U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[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 _______
ABC REALTY CO.
--------------
(Exact name of small business issuer as specified in its charter)
North Carolina 56-2012361
-------------- ----------
(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
7507 Folger Road, Charlotte, North Carolina 28226
-------------------------------------------------
(Address of principal executive offices)
(828) 625-2666
-------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Number of shares of common stock outstanding as of
May 14, 2004: 13,815,000
Number of shares of preferred stock outstanding as of
May 14, 2004: -0-
ABC REALTY, INC.
BALANCE SHEET
AT MARCH 31, 2004 (UNAUDITED)
=============================================================================
ASSETS
------
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 514
Accounts receivable 500
------------
TOTAL ASSETS $ 1,014
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable $ 8,150
Loan from shareholder 8,843
------------
TOTAL LIABILITIES 16,993
------------
STOCKHOLDERS' DEFICIT
- ---------------------
Common stock ($0.001 par value, 50,000,000
shares authorized: 13,815,000 issued and
outstanding) 13,815
Additional paid-in-capital 670,685
Accumulated deficit (700,479)
------------
TOTAL STOCKHOLDERS' DEFICIT (15,979)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,014
============
The accompanying notes are an integral part of these financial statements
ABC REALTY, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)
==========================================================================
2004 2003
---------- ----------
REVENUES AND COST OF SALES:
- ---------------------------
Commissions $ 500 $ 2,343
SELLING, GENERAL AND ADMINISTRATIVE: 15,980 15,425
- ------------------------------------ ---------- ----------
NET INCOME (LOSS) $ (15,480) $ (13,082)
========== ==========
NET INCOME (LOSS) PER SHARE ** **
========== ==========
WEIGHTED AVERAGE SHARES 13,815,000 13,815,000
========== ==========
** Less than $.01
The accompanying notes are an integral part of these financial statements
ABC REALTY, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)
==========================================================================
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net (loss) $ (15,480) $ (13,082)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Imputed expenses for related party
Contributions 12,500 12,500
(Increase) decrease in operating assets
Accounts receivable (500) 2,500
Prepaid expenses - 600
Increase (decrease) in operating liabilities:
Accounts payable (1,650) -
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (5,130) 2,518
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES: - -
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from shareholder loans 5,106 -
---------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 5,106 -
---------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (24) 2,518
CASH AND CASH EQUIVALENTS:
- --------------------------
Beginning of year 538 17
---------- ----------
End of period $ 514 $ 2,535
========== ==========
The accompanying notes are an integral part of these financial statements
ABC REALTY CO. & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
March 31, 2004 (UNAUDITED)
================================================================================
ITEM 1.
- --------
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments consisting only of normal recurring
accruals considered necessary to present fairly the Company's financial position
at March 31, 2004, the results of operations for the three month period ended
March 31, 2004 and 2003, and cash flows for the three month period ended March
31, 2004 and 2003. These financial statements should be read in conjunction with
the Company's annual report on Form 10-KSB as filed with the Securities and
Exchange Commission.
NOTE 2 - GOING CONCERN CONSIDERATION
The Company has suffered recurring losses and has an accumulated deficit of
$700,479 at March 31, 2004. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The Company's continued
existence is dependent upon its ability to resolve its business and liquidity
problems, principally through raising additional capital and increasing its
sales. Management's plans with regard to this matter are to seek additional
capital for operations through either debt or equity and increase sales through
creation of new marketing affiliation such as co-op programs with other real
estate brokers. These financial statements do not include any adjustments that
might result from this uncertainty.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the quarter ended March 31, 2004, the Company imputed $12,500 for
services contributed by its President free of charge. These amounts are included
in the general and administrative sections and the additional paid-in-capital
sections of the accompanying financial statements.
Also during the quarter, we received $5,106 in proceeds from a loan from our
President and majority shareholder. The loan is unsecured, bears interest at 6%
and is due on demand.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- --------
The discussion contained in this prospectus contains "forward-looking
statements" that involve risk and uncertainties. These statements may be
identified by the use of terminology such as "believes", "expects", "may", or
"should", or "anticipates", or expressing this terminology negatively or similar
expressions or by discussions of strategy. The cautionary statements made in
this prospectus should be read as being applicable to all related
forward-looking statements wherever they appear in this prospectus. Our actual
results could differ materially from those discussed in this prospectus.
Important factors that could cause or contribute to such differences include
those discussed under the caption entitled "risk factors," as well as those
discussed elsewhere in this prospectus.
OUR COMPANY
We were incorporated in North Carolina on December 2, 1996 to engage in the
business of a broker or agent in residential real estate transactions. In
performing these residential real estate services, we represent either the
seller, as the listing broker, or the buyer, as the buyer's agent, in the sale.
Our services have been performed primarily in the Charlotte, North Carolina
area. The real estate brokerage contracts we offer our customers vary in time
from three to six months.
Results of Operations.
For the periods ended March 31, 2004 and 2003 (Unaudited).
Sales.
Sales for the periods ended March 31, 2004 were $500, versus $2,343 for the
same period in 2003, a decrease of $1,843. Sales consisted of commissions on the
sales of residential homes as follows:
- - 2004 - Consulting fee in connection with the purchase of raw land.
- - 2003 - Co-broker fee in connection with the sale of a $340,000 home.
- - 2002 - Co-broker fee in connection with the sale of a $250,000 multi-unit
home.
All sales transactions were with unrelated parties.
Cost of Sales.
The cost of sales includes direct costs associated with listing and selling
a property, such as direct marketing and selling expenses that are paid by the
realtor. It is customary to experience variations in the cost of sales as a
percentage of net sales based on the amounts of expenses incurred during any
real estate listing. Certain properties may be difficult to sell due to price,
location or other factors that may cause a broker to incur more direct cost in
locating a buyer for the property.
We did not have any cost of sales for the years ended March 31, 2004 and
2003. We expect cost of sales as a percentage of sales to fluctuate between 5%
and 20% based on any new listing we receive in the future.
Expenses.
Total expenses for the periods ended March 31, 2004 and 2003 were $15,980
and $15,425, respectively. The expenses for both periods include an imputed
$12,500 for services contributed by our President free of charge. Our other
administrative expenses remained fairly constant.
We expect increases in expenses through the year 2004 as the Company moves
toward developing its business plan. In addition, we expect professional fees to
increase to around $30,000 per year to comply with the reporting requirements of
the Securities and Exchange Commission.
We do not have any lease agreements for our facilities and do not currently
have any employment agreements.
Income Taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes." A
deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting and net operating loss-carryforwards.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that, some portion or all of
the deferred tax asset will not be realized. Deferred tax assets and liabilities
are adjusted for the effect of changes in tax laws and rates on the date of
enactment. We currently do not have any deferred tax assets.
Income / Losses.
Net losses for the years ended March 31, 2004 and 2003 were $15,480 and
$13,082, respectively. The net losses increased by $2,398 in 2004 primarily due
to the decrease of commission in 2004. We will attempt to grow our revenues
during 2004, however, there can be no assurance that we will achieve or maintain
profitability or that our revenue growth can be sustained in the future.
Impact of Inflation.
We believe that inflation has had a negligible effect on operations since
inception. We believe that we can offset inflationary increases in the cost of
operations by increasing sales and improving operating efficiencies.
Liquidity and Capital Resources.
Cash flows used in operations were $5,130 for the period ended March 31,
2004 and generated by operations were $2,518 for the period ended March 31,
2003. Cash flows used in operations were primarily attributable to our $15,480
in net losses for the period ended March 31, 2004, partially offset by $12,500
in imputed expenses from work done by our president that was not charged to our
company.
Cash flows generated by financing activities were $5,106 for the period
ended March 31, 2004. For the period ended March 31, 2003, there were no cash
flows generated from financing activities. Cash flows from the 2004 period were
from a short term loan from our President, Mr. Duane Bennett. The loan is
unsecured, due on demand and bears interest at 6% per annum.
As shown in the accompanying consolidated financial statements, we have
incurred losses from operations and have limited cash that raises substantial
doubt as to whether we can continue as a going concern. Our ability to continue
as a going concern is dependent on developing operations, increasing revenues
and obtaining new capital. Management has enacted the following plan: after the
effectiveness of this Registration Statement and through the end of the year (1)
it will seek capital raising partners to assist us in our short-term and
long-term capital needs. This may include equity, debt financing and a potential
follow-on stock offering, and (2) it will seek strategic relationships with home
builders to assist us in selling houses, and it will seek strategic
relationships with other brokers in an effort to network listings. Such
strategic joint venture relationships may assist in increasing revenues and cash
flow of the Company because we receive a percentage of the sales we assist in.
The percentage is usually 25%-50%.
Overall, we have funded our cash needs from inception through March 31,
2004 with a series of equity transactions, including those with related parties
as described above. If we are unable to receive additional cash from our related
parties, we may need to rely on financing from outside sources through debt or
equity transactions. Our related parties are under no legal obligation to
provide us with capital infusions. Failure to obtain such financing could have a
material adverse effect on our operations and financial condition. This could
include an inability to do sufficient advertising for the homes that we sell,
which would make us less competitive in the marketplace. We could also find it
more difficult to enter into strategic joint venture relationships with third
parties. Finally, it would most likely delay the implementation of our business
plan. An alternative plan of operation in the event of a failure to obtain
financing would be to continue operations as currently configured, with the
result being little, if any, projected growth. Another alternative would be to
enter into a joint venture with a brokerage firm that has working capital
available, albeit on less favorable terms than had we obtained financing, for
the development of our business plan.
We had cash on hand of only $514 and a working capital deficit of $15,979
as of March 31, 2004. Our current amount of cash in the bank is insufficient to
fund our operations through year 2004. We will rely on the existence of revenue
from our business, if any, and funding from outside sources; however, we have no
current or projected capital reserves that will sustain our business for the
next 12 months. Also, if the projected revenues fall short of needed capital we
will not be able to sustain our capital needs for the next twelve months. We
will then need to obtain additional capital through equity or debt financing to
sustain operations for an additional year. A lack of significant revenues during
2004 will significantly affect our cash position and move us towards a position
where the raising of additional funds through equity or debt financing will be
necessary. Our current level of operations would require capital of
approximately $25,000 to sustain operations through year 2004 and approximately
$35,000 per year thereafter. Modifications to our business plans or additional
property acquisitions may require additional capital for us to operate. There
can be no assurance that additional capital will be available to us when needed
or available on terms favorable to us. Our approximate offering expenses of
$25,000 in connection with this offering have already been paid.
On a long-term basis, liquidity is dependent on continuation and expansion
of operations, receipt of revenues, and additional infusions of capital and debt
financing. We are considering launching a local advertising campaign. Our
current capital and revenues are insufficient to fund such marketing. If we
choose to launch such a campaign, we will require substantially more capital.
If necessary, we will raise this capital through an additional stock offering.
However, there can be no assurance that we will be able to obtain additional
equity or debt financing in the future, if at all. If we are unable to raise
additional capital, our growth potential will be adversely affected and we will
have to significantly modify our plans. For example, if we unable to raise
sufficient capital to develop our business plan, we may need to:
- - Seek projects that are less in value or that may be projected to be less
profitable
- - Seek smaller home listings, which are less capital intensive, in lieu of
larger contract listings, or
- - Seek listings that are outside our immediate area to bring some revenue in
to our Company.
Demand for the products and services will be dependent on, among other
things, market acceptance of our services, the real estate market in general,
and general economic conditions, which are cyclical in nature. Inasmuch as a
major portion of our activities is the receipt of revenues from the sales of
residential homes, our business operations may be adversely affected by our
competitors and prolonged recession periods.
Our success will be dependent upon implementing our plan of operations and
the risks associated with our business plans. We operate a small real estate
brokerage business in the Charlotte, North Carolina area. We plan to strengthen
our position in these markets. We plan to expand our operations through
aggressively marketing our services.
ITEM 3. CONTROLS AND PROCEDURES
- --------
Quarterly Evaluation of Controls
As of the end of the period covered by this quarterly report on Form 10-Q,
We evaluated the effectiveness of the design and operation of (i) our disclosure
controls and procedures ("Disclosure Controls"), and (ii) our internal control
over financial reporting ("Internal Controls"). This evaluation ("Evaluation")
was performed by our President and Chief Executive Officer, Duane Bennett
("CEO"). Duane Bennett is also acting Chief Financial Officer. In this section,
we present the conclusions of our CEO based on and as of the date of the
Evaluation, (i) with respect to the effectiveness of our Disclosure Controls,
and (ii) with respect to any change in our Internal Controls that occurred
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect our Internal Controls.
CEO and CFO Certifications
Attached to this annual report, as Exhibits 31.1 and 31.2, are certain
certifications of the CEO and CFO, which are required in accordance with the
Exchange Act and the Commission's rules implementing such section (the "Rule
13a-14(a)/15d-14(a) Certifications"). This section of the annual report
contains the information concerning the Evaluation referred to in the Rule
13a-14(a)/15d-14(a) Certifications. This information should be read in
conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete
understanding of the topic presented.
Disclosure Controls and Internal Controls
Disclosure Controls are procedures designed with the objective of ensuring
that information required to be disclosed in our reports filed with the
Commission under the Exchange Act, such as this annual report, is recorded,
processed, summarized and reported within the time period specified in the
Commission's rules and forms. Disclosure Controls are also designed with the
objective of ensuring that material information relating to the Company is made
known to the CEO and the CFO by others, particularly during the period in which
the applicable report is being prepared. Internal Controls, on the other hand,
are procedures which are designed with the objective of providing reasonable
assurance that (i) our transactions are properly authorized, (ii) the Company's
assets are safeguarded against unauthorized or improper use, and (iii) our
transactions are properly recorded and reported, all to permit the preparation
of complete and accurate financial statements in conformity with accounting
principals generally accepted in the United States.
Limitations on the Effectiveness of Controls
Our management does not expect that our Disclosure Controls or our 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 so 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.
Scope of the Evaluation
The CEO and CFO's evaluation of our Disclosure Controls and Internal
Controls included a review of the controls' (i) objectives, (ii) design, (iii)
implementation, and (iv) the effect of the controls on the information generated
for use in this annual report. In the course of the Evaluation, the CEO and CFO
sought to identify data errors, control problems, acts of fraud, and they sought
to confirm that appropriate corrective action, including process improvements,
was being undertaken. This type of evaluation is done on a quarterly basis so
that the conclusions concerning the effectiveness of our controls can be
reported in our quarterly reports on Form 10-QSB and annual reports on Form
10-KSB. The overall goals of these various evaluation activities are to monitor
our Disclosure Controls and our Internal Controls, and to make modifications if
and as necessary. Our external auditors also review Internal Controls in
connection with their audit and review activities. Our intent in this regard is
that the Disclosure Controls and the Internal Controls will be maintained as
dynamic systems that change (including improvements and corrections) as
conditions warrant.
Among other matters, we sought in our Evaluation to determine whether there
were any significant deficiencies or material weaknesses in our Internal
Controls, which are reasonably likely to adversely affect our ability to record,
process, summarize and report financial information, or whether we had
identified any acts of fraud, whether or not material, involving management or
other employees who have a significant role in our Internal Controls. This
information was important for both the Evaluation, generally, and because the
Rule 13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO
disclose that information to our Board (audit committee), and to our independent
auditors, and to report on related matters in this section of the annual report.
In the professional auditing literature, "significant deficiencies" are referred
to as "reportable conditions". These are control issues that could have
significant adverse affect on the ability to record, process, summarize and
report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce, to a relatively low level,
the risk that misstatement cause by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employee in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
Evaluation, and in each case, if a problem was identified, we considered what
revisions, improvements and/or corrections to make in accordance with our
ongoing procedures.
Conclusions
Based upon the Evaluation, the Company's CEO and CFO have concluded that,
subject to the limitations noted above, our Disclosure Controls are effective to
ensure that material information relating to the Company is made known to
management, including the CEO and CFO, particularly during the period when our
periodic reports are being prepared, and that our Internal Controls are
effective to provide reasonable assurance that our financial statements are
fairly presented inconformity with accounting principals generally accepted in
the United States. Additionally, there has been no change in our Internal
Controls that occurred during our most recent fiscal quarter that has materially
affected, or is reasonably likely to affect, our Internal Controls.
PART II. OTHER INFORMATION
- --------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3. Articles of Incorporation with amendments and bylaws are incorporated
by reference to Exhibit No. 1 of Form SB-2 as amended filed April
2001.
31.1 CEO & CFO Certification pursuant to Section 302
32.1 CEO & CFO Certification pursuant to Section 906
(b) Reports on Form 8-K
None.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ABC REALTY CO.
----------------
(Registrant)
/S/ Duane Bennett, President
Date: May 14, 2004 -------------------------------
Duane Bennett, President