicly traded corporation. Such perceived benefits of becoming a publicly
traded corporation include, among other things, facilitating or improving the
terms on which additional equity financing may be obtained, providing liquidity
for the principals of and investors in a business, creating a means for
providing incentive stock options or similar benefits to key employees, and
offering greater flexibility in structuring acquisitions, joint ventures and the
like through the issuance of stock. Potentially available business combinations
may occur in many different industries and at various stages of development, all
of which will make the task of comparative investigation and analysis of such
business opportunities extremely difficult and complex.
(c) Off Balance-Sheet Arrangements- NONE
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
------------------------------------------------
Under the supervision and with the participation of our management, including
our principal executive officer and chief financial officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as of February 29, 2008. Based on this evaluation, our
principal executive officer and our chief financial officer concluded that, as
of the end of the period covered by this report, our disclosure controls and
12
procedures were effective and adequately designed to ensure that the information
required to be disclosed by us in the reports we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in applicable rules and forms and that our
Internal Controls are effective at that assurance level to provide reasonable
assurance that our financial statements are fairly presented inconformity with
accounting principals generally accepted in the United States.
(b) Changes in internal control over financial reporting
----------------------------------------------------
During the quarter ended February 29, 2008, there has been no change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Management does not expect that Disclosure Controls or Internal Controls will
prevent all error and all fraud. A control system, no matter how well developed
and operated, can provide only reasonable, but not absolute assurance that the
objectives of the control system are met. Further, the design of the 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, within the company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of a system
of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated objectives under all potential future conditions. Over
time, control may become inadequate because of changes in conditions, or because
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. We are not aware
of any pending or threatened legal proceeding that, if determined in a manner
adverse to us, could have a material adverse effect on our business and
operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None.
(b) Not Applicable.
(c) Not Applicable.
(d) Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not Applicable.
(b) Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
ITEM 5. OTHER INFORMATION
(a) Not applicable.
(b) Not applicable.
14
ITEM 6. EXHIBITS
(a) The following exhibits are filed as part of this report.
Exhibit No. Document
31.1 Certification of Chief Executive Officer and Chief Financial
Officer required by Rule 13a-14/15d-14(a) under the Exchange Act
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
15
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.
Date: April 18, 2008
By: DOWNER'S GAP, INC.
/s/ David Kretzmer
-------------------
Name: David Kretzmer
Title: Chief Executive Officer
16