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 September 30, 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.
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(Exact name of small business issuer as specified in its charter)
North Carolina 56-2012361
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(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
7507 Folger Road, Charlotte, North Carolina 28226
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(Address of principal executive offices)
(828) 625-2666
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(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
November 1, 2004: 13,915,000
Number of shares of preferred stock outstanding as of
November 1, 2004: -0-
ABC REALTY CO.
BALANCE SHEET
AT SEPTEMBER 30, 2004 (UNAUDITED)
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ASSETS
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CURRENT ASSETS
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Cash and cash equivalents $ 1,009
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TOTAL ASSETS $ 1,009
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES
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Accounts payable $ 12,450
Loan from shareholder 9,111
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TOTAL LIABILITIES 21,561
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STOCKHOLDERS' DEFICIT
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Common stock ($0.001 par value, 50,000,000 shares
authorized: 13,915,000 issued and outstanding) 13,915
Additional paid-in-capital 706,585
Accumulated deficit (741,052)
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TOTAL STOCKHOLDERS' DEFICIT (20,552)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,009
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The accompanying notes are an integral part of these financial statements
ABC REALTY, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED)
===============================================================================================================
Three months ended September 30, Nine months ended September 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
REVENUES AND COST OF SALES:
- -------------------------------
Commissions $ 42 $ - $ 542 $ 2,343
SELLING, GENERAL AND ADMINISTRATIVE: 23,659 12,500 56,596 42,512
- ------------------------------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (23,617) $ (12,500) $ (56,054) $ (40,169)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE ** ** ** **
============ ============ ============ ============
WEIGHTED AVERAGE SHARES 13,848,333 13,815,000 13,826,111 13,815,000
============ ============ ============ ============
** Less than $.01
The accompanying notes are an integral part of these financial statements
ABC REALTY CO.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED)
==========================================================================================================
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------
Net loss $ (56,054) $ (40,169)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Imputed expenses for related party contributions 37,500 37,500
Common stock issuances for consulting services 11,000 -
(Increase) decrease in operating assets
Accounts receivable - 2,500
Prepaid expenses - 600
Increase (decrease) in operating liabilities:
Accounts payable 2,650 -
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (4,904) 431
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CASH FLOWS FROM INVESTING ACTIVITIES - -
- ------------------------------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ----------------------------------------
Proceeds from shareholder loans 5,375 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 5,375 -
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 471 431
CASH AND CASH EQUIVALENTS:
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Beginning of year 538 17
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End of period $ 1,009 $ 448
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The accompanying notes are an integral part of these financial statements
ABC REALTY CO.
NOTES TO FINANCIAL STATEMENTS
September 30, 2004 (UNAUDITED)
ITEM 1.
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NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited 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 financial statements
contain all adjustments consisting only of normal recurring accruals considered
necessary to present fairly the Company's financial position at September 30,
2004, the results of operations for the three and nine months ended September
30, 2004 and 2003, and cash flows for the nine months ended September 30, 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.
Management's Use of Estimates - The preparation of financial statements in
- --------------------------------
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent assets and
liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Loss per Share - Statement of Financial Accounting Standard (SFAS) No.128
- ----------------
requires dual presentation of basic and diluted EPS with a reconciliation of the
numerator and denominator of the EPS computations. Basic earnings per share
amounts are based on the weighted average shares of common stock outstanding. If
applicable, diluted earnings per share would assume the conversion, exercise, or
issuance of all potential common stock instruments such as options, warrants and
convertible securities, unless the effect is to reduce a loss or increase
earnings per share. There were no adjustments required to net loss for the years
presented in the computation of diluted earnings per share.
NOTE 2 - GOING CONCERN CONSIDERATION
The Company has suffered recurring losses and has an accumulated deficit of
$741,052 at September 30, 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. The acquisition with Zhong He Li Da is also intended to address
this situation (See Note 5). These financial statements do not include any
adjustments that might result from this uncertainty.
ABC REALTY CO.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 2004 (UNAUDITED)
NOTE 3 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2004, the Company imputed $37,500 for
services contributed by its former 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 nine months ended September 30, 2004, we received $5,375 in
proceeds from a loan from our former President and majority shareholder. The
loan is unsecured, bears interest at 6% and is due on demand.
NOTE 4 - COMMON STOCK ISSUANCES
On August 10, 2004, the Company issued 100,000 shares of common stock for
consulting services. The stock was valued at the closing price on the date of
issuance, or $.11 per share, yielding an aggregate value of $11,000. The expense
of the services was charged to operations in the accompanying financial
statements.
NOTE 5 - SUBSEQUENT EVENTS
On September 15, 2004, ABC Realty Co. (the "Company") signed a Plan of Exchange
with Harbin Zhong He Li Da Jiao Yu Ke Ji You Xian Gong Si ("ZHLD") to acquire
100% of the capital stock of ZHLD for 55,000,000 new shares of the Company's
common stock. In addition, ZHLD and / or ZHLD shareholders are to pay $400,000,
which consists of $300,000 cash and $100,000 promissory note, to C&C Properties,
Inc. for 11,000,000 shares of the Company common stock for cancellation. Closing
shall occur when all requirements have been met and the transaction will
be recorded as a reverse merger. As of today the transaction has not closed.
The Company is in the process of amending its Articles of Incorporation to
increase its authorized shares of common stock from 50,000,000 to 150,000,000
shares.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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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 September 30, 2004 and 2003 (Unaudited).
Sales.
Sales for the three months ended September 30, 2004 were $42, versus $0 for
the same period in 2003, an increase of $42. Sales for the nine months ended
September 30, 2004 were $542, versus $2,343 for the same period in 2003, a
decrease of $1,801. Sales consisted of commissions on the sales of residential
homes as follows:
- - 2004 - Consulting fees in connection with the purchase of raw land.
- - 2003 - Co-broker fee in connection with the sale of a $340,000 home.
All sales transactions were with unrelated parties.
During the fourth quarter of 2004, the sources of revenue are expected to
shift primarily to the operations of ZHLD.
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 September 30, 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 three months ended September 30, 2004 were $ 23,659
versus $12,500 in the same period in 2003. Total expenses for the nine months
ended September 30, 2004 and 2003 were $56,596 and $42,512, respectively. The
expenses for both periods include an imputed $12,500 per quarter for services
contributed by our former President free of charge. The expenses increased by
$14,084 in 2004 primarily due to the consulting services fees of $11,000, which
was paid by the Company's common stock. 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 three months ended September 30, 2004 and 2003 were
$23,617 and $12,500, respectively. Net losses for the nine months ended
September 30, 2004 and 2003 were $56,054 and $40,169, respectively. The net
losses increased by $15,885 in 2004 primarily due to the consulting services
fees 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 $4,904 for the period ended September
30, 2004 and generated by operations were $431 for the period ended September
30, 2003. Cash flows used in operations were primarily attributable to our
$56,054 in net losses for the period ended September 30, 2004, partially offset
by $37,500 in imputed expenses from work done by our former President that was
not charged to our company and issuance of common stock of $11,000.
Cash flows generated by financing activities were $5,375 for the period
ended September 30, 2004. For the period ended September 30, 2003, there were no
cash flows generated from financing activities. Cash flows from the 2004 period
were from a $5,375 short term loan from our former 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 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. The acquisition with Zhong He Li
Da is also intended to address this situation.
Overall, we have funded our cash needs from inception through September 30,
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 China-based 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 $1,009 and a working capital deficit of $20,552
as of September 30, 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.
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 the acquisition with the foreign profitable
company. Our current capital and revenues are insufficient to fund such
acquisition. If we choose to implement such acquisition, 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 such as
seeking projects that are less in value or that may be projected to be less
profitable.
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 plan to strengthen our position
not only in domestic markets but also oversea markets. We plan to expand our
operations through aggressively marketing our services.
ITEM 3. CONTROLS AND PROCEDURES
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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, Yu, Xi Qun ("CEO"),
and Wang, Chunqing, our 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 quarterly 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 quarterly 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 quarterly 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 quarterly 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 quarterly
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
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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 Certification pursuant to Section 302
31.2 CFO Certification pursuant to Section 302
32.1 CEO Certification pursuant to Section 906
32.2 CFO Certification pursuant to Section 906
(b) Reports on Form 8-K
(1) On September 15, 2004, the Company filed a Form 8-K in connection with the
Plan of Exchange with Zhong He Li Da Jiao Yu Ke Ji You Xian Gong Si.
SIGNATURES
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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.
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(Registrant)
/S/ Yu, Xi Qun, President
Date: November 17, 2004 -----------------------------
Yu, Xi Qun, President